Gerald Proehl - President and CEO
Good afternoon. Thanks for staying for the end of the day. Before I make any forward looking statements, I’ll just refer you to our SEC filings.
I’ll give you just a quick overview of Santarus. Number one, we are a specialty pharmaceutical company and we are profitable. We have four current products on the market, three of which we’re actively marketing, Glumetza, Cycloset, and Fenoglide, and Zegerid, which we don’t currently actively market.
We also have a nice development portfolio of four products that three of them are in late stage development: Uceris, which is currently at the FDA being reviewed; Rifamycin SV MMX, which we announced positive Phase III results in the first Phase III study within the last couple of weeks; and Ruconest, a recombinant C1 inhibitor. We expect to announce results from the Phase III study in the end of October or first half of November. And then we have an early stage antibody program. It’s an anti-VLA-1 antibody we call SAN-300, which is in Phase I. We expect to complete Phase I this year and then have results first half of next year.
This will give you a quick overview of the size of the opportunities. We think with Glumetza, Cycloset, and Fenoglide we’re looking at about $300-400 million peak sales. With regard to Zegerid, I’ll talk a little bit more about that. We just won an appeal on Zegerid, and so we don’t include that in that. Certainly we expect to see a nice increase in our sales from Zegerid over the next four years. On the development products, somewhere around $500 million in total sales, and I would say Uceris makes up at least $300 million of that.
We currently have 150 sales representatives. They’re calling on endocrinologists, about 2,500 endocrinologists, and about another 7,000-8,000 primary care physicians. These are physicians that are high prescribers of Type II diabetes products, and we promote Glumetza, Cycloset, and Fenoglide to those physicians.
With the approval of Uceris, we would look to add about 85 sales representatives. Our current plan is over the next three months to go through an interview process, identify those 85 reps, and provide them with contingent offers, and then based on approval of Uceris, we would go ahead and move forward with hiring those reps. Likely, then, bring them into a training and launch meeting in February and plan on launching the product late February early March.
With Ruconest, we’d need to call on a different target audience. We’d need to call on allergists and immunologists, and it’s going to require about 25 sales representatives. It’s a very specialized orphan drug type of indication. And then certainly down the road with SAN-300, we would look to add about 30 reps to call on rheumatologists.
The way to think about our company is really we’re continuing to look to leverage our sales organization. So in the case of our current sales reps, we initially had Glumetza, we added Cycloset, we added Fenoglide, and we’re still actively looking to probably add one additional marketed metabolic product. And we’re actively looking for products that would fit into the reps’ bag. In the case of the GI sales force, we’ll be selling Uceris, Zegerid, Rifamycin, and we’re actively looking for additional GI products.
The way to think about, longer term, how we’ll manage the business is as we move into more specialized markets our SG&A as a percentage of revenue will continue to go down. Our R&D as a percentage of revenue we expect to stay fairly flat. And the reason that the R&D will stay fairly flat as a percentage of revenue is our current development products we think have opportunities not only in the current indications, but second and third indications. And I’ll talk a little bit more about that when I get into the products.
Some of you might be aware that we had a positive outcome on the appellate court. These things don’t happen that often. We certainly thought we should have won at the lower court. We didn’t win at the lower court, and Par launched their generic product in 2010. We had our oral arguments in May of 2011 and 16 months later the appellate court overturned the lower court’s decision on 11 of the claims that cover our capsule and powder for oral suspension.
Fairly soon afterward, Par stopped shipping their generic product. I’m sure, based on what they’ve said publicly, that they will appeal to either the three judge panel on the appellate court or they’ll appeal en banc, or to the entire appellate court. About 3% of the cases the appellate court will actually hear on appeal. It’s usually within a 30-day period that companies have to appeal that decision.
So we’ll wait and see what happens there. We think the probability that the appellate court will hear the appeal is low, but in some cases they do. There is an option for Par to also appeal to the Supreme Court. We don’t believe that this is the type of case that the Supreme Court would likely take up.
That being said, assuming that the appeal is not heard by the appellate court or Supreme Court, this will be remanded back to the lower court, to the Delaware district, back to Judge Sleet, to assess damages. Typically, in that type of a trial, it will go to a jury. Our lawyers tell us it will typically take about 12 months to get to a jury trial.
So it’s going to be some time, but we expect that the damages that we will receive will be significant based not only on the damage that we’ve had over the past two years, but the damage to our brand that will extend all the way to July 2016 when we lose patent.
