Ventrus Biosciences, Inc.redingtoninc.com/emailattach/VTUS-WmBlair-120403.pdf · Basic Report...

Please consult pages 29-30 of this report for all disclosures.William Blair & Company, L.L.C. receives or seeks to receive compensation for investment banking services from companies covered in this research report. Investors should consider this report as a single factor in making an investment decision.

Equity ResearchHealthcare | Therapeutics

Ventrus Biosciences, Inc.

Emerging Gastroenterology Company—Initiating Coverage With an Outperform Rating and a $30 Price Target

Ventrus is a development-stage therapeutics company with drug candidates for 3 of the top 10 indications treated in gastroenterology. At a market capitalization of $124 million, shares offer an attractive risk/reward ratio, in our view, leading up to several near-term clinical catalysts.

We believe there is a strong chance of positive results from the company’s upcoming Phase III readout for VEN 307 for the treatment of anal fissures. We are assigning an 85% probability of success given the literature in this setting to date that suggests ef-ficacy, including a recently published Cochrane Review; gastroenterologists are already using compounded products. Lastly, guidelines by the American Gastroenterological Association suggest use of compounded calcium-channel blocking products for the treatment of anal fissures. Depending on the strength of VEN 307 data, this product may be on the market in 2014 following a 505(b)(2) application in 2013.

We also expect top-line data from the first of two Phase III trials for VEN 309, a new chemical entity in development for the treatment of hemorrhoid disease, in the near term. While we believe that a strong case can be made for expecting a positive trial readout based on earlier data and what we believe to be a high-powered clinical trial, we view the program as riskier than VEN 307 because of the post-hoc nature of the Phase IIb data to date and strict Phase III endpoint. We therefore assume a 50% prob-ability of success, although the market opportunity for VEN 309 is significant, with hemorrhoid disease affecting more than 21 million Americans in the United States.

Ventrus is also developing VEN 308, in Phase II for the treatment of fecal incontinence, which management will develop further following readouts from the company’s cur-rent focus compounds, VEN 307 and VEN 309. Given the potential for both VEN 307 and VEN 309 and what we view as an attractive risk/reward ratio, we are initiating coverage of Ventrus with an Outperform rating and $30 price target. The greatest risk to our Outperform rating for Ventrus is clinical risk surrounding VEN 307 and VEN 309, both set to produce top-line Phase III results in the near term. In addition, Ventrus holds risks similar to all development-stage therapeutic companies, including financial risk—we do not estimate profitability until 2015—and regulatory and commercial risk.

Ventrus is an emerging therapeutics company developing three products in major gastroenter-ology indications. Ventrus is based in New York City and led by management with significant pharmaceutical experience.

Tim Lugo+1 415 248 [email protected]

April 3, 2012Basic Report (12-054)

Stock Rating: Outperform

Company Profile: Aggressive Growth

Price Target: $30.00

Symbol: VTUS (NASDAQ)Price: $9.97 (52-Wk.: $6–$24)Market Value (mil.): $124Fiscal Year End: DecemberLong-Term EPS Growth Rate: NADividend/Yield: NA

Estimates 2011A 2012E 2013E

EPS FY ($3.57) ($2.45) ($3.14)Revenue NA NA NA

Valuation

P/E NM NM NM

Trading Data

Shares Outstanding (mil.) 12.4Float (mil.) 8.7Average Daily Volume 101,000

Financial Data

Book Value Per Share $2.78Enterprise Value (mil.) $87EBITDA (mil.) ($33)Enterprise Value/EBITDA NM

Deirdre

RI-RESTRICTED disclaimer

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William Blair & Company, L.L.C.

Contents

Investment Summary ........................................................................................................3

Company Overview ............................................................................................................4

Two Large Markets, Two Important Readouts in the Near Term .....................................5

VEN 307 Overview .............................................................................................................6

VEN 309 (Iferanserin) Overview .....................................................................................12

Background on Hemorrhoid Treatment Market ............................................................17

VEN 308 Overview ...........................................................................................................19

Intellectual Property .......................................................................................................20

Competition .....................................................................................................................21

Financial Overview ..........................................................................................................21

Risks ................................................................................................................................. 23

Management Team ..........................................................................................................23

Conclusion .......................................................................................................................24

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Investment Summary

We are initiating coverage of Ventrus Biosciences with an Outperform rating and a $30 price target. We view the opportunity for Ventrus’s pipeline as significant given the large markets being targeted and our evaluation of a strong probability for clinical success from the company’s late-stage compounds. With two Phase III studies due to report results in the near term, we believe the risk/reward ratio for shares of Ventrus is favorable. Both studies contain clinical risk; however, we believe a strong case can be made for expecting the success of both products even though clinical development is often difficult.

In total, Ventrus is developing three compounds within its pipeline, all focused on the gas-troenterology setting. Two of these compounds will have near-term data readouts over the next three months: VEN 307 (topical diltiazem) for the treatment of anal fissures and ifer-anserin (VEN 309) in development for the treatment of hemorrhoids. As a backup, pend-ing clinical results from the two Phase III studies the company is set to announce in the near term, Ventrus is also developing VEN 308 for the treatment of fecal incontinence.

Specifically, we view the company’s upcoming data readout from VEN 307 as having an 85% chance for success based on the literature to date, the use of similar products produced in “home-brew” compounding pharmacies by gastroenterologists, and the current American Gastroenterological Association guidelines that suggest the use of these compounded products. We believe the second trial to report results over the next three months, studying iferanserin for hemorrhoids, holds greater clinical risk, given the post-hoc nature of data to date, although we view the market as more substantial. Ultimately, if the upcoming Phase III trial for iferanserin posts a positive readout, we expect interest by potential partners to be strong.

The pipeline compounds for Ventrus are targeting 3 of the top 10 disorders in gastroenterology, which we describe later, each of which has relatively few treatment options. The company holds $37 million in cash and equivalents as of the end of 2011 and has used about $6 million in cash in each of the past four quarters. We expect this to fluctuate to some extent over the next year de-pending on the Phase III results for VEN 307 and VEN 309, which will determine the next clinical steps for both programs. In general, we view the VEN 309 (iferanserin) program as higher in risk, but—because of the significant patient population—holding a higher upside potential if positive. We view the clinical risk as less for VEN 307 than for iferanserin because more than 10 clinical studies have already been published on the compound and 453 individuals have been treated to date. We describe data to date for both compounds later in this report.

If the results from the Phase III trials are positive, we believe management will begin an additional Phase III study for iferanserin by year end, with a potential readout in 2014 and approval in 2015. The development path for VEN 307 is at a more advanced stage, with a new drug application (NDA) filing possible following a relatively quick additional Phase III trial, although this will be dependent on the strength of data from the upcoming Phase III readout. Ventrus’s product pipeline is illustrated in exhibit 1.

VEN 307(Diltiazem)

In development for anal fissures with a potential 505(b)2 filing in 2013

In development for hemorrhoids with potential NDA filing in 2014

VEN 308 In development for fecal incontinence, with clinical strategy to be determined following readouts from VEN 309 and VEN 307

Sources: Company reports and William Blair & Company, L.L.C.

Exhibit 1

VEN 309(iferanserin)

Product PipelineVentrus Biosciences, Inc.

Product Preclin. I II III Reg. Market Partner Comments/Timing

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In exhibit 2, we include a list of the relevant events for Ventrus over the next two years. Most im-portant for the company, in our opinion, will be the pivotal readouts from both VEN 307 and VEN 309 over the next three months. As we discuss in the valuation section of this report, we view the VEN 309 trial as holding more clinical risk, although ultimately holding higher peak sales potential given the size of the potential patient population. For VEN 309, we assume a 50% probability of success, and for VEN 307, we assign an 85% probability for success. We outline our sum-of-the-parts valuation and the assumptions behind our $30 price target later in this report.

Date Product Event Description/Comments20122Q VEN307 Phase III Company will report top-line data from Phase III study in

anal fissures which could lead to filing and approval in 2013

2Q VEN309 Phase III Company will report top-line data from first Phase III study in hemorrhoids disease, which will set stage for second Phase III to be initiated within six months

Mid-2012 VEN309 Clinical Completion of drug-drug interaction study, will refine exclusion criteria for second Phase III study.

2H VEN309 Phase III Company will initiate second Phase III study in hemorrhoids disease

2013Early 2013 VEN307 Regulatory Filing of VEN307 505b(2) application, and potential

approval pending positive Phase III data during 2012

2H 2013 VEN307 Commercial Potential launch of VEN307 for the treatment of anal fissures

2014FY14 VEN309 Clinical Data from second study in hemorrhoids disease, potential

filing during the year pending positive results and launch in 2015

Sources: Company reports and William Blair & Company, L.L.C. estimates

Exhibit 2Ventrus Biosciences, Inc.

Timeline and Events

Company Overview

Ventrus Biosciences is a specialty pharmaceuticals company with a focus on developing therapies for the gastroenterology setting. The company went public in December 2010 and is based in New York City. We view the management of Ventrus as strong in comparison with its peers; the com-pany’s executives have extensive clinical experience at major pharmaceutical companies, such as Hoffmann-La Roche and Solvay Pharmaceuticals.

Management for Ventrus is building a gastroenterology-focused therapeutics company targeting three major indications within the specialty setting through an in-licensing strategy. Exhibit 3 below outlines what we view as the top 10 indications within gastroenterology and the current targets of Ventrus developed pipeline candidates. North American rights to both VEN 308 and VEN 307 were licensed from S.L.A. Pharma AG, a privately held European focused gastroenterology specialty pharmaceutical company. Ventrus holds worldwide rights to VEN 309 after licensing full product rights from the inventor in 2011.

