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Santarus, Inc. (NASDAQ:SNTS)

Q4 2011 Earnings Call

March 5, 2012 4:30 p.m. ET

Executives

Martha Hough - Vice President, Finance and Investor Relations

Gerry Proehl - President and Chief Executive Officer

Debbie Crawford - Senior Vice President and Chief Financial Officer

Bill Denby - Senior Vice President, Commercial Operations

Wendell Wierenga - Executive Vice President, Research and Development

Analysts

Scott Henry - Roth Capital

Frank Pinkerton - SunTrust Robinson Humphrey

Annabel Samimy - Stifel Nicolaus

David Amsellem - Piper Jaffray

Operator

Welcome to the Santarus 2011 Financial Results Conference Call. At this time all participants are in a listen-only mode. Following the management’s prepared remarks we will hold a Q&A session. (Operator Instructions) As a reminder this conference is being recorded today Monday, March 05, 2012. I’d now like to turn the conference over to Ms. Martha Hough. Please go ahead ma’am.

Martha Hough

Thank you, Jamaya. 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 of Commercial Operations. Dr. Wendell Wierenga, Executive Vice President of Research and Development will also join us for today’s question-and-answer session.

Earlier today Santarus issued a press release announcing our fourth quarter 2011 financial results, which is available on our website at www.santarus.com . A replay of this call also will be available for the next two weeks on the Investor Relations section of our website.

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 on March 5, 2012. Santarus undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.

With that I’ll turn it over to Gerry Proehl.

Gerry Proehl

Thank you, Martha, and welcome to this afternoon’s call. I am exceptionally pleased to report our fourth quarter financial performance in which we achieved 65% revenue growth over the prior year period and net income of $1.9 million. These strong results cap a year of transition and accomplishments and importantly our return to profitability.

For the full year we reported revenues of $118.8 million and net income of approximately $4.7 million, outperforming our guidance of $3 million. And we ended the year with $59 million in cash, a balance that reflects of our payment of $11 million upfront fee for FENOGLIDE. We are optimistic about our future which is reflected in our 2012 outlook. We expect revenues of approximately $200,000 million, up roughly 68% over 2011. Net income in the range $8 million to $11 million and adjusted EBITDA of $24 million to $29 million.

We believe that the revenues from our commercial portfolio and our strong balance sheet position us to advance our development programs. Our robust development pipeline addresses multiple specialty markets, providing us with diversification and a strong engine for future growth in revenues and profits. Fourth quarter revenue growth was driven primarily by GLUMETZA. Total GLUMETZA prescriptions grew 34% compared with the fourth quarter of 2010, and we benefited from our price increase that brought this product’s price inline with the branded competition. We expect GLUMETZA to be the primary contributor to higher revenues in 2012.

We are pleased with the settlement agreement recently announced with GLUMETZA. Under this agreement Lupin has granted the right to begin selling a generic version of GLUMETZA on February 1, 2016. We believe we are taking the right step to lengthen the runway to continue growing GLUMETZA prescriptions and revenues, while advancing our development pipeline.

CYCLOSET net sales in the fourth quarter were $3.8 million, up approximately 81% over third quarter 2011 net sales. We expect the product will continue to growth in 2012 with increased call frequency by our larger sales organization. Turning to our development programs starting with UCERIS. Our NDA for UCERIS was accepted for review by the FDA in mid-February following its submission in December. This sets the PDUFA date for completion of the FDA review at October 16, 2012. We believe that UCERIS has the potential to be an important new therapeutic option in the treatment of ulcerative colitis, a chronic disease that afflicts an estimated 600,000 to 700,000 patients in the U.S.

We also have initiated our Phase IIIb clinical study with UCERIS to evaluate the drug as an add-on therapy to current 5-ASA drugs for the induction of our mission of our active ulcerative colitis in patients who are not adequately controlled on background 5-ASA therapy. We expect to complete patient enrollment for this study in the first half of 2013. We believe this is an important study to explore new indications to UCERIS and to provide additional data to physicians on the performance of UCERIS as add-on therapy.

