As expected, Santarus (SNTS) reported a 3rd quarter loss after-hours Monday.  This was mostly attributed to reduced sales because of generic Zegerid competition, one-time costs and their diabetes drug GLUMETZA shipments did not resume in August, as originally anticipated.  The loss was more significant than analysts expected but, the company is still likely to rebound and has significant cash reserves to do so along with a solid pipeline.  Unfortunately, the recovery might not happen until sometime in 2011.

While this path to recovery, after they lost the heartburn drug Zegerid patent ruling, was expected to be rough, this loss still came in well-below estimates.  The company lost $25.7 million, or 44 cents per share, compared with profit of $5.3 million, or 9 cents per share, during the same period in 2009. Analysts expected a loss of 21 cents per share on $22.3 million in revenue.  Revenue fell to $18.1 million from $39.5 million and did not have GLUMETZA to help recover any of the revenue losses.

The loss was substantial which was partially due to higher one-time costs so, do not let that make you believe the quarter was worse than it really was.  This includes a one-time restructuring cost of $7.3 million and a $15 million upfront payment to acquire rights to RHUCIN.  The positive here is that the company has plenty of cash reserves and has shown the aggressiveness to increase their pipeline with it.  I would not rule out another acquisition in 2011 but first, SNTS has to start selling the drugs they have and increase their revenue organically.

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GLUMETZA shipments were supposed to resume this past August.   Now, it seems they may not ship until 1st quarter 2011 with a possible chance of being resumed this December.  CYCLOSET, a key short-term catalyst, seems to still be on-time to launch this month.

The conference call was unimpressive to me and focused a good amount of time around the CYCLOSET launch this month to build optimism after the terrible numbers released.  Since SNTS has been in a strong uptrend starting September 9th, I fully expect a strong pullback into the launch as market players continue to protect profits of as much as 50% since the uptrend started.  Having reduced my position to mostly profits before earnings were released, I will patiently wait to add after the dust settles.  However, I now see little reason to hold any significant capital in SNTS after the CYCLOSET launch. All secondary catalysts, such as GLUMETZA shipments resuming, are just not impressive enough and possibly too far away to continue to hold a large position with so many other bullish stocks to choose from at the moment.

Unless the stock recovers quickly and SNTS somehow manages a continued uptrend with minimal damage (After-hours, the stock is currently down 12% from $3.30 to $2.90 and always potential for downgrades), I won’t be holding much, if any, SNTS after the launch.  The opportunity cost is just too great and we have so many other stocks with impressive 3rd quarter earnings to choose from.  Instead of jumping the gun though and making predictions, we will see how the stock moves the rest of the week.  I would much rather react than predict.

As always, do your own homework to see if you agree.  Have a good night and I’ll see you in the morning.  Good luck out there.

Mike

At the time of publication, Kudrna was Long SNTS but positions may change at any time.