Santarus, Inc.
(SNTS) reported third-quarter earnings of 9 cents per share, surpassing the Zacks Consensus Estimate at a loss of 1 cent and the year-ago loss of 8 cents. Total revenues, consisting of net product sales, promotion revenues, and license and royalty revenues, came in at $39.5 million, up 22% from the year-ago period.

Product-related revenues, which consist of net product sales and promotion revenues, increased 30% to $38.3 million in the third quarter of 2009. Zegerid net product sales were $31.5 million, up 12%. Total prescriptions increased 6.3% in the reported quarter. Competition in the proton pump inhibitor (PPI) market is likely to increase with the launch of generic versions of Prevacid and an over-the-counter version of Prevacid.

Promotion revenues of $6.8 million increased significantly from the prior-year period’s promotion revenues of $1.4 million, mainly due to revenues associated with the promotion of Glumetza. Glumetza total prescriptions increased 9.2% on a sequential basis.

License fee and royalty payments declined to $2 million in the third quarter of 2009, mainly due to the termination of the company’s co-promotion agreement with Otsuka America. Research and development (R&D) expenses increased to $3.4 million from $2.3 million in the prior year period, mainly due to the company’s 50% share of costs for the ongoing phase III development of budesonide MMX. This was partially offset by a decline in manufacturing development costs associated with a new Zegerid tablet formulation.

Selling, general and administrative expenses declined 7.7% to $26.3 million. The decline was primarily due to a decrease in advertising and promotional costs for Zegerid, which was partially offset by an increase in legal fees.

Santarus raised its earnings guidance for the year based on its expectation of higher revenues and lower clinical development costs. The company now expects product-related revenues of at least $141 million (old guidance: $138 million). Santarus expects at least $150 million in total revenues, up from the earlier guidance of total revenues of $145 million.

Santarus lowered its R&D guidance between $16 million and $18 million (old guidance: $19 million to $20 million). Although the company lowered its R&D guidance, Santarus stated that it remains on track to meet the clinical timelines for its late-stage pipeline candidates.

Santarus now expects to achieve net income of at least $10 million, a significant increase from the earlier expectation of achieving net income in the range of breakeven to $1 million. There could be additional upside to earnings if the over-the-counter (OTC) version of Zegerid receives FDA approval later this year, which would trigger a $20 million milestone payment from Merck (MRK).

We currently have an Outperform recommendation on Santarus. Its flagship product, Zegerid, has captured a nice niche of the gastroesophageal reflux disease (GERD) market, and the company has good upside potential with the product through partnerships with GlaxoSmithKline (GSK), Norgine and Merck.

The approval of the tablet and OTC formulations of Zegerid potentially later this year, as well as the launch of Zegerid around Europe, present potential positive catalysts for the company. Long-term, we like the position of the company, especially if Santarus can hold on to Zegerid until budesonide or rifamycin, or both, gets on the market.

Read the full analyst report on “SNTS”
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Read the full analyst report on “GSK”
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