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Santarus, Inc. (NASDAQ:SNTS)

Q1 2011 Earnings Call

May 4, 2011 5:00 pm ET

Executives

Martha Hough – VP, Finance and IR

Gerry Proehl – Director, President and CEO

Debbie Crawford – SVP, CFO, Treasurer and Secretary

Bill Denby – SVP, Commercial Operations

Mark Totoritis – SVP, Clinical Research

Analysts

Scott Henry – Roth Capital

Frank Pinkerton – SunTrust

Ian Sanderson – Cowen

Annabel Samimy – Stifel Nicolaus

Alan Leong – Biotech Stock Research

Misha Dinerman – Piper Jaffray

Operator

Welcome to the Santarus first quarter 2011 financial results conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a question-and-answer session. (Operator instructions) As a reminder, this conference is being recorded today, May 4, 2011. I would now like to turn the call over to Martha Hough. Please go ahead, ma'am.

Martha Hough

Thank you, David. Good afternoon and welcome to today's call. This is Martha Hough, Vice President of Finance and Investor Relations. Joining me on the call today are Gerry Proehl, President and Chief Executive Officer; Debbie Crawford, Senior Vice President and Chief Financial Officer; and Bill Denby, Senior Vice President, Commercial Operations. Dr. Mark Totoritis, our Senior Vice President, Clinical Research, will also be available during today’s question-and-answer session. And Dr. David Ballard, Senior Vice President, Medical Affairs and Pharmacovigilance, is travelling today.

Earlier today, Santarus issued a press release announcing our first quarter 2011 financial results. If you have not received a copy of this news release, you can access it on our website at www.santarus.com. A replay of this call also will be available on our website and can be found in the Investor Relations section for the next two weeks.

For today's call, please keep in mind that risks and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements made by management during today's call. As a result, the company's performance may differ from those expressed in or indicated by such forward-looking statements, which are qualified in their entirety by the cautionary statements contained in the press release and the company's Securities and Exchange Commission filings.

The content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, May 4, 2011. Santarus undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.

I'll now turn the call over to Gerry Proehl.

Gerry Proehl

Thank you, Martha. Welcome to this afternoon's call. Today we reported revenues of $22.8 million and a net loss of $516,000, making what we believe is significant progress in our objective of returning to profitability since the repositioning the company last year. We are pleased to announce that GLUMETZA has recaptured the leading position in the branded metformin market with 35% share of branded metformin total prescriptions and 40% of branded new prescriptions as of the week ending April 22.

Total GLUMETZA units dispensed by retail and mail order pharmacies are showing solid growth, driven primarily by increases in GLUMETZA 500 milligram units since resupply in early January. Total GLUMETZA units on a 500 milligram equivalent basis are at approximately 80% of pre-recall levels. Our goal is to get GLUMETZA on a growth curve that is similar to its curve before the 500 milligram recall in June 2010.

We also are encouraged by the initial physician reception to CYCLOSET, a novel first-in-class anti-diabetic that we launched last November. During the first quarter, the number of prescribing physicians and prescription volumes have increased, and physician interest is high as is evidenced by the fact that more than 800 physicians have participated in speaker programs sponsored by Santarus since commercial launch. We expect continued increase in the number of physicians writing CYCLOSET prescriptions and in prescription volume throughout the year.

And net sales of our ZEGERID brand products and the authorized generic product continues to contribute a significant amount of revenue to the company. Our authorized generic of ZEGERID capsules sold by Prasco had a greater than 50% market share of the generic prescriptions as of mid-April.

We are also reporting advances in our late stage development programs, with budesonide MMX, which is an investigational drug for the induction of remission of active ulcerative colitis, we expect to complete a 12-month extension study with the last patient last visit this month. That puts us on track to have top line data for the extension study in the second half of this year. We are planning to hold a pre-NDA meeting to discuss our Phase III budesonide MMX clinical program with the FDA by the end of the second quarter in preparation for our planned new drug application submission by year-end.

We are pleased that budesonide MMX Phase III data will be featured in two oral presentations at this year’s Digestive Disease Week Meeting in Chicago. Data from the European study will be presented on Saturday, May 7th, by Dr. Simon Travis, a gastroenterologist at John Radcliffe Hospital in the United Kingdom and the European study’s principal investigator. Dr. Travis is President-elect of the European Crohn's and Colitis Organization, reflecting his position as a European thought-leader in gastroenterology.

