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Santarus Seeks a Spot in a Highly Competitive Field

Santarus Seeks a Spot in a Highly Competitive Field

BY MARION WEBB

Senior Staff Writer

Santarus Inc. is still a small specialty pharmaceutical firm, but company leaders hope its ulcer drugs will soon find a niche in this highly saturated and coveted marketplace.

Treatments for stomach ulcers and gastrointestinal disease offer a multibillion-dollar marketing opportunity not only in the United States, but wherever people’s stress levels are high and misuse of painkillers is rampant. Both are feeding grounds for ulcers.

In 2001, U.S. doctors wrote 73.6 million prescriptions for proton pump inhibitors, the first-line drugs used to treat ulcers, according to IMS Health. That marks a 21 percent rise from prescriptions written in 2000, said IMS, a health consultant group in Plymouth Meeting, Pa.

Santarus said its products address the $21 billion upper gastrointestinal market, a space dominated by drugmaker giants like London-based AstraZeneca Plc., Whitehouse Station, N.J.-based Merck KgaA, Radnor, Pa.-based Wyeth Pharmaceuticals, and Abbott Park, Ill.-based Abbott Laboratories. All sell slightly different versions of ulcer drugs.

Analysts and doctors alike say the upper gastrointestinal market is littered with & quot;me-too & quot; drugs & #151; prescription drugs that are equally effective.

Santarus said its products address the $21 billion upper gastrointestinal market, a space dominated by drugmaker giants like London-based AstraZeneca Plc., Whitehouse Station, N.J.-based Merck KgaA, Radnor, Pa.-based Wyeth Pharmaceuticals, and Abbott Park, Ill.-based Abbott Laboratories. All sell slightly different versions of ulcer drugs.



Analysts and doctors alike say the upper gastrointestinal market is littered with & quot;me-too & quot; drugs & #151; prescription drugs that are equally effective.

But Gerald T. Proehl (right), president and CEO of Santarus, insists its drug technology is novel, because it offers critically ill patients in hospitals’ intensive care units both, strong medicine and fast relief.

Available ulcer drugs have the strength, but they can’t offer patients quick relief, he said.

Santarus still has no approved products or income from revenue. But Proehl believes the Food and Drug Administration will grant drug approval for its flagship ulcer drug Acitrel in 2003. Acitrel is nearing completion of a late-stage, 300-patient trial, comparing the drug’s ability to cut the risk of bleeding ulcers to Tagamet, which has been commercially available for years.

Santarus’ second drug, Rapinex, a chewable tablet for gastroesophageal reflux disease, is expected to enter Phase III trials in 2003 with a 2006 target for commercialization.

If approved, Rapinex would address an even bigger market than Acitrel, Proehl said.

Seeking A Partner

Proehl is hoping to sign a deal with a drug firm that has a large enough sales force to call on the country’s 5,000 specialists and 100,000 primary care doctors.

No marketing deal has been signed, but Proehl said he’s in discussions with several firms.

The question remains whether Acitrel will pass the FDA’s requirements for approval.

A UCSD gastrointerologist said the results from the comparative trial may not give doctors relevant enough information.

Tagamet’s active ingredient is cimetidine, an older-generation drug that doctors no longer use to treat bleeding ulcers, said Dr. John Garvie, a gastroenterologist at the UCSD Medical Center in Hillcrest. He finds the newer generation proton pump inhibitors are much more effective.

Garvie treats his sickest ulcer patients with Wyeth’s Protonix, an intravenous proton pump inhibitor. Acitrel must be given through a tube inserted in the nostril and into the stomach, which is more labor-intensive, he said.

Still, Proton pump inhibitors including AstraZenica’s Prilosec and Nexium, Wyeth’s Protonix, Eisai’s Aciphex, and TAP’s Prevacid are not currently approved for immediate release formulation or prevention of upper gastrointestinal bleeding in critically ill patients, Proehl said.

