Santarus' CEO Discusses Q1 2012 Results - Earnings Call Transcript

| About: Santarus, Inc. (SNTS)

Santarus, Inc. (NASDAQ:SNTS)

Q1 2012 Earnings Call

May 8, 2012 4:30 pm ET


Martha L. Hough – Vice President, Finance and Investor Relations

Gerald T. Proehl – President and Chief Executive Officer

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

William C. Denby, III – Senior Vice President, Commercial Operations

Wendell Wierenga – Executive Vice President, Research and Development


Frank Pinkerton – SunTrust Robinson Humphrey

Traver A. Davis – Piper Jaffray, Inc.

Annabel Samimy – Stifel, Nicolaus & Co., Inc.


Welcome to the Santarus Conference Call. At this time, all lines are in a listen-only mode. Following management’s prepared remarks, we’ll hold a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded May 8, 2012.

I would now like to turn the call over to Martha Hough. Please go ahead, ma’am.

Martha L. Hough

Thank you, David. Good afternoon, and welcome to today’s call. This is Martha Hough, Vice President of Finance and Investor Relations. Joining me on the call today are Gerry Proehl, President and Chief Executive Officer; Debbie Crawford, Senior Vice President and Chief Financial Officer, and Bill Denby, Senior Vice President of Commercial Operations. Dr. Wendell Wierenga, Executive Vice President of Research and Development also will be available during the question-and-answer session.

Earlier today Santarus issued a press release announcing our first quarter 2012 financial results, which is available on our website at Also a replay of this call 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 May 8, 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.

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

Gerald T. Proehl

Thank you, Martha, and welcome to this afternoon’s call. We are pleased to report a profitable first quarter on revenues that more than doubled from the prior year period to $45.9 million. We achieved profitability even with the $4 million regulatory milestone we paid to Cosmo Technologies for FDA acceptance for filing of the UCERIS NDA.

Higher net sales for GLUMETZA were the primary driver of our first quarter revenue growth, increasing 104% from the net sales reported by Depomed in the first quarter of 2011. We also benefited from positive sales contributions from CYCLOSET and FENOGLIDE. Although, we only began actively promoting FENOGLIDE in February, we are encouraged by the recent prescription trends we have seen for this product.

Importantly, our strong performance for the quarter is in line with our 2012 financial guidance for revenues of at least $200 million and adjusted EBITDA of $24 million to $29 million, which we are affirming today.

Our commercial portfolio was well positioned for future growth. We have completed training of an additional 40 sales representatives bringing our total budgeted sales force to 150 physicians and we expect that the higher call frequency afforded by our larger commercial organization will translate into increased prescriptions and net sales for all of our promoted products.

We are also making good progress with our development pipeline. As previous announced the NDA for UCERIS for the induction of remission of active ulcerative colitis is under review at the FDA with a PDUFA target action date of October 16, 2012. Additional data from our UCERIS 12-month extended use study will be presented in four poster session at the upcoming Digestive Disease Week Meeting, which is taking place in San Diego later this month. Three of the posters will be on Sunday, May 20, and the fourth poster will be on Tuesday, May 22. All abstracts are now available online at the DDW website.

In February, we began enrolling patients in our Phase IIIb clinical study to evaluate UCERIS as an add-on therapy to current 5-ASA drugs for the induction of remission of active ulcerative colitis. We expect to complete enrollment in this study in the first half of 2013.

The Phase III clinical study with RHUCIN for the treatment of acute attacks of hereditary angioedema is on track to be completed by the third quarter of this year. As a reminder the successful completion of this study will trigger a $10 million milestone payment to our development partner Pharming.

We are also on schedule with our Phase III clinical study with rifamycin SV MMX for the treatment of travelers’ diarrhea to complete enrollment in the third quarter of this year. And we expect the Phase I clinical study with our anti-VLA-1 antibody SAN-300 to be completed this year.

It’s been just over a year since we had the oral arguments in ZEGERID patent appeal. As we have indicated before the timing of the ruling is entirely at the discretion of the appealing court, but we plan to update shareholders when we receive the ruling.

As part of our ongoing efforts to increase the intellectual property protection on our product portfolio, we’ve recently worked with VeroScience to file a patent application for CYCLOSET under the U.S. PTO’s accelerated process. Under this process, the PTO generally completes its review in one year, and during this time the content of the application are confidential. We recently welcome two new directors to the Santarus board, Alessandro Della Chà and Dr. Matthew Strobeck. Alex is the Senior partner and a co-managing director of a boutique commercial law firm in Milan, Italy, and the director of Cosmo Pharmaceuticals, a key corporate partner.

Matt, has a buy side financial perspective and significant experience in life science investing from his prior position as partner at Westfield Capital. Both bring in strong business and industry expertise, and will be valuable resources as we built Santarus into our premier specialty biopharmaceutical company.