The US data will be presented on Monday, May 9th, by Dr. William Sandborn, Professor of Clinical Medicine and Chief of the Division of Gastroenterology at the University of California, San Diego. Dr. Sandborn is a key US thought-leader who has authored more than 350 peer-reviewed articles in gastroenterology.

The inflammatory bowel disease specialty market continues to be very attractive with a modest number of products and with combined sales totaling approximately $1.8 billion in the US. We believe that gastroenterologists are familiar with budesonide through their use of Entocort EC in treating Crohn’s disease and will readily understand how budesonide MMX with its targeted delivery to the colon might be used in treating their patients with ulcerative colitis.

Moving to RHUCIN, which is being developed to treat acute angioedema attacks in patients with hereditary angioedema or HAE, we and Pharming have met with the FDA to discuss the FDA refusal to file letter. Based on the FDA’s input and in collaboration with Santarus, Pharming is submitting an amendment to the protocol for the ongoing Phase III clinical study, which includes increase in the number of patients in the study from 50 to approximately 75 and modifying the manner in which the primary endpoint will be assessed.

We believe that this modification, which was discussed at the FDA, will eliminate the need for further validation of the visual analog scale. We continue to expect that the Phase III study will be completed by the third quarter of 2012, which is within our original estimate of 12 to 18 months. If approved, RHUCIN, as the first recombinant C1 inhibitor, could offer an attractive therapeutic option for patients with HAE.

Finally, as a brief update on the ZEGERID patent litigation, the oral arguments were heard earlier this week by the appellate court in Washington DC, and we expect a ruling in the second half of this year, although the ruling may come sooner or later than we expect.

With that overview, Debbie will review our financial results.

Debbie Crawford

Thank you, Gerry. I’d like to add my welcome to those joining our call today. As Gerry mentioned, we reported total revenues of $22.8 million and a net loss of $516,000 or $0.01 per share for the first quarter of 2011, which is in line with the guidance we provided on our fourth quarter conference call.

The net product sales in the first quarter of 2011 were $12 million and included approximately $11 million of ZEGERID brand net product sales and revenue from the ZEGERID authorized generic and $1 million of CYCLOSET net product sales. GLUMETZA promotion revenue was $10.3 million for the first quarter of 2011, up approximately 16% from the prior year period. GLUMETZA net sales, which are recorded by Depomed, were approximately $15.3 million in the first quarter of 2011.

R&D expenses for the first quarter of 2011 were $3.3 million. The $1.7 million decrease compared with the first quarter of 2010 was primarily due to lower cost associated with the budesonide MMX Phase III clinical program, partially offset by costs associated with the initiation of a Phase I clinical study with SAN-300.

SG&A expenses were $16.5 million for the first quarter of 2011. This is an approximately $10 million decrease from the first quarter of 2010, primarily due to a reduction in compensation benefits and related employee costs associated with our third quarter 2010 restructuring and a decrease in promotional spending for ZEGERID products, offset in part by an increase in costs associated with the launch of CYCLOSET.

As of March 31, 2011, we had cash, cash equivalents and short-term investments of $54.8 million. The significant uses of cash for the quarter included decreases in accounts payable and accrued liabilities, including payment of a one-time $3 million sales milestone to Depomed, of which $2.7 million had been expensed last year, and other expenses accrued in 2010 that were paid in the first quarter.

Turning to our financial outlook for 2011, we affirm that we expect to report total revenues of approximately $110 million. If annual GLUMETZA net product sales exceed $80 million in calendar 2011, license fee expenses will include a sales milestone of $3 million payable to Depomed.

We expect R&D expenses of $20 million to $23 million, which includes estimated costs associated with completing the extended use study and the planned submission of the NDA for budesonide MMX, the Phase III clinical study with rifamycin SV MMX in travelers’ diarrhea, and the Phase I study with SAN-300 as well as other development costs.

We expect SG&A expenses of up to approximately $70 million. And finally, we expect to reach at least break even on a GAAP net income basis for the full 2011 year, which includes $3 million in expense associated with a success-based milestone payable to Depomed.

I’ll now turn the call over to Bill Denby.

Bill Denby

Thanks, Deb. We are encouraged by our progress with our diabetes franchise in the first quarter, including the return of GLUMETZA 500 milligram to the market and our launch activities with CYCLOSET. As a reminder, our 110 sales representatives call on about 12,000 endocrinologists and primary care physicians who write approximately 25% of the prescriptions for branded non-insulin diabetes medicines.