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Disorder Prevalence (U.S., million)

Marketed and Pipeline Candidates

Gastroenteritis 1,2 169 Various approaches

Gallbladder disease 3 22 Surgery

Hemorrhoid Disease 5 21 Ventrus (VEN 309)Gastroesophageal Reflux Disease (GERD) 4

20 Various generics (omeprazole, esomeprazole), brands previosuly marketed by AstraZeneca

Irritable Bowel Syndrome (IBS) 1

18 Salix (Xifaxan), Ironwood (linaclotide), Furiex (MuDelta)

Fecal Incontinence 6-10 9 Ventrus (VEN 308), Salix (Solesta)

Peptic Ulcer 1 7 Various generics (omeprazole, esomeprazole), brands previosuly marketed by AstraZeneca

Chronic Liver Disease 1 6 Sitagliptin, GSK (lovaza), Raptor Pharmaceuticals (Cysteamine Bitartrate Delayed release)

Anal Fissure 11 4 Ventrus (VEN 307)

Diverticulitis 1 2 Shire (Lialda)

1. Sandler RS, et al. The burden of selected digestive diseases in the United States. Gastroenterology 2002;122:1500-11.2. Mead PS, et al. Food-related illness and death in the United States. Emerg Infect Dis 1999;5:607-25.3. Everhart JE, et al. Prevalence and ethnic differences in gallbladder disease in the United States. Gastroenterology 1999;117:632-9. 4. Frank L, et al. Upper gastrointestinal symptoms in NA: prevalence and relationship to healthcare utilization and quality of life. Dig Dis Sci 2000;45:809-18.5. Proprietary survey conducted by Ventrus; Estimate of 13M suggested by Johanson JF, et al. The Prevalence of Hemorrhoids and Chronic Constipation. Gastroenterology 1990; 98:380-386. 6. Nelson RL. Epidemiology of fecal incontinence. Gastroenterology 2004;126:S3-7.7. Nelson R, et al. Community-based prevalence of anal incontinence. JAMA 1995;274:559-61.8. Perry S, et al . Prevalence of faecal incontinence in adults aged 40 years or more living in the community. Gut 2002;50:480-4.9. Kalantar JS, et al. Prevalence of faecal incontinence and associated risk factors; an underdiagnosed problem in the Australian community? Med J Aust 2002;176:54-7.10. Giebel GD, et al. Prevalence of fecal incontinence: what can be expected? Int J Colorectal Dis 1998;13:73-7.11. Jost WH. Incidence of anal fissure in nonselected neurological patients. Dis Colon Rectum 1999;42:828.

Top Gastroenterology DisordersVentrus Biosciences, Inc.

Exhibit 3

Leading into two significant pipeline readouts, we believe that with VEN 307 alone, Ventrus could become a profitable specialty pharmaceutical company in the gastroenterology/colorectal surgeon setting given the total addressable market, which we believe exceeds $500 million domestically. However, if the company were to achieve strong data with VEN 309, we believe it will have to address the primary care setting as well, through either a partnership or a contract salesforce supported by direct-to-consumer (DTC) advertising. Given the significant size of the markets targeted, we believe Ventrus offers a very attractive risk/reward ratio for investment.

Two Large Markets, Two Important Readouts in the Near Term

The nearest-term opportunity for Ventrus is VEN 307, set to report data from a Phase III trial for the treatment of anal fissures (AFs) during second quarter 2012. Ventrus will be the second to market in this indication, pending successful clinical and regulatory outcomes. As there was no FDA-approved therapy for AF until recently, we believe VEN 307 has the potential to hold a best-in-class profile for a condition that affects more than 750,000 patients in the United States yearly.

Following the upcoming data readout from the VEN 307 Phase III program, if data are positive, Ventrus will file an NDA with the FDA in early 2013 and potential approval could come in 2014, depending on the timing of the submission. We value this product at $15.54 per share, or 52%, of our total price target for Ventrus. This assumes a 85% chance of clinical success for VEN 307 given the “home-brew” products already used by physicians as well as many published studies to date that suggest efficacy of diltiazem-based ointments in this setting. Our peak-year sales forecast of

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$300 million could also be conservative given the significant number of patients already being treated by physicians and our assumption of one course of therapy, while in practice some physicians could administer two courses before considering surgical options.

The next near-term opportunity for the company is iferanserin, in development for the treatment of hemorrhoid disease, which affects a large patient population. A recent Omnibus market study conducted by Princeton Brand Econometrics for Ventrus management suggested 21.7 million people in the United States had hemorrhoids over the past year. This coincides with rough epidemiology estimates that, while imperfect, suggest hemorrhoid treatment is a significant market. We discuss the market for hemorrhoid treatment in greater detail later in this report.

There are currently no FDA-approved therapies for hemorrhoid disease in the United States, although multiple over-the-counter (OTC) products are used by patients. We believe there is a significant opportunity for the first FDA-approved product; however, given the market size, Ventrus may seek a partner for the product depending on the outcome of the first of two Phase III studies to be reported near midyear. We expect interest in the product to be significant if the upcoming Phase III study is positive. However, if management decides to take the product to the market itself, we believe direct-to-consumer advertising could be a useful tool for driving patient use.

VEN 307 Overview

First Phase III Trial Due to Report Results SoonVEN 307 is in development for the treatment of anal fissures (AF). An anal fissure is a small tear in the skin that lines the anus, which typically causes severe pain and bleeding during bowel move-ments. When anal fissures do not heal following interventions such as changes in diet, they may become chronic, with the resulting pain significantly affecting the quality of life for a patient.

Mechanism of ActionDiltiazem cream (VEN 307) is a topically applied calcium channel blocker. The compound’s mecha-nism of action is thought to work through promoting muscle relaxation and dilation, reducing the pressure surrounding the fissure. This reduced pressure and relaxation enables increased blood flow and healing. In our opinion, there is strong evidence for this class of compounds being effec-tive in the treatment of anal fissures. The mechanism of action for diltiazem cream is similar to that of the recently approved nitroglycerin ointment however we believe Phase III data will show less risk of headaches, a common problem with nitroglycerin ointment. As we discuss below, diltiazem ointment has been produced by compounding pharmacies and used by gastroenterologist and co-lon specialists for the treatment of anal fissures for more than a decade with minimal side effects.

VEN 307 Data to DateThe use of diltiazem cream for the treatment of AF has been extensively studied; literature for the use of diltiazem with both oral and topical formulations dates back to 1998. Other calcium channel blockers have been studied and also yielded effective results for the treatment of AF. In 2003, the American Gastroenterological Association recommended the use of compounded diltiazem for the treatment of AF in a technical review of the indication. Among the many early-stage studies con-ducted by the licensor of diltiazem cream to Ventrus, S.L.A. Pharma, as well as in investigator-led studies, there were suggestions of efficacy. We have included data from multiple investigator-led studies in appendix A. In general, we believe data published to date suggests efficacy for VEN307.

Side effects for diltiazem cream appear manageable, with mild anal irritation, headache, and nausea reported. In a previously conducted study, diltiazem cream use was associated with a drop in blood pressure, which is consistent with the mechanism of action of the product. The changes were, in general, transient and asymptomatic, with blood pressure returning to or near baseline by the next reading.

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Exhibit 4 illustrates the design of the Phase III trial, which is being conducted by S.L.A. Pharma, the licensing partner of diltiazem cream. The company is testing two doses of diltiazem, a 2% and 4% cream, over an eight-week period compared with a placebo cream. The primary outcome will be a reduction in pain upon defecation at week four, although patients will be dosed through week eight and followed for detection of adverse events through week 12. The company is also looking for several secondary outcomes, most important in our opinion, a responder analysis, the percentage of patients who achieved on average 30% reduction in pain from baseline for various pain measures and patients who have achieved complete AF healing. Healing rates in the past have approximated 65% in topical diltiazem treatment groups, though the current study is of much higher quality than those previously reported.

Week 1 Baseline 2% diltiazem three times daily, 8 weeks

Arm 1

Week 1 Baseline 4% diltiazem three times daily, 8 weeks

Arm 2

Week 1 Baseline Placebo for 8 weeks

Arm 3

Design

31 sites in EuropeOpen label extesion to 1 year to treatment recurrenceColonoscopy at trial entry

Timing Top-line data in second quarter 2012

Sources: Company reports, www.cliniclatrials.gov, and William Blair & Company, L.L.C.


Phase III VEN 307 Trial Design

155 patients per trial armPrimary endpoint: Reduction in pain on defecation as measured by Likert visual analogue score (VAS)

Baseline screening for 1 week, enroll patients with pain scores greater than 4 on Likert scale

Assessments on week 2, 4, 8 with follow up call on week 12. Patients asked to take full 8-week course regardless of healing

We believe the key to this trial for Ventrus will be how the placebo patients perform, similar to many trials in the gastroenterology and pain settings. This is especially important in an indication that could include patients with a wide range of severity. However, we believe there are several interesting comparable development programs that suggest Ventrus should be able to enroll a trial that includes sufficiently severe patients. Past trials, which we detail below, suggest that higher pain scores upon entry lead to positive results.

We Believe VEN 307 Has a Strong Chance for SuccessWe believe the trial has many attributes that suggest a positive outcome, as outlined below.

• Compounded diltiazem cream use already suggested by American Gastroenterological Association. The use of diltiazem for the treatment of AF has been extensively studied to date, with literature on studies of both oral and topical formulations dating back to 1998. We have highlighted the relevant studies for diltiazem cream in the appendix. In total, we count 10 stud-ies that suggest some level of efficacy for the base compound in this indication. In addition,

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other calcium channel blockers have been studied with effective results for the treatment of AF. These data have led gastroenterologists to use “home-brew” formulations of diltiazem cream (produced by compounding pharmacies) to treat patients with anal fissures.

– The American Gastroenterological Association, in a 2003 technical review of the disease, stated that topical anal fissure therapy with calcium-channel blockers appears to be roughly as effective as treatment with topical nitrates with reduced side effects.

– A recent Cochrane review (authored by RL Nelson et al. and published in the Cochrane Database of Systematic Reviews 2012, Issue 2) on nonsurgical therapy for anal fissures suggests calcium-channel blockers (such as diltiazem and nifedipine) showed no significant difference in efficacy to topical nitroglycerin-based therapy, the active component in the recently approved Rectiv ointment for the treatment of anal fissures.

• Two treatment arms increases chance for success. As detailed in exhibit 4, the design of the current study with two treatment arms should enable efficacy readouts for each arm against placebo giving two options for success.

• Enrollment criteria should improve chances for success. A blinded review of study operations in late 2011 suggested high compliance by Ventrus’s clinical partner in enrolling patients with a pain score greater than 4 on a 10-point scale. In the nitroglycerin trials for AF, patients with higher pain scores led to reductions in the placebo effect with efficacy more readily observed. We outline this phenomenon that affected Cellegy’s AF clinical program in exhibits 5 and 6, where efficacy was observed at higher baseline pain levels.

