Santarus, Inc. (SNTS) - Description of business

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Company Description
     We are a specialty pharmaceutical company focused on acquiring, developing and commercializing proprietary products that address the needs of patients treated by gastroenterologists or primary care physicians. The primary focus of our current efforts is the commercialization of proprietary immediate-release proton pump inhibitor, or PPI, products. PPI products are the most frequently prescribed drugs for the treatment of many upper gastrointestinal, or GI, diseases and disorders, including gastroesophageal reflux disease, or GERD.     Our Zegerid ® products are proprietary immediate-release formulations that combine omeprazole, a PPI, and one or more antacids. These products have been approved by the U.S. Food and Drug Administration, or FDA, to treat or reduce the risk of a variety of upper GI diseases and disorders and are currently marketed in capsule and powder for oral suspension dosage forms. According to IMS Health, an independent market research firm, the U.S. market for prescription PPI products had total sales of more than $13 billion during 2006, with capsule and swallowable tablet products accounting for more than 97% of the total sales. We believe our Zegerid products offer a differentiated treatment option for physicians and their patients and represent an attractive market opportunity.               Immediate-Release   Omeprazole         PPI Products   Dose   Indications   Status   Currently Marketed                           Zegerid (omeprazole/sodium bicarbonate) Capsules   20 mg/40 mg   Heartburn/GERD, Erosive Esophagitis, Duodenal Ulcers, Gastric Ulcers   Launched in March 2006 (20 mg and 40 mg)               Zegerid (omeprazole/sodium bicarbonate) Powder for Oral Suspension   20 mg/40 mg   Heartburn/GERD, Erosive Esophagitis, Duodenal Ulcers, Gastric Ulcers, Reduction of Risk of Upper GI Bleeding in Critically Ill Patients   Launched in October 2004 (20 mg) and February 2005 (40 mg)               FDA Approved                           Zegerid with Magnesium Hydroxide (omeprazole/sodium bicarbonate/magnesium hydroxide) Chewable Tablets   20 mg/40 mg   Heartburn/GERD, Erosive Esophagitis, Duodenal Ulcers, Gastric Ulcers   NDA approved in March 2006      Our Zegerid products are the first immediate-release oral PPIs to be developed for the U.S. pharmaceutical market. The formulations are based on patented technology and utilize antacids, which raise the gastric pH and thus protect the PPI, omeprazole, from acid degradation in the stomach, allowing the omeprazole to be quickly absorbed into the bloodstream. Although other marketed oral PPIs enjoy widespread use due to their potent acid suppression, favorable safety profiles and once-a-day dosing, they are available only in delayed-release, enteric-coated formulations. While the enteric coatings protect delayed-release PPIs from acid degradation in the stomach, they also delay absorption until the delayed-release PPIs reach the alkaline environment of the small intestine, where the enteric coatings dissolve. Our immediate-release Zegerid products are designed to provide rapid release and continued nighttime and daytime acid control – the products are not enterically coated and are designed to be released and absorbed more rapidly, while providing a duration of acid control comparable to delayed-release PPIs.     We received approval from the FDA to market Zegerid Capsules in February 2006 for the treatment of heartburn and other symptoms associated with GERD, treatment and maintenance of healing of erosive esophagitis and treatment of duodenal and gastric ulcers. We received approval from the FDA to market Zegerid Powder for Oral Suspension for these same indications in 2004. In addition, Zegerid Powder for Oral Suspension 40 mg is approved for the reduction of risk of upper GI bleeding in critically ill patients, and is currently the only PPI product approvedfor this indication. We commercially launched Zegerid Capsules 20 mg and 40 mg in late March 2006, and launched Zegerid Powder for Oral Suspension 20 mg in October 2004 and 40 mg in February 2005.     We have also developed an immediate-release omeprazole product in a chewable tablet formulation and received approval from the FDA to market the chewable tablet product in March 2006. Given our current near-term focus on commercializing Zegerid Capsules and Zegerid Powder for Oral Suspension, we have not commercially launched the chewable tablet product and do not currently anticipate launching the product during the next 12 months.     As a result of a recent expansion of our commercial presence, Zegerid Capsules and Zegerid Powder for Oral Suspension are now supported by more than 500 field sales representatives who promote our Zegerid products in the primary detail position. The field sales representatives include approximately 210 Santarus representatives and 170 representatives under our existing co-promotion agreement with Otsuka America. In addition, the field sales representatives include approximately 140 inVentiv contract sales representatives under a services agreement that we announced in November 2006. In addition, we utilize field-based district sales managers and regional sales directors to oversee the activities of our field sales representatives and national and regional account managers to work with managed care organizations to obtain formulary and reimbursement coverage for our products. Additionally, we use a variety of marketing programs to promote our products, including promotional materials, speaker programs, journal advertising, industry publications, electronic media and product sampling.     Our commercial organization is targeting the highest PPI-prescribing physicians in the U.S., with a focus on approximately 26,000 office-based gastroenterologists and primary care physicians, who we estimate were responsible for writing approximately one-third of the value of PPI prescriptions written in 2006. We believe our concentration on high-volume PPI prescribers will enable us to effectively promote our products with a focused sales and marketing organization.     In addition to our efforts related to our Zegerid prescription products, in October 2006 we licensed exclusive rights to Schering-Plough under our patented PPI technology to develop, manufacture and sell OTC products in the lower dosage strength of 20 mg of omeprazole in the U.S. and Canada. Under the license agreement, we received a $15.0 million upfront license fee and may receive up to an additional $65.0 million in milestone payments upon the achievement of specified regulatory and sales milestones, as well as royalties on net sales of any licensed products sold by Schering-Plough.     