Santarus Beats On Higher RevsZacks Investmentupdated Aug 04, 2010TweetAt GET.com we maintain complete editorial integrity on our content & provide transparent & unbiased information. Companies don't pay us to include their products although we receive a compensation when you successfully apply to products from our partners. See how we make money here.At GET.com we maintain complete editorial integrity.Santarus Inc. (SNTS) reported second-quarter earnings of 10 cents per share, well above the Zacks Consensus Estimate of 4 cents and the year-ago earnings of 2 cents. Total revenues, consisting of net product sales, promotion revenues and license and royalty revenues came in at $41.7 million, up 16.5% from the year-ago period and $4.7 million above the Zacks Consensus Estimate. Quarter in Details Product-related revenues, which consist of net product sales and promotion revenues, increased 22% to $41 million during the reported quarter. Zegerid net product sales were $32.9 million, up 17.5%. Following the launch of generic versions of Zegerid by Par Pharmaceuticals (PRX) in late June, Santarus has stopped promoting Zegerid and has also launched an authorized generic version of Zegerid with Prasco. Meanwhile, Santarus will continue receiving royalty payments from Merck (MRK), GlaxoSmithKline (GSK), and Norgine under its agreements with these companies for Zegerid. Santarus recorded promotion revenues of $8.1 million under its co-promotion agreement with Depomed (DEPO) for Glumetza. Glumetza revenues were affected by a product recall initiated by Depomed in June 2010 due to the presence of certain substance in bottles containing Glumetza 500 mg. Depomed expects to resume normal supply by mid-Aug 2010. While license fees and royalty payments increased to $2.3 million in the reported quarter, research and development (R&D) expenses increased to $4.5 million from $3.3 million in the prior-year period. The company attributed the increase to the commencement of a phase III study with rifamycin SV MMX for traveler’s diarrhea. Selling, general and administrative expenses declined 8.8% to $24.9 million, mainly due to lower legal fees and a reduction in promotional activities for Zegerid. Updated Outlook for 2010 Now that generic versions of Zegerid have entered the market, Santarus has re-introduced revenue guidance for 2010. The company expects revenues in the range of $125 - $130 million. The Zacks Consensus revenue estimate for 2010 is in the mid-range of the guidance at $128 million. The guidance is based on the assumption that Depomed will start supplying Glumetza by mid-Aug 2010. Even though generic Zegerid has entered the market, Santarus expects to remain profitable in 2010 excluding one-time charges associated with the generic launch and restructuring charges. The Zacks Consensus earnings estimate for 2010 is 2 cents. Earlier in June, Santarus had announced a restructuring program following the genericization of its key product, Zegerid. Santarus has stopped promoting Zegerid and is cutting down its work force by 37% (120 employees). The company will also reduce the number of contract sales representatives. Following the restructuring, Santarus’ sales force will consist of approximately 110 persons (including contract sales representatives) who will focus on promoting Glumetza. Santarus expects to incur restructuring-related charges in the range of $7.4 million-$8.5 million in the third quarter of 2010. The restructuring and work force reduction should lead to a $40 million reduction in annual selling and marketing expenses from the fourth quarter of 2010. With Santarus focusing on the development of phase III candidates, budesonide MMX and rifamycin SV MMX, R&D expenses are expected in the range of $23 million. The company expects to report top-line phase III results on budesonide MMX in Sep. Santarus is also conducting a 12-month extension study that was requested by the FDA. The study, which is scheduled to complete in mid-2011, will compare budesonide MMX’ (6mg) safety and efficacy with that of a placebo. Positive results should allow Santarus to file a new drug application for budesonide in the second half of 2011. Meanwhile, Santarus intends to file for approval of its other pipeline candidate, rifamycin SV MMX, in 2012. According to the company, the peak sales potential of both these products taken together could be $200 - $400 million. Santarus could make two success-based milestone payments in 2010 to the tune of $6 million. This includes a $3 million sales milestone to Depomed, payable if annual net product sales of Glumetza exceed $50 million, and a $3 million development milestone to Cosmo Technologies, payable upon the achievement of the primary end points in both of the phase III studies for budesonide MMX. Our Take The entry of generic versions of Zegerid is a major setback for the company. Zegerid accounted for 69% of total revenues in 2009. Although the company has been exploring other avenues to drive growth, we note that these will not be enough to make up for the loss of revenues with generics hitting the market. We expect investor focus to remain on the successful development of rifamycin and budesonide. We are currently Neutral (Zacks Rank #3 - Hold) on Santarus.Editorial Disclosure: Any personal views and opinions expressed by the author in this article are the author's own and do not necessarily reflect the viewpoint of GET.com. The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone, not those of the companies mentioned, and have not been reviewed, approved or otherwise endorsed by any of these entities.