We are on track this year to report a number of significant milestones with our other clinical development programs. During the first half of the year we expect to complete a Phase I clinical study with SAN-300, our anti-VLA-1 antibody program. We plan to initially evaluate SAN-300 for the treatment of rheumatoid arthritis and ultimately for the treatment of inflammatory bowel disease. By the third quarter, we also expect enrollment to be completed in a Phase 3 study with RHUCIN for the treatment acute attacks of hereditary angioedema, an orphan disease. We hold to rights to RHUCIN in the U.S., Canada and Mexico.

And in the second half of 2012 we expect to complete enrollment in our Phase III clinical study with rifamycin SV MMX. This investigational drug is a broad spectrum non-systemic antibiotic in an oral tablet formulation that utilizes proprietary MMX colonic delivery technology. The first indication we are pursuing is for the treatment of patients with traveler’s diarrhea.

Finally, we are now past the typical timeframe for a decision on our appeal of the district court ruling in the ZEGERID patent litigation. The decision could be delivered any day but the actual timing is at the discretion of the appellate court. Although we do not promote ZEGERID, we reported fourth quarter revenues of more than $9 million from sales of ZEGERID branded products and the authorized generic capital.

With that overview I will turn it over to Debbie to review our financial results.

Debbie Crawford

Thank you, Gerry. I am very pleased to report today on our strong 2011 fourth quarter and full year financial results, which I believe demonstrate the success of the strategic initiatives we undertook last year and position us well for future growth. Total revenues for the fourth quarter of 2011 were $42.6 million. As Gerry mentioned, this is a 65% increase from the prior year. Net income for the quarter was $1.9 million or $0.03 per diluted share, this compares with a net loss of $2.1 million in the 2010 fourth quarter.

Our revenue growth for the 2011 fourth quarter was driven primarily by higher net product sales of $41.7 million which included three components. GLUMETZA contributed approximately $28.5 million, reflecting our first full quarter of reporting net sales under our new commercialization agreement. This compares to approximately $11.5 million in net sales reported by Depomed in the fourth quarter of 2010, or a year-over-year increase of 148%.

ZEGERID brand, an authorized generic product, totaled $9.4 million, and CYCLOSET sales were $3.8 million. For the fourth quarter of 2010, net product sales were $17.3 million and consisted of $16.6 million in net sales for ZEGERID brand and authorized generic prescription products, and approximately $700,000 in net sales for CYCLOSET. We also reported $7.7 million of GLUMETZA promotion revenue under our previous promotion agreement.

License fees and royalties were $10.3 million for the fourth quarter of 2011, and included royalties on GLUMETZA net sales, the gross margins split on CYCLOSET net sale and royalties on ZEGERID net sales as well as amortization of upfront fees paid for our promoted products. License fees and royalties for the fourth quarter of 2010 were $7.3 million and included a success based clinical milestone for UCERIS, a GLUMETZA sales milestone, royalties on ZEGERID net sales and amortization expenses.

R&D expenses for the 2011 fourth quarter were $7.4 million. The $4 million increase from the 2010 fourth quarter was primarily a result of costs associated with the submission of the UCERIS NDA, the startup of the UCERIS Phase IIIb clinical study, expenditures associated with the SAN-300 Phase I program and higher overall R&D headcount. SG&A expenses for the 2011 fourth quarter of $19.5 million were approximately $3.4 million compared with the 2010 fourth quarter, primarily a result of increases in legal fees, compensation and benefits offset in part by a reduction in CYCLOSET advertising and promotion cost.

Turning to our full year 2011 results. Total revenues were $118.8 million compared to $125.4 million reported for 2010. The year-over-year decline in revenue results from the launch of generic competition for ZEGERID, partially offset by increases in GLUMETZA and CYCLOSET revenue. R&D expenses were $18.4 million and SG&A expenses were $68.2 million. Net income for the 2011 year $4.7 million or $0.07 per diluted share which exceeded our net income guidance for $3 million.

