Santarus Reports Third Quarter 2009 Financial Results

November 4, 2009 4:05 PM EST

Net Income of $5.3 Million or $0.09 per Share; Total Revenues of $39.5 Million

Raises 2009 Financial Guidance; Expects Net Income of at Least $10 Million on Total Revenues of at Least $150 Million

Conference Call to Begin at 5:00 p.m. Eastern Time Today

SAN DIEGO--(BUSINESS WIRE)-- Santarus, Inc. (NASDAQ: SNTS), a specialty biopharmaceutical company, today reported financial and operating results for the quarter ended September 30, 2009. Key financial results for the 2009 third quarter include:

    --  Product-related revenue of $38.3 million increased approximately 30%,
        compared with $29.5 million in the prior year period.
    --  Total revenues of $39.5 million, compared with 2008 third quarter total
        revenues of $32.2 million.
    --  Net income of $5.3 million, or $0.09 per share, improved significantly
        from a net loss of $4.0 million, or $0.08 per share, in the prior year
        period.

"We are raising our 2009 financial guidance and now expect net income for the year of at least $10 million with total revenues reaching at least $150 million," said Gerald T. Proehl, president and chief executive officer of Santarus. "Our decision to increase financial guidance was due to our strong third quarter financial performance, including ZEGERID(R) and GLUMETZA(R) revenue growth, our expectation for lower overall expenses, and the signing of our licensing agreement for Europe."

Business Highlights

Key third quarter accomplishments and recent business highlights include the following:

    --  Grew ZEGERID (omeprazole/sodium bicarbonate) brand total prescriptions
        to approximately 294,000 in the third quarter of 2009, an increase of
        6.3% versus total prescriptions in the third quarter of 2008.
    --  Grew GLUMETZA (metformin HCl extended release tablets) total
        prescriptions to approximately 74,000, up 9.2% sequentially compared
        with the second quarter of 2009.
    --  Filed post-trial briefs in mid-August in the litigation versus Par
        Pharmaceutical following the bench trial that took place in the U.S.
        District Court for the District of Delaware in mid-July. During the
        trial, the Court issued a ruling of infringement by Par of the ZEGERID
        patents. The company is waiting for the Court's final ruling on validity
        and enforceability of the patent claims.
    --  Entered into a licensing agreement in October with Norgine B.V. granting
        exclusive rights to develop, manufacture and commercialize prescription
        immediate-release ZEGERID products in specified markets in Western,
        Central and Eastern Europe. Santarus received a $2.5 million upfront
        payment and may be entitled to receive up to an additional $10 million
        in milestone payments upon the achievement of certain regulatory events,
        subject to certain reductions. Norgine also will pay Santarus tiered
        royalties ranging from the mid- to high-teens on net sales of any
        products sold under the license agreement. Norgine is a leading European
        specialty pharmaceutical company with a focus on gastroenterology
        products and with commercial infrastructure in many European markets.
    --  Ranked as the 23rd fasting growing technology firm in North America by
        Deloitte's 2009 Technology Fast 500(TM) program, an annual ranking of
        the 500 fastest-growing technology, media, telecommunications, life
        sciences and clean technology companies in North America based on
        percentage revenue growth from 2004 to 2008.
    --  Announced positive data in poster sessions at the American College of
        Gastroenterology 2009 Annual Scientific Meeting from two
        investigator-initiated studies with ZEGERID. These studies were
        supported by grants from Santarus.
        o Poster P424: Randomized Open-Label Trial to Assess the Impact of
          Dosage Timing of Omeprazole/Sodium Bicarbonate (ZEGERID 40 mg) on
          Healing of Severe Reflux Esophagitis: Preliminary Results (D Francis,
          MD, et al)
        o Poster P833: Retrospective Assessment of Immediate-Release
          Omeprazole/Sodium Bicarbonate in Improvement of GERD Symptoms in
          Patients Who Failed Delayed-Release Proton Pump Inhibitors (J Jolley,
          MD)

Third Quarter 2009 Financial Results

Total revenues for the third quarter of 2009 were $39.5 million, consisting of $38.3 million in product-related revenue and $1.2 million in license and royalty revenue. Total revenues for the third quarter of 2008 were $32.2 million, consisting of $29.5 million in product-related revenue and $2.7 million in license and royalty revenue.