With that overview, Debbie, will review our financial results.

Debra P. Crawford

Thank you, Gerry. I’d like to add my welcome to those joining our call today. As Gerry, mentioned, total revenues for the 2012 first quarter more than doubled from the prior year period to $45.9 million. We’ve reported net income of $627,000, and diluted EPS of $0.01, which was impacted by the non-cash expense for a success-based milestone related to the FDA’s acceptance of the NDA for UCERIS. The milestone was paid to Cosmo in Santarus common stock and recorded a $3.7 million in license fees and royalties.

As comparison, in the first quarter of 2011, we reported a net loss of $516,000 or a net loss per share of $0.01. Adjusted EBITDA for the first quarter of 2012 was $7.8 million compared to $1.5 million in the first quarter of 2011.

Net product sales were $45.1 million with the breakout as follows. GLUMETZA net sales of $31.2 million, increased from the $15.3 million that was reported by Depomed in the first quarter of 2011. As comparison, in the first quarter of 2011, we reported $10.3 million of GLUMETZA promotion revenue under our previous promotion agreement.

CYCLOSET net sales grew to $3.6 million from $1 million in the prior year period. And FENOGLIDE, which we began promoting in February, had net sales of $1.8 million. ZEGERID brand an authorized generic product sales totaled $8.5 million compared with the $11 million last year. Given that we no longer promote ZEGERID, we expect that ZEGERID sales will continue to decline over time.

License fees and royalties were $16.3 million, an increase of $14.4 million over the prior year period. The increase was primarily due to royalties payable on our net sales of GLUMETZA, the gross margin split on CYCLOSET net sales, and the previously mentioned success based milestone for UCERIS.

R&D expenses increased to $5.2 million from $3.3 million for the prior year, primarily from costs associated with the UCERIS Phase IIIb clinical study, and higher compensation costs associated with an increase in R&D headcount.

Costs associated with the UCERIS Phase IIIb study for the first quarter of 2012 were lower than anticipated, and we expect R&D cost to increase as study enrolment kicks up throughout the year.

SG&A expenses were $19.8 million, an increase of $3.3 million from the prior year period, reflecting higher costs associated with the addition of 40 contract sales representatives, and associated sales management personnel.

As of March 31, 2012, we had cash, cash equivalents and short-term investments of $65.5 million, an increase of $6.9 million from our balance at December 31, 2011.

Turning to our financial outlook for 2012, we affirm that we expect to report the following. Total revenues of at least $200, a 68% increase over 2011 total revenues. License fee expenses will include the milestone paid to Cosmo for the acceptance of the UCERIS NDA, which we’ve already recorded, and a $10 million milestone to Pharming, which is contingent upon successful completion of the ongoing Phase III clinical study for RHUCIN in treating acute attacks for Hereditary Angioedema.

R&D expenses of $30 million to $32 million, of which roughly half are expected to be cost associated with the UCERIS Phase IIIb clinical study. Net income of approximately $8 million to $11 million, and adjusted EBITDA of approximately $24 million to $29 million.

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

William C. Denby

Thanks, Debb. The 40 new sales representatives added in January have completed training of the clinical attributes of our three promoted products, and they are integrated into their new territories.

We expect to see a positive impact from our larger sales force that now totals 150 reps in the months to come. Importantly, in late March, we held our National Sales Meeting, which provided additional training for our entire sales organization.

We are pleased with the steady growth in GLUMETZA new and total prescriptions. First quarter new prescriptions were up approximately 34%, while total prescriptions 36% compared with the first quarter of 2011.

We believe physicians are receptive to GLUMETZA differentiating features of controlled delivery and GI tolerability. New therapy starts have continue to increase and now constitute roughly 40% of GLUMETZA new business, which we believe indicates the physicians are using GLUMETZA more frequently as a first line of therapy.

CYCLOSET prescriptions also continue to increase as our message about improved glycemic control and the product’s demonstrated cardiovascular safety profile resonate with physicians in the first quarter. New prescriptions increased 67%, total prescriptions rose 172% both compared with the first quarter of 2011.

Physician awareness and education continue to be important in promoting the product. And in the coming months, we expect that the increased call frequency from our expanded sales organization will drive incremental CYCLOSET prescription growth.

We began promoting FENOGLIDE early February with the message of effective lipid control with the lowest fenofibrate dose plus affordability. Based on its history, we expect FENOGLIDE to be promotionally sensitive and we believe we are already beginning to see the benefit from our commercial activities.

For the period ending April 20, new prescriptions FENOGLIDE grew 17%, and total prescriptions were up 11%, compared with the four-week period ending February 3, just prior to the beginning of our promotion.