Cash, cash equivalents and short-term investments as of December 31, 2011 were $58.6 million, essentially flat compared with the end of the 2011 third quarter even with the $11 million upfront payment for FENOGLIDE. In February we announced an increase in our revolving line of credit with Comerica Bank from $25 million to $35 million, on improved terms which included reduction in interest rates and extension of the maturity to February 2015. We believe the credit line is an attractive source of non-dilutive capital to have available as we focus on growing our business.

We currently have $10 million drawn on the credit line. Today we are increasing our adjusted EBITDA guidance and affirming the remainder of our financial guidance for 2012, that we have presented in the business update conference call on December 22, 2011. In 2012 we expect total revenues of approximately $200 million, a 68% increase over 2011 total revenues. License fee expenses to include two milestones, the first is $4 million milestone for FDA acceptance of the UCERIS NDA for review that was paid in Santarus common stock as requested by Cosmo under the terms of the license agreement for UCERIS.

The second is a $10 million milestone payment to Pharming which is contingent upon successful completion of the ongoing Phase III clinical study for RHUCIN in treating acute attacks of hereditary angioedema. R&D expenses of $30 million to $32 million, of which approximately half are expected to be costs associated with the UCERIS Phase IIIb clinical study. Net income of approximately $8 million to $11 million, which includes the $14 million in success based milestones I just discussed.

And as mentioned, adjusted EBITDA guidance of approximately $24 million to $29 million, which was increase based on paying the UCERIS regulatory milestone in Santarus common stock rather than cash. Finally, we expect to report a net loss for the first quarter of 2012 due to the seasonality of prescription demand, increases in selling expenses associated with the addition of 40 new sales representatives, payment of the $4 million milestone for FDA acceptance of the UCERIS NDA, and higher R&D expenses associated with the UCERIS Phase IIIb study.

I will now turn the call over to Bill Denby to discuss our commercial activities.

Bill Denby

Thanks, Deb. We attribute our strong fourth quarter sales primarily to increased GLUMETZA revenues. As a result of our promotional efforts which included an electronic voucher program introduced last September, fourth quarter new prescriptions for GLUMETZA grew approximately 30%. And as Gerry mentioned, total prescriptions increase about 34%. Both compared with the prior year period. Sequentially fourth quarter new prescriptions were up 13% and total prescriptions increase 12%.

The evoucher program is designed to benefit covered by commercial health insurance, who bill their prescriptions at retail pharmacies while automatically reducing the GLUMETZA copay to $10 in most cases. With the low copay we can compete for the more than $7 million prescriptions written by our called physicians for generic metformin. We are finding that physicians are receptive to GLUMETZA’s key differentiating features of controlled delivery with GI tolerability that may lead to better A1c control, with the goal of allowing more patients to reach their treatment goal.

In addition, the physicians appreciate the low out of pocket costs for their patients. In December the evoucher program was expanded to included Walgreens stores. This brings the number of participating retail pharmacies to more than 41,000, up about 25% when we first implemented the program. The evoucher program now impacts an estimated 40% of GLUMETZA total prescriptions. We plan to continue this program and believe that will support continued prescription and revenue growth.

Due to lack of prelaunch awareness for CYCLOSET, our initial focus beginning early last year was on educating physicians about the unique features of CYCLOSET. And we began increasing awareness towards groups like the American Diabetes Association. In fact CYCLOSET has recently been added to the ADA guidelines as an insulin sensitizer, which we believes builds credibility and awareness of the brand. Also new prescriptions grew consistently throughout the second half of the year, and total prescriptions increased in a linear manner.