Our business strategy is focused on maximizing sales of our Zegerid brand products and the overall value of our immediate-release PPI technology, enhancing our product portfolio and continuing our growth as a specialty pharmaceutical company. Key elements of our business strategy include the following:   •   continuing our primary focus on increasing market demand for, and sales of, our Zegerid brand prescription products in the U.S. pharmaceutical market, as well as seeking to maximize the overall value of our patented PPI technology through our OTC license with Schering-Plough and additional strategic relationships;     •   further leveraging our existing commercial capabilities through in-licensing or co-promotion arrangements for marketed or approved products that we believe will be attractive to our targeted physicians and the patients they serve; and     •   pursuing the development of acquired or internally developed proprietary products to further enhance our product portfolio. Upper Gastrointestinal Diseases and Disorders and Limitations of Current Treatments     Gastrointestinal diseases and disorders affect the digestive tract with varying degrees of severity. Upper GI diseases and disorders, such as heartburn, GERD, erosive esophagitis and upper GI bleeding, are generally caused by or aggravated by acid secretion in the stomach or gastric acid that refluxes into the esophagus. Prolonged exposure to excess acid may result in ulcers or other serious damage to the tissue of the esophagus, stomach or small intestine.      Heartburn and Gastroesophageal Reflux Disease (GERD) . Heartburn is pain or a burning sensation in the throat or chest area resulting from the reflux of acid from the stomach into the swallowing tube, or esophagus. An individual consistently experiencing heartburn at least twice per week is generally diagnosed as having GERD. According to the National Heartburn Alliance, an estimated 54 million American adults experience heartburn two or more days per week. A significant number of children also suffer from GERD, and studies have indicated that as many as 2% to 8% of infants and older children experience symptoms related to GERD. In addition, GERD symptoms frequently occur during the nighttime hours, and it is estimated that nearly 80% of frequent heartburn sufferers experience symptoms at night.     Physicians have many choices in treating GERD. A physician will usually first attempt to have patients alter their diet in order to reduce the frequency of heartburn symptoms. However, most patients with GERD will eventually require treatment with drugs, and some may require surgery. Antacids were introduced in the early 1900s and are still a frequent OTC treatment option. Although antacids work quickly, they neutralize acid in the esophagus and stomach only for approximately 30 minutes to one hour after dosing and so generally provide only short-term relief.     Introduced in the 1970s, H2-receptor antagonists are compounds that reduce the production of stomach acid resulting from stimulation of histamine receptors. In 2000, antacids were combined with H2-receptor antagonists for OTC treatment of heartburn. However, because the histamine receptors are only one of three potential sources of acid stimulation, H2-receptor antagonists generally provide only a partial reduction of acid production. In addition, H2-receptor antagonists generally work for a shorter period of time than PPIs.     PPIs were introduced in the late 1980s and are currently the most common prescription treatment option for many upper GI diseases, including GERD. PPIs are compounds which reduce the production of stomach acid. When a PPI is absorbed into the bloodstream, it irreversibly binds to the active acid-producing proton pumps in parietal cells located in the stomach walls and inhibits acid production. Once a PPI irreversibly binds to a proton pump, that pump will no longer produce acid. As a result, PPIs are more effective in reducing acid production as compared with H2-receptor antagonists and generally need only to be taken once a day. Because new proton pumps and parietal cells are generated continuously, however, dosing with PPIs generally needs to be repeated once daily if continuous acid suppression is desired.     Since PPIs rapidly degrade in the presence of stomach acid, current oral PPI products, other than Zegerid, have enteric coatings to protect them from acid degradation. The enteric coating is designed to remain intact in the highly acidic stomach. Once the stomach empties its contents into the alkaline environment of the small intestine, the enteric coating begins to dissolve, allowing the PPI to be absorbed into the bloodstream. This results in a delay in the absorption of the PPI, until the enteric-coated PPI reaches the alkaline environment of the small intestine and is absorbed.      Erosive Esophagitis . Erosive esophagitis is characterized by erosions and ulcers from the repeated exposure of the esophagus to acid. It is estimated that as many as 30% of GERD patients, or approximately 16 million patients, have erosive esophagitis in the U.S. Erosive esophagitis may or may not be accompanied by heartburn, and is typically diagnosed by a gastroenterologist through a procedure known as an endoscopy. An eight-week course of therapy with PPIs will generally be effective in healing erosions associated with erosive esophagitis. Surgery may be required if the esophagus becomes extremely damaged.      Gastric and Duodenal Ulcers . Gastric and duodenal ulcers are ulcers or erosions in the stomach or duodenum, respectively. These ulcers may be caused by a combination of gastric acid and bacterial infection or may result from the use of other medications such as nonsteroidal anti-inflammatory drugs. It is estimated that there are approximately 14 million patients who suffer from gastric and duodenal ulcers in the U.S. Most patients with these ulcers are referred to a gastroenterologist who will perform an endoscopy to determine the extent and severity of the ulcers. Based on the assessment, the gastroenterologist will prescribe a course of treatment, usually a PPI, to be taken daily for up to eight weeks and an antibiotic, if appropriate.      Upper GI Bleeding . Critically ill ventilated patients are at high risk for developing erosions and upper GI bleeding that occur when the gastric mucosa, already compromised by stress, is continuously exposed to significant amounts of acid. Many hospitals treat these patients prophylactically to reduce acid and the risk of upper GIbleeding. Patients who develop upper GI bleeding may require blood transfusions or in some cases may require surgery, which is associated with a high mortality rate. It is estimated that as many as 4 million critically ill patients are treated annually in the U.S., with approximately 1.5 million mechanically ventilated patients at highest risk for upper GI bleeding.Our Products Zegerid Product Differentiation      Our Zegerid brand products are proprietary immediate-release formulations that combine omeprazole, a PPI, and one or more antacids. These products are intended to treat or reduce the risk of a variety of upper GI diseases and disorders, including heartburn and other symptoms associated with GERD, erosive esophagitis, upper GI bleeding and gastric and duodenal ulcers, and have been developed in capsule, powder for oral suspension and chewable tablet dosage forms.     