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Santarus, Inc. (NASDAQ:SNTS)

Bank of America Merrill Lynch 2012 Health Care Conference Call

May 15, 2012 5:20 pm ET

Executives

Gerald T. Proehl – President and Chief Executive Officer

Wendell Wierenga – Executive Vice President, Research and Development

Debra P. Crawford – Senior Vice President, Chief Financial Officer, Treasurer and Secretary

[Starts Abruptly]

Biotech team at Bank of America Merrill Lynch. Our next presenting company is Santarus, and it’s my pleasure to introduce Executive Vice President of R&D, Wendell Wierenga.

Wendell Wierenga

Thank you very much for the introduction and the opportunity to present Santarus at Bank of America conference. I also need to remind the audience that we are making forward-looking statements based on our beliefs and assumptions that are currently available to us. I also want to note that, Debbie Crawford is also here today with myself representing Santarus, and we look forward to participating in the question-and-answer as the presentation winds up.

Debbie Crawford is the CFO of Santarus. Santarus represents in my view, a very compelling investment rationale for three reasons, number one, we have growing revenues on our exclusive marketed products; number two, we are focusing on physician specialists, and number three, we have a balanced portfolio, balanced in the sense that its marketed as well as late stage development programs and even programs that are longer term in terms of the development horizon and ultimate commercialization, and we’re balancing our SG&A and R&D investment to not only capitalize on the near-term, but also to achieve sustained growth in the longer term.

Another way of looking at this is, to look at our portfolio relative to its maturity, the marketed products are shown here in blue, including the products that I’ll spend some time on GLUMETZA, CYCLOSET and FENOGLIDE as well as some very important near-term value drivers for Santarus and that is UCERIS, which is currently under review as the FDA turns that the NDA application filed for the treatment of ulcerative colitis.

Recombinant C1 inhibitor, otherwise known recently as RHUCIN and we’re having to change the trademark relative to some recent FDA feedbacks that are referred to this as recombinant C1 inhibitor, which is ramping up its pivotal clinical trial program, an anticipation in the filing with the agency. And also in the same timeframes is rifamycin MMX for the treatment of travelers’ diarrhea are in the Phase III clinical trail, it’s also targeting to completion of enrolment then in the third quarter of this year.

And lastly, we have an early stage program that I’ll spend just a bit tough time at the end, which is called SAN-300, which is an antibody to an integrin that has broad potential therapeutic utility.

Our focus as I said is on physician specialists, but for the time we have a 150 reps that are focusing on endocrinology technology primarily, not in view of the products that we are advancing in the marketplace for the people with type 2 diabetes. And primarily they are investing in GLUMETZA, CYCLOSET and FENOGLIDE. We anticipate that we’ll be expanding our sales force assuming approval of UCERIS to achieve penetration into a gastroenterology area.

This is an area that’s new to Santarus, because historically we have sold and promoted ZEGERID for the treatment occurred, and we have still a number in our organization that have had that experience, but this will mean a new investment for us into gastroenterology, and we’re anticipating that investment then upon approval of UCERIS on the timeframe that I’ll detail in just a moment.

Taking over longer-term as we advance our current programs of development into other area as a specialty such as allergy, this is primarily for our recombinant C1 inhibitor for the treatment of hereditary angioedema, and immunology and rheumatology in particular as we look at various indications for SAN-300.

As you can see, I noticed at the beginning in terms of investor rationale for Santarus, we are seeing a nice upward trend of sales on our key marketed products, GLUMETZA being our primary driver at the present time. You can see here the last 15 months of sales and the four-week moving average in terms of prescription trends both in terms of total as well as nuc. The differentiating feature with GLUMETZA, is the fact that it is a control-released delivery that minimizes GI side-effects an issue with metformin itself. And allow patients to achieve their hemoglobin A1C1 goal both in terms of total abilities as well as in terms of time frame. And this has been a program that has increased well for us over the last 12 months. We have been able to equalize on the competitive cost basis relative to generic metformin, and as you can see, we have a 36% growth over quarter from 2011.