You can see the sales here for Zegerid. One thing I want to explain about the current situation is Par pulled their product off the market. We sell an authorized generic through Prasco. They should pick up most of that business. Prasco has, since the decision has come down, actually increased the price of their authorized generic, and most of the Par business will likely come over to the Prasco business.
The Prasco generic that they’ve been selling with their particular customers, they have contracts that are anywhere from one to six months, with price protection. So it may be about another average about four months before we start to see the higher price for Prasco’s authorized generic start to actually come back to us. So we think we’ll start to see an effect in the fourth quarter. We’ll see a bigger effect in the first quarter, and in the second quarter of 2013 is when we’ll see the full effect of Par coming off the market and Prasco increasing the price of their authorized generic. And as I said, we’ll see this until July 2016.
Moving on to our other marketed products, Glumetza is an extended release metformin product for Type II diabetes. The main difference between our product and generic metformin has to do with the lower GI side effects. Many patients who go on generic metformin, as you titrate the dose up to 1,000 or higher, they start to get significant GI side effects. And either the doctor can’t titrate any further and has to add a second product on, or the patient many times will stop taking the product.
With Glumetza, because it extends release over a six to eight hour period, it actually reduces the GI side effects and it allows the physician to go all the way up to 2,000 mg without the GI side effects. The advantage is you can actually optimize metformin, get much better HvA1c control, and because we offer an e-voucher program to patients with a $10 copay, you can keep the copay down for these patients for a much longer period of time until they go to a second product.
Typically, when they go to a second product, they’re looking at anything from a $25 to a $50 additional copay. So it’s really not only good for the physician treating the patients, but very good for the patients. And you can see we had very nice growth, 34% TRX growth, over the previous quarter, in the second quarter. We expect that to continue, and the main reason is the amount of market opportunity we have.
So this is what it looks like for our called on position, so about 10,000 to 12,000 docs we’re calling on. They wrote about 300,000 Glumetza prescriptions over a 12-month period. The same doctors wrote almost 8 million generic prescriptions.
With a $10 copay now on Glumetza, we’re starting to see doctors actually write more of Glumetza first line, before they even go to a generic metformin. And particularly in those patients that they know may be on other products that would cause GI upset, let’s say they’re on NSAIDs, or those types of things, or maybe they’ve reacted in the past to products and had GI upset, so they can go right to Glumetza and be able to get them up to the 2,000 mg.
So the upside for Glumetza is really very significant. We think we’ll be able to continue to grow this product for some long period of time. And the product actually has patents until 2016. We have a settlement with Lupin. It was the first filed generic. And they will be launching February 1 of 2016.
Our second product is Cycloset. Cycloset is bromocriptine mesylate. It’s the first centrally acting product for Type II diabetes. It’s a very interesting product. It’s the first product approved for Type II diabetes under the new FDA guidance that requires a large cardiovascular study. You can see here in the study there was actually a 55% reduction in what they call MACE, which are MIs, cardiovascular, stroke, and cardiovascular death. That’s a significant reduction over a 12-month period.
And these were patients, they were Type II diabetics, that were being maintained on a variety of products. So they were being treated by physicians as best they could be treated, and then 2,000 patients got Cycloset, 1,000 got placebo, and then we looked at the event rate over a 12-month period. And you can see a very nice overall event rate.
We’re continuing to see good growth in this product in both NRXs and TRXs. One of the things that we’re actively doing right now is we’re working with the Endocrine Society in order to get Cycloset into their guidelines. It isn’t currently in their guidelines. We expect them to incorporate it in either late this year or first part of 2013. From what we hear from the folks we’ve talked to, it’s likely to say use Cycloset as early as second line, behind metformin, for patients that have multiple cardiovascular risk factors.
If you know anything about Type II diabetes, that would represent about the majority of the Type II diabetics out there that have multiple cardiovascular risk factors. So we think it has very nice upside potential and particularly with the endorsement of the Endocrine Society.
Our third product I mentioned is Fenoglide. It’s a fenofibrate product for cholesterol. We licensed this product in late 2011, and we’ve seen nice growth from the product. It was actually initially launched by Sciele. It was growing nicely. They got bought by Shionogi. The product went back to Cowen Royalty, and we picked up the product and began promoting it.
It’s not a big product. We don’t expect it to be a big product. It’s a third detail for us. But it’s another product we can put into our sales rep bag, and it gives us nice profits on the go-forward basis through 2015.
Probably the most exciting thing on a go-forward basis for us, actually, other than the money we’re going to get from Zegerid, is the launch of Uceris. We have a PDUFA date. Initially it was October 16. The GI division of the FDA extended it by 90 days until January 16.
