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Warren Boroson

Santarus Inc. Reports Operating Results (10-K)

March 04, 2011 | About:

Santarus Inc. (SNTS) filed Annual Report for the period ended 2010-12-31.

Santarus Inc. has a market cap of $194.1 million; its shares were traded at around $3.3 with a P/E ratio of 14.4 and P/S ratio of 1.2. Hedge Fund Gurus that owns SNTS: Jim Simons of Renaissance Technologies LLC, Paul Tudor Jones of The Tudor Group.

Highlight of Business Operations:

As of June 30, 2010, the last business day of the registrants most recently completed second quarter, the aggregate market value of the registrants common stock held by non-affiliates of the registrant was approximately $111.5 million, based on the closing price of the registrants common stock on the Nasdaq Global Market on June 30, 2010 of $2.48 per share.*

In October 2010, we entered into a letter agreement with Depomed for matters related to the Glumetza 500 mg recall and resupply activities. Glumetza 500 mg was the subject of a voluntary recall and supply interruption which resulted in the unavailability of this dosage strength from June 2010 through early January 2011. Pursuant to the letter agreement, we and Depomed, among other matters, agreed: (i) to work together on establishing a mutually agreeable resupply plan for Glumetza 500 mg and to share responsibility for any potential 2,4,6-tribromoanisole, or TBA, related recall and third party costs arising out of the resupply efforts in the future; (ii) upon a mutual release of potential claims resulting from the recall and associated interruption to supply; (iii) on the construction of provisions of the contract related to Glumetza 500 mg inventory written off in connection with the recall, such that certain inventory write-offs are excluded from the gross margin calculation; (iv) on reimbursement of our out-of-pocket recall costs incurred to date (including marketing programs directly related to the resupply of Glumetza 500 mg); (v) on a reduction in our minimum sales force expense obligation for 2011 and 2012, and that a minimum number of first position detail calls will be directed to certain targeted physicians in each of those years; (vi) that, for purposes of determining whether 2010 Glumetza net product sales trigger the $3.0 million milestone that is payable when annual net product sales exceed $50.0 million, 2010 will be considered the 13-month period ending January 31, 2011, and that a reduction in our marketing expense obligation for 2011 and 2012 applicable if 2010 annual net

product sales are less than $50 million will apply even in the event 2010 annual net product sales (for the 12-month period ending December 31, 2010) exceed $50 million; and (vii) to an extension of the period during which Depomed may elect to co-promote Glumetza to obstetricians and gynecologists through July 21, 2013.

We paid Depomed a $12.0 million upfront fee and are obligated to pay a $3.0 million sales milestone based on having achieved Glumetza net product sales in excess of $50.0 million during the 13-month period ending January 31, 2011. We may also be required to pay Depomed additional one-time sales milestones totaling up to $13.0 million in the aggregate based on the achievement of specified levels of annual Glumetza net product sales as follows: $3.0 million if net sales exceed $80.0 million, $5.0 million if net sales exceed $110.0 million, and $5.0 million if net sales exceed $140.0 million. In addition, Depomed records revenue from the sales of Glumetza products, and pays us a fee of 80% (through September 30, 2010) and 75% (for all periods thereafter) of the gross margin earned from all net sales of Glumetza products in the U.S., with gross margin defined as net sales less cost of goods.

In September 2010, we entered into a distribution and license agreement with S2 and VeroScience granting us exclusive rights to manufacture and commercialize the Cycloset prescription product in the U.S., subject to the right of S2 to co-promote Cycloset as described below. Under the terms of the distribution and license agreement, we agreed to pay to S2 and VeroScience an upfront fee totaling $5 million. We record sales of Cycloset and pay a product royalty to S2 and VeroScience of 35% of the gross margin associated with net sales of Cycloset up to $100 million of cumulative total gross margin, increasing to 40% thereafter. Gross margin is defined as net sales less cost of goods sold. In the event net sales of Cycloset exceed $100 million in a calendar year, we will pay an additional 3% of the gross margin to S2 and VeroScience on incremental net sales over $100 million.

Read the The complete Report

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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