For the fourth quarter, new prescriptions were up 20%, and total prescriptions increased 27%, both compared with the third quarter. Recognizing that out of pocket cost is a barrier with CYCLOSET, we have recently introduced the evoucher program for this product. In addition we are excited about the potential impact that our sales force expansion will have on CYCLOSET. Particularly, as we our marketing research indicates, that awareness and familiarity are key barriers for non-prescribing physicians. With our expanded sales force we are increasing frequency of the message about CYCLOSET’s positive impact on glycemic control and its advantageous cardiovascular profile.

We believe that these efforts will result in continued growth in CYCLOSET prescriptions. Turning to FENOGLIDE, our newest product, I am pleased to announce we have recently completed our sales organization training and are now actively promoting this product. FENOGLIDE is an FDA approved fenofibrate drug used as an adjunct to diet to treat high cholesterol, a condition that frequently occurs in patients with type 2 diabetes. It’s a product that fits well with our growing type 2 diabetes franchise.

Our analysis indicates significant overlap between the physicians who are writing prescriptions for FENOGLIDE, and our current universe of called on physicians for GLUMETZA and CYCLOSET. We estimate that about 80% of our called-on doctors will have high potential for writing FENOGLIDE prescriptions. This should allow us to further leverage our sales force. According to IMS, FENOGLIDE sales for calendar year 2011 were $7.6 million. This was a substantial decline from the peak sales levels of $23 million, for 12 months ending in August 2010, when FENOGLIDE was more actively promoted.

We expect that this product will respond well to increase promotional activity by our commercial organization. Based on the success of our GLUMETZA evoucher program, in February we implanted a similar evoucher program for FENOGLIDE. Our message to physicians is that FENOGLIDE offers effective lipid control at the lowest FDA approved fenofibrate dose of 120 milligrams and is affordable with the copay -- $10 copay offered to most patients with commercial insurance.

As of January 1, two major brand of competitors were removed from UnitedHealthcare’s Preferred Drug List. However, FENOGLIDE remains a preferred drug. We believe that the preferred position and the $10 copay for FENOGLIDE, gives us a distinct advantage with UHC patients. We have completed our sales force expansion in January to 150 sales representatives, this expansion allows us to reduce the size of our largest territories. And increased call frequency with the doctors who have the highest potential to prescribe our products. Our research and experience indicate a strong correlation between sales call frequency and physician prescribing behavior for our products.

So we believe the expansion should deliver incremental prescription growth across our product portfolio. With that overview I will now turn the call back over to Gerry.

Gerry Proehl

Thanks, Bill. In closing we are optimistic about our prospects for 2012. We are highly focused on achieving four important goals. First, growing prescriptions and revenues for our marketed products. Our top line guidance of $200 million for the year represents a substantial jump from the $118.8 million in revenues we reported for 2011. Second, advancing our program of UCERIS, including conducting the Phase IIIb clinical study for the use of UCERIS as an add-on therapy in ulcerative colitis and preparing for the October PDUFA date.

Third, advancing our clinical program for our other development products, including RHUCIN, rifamycin SV MMX, and SAN-300. And finally, managing our business to achieve our revenue growth and profit objectives for the year. With that overview I would now like to open the call up and take some questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions)

Martha Hough

While we are waiting for your questions I would like to mention that we will be presenting at the Cowen and Company Annual Healthcare Conference at the Boston Marriott Copley Place this Wednesday, March 7. And then next Monday, March 12, at the Roth Capital Growth Stock Conference at the Ritz-Carlton in Dana Point. Okay. Jamaya, we are ready for the first question.

Operator

Our first question is from Scott Henry with Roth Capital. Please go ahead with your question.

Scott Henry - Roth Capital

Just a couple of questions here. I guess, Gerry, you received the acceptance on the UCERIS NDA, I guess I would just ask from a background standpoint, have you had any correspondence with the FDA in terms of what they are looking for or any kind of feedback at all worth mentioning?

Gerry Proehl

Yeah, why don’t I let Wendell go ahead and take that, Scott, since he is the one that’s overseeing the NDA process.