Santarus’ Acitrel is different, because it combines an antacid with omeprazole, the active ingredient in Prilosec & #151; AstraZeneca’s top-selling drug in the U.S.

Doctors and analysts, however, agreed Santarus still faces many challenges. It starts with gaining FDA approval. The next hurdle is finding a marketing partner and gaining doctors’ acceptance for a new drug.

Acitrel is also likely to face generic competition, which puts pressure on Santarus to lower the cost of their drug, which in turn will negatively affect revenue income.

Early Stages

It’s among the many obstacles along the bumpy road already traveled by the young company.

Founded in 1996 by Scott Glenn as TBG Pharmaceuticals, Santarus was spun off from Prometheus Laboratories Inc., another specialty pharmaceutical firm in San Diego.

TBG was to develop early-stage gastrointestinal drugs while Prometheus focused on diagnostics.

In 1998, TBG licensed technology developed by Dr. William Sanborn at the Mayo Clinic and changed its name to Santarus.

Financiers St. Paul Venture Capital, Windamere Capital Ventures, Fog City Fund, and Windamere LLC in 1998 invested $4.8 million in a first round of financing.

In 2001, Santarus made the difficult decision to stop developing its primary drug candidate when it failed to show efficacy in a Phase II trial for Crohn’s disease.

But existing investors backed Proehl again when he proposed to license new drug technology from the University of Missouri in 2001, which promised much bigger returns.

& quot;The difference was between a $1 billion and a $20 billion market, & quot; Proehl said.

Existing investors and new investors Domain Associates, J.P. Morgan Partners and Advent Venture Partners in February 2001 put in another $33.2 million raised in a Series C round of financing of preferred stock.

Santarus’ business strategy calls for developing its own products and sublicensing the drug technology to one or more proton inhibitor companies. The firm owns exclusive worldwide patent rights on the technology.

This July, Santarus signed its first sublicense agreement with another proton pump inhibitor company, TAP Pharmaceutical Products Inc. of Lake Forest, Ill. TAP made an $8 million upfront payment and Santarus could receive more than $100 million in milestone payments and royalties from a developed product.

TAP sells a big ulcer drug, Prevacid, which generated $6 billion in worldwide revenue in 2001, Proehl said. He said if Acitrel pulled in a third of Prevacid’s revenue, he’d be content.

& quot;The global marketplace for proton pump inhibitors is about $12 billion, so we felt that there was enough room for us, plus one additional competitor & #151; We’re not that greedy & #151; We thought if we could get $1.5 billion or $2 billion in sales that still leaves $10 billion for TAP, & quot; Proehl said.

Proehl aims to complete a $50 million Series D round of financing to keep the firm afloat past the second quarter of 2003.

The firm’s 50 employees meanwhile are busy monitoring the firm’s drug development.

Crucial Research?

Although some doctors and analysts find research where good drugs are already abundant may shorten research funding in areas where there is a critical need of better drugs, such as in cancer and HIV.

& quot;I don’t think there is a real need for more PPIs, & quot; said UCSD’s Garvie. Proton pump inhibitor firms & quot;are getting cute & quot; citing & quot;PPIs with a twist, & quot; as an example. What’s needed is a remedy, not more equally effective drugs.

Asked whether he would consider using Acitrel, Garvie said, & quot;I would use it, if it was a lot less expensive than the IV drug we are using now or if it reduced the risk of bleeding to zero & #151; which is highly unlikely. & quot;

John McCamant, editor of the Berkeley-based Medical Technology Stock Letter, was even more critical.

& quot;These drugs are not saving lives – (researching this area) negatively impacts companies that are after legitimate indications that are poorly served or life-threatening & #151; it hurts the cancer and HIV companies. & quot;

Given that the biopharmaceutical industry is facing economic pressures to reduce research spending and contain drug costs, the & quot;me-too & quot; drug developers will be especially hard hit.

More doctors are being asked to prescribe fewer of certain prescription drugs, including & quot;me-too & quot; drugs, and encouraged to use the cheaper generic drugs instead.

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