Glumetza Growing Big for Santarus (NASDAQ: SNTS) and Depomed (NASDAQ: DEPO)

Early last year, the FDA approved a new drug in the fight against adult-onset, type II diabetes; Glumetza. Glumetza is a new form of Metformin, a generic drug with many problems in uptake and gastric side-effects.

Glumetza is a long-acting, timed release, once daily version of the drug that now finally can take full advantage of the effects of Metformin to normalize blood sugar in patients with type II diabetes while minimizing the side-effects associated with Metformin. The drug works by reducing the amount of sugar produced in the liver, and the amount of sugar absorbed in the body. It also helps the body respond better to its own insulin, thereby reducing instances of damaging high levels of blood sugar. Think of Glumetza as a once-a-day wonder drug for the approximately 19 million people in the US suffering from adult-onset, or type II diabetes.

Since the FDA approved the drug early last year, it has slowly started to penetrate the marketplace. The small company behind the drug is Depomed (NASDAQ: DEPO) of Menlo Park, CA. Late summer last year, Depomed inked a deal with a larger company, Santarus (NASDAQ: SNTS) of San Diego, CA, to market and sell the drug in the US using its well established sales and marketing network.

In the deal, Santarus paid Depomed an up-front payment, while Santarus in turn will receive 75-80% of the gross margin from sales of Glumetza. Both companies were winners in this deal, as Depomed received much needed cash in the credit crunch and cash strong Santarus will have huge earnings potential as sales of Glumetza takes off. The market potential for Glumetza is so large that pharmaceutical companies are lining up to get a piece of the pie. Their technology has already been challenged by Bristol Myer Squibb (NYSE: BMY) and Ivax, a subsidiary of Teva Pharmaceuticals (NASDAQ: TEVA), and in recent news, Lupin Pharmaceuticals is again attempting to invalidate their patents.

I see little cause for concern as Depomed has already reached other agreements with both Ivax and Bristol Myer Squibb, and this market is big enough for multiple players. In the longer run, it is Santarus who stands to make the most from Glumetza of course. Santarus started marketing the drug in the fourth quarter of 2008, and after a year can now show a very promising growth in the sales of Glumetza with prescriptions currently at around 79,000 patients at the end of the third quarter, turning in a 20% growth over the second quarter of this year.

Most patients on the drug will be on it permanently, and since there are 19 million type II diabetes sufferers in the US, the room to grow here makes Glumetza a potential billion dollar blockbuster drug, and sales should continue to see exponential growth as the word gets out to physicians and patients across the country. Although the growth in sales is currently at a rate of doubling every year, it can become even more explosive at any moment as reimbursement for the drug is expected to become widespread. It is not a very expensive drug in the first place at about $4 per day, making the price about $1500 per patient per year depending on the dose, which is customized for each patient with help from their physician.

Disclosure: Long SNTS

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