Wendell Wierenga

Good afternoon, Scott, this is Wendell. The interactions we have had with the agency have indicated that the application is under active review and we have been fielding questions already in the process.

Scott Henry - Roth Capital

Okay. Thank you. That’s helpful. Shifting gears, GLUMETZA was strong in the quarter, it’s kind of the first quarter we have started to model it under the new business model. My question is, I think revenue -- according to the data I looked at, it was about $370. Do you think that’s an accurate proxy going forward? If I recall, was there another price increase that came in again and was that reflected at all in Q4 or will that be coming up in the first quarter?

Bill Denby

We had a 8% -- this is Bill Denby, Scott -- we took an additional price increase in the first quarter of 8%. So I am not sure how to translate in that in your revenue --

Scott Henry - Roth Capital

Well, I guess we can just leave that out of the question, that’s on its own. Separately I guess, in the quarter, was the reported number, what you would say pretty much inline with demand? Or was there any stocking that impacted it?

Debbie Crawford

Hi, Scott, it’s Debbie. I think in the fourth quarter there always is a little bit of stocking. Wholesalers want to be sure that they have sufficient supply over the holidays but we did not see anything terribly unusual. So I think it’s reasonable the activity we saw but it wouldn’t align exactly with prescription demand.

Scott Henry - Roth Capital

Okay. And then, Debbie, just to have you there, CYCLOSET, that number looked a little high for the quarter, or was that stocking there as well?

Bill Denby

Just the similar activity but we feel good about the overall purchasing that occurred in the fourth quarter relative to the demand and the amount of product that’s in the channel.

Scott Henry - Roth Capital

Okay. And then when we are thinking about FENOGLIDE, I know you just took over that product and you are just putting in your marketing plans. When would you expect to see kind of scrip to start to reflect some of the changes going on? Should we start to look for that in March or maybe closer to May? I mean how should we think about when that will translate through?

Bill Denby

Scott this is Bill Denby. Sort of my belief I think is, would be to give it three months or so, something like that before we can really expect to see, first a flattening of the decline and then continued resumption of growth. We have got -- we have put 40 new people out there and we have a 150 people that need to cycle through their 10,000 docs and do that two or three times before we would expect to see a real impact.

Scott Henry - Roth Capital

Okay. Shifting over to the SG&A line. The $19.5 million in Q4, how should we think about that going forward? My guess is that’s probably a little high for a quarterly run rate. I am just curious if there is any color there?

Bill Denby

I would say Scott, that it’s probably appropriate to look at SG&A for the year. Because there are always fluctuations quarter to quarter. So the $68 million is very consistent with the guidance we have provided for 2011, so I think that’s a good foundation. We would anticipate having general increases, merit increases and things of that nature on top of that level. Plus the incremental impact of the additional sales representatives which we have discussed before is probably a $10 million kind of increase for the year 2012.

Operator

Our next question is from Frank Pinkerton with SunTrust. Please go ahead with your question.

Frank Pinkerton - SunTrust Robinson Humphrey

The first one, can you speak to R&D breakdown in the first half of the year versus the second half. I know you have two trials ongoing, expected to report on the third quarter. So just give us any type of color on how we should think about spend in each half of the year?

Debbie Crawford

With regards -- are you talking about 2012, Frank, or?

Frank Pinkerton - SunTrust Robinson Humphrey

Yes.

Debbie Crawford

Okay. I think in 2012 since the Phase IIIb study is now well underway, we would expect to see substantial expenses occurring in the first quarter and moving through the year. So I don’t see a lot of variability there quarter-to-quarter, at least that would be our first thinking.

Frank Pinkerton - SunTrust Robinson Humphrey

So with the rifamycin and RHUCIN studies wrapping up sometime 2Qish to report results in the third quarter, don’t see kind of plateauing effect and then maybe slightly falling off on R&D in back half of the year?