We are looking at the opportunities space here because the called on physicians that we are impacting right nearly 8 million prescriptions a year for generic metformin and our total prescription number is a fraction of that. So we believe there is a lot of opportunity here yet to advance our branded version in this particular marketplace. Not only because of this but also because of the differentiated features of the product and this will be bearing out over time.

Secondly in our diabetes Type II franchise, we have a unique formulation of bromocriptine, which is representing a first in class treatment for Type II diabetes. This is the only central reacting agent out there and in addition it has some very valuable cardiovascular end point data. This is the first Type II diabetes drug to be registered that has a CVOT trial completed, 52 week study in over 3000 patients were not only did it demonstrate a lot of associated increased but in fact a net of 55% relative risk reduction for (inaudible) cardiovascular death.

And this is a long where that is consistent with A1C control that is resonating well now with physicians as they learn more about this particular agent.

You can see the data here that’s been published relative to the patients on placebo versus CYCLOSET over the 13-month timeframe, and a separation already early on in the four or five month timeframe in terms of improvement in cardiovascular endpoints.

The combination of this agent with other drugs has already been established, and we’re now beginning to see on the basis of that database an increasing interest in this unusual first-in-class agent in the treatment of type 2 diabetes as you can see slowly moving out in terms of both total as well as Veloxis improving over time. This was a product that had virtually no market awareness when it was first launched. We acquired it from a partner company that had invested heavily in the clinical program, but very little in terms of market awareness.

A bonus product for us, at least it’s not the way we are looking at it. At the present time at Santarus, it’s FENOGLIDE because it represents another product on the same audience that were calling on right now for our type 2 diabetes products. This is of course fenofibrate, it’s a low dose version of fenofibrate and of course indicated for the treatment of hypertriglyceridemia as well as mixed dyslipidemia.

And you are well aware, the high overlap of co-morbidity and obesity and cardiovascular side effects associated with obesity and other syndrome, metabolic syndrome means that a lot of type 2 diabetic patients have this co-morbid condition. And in addition, the treatment with fenofibrate such as this is the good add-on to other treatments as well in the cardiovascular category.

So that program is just recently launched, the sales that you can see here in the last quarter or so after lunching of our – moving upward, and we’re looking to advance this significantly over the next couple of years as preferred in our treatment of type 2 diabetes.

Near-term value drivers from the development side, UCERIS is a (inaudible) drug that is delivered to the colon administered orally, and has therefore targeted for colonic disorders such as ulcerative colitis. We have completed two large Phase III clinical trials, and we have also completed a 12-month extension trial in term of looking at the safety of the drug, and file an NDA in December of last year for the treatment of mild-to-moderate ulcerative colitis.

Our PDUFA date is in the middle of October. We have also initiated a follow-on trial and add-on therapy to the 5-ASA, and I’ll just say more about that in just a moment. The IBD opportunity is significant, this is a pie chart of the landscape of branded products, inflammatory bowel disease at the present time.

A lot of the components of this involves different versions of 5-ASA and the (inaudible) represents one of the areas where there has been some significant growth over the last couple of years, get through as in delivery system much like UCERIS budesonide MMXs in terms of colonic delivery.

The data that we have has the basis for our filing to the FDA. It’s showing statistical significance at the 9 milligram dose versus placebo in two well controlled virtually identical clinical study. The only difference between these two trials was the comparator arm that was used in the one case, that was the version of 5-ASA and in other case it was Entocort’s nine milligram, which is budesonide and upper GI release to the system. Entocort has been approved for the treatment for ulcerative colitis for chronic disease, but not relative to colitis. This together with the long-term expansion study, which looked at the safety end points primarily as requested by the FDA is part of the filing package, but data on this extended use study will be presented DDW this coming weekend in San Diego, and it looks at not only safety end points. but it also looks at specific safety end points you need to look for (inaudible) such as cortisol level, bone mineral density and et cetera.

and lastly, it also includes some data in terms of efficacy, although with was not designed to be an efficacy trial. I’d note here that there were positive trends for secondary end points in terms timed clinical relapse, which were typically significant. the important message I think from the 12-month study is the fact that the study showed no meaningful differences really between placebo and drug over this extended period of time. So therefore, we are looking at (inaudible) as a product that is not going to be encumbered by the typical oral steroid side-effect profile.

