Santarus Takes on Big Pharma

The conventional wisdom among biotech investors is that small drug companies cannot compete head to head with large pharmaceutical companies in marketing drugs. Big pharma has deep pockets, large sales forces, and a lot of experience in selling products. Those are significant competitive advantages.

In the coming quarters, we will see if conventional wisdom gets turned on its head. Santarus (NASDAQ:SNTS), a tiny, single-product drug company that just had its IPO this year, is launching its drug Zegerid into the crowded proton pump inhibitor market. While very few people may know what proton pump inhibitor means, nearly everyone knows what heartburn is. Treatment of heartburn is just one of the uses of these drugs, which are also prescribed to treat such maladies as gastroesophageal reflux disease (GERD) and ulcers.

In the prescription drug market that Zegerid has just entered, the big competitors are Nexium from AstraZeneca (NYSE:AZN), Prevacid from TAP Pharmaceuticals, and Protonix from Wyeth (NYSE:WYE.) All three of those drugs were in the top 20 selling drugs of 2003, with combined U.S. sales of $8.9 billion.

So why do I like the plucky newcomer in what is a fiercely competitive market? Especially when you consider that Zegerid is essentially a slightly modified formulation of AstraZeneca's over-the-counter drug, Prilosec?

What I like about Santarus is that the company knows precisely what is necessary to make Zegerid a success. Between the time the drug was approved in June and now, Santarus has made all the right moves to pave the way for a successful drug launch. Perhaps most significantly, the company has hired an experienced sales force that will target the right physicians.

Just yesterday, Santarus bolstered its marketing efforts with the signing of a very beneficial partnership with Otsuka America Pharmaceutical. Between the two companies, there will be approximately 400 sales reps promoting Zegerid. That is the type of concentrated effort that is necessary when taking on the big boys of the pharmaceutical industry.

A key point to keep in mind is that Zegerid does not have to become a multibillion dollar drug like its competitors for Santarus to be successful. By capturing just a few percentage points of market share, the company would be able to provide real value to its shareholders. I'm confident it will be able to pull it off.

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For additional articles by Charly on the biotech industry, see:

• The Case for Drug Stocks
• Surviving Biotech's Downturns
• What's a Drug Worth?

Fool contributor Charly Travers owns shares of Santarus.