Starting with GLUMETZA, as of the week ending April 22, total units dispensed by retail and mail order pharmacies were up approximately 20% since the supply of the 500 milligram product was reestablished in January. The increase was driven primarily by 285% increase in GLUMETZA 500 milligram units dispensed and slightly offset by 15% decrease in the 1000 milligram units dispensed.

And as Gerry mentioned, total GLUMETZA units dispensed on a 500 milligram equivalent basis are now at approximately 80% of pre-recall levels. Approximately 60% of the units currently dispensed are 1000 milligrams versus less than 30% prior to the recall, making the 500 milligram equivalent comparison a better measure. We are also pleased that the number of physicians who are new prescribers of GLUMETZA each week has continued to increase.

Moving to CYCLOSET, our promotional activity has been focused on physician education and increasing physician understanding of the wealth of clinical data from the CYCLOSET clinical programs. We also have non-manpower programs directed at physicians and pharmacists. Our marketing research indicates that CYCLOSET is viewed by endocrinologists as an attractive adjunctive therapy to treat Type 2 diabetes.

In mid-April, at the American Association of Clinical Endocrinologists Annual Meeting, we exhibited and held a CYCLOSET product theater. The AACE meeting was attended by approximately 1,300 endocrinologists, the majority of whom are from the US. We are pleased with the high volume of physician traffic in our commercial and medical affairs boost, which offered information on both CYCLOSET and GLUMETZA.

We also are very pleased with the strong attendance at our CYCLOSET product theater. The topic was focused on CYCLOSET as a unique therapeutic option and the roll of dopamine agonist for the treatment of Type 2 diabetes in adults. We are finding that as more information about CYCLOSET is available to key opinion leaders, they are beginning to take notice.

Dr. Ralph DeFronzo, Professor of Medicine and Chief of the Diabetes Division at the University of Texas Health Center in San Antonio and an international thought-leader on diabetes, offered a very positive editorial review article on CYCLOSET. This article was published in April 2011 issue of Diabetes Care, a peer-reviewed journal. We believe our educational activities are beginning to pay off. During the first quarter, we’ve seen a positive trend in the number of physicians prescribing CYCLOSET as well as in total prescription growth.

Data from the recent marketing research conducted with our called-on physicians indicates that our promotional efforts are having the desired effects. This data show substantial increases during April in physician familiarity, satisfaction and intent to prescribe CYCLOSET. Among our called-on endocrinologists, these metrics are approaching the levels of the established branded diabetes products. We believe that these positive indicators will translate into accelerated prescription growth throughout the remainder of the year.

Overall, we are pleased with the progress we have made with CYCLOSET and we expect to build on this momentum in the second half of the year. In conclusion, physician interest in CYCLOSET is high and increasing, and physicians prescribing GLUMETZA have positive impressions of its clinical performance. We expect the programs introduced to our commercial team at our national sales meeting this week will accelerate prescription growth in the second half of the year.

I’ll now turn the call back over to Gerry for his concluding remarks.

Gerry Proehl

Thanks, Bill. In closing, we are focused on driving revenue growth with GLUMETZA and CYCLOSET; advancing our late stage development products, budesonide MMX and RHUCIN, as well as other pipeline products; and continuing to manage our expenses to support future profitability.

I’d now like to open the call to some questions.

Question-and-Answer Session

Operator

(Operator instructions)

Martha Hough

This is Martha Hough. While we’re waiting for questions, I’d like to mention that we are hosting an informal reception in the late-afternoon on Monday, May 9th, in Chicago during the DDW Conference. So if you are interested in attending and haven’t already contacted us, please contact me. Okay, David. If you have one, we’re ready for the first question.

Operator

Your first question comes from the line of Scott Henry of Roth Capital.

Scott Henry – Roth Capital

Thank you, and good afternoon. I guess my main question comes down to the revenue guidance of $110 million, which would imply about $27.5 million a quarter. And I guess you’re starting out $5 million in the whole to make up for the next three quarters. So what I’m trying to understand is what are the levers that are going to help you catch up to that $110 million. I mean, I know CYCLOSET will help, but it’s going to be a huge lever. But how do you get to that $110 million given the rate we are at in the current first quarter?