PPIs enjoy widespread use due to their potent acid suppression, favorable safety profiles and once-a-day dosing. However, all currently marketed PPIs, other than Zegerid, are available for oral use only in delayed-release, enteric-coated formulations. While the enteric coatings protect delayed-release PPIs from acid degradation in the stomach, they also delay absorption until the delayed-release PPIs reach the alkaline environment of the small intestine, where the enteric coatings dissolve. Our immediate-release Zegerid products are designed to provide rapid release and continued nighttime and daytime acid control – the products are not enterically coated and are designed to be released and absorbed more rapidly, while providing a duration of acid control comparable to delayed-release PPIs.     We have developed our Zegerid family of products to provide the following distinct features:   •   Immediate Release — Our Zegerid products utilize one or more antacids, instead of delayed-release, enteric coatings, to protect the omeprazole from acid degradation, providing for rapid absorption of the omeprazole into the bloodstream. The antacids neutralize gastric acid, protect the omeprazole from acid degradation and enable rapid absorption of the omeprazole, which, in turn, allows the omeprazole to begin to inhibit acid production. For example, in our pivotal pharmacokinetic/pharmacodynamic, or PK/PD, clinical trials evaluating Zegerid Capsules and Zegerid Powder for Oral Suspension, maximal plasma levels of omeprazole were attained in approximately 30 minutes, as compared with 1.5 hours or longer to reach peak plasma levels for delayed-release PPI products in the same trials.     •   Duration of Acid Control — Our Zegerid products are designed to provide a duration of acid control similar to delayed-release PPIs and, thus, allow for once-a-day dosing. For example, in our pivotal PK/PD clinical trials evaluating Zegerid Capsules and Zegerid Powder for Oral Suspension, both 20 mg and 40 mg strengths, those products maintained a median gastric pH above 4 ranging from 12.2 to 18.6 hours per day, depending on the dosage strength and formulation, after repeated once-daily dosing. This duration of acid control is comparable to the data available for the delayed-release PPIs.     •   Nocturnal Acid Control — Zegerid Powder for Oral Suspension has demonstrated effective acid control during the night when dosed at bedtime. For example, in a clinical trial evaluating Zegerid Powder for Oral Suspension and delayed-release PPI brands, Nexium® and Prevacid®, significantly fewer patients treated with Zegerid experienced nocturnal acid breakthrough than when treated with the comparator drugs. Nocturnal acid breakthrough, or NAB, was defined as gastric pH less than 4 for more than one continuous hour during once-daily PPI therapy between 10:00 pm and 6:00 am.     •   Variety of Formulations — Our Zegerid products are currently marketed in capsule and powder for oral suspension dosage forms, and we have also received FDA approval to market a chewable tablet formulation. In addition to providing alternative formulations for use in the general adult population, one or more of our formulations may address the needs of specific patient populations such as pediatric, elderly and hospitalized patients.     •   Potential for Expanded Indications — We may pursue expanded indications and uses for our products based on their specific features and benefits. For example, following completion of a pivotal Phase III clinical trial, Zegerid Powder for Oral Suspension was approved for reduction of risk of upper GI bleeding in critically ill patients. There is currently no other PPI product approved for this indication. Zegerid Product Family       Zegerid (omeprazole/sodium bicarbonate) Capsules     Our Zegerid Capsules product is an immediate-release formulation that contains omeprazole and sodium bicarbonate in a capsule dosage form and is available in 20 mg/1100 mg and 40 mg/1100 mg dosage strengths. In February 2006, we received approval from the FDA to market Zegerid Capsules for the treatment of heartburn and other symptoms associated with GERD, short-term treatment (4-8 weeks) of erosive esophagitis which has been diagnosed by endoscopy, maintenance of healing of erosive esophagitis, short-term treatment of active duodenal ulcers, and short-term treatment (4-8 weeks) of active benign gastric ulcers. Zegerid Capsules utilize sodium bicarbonate, an antacid, instead of an enteric coating to protect the omeprazole from acid degradation. When the capsule is swallowed, the antacid neutralizes acid in the stomach, protects the omeprazole from degradation and allows for rapid absorption of the omeprazole into the bloodstream, reaching maximal plasma levels in approximately 30 minutes. We believe the capsule product provides a convenient and familiar dosage alternative for many patients.     To support our new drug application, or NDA, submission for this product, we completed two pivotal PK/PD clinical trials in 2004, which evaluated both the 20 mg and 40 mg dosage strengths of Zegerid Capsules. The primary objective of the trials was to evaluate whether the immediate-release Zegerid Capsules were pharmacokinetically equivalent to delayed-release omeprazole capsules with respect to total systemic bioavailability (as measured by area under the curve, or AUC) on Day 7. The trials also assessed whether Zegerid Capsules and the delayed-release omeprazole capsules had comparable ability to suppress gastric acidity over 24 hours. The trial results demonstrated that Zegerid Capsules and the delayed-release omeprazole capsules were statistically equivalent with respect to AUC and percent decrease from baseline for integrated gastric acidity on Day 7.     As a result of its immediate-release profile, the maximum plasma concentration (Cmax) was greater and the time to maximum plasma concentration (Tmax) was shorter on Day 7 for Zegerid Capsules than for the delayed-release omeprazole capsules. While achieving more rapid absorption of omeprazole, Zegerid Capsules also maintained a comparable duration of effect on reducing the concentration of acid in the stomach as compared to delayed-release omeprazole.     We may conduct additional clinical trials designed to further differentiate our capsule product from the currently marketed delayed-release PPIs or otherwise expand its future use.      Zegerid (omeprazole/sodium bicarbonate) Powder for Oral Suspension     Our Zegerid Powder for Oral Suspension product is an immediate-release formulation that contains omeprazole and sodium bicarbonate in a powder for oral suspension dosage form and is available in 20 mg/1680 mg and 40 mg/1680 mg dosage strengths. In 2004, we received approval from the FDA to market Zegerid Powder for Oral Suspension for the treatment of heartburn and other symptoms associated with GERD, short-term treatment (4-8 weeks) of erosive esophagitis which has been diagnosed by endoscopy, maintenance of healing of erosive esophagitis, short-term treatment of active duodenal ulcers, short-term treatment (4-8 weeks) of active benign gastric ulcers and the reduction of risk of upper GI bleeding in critically ill patients.     