Bill Denby

Yeah, so just to clarify. On the RHUCIN Phase III study, that is being funded by Pharming, so those costs are not in our R&D line. Rather we expect we would, upon a successful study result, we would have that $10 million occurring in the second half. That’s in the license fee line. And then with respect to rifamycin, we have talked about completing enrollment in that study in the third quarter and then you would have wrap up activity or expenses also in second half of the year.

Frank Pinkerton - SunTrust Robinson Humphrey

Okay, great. Shifting over the HAE market, can you speak roughly to the competition there? I think we have had a product launch in the last year, I was looking to get some update. But just how did that product -- excuse me, that market looked to shape up as you continue to finish your trials, or continue to see trial data come in for RHUCIN?

Gerry Proehl

Yeah, Frank, this is Gerry. What we are hearing from the folks that we are talking to, and that includes some of the thought leaders in the area plus the patient association, is that more and more patients are beginning to seek therapy. What we have heard certainly is that patients that were having, “milder attacks” weren’t actually going in and seeking treatment. More of them are seeking treatment. We are also hearing that physicians are starting to reduce their use of anabolic steroids or at least taper down the amount of anabolic steroids, as they move patients on to these newer therapies. So we think that the market will continue to evolve and grow. As more patients come and are treated with these products, and as the patients that are being treated actually seek treatment from more of their attacks.

Frank Pinkerton - SunTrust Robinson Humphrey

Okay. Great. And then just last question and this is kind of something we try to look out which is the refill rate, as we think about products growing and when I think of CYCLOSET I guess I am a little disappointed on kind of the overall, what I call the refill rate which is the kind of the weekly totals minus the weekly new prescriptions. Can you speak to patients, their willingness to stay on the drug, the results doctors are seeing? And how do you go about trying to make sure that those refills keep coming through? Thanks.

Bill Denby

So this is Bill Denby. I think one aspect is as you know, we have had started the product with relatively low awareness and we are working to change that by getting on ADA guidelines and subsequently some other key association guidelines as well going forward. That will help boost our credibility. In terms of refills I think we haven’t seen -- once people are on this product they like the results that they receive and so do the doctors that treat these patients. One of the things we have observed when we have introduced the evoucher with the GLUMETZA, is an increase in refill rate. So one of the barriers to refills are the costs. And many time cycles that used the second or third line therapy and therefore the copay is more onerous for them. Once we take that burden off, they are much more likely to continue to stay on the product chronically.

Operator

Our next question is from Annabel Samimy with Stifel Nicolaus. Please go ahead with your question.

Annabel Samimy - Stifel Nicolaus

With GLUMETZA, now that you have a good run rate for 2016, is there any new program that you have thought to implement to continue that growth going through that, I guess the next four years. And also if you can give us some statistics on the fill rate and the success of the voucher program, now that you have fill rate -- your voucher program in place?

Gerry Proehl

Annabel, I think the main, the primary emphasis or engine behind continued growth of GLUMETZA, one is the evoucher being increasingly more available to patients and allowing people to get started on the drug, reduce switching of the drug, and eventually change physician prescribing patterns. So that they actually use the drug more often and we end up competing with the larger market. But not inconsequentially I think is the 35% increase in the sales force size. I think that should bolster growth tremendously for GLUMETZA going forward, beyond even 2012. I am not sure I can answer specific statistics on the refill rates off the top of my head buy maybe on a subsequent call we can handle that.

Annabel Samimy - Stifel Nicolaus

Sorry, I meant the fill rate, the actual fill rate.

Gerry Proehl

I am not sure what that means.

Bill Denby

Talking about the fill rate, Annabel, are you talking about the abandonment rate or?

Annabel Samimy - Stifel Nicolaus

Well, I mean when a physician writes a prescription, what percent of patients actually go and fill that prescription?

Gerry Proehl

Got you. Okay. So we cannot talk about that...

Annabel Samimy - Stifel Nicolaus

I think you have given that...