Gerry Proehl

Scott, this is Gerry. I think it is – obviously the two key levers for us are going to be the growth of CYCLOSET and GLUMETZA. I’ll maybe start with CYCLOSET. As we’ve said before, there was little pre-market awareness of this product when we launched this back in mid-November of last year. And not only was there little awareness of the product, certainly the mechanism of action of CYCLOSET compared to the other diabetes product is quite different. What we’re hearing certainly from physicians is very positive overall response once they put patients on the product. We’re hearing good overall A1c control and other effects that they are seeing with their patients. So it gives us certainly great confidence that we’re going to start to see a nice acceleration of growth.

What happens in the diabetes space though is typically a doctor will put a patient on a product and have him come back in about three months. That’s typically when they are going to measure their A1c response and look at other things like cholesterol, triglyceride, blood pressure etc. So it really takes some time for that to occur, and that’s why we just try to tell people, we think as we move into the second half of the year, we’ll start to see a real acceleration of the prescriptions for CYCLOSET. So that’s one piece. Certainly, with GLUMETZA, we believe with the reintroduction of the 500 milligram, once we get the product back established and get the doctors that were prescribing the product before, many of whom had stopped prescribing because the 500 milligram wasn’t available. Get them back prescribing, that will start to see an acceleration of growth with GLUMETZA also.

Scott Henry – Roth Capital

Okay. That is helpful. And then I guess at the same time, R&D was kind of low in the quarter and you’re guiding $20 million to $23 million. Budesonide MMX shouldn’t cost a whole lot more. And am I correct – I believe that RHUCIN isn’t on your dime. So, I mean, does the $20 million to $23 million for R&D, would you say that you would expect that to be towards the low end or are there perhaps some levers that I’m not factoring in it?

Gerry Proehl

Well, I think there are – certainly as it relates to budesonide, Scott, there are a couple things. Obviously the induction trial is complete. We’ll complete the extension trial this month. And there’s still data cleanup obviously on that. But there are some other pieces when you’re working on pulling together an NDA. There’s quite a bit of work that needs to go into that and some costs that need to go into that. And then certainly submitting the NDA is about $1.7 million expense, just the submission there.

There is a rifamycin ongoing Phase III trial. We are in the process – as we’ve said before, we’ve seen slow enrollment due to some of the violence down in Mexico. But we are in the process of establishing some other sites, both sites in Mexico in some of the tourist areas but also working with some of the universities that go to other countries other than Mexico in order to increase and enhance enrollment. And we expect that will happen as we move into the summer months and into the fall that should see some acceleration to the overall expenses of the rifamycin trial. And then with regard to SAN-300, certainly that study now is up and running. And so, as we move into the second, third and fourth quarter, we’d see some of those expenses also hitting.

Scott Henry – Roth Capital

Okay. And when should we expect to see the long-term safety data? And I guess, will you press release that or –? I’m just wondering how should be looking for that data and when exactly we should be looking for it.

Gerry Proehl

What we’ve said is sometime during the second half of this year. I don’t know I can give you exact month or date. Once we get the last patient completed this month, we’ll go out and clean up all the data. And then once we feel like we have the data cleaned and ready to go, then we’ll look to go ahead and talk about that. The reality is that it’s very likely in order to submit an NDA by the end of the year that will need to have that data sometime probably early in the fourth quarter in order to be able to put it into the NDA. There is some chance that in the pre-NDA meeting, if the FDA changes their position and would allow us to submit the NDA without the extension study initially and then follow with that data that the NDA could go in a little bit earlier and then we would follow with the extension data. But our assumption right now based on the preliminary feedback we got from the FDA is that the extension data will need to be part of the NDA and that will happen at the end of the year.

Scott Henry – Roth Capital

Okay, great. Thanks for taking the questions.

Gerry Proehl

Thanks, Scott.

Operator

And your next question comes from the line of Frank Pinkerton with SunTrust.

Frank Pinkerton – SunTrust

Hey, great. Thank you for taking the question. The first one is on the RHUCIN comments you made on the trial. So, has that trial officially opened? And if so, has it started enrolling patients? And can you give us any patient count there?

Mark Totoritis

Yes. Hi, this is Mark Totoritis. That trial was initiated in mid-February of this year and has enrolled a few patients. Whether or not we can use those patients is under discussion with the FDA at this juncture.