Net product sales of ZEGERID were $31.5 million in the third quarter of 2009, reflecting a 12% increase over ZEGERID net product sales of $28.1 million in the third quarter of 2008. Promotion revenue in the third quarter of 2009 of $6.8 million increased significantly compared with promotion revenue of $1.4 million in the third quarter of 2008, due to revenue associated with the promotion of GLUMETZA.

Santarus reported net income of $5.3 million, or $0.09 per share, for the third quarter of 2009, compared with a net loss of $4.0 million, or $0.08 per share, for the third quarter of 2008.

The cost of product sales was $2.0 million in the third quarter of 2009, or approximately 6% of net product sales, compared with $1.9 million in the third quarter of 2008, which was approximately 7% of net product sales.

Santarus reported license fees and royalties of $2.0 million in the third quarter of 2009, which consisted of royalties payable to the University of Missouri based on net product sales and amortization of the $12 million upfront fee paid to Depomed, Inc. in July 2008. License fees and royalties were $3.6 million in the third quarter of 2008, which also included a $1.8 million accrual related to a one-time sales milestone payable to the University of Missouri.

Research and development expenses were $3.4 million in the third quarter of 2009, compared with $2.3 million in the third quarter of 2008. The increase was primarily attributable to the company's 50% share of costs for the ongoing budesonide MMX(R) Phase III clinical trials, offset in part by a decrease in manufacturing development costs associated with a new ZEGERID tablet formulation.

Selling, general and administrative (SG&A) expenses were $26.3 million for the third quarter of 2009, and $28.5 million for the third quarter of 2008. The decrease in SG&A was primarily attributable to a decrease in costs associated with advertising and promotional activities related to ZEGERID, offset in part by an increase in legal fees.

Nine Months Ended September 30, 2009

For the nine months ended September 30, 2009, the company reported total revenues of $110.1 million, compared with total revenues of $92.7 million for the nine months ended September 30, 2008. The current period total revenues consisted of $103.9 million in product-related revenues, which increased 36% over the prior year period, and $6.2 million in license and royalty revenue.

Total revenues for the first nine months of 2008 consisted of $76.3 million in product-related revenues and $16.4 million in license and royalty revenue. License and royalty revenue for the nine months ended September 30, 2008 included a $2.5 million milestone and $5.7 million in amortization of deferred revenue representing the remaining balance of an upfront fee received from Otsuka America in 2004.

Santarus reported net income of $7.6 million, or $0.13 per share, for the first nine months of 2009, compared with a net loss of $8.4 million, or $0.16 per share, for the first nine months of 2008.

As of September 30, 2009, Santarus had cash, cash equivalents and short-term investments of $61.8 million, compared with $52.0 million as of December 31, 2008. The increase of $9.8 million resulted from the company's net income for the nine months ended September 30, 2009, adjusted for non-cash charges and changes in operating assets and liabilities, and the reclassification of the aggregate fair value of auction rate securities and auction rate securities rights from long-term investments to short-term investments. As of September 30, 2009, the fair value of these investments was $4.0 million.

Financial Outlook for 2009

Santarus expects that the next few quarters may be challenging due to evolving dynamics in the proton pump inhibitor (PPI) market, including the anticipated introduction of generic Prevacid(R) prescription products and a Prevacid over-the-counter (OTC) product. The company expects to continue to grow annual revenues while carefully managing promotional expenses.

