3 Earning Catalysts That Could Push This Biotech Even Higher

Sherrie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Santarus (NASDAQ: SNTS) has traded higher by 250% over the last year, and much of those gains have been created after the company’s last two quarterly reports. The company is scheduled to report earnings in two weeks, and will be closely watched. Here are three things that Santarus must prove in order to continue its epic trend higher.

The Big Driver Of Success

In Q1, $66.1 million of Santarus’ $79.4 million in revenue came from its type 2 diabetes drug Glumetza and its heartburn/acid reflux drug Zegerid. The company markets five drugs, but their immediate growth is tied to the performance of these two products.

During the last quarter, new prescriptions of Glumetza grew 21% year-over-year. Zegerid re-launched after regaining market exclusivity in 2012.

The market needs to see that sales of these two drugs remain strong. Zegerid was on the market for two months in Q1, but still produced $24.6 million. Therefore, its Q2 sales should be strong.

Strangely, many investors are concerned with Santarus’ reliance upon two of its five drugs. Personally, I think this is a bonus. Sure, two products contribute 83% of its total sales, but most biotech companies with a $1.6 billion market cap only have one product on the market.

Jazz Pharmaceuticals (NASDAQ: JAZZ) is my closest example to explain the strength of Santarus. Jazz markets nearly a dozen drugs, but relies on its narcolepsy drug Xyrem to produce most of its sales. In Jazz’s last quarter, Xyrem produced 60% of its total sales. In addition, Xyrem’s revenue grew 60% year over year in that quarter. However, unlike Santarus’ main products, sales growth for Xyrem is mostly related to price increases.

Therefore, Santarus’ product dependence and their growth is strong relative to other companies of similar size. The key is that prescription volume continues to grow, which investors will monitor.

Uceris Keeps On Rolling

Santarus’ new drug for ulcerative colitis, Uceris, was the big surprise of Q1. Uceris produced total sales of $6.6 million in the quarter, in just five weeks on the market. Initially, Santarus was very cautious in discussing Uceris, and only guided for peak revenue of $300 million when analysts projected $500 million.

Ariad Pharmaceuticals(NASDAQ: ARIA) high-profile leukemia drug Iclusig produced sales of $6.46 million in Q1, which was also its first quarter of launch. Iclusig is expected to produce peak sales over $1.5 billion, and is Ariad’s sole product. Analysts viewed Iclusig’s launch as extremely successful, as it beat expectations by $1.5 million dollars. As a result, upgrades have been plentiful for the $3.6 billion company Ariad.

Strangely, Ariad’s Iclusig supports a multibillion-dollar market cap, but Santarus’ Uceris performed just as well during its launch. Uceris looks to be a hidden gem in Santarus’ product line, and with only five weeks of revenue, it will be very interesting to see how Uceris performs in a full quarter. I think a comparison of the potential blockbuster Iclusig and Uceris will be interesting to monitor in Q2.

Guidance

Santarus has upped its guidance for the last two quarters. In the fourth quarter full-year revenue guidance was raised from $310 million to $320 million. Last quarter, revenue guidance was raised to $335 million.

Now, with Uceris’ sudden success, and a re-launch of Glumetza, will the company raise guidance again?

Conclusion

Santarus proclaims that its current product line could produce sales of $700 million total. Glumetza, Zegerid, and Ulceris are tied to the majority of this potential. However, Uceris is the wild card, and with robust growth, Santarus could raise long-term guidance.

Moreover, with a $1.6 billion market cap, the company trades at 6.4 times sales, which isn’t cheap. However, when you consider its long-term potential, then Santarus is trading at a more favorable 2.3 times peak sales.

As a result, I conclude that because of Santarus’ valuation, it could trade lower after earnings, and will have to excel in each of the noted areas in order to trade higher. However as a long-term investment, I still think Santarus is solid, and would recommend it to any buy-and-hold investor.


Sherrie Stone has no position in any stocks mentioned. 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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