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Santarus, Glaxo Ink Zegerid Deal

U.K.-based Glaxo will develop and commercialize Zegerid products in a number of non-U.S. markets.

Updated 12:25 p.m. EST

Shares of



climbed Monday after the specialty pharmaceutical company announced an agreement with



to commercialize prescription and over-the-counter immediate-release heartburn reliever Zegerid.

It is the second Zegerid agreement for San Diego-based Santarus, which noted the impact of generic and competitive-pricing pressures earlier in the year.

British drugmaker Glaxo was the most likely company to partner with Santarus because of its history in prescription heartburn products, lack of presence today and its stated interest in adding to its worldwide portfolio, noted Rodman & Renshaw analyst Michael Higgins in a report Monday. He points out that Glaxo's venture capital arm vetted and contributed to Santarus' capital raising ahead of its 2004 IPO.

Monday's deal enables Glaxo to develop and commercialize Zegerid products, which are proprietary combinations of proton pump inhibitor (PPI) omeprazole and antacids, in a number of non-U.S. markets, including Africa, Asia (excluding Japan), the Middle East and Central and South America, and to distribute and sell it in the U.S Virgin Islands and Puerto Rico.

Santarus CEO Gerald Proehl said in a conference call Monday that the company expects sales in the U.S. Virgin Islands and Puerto Rico to begin as early as the first quarter of 2008 and anticipates it will launch in the next 12 months to 24 months in the other markets, first in the prescription form with the over-the-counter formulations following.

Of the non-U.S. markets included in Monday's deal, Japan and Europe are notably missing, Higgins remarked in an interview, questioning why they weren't part of the deal. "Consistent with their previous comments, they have been seeking one marketing partner for all of these territories rather than a partner in each country," he noted in the report prior to the conference call.

Proehl said on the conference call that this was because Santarus has intellectual property related to the non-enteric coated tablet but not the powder or capsule in Europe. However, he said the company is still talking to companies about those partnering opportunities, noting, "whether or not there's interest in other parts of GSK is something we'd talk about when we get to that point."

Santarus already has an over-the-counter license agreement for clinical product development with



HealthCare Products division. That agreement relates to lower-dose strength of 20-milligram omeprazole in the U.S. and Canada.

The company also has a license agreement with the University of Missouri for its patents and pending patent applications for specific formulations of PPIs with antacids and other buffering agents.

Zegerid products compete with prescription PPIs, such as



Nexium and



Protonix as well as with over-the-counter options like Prilosec OTC.

With second-quarter earnings, Santarus said that the benefits of its sales force expansion were being impacted by stronger-than-expected growth in generic omeprazole and its impact on PPIs and competitive pricing pressures from managed care plans. As a result, the company said it no longer had sufficient clarity to provide specific revenue guidance for 2008.

Since then, Santarus has brought a lawsuit against

Par Pharmaceutical


for infringement of three patents for Zegerid capsules, which it says expire in 2016, after Par field a new-drug application (ANDA) with the Food and Drug Administration. Because Santarus filed the lawsuit within 45 days of Par's FDA filing, the agency is barred from approving Par's ANDA for 30 months or until a court decision in favor of Par.

"The patent protection of the drug-delivery companies has certainly been under fire since the Supreme Court decision in April -- they've been hit in their shares ... by this development," Higgins says of both Santarus and

Penwest Pharmaceuticals


, both of which have received generic-drug challenges this year. Notably, Santarus shares, which started the year at $8.03, closed Monday at $2.68, and Penwest began 2007 at $16.54 and closed Monday at $5.60.

For 2007, Santarus previously expected to report total revenue of $90 million to $95 million and a net loss at or below $55 million. Per the agreement announced today, Santarus will receive $11.5 million upfront and tiered double-digit royalties.

Glaxo can make a buyout payment 20 years after the effective date of the agreements.

Santarus closed Monday up 5.5% at $2.68. Glaxo closed up 49 cents, or 0.9%, at $53.17.

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