It’s yet growing efficacy of course intend to treat the population. the Phase IIIb studies that I mentioned briefly has now been initiated, it is an add-on therapy to 5-ASA. it is the trial involving treatment per eight weeks, very much likely Phase III clinical trials that we’ve done in the past. 500 patients between North America and Europe in terms of recruitment and we anticipate completing enrolment of this in the first half of next year. we think this has significant rate to the area of usage of UCERIS going forward.

I mentioned that we have a recombinant C1 inhibitor in development, this particular product has already enjoyed two big pre-clinical studies, I’ll show you the data in just a moment. But our discussion with the FDA, our partner Pharming was required to do a third phase pre-clinical trial looking at the lower dose of this particular recombinant protein. This is clearly based on the treatment for hereditary angioedema, and (inaudible) associated with them, and this Phase III clinical trial done under [Pharming], and we’ll be completing enrollment here in the third quarter of this year. The product is already on the market in Europe under the trademark Ruconest sold by Swedish Orphan Biovitrum.

The data was quite compelling in terms of time to begin the relief of symptoms in both of the clinical trials that were part of the original discussion with the FDA. However, as I noted, the FDA wanted more patients at the lower dose, which is the 50 units per kilogram, and so that is the focus of the current trial involving 75 patients.

If the patient (inaudible) that this would be part of the BLA filing at the end of this year, early next year, that’s what our partner Pharming is saying at present time. And we’re working with them in terms of anticipating then the potential launch of this particular product after approval in the time frame of late 2013, assuming everything goes on track.

The opportunity we believe is significant in this area because this will be the first and only recombinant product for replacement treatment in patients with acute angioedema. And in fact, while there are two class of derived products on the market, the FDA has already agreed that recombinant products are safer and in fat manner enjoy your working designation and as we know from the sourcing of this we can in fact generate significant amounts of this particular protein for not only this particular indication, but thinking of other indications down the road. The treatment paradigm here is moving significantly into the area of acute treatment with self-administration and we will also have that as part of our label in our filings with the agency.

The third program that has a read out this year in terms of pivotal across the studies is rifamycin and MMX for the treatment of travelers' diarrhea. We have a multicenter, randomized clinical trial going on in perfect time, which should read out in the third quarter of this year, while this agency has new to the U.S., and it’s been on the market for many years given intravenous layer and intramuscular (inaudible) for infectious indications.

And we therefore aren’t going to be required to have two randomized clinical trials for approval here in the U.S. and we’re anticipating the combination of [Navarra], our multicenter, study that’s placebo control that will be ramping up to be put together with our partner Dr. Falk in Europe and their ongoing Phase III clinical trials, which is pretty much on the same timeframe that they’re doing on non-inferiority study versus ciproflox system and those two within represent our advancement to the FDA in terms of potential approval, first of all require across the dialog with the agency to make sure that this will meet their expectations from an efficacy as well as from a safety data base point of view.

The last program that we have is in Phase I. This is an antibody to alpha1 beta1 integrin otherwise known as VLA-1 to antibody those originally developed at Biogen and enjoyed a lot of interest in early days relative to other (inaudible) that Biogen had in their portfolio, antibodies to (inaudible). And this exhibited broad spectrum activity in a number of models of implications as shown here in this particular slide, but they opted to – for strategic reasons, put this program into a licensing opportunity as they did with others at this time.

And this then was acquired by Santarus recently. And we have advanced it now into Phase I clinical study where we’re looking at (inaudible) both given intravenously and shortly given subcutaneously. We anticipate finishing our Phase I evaluation of this particular product in the reminder of this year and then advancing it into potential studies and (inaudible) inflammatory diseases in 2013.