Frank Pinkerton – SunTrust

Okay, great. And then just chipping over a couple questions on CYCLOSET, maybe something that I misunderstood when you were talking about it. But you made a comment that there were 1,800 physicians that have participated in speaking programs. I’m assuming that would be with your reps or at conferences or something have been directly invited to a dinner or something of that nature. Is that correct?

Mark Totoritis

Yes, that’s correct. We’ve finished about 200 programs, peer-review programs. And we had really good attendance in all of those. So that’s primarily where that number comes from.

Frank Pinkerton – SunTrust

How do we think of the timing of a doctor going to a program or being exposed to the drug versus then writing the first prescription? Looking at rough numbers for monthly – we use Walter’s [ph] score but prescription services, the month of March of 2011 just registered over 1,800 scripts. Should these doctors necessarily be writing multiple scripts maybe that first month to try it out? Should we be seeing a bonus of those scripts coming through soon?

Mark Totoritis

Well, I think it’s – there are a number of variables that affect physician prescribing. One of the key ones is to hear from their peers and from other endocrinologists about it and spend a significant amount of time figuring out where CYCLOSET fits for people. But as Gerry mentioned, it takes a while once they get some patients on. And they in fact have patients on samples for a while. And then once they get their A1c read-out, then they decide what they’re going to do as well as they need to titrate this drug. So that takes time as well. For sure, there is a high correlation between these speaker programs and prescriptions. It’s sort of hard to give you the exact metrics.

Gerry Proehl

Frank, this is Gerry. What I would say is and kind of what we’ve seen is, doctors, particularly when you’re dealing with a new product lifecycle set with a new mechanism of action, typically going to start one or two patients on the product, and then they want to see those patients come back and see their overall response. What we are seeing with some docs is when they see the patients coming back and they see good response, that’s when they start to accelerate their prescribing. And that’s why we said we think it will really be the second half of the year. We have a lot more docs that are beginning to prescribe this product. And every week, we’re seeing a nice growth. If those patients start to come back, we think those docs will expand their overall prescribing. So you kind of get an effective not only increasing number of doctors prescribing but the number of prescriptions they write on a weekly basis, we expect will grow.

Frank Pinkerton – SunTrust

Okay. And then just two more on CYCLOSET. One, because I don’t necessarily get this data. Can you speak about refills? Are the refill rates or the patients continuing to be on the med, where are those running? Are you tracking those?

Gerry Proehl

Well, I think typically in a product launch you see NRX is superimposed on TRXs. And then as you move out into time, you will see a separation of those two lines. We’re pretty encouraged by the size of our prescriptions, and it reflects a strong refill orientation as well as a strong performance in mail order. People are using mail order quite a bit for this product. It amounts to quite a percentage of the total sales. So those are all encouraging signs.

Frank Pinkerton – SunTrust

Okay. And that would bring – my last question was mail rate or mail fill percentage. Do you have that? And can you share it with us?

Gerry Proehl

It’s somewhere around 20% to 30%, Frank, is what we are seeing.

Frank Pinkerton – SunTrust

Okay, great. Thank you.

Gerry Proehl

Yes.

Operator

And your next question comes from Ian Sanderson with Cowen.

Ian Sanderson – Cowen

Hi.

Gerry Proehl

Hi, how are you? Good afternoon. First, actually can you help me with some of the numbers? I’m looking for here – the license royalty fee line on your revenue line – I mean, I’m sorry, on the expense line, it’s been all over the map in the recent quarters. I know that there is some of that is the milestone of GLUMETZA. How do you book that? Do you – it sounds like you booked a bit of it last year? And are you accruing as you get close to that $80 million or maybe walk me through how that number is calculated.

Debbie Crawford

Yes. Hi there, Ian. You’re right .with regards to the license fee and royalty line, you can have a fair amount of variability quarter-to-quarter based upon milestones. With regards to the Depomed sales milestone, as you mentioned, the one that we have achieved and we did pay Depomed, the $3 million was based upon achieving $50 million in net sales through that 13-month period that ended in January of 2011. So in 2010, since we had visibility and high confidence in achieving that number, we had accrued approximately $2.7 million of that $3 million and the remainder was recorded here in the first quarter. And so with regards to looking at an additional $3 million milestone, with respect to the $80 million, we’ve not yet begun accruing that. But as we move through the year and are able to see with high confidence the achievement of the $80 million, then we would be again accruing net milestone.

