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Santarus, Inc. (NASDAQ:SNTS)

UBS Global Life Sciences Conference Call

September 20, 2011 15:00 ET

Executives

Gerry Proehl – President and Chief Executive Officer

Unidentified Speaker

Good afternoon and thank you for coming to the 2011 UBS Global Life Sciences Conference. My name is (indiscernible), I am happy to be your host for this session. Our next presenter will be Gerry Proehl, President and CEO of Santarus. There will be a breakout session immediately following the presentation in the Carnegie room. Thank you.

Gerry Proehl – President and Chief Executive Officer

Thanks and good afternoon. Before I proceed, I will be making some forward-looking statements. I refer you to our SEC filings.

Santarus is a specialty pharmaceutical company focused in a number of areas. If you look at our portfolio, I kind of think about it in three separate buckets, we have marketed products, Glumetza and Cycloset, which are both products for type 2 diabetes approved on the market. We think peak sales of these two products combined in the range of $300 million to $400 million.

We have two very late-stage products, budesonide MMX, which we have two completed Phase III studies and plan on submitting the NDA in December of this year for ulcerative colitis and Rhucin, which is a recombinant C1 inhibitor, which has completed two pivotal studies with positive results, and we are currently enrolling patients in the third pivotal study, expect to complete that above third quarter of next year, and then submit the BLA right after that.

A little bit behind Rhucin and budesonide are rifamycin SV MMX, which is a broad spectrum non-systemic antibiotic currently enrolling patients in a Phase III study for Travelers’ Diarrhea, about 60% enrolled and SAN-300, which is antibiotic program which is in Phase I currently.

This will give you overview of kind of where the overall portfolio stands. And the only product I’ll point out here that I won’t talk at more detail is Zegerid. So, Zegerid is immediate-release proton pump inhibitor. It was our dominant product until we lost the lower court patent decision in April of last year and a generic was launched against the product in July of 2010. We’re currently appealing the Zegerid’s lower court decision. The oral arguments took place in the first week in May of this year and we would expect to hear from the appeal court probably sometime in the next two to three months.

If you think about our commercial organization, currently, we are calling on endocrinologists and primary care physicians. The endocrinologists and primary care physicians are the primary prescribers for Glumetza and Cycloset. It’s about 3,000 endocrinologists and about 9,000 or 10,000 primary care physicians.

As we think about moving the program and moving the company forward, we plan on adding additional 80 reps to call on the gastroenterologists for budesonide. We’ll add about 20 to 25 reps that will sell Rhucin to the allergists and immunologists. And then finally, when we launch SAN-300 with what we expect to be the first indication for rheumatoid arthritis will call on rheumatologists with about a 30 sales rep sales force.

What we are trying to do with the company is really begin to evolve the company out of being what really was more of a primary care focused company to more of a specialty based company. As we moved towards calling on endocrinologists, gastroenterologists, allergists, and then rheumatologists, we think what we can do is increase their overall revenues per sales representative. We can overall maintain R&D as a percentage of revenue and thus drive down SG&A as a percentage of revenue and increase our profit and cash flow. And that’s what we are focused on doing over the next three to five years.

Let me talk a little bit about Glumetza. Glumetza is an extended release metformin product. It’s been on the market for some period of time. We see nice growth in metformin. It’s typically used after a physician would put a patient on generic metformin, many of those patients, up to 50% went up with GI side effects, significant enough, where either doctor can’t titrate the dose higher or the patient has to go off of the product.

Glumetza, because of its unique delivery system, delivers metformin over a six to eight hour period. It reduces the peak blood levels and reduces the GI side effects. So, it’s a first line therapy for patients with type 2 diabetes. We did announce here recently a new commercialization agreement with Glumetza. We’ve restructured agreement that would basically give Santarus more control over Glumetza. So, we have taken over overall responsibilities for shipping the product, booking the sales. We have pricing and contracting. We’ll oversee the manufacturing of the 500 milligram via Patheon their contract manufacturer.

We are going to be assuming the NDA. We’ll be assuming all the safety in drug pharmacovigilance and the interactions with the FDA. The way we have restructured the agreement basically takes the economics and splits it among Santarus and Depomed in a way that we think makes good sense for both companies. We have taken a fairly significant price increase recently, about a 60% price increase that takes us up to similar price to (indiscernible).

And here as of Monday, we have implemented what’s called an eVoucher program, where we actually lowered the co-pay to the patient, we think will allow us to get many more prescriptions. Some of which are already written for Glumetza, but never filled at pharmacy either the patient doesn’t fill the prescription, because of the higher co-pay or in some cases the pharmacist actually will convert a patient from a Glumetza prescription to a generic metformin.

The co-pay now that most patients will have to pay is a $10 co-pay which is similar to a generic co-pay. We think that will lead to not only us getting more of our Glumetza prescriptions filled at the pharmacy, but as we surveyed physicians, we believe that will resolve in significantly more prescriptions written for Glumetza as we move forward.

