A month ago, I suggested Avanir Pharamceuticals at a little over $3 a share. I wrote that I believed they would get approval for their drug, Neudexta, and that they were significantly undervalued moving forward. Not only did they receive approval, but the stock shot up to almost $6 and has now settled in the high $4’s. Santarus, Inc. (NASDAQ:SNTS) is another company with tremendous potential and a unique pipeline.
In the second quarter of 2010 results showed solid revenue from Glumetza and Zegerid as Santarus raked in $41 million dollars from these products. This was a 22% increase from a year earlier. I expect an update during the November 8th third quarter conference call from Santarus in regards to how the competing generic Zegerid product has impacted sales. I expect another very solid quarter from Santarus, with updates on their undervalued pipeline.
Santarus has two main products that it receives revenue from, Glumetza and Zegerid. Glumetza is an oral anti-diabetic drug. It is the first-line drug of choice for the treatment of type 2 diabetes. Zegerid, is a medication designed to provide continued acid control for patients with gastroesophagael reflux disease (GERD). In April, the United States District Court ruled against Santarus in a patent case involving its drug Zegerid. This ruling allowed a generic of the drug to be sold in June and created worries about Zegerid sales. Although the full impact of the generic product being sold is not known, Santarus has done a great job of advancing its rich and valuable pipeline to explore other means of revenue in the future. Not only is the pipeline strong, but I still believe Zegerid sales will be solid and not take a wild downturn as a result of the generic competition. Keep in mind Santarus has appealed that ruling by the court, and is expecting a decision from the appeal in the coming weeks. Any positive ruling could see a huge pop in the stock price.
Many things have been happening at Santarus which gives me a very bullish feeling about the company. Glumetza sales continue to be on the rise and partner Depomed recently stated that the 1000 mg tablets are selling very well. The 500 mg tablets have been recalled and are still unavailable, but Depomed assured investors in their conference call last week, that they expect those shipments to begin again in December. Santarus has done a great job of exploring and creating other means of revenue for the near future. In September, Santarus acquired the rights to Cycloset, another type 2 diabetes drug, which it plans to begin selling in the next few weeks. Cycloset should be a very valuable drug and bring in significant revenue to Santarus. In fact, company executives recently stated that they believe the combination of Glumetza and Cycloset sales will bring in anywhere from $300 to $400 million in peak sales. Santarus will owe the drug’s developers, S2 Therapeutics and Veroscience, 35% of the gross profit from the drug. That still leaves plenty of cash for Santarus to add to their revenue stream.
The pipeline at Santarus:
The main focus right now from the pipeline is on Budesonide MMX, a treatment for ulcerative colitis, which Santarus owns with Italian partner Cosmo Pharmaceuticals. In late September, Santarus reported positive results from their phase III trial of Budesonide MMX in the United States. They will be releasing data from their phase III trial of Budesonide in Europe in the coming days, and according to CEO Gerald T. Proehl, Santarus is excited to submit an NDA in the coming months, “"These positive results are a major step toward the submission of a New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA) for Budesonide MMX 9 mg for the induction of remission of mild or moderate active ulcerative colitis," said Gerald T. Proehl, president and chief executive officer of Santarus. "Assuming positive results in the European clinical study we plan to submit the NDA in the second half of 2011 following the completion of an ongoing double-blind, placebo-controlled extended use study."
With the launch of Cyloset due this month, the Budesonide MMX phase III data due from Europe in the coming days, growing revenues, and a strong pipeline, Santarus has both short and long term catalysts that will move the stock price much higher than where it currently is. Finally, with a market cap of around $190 million, under 60 million shares outstanding, and lots of cash in the bank, Santarus is very undervalued in my opinion. I rarely believe small cap companies are true buyout candidates by bigger pharma, but for the reasons listed in this article, I truly believe Santarus is certainly on the radar screen as a serious acquisition candidate in the coming months.
Disclosure: Long SNTS
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