Santarus Inc SNTS.O shares jumped as much as 30 percent on Thursday, a day after it bought U.S. manufacturing and marketing rights to Cycloset, a diabetes drug it expects to launch in November.
The stock gain, in 18 times the normal trading volume, helped win back some of the 38 percent drop in mid-April on a court ruling that opened the firm's lead heartburn drug to generic competition.
Cycloset is the first approved treatment for type 2 diabetes that seeks to improve dopamine activity in the brain -- which studies have linked to better insulin control.
"Cycloset is an interesting complement to the Glumetza (diabetes) franchise, which is presently emerging as a significant revenue component since the loss of Zegerid patent litigation," Stifel Nicolaus analyst Annabel Samimy said in a research note.
A U.S. court in April ruled against Santarus in its patent suit against Par Pharmaceuticals Inc PRX.N, exposing its heartburn drug Zegerid to generic competition.
Samimy said Cycloset and Glumetza together could contribute $350-$400 million in peak sales to Santarus.
Santarus promotes Depomed Inc's (DEPO.O) Glumetza, also indicated for use in adults with type 2 diabetes, in the United States.
Samimy expects Cycloset to be used as an add-on therapy, with Glumetza continuing as a primary therapy.
Cycloset, developed by privately-held S2 Therapeutics and VeroScience, will compete with Merck and Co's (MRK.N) Januvia and Janumet, GlaxoSmithKline's (GSK.L) Avandia and Bristol-Myers Squibb Co's (BMY.N) Onglyza.
On Wednesday, Santarus said it paid an upfront fee of $5 million for the Cycloset rights, and will pay product royalty of 35 percent on the gross margin from the drug's sales until these hit $100 million. Above that, the royalty payout rises to 40 percent.
Cowen & Co analyst Ian Sanderson expects peak sales of $40-$50 million from Cycloset, on what he termed was Santarus' limited marketing capability and the availability of generic bromocriptine, the active ingredient in Cycloset.
But Stifel's Samimy said Cycloset would serve as an effective revenue bridge until the company's anti-inflammatory and traveler's diarrhoea drugs reach market.
Santarus' shares, which have lost half their value in the last six months and have been trading at near 15-month lows, were up 15 percent at $2.55 on Nasdaq.
(Reporting by Shravya Jain in Bangalore; Editing by Anthony Kurian)