It seems like most of the products going through the GI division, if anybody follows those products, many of them have been extended by 90 days. This gave the FDA an opportunity to complete their inspections of some of the clinical sites.
The Office of Scientific Investigation has set up times to go visit clinical sites, part of it I think because it fell in the August timeframe when either the FDA was on holiday or Europe was on holiday. They ended up setting up inspections in September, some of them in the second half of September. And that was bumping up against the PDUFA date, October 16, so the FDA took the opportunity to extend the PDUFA date by three months.
We do also have a Phase IIIB study ongoing. The difference between the clinical studies for the current NDA and the Phase IIIB has to do with the current NDA has studies that were first line therapy. The Phase IIIB study and studies that are add-ons to 5-ASA.
The reason we’re doing the Phase IIIB are really a couple of things. Number one, we think many physicians, the way they’ll treat their ulcerative colitis patients is they’ll start them on a 5-ASA, they’ll maintain them on that. When they flare, they’re likely to add Uceris on top, and not withdraw the 5-ASA. Once the patient goes into remission, they’ll take the Uceris off and maintain them on the 5-ASA. And so that’s why we’re doing this study.
The other reason we’re doing this study is we actually found that in our initial two studies, if you look at remission rates relative to some of the other studies, like a Lialda, there were a couple of things that were different. Number one, exclusion criteria. So in the Uceris studies we took pretty much all comers. If you previously failed a 5-ASA, you came into our study. If you previously failed a steroid, you could come into our study.
In the Lialda Phase III studies, if you had previously failed a 5-ASA, you didn’t enter their study. While the majority of patients, as I said, get put on 5-ASAs. And the only reason they would enter in the study is if they were flaring. Which means essentially they failed the 5-ASA. So most of the patients that went into the Lialda study would be mild patients, relatively naïve, whereas we took many more moderate patients. About two-thirds of our patients were moderate, and about a third were mild.
The second thing we’ve done is we’ve gone from doing two colonoscopies to two sigmoidoscopies. Part of that was to help enrollment. Who wants to have two colonoscopies within an eight-week period. The second thing is we believe that we’re likely to see improved remission rates, just by virtue of doing a sigmoid, where you’re only looking at a portion of the colon versus the entire colon.
And that will help us from a marketing perspective as we go out into the marketplace and we just get compared, at least by our competitors, looking at our remission rates compared to their remission rates. So that’s a couple reason for doing the Phase IIIB. We expect enrollment to complete middle of next year with data second half of next year. And we have patents that expire in 2020 on Uceris.
So that’s what the marketplace looks like. You can see all of the products, other than Entocort Ec, are 5-ASA products. All of them are proved for ulcerative colitis. The only product on there that’s approved for Crohn’s disease is Entocort Ec. It’s approved for Crohn’s. Peak sales of Entocort before it went generic were about $375 million.
Just one thing to point out, of all the 5-ASAs, Pentasa, based on its release profile, is typically about 70% of the time prescribed for Crohn’s and about 30% of the time for ulcerative colitis. The rest of the products all prescribed for UC. Lialda, if you look at the left, on prescription growth, is the fastest-growing product. Lialda was developed by Cosmo. They developed the MMX delivery to deliver the product to the colon. They used a similar technology to develop Uceris and Rifamycin, which we’ve licensed from Cosmo.
So we have a delivery system technology that we know works. The FDA is familiar with it. We have Budesonide, which we know works in inflammatory bowel disease. It works in Crohn’s with a delivery system to the small intestine. And we’ve put those together, so we think we have a very good product and a very effective product.
Where will it be used? Primarily we’re going to be used after 5-ASAs, before systemic steroids. As doctors get more comfortable, and they’re treating new patients, we think that ultimately what they’ll do is they’ll use a 5-ASA and Uceris at the same time. And then once the patient gets under control, they’ll take the Uceris off and keep them on the 5-ASA.
We’ve gotten very little pushback from physicians about this concept. They dislike systemic steroids, the side effects, not only the short term effects, but the long term effects, on bone mineral density. The other products they typically use would be azathioprine, [unintelligible]. Those are also pretty nasty products. So we think we have a very good position within this market.
Here’s the clinical data. I won’t spend a lot of time on it. Highly statistically significant results you can see at the bottom. In the U.S. trial, we had as a reference arm Asacol. Remember if I go back there, that’s the product that’s doing $770 million. We performed better than they did in our study, and in the European study we had Entocort, and we performed better than Entocort also.
So we feel we have a very effective product. The side effect profile is very good with this product. Our absorption is about similar to what Entocort had, about 10% of the budesonide actually gets absorbed. So very good absorption of the product.