Similarly to Zegerid Capsules, Zegerid Powder for Oral Suspension utilizes sodium bicarbonate, an antacid, instead of an enteric coating to protect the omeprazole from acid degradation and enable rapid absorption of the omeprazole into the bloodstream. When constituted with one to two tablespoons of water to form a uniform suspension and then administered, the antacid neutralizes acid in the stomach, protects the omeprazole from degradation and allows for rapid absorption of the omeprazole into the bloodstream, reaching maximal plasma levels in approximately 30 minutes. In addition to use in the general adult population, our suspension formulation, which is administered in a liquid, titratable dosage form, is designed to be easily administered to critically ill patients via a nasogastric tube and may also be appropriate for patients who have difficulty swallowing a capsule or a tablet.     To support our NDA submission for this product, we completed two pivotal PK/PD clinical trials in 2002, which evaluated both the 20 mg and 40 mg dosage strengths of Zegerid Powder for Oral Suspension and which were similar in design and outcome to the pivotal PK/PD trials conducted for Zegerid Capsules.     Also in support of our NDA submission, in 2003 we completed a multi-center Phase III clinical trial evaluating the 40 mg dosage strength of Zegerid Powder for Oral Suspension for the reduction of risk of upper GI bleeding in critically ill patients. Critically ill patients who have experienced trauma are generally at higher risk for developing significant bleeding from ulcers or erosions, and many physicians choose to prophylactically treat these patients with an acid reducing medication. Given the serious condition of the patient population, the blinded clinical trial compared Zegerid Powder for Oral Suspension, administered through a nasogastric tube, with intravenous, or IV, cimetidine, a H2-receptor antagonist, rather than a placebo. At the time of the trial, IV cimetidine was the only drug approved by the FDA for the studied indication.     A total of 359 mechanically-ventilated, critically ill patients at approximately 50 clinical sites participated in this trial. In the trial, 10 patients treated with IV cimetidine experienced clinically significant bleeding, compared to 7 patients treated with Zegerid Powder for Oral Suspension, demonstrating that our powder for oral suspension product was not inferior to IV cimetidine in reducing the risk of upper GI bleeding in critically ill patients. In addition, in the trial, Zegerid Powder for Oral Suspension achieved a median gastric pH of greater than 4 within 1 to 2.5 hours after the first dose in 99% of patients treated and sustained a median daily gastric pH of greater than 4 throughout the 14-day trial in 95% of the patients treated.     We have also conducted two clinical trials evaluating the effects of Zegerid Powder for Oral Suspension on nighttime acid control. In 2005, we announced results from a clinical trial evaluating the effects of Zegerid Powder for Oral Suspension and Protonix ® delayed-release pantoprazole tablets on nocturnal gastric acidity. In this trial, after repeated once-daily dosing, Zegerid Powder for Oral Suspension produced significantly better control of nocturnal gastric acid than Protonix. The patients receiving Zegerid had a median gastric pH of 4.7, as compared to a median gastric pH of 2.0 for the patients receiving Protonix (p<0.001), and the percent time that gastric pH was greater than 4 was higher for patients receiving Zegerid than for patients receiving Protonix (55% as compared to 27%, p<0.001). In addition, the percentage of patients experiencing nocturnal acid breakthrough, or NAB (defined as pH less than 4 for more than 1 hour during the night) was lower for patients receiving Zegerid than for patients receiving Protonix (53% as compared to 78%, p=0.005).     In 2006, we announced results of a clinical trial evaluating the effects of Zegerid Powder for Oral Suspension and delayed-release PPI brands, Nexium ® and Prevacid ® , on control of nocturnal gastric acidity. In this trial, significantly fewer patients experienced nocturnal acid breakthrough when treated with Zegerid at bedtime than when treated at bedtime with the comparator drugs. Only 61% of the patients experienced NAB while treated with Zegerid, as compared to 92% of the patients treated with Nexium and 92% of the patients treated with Prevacid (p<0.001 for both comparisons). This means that 50% more patients experienced NAB with either Nexium or Prevacid than with Zegerid. In addition, bedtime administration of Zegerid produced a rapid rise in gastric pH that was not observed with either delayed-release PPI. The results indicated that the median percentage of time that gastric pH was greater than 4 when evaluated for the first half of the night (10:00 pm to 2:00 am) was 52% for Zegerid, 30% for Nexium and 12% for Prevacid (p<0.001 for both comparisons).     We may conduct additional clinical trials designed to further differentiate our powder for oral suspension product from the currently marketed delayed-release PPIs or otherwise expand its use.      Zegerid with Magnesium Hydroxide (omeprazole/sodium bicarbonate/magnesium hydroxide) Chewable Tablets     We have also developed our Zegerid with Magnesium Hydroxide Chewable Tablet product, which is an immediate-release formulation that contains omeprazole, sodium bicarbonate and magnesium hydroxide in a chewable tablet dosage form in 20 mg/600 mg/700 mg and 40 mg/600 mg/700 mg dosage strengths. We received approval from the FDA to market the chewable tablet product in March 2006 for the treatment of heartburn and other symptoms associated with GERD, short-term treatment (4-8 weeks) of erosive esophagitis which has been diagnosed by endoscopy, maintenance of healing of erosive esophagitis, short-term treatment of active duodenal ulcers and short-term treatment (4-8 weeks) of active benign gastric ulcers.     Given our current near-term focus on commercializing Zegerid Capsules and Zegerid Powder for Oral Suspension, we have not commercially launched the chewable tablet product and do not currently anticipate launching the product during the next 12 months.Strategy     Our business strategy is focused on maximizing sales of our Zegerid brand prescription products and the overall value of our immediate-release PPI technology, enhancing our product portfolio and continuing our growth as a specialty pharmaceutical company. Our goal is to become a leading specialty pharmaceutical company that acquires, develops and commercializes proprietary products that address the needs of patients treated by gastroenterologists or primary care physicians. Key elements of our business strategy include the following:   •   Focus on Maximizing Sales of Our Zegerid Brand Prescription Products and the Overall Value of Our Immediate-Release PPI Technology. Our commercial resources are focused on increasing market demand for, and sales of, our Zegerid brand prescription products, and we plan to continue to explore additional strategic arrangements to maximize the overall value of these products and our immediate-release PPI technology. As a result of a recent expansion of our commercial presence, Zegerid Capsules and Zegerid Powder for Oral Suspension are now supported by more than 500 field sales representatives, which include our own representatives, as well as representatives under our co-promotion agreement with Otsuka America and our contract sales organization agreement with inVentiv. In addition to our efforts related to our Zegerid prescription products, we have licensed exclusive rights to Schering-Plough under our patented PPI technology to develop, manufacture and sell OTC products with the lower dosage strength of 20 mg of omeprazole in the U.S. and Canada. We will continue to evaluate additional strategies to expand the promotion of our Zegerid products in the U.S. Outside of the U.S., we intend to out-license development, distribution and marketing rights for our Zegerid products to one or more pharmaceutical companies with established commercialization capabilities outside the U.S. We believe that our Zegerid brand prescription products and our immediate-release PPI technology offer a differentiated treatment option for physicians and their patients and represent an attractive market opportunity.     •   Further Leverage our Existing Commercial Capabilities Through In-Licensing or Co-Promotion Arrangements for Marketed or Approved Products. We also plan to explore co-promotion or other in-licensing arrangements for marketed or approved products that we believe will be attractive to our targeted physicians and the patients they serve and which may be products in the GI or other relevant fields. To date, our commercial organization has been focused on promoting our Zegerid brand products. Although our Zegerid brand products will remain a primary focus, we believe that adding one or more marketed or approved products to our portfolio will further leverage our commercial capabilities. We also believe that the size, experience and qualifications of our commercial organization may make us an attractive strategic partner for companies looking to license co-promotion or marketing rights for their products.     •   Pursue the Development of Acquired or Internally Developed Proprietary Products to Further Enhance Our Product Portfolio. We also intend to further enhance our product portfolio by developing additional products that we either acquire or develop internally. We plan to concentrate our efforts on proprietary products that would be complementary to our existing products and that have commercial potential, as well as the potential for reduced development and regulatory risk. For our Zegerid products, which are immediate-release formulations of the PPI omeprazole, we received FDA approval of each of our four NDAs within the initial 10-month period under the policies of the Prescription Drug User Fee Act, or PDUFA. We believe that adding one or more proprietary development products to our product portfolio will contribute to the continued growth and value of our company over the longer term. Sales and Marketing     We have established a commercial sales organization that is targeting the highest PPI-prescribing physicians in the U.S., with a focus on approximately 26,000 office-based gastroenterologists and primary care physicians. We estimate that this group collectively wrote approximately one-third of the value of PPI prescriptions written in 2006. We believe our concentration on high-volume PPI prescribers will enable us to effectively promote our products with a focused sales and marketing organization.     Following the launch of Zegerid Capsules, we recently expanded our commercial presence, with the primary goal of increasing the frequency of sales calls on our targeted physicians. As a result, Zegerid Capsules and Zegerid Powder for Oral Suspension are now supported by more than 500 field sales representatives who promote our Zegerid products in the primary detail position. The field sales representatives include approximately 210 of our own representatives and 170 representatives under our co-promotion agreement with Otsuka America. In addition, the field sales representatives include approximately 140 inVentiv contract sales representatives, under a services agreement that we announced in November 2006. Our own field sales representatives are positioned in major metropolitan areas across the U.S. and have an average of more than five years of pharmaceutical sales experience. Many of these representatives have prior experience with GI products, including PPIs. The efforts of our own field sales representatives are supplemented by the efforts of the Otsuka America and inVentiv representatives, who are also positioned across the U.S., in most cases jointly aligned with one of our own representatives.     This combined team of field sales representatives is focused on communicating the features and benefits of our Zegerid products to our targeted physicians, which include the products’ ability to offer both rapid release and continued nighttime and daytime acid control. The field sales representatives each undergo a rigorous training program focused on our product offerings, disease background, competitive products and our sales techniques, as well as compliance with applicable laws. Our program includes significant field-based learning to provide a comprehensive understanding and perspective as to the upper GI market and the needs of both physicians and patients.     In addition, we utilize field-based district sales managers and regional sales directors to oversee the activities of our field sales representatives and national and regional account managers to work with managed care organizations to obtain formulary and reimbursement coverage for our products. Additionally, we use a variety of marketing programs to promote our products, including promotional materials, speaker programs, journal advertising, industry publications, electronic media and product sampling.     Our account managers contact third-party payors, seeking reimbursement coverage for our products. Although the process for obtaining coverage can be lengthy and time-consuming, we have entered into numerous contracts with private health insurers, managed care organizations, government entities and other third-party payors that provide coverage for our products at a level that we believe is generally similar to the current level of coverage for the branded delayed-release PPI products. As part of the contracting process, we have also made steady progress towards increasing our claims approved rate and decreasing our average co-payment amount. The claims approved rate reflects the percent of time that a Zegerid prescription is approved for reimbursement by an insurer or managed care plan after being presented for payment, and the average co-pay is the average amount that patients are required to pay out-of-pocket when filling a prescription for Zegerid.Co-Promotion Agreement with Otsuka America     To support our sales and marketing efforts, we entered into a co-promotion agreement with Otsuka America under which Otsuka America’s approximately 170 field sales representatives are co-promoting Zegerid Capsules and Zegerid Powder for Oral Suspension to our targeted physicians in the primary detail position. We originally entered into the agreement in October 2004 and amended the terms of the agreement in January 2006.     