Quintile Placebo NTG-Placebo Difference

Days N Mean N Mean0 20 29.9 18 29.6 0.315 19 13.3 17 13.5 -0.221 18 11.6 16 14.1 -2.3

Days0 10 35.3 23 37.3 -215 9 21.3 24 21.6 -0.321 8 26 25 16.5 9.5

Days0 18 49.4 14 39.7 9.715 17 20.8 17 18.8 221 17 14.8 17 18.9 -4.1

Days0 15 47.7 20 46.9 0.915 14 17.4 20 29.9 -12.521 13 21.8 19 31.7 -9.9

DaysBL > 66 0 18 62.4 16 63.9 -1.5BL > 66 15 19 31.9 15 39.7 -7.8BL > 66 21 16 30.6 15 39.1 -8.5

BL = Baseline pain score as measured by mm on a 100mm visual analogue pain scaleSources: Cellegy briefing documents, www.fda.gov, and William Blair & Company, L.L.C.


Data From Nitroglycerin-Based Product Suggests Importance of Enrolling Patients With High Pain Scores

0.4% NTG CommentsDefecation Pain Score at Days 15 and 21 by Quintiles

Consistent efficacy in patients with higher pain scores.

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Quintile Placebo NTG-Placebo Difference

Days N Mean N Mean0 20 38.9 18 38.7 0.215 19 11.7 18 15.2 -3.521 19 13.7 16 12.5 1.2

Days0 13 43.9 25 44.1 -0.215 11 24.2 25 19.6 4.621 11 23.7 25 16.7 7

Days0 20 50.3 17 50.9 -0.615 19 18.8 17 17.5 1.321 19 15.1 17 15.7 -0.6

Days0 16 61.4 21 61.3 0.115 15 12.7 21 38.6 -25.921 14 12.4 20 35.5 -23.1

DaysBL > 66 0 20 77.8 17 79.2 -1.4BL > 66 15 20 34.8 17 46.1 -11.4BL > 66 21 18 32.4 16 35.5 -3.1

BL = Baseline pain score as measured by mm on a 100mm visual analogue pain scaleSources: Cellegy briefing documents, www.fda.gov, and William Blair & Company, L.L.C.

Data From Nitroglycerin-Based Product Suggests Importance of Enrolling Patients With High Pain Scores Ventrus Biosciences, Inc.

Exhibit 6

Average Pain Score at Days 15 and 21 by Quintiles of Baseline Scores0.4% NTG Comments

Much more efficacy in patients with higher pain scores allowing differences in placebo.

However, because of mixed intent-to-treat results, Cellegy’s nitroglycerin-based product was not

approved during the first review periods; the inclusion of less-severe patients in its trials and the side effect profile (headaches) led to patient dropouts. Eventually, ProStrakan assumed control of the program and conducted a successful Phase III in patients with higher baseline pain scores for what was approved in 2011 and is being launched as the brand Rectiv. We outline the Rectiv label and clinical data in exhibit 7.

VEN 309 Comments Study Design 3 week, double-blind, randomized, multi-center, placebo

controlled study. NTG (twice daily) versus placebo.Treatment for 8 weeks though patient visits at week 2, 4, 8

Patient Background Patients with painful chronic fissure for at least six weeks and moderate to severe pain ( 50mm on 100mm visual analogue score)

VAS >50mm corresponds to about 4.5 on Likert Scale; Ventrus is enrolling patients above 4

Patients Enrolled 246 (123 per arm) Ventrus enrolling more patients per arm (155)

BaselineRectiv 73 mmPlacebo 72 mm

Mean change from baselineRectiv 44 mmPlacebo 37 mmDifference 7.0 mm, (95% CI -13.6 to -0.4mm)

HeadacheRectiv 79 (64%), 938 eventsPlacebo 51 (41%), 225 events

LOCF/BOCF: statistical method allowed by FDA, last observation carried forward/best observation carried forwardSources: Rectiv drug approval package, www.fda.gov, and William Blair & Company, L.L.C.

Placebo-like headache rates in topical diltiazem studies to date

Rectiv (Nitroglycerin Ointment 0.4%) Pivotal Study Comparison With VEN 309Ventrus Biosciences, Inc.

Exhibit 7

Statistically significant results at difference of 7mm (about 0.63 points on Likert scale) when using LOCF/BOCF

Rectiv Pivotal Study

Higher baseline than previous trials led to positive outcome

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Overview of AF Therapies MarketAnal fissures, or small tears in the skin that lines the anus, are quite common, affecting nearly 2% of the U.S. adult population. They can be extremely painful, cause bleeding, and sometimes requires surgery, which itself can have unsatisfactory outcomes. Patients have described the pain associated with AF as similar to passing shards of glass.

Similar to hemorrhoids, anal fissures are often caused by constipation and hard stools. Some fissures can be minimally symptomatic, but most patients present with severe pain, bleeding, or itching. The pain can be localized to the area of the fissure, and is often triggered by a bowel movement. The pain can last for hours and can be severe. Bleeding may occur but is usually not significant. We have included some quick facts below, which are provided by several sources including the American College of Gastroenterology website.

Quick facts on anal fissures (AFs):

• Potentially affecting nearly 2% of the U.S. population• No. 1 diagnosis for pain following defecation by gastroenterologist• Up to 11% of referrals to gastroenterologist/colorectal surgeon specialty unit• Estimated to affect 28% to 30% of all Crohn’s patients• 1.1 million office visits per year for anal fissures• Estimated 750,000 unique patients per year seek treatment

Most fissures heal spontaneously, although some persist and become chronic. These chronic fissures are the cases most likely to be targeted by VEN 307. In quantitative market research, contracted by Ventrus, the market for AF treatment looks significant when focusing on the incidence within the primary care, gastroenterologist, and colon/rectal surgeon physician groups. On average, the surveyed primary care physicians see 23 AF patients per month, gastroenterologists see 17 AF patients per month, and colon and rectal surgeons see 31 AF patients per month. Physicians in all three medical specialties that normally are exposed to AF (primary care, gastroenterologists, colon/rectal surgeons) indicated that there is a significant unmet need for therapeutic choices for anal fissure. Only 8% of primary care physicians, 5% of gastroenterologists, and 27% of colon and rectal surgeons reported being “very satisfied” with current treatment options. All three medical specialties reported failure rates exceeding 50% for current first-line therapy in patients with AF.

When applied topically for the treatment of anal fissures, diltiazem, a drug that has been used for decades for hypertension and angina, dilates the blood vessels supplying the region and reduces anal sphincter tone, thereby substantially decreasing pain. In multiple clinical trials, use of diltiazem cream significantly reduced the pain associated with anal fissures. We expect Ventrus to capture immediate market share if VEN 307 is approved based on what should be comparable efficacy with Rectiv and a better side effect profile (less headaches).

We have included our market model for VEN 307 in exhibit 8. We estimate approval will be received in 2014; however, this is highly dependent on the time of submission of the VEN 307 NDA filing. Management has guided only to a 2013 filing, and we believe the strength of data from the Phase III trial as well as management’s decision regarding the development of extended release formulations will drive the exact timing for the first year of sales.

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2011(A) 2012(E) 2013(E) 2014E 2015E

Prescription

Estimated U.S. Office Visits per Year for AF (1) 1,100,000 1,100,000 1,100,000 1,100,000 1,100,000Estimated Unique Patients From Office Visits (1) 750,000 750,000 750,000 750,000 750,000

Penetration Into Current Patients Seeking Care 0% 0% 0% 0% 0%Patients Being Treated With VEN307 0 0 0 34,500 120,000Price per Patient $730 $730 $730 $730 $730Discount 10% 10% 10% 10% 10%Sales of VEN307 ($000) $0 $0 $0 $22,667 $78,840

Growth Year-Over-Year NA NA NA NA NA

* All market share data are estimates(1) Data held by companySource: William Blair & Company, L.L.C. estimates


VEN307 Market Model

We outlined the total market for VEN 307 in exhibit 9. Based on internal data, management be-lieves patients make about 1.1 million office visits related to anal fissures each year. These visits represent roughly 750,000 unique patients. We estimate Ventrus will price VEN 307 in line with the nitroglycerin-based product Rectiv at about $730 for a course of treatment. Unlike the hemorrhoid indication, there are no over-the-counter competitors in the anal fissures treatment market; how-ever, there will be a branded product, Rectiv, in the market. We estimate the total market to exceed $500 million in the United States. We therefore believe our peak-year sales forecast of $300 million is achievable, although we will most likely update our assumptions following the readout of the data set from the Phase III study in progress, and we believe the strength of the data should ultimately determine the position of VEN 307 in the market.

Estimated U.S. Office Visits per Year for AF (1) 1,100,000Estimated Unique Patients From Office Visits 750,000

Price per patient $730Total U.S. Market for VEN309 ($000) $547,500,000

(1) Data held by companySource: William Blair & Company, L.L.C.


U.S. Anal Fissures Treatment Market

As we discuss in the valuation section of this report, we value VEN 307 at $15.54 per share for Ven-trus. We assume peak sales in $300 million and believe the company will hold exclusivity for at least five years following launch (because of Hatch-Waxman exclusivity), but we model exclusivity until 2024, which we believe is conservative given the company’s plan for a life cycle extension program, which includes a twice daily formulation that would provide 20 years of patent life.

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VEN 309 (Iferanserin) Overview

Hemorrhoid disease affects a large patient population, with more than 21 million people each year afflicted in the United States. Iferanserin is a selective 5-HT2A antagonist (it limits the activity of receptors involved in clotting and the contraction of arteries and veins) that is absorbed less than 10% systemically and dosed topically twice daily through an applicator. VEN 309 is in a Phase III trial for the treatment of bleeding associated with hemorrhoid disease. The compound has shown efficacy in an earlier-stage German clinical trial for the treatment of hemorrhoid disease, and based on the Phase IIb German study, which was recently published in a peer-reviewed journal, Ventrus in-licensed the worldwide rights to the product from S.L.A. Pharma AG.