You can see here the graph we picked up the product in 2008. We saw very nice growth with the product. And unfortunately in May of 2010, we actually had a manufacturing issue with the 500 milligram product. It was called from the market. And for six months, we were without the 500 milligram product, which is really the dominant product for Glumetza. We were able to move some of the business over the 1000 milligram, but in January of this year, we are able to get the 500 milligram back on the market and you can see we are back on a nice growth curve. And we expect that this product will continue to show nice growth in the coming years.

Our second diabetes product is Cycloset. Cycloset is a dopamine agonist that’s centrally acting – the first centrally acting dopamine agonist for type 2 diabetes. It has some very interesting data, which I think really sets it apart from the other type 2 diabetes products. This will give you a look at our prescriptions both total prescriptions and new prescriptions as well as the overall prescribers which are in the blue. So, you can see continued growth in the number of physicians prescribing this product on a weekly basis. And here recently in the red, we have started to see a little acceleration of the prescriptions for Cycloset.

The clinical data is actually very compelling. The primary measurement for type 2 diabetes is HbA1c. We get a reduction of 0.6% to 0.9%, which would be similar to what you might see with a Januvia type of product. It’s used either by itself or in combination with metformin or metformin and sulfonylurea or DPP-4 inhibitor.

If you look at the postprandial glucose effect, we get very nice postprandial glucose, a reduction of anywhere from 30% to 50% when you use Cycloset. In both of those things both the HbA1c and postprandial glucose are things that are fairly easy for a physician to measure and important for type 2 diabetics. But I think the thing that’s most important when you are treating the type 2 diabetic really has to do with the cardiovascular effect. Most type 2 diabetes patients are going to die from some type of a cardiovascular effect, either a stroke, MI, or obviously cardiovascular death. And so there was a 3,000-patient study completed on Cycloset, 2,000 patients were on Cycloset, a 1,000 on placebo. They were looked at over a 12-month period.

And over that 12-month period, you can see the overall effect was that the Cycloset was able to reduce the events by 52%, 55%, excuse me, a very significant reduction in stroke, MI, and cardiovascular death over a 12-month period. No other type 2 diabetes product has any data that’s anywhere close to this type of reduction in cardiovascular events and we think this is the one thing that really sets this product apart.

Since Cycloset is a new mechanism of action, doctors are still getting comfortable with how they prescribe this product and when they prescribe it. But we are starting to get traction, we are starting to get the thought leaders talking about Cycloset and we think this can be a nice growth product over the next two to four years.

I mentioned our late-stage products, budesonide is what we think is probably the most exciting late-stage product we have, that could be in the market within the next 12 to 18 months. Budesonide is a steroid. It’s a non-systemic steroid for ulcerative colitis. We completed two pivotal studies on budesonide with very positive results and we just announced results from a 12-month extended use study on budesonide.

This is the market for inflammatory bowel disease, which would include ulcerative colitis and Crohn’s disease. The number of patients with UC and Crohn’s are about the same, but markets a couple of billion dollar market opportunity. I think the thing that is most interesting when you are thinking about the market is if you look at Entocort here, they are above $360 million in sales. Entocort has budesonide in a delivery system that predominantly delivers products to the small intestine, which is where you want to deliver a product for Crohn’s disease. Our budesonide is in a delivery system predominately delivers the product to the colon, which is where you want to deliver a steroid for ulcerative colitis. We think that we have similar potential and we have estimated our peak sales in the $300 million range.

The other nice thing about our budesonide is actually it will be the first one pill once a day product in this category. If you think some of the other products like Asacol, which is doing $600 million or $700 million, (whereas) it’s two pills three times a day; Pentasa, it’s two pills four times a day; and even Entocort and Lialda are multiple pills once a day. So, we think that provides the patient a real convenience and when the doctors looking at treating these flares, they are already going to be on other products of being able to take the product, that’s one pill once a day, we think gives them a substantial advantage.

This is the clinical data from the induction studies. You can see very similar results between the U.S. and the EU study, up 17% to 18% overall remission. Here are the p-values 0.143 for the U.S. study and 0.0047 for the European study. So, very good results. And in fact in the U.S. study, Asacol was not statistically different than placebo, even though again they are selling about $600 million in sales. So, we think we have a very effective product for induction of remission of UC.

The safety data look very good again budesonide, Asacol, Entocort, and placebo and you can see not much difference in the overall adverse events of these products. I mentioned the extended use study. We have just completed a 12-month extended use study with 6 milligram budesonide. The data was pretty much as we expected. No real difference in adverse events between budesonide and placebo. The cortisol levels were all within normal ranges and the overall patients with normal bone density were with what we expected to. So, this data is now complete. We’ll compile all the data included in our NDA, which we expect to file in December of this year.

Our other very interesting late-stage product is Rhucin. It’s a recombinant human C1 inhibitor that we have licensed from Pharming. We think this is a very interesting product. The first indication that we are pursuing is hereditary angioedema, but we think there are other indications that this particular compound could be used for and we are currently working with Pharming identifying those other areas that we want to study this product in.

