An Under-the-Radar Drug Launch That's Producing Massive Gains

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Ariad Pharmaceuticals’ (NASDAQ: ARIA) Iclusig and Amarin Corporation’s (NASDAQ: AMRN) Vascepa may have been two of the most hyped drugs of the last few years, but Uceris from Santarus (NASDAQ: SNTS) has stolen the spotlight. This is a drug that is beating all sales expectations, and leading some to wonder if Santarus’ impressive stock rally can continue.

Three Drugs With Different Outlooks

The reason that these three companies, and their products, are important is because all launched in the first quarter, around the same time. But before we look at sales and performance, let’s explore each product, and why the drugs are relevant to each company.

Amarin’s Vascepa was heralded as a multi-billion dollar fish oil drug before the company ever sold one pill. It is a product to lower high levels of triglycerides, which then lowers a patient’s likelihood of cardiovascular disease. Prior to Vascepa’s FDA approval, some analysts believed the drug could reach sales north of $2 billion if used to treat several different levels of triglycerides. Since then, Amarin’s stock has plummeted, including 55% in the last year.

Ariad’s Iclusig was FDA approved in December 2012 to treat a rare form of both blood and bone marrow disease. Ariad has been a Wall Street favorite for the last three years; Iclusig has an orphan designation and was granted priority review by the FDA. Iclusig works by blocking proteins that promote cancerous cells. After its approval, analysts projected that peak sales could exceed $1 billion annually. In 2013, Ariad has traded flat, but maintains a market cap of $3.4 billion.

Santarus markets and sells five drugs, including a recently launched product that treats mild to moderate ulcerative colitis, Uceris. According to Santarus, the five products currently launched could produce peak sales of $700 million annually. Prior to Uceris’ launch, analysts believed that sales of $200 million annually were likely, but acknowledged that with 700,000 people in the U.S. who suffer from the disease, larger sales were possible.

A Look At Product Success

Each of these three companies have reported earnings twice since these products were launched. In the first quarter, the following revenue was realized for each product:

<table> <thead> <tr><th> <p><strong>Drug</strong></p> </th><th> <p><strong>Sales </strong></p> </th></tr> </thead> <tbody> <tr> <td> <p>Vascepa</p> </td> <td> <p> $2.34 million</p> </td> </tr> <tr> <td> <p>Iclusig</p> </td> <td> <p> $6.1 million</p> </td> </tr> <tr> <td> <p>Uceris</p> </td> <td> <p> $6.6 million</p> </td> </tr> </tbody> </table>

As you can see, the least promising of the three drugs, Uceris, actually produced the highest quarterly sales during the launch period. Analysts were expecting just $4 million in sales of Uceris during this quarter. Therefore, Uceris’ initial results were very strong, much better than most anticipated.

While Uceris led the pack of these three drug launches, one must also consider that Santarus is the most experienced of these three companies in drug marketing. Prior to Vascepa and Iclusig’s FDA approvals, neither Amarin nor Ariad had ever marketed a drug. Therefore, investors believed that the following quarter would be most telling regarding Uceris and its growth outlook.

<table> <thead> <tr><th> <p><strong>Drug</strong></p> </th><th> <p><strong>Sales</strong></p> </th></tr> </thead> <tbody> <tr> <td> <p>Vascepa</p> </td> <td> <p>$7.3 million*</p> </td> </tr> <tr> <td> <p>Iclusig</p> </td> <td> <p>$13.9 million</p> </td> </tr> <tr> <td> <p>Uceris</p> </td> <td> <p>$16.2 million</p> </td> </tr> </tbody> </table>

*Amarin realized total sales of $5.5 million but had $1.8 million in deferred revenue to wholesalers

The table above shows sales data from this most recent quarter, which has been announced in the last couple weeks. Clearly, Vascepa is underperforming its multi-billion dollar “potential,” and Iclusig is slightly beating quarterly estimates.

Then we have Uceris, which is shattering all estimates, and producing more revenue than two drugs that were once considered blockbuster products. In fact, the success of this one drug is largely responsible for Santarus posting two consecutive quarters where revenue significantly beat the consensus. As a result, shares of Santarus have traded higher by 150% in 2013, and analysts are strongly reconsidering the potential of this under-the-radar product.

Rapidly Changing Outlook(s)

We have watched as Vascepa’s peak sales estimates have fallen with Amarin’s stock price from $2 billion to $1 billion, and now some estimates as low as $500 million.

Despite Iclusig exceeding early estimates, some analysts have begun to second guess their $1 billion-plus revenue expectations. Now, Iclusig’s estimates are some of the widest in the space, as some analysts have lowered expectations down to just $600 million annually.

Uceris has gone in a completely different direction. Its peak sales were once considered to be just $200 million, but have since surpassed $300 million, and some believe its peak sales could exceed $500 million.

Final Thoughts

While it’s impossible to know for sure, the market is definitely present for Uceris to thrive. Santarus is now trading at just 4.8 times 2013’s sales guidance, and the company has already boosted full-year guidance each of its last two quarters.

As of now, it looks as though Santarus has found a hidden gem with Uceris, a product that no one saw coming. With that said, Santarus has a market cap of $1.79 billion, and if Ariad is worth $3.4 billion, I have to believe that Santarus is significantly undervalued because if Uceris continues to thrive, Santarus could produce massive long-term gains.

Therefore, I urge investors to follow the sales trends for Uceris, as Santarus’ stock should trade with the success of this promising product. 

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Brian Nichols is long Santarus. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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