Under the terms of the agreement, we received a $15.0 million upfront payment from Otsuka America, and pay Otsuka America a royalty on total U.S. net sales of Zegerid Capsules and Zegerid Powder for Oral Suspension. Initially, the royalty rate is in the high single digits, presuming a minimum number of primary details to target physicians. We provide all marketing materials, and Otsuka America covers all costs related to its sales force.     The agreement will terminate automatically on December 31, 2009, unless terminated sooner. Either party may terminate the agreement effective at any time following June 30, 2007, by providing at least 120 days prior written notice. Either party may also terminate the agreement if the other party fails to perform any material term of the agreement and fails to cure such breach, subject to prior written notice within a specified time period, or if the other party becomes insolvent, files or consents to the filing of a petition under any bankruptcy or insolvency law or has any such petition filed against it, and within a specified time period, such filing has not been stayed. We may alsoterminate the agreement under certain additional limited conditions, subject to prior written notice to Otsuka America within a specified time period.Services Agreement with inVentiv     To further expand our commercial efforts, we entered into a service agreement with inVentiv in November 2006, under which inVentiv provides 140 contract sales representatives as well as additional management and administrative support. The inVentiv representatives are located throughout the U.S. and promote our Zegerid products in the primary detail position.     In consideration for inVentiv’s services under the service agreement, we pay to inVentiv a fixed monthly fee, subject to adjustment based on actual staffing levels. During the term of the service agreement, a portion of inVentiv’s management fee will be subject to forfeiture and credited to us in the event inVentiv does not achieve specified performance targets, including targets related to the initial scale-up activities, turnover and vacancy rates and specified sales goals. In addition, under the service agreement, we are obligated to reimburse inVentiv for approved pass-through costs, which are anticipated to primarily include bonus, meeting and travel costs, as well as other promotional costs.     The initial term of the service agreement expires on December 1, 2008. We have the right to extend the term of the service agreement for up to two additional one year terms, subject to agreement on compensation terms with inVentiv. In addition, prior to the first anniversary of the deployment of inVentiv’s contract sales team, we may terminate the service agreement upon payment to inVentiv of a termination fee in a specified amount, which amount will vary depending on the date of such termination. We may also terminate the service agreement at any time after the one year anniversary of the deployment of inVentiv’s contract sales team without paying a termination fee. Moreover, either party may terminate the service agreement upon an uncured material breach by the other party or upon bankruptcy or insolvency of the other party. inVentiv may also terminate the service agreement if we fail to make timely payments under the service agreement.OTC License Agreement with Schering-Plough     In addition to our efforts related to Zegerid prescription products, in October 2006 we licensed exclusive rights to Schering-Plough under our patented PPI technology to develop, manufacture, market and sell OTC products in the lower dosage strength of 20 mg of omeprazole in the U.S. and Canada. Schering-Plough is responsible for all activities related to product and clinical development, manufacturing, regulatory matters, marketing and sales of products under the license agreement and is required to use diligent efforts to conduct and complete such activities in a timely manner. We and Schering-Plough have formed a joint steering committee to oversee Schering-Plough’s activities under the license agreement and to facilitate communications between the parties.     Under the license agreement, we received a $15.0 million upfront license fee in November 2006 and may receive up to an additional $65.0 million in milestone payments upon the achievement of specified regulatory and sales milestones. We are also entitled to receive low double-digit royalties, subject to adjustment in certain circumstances, on net sales of any OTC products sold by Schering-Plough under the license agreement. In turn, we will be obligated to pay royalties to the University of Missouri based on net sales of any OTC products sold by Schering-Plough.     During the term of the license agreement, Schering-Plough and its affiliates have agreed not to develop, market or sell other OTC PPI products in the U.S. or Canada, and also agreed to certain other limitations on Schering-Plough’s activities related to PPI products. In addition, we agreed not to, and also agreed not to grant any license to any other third party to, develop, market or sell OTC products in the U.S. or Canada utilizing our patented PPI technology.     The license agreement remains in effect as long as Schering-Plough is marketing products under the license agreement. Schering-Plough may terminate the agreement on 180 days prior written notice to us anytime after submitting its first NDA for a licensed product or if Schering-Plough does not meet a specified deadline for receiving marketing approval in the U.S. for a licensed product. In addition, either party may terminate the licenseagreement in the event of uncured material breach of a material obligation, subject to certain limitations, or in the event of bankruptcy or insolvency.Manufacturing and Distribution     We rely on third parties for the manufacture of both clinical and commercial quantities of our products and for product distribution, and we do not currently have any of our own manufacturing or distribution facilities. Our third-party manufacturers are subject to extensive governmental regulation. The FDA mandates that drugs be manufactured, packaged and labeled in conformity with current good manufacturing practices, or cGMP. In complying with cGMP regulations, manufacturers must continue to expend time, money and effort in production, record keeping and quality control to ensure that their services and products meet applicable specifications and other requirements. We intend to continue to outsource the manufacture and distribution of our products for the foreseeable future, and we believe this manufacturing strategy will enable us to direct our financial resources to commercialization without devoting the resources and capital required to build cGMP compliant manufacturing facilities.     We currently rely on OSG Norwich Pharmaceuticals, Inc., or Norwich, as our only supplier of Zegerid Capsules, and we have entered into an agreement with Norwich that provides for the commercial supply of this product. The agreement provides for an initial four-year term beginning upon commencement of commercial manufacturing and thereafter continues in force indefinitely unless terminated with 18 months written notice. We can also terminate the agreement, effective immediately, at any time if we decide to no longer market the product, in the event any governmental agency takes any action that prevents us from importing, exporting, purchasing or selling the product or in the event of certain regulatory proceedings involving the manufacturer. Either party may terminate the agreement if the other party fails to perform any material term of the agreement and fails to cure such breach within a specified time period, subject to prior written notice.     