Mechanism of ActionThe pathophysiology of hemorrhoid disease is not clearly understood, but current theories suggest that structural or vascular changes in the lower rectum region may be involved. The anal canal consists of several fibrovascular connective cushions. Together these cushions serve as a comfortable plug that ensures watertight closure of the lower canal. The degenerative effects of aging may weaken or frag-ment these supporting tissues. In addition to aging, the repeated effects of straining during defecation, hard stools, heavy lifting, and/or pregnancy are also implicated in leading to hemorrhoids. The result of these events may lead to the descent and prolapse of these cushions. This leads to impaired venous return, blood vessels becoming congested, and ultimately enlargement of the cushions and inflamma-tion. The trapped blood flow and the resulting inflammation are thought to be the cause of hemorrhoids.

The release of serotonin within the lower gastrointestinal system is thought to promote blood vessel congestion and inflammation. Iferanserin, by blocking the serotonin effects in the gastrointestinal lin-ing, is thought to alleviate the venous constriction, platelet aggregation, and cascading formation of the hemorrhoid. This blocking may lead to faster cessation of the bleeding associated with hemorrhoid disease with relatively few side effects when dosed directly to the site of the hemorrhoid. It is this bleed-ing, especially with internal hemorrhoids, which normally prompts a patient to seek medical attention, with the cessation of bleeding being the primary endpoint of the current Phase III trial for iferanserin.

Iferanserin Data to DateThe Phase IIb study that was the basis for in-licensing the program was conducted in five sites in Germany and enrolled 121 patients with hemorrhoid disease. The study compared iferanserin (10 mg, dosed bi-daily) with placebo over a 14-day period. The primary efficacy endpoints of the study were patient-assessed severity scores for bleeding on days 7 and 14. Secondary endpoints were patient-assessed severity scores for itching, pain, and other symptoms of disease on days 7 and 14, with a physician assessment on day 14. For the patient-assessed data, a daily diary captured efficacy data from the patients throughout the trial. The daily diary assessed the severity of eight symptoms, including bleeding, at the end of each day using a scale of 1 (indicating the absence of symptoms) to 10 (indicating extreme aggravation of symptoms) throughout the study.

The status of patients enrolled in the Phase IIb study was likely less severe than the current Phase III trial. The earlier trial enrolled patients who had grade I, II, or III hemorrhoid disease with at least one bleeding episode at least every other day before enrollment in the trial. While the enrollment of the trial was also more heavily slanted toward grade III patients in the treatment arm. However, it is unknown how the imbalance between grade II and grade III patients in the treatment and placebo arms could affect the outcomes of the trial. In a post hoc analysis, which was recently published as a journal article (A. Herold et al., “Intra-anal Iferanserin 10 mg BID for Hemorrhoid Disease: A Prospective, Randomized, Double-Blind, Placebo-Controlled Trial,” Clinical Therapeutics 34 [February 2012]: 329-340), iferanserin was associated with significantly reduced patient-reported severity scores for daily bleeding and itching. However, there was not a statistically significant effect on pain. We have included results from the post hoc

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analysis in exhibit 10. The results were based on patient-reported data collected through a patient diary during the treatment period, with a physician assessment at day 14. While published data suggests a beneficial impact on bleeding for those treated with iferanserin, we caution investors that these data were determined in a post-hoc analysis on 111 patients, 10 fewer than the 121 patients originally enrolled in the study.

Symptom/Day Iferanserin (n=56)

Placebo (n=55)

Between treatments, on given day

Between treatments, change from baseline

Bleeding

Baseline 5.4 (2.1) 6.1 (2.4) NS -Day 7 1.6 (1.1) 3.5 (2.7) <0.0001 0.0003Day 14 1.7 (1.5) 3.1 (3.0) 0.0075 0.0442

Itching

Baseline 3.7 (2.0) 3.6 (2.1) NS -Day 7 1.4 (0.7) 2.5 (1.6) 0.0008 0.0002Day 14 1.3 (1.3) 2.1 (1.5) 0.0207 0.0024

PainBaseline 3.9 (2.1) 4.3 (2.6) NS -Day 7 1.9 (1.3) 3.2 (2.9) NS NSDay 14 1.8 (1.7) 2.7 (2.3) NS NS

Scale: 1 = absence of the symptom to 10 = extreme aggravation of the symptomSource: Herold A, Clinical Therapeutics 2012

Patient-reported effects on days 7 and 14 of iferanserin 10mg BID versus inactive vehicle (placebo) for the treatment of patients with hemorrhoid disease and bleeding

Score, Mean (SD) P value

Exhibit 10

Patient Reported Outcomes From Iferanserin Phase IIb StudyVentrus Biosciences, Inc.

In a response analysis between the primary endpoints of bleeding from day 7 to day 14, as well as secondary endpoints, there was a strong sign of efficacy in the iferanserin treatment group with response three times greater in the treatment arm versus the placebo arm. We have included data from this response analysis in exhibit 11. The analysis defines a response as a drop from the baseline to a score of 1 on days 7 through 14.

Symptom Iferanserin (n=56)

Placebo (n=55)

P value

Bleeding 57% 20% pItching 59% 32% p<0.034Pain 50% 18% p<0.032

Responder defined as patient citing 1 on 1 to 10 scaleSource: Company reports


Patient-Reported Response Analysis From Iferanserin Phase IIb Study

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In exhibit 12 we also included data for bleeding, itching, and pain scores observed during the trial. There were consistent trends favoring the treatment group in all time points during the course of the trial. Also, efficacy in the Phase IIb data was observed within days of treatment, which is partly the reason for the inclusion of 7-day as well as 14-day blinded treatment arms in the design of the current Phase III trials.

Sources: Herold A, Clinical Therapeutics 2012, and William Blair & Company, L.L.C.


Efficacy Signals in Phase IIb

Consistent signs of efficacywithin 3-7 days the reason for inclusion of 7-day arm in Phase III

Consistent signs of efficacywithin 3-7 days the reason for inclusion of 7-day arm in Phase III

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On the safety side, tolerability of the therapy appears favorable, with no serious adverse events reported during the Phase IIb trial and no difference in adverse events observed between the treat-ment and placebo groups (most adverse events reported between both arms were gastrointestinal in nature). Nor were there any differences between the blood or urine values in any of the patients treated within the two groups.

Iferanserin Phase III Readout ApproachingWe now await the outcome of the company’s current clinical study of iferanserin, which should report results in mid-June. The Phase III trial enrolled 200 patients per arm in a three-arm study, testing two different treatment courses of iferanserin, a 7-day course and a 14-day course. An open label extension portion of the study seeks to capture recurrence data up to one year after treatment. The dosing of iferanserin in the ongoing Phase III study is 0.5%, twice daily, which is in line with the previous dosing in the German Phase IIb study. The Phase III study was initiated in August 2011, and we believe initial enrollment across the 70-site study was hampered by restrictive inclusion criteria, including the exclusion of patients on SSRI medication, as the company did not have detailed drug-drug interaction data at the time of enrollment, as well as the requirement for patients to have a colonoscopy when entering the trial to screen out colorectal cancer candidates. The study is described in exhibit 13.

7 Days Iferanserin (0.5% Ointment) 7 Days Placebo

Arm 1

14 Days Iferanserin (0.5% Ointment)

Arm 2

14 Days Placebo

Arm 3

Primary Endpoint: Cessation of bleeding beginning day 7 continuing through day 14

Design

70 sites in the United StatesOpen label extension to 1 year to treatment recurrence0.5% iferanserin (containing 10mg iferanserin), twice daily, intra-anal administrationPatients with Grade I-III internal hemorrhoids, Grade IV excludedInclusion: Bleeding for two consecutive days before trial entry, itching or pain for two consecutive days as well

Colonoscopy 28 days before trial entry12 Month Extension Study with visits every three months, patients with recurrence will be treated open label for 7 days

Timing Top-line data in June 2012

Sources: Company reports, www.clinicaltrials.gov, and William Blair & Company, L.L.C.

Ventrus Biosciences, Inc.Exhibit 13

Exclusion: History of IBS, fecal incontinence, anal fissure, SSRI use within 28 days

200 patients per trial armPrimary endpoint: Cessation of bleeding day 7-14Secondary endpoints: Cessation of pain and itching, day 7-14

14 Days of Follow-up



Phase III Iferanserin Trial Design

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The Phase III clinical trial for iferanserin has many attributes that we believe increase the potential for a positive outcome, including:

• A large number of patients enrolled. We believe the 600-patient study has been 99% powered to show a 30% absolute difference (similar to the three fold improvement in the 111 patient Phase IIb trial). Given the stricter enrollment criteria of the current trial, we believe Grade III patients compose a larger portion of the trial than the 29% enrolled in the Phase IIb trial. We believe this should decrease the placebo response in the trial and should increase the ability to detect a difference in the treatment arms. We also believe compliance is high within the trial to date given commentary following blinded reviews of trial protocol.

• The three-arm study gives Ventrus two chances for success. The design of the current study with two treatment arms could result in efficacy in either arm. As we discussed earlier, data from the Phase IIb study suggested efficacy from the ointment within several days of treatment. We believe this led to the inclusion of the arm studying seven days of active treatment in addition to the arm studying 14 days of active treatment.

• The Phase IIb data suggests efficacy of iferanserin roughly threefold that of placebo. Al-though the Phase IIb study was conducted internationally and the response data was post-hoc in nature, there was a clear signal of efficacy.

In exhibit 14 we outline the differences between the Phase IIb study and the large Phase III study set to report in late June. We also comment on how the differences will likely affect the potential for positive top-line results from the study. In general, while we are concerned about a more difficult primary endpoint, we believe several adjustments—including a large number of patients enrolled, two dosing arms, and more severe patients enrolled—should increase the chance of success.

Difference Phase IIb Current Phase III Impact on Current Trial

Patient Size 121 enrolled, 111 evaluable across 2 arms

600 patients across 3 arms Positive

Dosing 2 Arms:Placebo0.5% BID for 14 days

3 Arms:Placebo for 14 days0.5% BID for 7 days, then 7 days placebo0.5% BID for 14 days

Positive

Primary Endpoint Patient-assessed severity scores for bleeding on days 7-14

Cessation of bleeding day 7-14; patient reported via daily calls.