We just recently reported our first quarter financial results; they’re duplicated here on this slide relative to the previous four quarters, $45.9 million in terms of revenue and a little over $600,000 in terms of profit. So we’re continuing our theme that’s again last year in terms of achieving profitability based on our overall investment and revenue base.

For 2012, we are giving guidance relative to revenue and profit of $200 million and adjusted EBITDA of $24 million to $29 million. We anticipate achieving this on the basis of growing revenues, prescriptions for our marketed products that I’ve outlined for you; and in addition, we are going to focus on approval of our UCERIS, which is targeted for a PDUFA date in October of this year, and continuing on with our Phase IIIb clinical study for add-on therapy for mild to moderate ulcerative colitis. And then advancing of course, our late phase programs here to complete enrollment of both our recombinant human C1 inhibitor as well as Rifamycin. And lastly finishing our Phase I study in SAN-300 human volunteers moving it into autoimmune and inflammatory diseases in 2013. Thank you.

Unidentified Analyst

Thank you. We can open up the floor to questions, if the mic is coming from the back for anybody who has a question right now?

Question-and-Answer Session

Unidentified Analyst

I have one, have you increased your sales force by about 150 or so, how impactful has your increase in sales force, especially the increase that you didn’t get this 1 Jan, then in influencing growth of sales for your three key products such as GLUMETZA, CYCLOSET and FENOGLIDE, and is there one particular product that you could identify that’s been most beneficially impacted by your increase in sales.

Debra P. Crawford

Yeah, just to clarify, in the beginning of this year, we added 40 sales reps to the base of 110 that we currently had employed and we did that to our contract sales organization. I would say that although we’ve seen some nice growth in our prescription trend, we’ve not yet seemed that beneficial impact of adding those sales reps. It really thinks it takes a bit of time for a sales rep to become acquainted in the status of relationships with the physician, and so we look to later this year and into the second half of the year things that continue growth and acceleration in our marketed products. I think primarily CYCLOSET will benefit from these increased resources and that is the product that takes a little long time when discussing it with the physicians, but certainly we also anticipate GLUMETZA will benefit as well.

Unidentified Analyst

And kind of looking ahead for UCERIS, which one has received that approval, do you think that you are going to be needing to add additional sales reps?

Debra P. Crawford

Yes. Right now we anticipate, with approval we would add 80 sales reps or in that neighborhood and since they still have a full complement of 230 sale reps promoting this product to gastroenterologists while also promoting our current marketed product to the endocrinologists. So it’s really more of a design whereby we can reduce the territory side and increase the frequency of calls of physicians and we feel very good that that will allow us to have an effective launch with UCERIS. I think Wendell mentioned that previously Santarus has sold to gastroenterologists with our ZEGERID product. So a number of our 110 reps that has been with the company for some time have existing relationships with gastroenterologists and are looking forward to the opportunity to provide these product to them.

Unidentified Analyst

Thank you.

Unidentified Analyst

I just want to build a block from the past, how should we think the scenarios around ZEGERID, is it still outstanding?

Debra P. Crawford

Yes. Just for a little bit of background, our ZEGERID product we received an unfavorable patent decision after the litigation in 2010. And so as a company we filed for an appeal that hearing was held in May of last year. So we have been waiting a little over one year for the outcome of that appeal. When you think about the different scenarios, what that could mean, I think it’s important we appreciate the potential of having a reversal, but the most likely scenario is an affirming of that decision. And if that were to happen, we feel we’ve already restructured our company and have felt the impact of the generic introduction. There’s currently one generic available for us over a capsule product and we have an authorized generic on the market as well.

Under the other scenario, possible scenarios could include a [remand] of the decision back to the lower court, that might create an opportunity for us to have discussions with the generic company, really would depend upon when instructions are given to the lower courts, it could be administrative in nature, we just don’t know at this time. and then there is small possibility of a reversal and certainly a reversal could have very meaningful positive upside for our company.