In addition, we currently rely on Patheon Inc. as our only supplier of Zegerid Powder for Oral Suspension, and we have entered into an agreement with Patheon that provides for the commercial supply of this product. The commercial supply agreement requires that we purchase a significant percentage of our requirements of this product from Patheon and also obligated us to fund certain equipment purchases. The initial term of the agreement expires in August 2009. Thereafter, the agreement continues in force indefinitely, except that either party may terminate the agreement at any time beginning in August 2009 by providing the other party with 18 months prior written notice. In addition, we may terminate the agreement at any time if we decide to no longer market the powder for oral suspension product by providing six months prior written notice. We may also terminate the agreement with 30 days written notice in the event any governmental agency takes any action that prevents us from purchasing or selling the product for a certain period of time. Either party may terminate the agreement if the other party fails to perform any material term of the agreement or in the event of the other party’s insolvency or bankruptcy, subject to prior written notice within a specified time period.     We also currently rely on Union Quimico Farmaceutica, S.A., or Uquifa, as our exclusive supplier of the omeprazole active ingredient in each of our current products. Under our supply agreement with Uquifa, we must purchase all of our requirements of omeprazole from Uquifa. This agreement has an initial four-year term with automatic two-year renewal terms. We can terminate the agreement upon at least 12 months notice prior to the expiration of the initial term or any extension term. In addition, we can terminate this agreement with 30 days written notice in the event any governmental agency takes any action that prevents us from purchasing or selling either omeprazole or the finished product for a certain period of time. Either party may terminate the agreement if the other party fails to perform any material term of the agreement subject to prior written notice and an opportunity to cure.     We currently have two approved suppliers for sodium bicarbonate, which is a component in our marketed powder for oral suspension and capsule products, and we rely on our third-party manufacturers to purchase the sodium bicarbonate. Additionally, we rely on single suppliers for certain excipients in our powder for oral suspension and capsule products.     Although there are potential sources of supply other than our existing suppliers, any new supplier would be required to qualify under applicable regulatory requirements and would need to have sufficient rights underapplicable intellectual property laws to the method of manufacture of such products or ingredients. We have not yet entered into any commercial supply agreements relating to our chewable tablet product.     We sell our approved products to pharmaceutical wholesalers, who in turn seek to distribute the products to retail pharmacies, mail order pharmacies, hospitals and other institutional customers. We have retained third-party service providers to perform a variety of functions related to the distribution of our approved products, including logistics management, sample accountability, storage and transportation. We have also entered into channel services agreements with wholesalers under which we receive certain distribution management services and data reporting from the wholesalers, in exchange for a fee. Sales to our three largest wholesalers in 2006, Cardinal Health, Inc., McKesson Corporation and AmerisourceBergen Corporation, accounted for approximately 35%, 33% and 16%, respectively, of our annual revenues. The loss of any of these wholesalers as customers could materially and adversely affect our business, results of operations, financial condition and cash flows.Research and Development     Our research and development expenses were $7.6 million in 2006, $11.3 million in 2005 and $24.8 million in 2004. Our research and development expenses consist primarily of costs associated with clinical trials of our products under development as well as clinical studies designed to further differentiate our products from those of our competitors or to obtain additional labeling indications, costs of developing and manufacturing our products under development, compensation and other expenses related to research and development personnel and facilities expenses.     In the future, we may conduct additional clinical trials to further differentiate our Zegerid family of products. We have also committed, in connection with the approval of our NDAs for Zegerid Powder for Oral Suspension, to evaluate the product in pediatric populations, including PK/PD and safety studies. We are unable to estimate with any certainty the costs we will incur in the continued development of our Zegerid family of products. Although we are currently focused primarily on advancing our Zegerid family of products, we anticipate that we will make determinations as to which development projects to pursue and how much funding to direct to each project on an ongoing basis in response to the scientific, clinical and commercial merits of each project.Intellectual Property     Our goal is to obtain, maintain and enforce patent protection for our products, compounds, formulations, processes, methods and other proprietary technologies invented, developed, licensed or acquired by us, preserve our trade secrets, and operate without infringing on the proprietary rights of other parties, both in the U.S. and in other countries. Our policy is to actively seek to obtain, where appropriate, intellectual property protection for our products, proprietary information and proprietary technology through a combination of contractual arrangements and laws, including patents, both in the U.S. and elsewhere in the world.     Due to the length of time and expense associated with bringing new pharmaceutical products to market, we recognize that there are considerable benefits associated with developing, licensing or acquiring products that are protected by existing patents or for which patent protection can be obtained. Although we do not currently own any issued patents, our Zegerid products incorporate patented technology owned by others that we have exclusively licensed. In addition, we have applied and intend to continue to apply for patent protection for new technology we develop whenever we determine that the benefit of patent protection outweighs the cost of obtaining patent protection.     