Negative

Patient Inclusion/Exclusion

Any patient with grade I, II, III Grade I-III, Exclusion: Pts, on SSRIs, depressed or history of depression.

No Difference

Severity Bleeding half the prior two weeks 2 consecutive days of symptoms Lower placebo rate, Positive


Differences Between Phase IIb and Phase III Studies

Sources: Company reports and William Blair & Company, L.L.C.

Following the data release from the current iferanserin Phase III study, we believe management will have several options, depending on the outcome. If the study is positive, management will initiate a second confirmatory study in 2012, as well as clarify the need for carcinogenicity studies, which may not be necessary for filing outside the United States. The additional Phase III study should include recurrence as an endpoint instead of studying recurrence in an open label extension study, which is how the data is currently being collected. Management has guided to filing an NDA in 2014 and

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possible approval in 2015. If carcinogenicity studies are not required before filing outside the United States, this could push up the approval timeline for international filing to 2014. If the Phase III study does not hit the primary endpoint, we believe management will reevaluate further development of iferanserin and possibly focus on VEN 307 and VEN 308.

As detailed in the valuation section of this report, we conservatively assume a 50% probability of success for the upcoming Phase III trial. However, we believe the opportunity for the product could be significant, so a positive outcome should be a major catalyst for shares of the company. We are assuming peak sales of $500 million; however, given the size of the market opportunity as outlined in the following section, we believe this may also be conservative. Given the clear primary care market for the product, if the upcoming Phase III trial shows strong signals of efficacy, we anticipate acquisition interest in Ventrus to be relatively high.

Background on Hemorrhoid Treatment Market

Pending a successful clinical development and regulatory outcome, VEN 309 would enter a large market with no FDA-approved prescription therapies. Currently, invasive procedures are used for more severe cases, including banding, injections of sclerosing agents, and surgery for prolapsed hemorrhoids. However, these invasive and surgical options are reserved for the most severe cases and there are no FDA-approved treatments available for the management of grade I-III hemorrhoid disease.

Prescription topical steroids are commonly prescribed off-label to treat Grade I to III hemorrhoids. Their use is mainly based on historical practice and there has never been a placebo-controlled trial that has shown a benefit from these products; however, patients often cite their utility. According to IMS data, there are more than 4 million prescriptions of these products yearly. Low-strength steroids and topical anesthetics available in over-the-counter (OTC) products are also commonly used with-out a prescription. Sales of the most successful of these ointments, Preparation H, are 20 million to 22 million units annually. Similar to prescription products, the efficacy of these products has never been demonstrated in well-defined clinical trials. Given the lack of FDA-approved therapies for this ailment, we believe interest among physicians in iferanserin use will be strong if VEN 309 is approved.

Management recently conducted a large market research effort, and as expected, the number of people who suffer from hemorrhoids is large. In a survey of 800 physicians and 10,202 adult con-sumers, the results indicate a significant market opportunity for the first company to develop an effective FDA-approved therapy. Within the last two years, 11% of all consumers surveyed reported suffering from hemorrhoids, which suggests a prevalence of 25.8 million persons in the United States. Regarding treatments being used by the population, 15% reported never using an OTC or prescription treatment, while 9.5 million unique households purchased one or more OTC hemorrhoid preparations. For the more severe cases, 10% of all hemorrhoid patients who received treatment for their condition reported having an invasive procedure (61% having surgery) and 75% of those reported recurrence of symptoms after surgery.

We included some of the market highlights from work done by Ventrus management and published literature in exhibit 15, on the following page. In general, this is a significant market, and while it is possible that a company of Ventrus’s size could gain access, it would most likely be better pen-etrated through a partnership with one of the large pharmaceutical companies with a significant primary care sales presence.

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Potentially affecting nearly 22.1 million in U.S. per yearOn any one day 6.7 million people in the U.S. are estimated to have hemorrhoidsTotal over-the-counter market for hemorrhoid disease is 20 million-22 million units4.2 million prescriptions for intra-anal hemorrhoid products were prescribed in 201085% of HD patients have been treated with prescription or OTC products10% of HD patients undergo a procedure (banding, injection, surgery)75% of patients have recurrence, 50% of them within one yearSources: Data held at company, company reports, and William Blair & Company, L.L.C.

Exhibit 15Ventrus Biosciences, Inc.Hemorrhoids Market Facts

Assuming the product reaches the market, we believe Ventrus has a wide range of pricing options for VEN 309. Over-the-counter products, such as Preparation H, cost about $7 to $14 per vial. If we conservatively assume the initial market will be those that will try the product before an invasive procedure and assume pricing is at parity with prescription topical steroids at about $325 per course (which would lead to an roughly $35 co-pay for patients), we derive a total U.S. market of more than $4 billion. We outline our market model for VEN 309 in exhibit 16.

2011(A) 2012(E) 2013(E) 2014E 2015E

U.S. Prevalence, Hemorrhoids (9.3%) 21,700,000 21,700,000 21,700,000 21,700,000 21,700,00085% have been treated by OTC/Rx 85% 85% 85% 85% 85%Patients treating HD 18,445,000 18,445,000 18,445,000 18,445,000 18,445,000Exclude Grade 4 (10%) 10% 10% 10% 10% 10%Patients seeking treatment, G1-3 16,600,500 16,600,500 16,600,500 16,600,500 16,600,500

Specialty MarketGastro/Colorectal Surgeon Treating (%) 30% 30% 30% 30% 30%Gastro/Colorectal Surgeon Treating 4,980,150 4,980,150 4,980,150 4,980,150 4,980,150Penetration Into Specialty Market 0% 0% 0% 0% 3%Specialty Patients on VEN309 0 0 0 0 164,346Price per Course $325 $325 $325 $325 $325Discount 10% 10% 10% 10% 10%Sales in Specialty Setting ($000) $0 $0 $0 $0 $62,638

Primary CarePCP/OBG Market 60% 60% 60% 60% 60%PCP/OBG Treated Patients 9,960,300 9,960,300 9,960,300 9,960,300 9,960,300Penetration Into PCP Market 0% 0% 0% 0% 0%PCP Patients on VEN309 0 0 0 0 0Price per Course $325 $325 $325 $325 $325Discount 10% 10% 10% 10% 10%Sales in PCP Setting ($000) $0 $0 $0 $0 $0

Total Sales of VEN309 ($000) $0 $0 $0 $0 $62,638

Growth Year-Over-Year NA NA NA NA NA

* All market share data are estimatesEpidemiology data held by company and determined through proprietary survey by Princeton Brand EconometricsSources: William Blair & Company, L.L.C. estimates and company reports


VEN 309 Market Model

In exhibit 17, we outlined what we believe are the total market sizes in both the primary care and specialty setting for VEN 309. As we detail later in our sum-of-the-parts valuation, we assume peak sales of $500 million for VEN 309, although as we believe the U.S. hemorrhoid treatment market is

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substantially larger, we may eventually prove overly conservative. We have estimated the total market at more than $4 billion. We understand that a significant number of patients may still choose to treat themselves with OTC medications before moving on to a branded therapy. However, the various OTC options have never shown efficacy in randomized controlled trials; therefore, we believe VEN 309 could prove a significant product if its clinical profile holds up during Phase III development. Furthermore, we believe the suggestion to use a therapeutic before a procedure (such as banding) will be strong given the likely several fold difference in price between a therapeutic, even a branded one, and a procedure.

U.S. Prevalence, Hemorrhoids (9.3%) 21,700,00085% have been treated by OTC/Rx 85%Patients treating HD 18,445,000Exclude Grade 4 (10%) 10%Patients seeking treatment, G1-3 16,600,500

Specialty MarketGastro/Colorectal Surgeon Treating (%) 30%Gastro/Colorectal Surgeon Treating 4,980,150Price per course $325Discount 10%United States Specialty Market ($000) $1,456,693,875

Primary CarePCP/OBG Market 60%PCP/OBG Treated Patients 9,960,300Price per course $325Discount 10%Sales in PCP Setting ($000) $2,913,387,750

Total Market for VEN309 in the United States ($000) $4,370,081,625

Sources: Company reports and William Blair & Company, L.L.C estimates

Exhibit 17Ventrus Biosciences, Inc.U.S. Hemorrhoid Market

Epidemiology data held by company and determined through proprietary survey by Princeton Brand Econometrics

Based on our discussions with management, we believe Ventrus will wait until the upcoming data readout from the Phase III trial before executing on what we believe will be several opportunities for entering the market, including a potential partnership for international rights or out-licensing domestic primary care rights, while retaining the specialty setting.

VEN 308 Overview

Management’s current focus is on the data from the upcoming Phase III trials for VEN 309 and VEN 307. Following data readouts from those studies, management will update the Street on not only the path forward for those two compounds, but also the next steps for VEN 308, which could enter Phase II development in 2012.

VEN 308 is a formulation of phenylephrine gel for the treatment of fecal incontinence associated with ileal pouch anal anastomosis (IPAA), an orphan indication. Patients with IPAA, secondary to a total colectomy, tend to have a high incidence of fecal incontinence, with some literature suggesting this rate approaches 30%. IPAA-related fecal incontinence is considered an orphan indication by the FDA and the European Medicines Agency, or EMEA. Orphan status will lead to seven years of exclusivity in the United States and 10 years in Europe pending successful development, no mat-ter the development time frame. In 2006, the total population of patients with IPAA-related fecal incontinence in the United States was estimated to be 50,000 to 100,000, according to IMS Health, Inc. Other treatments for fecal incontinence include the recently acquired Solesta, which is now

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marketed by Salix Pharmaceuticals following the acquisition of Oceana Therapeutics for $300 mil-lion in cash in December, 2011. We believe there may be potential for combination therapy using VEN 308 and Solesta, although this will have to be defined in additional clinical development.

Physiology of Fecal Incontinence Continence is a complex physiological action that requires the presence of a series of anatomical bar-riers preventing the movement of feces through the anus. If any of these barriers are dysfunctional, incontinence can occur within a wide range of severity. Specifically, anal sphincter weakness has long been associated with fecal incontinence. Abnormal fibrosis, reduced elasticity, insensitivity to norepinephrine, and spontaneous relaxation are associated with anal sphincter weakness.

