Santarus Inc. (SNTS) recently received a milestone payment of $20 million related to the approval of the over-the-counter (OTC) version of Zegerid on December 1, 2009. The OTC version has been developed under Santarus’ agreement with Merck (MRK) whereby Merck gained exclusive rights for the development, manufacture and sale of Zegerid OTC products in the U.S. and Canada.
 
Zegerid OTC received approval from the U.S. Food and Drug Administration (FDA) for OTC treatment of frequent heartburn. Zegerid is Santarus’ lead product, accounting for approximately 80% of total revenues in the third quarter of 2009.
 
Santarus markets the Zegerid family of products, which are proprietary immediate-release formulations that combine omeprazole (Prilosec), a PPI, and one or more antacids. Zegerid is approved by the FDA for the treatment or reduction of the risk of a variety of upper gastrointestinal diseases and disorders. Zegerid is currently marketed as capsule and powder for oral suspension dosage forms.
 
The approval of the OTC version of Zegerid is a major positive for Santarus. Over and above the $20 million milestone payment from Merck, Santarus could also receive up to $37.5 million in sales milestone payments along with low double-digit royalty on net sales.
 
In addition to ensuring a steady source of revenue for Santarus in the form of milestone payments and royalties on sales, the launch of the OTC version in the $1.7 billion OTC market will also help increase awareness of the Zegerid brand of products.
 
Merck intends to launch OTC Zegerid in the first half of 2010. The drug will be sold by the Schering-Plough Health Care Products division, which was acquired by Merck in November as part of its acquisition of Schering-Plough.
 
We have an Outperform recommendation on Santarus. The company’s flagship product, Zegerid, has captured a nice niche of the gastroesophageal reflux disease market, and the company has good upside potential with the product through its partnerships with GlaxoSmithKline (GSK), Merck and Norgine. We are also impressed with management’s ability to in-license new products and expand its pipeline.
Read the full analyst report on “SNTS”
Read the full analyst report on “MRK”
Read the full analyst report on “GSK”
Zacks Investment Research