We also depend upon the skills, knowledge and experience of our scientific and technical personnel, as well as that of our advisors, consultants and other contractors. To help protect our proprietary know-how that is not patentable, and for inventions for which patents may be difficult to enforce, we rely on trade secret protection and confidentiality agreements to protect our interests. To this end, we require our employees, consultants, advisors and certain other contractors to enter into confidentiality agreements which prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business. Additionally, these confidentiality agreements require that our employees, consultants and advisors do not bring to us, or use without proper authorization, any third party’s proprietary technology.     We have received U.S. and European Union, or EU, trademark registration for our corporate name, Santarus ® . We also have received trademark registration in the U.S., Canada and Japan and have applied for trademark registration in the EU for our brand name, Zegerid ® , and we have applied for trademark registration for various other names. Over time, we intend to maintain registrations on trademarks that remain valuable to our business.License Rights from the University of Missouri     In January 2001, we entered into an exclusive, worldwide license agreement with the University of Missouri for all of its patents and pending patent applications relating to specific formulations of PPIs with antacids and other buffering agents. Currently, five U.S. patents have been issued and several U.S. patent applications are pending and are subject to this license. The five issued patents, U.S. Patent Nos. 5,840,737, 6,489,346, 6,645,988, 6,699,885 and 6,780,882, together generally cover pharmaceutical compositions combining PPIs with buffering agents, such as antacids, and methods of treating GI disorders by administering solid or liquid forms of such compositions, and expire in July 2016. In addition to the U.S. patent coverage, several international patents have issued, including in Australia, Mexico, New Zealand, Russia, South Africa, and Singapore, and several international patent applications are pending, which are subject to the University of Missouri license agreement. We also received a notice of grant of a European Patent Organization, or EPO, patent application, which is subject to the University of Missouri license agreement. The issued claims in these international patents vary between the different countries and include claims covering pharmaceutical compositions combining PPIs with buffering agents and the use of these compositions in the manufacture of drug products for the treatment of GI disorders.     Pursuant to the terms of the license agreement, we paid the University of Missouri an upfront licensing fee of $1.0 million in 2001, a one-time $1.0 million milestone fee in 2003 following the filing of our first NDA and a one-time $5.0 million milestone fee in July 2004 following the FDA’s approval of Zegerid Powder for Oral Suspension 20 mg. We are required to make additional milestone payments to the University of Missouri upon the achievement of certain regulatory events related to obtaining approvals outside the U.S., which may total up to $3.5 million in the aggregate. We are also required to make milestone payments based on first-time achievement of significant sales thresholds, up to a maximum of $86.3 million, and to pay royalties on net sales of our products and any products commercialized by Schering-Plough under our OTC license agreement. Under the license agreement, we are permitted to sublicense our rights to third parties. We are obligated to make payments to the University of Missouri in connection with any sublicense, the nature of which depends on the specific sublicense structure. In addition, we are required to bear the costs of prosecuting and maintaining the licensed patents, but the University of Missouri remains responsible for prosecution of any applications. Under the license agreement, we are also required to carry occurrence-based liability insurance with policy limits of at least $5.0 million per occurrence and a $10.0 million annual aggregate.     The license from the University of Missouri expires in each country when the last patent for licensed technology expires in that country and the last patent application for licensed technology in that country is abandoned, provided that our obligation to pay certain minimum royalties in countries in which there are no pending patent applications or existing patents terminates on a country-by-country basis on the 15th anniversary of our first commercial sale in such country. If we fail to meet certain diligence obligations following commercialization in specified countries, the University of Missouri can terminate our license or render it non-exclusive with respect to those countries. Our rights under this license are also generally subject to early termination under specified circumstances, including our material and uncured breach or our bankruptcy or insolvency. We can terminate this agreement at any time, in whole or in part, with 60 days written notice.     On August 22, 2005, an unidentified third party filed a Request for Ex Parte Reexamination of U.S. Patent No. 6,699,885 in the U.S. Patent and Trademark Office, or PTO. U.S. Patent No. 6,699,885 is one of five currently issued patents providing coverage for the Zegerid family of products, which are licensed to us under our license agreement with the University of Missouri. U.S. Patent No. 6,699,885 generally relates to methods for treating gastric acid related disorders by administering a composition consisting essentially of a PPI and a buffering agent, where a minimum serum concentration of the PPI is achieved within certain time periods. We subsequently received notice that the PTO had granted the Request for Reexamination and had issued an initial office action, to which we have submitted a response. The reexamination process is provided for by law and requires the PTO to consider the scope and validity of the patent based on substantial new questions of patentability raised by a third party or thePTO. Because we and our licensor, the University of Missouri, believe that the scope and validity of the patent claims are appropriate, we, in conjunction with the University of Missouri, will vigorously defend the patent position. It is not feasible to predict whether we and the University of Missouri ultimately will succeed in maintaining the scope and validity of the claims of this patent during reexamination. If the patent claims in this patent ultimately are narrowed substantially or invalidated by the PTO, the extent of the patent coverage afforded to our Zegerid family of products could be impaired, which could potentially harm our business and operating results.     On September 27, 2006, we received notice of the publication of grant of an EPO patent application, which has claims relating to pharmaceutical compositions in the form of a non-enteric coated tablet and comprising PPIs and one or more buffers, and which is licensed to us under the University of Missouri license agreement. Under European law, third parties have the right to oppose the grant of this patent for nine months from the publication of the notice of the grant. If opposed, we, in conjunction with the University of Missouri, will be required to defend the scope and/or validity of the published claims. It is n

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