I mentioned the Phase IIIB. I won’t spend much time on it. It’s on top of 5-ASA, eight week course of therapy. We’ll look at remission rates.
Ruconest is our second product. It actually will read out late October, early November. It’s a recombinant C1 inhibitor for hereditary angioedema. Two studies have already been completed. This is a third study, 75 patients. It’s a three to two design, 45 patients on active, 30 on placebo. We think this will be a best-in-class product. It’s a recombinant C1 inhibitor, two [plasma-derived] products, Cinryze and Berinert.
We think recombinant products, by virtue of being recombinant, are safer products for patients. And we think it will be the most effective product. We do have a patent on this product. It will have an orphan drug, seven years exclusivity. It will also fall underneath the biologics, with 12 years of exclusivity.
These are the two Phase III studies that were completed. The European study had 100 units per kilogram. The U.S. study, 100 units and 50. The current studies have 50 units per kilogram. You can see on the right, very highly statistically significant results.
The marketplace is evolving. Cinryze is the first product approved. They’ll do somewhere around $300 million. As more products have been approved for acute use, you’re seeing the movement over in that direction. Also, you’re seeing more patients on steroids move over into acute treatment. We expect that will continue to happen.
We also expect more patients will actually seek treatment, and they’ll treat more of their attacks on an ongoing basis. Currently it’s estimated at about a $400 million marketplace. We expect it will be about a $600 million to $800 million market.
I mentioned Rifamycin SV MMX. We completed the first Phase III study in traveler’s diarrhea. Highly statistically significant results. The second study is being done by Dr. Falk Pharma. It’s a noninferiority study versus ciprofloxacin in India. They expect to complete enrollment sometime around the middle of next year. It will be about 1,000 patients. Once we have that data, we’ll take their data and our data, and we’d look to submit the NDA probably first half of 2014.
Here’s the data here. You can see 46 hours to time to the last unformed stool for Rifamycin, and 68 hours for placebo. Highly statistically significant results. The overall adverse events were outstanding. Really, just like placebo. We think this is a very effective product, and looking forward to getting the data from Dr. Falk Pharma next year.
This gives you a look at the intend to treat population. You can see it broke very quickly from placebo and stayed like that throughout the study.
SAN-300, our anti-VLA-1 antibody, some people aren’t interested in this, because it’s early stage. This has the potential to be a blockbuster product. There were a lot of preclinical studies by Biogen, everything from IBD, RA, psoriasis, organ transplant, with very stunning results.
We’re currently enrolling RA patients in a Phase I single dose study using our IV formulation, and we’re also enrolling normal subjects in our sub-cu formulation. Expect to complete that this year and enter the Phase II study with our sub-cu formulation in a multidose, dose-escalating study in RA patients. Starting that sometime mid-2013.
This gives you a quick look at our quarterly results. You can see we’re profitable. We’re continuing to start to increase profits. With the Zegerid win and the launch of Uceris next year we think we’ll see a nice acceleration of overall profits.
One of the things we did was we provided guidance and we do that at the end of every quarter. So at the end of the second quarter, we updated our guidance, $200 million in revenue, $8-11 million in net income, and $24-29 million of adjusted EBITDA.
And the reason we started going to adjusted EBITDA is while it doesn’t track exactly to cash, it’s certainly more closely aligned to cash than our net income, just based on the fact that we amortize up-front payment and then Cosmo, typically in their milestones have taken their milestones in shares. And I will mention that on launch of Uceris, we’ll have a $7 million milestone. They haven’t decided, yet, obviously, whether or not they’ll take it in shares or cash.
This looks like our second quarter. You can see, just under $50 million in revenue. We feel very good about the revenue trend. Certainly adding Zegerid into that, adding Uceris into that, we expect to see a very nice acceleration in revenue, and even a nicer acceleration in the bottom line as we move through 2013 and 2014.
So, in closing, here are our goals: focus on driving prescriptions of our current products, getting ready to launch Uceris. We expect it to be a very nice launch, and we’re very focused on that. And then preparing for dealing with the FDA on Ruconest, Rifamycin, and then moving SAN-300 through development.
So we’re excited about the future. Things have fallen our way over the last month, and we’re prepared to really execute on those things. Somebody asked me earlier, do you have enough Zegerid. Our manufacturing people were certainly hoping for a positive win, and we had about six months’ worth of Zegerid available to ship, so we won’t miss any prescriptions.
Thank you very much. I think we have a breakout session downstairs. I’m happy to answer questions downstairs.
No Q&A session for this event.
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