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Expert Financial Analysis and Reporting

Details on Par’s Challenge to Zegerid Parents (SNTS, $3.30)

Santarus has just anounced that Par has filed a paragraph IV challenge to Zegerid's patents. Depending on the outcome there are two broadly divergent scenarios.

The critical issue is whether Par will be found to infringe the Zegerid patents. If the patents are upheld, it will be a dramatic positive giving the company exclusivity until 2015. This would likely double the price of the stock. If the judge rules against Santarus and Zegerid, the company will be forced to reduce the sales force from around 300 representatives to about 85. It would no longer promote Zegerid and would focus all of the sales force promotion on Glumetza, which is exceeding expectations. In this negative outcome, it appears that only Par and Santarus would be marketing a generic as the company is not aware of any other ANDA filings. The market might be split 50/50 between Zegerid and the Par generic and the price might decline by 20%. With the cost savings from the sales force reduction, however, there might be no impact on the bottom line. Still, the psychological blow to the stock could be devastating and drive it to perhaps $1.00.


The near term outlook for Zegerid will be sloppy. The company has elected to drop out of participation in Medicaid as they were not making any money. This will have a negative 10% to 15% impact on Zegerid sales, but none on profits. Still, this could concern investors. There will also be some turbulence in the PPI market that could impact Zegerid as Prevacid goes generic later this year. Glumetza as previously mentioned is doing very well.


The new product outlook is excellent based on the potential for budesonide MMX for ulcerative colitis. The NDA could be filed in 2H, 2011 and marketing could begin in 2H, 2012. I see this as a $200 to $400 million drug, twice the current size of Zegerid. The company expects the approval of Zegerid OTC in 4Q, 2009 which will bring in a milestone payment of $20 million. Unfortunately, it appears that Zegerid will now be the third PPI type product to go over the counter as Prevacid should be launched by Novartis this year. This probably reduces the near term sales potential from $200 million to $75 million.


This is just a very well managed company. I would definitely want to own it if they prevail in the Zegerid patent situation. Ironically, the stock could be more attractive for purchase if they lose the Zegerid patent case. I think there would be an over-reaction that would drive the stock to $1.00 and this would be a great buying opportunity. The quandary is what to do with the stock until this issue is resolved. I think that the odds greatly favor Santarus winning or possibly Santarus and Par reaching an agreement that would prevent Par from entering the market until 2013 or 2014. The latter is also a significant positive for the stock.


Tagged as + Categorized as Company Reports


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