In March 2007, Ventrus acquired North American rights from S.L.A. Pharma to develop and market a proprietary phenylephrine-based gel for the treatment of fecal incontinence. Along with diltiazem cream, phenylephrine gel has been developed almost exclusively to date in Europe. Ventrus concluded a pre-IND meeting with the FDA in June 2007 in anticipation of an IND submission, after which we expect the company to initiate a Phase IIb dose-ranging trial. Ventrus expects to collaborate closely with S.L.A. Pharma to leverage clinical data for different regulatory agencies and to rationalize manufacturing capacity. Before licensing phenylephrine gel to Ventrus, S.L.A. Pharma had licensed the rights to Solvay Pharmaceuticals. While Solvay held the rights, it improved the manufacturing processes and formulation and conducted important pharmacokinetic studies. In 2004, the new CEO of Solvay Pharmaceuticals focused the R&D strategy on central nervous system and cardiometabolic programs and discontinued gastroenterology (GI) and women’s health projects. Consequently, in 2005, the license rights to phen-ylephrine gel were returned to S.L.A. Pharma. Ventrus, with deep connections to the former GI division at Solvay, brought the product into the company and is now looking to continue development.

The mechanism of action for topical phenylephrine gel is to increase resting sphincter pressure, which should lead to increased patient bowel control. This mechanism of action could also suggest combination use with the drug/device Solesta, recently purchased by Salix in the Oceana transac-tion for an estimated $300 million in cash. Phenylephrine gel’s mechanism of action could also suggest use in broader populations, potentially leading to studies for any patient population that suffers from mild incontinence. However, during preclinical work, several animal models suggested phenylephrine led to mild inflammation and skin sensitization. Ventrus may have to further refine the formulation of VEN 308 before initiating additional clinical studies with the product.

Intellectual Property

We believe the company is in the process of strengthening the intellectual property for the company’s lead two products, VEN 307 and VEN 309. Both VEN 307 and VEN 309 are topical products. Since activity of these products are based on the local activity of the drug not on the blood levels of drug, generic manufacturers often face higher hurdles in proving bioequivalence. Companies wishing to bring a generic version of the product to market may have to complete efficacy tests, which normally are difficult to conduct and introduce a level of risk in proving bioequivalence to brand products. We detail the current intellectual property for the company’s two most advanced compounds below.

On November 1, 2011, the company was issued a patent surrounding VEN 307 (U.S. patent number 8,048,875), which expires in February 2018. Ventrus believes an additional 16 months will be added to this patent given the timing of the IND for VEN 307. This should provide patent protection for the product until the second half of 2019. Ventrus also has several extended release formulations in development for VEN 307, which may prove useful in life-cycle management. For VEN 309, the company’s composition of matter patent will expire in August 2015; however, the Hatch-Waxman Act will provide the company with protection for five years following introduction of the product into the market domestically, and data exclusivity in Europe will protect the company from a generic

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entrant for 10 years. VEN 309 is also less than 10% absorbed systemically and as noted above, topi-cal products normally face higher barriers for generic entrants. We also believe the company is in the process of attempting to secure a patent surrounding the specific concentration of iferanserin (0.5%) within VEN 309, which may reach out to 2030 if granted.

Competition

Ventrus is expected to face one branded competitor in the anal fissures indication, Rectiv, approved by the FDA in 2011 and to be launched in the near term. As we have previously discussed, Rectiv is a nitroglycerin-based product for the treatment of anal fissures. Aptalis, a Quebec-based specialty pharmaceutical company, has licensed the compound for the North American market and should soon introduce the product into the U.S. market. We view the potential product profile of VEN 307 as attractive compared with nitroglycerin-based products such as Rectiv, as we believe that the ef-ficacy of VEN 307 should be at least on par with the competing product but lead to fewer headaches, a known side effect of nitroglycerin-based products. Other products used off label for the treatment of anal fissures include Botox as well as surgical interventions. We note that both treatments have been associated with fecal incontinence as a side effect.

VEN 309, if clinically successful, is slated to be the first product to enter the market with an FDA-approved label for the treatment of hemorrhoid disease. Over-the-counter products dominate the market at present, but the efficacy of these products has never been demonstrated through well-controlled clinical trials.

Financial Overview

Income StatementThe shape of Ventrus’s income statement will be highly dependent on the data readouts from the upcoming VEN 309 and VEN 307 Phase III trial readouts. Pending a positive readout from the Phase III VEN 307 study, this product could be the first product to reach the market for the company in the 2014 time frame. We estimate the product will bring in revenue of $22.6 million in 2014 and $78.8 million in sales in 2015. On the expense side, we believe Ventrus will build a specialty team to target gastroenterologists and colorectal surgeons. We estimate this team to include about 150 salespeople to launch VEN 307, given a standard assumption of $225,000 per representative. Regard-ing the research-and-development line item, we again believe this will be highly dependent on how the company will proceed with the development of VEN 307 and VEN 309. We have laid out several scenarios in Appendix 2 for future development possibilities for the company. Both products also have the ability to be partnered which would offset development costs and bring in additional capital.

However, while a launch of VEN 307 will largely be possible through the Ventrus salesforce, we believe if VEN 309 is successful in the clinic, the company may look to partner rights to the primary care setting or international rights. We estimate a launch of VEN 307 in 2014; however, this will be dependent on the filing of the company’s NDA and if additional clinical work is conducted. For the first full year of sales, we anticipate $22.6 million in revenue for the product and $141.4 million in 2015 for both VEN 307 and 309. We estimate Ventrus will post net losses until the company’s first full year of profitability in 2015, when we forecast $3.75 in earnings per share.

Balance Sheet and Cash FlowThe company holds $36.9 million in cash on its balance sheet as of the end of December. During 2011, the company used about $25 million in cash and received an inflow of $47.6 million in cash following an offering during the third quarter of the year. Ventrus holds about $67 million in accumulated losses,

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which may be viewed as beneficial to an acquirer’s tax rate if an acquisition of the company occurred. Given this cash burn, we believe the company may conduct an additional financing, although Ventrus may have additional means of accessing capital through nondilutive transactions such as a VEN 309 partnership, either outside the United States or for the primary care setting domestically.

ValuationWe are initiating coverage of Ventrus with a price target of $30, representing significant upside to the company’s current share price. We value Ventrus using a sum-of-the-parts valuation methodology. We believe the company’s anal fissures program could achieve peak sales of $300 million seven years after launch, in line with industry standards. We are conservatively assuming peak sales of $500 million for VEN 309; however, given the size of the indication (it affects more than 21 million people each year), this product could be a blockbuster for the company if commercial execution is impressive. In our price target assumptions, we assign 85% likelihood for success for VEN 307, considering the current use of compounded products in the gastroenterology setting. For VEN 309, we assign a 50% likeli-hood of success given the nature of Phase IIb data (trial conducted outside the United States and the post-hoc analysis) and the ongoing Phase III study; however, we believe a strong case can be made for expecting a positive outcome from the upcoming top-line Phase III readout. Exhibit 18 outlines our price target assumptions and the value we assign each development product.

Product Peak Sales Discount Rate

Probability of Success

Peak Sales

Value Per Share

% of Price Target

VEN307 $300 13% 85% 2021 15.54$ 52%VEN309 $500 13% 50% 2023 12.08$ 40%VEN308 ND ND ND ND ND NDCash Per Share 2.41$ 8%NPV Value Per Share 30.03$ 100%Our valuation does not include VEN308 as management will await readouts from VEN307 and VEN309 until determining next steps for VEN308


Sum-of-the-Parts Valuation

Source: William Blair & Company, L.L.C. estimates

Given our belief that the market is underestimating the potential of Ventrus’s pipeline, which targets 3 of the top 10 indications diagnosed by gastroenterologists, we are initiating coverage of shares with an Outperform rating.

Stock PerformanceShares of Ventrus have been strong during 2012 heading into top-line data from the company’s two Phase III trial results for VEN 309 and VEN 307, up 25% since the beginning of the year versus a gain of 12% for the S&P 500 and 18% for the Nasdaq Biotechnology Index. During 2011, shares also outperformed the market despite a lack of catalysts and weakness following a capital raise. Shares ended the year up 22%, versus the flat performance of the S&P 500 and a gain of 10.5% for the Nasdaq Biotechnology Index. Based on several catalysts over the near term, we believe shares should outperform the broad market as development of their proprietary pipeline continues. In exhibit 19, we show the stock price performance for Ventrus since the company went public in 2010.

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Sources: Thomson ONE and William Blair & Company, L.L.C.

2468

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Shar

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($)


Share Price Since 2010 IPO

Risks

An investment in Ventrus involves regulatory, commercialization, and financial risk, common in development-stage biopharmaceutical companies. The company hopes to report pivotal data from two products over the next three months. A setback in either program could hurt the company’s share performance materially. For each program, we believe there are specific risks that have the potential to cloud results. For VEN 307, we note the difficulties in conducting a trial based solely outside the United States, and for VEN 309, we note that the ongoing Phase III trial has been aided in design by a post-hoc analysis of the Phase IIb data, not an intent-to-treat analysis.

While in the near term we believe the main risks will be clinical, Ventrus has regulatory, commercial-ization, and financial risks. Regulatory risks include heavy scrutiny on the safety of each compound by the FDA, given the conditions under development by Ventrus. On the commercialization side, pending successful clinical development of VEN 307, Ventrus will compete with another branded product, Rectiv, in the anal fissures market, but we believe VEN 307 has the potential to have a best-in-class profile. For VEN 309, we believe Ventrus will eventually sign a marketing partner for the primary care market to maximize the value of this product, but an international partnership is also possible. Financial risk includes the need to raise additional funds before becoming profitable, but we largely believe the com-pany’s institutional investor base recognizes this need and also believe strategic acquirers will likely show interest in Ventrus, pending positive results from either upcoming Phase III readout.

Management Team

The management team for Ventrus has a great deal of experience in drug development and com-mercialization through previous experience at larger pharmaceutical companies. We have noted key team members below and their relevant experience.