Santarus has revised its financial guidance for 2009 as follows:

    --  Increased the estimate for product-related revenue (net product sales
        and promotion revenue) to at least $141 million from its prior estimate
        of $138 million.
    --  Raised the estimate for total revenues to at least $150 million compared
        with its prior estimate of $145 million.
    --  Reduced its estimate for 2009 research and development expenses to a
        range of approximately $16 million to $18 million, based on its
        expectation for lower clinical development costs. The company previously
        expected 2009 research and development expenses of $19 million to $20
        million.
    --  Significantly improved its estimate for net income to at least $10
        million, compared with prior guidance of breakeven to $1 million.

In addition, if Merck (formerly Schering-Plough) receives U.S. Food and Drug Administration (FDA) approval of its New Drug Application (NDA) for OTC ZEGERID, Santarus will earn a $20 million regulatory milestone. Should this FDA approval occur in 2009, Santarus' financial outlook will be positively impacted in the current year.

Conference Call

Santarus has scheduled an investor conference call regarding this announcement at 5:00 p.m. Eastern time (2:00 p.m. Pacific time) today, November 4, 2009. Individuals interested in participating in the call may do so by dialing 888-803-8275 for domestic callers, or 706-643-7736 for international callers. A telephone replay will be available for 48 hours following conclusion of the call by dialing 800-642-1687 for domestic callers, or 706-645-9291 for international callers, and entering reservation code 35226118. The live conference call also will be available via the Internet by visiting the Investor Relations section of the company's Web site at www.santarus.com and a recording of the call will be available on the company's Web site for 14 days following the completion of the call.

About Santarus

Santarus, Inc. is a specialty biopharmaceutical company focused on acquiring, developing and commercializing proprietary products that address the needs of patients treated by gastroenterologists and other physicians. The company's current commercial efforts are focused on ZEGERID(R) (omeprazole/sodium bicarbonate), which is indicated for the treatment of certain upper GI diseases and disorders, and on GLUMETZA(R) (metformin hydrochloride extended release tablets), which is indicated as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes. Santarus is also developing two late-stage lower GI product candidates, budesonide MMX(R) and rifamycin SV MMX(R), for the U.S. market. Budesonide MMX is being investigated in two multicenter Phase III clinical trials for the induction of remission of mild or moderate active ulcerative colitis. Rifamycin SV MMX has been investigated in a Phase II clinical program in travelers' diarrhea. More information about Santarus is available on the company's Web site at www.santarus.com.

Santarus cautions you that statements included in this press release that are not a description of historical facts are forward-looking statements. These forward-looking statements include statements regarding projected total and product-related revenues, research and development expenses, net income and other financial performance, the potential timing of the FDA's response to Merck's (formerly Schering-Plough) NDA for OTC ZEGERID, and the potential to receive a $20 million regulatory milestone under the OTC license agreement with Merck.

The inclusion of forward-looking statements should not be regarded as a representation by Santarus that any of its plans will be achieved. Actual results may differ materially from those set forth in this release due to the risks and uncertainties inherent in Santarus' business, including, without limitation: Santarus' ability to increase market demand for, and sales of, the ZEGERID and GLUMETZA products; the scope and validity of patent protection for Santarus' products, including the timing and outcome of its patent infringement lawsuit against Par Pharmaceutical, Inc., and Santarus' ability to commercialize products without infringing the patent rights of others; Santarus' ability to generate revenue under its strategic alliances, including the OTC license agreement with Merck, the license and distribution agreements with GlaxoSmithKline and the license agreement with Norgine; whether the FDA ultimately approves Merck's NDA for its ZEGERID brand OTC product in a timely manner or at all; Santarus' ability to successfully develop (including timely and successful completion of the ongoing and planned phase III clinical trials) and obtain regulatory approval for the budesonide MMX and rifamycin SV MMX product candidates in a timely manner or at all; whether the FDA completes its review and approves the NDA for the new ZEGERID tablet formulation in a timely manner or at all; adverse side effects or inadequate therapeutic efficacy of Santarus' products or products Santarus promotes that could result in product recalls, market withdrawals or product liability claims; competition from other pharmaceutical or biotechnology companies and evolving market dynamics, including the impact of currently available generic prescription and OTC PPI products and the introduction of additional generic or branded PPI products; Santarus' ability to further diversify its sources of revenue and product portfolio; other difficulties or delays relating to the development, testing, manufacturing and marketing of, and obtaining and maintaining regulatory approvals for, Santarus' and its strategic partners' products; fluctuations in quarterly and annual results; Santarus' ability to obtain additional financing as needed to support its operations or future product acquisitions; and other risks detailed in Santarus' prior press releases, as well as in public periodic filings with the Securities and Exchange Commission.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement and Santarus undertakes no obligation to revise or update this news release to reflect events or circumstances after the date hereof. This caution is made under the safe harbor provisions of Section 21E of the Private Securities Litigation Reform Act of 1995.