With the October PDUFA date for UCERIS, just five months away, we are actively preparing a successful launch of this product subject to FDA approval. We’re working on product positioning, messaging, campaign concepts and are developing our sales training materials. Many in our sales organization, previously called on gastroesophageal just to promote ZEGERID, and are looking forward to returning to the GI physician offices with the promising new treatment for (inaudible).

Also we very recently have been informed that the FDA has not accepted RHUCIN as a trade name. We will work with our partner, Pharming to submit alternative names to the FDA for consideration. And then in the meantime, we will refer to the drug as recombinant human C1 inhibitor.

I’ll now turn the call back to Gerry.

Gerald T. Proehl

Thanks, Bill. In closing, I’d like to summarize our major goals for 2012. They include, growing prescriptions and revenues for our marketed products; advancing our programs with UCERIS including conducting the Phase IIIb clinical study for the UCERIS add-on therapy in ulcerative colitis and preparing for the October 16, PDUFA date; advancing the clinical programs for recombinant human C1 inhibitor, rifamycin SV MMX and SAN-300; and finally, managing our business to achieve our revenue and profit objectives for the year. In addition, we will continue to explore options to accelerate revenue growth including through product or company acquisition.

With that overview, I’d now like to open the call up to questions. Operator?

Question-and-Answer Session


(Operator Instructions) And our first question is from Frank Pinkerton of SunTrust.

Frank Pinkerton – SunTrust Robinson Humphrey

Hey, great. Thanks for taking the question. Could you give anymore information or specificity on either patients or dosing numbers for the (inaudible) RHUCIN trial that’s ongoing, just to kind of give us a flavor of where we’re in the progress of that trial?

Gerald T. Proehl

Frank, this is, Gerry. In discussion with Pharming and several ended study, they prefer not to discuss the number of patients, other than to disclose that, we expect the trial to complete enrolment in the third quarter. So I’d like to tell you, but they ask that we not disclose that.

Frank Pinkerton – SunTrust Robinson Humphrey

Okay. And then just as a follow-up to that one. If they complete the enrollment in the third quarter, we expecting results how far, how long after?

Gerald T. Proehl

Fairly soon thereafter, as you know it’s only a total of 75 patients. So we don’t think it will be that much after the closing of the study that we have result.

Frank Pinkerton – SunTrust Robinson Humphrey

Okay, great. And shifting gears, can you just walk us through either share count at the end of the quarter or what to expect on diluted shares, given that the milestone was paid in shares as opposed to cash?

Debra P. Crawford

Yeah, certainly Frank, at the end of the first quarter, we had about 62.6 million shares outstanding. And we have currently option issued in outstanding is about $19.5 million.

Frank Pinkerton – SunTrust Robinson Humphrey

Okay, great. And then just last question, you’ve got the new sales reps on, and got them trained, Gerry, is this the appropriate sales size for the current products, and I guess kind of from the commentary you presented it sounded as if this was also the appropriate size, maybe to launch UCERIS just any thoughts there on, if you can accelerate scripts does it makes sense to expand the sales force further. Thank you.

William C. Denby

Sure, Frank. So I would say, number one, right now we think the 150 reps that we have promoting GLUMETZA, CYCLOSET and FINOGLIDE will see appropriate number. As we said before, as we move throughout the year, we’ll certainly do an assessment, but assuming that we are hitting our forecast goals for those three products, then we would look to add about 80 additional sales representative after approval of UCERIS in order to get to the 6,000 to 8,000 gastroenterologists we think we need to target.

Frank Pinkerton – SunTrust Robinson Humphrey

Thank you.

William C. Denby



Your next question is from David Amsellem of Piper Jaffray.

Traver A. Davis – Piper Jaffray, Inc.

Hi, this is Traver Davis on for David. Thanks taking the question. Just first on FINOGLIDE, what are you early takeaways and the promotion of the products, and I guess in February. And what strategic initiatives do you have planned to grow volume?

William C. Denby

Well, this is Bill Denby. First of all when we start prompting the product, we started to see almost an immediate response both in the growth of neuraxis and (inaudible). We also I think from a strategic standpoint decided to launch the [Evatra] along with FENOGLIDE, and I think that’s helped quite a bit, and reduced the abandonment rate at the pharmacy. But we think we’re well positioned for that product to continue to grow and be a significant contributor.

The other thing that I would add is, as we mentioned I think maybe on our last call, United Healthcare has taken Tricor and Trilipix off of their formulary. They get significant volume of prescriptions. Since we are on formulary to United Healthcare, we have an opportunity to actually get some of those patients, but now we have to pay full price on Tricor, Trilipix. So we think there is a nice opportunity to continue to grow this business, there is not significant differentiation in this marketplace. We do have the lowest dose product, but certainly with the $10 co-pay in addition to having lowest dose product allows us the opportunity to continue to grow the product.

Traver A. Davis – Piper Jaffray, Inc.