Russell H. Ellison, M.D., M.Sc., Chairman, Chief Executive Officer, and Chief Medical OfficerDr. Ellison joined Ventrus as a director and was named chief executive officer and chief medical officer in June 2010. He also serves as the company’s chairman of the board, a title he assumed

24 Tim Lugo +1 415 248 2870


in January 2011. Dr. Ellison’s previous position was at Paramount Biosciences LLC, a global phar-maceutical development and healthcare investment firm. From October 2005 until June 2007, Dr. Ellison served as the vice president of clinical development of FibroGen, Inc., a privately held biotechnology company. From August 2002 to December 2004, Dr. Ellison served as vice president of medical affairs and chief medical officer of Sanofi-Synthélabo, USA, a pharmaceutical company. From 1997 until 2002, Dr. Ellison served as vice president of medical affairs and chief medical of-ficer of Hoffmann-La Roche, Inc., a pharmaceutical company. Dr. Ellison also serves as a director of several privately held development stage biotechnology companies. Dr. Ellison graduated with an M.D. from the University of British Columbia and a master’s degree (with distinction) from The London School of Tropical Medicine and Hygiene.

Thomas Rowland, Chief Business OfficerMr. Rowland joined Ventrus Biosciences in April 2007 as a director, a position he held until January 2012, and as chief executive officer, a position he held until February 2009. Before joining Ventrus, Mr. Rowland was founder and principal of his own healthcare consulting firm specializing in the areas of business development, marketing, and launch preparation. Before his consulting position, Mr. Rowland served as vice president of the gastroenterology and women’s health business unit at Solvay Pharmaceuticals, Inc., where he oversaw all commercial operations for the more than $250 million and 250-person unit. Mr. Rowland also successfully led the turnaround of Solvay’s gastroin-testinal franchise, returning the franchise to positive sales growth with record sales and profitability. Mr. Rowland started his career in 1990 at UCB Pharma, Inc. where he spent over eight years in various positions of increasing responsibility including sales, market research, and product management. Mr. Rowland earned his B.S. in finance from Metropolitan State University in Denver in 1989.

David J. Barrett, Chief Financial OfficerMr. Barrett has prior experience as a chief financial officer at Neuro-Hitech, Inc., a company focused on developing, marketing, and distributing branded and generic pharmaceutical products from 2006 until 2009. From September 2003 to April 2006, Mr. Barrett was the chief financial officer/vice president of finance of Overture Asset Managers and Overture Financial Services, a start-up asset management firm. From 1999 to 2003, Mr. Barrett was employed as a manager at Deloitte & Touche, LLP. Mr. Barrett received his B.S. in accounting and economics in 1998 and his M.S. in accounting in 1999 from the University of Florida. He is also a certified public accountant.

Conclusion

We view Ventrus Biosciences as a company with significant growth potential from an underappreci-ated pipeline of products addressing 3 of the top 10 diagnosed diseases within gastroenterology. In addition, the indications the company is targeting address significant patient populations. Hem-orrhoid disease affects more than 20 million people in the United States, and more than 750,000 patients annually seek treatment for anal fissures. While the pivotal clinical programs for both VEN 307 and VEN 309 have significant evidence for success, we believe only one of the two will be required for shares to significantly outperform the market over the near term. We are initiating coverage with an Outperform rating and $30 price target based on our view that the company’s pipeline products have significant evidence for clinical success, and that, based on the large size of the markets targeted, Ventrus offers an attractive risk/reward ratio for investment.

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Study Condition, treatment, dosage Study design, endpoints Efficacy Adverse events

Carapeti, E.A., et. Al, Gut, 45:719-722, 1999

10 normal subjects; placebo (PBO or DTZ) gel 0.1%, 0.5%, 1%, 2%, 5%, and 10%)

DTZ or PBO gel applied onceto anal margin; maximumresting anal pressure (MRP)and anodermal blood flowmeasured starting 1 hour aftertreatment

DTZ decreased MRP at concentrations of 1% and higher, maximum decrease of 28% at 2% gel, no further effect of 5% or 10%; effect at 2% lasted 3 – 5 hours; no change in blood flow

No local or systemic adverse events (AEs) reported

Carapeti, E.A., et al, Dis Colon rectum, 43:1359 – 1362, 2000

15 patients with chronic anal fissures (CAF); 2% DTZ gel, three times per-day (TID) for 8 weeks

DTZ gel applied to anal margin; MRP, anodermal blood flow and healing rate monitored every 2 weeks, daily diary cards for worst pain (scale of 0 – 10) of the day

Fissures healed in 67% of subjects; significant decrease in MRP and pain (decreased from 5.5 pretreatment to 1 post-treatment); no effect on blood flow

No AEs

Bhardwaj, R., et al, Annual Meeting of British Association of Colon proctologists, Brighton, United Kingdom, 2000

44 patients with CAF, 2% DTZ gel, TID for 8 weeks

27 patients assessed at 2 months, 15 patients evaluated at 4 months (included 9 who had healed at 2 months and remained healed); assessed for healing, pain, rectal bleeding, MRP

Fissures healed in 56% of subjects at 2 months, 73% at 4 months; pain abolished in 88%, bleeding in 92%; MRP decreased by 24% at 2 months

1 patient hadminorincontinence toflatus

Jonas, M., et al, Dis Colon rectum, 44:1074 – 1078, 2001

50 patients with CAF, 24 treated with oral DTZ (60 mg), 26 with topical DTZ (2% gel), twice per day (BID) for 8 weeks

DTZ gel applied 1cm inside anus and to anal margin; pain, bleeding, perianal irritation (all 3 measured on a scale of 1 – 100 mm), MRP, healing monitored every 2 weeks

Fissures healed in 38% of subjects (oral) vs. 65% (topical) (9 in each group had previously failed on glyceryl trinitrate (GTN); 7 of these healed on topical vs. 1 on oral DTZ); both oral and topical DTZ decreased RP; pain, bleeding and irritation reduced by both formulations (pain went from 70 to 7 after 8 weeks on oral, from 68 to 3 on topical)

No AEs in topical group; AEs reported in 8 patients on oral DTZ (headaches, nausea and/or vomiting, rash, decreased sense of taste and smell)

Knight, J,S., et al, Br J Surg, 88:553 – 556, 2001

71 patients with CAF, 2% DTZ gel, BID, additional 8 – 12 weeks for subjects who did not heal on original regimen

DTZ applied perianally; healing monitored;

75% healed after 2 – 3 months, a total of 89% healed after a median duration of 9 weeks (range of 2 – 16 weeks); after a median of 32 weeks follow-up (range 14 – 67 weeks) 66% symptom free, 17% had mildsymptoms, and 7% had reoccurrence

3 patients reported perianal dermatitis, 1 reported headache

Griffin, N., et al, Colorectal Dir, 4:430 – 435, 2002

47 patients with CAF who failed topical GTN, 2% DTZ cream, BID for 8 weeks

Treatment administered in anal verge; daily diary for pain, bleeding and itching (scale of 0 – 100); healing monitored

Fissures healed in 48% of subjects; pain and bleeding decreased after 8 weeks, no effect on itching; 2 patients relapsed after median duration of follow-up 45 weeks (range 23 – 54)

1 patient developed a local perianal rash; up to 25% reported increased perianal itch

DasGupta, R., et al, Colorectal Dir, 4:20 – 22, 2002

23 patients with CAF, 2% DTZ gel, TID for up to 12 weeks

DTZ applied to lower half of anal canal, healing monitored

Fissures healed in 48% of subjects, in a median of 8 weeks (range 1 – 12 weeks); of 8 who had previously failed GTN, 6 (75%) healed; no recurrences at 3 months

No AEs

Kocher, H.M., et al, Br J Surg, 89:413 – 417, 2002

60 patients with CAF, 0.2% GTN ointment (29 patients) or 2% DTZ cream (31 patients), BID for 6 – 8 weeks

DTZ or GTN applied to anal verge, monitored every 3 weeks for healing; pain recorded on VAS (0 – 100) scale

At 8 weeks fissures healed or improved in 12 and 13 patients, respectively, after GTN (86%) vs. 8 (healed) and 16 (improved) after DTZ (77%); both decreased pain to approximately same extent; at 12 weeks 2 GTN patients had recurred vs. none in the DTZ group

21/29 GTN subjects (72%) reported AEs vs. 13/31 (42%) in DTZ group; 17/29 in GTN group had headaches, vs. 8/31 of DTZ patients

Bielecki, K., et al, Colorectal Dir, 5:256 – 257, 2003

43 patients with CAF, 0.5% GTN ointment (21 patients) or 2% DTZ ointment (22 patients), BID for 8 weeks

Patients monitored 3 times during treatment

Fissures healed in 86% of GTN, 86% of subjects with DTZ, 3 failures in each group

Mainly headache in 7 GTN patients (33%), no Aes reported in DTZ patients

Shrivastava, U.K., et al, Surg Today, 37:482 – 485, 2007

90 patients with CAF; 2% DTZ ointment (30 patients), 0.2% GTN ointment (30 patients), BID; no treatment (30 patients)

Treatments applied BID to anus, patients monitored for healing and pain (VAS) twice 2 per week then every 2 weeks

Fissures healed in 80%, 73% and 33% for DTZ, GTN and control subjects, respectively; mean time for healing 6.6 weeks, 7.0 weeks and 7.6 weeks for DTZ, GTN and controls, respectively; pain decreased by 75% for DTZ, 59% for GTN and 29% for controls at 6 weeks; recurrence rate 12.5%, 32% and 50% for DTZ, GTN and controls, respectively

No AEs in DTZ patients, 67% of GTN patients had headaches

Investigator-Led Studies of Diltiazem CreamVentrus Biosciences

Appendix A

Sources: Ventrus S-1, cited studies, and William Blair & Company, L.L.C.

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Negative Phase III results Positive Phase III results Comments

Most likely in our view

Most likely in our view

Negative Phase III results Positive Phase III results Comments


VEN 307

Could be pre-505b(2) application or as life cycle strategy; 15 additional years of patent life

VEN 309

Will need two additional studies including a Phase III as well as recurrence study

Appendix BVentrus Biosciences, Inc.

