Santarus Shares Boom on FDA Approval of Over-the-Counter Heartburn Drug

Xconomy San Diego — 

San Diego-based Santarus (NASDAQ: SNTS) got some good news late today. The company’s partner, the Schering-Plough unit of Merck, has gotten clearance from the FDA to start selling an over-the-counter version of Santarus’ fast-acting heartburn drug.

U.S. drug regulators gave the green light for capsules of omeprazole (Zegerid OTC) in a 20 milligram dose, a lower dose version of omerprazole that now sells only by prescription. This means Santarus can collect a $20 million milestone payment, be eligible for another $37.5 million in sales milestones, and be entitled to a “low double digit” percentage royalty on sales, Santarus said in a statement. The product is expected to hit retail store shelves in the first half of 2010.

Shares climbed 31 percent to $5.62 in after-hours trading following the announcement.

The market for prescription heartburn drugs is enormous. When I first profiled Santarus back in October 2008, I noted that competing drugs, sold as AstraZeneca’s Nexium, Takeda Pharmaceutical’s Prevacid, Wyeth’s Protonix, and others, generated a mind-boggling $14 billion in U.S. sales in the 12-month period that ended July 31, 2008, according to IMS Health data. Santarus had captured just a small slice of this market with omeprazole (Zegerid).

While offering a cheaper over-the-counter version of the same drug might sound like a good way to cannibalize the existing market for a higher-priced drug, Santarus CEO Gerry Proehl told me he saw it completely differently. Getting the marketing muscle of Schering-Plough (now Merck) into TV commercials and other marketing outlets is likely to build up much greater brand awareness of the Zegerid name, which could help boost sales of Santarus’ prescription product that goes by the same name (except without the OTC, or over the counter, suffix).

Proehl repeated that claim in a statement today. “We believe the consumer advertising and publicity associated with the launch of Zegerid OTC will increase awareness of the Zegerid brand.” Part of the reasoning is that while over-the-counter buyers will get the drug in a 20 milligram dose, people who need a stronger 40 milligram dose will still have to get a prescription. We’ll see how well this all translates into sales for Santarus, but it’s a sure thing that the brand name of its heartburn drug just got a lot more valuable.