Ian Sanderson – Cowen

So those numbers should start to presumably move up in Q3 and Q4?

Debbie Crawford

Not likely. You want to be – as I said, it’s high confident number because you wouldn’t want to be accruing and then reversing. So you want to have good visibility to your trends and the likelihood of achieving the milestones.

Ian Sanderson – Cowen

Okay. And then secondly, was there some free inventory stocking effect on GLUMETZA 500 milligram in Q1?

Debbie Crawford

Certainly there was some activity in that regard with respect to the need to resupply the 500 milligram. But I would say, Ian, it wasn’t necessarily one with huge stocking or – and when there were no real incentive – significant incentives provided. So it’s really more based upon the demand that we anticipate and have seen coming back.

Ian Sanderson – Cowen

Okay. And then maybe for Gerry, just if you could give a little color on the sales force time allocation to CYCLOSET and whether you think that has any negative impact on GLUMETZA?

Gerry Proehl

Yes. I think, Ian, it’s really interesting what it’s actually done is – by introducing CYCLOSET, it’s actually allowed the sales representatives to get more time on GLUMETZA. What they are able to do is actually open the call with keys on CYCLOSET for the physician and then go into a GLUMETZA call and then follow up with CYCLOSET as the second call. So it’s given them the ability to certainly get a lot more call than on GLUMETZA. As you might expect, when you have a new product like CYCLOSET, a higher percentage of the time that the rep is spending with the physician is likely to be on CYCLOSET. But GLUMETZA is not an extremely complex product for the physician. It’s really – it's an extended release metformin product that reduces GI side-effects for the patient. So it’s a pretty simply message. It’s important though that the reps are getting that message out on each and every call. And in fact, they are in this week being trained and that’s where we’re spending lot of time on it making sure that each and every call they are giving them a good detail on both products.

Ian Sanderson – Cowen

Okay. And actually I don’t know if this is you or Debbie, but how much roughly do you plan to spend on SAN-300 in 2011?

Debbie Crawford

It’s a Phase I program. We don’t anticipate having a significant expenditure and that expenditure is captured within the overall guidance.

Ian Sanderson – Cowen

Okay. Thank you.

Operator

And your next question comes from Annabel Samimy of Stifel Nicolaus.

Annabel Samimy – Stifel Nicolaus

Yes. Thanks for taking my question. Gerry, I have to apologize I missed the first few comments of the conference call. Did you have your meeting with FDA regarding the recent trial or the guidelines around running the trial?

Mark Totoritis

Yes. Hi, this is Mark Totoritis again. And yes, we did have a meeting with the FDA at the end of March and had some good discussions with them at that time and believe we have a clear path forward at this juncture.

Annabel Samimy – Stifel Nicolaus

And will you have to – do you have a validated VAS score?

Mark Totoritis

No. Actually, as a result of those discussions, we are going to be changing the method by which the primary endpoint is assessed. And we believe that this will no longer necessitate a validation of the VAS. We’ll keep the VAS in the trial as a secondary endpoint.

Annabel Samimy – Stifel Nicolaus

And can you just highlight what those measurements are?

Mark Totoritis

This is what’s called the treatment effect questionnaire, which we will be utilizing. The primary endpoint itself is unchanged in terms of that being the time the beginning of release. But it’s a self-reported answer to a question, and it’s very similar to what’s been used in some other trials and specifically with (inaudible).

Annabel Samimy – Stifel Nicolaus

Okay. All right. Thanks. I’ll follow up with other questioners around that later. But I guess I have to ask the question now given that you had the oral arguments at the appellate court. Without knowing what the outcome is going to be, Gerry, have you thought about if it comes down to a positive outcome what you might do in terms of the promotion of the brand versus the (inaudible), whether you’d be expanding the sales force again, or have you had any thoughts about that and could you share them with us?

Gerry Proehl

Sure. I guess first just a couple comments. We certainly thought that Morgan Chu did an exceptional job in representing us at the oral argument. It is available to folks. If you want to listen, it’s about 35 minutes. That being said, when a lower court rules against the patent, and for obviousness, the hurdle is extremely high for the appellate court. So we don’t have a high expectation that we’re going to win on appeal. That doesn’t mean that we are not hopeful and we certainly have thought about what we would do.