Santarus(R) and ZEGERID(R) are registered trademarks of Santarus, Inc. GLUMETZA(R) is a registered trademark of Biovail Laboratories International S.r.l. licensed exclusively in the United States to Depomed, Inc. MMX(R) is a registered trademark of Cosmo Technologies Limited.

Santarus, Inc.

Condensed Balance Sheets

(in thousands)

                                            September 30,  December 31,

                                            2009           2008

                                            (unaudited)

Assets

Current assets:

Cash and cash equivalents and short-term    $ 61,847       $ 52,037
investments

Accounts receivable, net                      17,480         13,366

Inventories, net                              5,100          5,230

Prepaid expenses and other current assets     5,188          3,826

Total current assets                          89,615         74,459

Long-term restricted cash                     1,400          1,400

Long-term investments                         -              4,250

Property and equipment, net                   893            988

Intangible assets, net                        10,125         11,250

Other assets                                  7              137

Total assets                                $ 102,040      $ 92,484

Liabilities and stockholders' equity

Current liabilities:

Accounts payable and accrued liabilities    $ 55,095       $ 53,109

Allowance for product returns                 12,248         10,251

Current portion of deferred revenue           1,216          7,365

Total current liabilities                     68,559         70,725

Deferred revenue, less current portion        2,604          2,436

Long-term debt                                10,000         10,000

Total stockholders' equity                    20,877         9,323

Total liabilities and stockholders' equity  $ 102,040      $ 92,484

Santarus, Inc.

Condensed Statements of Operations

(in thousands, except share and per share amounts)

(unaudited)

                  Three Months Ended              Nine Months Ended

                  September 30,                   September 30,

                  2009            2008            2009            2008

Revenues:

Product sales,    $ 31,488        $ 28,106        $ 87,032        $ 71,475
net

Promotion           6,749           1,377           16,929          4,758
revenue

License and         1,216           2,726           6,149           16,447
royalty revenue

Total revenues      39,453          32,209          110,110         92,680

Costs and
expenses:

Cost of product     2,009           1,924           5,993           5,320
sales

License fees and    2,017           3,619           5,695           9,717
royalties

Research and        3,441           2,274           9,814           6,221
development

Selling, general
and                 26,331          28,521          80,383          80,788
administrative

Total costs and     33,798          36,338          101,885         102,046
expenses

Income (loss)       5,655           (4,129     )    8,225           (9,366     )
from operations

Other income
(expense):

Interest income     25              177             179             1,000

Interest expense    (117       )    -               (345       )    -

Total other         (92        )    177             (166       )    1,000
income (expense)

Income (loss)
before income       5,563           (3,952     )    8,059           (8,366     )
taxes

Income tax          223             -               445             -
expense

Net income        $ 5,340         $ (3,952     )  $ 7,614         $ (8,366     )
(loss)

Net income
(loss) per
share:

Basic             $ 0.09          $ (0.08      )  $ 0.13          $ (0.16      )

Diluted           $ 0.09          $ (0.08      )  $ 0.13          $ (0.16      )

Weighted average
shares
outstanding used
to calculate net
income (loss)
per share:

Basic               58,052,418      51,528,133      57,932,135      51,410,762

Diluted             60,109,860      51,528,133      59,018,999      51,410,762

    Source: Santarus, Inc.

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