Okay. And saying on that, do you think pricing in its current state now is appropriate or do you foresee stepping up pricing over the course of the year and into 2013?

Gerald T. Proehl

I think, currently, we think we are appropriately priced in the marketplace, but on an ongoing basis, we reassessed pricing and make decisions on whether or not we would increase price. So that’s something that we do on an ongoing basis.

Traver A. Davis – Piper Jaffray, Inc.

Okay. And just lastly, any updated thinking on pricing for UCERIS and will it be similar to pricing of other agents in the space like anti core?

Gerald T. Proehl

We haven’t done any final pricing research. I would expect that it would likely be in the range of an anti core type of a product, it’s very similar. Typically, what you see with anti core, it’s priced more as an acute therapy, 8 week course of therapy for active disease, whereas a 5-ASA product is going to priced more as a maintenance type therapy that someone is going to be on probably for most of the year. And so we would expect since our indication is for induction of remission, it was 8-week course of therapy that will be more priced like anti cores 5-ASAs.

Traver A. Davis – Piper Jaffray, Inc.

Okay. Great. That’s helpful. Thanks a lot guys.

Gerald T. Proehl



(Operator Instructions) Your next question is from the line of Annabel Samimy of Stifel, Nicolaus.

Annabel Samimy – Stifel, Nicolaus & Co., Inc.

Hi, thanks for taking my question and congratulations on a good quarter. I just wanted to get your thoughts, you obviously had a strong quarter. You had some good (inaudible) FENOGLIDE, some good CYCLOSET traction. Any thoughts to raising guidance, it seems like we could easily reach that $200 million that you are getting at. So a few thoughts there on whether that’s just conservative or you are feeling optimistic for the outlook for the year?

William C. Denby

Yeah, I would say right now Annabel we feel like we are at our guidance, we maybe slightly above, but certainly not to the point where we feel comfortable raising the guidance. As we move through the year and probably as we look at our second quarter call, we will make an assessment there whether or not we would feel that it is appropriate to our raise our guidance and we are keeping our fingers crossed and maybe we will actually hear from the (inaudible) by that period of time and that would allow us to make some decision on what type of guidance we would want to provide.

Annabel Samimy – Stifel, Nicolaus & Co., Inc.

Okay. And then on FENOGLIDE, again back on the early signals, do you have a strong sense which physicians are most respective right now FENOGLIDE it looks like you are going to target the physicians who were treating also the diabetic patients, does that has a reception from those physicians as opposed to where you would normally just put in like a primary care settings?

William C. Denby

It’s been very good. First of all, with in our targets, there was some very high overlaps in our existing targets, because the product had been promoted by (inaudible) along side of Type 2 diabetes products. So many of these doctors were familiar with the FENOGLIDE to begin with and because of their comorbid conditions Type 2 diabetes up will have hyperlipidemia, mixed dyslipidemia and hypertriglyceridemia. So it’s really a more or loss an ideal set.

Annabel Samimy – Stifel, Nicolaus & Co., Inc.

And are the patients going on FENOGLIDE right now are new patients or patients who are switching from other fenofibrates, just any color there would be great?

Gerald T. Proehl

Yeah, I think it’s probably a mixture of both; doctors that have been writing are probably writing more and doctors that weren’t writing at all now are starting patients on it.

Annabel Samimy – Stifel, Nicolaus & Co., Inc.

Okay. And then just one more quick question on CYCLOSET, any update on the inclusion of CYCLOSET on the AACE guidelines, and what do you think of the impact of a more prescriptive recommendations might be other than just the AACE inclusion?

Wendell Wierenga

Annabel, this is Wendell Wierenga. The discussions with AACE committee regarding new guidelines are well underway and we are optimistic that we will be getting CYCLOSET in to the AACE guidelines this year.

Annabel Samimy – Stifel, Nicolaus & Co., Inc.

Okay, great. Thank you.


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

Martha L. Hough

This is Martha. I would like to add that we are going to be presenting at a couple of investments conferences later this quarter. Next week, we will be at Bank of America Merrill Lynch Healthcare at the Encore at the Wynn Hotel in Las Vegas, that’s on May 15; and then we will also be presenting at the Jefferies Global Health Care Conference at the Grand Hyatt Hotel in New York City, which is being held June 4 through the 7. Gerry, closing comments?

Gerald T. Proehl

Sure, Martha. Thanks. I would like to thank everybody to you interest in Santarus and for joining us on today’s call. If you do have any further questions feel free to give either me, Debbie or Martha a call. Have a great evening.


Ladies and gentlemen, that concludes your conference call for today. Thank you for your participation and we ask that you please disconnect your lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!

About this article:

Tagged: , Drug Manufacturers - Other,
Error in this transcript? Let us know.
Contact us to add your company to our coverage or use transcripts in your business.
Learn more about Seeking Alpha transcripts here.