It’s very unlikely that we would go out and significantly expand our sales force to promote ZEGERID. There is a possibility that assuming we’re able to move forward and get approval of budesonide and we begin calling on gastroenterologists, and it’s the only product we’re selling to gastroenterologists that it would make sense for us to do some sampling to that particular audience. But I don’t think that we have any plans to substantially increase promotion on ZEGERID. As it relates to the authorized generic, we are still working with Prasco and doing some financial assessment to make a determination of whether or not we would keep the authorized generic on the market or whether or not we would pull it off the market.

Annabel Samimy – Stifel Nicolaus

Okay, great. And just one more question on GLUMETZA, now that it’s come back to the market and you know that I guess a return in the share of the equipments you have, are you noticing whether these are switches back from the generic metformin or are these just new patients coming on to GLUMETZA?

Mark Totoritis

It’s a little bit of both. We are sourcing new GLUMETZA patients from people that have trouble tolerating the metformin IR and also doctors that had less GLUMETZA, we’ve got the 500 milligrams available and didn’t have to force them to flexibility to flexibly dose the product in there on their way back as well. So effort comes a little bit from everywhere.

Annabel Samimy – Stifel Nicolaus

Okay, great. Thank you very much.

Gerry Proehl

Thanks, Annabel.

Operator

And your next question is from Alan Leong of Biotech Stock Research.

Alan Leong – Biotech Stock Research

Hi, thanks for taking my questions. I want to drill down just a little bit on the RHUCIN study. Besides the endpoint, were there any other research design changes?

Mark Totoritis

Well, the basic change, of course, as Gerry stated in his remarks, is that we were asked to increase the number of patients to approximately 75 patients. So that along with the primary endpoint assessment, I think, are really the critical thesis here.

Alan Leong – Biotech Stock Research

Are you hoping that along with the extension study that this study will be enough to complete the registration package or are the other components still undone?

Mark Totoritis

No, we believe that this study should support the registration package, and there are ongoing discussions with the FDA.

Alan Leong – Biotech Stock Research

Thank you much.

Mark Totoritis

Thank you, Alan.

Operator

(Operator instructions) Your next question comes from David Amsellem with Piper Jaffray.

Misha Dinerman – Piper Jaffray

Yes, hi. This is actually Misha for David. Just a quick question on CYCLOSET. You mentioned that you had been sampling. I was wondering if you could talk about the extent of the sampling and how much you feel that that impacted the sales number for the quarter. And then just following up on that, can you remind us what the exclusivity is for CYCLOSET and if you’ve given uptick sales estimate what you think that might be? Thank you.

Gerry Proehl

I’m sorry, could you ask the question again? Sampling, yes. So I’m not sure I can give you direct correlations of sampling, but we sample the product with our called on audience. And what I can say is we’ve seen a rapid uptick of those samples and withdrawal of them. So that’s an encouraging sign as it would lead to when to believe once they get through analyzing how their patients are doing on A1c that they would go ahead and write prescriptions for the product.

Misha Dinerman – Piper Jaffray

Okay. And then –

Mark Totoritis

A sample of CYCLOSET represents about two weeks worth of prescription, assuming that they do the normal titrating, which is one pill in the first week and then two pills in the second week. So it just depends on whether they are giving them one bottle or giving them two or three bottles. But the practice of most physicians, as you see, is unfortunately they grab a handful of bottles and give it to a patient, which wouldn’t be atypical that you would want them to be able to titrate up to the maximum dose. So that would be 4.8, which is the maximum dose or somewhere slightly lower than that. And once they get them to that dose, then go ahead and fill their prescription. So that’s what we expect probably is happening with regards to the sampling.

Misha Dinerman – Piper Jaffray

Okay. Thank you. And then just as far as the exclusivity on what you think the potential could be at the CYCLOSET.

Gerry Proehl

We have – there is a number of patents currently issued on CYCLOSET. The patents go from 2012, 2014 and 2015. There have been some additional patents that have been filed by VeroScience that have not yet been issued. They would cover other dosage formulations and would have a patent life likely considerably longer than that, but those haven’t issued yet.

Misha Dinerman – Piper Jaffray

Thank you.

Operator

And there are no further questions in queue at this time.

Gerry Proehl

Great. Well, I’d like to thank you for your interest in Santarus and for joining us for today’s call. If you do have any further questions, please feel free to contact me, Debbie Crawford or Martha Hough. Thank you and have a great day.

Operator

Ladies and gentlemen, this does conclude today’s conference. Thank you for your participation, and you may now disconnect.

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