Gerry Proehl

As abandonment rate, so like in other words the prescriptions written for a patient and they “ abandon the prescription”, so they don’t actually fill it. And we...

Annabel Samimy - Stifel Nicolaus

Right. You gave that statistic once in the past, I am just wondering if...?

Gerry Proehl

Yeah, it’s come down, at least a 50% reduction in abandonment rates since we have implemented the program.

Bill Denby

Yeah, significant.

Annabel Samimy - Stifel Nicolaus

Okay. Great. All right. And then, as we are talking about commercialization of products. You’re approaching, I guess, soon you will be approaching the NDA for UCERIS. Any thoughts on how you might be marketing that product? Or you are going to have to increase your sales force again? Are you going to take a portion of your sales force and maybe launch that product? Can you just give a little bit of color there?

Bill Denby

Sure, Annabel, this is Bill again. The answer is both of those. We will take the 150 people currently deployed against our current product portfolio, increase the sales force by perhaps 80 people which we believe is the rep equivalent needed to really drive your serious demand. We will take that 230 people and re-subdivide the geographies. So you can imagine the drive time and so forth will be decreased. We will be able to get not only to the primary care and endocrinologist doctors we call in currently, but also the 8000 or so, 6000 to 8000 or so gastroenterologists that would be interested in using UCERIS. Hopefully that answers your question.

Annabel Samimy - Stifel Nicolaus

And does, you mentioned that you have passed that point where you should have heard from the appellate judge on ZEGERID. Any ideas why it’s taking so long? Seems like it’s been quite a while actually?

Wendell Wierenga

Yeah, it’s actually running under just a little over ten months now. So we don’t know why it’s taking so long. They don’t give us any information. We really have zero visibility. So we just check every morning and keep our fingers crossed and hope for the best.

Annabel Samimy - Stifel Nicolaus

Okay. Let me just ask one more question on the ATM market. I know that it’s kind of two types or two types of treatments I guess, are the acute and the prevention. Any ideas how the market is shifting and if there is more treatment then prevention or are more prevention therapy or are physicians keen to give acute therapy for this HAV patients, I believe (inaudible) is going to be more of an acute therapy. And any ideas how the dynamics are flowing through there?

Gerry Proehl

Yeah, we think that market is continuing to shift to patients being acutely. As one might expect with (inaudible) launching (inaudible) as the first product in to the marketplace with a prophylactic indication, most of the patients are having very frequent attacks, maybe multiple attacks a week, sought treatment with (inaudible). As the newer product came on from the other companies with acute indications, it seems more and more patients are now pursuing that. And we think ultimately having talked with folks that are experts in the area that somewhere between 60% to 80% of the market will actually be acute treatment and the remaining portion of the market will be prophylactic treatment.

Operator

(Operator Instructions) Our next question is with David Amsellem with Piper Jaffray. Please go ahead with your question.

David Amsellem - Piper Jaffray

Just a couple. Regarding FENOGLIDE, how are you thinking about the sales potential of that product and can you talk about what are the key differentiating factors that you think can drive prescription growth beyond just organic growth of the overall fenofibrate market and increase promotion?

Bill Denby

So this Bill Denby, I stumbled over the words. But the 120 milligram gets you the same efficacy as a higher strength dosages. And so the delivery technology is key to that product. I think though the main thrust of our efforts which makes us somewhat unique is that we call on doctors that are treating diabetes and with dyslipidaemia being a primary comorbid condition in these patients. We have relatively little competition. I think the combination of $10 copay and us being preferred on UnitedHealthcare provides a short-term opportunity where if you are physician that patients are having to pay cash or a high out of pocket cost for the competitors, we offer an economical alternative for them. So I think that’s what our hope is. And we have seen the product perform in the mid-20s and we hope them to flatten out the decline and return the product’s growth in the near term.