I mentioned before we have completed two pivotal studies and I will show you that data in just a little bit. We are currently enrolling patients in one additional Phase III pivotal study, which we expect to complete third quarter of next year and then plan on filing the BLA directly after that.

The market really is kind of divided up in to three different buckets, I would say. On the right side is the prophylaxis market makes up about 10% to 15% of the patients. These are patients that are going to experience attacks multiple times per month. They are typically going to get attacks at least twice a month to a weekly type of an attack, where they’d want to be on a product on a maintenance basis.

The majority of the patients though are going to get attacks anywhere from 8 to 12 times a year and those patients are typically going to be managed more acutely. They will leave you fall into the bucket of using products like Berinert, Kalbitor, Firazyr, or Rhucin or they might end up being used in anabolic steroids. Many of the steroid patients though will start to migrate into the center category of the acute treatment. Particularly female patients with hereditary angioedema would prefer not to be on high doses of anabolic steroids and we think they will migrate two of the products that are in that center category.

This is the data here from the two pivotal studies. There was a North America study and European study. In the EU study, a 100 units per kilogram was used. You can see there were 16 patients on drug, 16 on placebo, a very nice p-value and results here in time to beginning of relief about an hour versus 508 minutes in placebo.

In the North American study, we looked at the product at 100 units per kilogram and 50 units per kilogram, 12 at safety compared to 13 at placebo, again very nice overall results. When we met with the FDA, we presented them with results. They were impressed with the results, but they really wanted to see more patients exposed at the 50 units per kilogram. So, we went ahead and structured an additional Phase III study. We just recently got approval on an SPA from the FDA and we are currently enrolling up to 75 patients in this Phase III study, which I mentioned we expect to complete in the third quarter of next year.

The third development product, we have is rifamycin. It’s a non-systemic broad-spectrum antibiotic product. We’ve completed a Phase II study in infectious diarrhea comparing to Xifaxan with very similar results and we are currently about 60% enrolled in our Phase III study in Travelers’ Diarrhea, where we are comparing against placebo.

There is a second ongoing study being done in India by Cosmo’s partner, Dr. Falk Pharma. That is a non-inferiority study versus ciprofloxacin. And we expect both companies will complete enrollment sometime in the first half of next year and then we’ll move forward with submitting the NDA for Travelers’ Diarrhea.

Our early stage product is an antibody product. It’s an anti-VLA-1 antibody. We bought a small company by the name of Covella. We got this particular antibody, which was initially licensed from Biogen Idec. When we looked at the data, it was very compelling. There was significant preclinical data done on this antibody product. They have done studies in RA, inflammatory bowel disease, psoriasis, corneal transplant, asthma with some very compelling results. The initial manufacturing was done on the IV product and we began earlier in the year the Phase I program with the IV product.

We are currently working on formulation that would be a subcu formulation. We expect that, that product will be the product we will bring to market and likely either extend the Phase I program to have couple additional cohorts using the subcu product or move it into the Phase II program. We are very excited about this particular program because we think it has applications among a number of different anti-inflammatory diseases.

You can see our overall financial situation. We had very nice growth in revenues here through 2009. As I mentioned in 2010, we lost our largest product Zegerid, which at the time represented about 70% of our revenues. We saw reduction down to $125 million in revenues and you can see we were moving up we had six quarters of profitability. So, we are really managing the company to a nice profit and cash generation. Last year with the introduction of generic, we lost $19 million. I will point out that of that $19 million, about $7 million was restructuring charge, so one-time restructuring charge, and we also had a $15 million upfront payment to Pharming for Rhucin. So, we have continued to manage the business to get back to overall profitability.

If you look at where we were in the second quarter, we had about just under $27 million in revenue and $2.7 million in net income and for the year just under $50 million in revenue and just over $2 million of net income. So, we’ve really brought the company back on point of losing our largest product. We are starting to generate revenue and starting to generate profits. We have provided guidance for 2011. It’s a $115 million in revenue and $2 million in net income.

We are very excited about the portfolio. As I mentioned, we think we still have growth potential in both Glumetza and Cycloset. We expect then to launch budesonide and then about a year later launch Rhucin. So, we’ve got a nice portfolio. And then behind that, we have rifamycin and our antibody program.

So, in closing, what’s really critical for us is continue to drive Glumetza. We think the combination of the prescriptions we are going to generate with our current audience plus the eVoucher program will allow us to significantly drive revenue of Glumetza. Cycloset has gotten off to a little bit of a slow start, but we are starting to gain traction with some endocrinologists and as we gain more traction with the endocrinologists we think we have nice growth potential with Cycloset. And then for us, budesonide and Rhucin, we think combined could be about $500 million in peak revenue, so a very nice opportunity there and then behind that SAN-300 and rifamycin.

So, with that, I will go ahead and close the presentation and look to answer any questions before we move to a breakout. Thank you very much. Any questions from the audience? Right, well thank you and I will be happy to answer questions privately.

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