Possible Clinical Development Paths for VEN 307 and VEN 309

One additional trial, TID formulation/one dose, n = 300 pts; Cost $12 million

One additional trial, TID formulation, 2 doses 2% or 4%, n = 450 pts; Cost: $16 million

New BID formulation, 2 additional trials, n = 450 pts; Cost: $25 million-$30 million

Phase III Readout Q2TID, E.U. Based Trial

No additional development

One additional trial, double blind, placebo controlled, n = 400 pts; Cost $14 million-$15 million

Recurrence Study1,200 patientsSites: 70 in the U.S., 50 in E.U., 20 Canada, 20 Australia Total Cost: $25 million

Phase III Readout late Q2U.S.-Based Trial

No additional development

27 Tim Lugo +1 415 248 2870


Grade Description PrevalenceGrade I tissue protrudes of the anal

canal but does not prolapse40%

Grade II tissue prolapses but reduces spontaneously 30%

Grade III tissue prolapses and requires manual reduction 20%

Grade IV tissue prolapses and cannot be manually reduced 10%

Sources: Goligher scale and William Blair & Company, L.L.C.

Ventrus BiscienceGrades of Hemorrhoid Disease

Appendix C

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2011(A) Q1(E) Q2(E) Q3(E) Q4(E) 2012(E) 2013(E) 2014(E) 2015(E)

Revenue

VEN307 - - - - - - - 22,667 78,840 VEN309 - - - - - - - - 62,638 VEN308 - - - - - - - - - Net Product revenue - - - - - - - 22,667 141,478

yr/yr growth NM NM NM NM 524%q/q growth

Contract Revenues - - - - - - - - -

Total Revenue - - - - - - - 22,667 141,478

yr/yr growth NM NM NM NM NM NA NA NM 524.2%q/q growth NM NM NM NM NM

ExpensesCost of Sales - - - - - 0.0 - 4,533 14,148 Gross Profit - - - - - 0.0 - 18,133 127,330

R&D 25,278 6,000 8,000 5,000 6,000 25,000 28,000 32,000 17,000 Growth NM -1% 12% 14% -47%

SG&A 8,724 1,500 1,400 2,000 3,000 7,900 16,000 32,000 50,000.0 -9% 103% 100% 56%

Total Costs & Expenses 34,002 7,500.0 9,400.0 7,000.0 9,000.0 32,900 44,000 68,533 81,148

Operating Income (34,002) (7,500) (9,400) (7,000) (9,000) (32,900) (44,000) (45,866.8) 60,330.1

Interest Income 76 28 28 100 100 256 400 290 280

Beneficial conversion charge - - - - - - - - - Amortization of debt discount/def. financing costs (302) (25) (25) (25) (25) (98) (98) (98) (98) Interest Expense (117) (31) (31) (31) (31) (124) (124) (124) (124) Total Interest Expense (419) (56) (56) (56) (56) (222) (222) (222) (222)

Income Before Taxes (34,345) (7,556) (9,456) (7,056) (9,056) (33,122) (44,222) (46,089) 60,108

Income Tax Provision - - - - - - - - - Effective Tax Rate 0% 0.0% 0.0% 0.0% 0.0% 0% 0% 0% 0%

Net Income After Taxes (34,345)$ (7,556) (9,456) (7,056) (9,056) (33,122) (44,222) (46,089) 60,108 EPS Basic (3.57)$ (0.61) (0.68) (0.51) (0.65) (2.45)$ (3.14)$ (3.23)$ 3.75$ EPS Diluted (3.57)$ (0.61) (0.68) (0.51) (0.65) (2.45)$ (3.14)$ (3.23)$ 3.75$ Shares Basic/Diluted 9,614 12,450 13,850 13,900 13,950 13,538 14,075 14,275 16,025


Appendix DVentrus Biosciences, Inc.

Income Statement(dollars in thousands, except per share)

29 Tim Lugo +1 415 248 2870


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Please contact us at +1 800 621 0687 or consult http://www.williamblair.com/Research-and-Insights/Equity-Research/Coverage.aspx for all disclosures.

DJIA: 13,212.04S&P 500: 1,408.47NASDAQ: 3,091.57

The prices of the common stock of other public companies mentioned in this report follow:

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Current Ratings Distribution (as of 3/31/12)Coverage Universe Percent Inv. Banking Relationships* PercentOutperform (Buy) 60% Outperform (Buy) 7%Market Perform (Hold) 32% Market Perform (Hold) 1%Underperform (Sell) 1% Underperform (Sell) 0%

* Percentage of companies in each rating category that are investment banking clients, defined as companies for which William Blair has received compensation for investment banking services within the past 12 months.

Tim Lugo attests that 1) all of the views expressed in this research report accurately reflect his per-sonal views about any and all of the securities and companies covered by this report, and 2) no part of his compensation was, is, or will be related, directly or indirectly, to the specific recommendations or views expressed by him/her in this report. We seek to update our research as appropriate, but various regulations may prohibit us from doing so. Other than certain periodical industry reports, the majority of reports are published at irregular intervals as deemed appropriate by the analyst.

Stock ratings, price targets, and valuation methodologies: William Blair & Company, L.L.C. uses a three-point system to rate stocks. Individual ratings and price targets (where used) reflect the expected performance of the stock relative to the broader market (generally the S&P 500, unless otherwise indicated) over the next 12 months. The assessment of expected performance is a func-tion of near-, intermediate-, and long-term company fundamentals, industry outlook, confidence in earnings estimates, valuation (and our valuation methodology), and other factors. Outperform (O) – stock expected to outperform the broader market over the next 12 months; Market Perform (M) – stock expected to perform approximately in line with the broader market over the next 12 months; Underperform (U) – stock expected to underperform the broader market over the next 12 months; not rated (NR) – the stock is not currently rated. The valuation methodologies used to determine price targets (where used) include (but are not limited to) price-to-earnings multiple (P/E), relative P/E (compared with the relevant market), P/E-to-growth-rate (PEG) ratio, market capitalization/revenue multiple, enterprise value/EBITDA ratio, discounted cash flow, and others.

Company Profile: The William Blair research philosophy is focused on quality growth companies. Growth companies by their nature tend to be more volatile than the overall stock market. Company profile is a fundamental assessment, over a longer-term horizon, of the business risk of the company

30 Tim Lugo +1 415 248 2870


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The ratings, price targets (where used), valuation methodologies, and company profile assessments reflect the opinion of the individual analyst and are subject to change at any time.

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Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies—to our clients and our trading desks—that are contrary to opinions expressed in this research. Our asset management and trading desks may make investment decisions that are inconsistent with recommendations or views expressed in this report. We will from time to time have long or short positions in, act as principal in, and buy or sell the securities referred to in this report. Our research is disseminated primarily electronically, and in some instances in printed form. Electronic research is simultaneously available to all clients. This research is for our clients only. No part of this material may be copied or duplicated in any form by any means or redistributed without the prior written consent of William Blair & Company, L.L.C.

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CONSUMER

Sharon Zackfia, CFA, Partner +1 312 364 5386Group Head–ConsumerApparel, Leisure, Restaurants

Jon Andersen, CFA, Partner +1 312 364 8697Consumer Products

Daniel Hofkin +1 312 364 8965Hardlines, Specialty Retail

Mark Miller, CFA, Partner +1 312 364 8498Broad Assortment and Hardlines, E-commerce, Health, Beauty, and Convenience

Amy Noblin +1 415 248 2874Apparel

FINANCIAL SERVICES AND TECHNOLOGY

Adam Klauber, CFA +1 312 364 8232Co-Group Head–Financial Services and TechnologyInsurance Brokers, Property & Casualty Insurance

Robert Napoli +1 312 364 8496Co-Group Head–Financial Services and TechnologyFinancial Technology, Specialty Finance

Christopher Shutler, CFA +1 312 364 8197Asset Management, Financial Technology

GLOBAL INDUSTRIAL INFRASTRUCTURE

Nick Heymann +1 212 237 2740Co-Group Head–Global Industrial InfrastructureMulti-industry

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Brian Drab, CFA +1 312 364 8280Filtration and Water Management, Industrial Technology

Samuel H. Eisner +1 212 237 2752Industrial Components

Chase Jacobson +1 212 237 2748Engineered Equipment, Engineering and Construction

Ryan Merkel, CFA +1 312 364 8603Commercial Services, Industrial Distribution

GLOBAL SERVICES

Brandon Dobell, Partner +1 312 364 8773Group Head–Global ServicesEducational Services, Real Estate Services

Timothy McHugh, CFA, Partner +1 312 364 8229Consulting, Employer Services, Staffing

Robert Riggs, CFA +1 312 364 8610Information Services

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Ben Andrew, Partner +1 312 364 8828Group Head–HealthcareMedical Devices

Ryan Daniels, CFA, Partner +1 312 364 8418Healthcare Information Technology, Healthcare Services

John Kreger, Partner +1 312 364 8597Distribution, Outsourcing, Pharmacy Benefit Management

Tim Lugo +1 415 248 2870Therapeutics

Amanda Murphy, CFA +1 312 364 8951Diagnostic Services, Life Sciences, Pharmacy Benefit Management

Matthew O’Brien +1 312 364 8582Medical Devices

John Sonnier, Partner +1 312 364 8224Biotechnology

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Y. Katherine Xu, Ph.D. +1 212 237 2758Biotechnology

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Jason Ader, CFA, Partner +1 617 235 7519Co-Group Head–Technology, Media, and CommunicationsData Networking and Storage

Laura Lederman, CFA, Partner +1 312 364 8223Co-Group Head–Technology, Media, and CommunicationsBusiness Software & Services, IT Services, Software as a Service

Jim Breen, CFA +1 617 235 7513Internet Infrastructure and Communication Services

Anil Doradla +1 312 364 8016Semiconductors and Wireless

Jonathan Ho +1 312 364 8276Cybersecurity, Security Technology

Dmitry Netis +1 212 237 2714Communications Equipment

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Bhavan Suri +1 312 364 5341Business Software & Services, IT Services

CHINA

Liping Cai, CFA +86 21 2327 2260China-Based Companies

EDITORIAL

Steve Goldsmith, Head Editor +1 312 364 8540Maria Erdmann +1 312 364 8925Beth Pekol Porto +44 20 7868 4516Kelsey Swanekamp +1 312 364 8174Lisa Zurcher +1 312 364 8437

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