David Amsellem - Piper Jaffray

Okay. Second question on rifamycin. Gerry, can you just give us a sense of when you would be in a position to file on the TD indication? And then also I believe you had in the past talked about looking at essentially higher dose formulation, possibly for another indication, maybe hepatic encephalopathy or HE or even IBS. Any update on that?

Gerry Proehl

Why don’t I go ahead and let Wendell address the question on rifamycin, David.

Wendell Wierenga

Dave, this is Wendell. The Phase III trial is still on schedule for wrapping up in the treatment of traveler’s diarrhea by the third quarter of, certainly second half of this year. And we are working with our partner Cosmo and their partner (inaudible) who is also involved in a large Phase III randomized trial, traveler’s diarrhea in Europe, to combine these two clinical trials in terms of submission for approval for the treatment of traveler’s diarrhea. But this requires a dialogue with the agency as a prelude to actually submission. So that’s part of the plan here towards end of the year. Assuming success, for course, in both of these clinical trial programs.

And we are looking at additional indications for licensing SV MMX for the future, which may well involve additional or higher dosage forms. And so as we are testing those opportunities together again with our partners, we will provide some clarity on that later on this year.

David Amsellem - Piper Jaffray

Then on UCERIS, what's your level of confidence that that FDA will not want to see data from the Phase IIIb study as add on treatment, prior to making an approval decision?

Bill Denby

While the current submission of course includes two adequately controlled, randomized clinical studies comparing UCERIS 9 milligram versus placebo as per the guidance is for registration of a new chemical entity in the U.S. and we believe that the labeling that we are seeking for induction is appropriately supported by this submission. The Phase IIIb clinical trial is an add-on study administrating 9 milligram UCERIS to those patients that are on 5-ASA at the present time. But have active disease by virtue of a flare or loosing response to some degree and therefore represents another aspect of the ulcerative colitis patient population. And this would be a different indication for the drug and therefore this should be viewed quite separately from a regulatory perspective by the agency for ultimate registration of the product.

And this is a trial that we’re really targeting more towards the opportunity in the marketplace to meet the treatment needs of those patients that are relapsing on the standard 5-ASA induction, followed by maintenance treatments. So while there’s overlap, obviously the fact that we are treating ulcerative colitis patients that have mild to moderate disease, the combination with 5-ASA makes it a unique clinical trial and a unique label.

David Amsellem - Piper Jaffray

Okay. But to be clear, the goal is to get that Phase IIIb data added to the label and that probably happens sometime in 2014.

Bill Denby

Absolutely. We are looking to complete enrollment of this 500 patient trial in the first half of next year with a label expansion then following the closing of that particular trial that could be a submission then in the latter part of 2013.

David Amsellem - Piper Jaffray

Okay. And then a quick last question. Just any new thoughts on business developments or acquisitions? I mean you are sitting on a fairly decent size of cash and it’s growing. So what are your latest thoughts in licensing opportunities and are you looking at other GI opportunities, other diabetes opportunities? How should we think about that going forward?

Gerry Proehl

Yeah, Dave it’s Gerry. I would say we are actively looking for opportunities in both the endocrine space and also the GI space. More specifically we are looking at marketed products that we could put in the reps bags and they could sell immediately. We think on the development side we have a pretty full portfolio right now. As Wendell mentioned, we are in the process of evaluating our products like RHUCIN and rifamycin for second indications and we think that’s what we will focus most of our time and attention. So our focus in on trying to find either complementary products for the endocrine space or complementary in the GI space.

Operator

There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Gerry Proehl

Great. In closing I would like to state our belief that we offer a unique value proposition. Santarus is a profitable company with four commercial products along with a robust pipeline that includes an NDA filed for UCERIS for the treatment of ulcerative colitis. Two additional drugs completing Phase III programs in 2012, and an interesting early stage program with SAN-300. I would like to thank you for your interest in Santarus and for joining us on today's call. If you have any further questions please feel free to contact me, Debbie Crawford or Martha. Thanks and have a great evening.

Operator

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines at this time.

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