Unidentified Analyst

You said the Phase III enrolment completion is targeted for the third quarter of this year, how should we think about the availability of data in terms of timelines on that one?

Wendell Wierenga

As I mentioned, we’re anticipating a filing that would include our partners data back to [talk], and that would be dependent as well on their timeline from what we understand there are on a pretty similar track to completing their Phase III clinical trial this year. Now that could change, but that’s the most recent information that we have in front of time. So the plan will be when they have completed their study and ours is complete, we would obviously have a discussion of pre-NDA meeting with the FDA to talk about the package profile.

Unidentified Analyst

I have another question for GLUMETZA, you’re running a eVoucher program, can you talk a little bit about the genesis of that idea how long he has been, how long this program has been in effect and what kind of impact that you are seeing, are you seeing in expansion end users or a decrease in discontinuation or combination of both?

Debra P. Crawford

Yes, certainly with the GLUMETZA product, we began offering a co-pay assistance program in electronic voucher system in September of last year. And the rationale behind doing that is the metformin market is predominantly a generic market. And in that regard, we were seeing a number of prescriptions that have been written for GLUMETZA being switched to generic at the pharmacy, even though there is not an AB rated product to GLUMETZA.

So we had very high rates of losing prescription and so with the eVoucher what we are able to offer the patient is an opportunity to utilize GLUMETZA, which we feel has differential advantages in terms of the GI side effect profile versus the metformin that the generics are offering, but they could do it at a cost effective price. Generally speaking, we cover the difference in their co-pay down to $10. And so it puts them more on a level playing field with the generic co-pay. And we just feel that that provides an opportunity for physicians to consider prescribing GLUMETZA especially for their patients to the PAD GI side effects for the metformin product and potentially have better compliance with the product and certainly today we have seen a nice response to that program. I think that is reflected somewhat in a prescription trend that Wendell had shared with you. Any other question from the phone.

Unidentified Analyst

I have a question regarding the product formally known as [Lucent], can you talk to us about what’s the current standard of care treatment is for acute hereditary angioedema and what kind of advantage is your product would have against those?

Wendell Wierenga

Well the reason for the using of C1 Esterase Inhibitor is that it’s been demonstrated in PAD the problem with hereditary angioedema is in part lower levels of the proteins in patients and as part of the (inaudible), these are because of a mutation that leads to lower levels or because of protein that’s non-functional or other reasons hereditary mutation.

So replacement treatment has been there for quite some time, and (inaudible) from human plasma. The treatment has been advanced over the last couple of years with other types of approaches such as interventions in the complement cascade kallikrein inhibitors beta kind antagonist and these have recently entered in terms of treatment of acute hereditary angioedema as well. They are working across by other mechanisms.

The reason for [covenant] protein in this particular space is the fact that you can’t have virtually unlimited supply, and secondly, we believe that it is ultimately a safer product both from the point of view of its preparation and purification, but also in terms of the efficacy that you see with it, benefit risk ratio in terms of high response rate, and virtually no rebound at all. So we’re looking at those two features as differentiating features in the landscape of treatments of hereditary angioedema.

Unidentified Analyst

And you’ll be addressing physicians and group or just, probably not had too much penetration within the past quarter strategy to get your sales force to make immediate penetration?

Wendell Wierenga

Well, part of this is at this is a very patient informed population. They have patient efficacy groups that are very active, very strong. And the combination that I’m addressing those key Allergist that are seeing these patients together with the patient efficacy groups or where we’re going to focus our attention and have already focused our attention. The recognition of recombinant C1 inhibitor based on market researches, it’s already reasonably high both in Europe where it’s already been launched as well as people in the U.S.

Unidentified Analyst

Okay, that’s (inaudible).

Wendell Wierenga

And I think we’re out of time. So, thank you very much for your presentation today and thank you everybody for joining us.

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