lazard research report ventrus

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INITIATING COVERAGE July 25, 2011

VENTRUS BIOSCIENCES (VTUS)

BIOPHARMA

WILLIAM TANNER, PHD 212-632-1512 [email protected] COLLEEN MACKEY 212-632-6413 [email protected]

RATING: BUY

PRICE: $11.89PRICE TARGET: $24MARKET CAP: $156.0 MS&P 500: 1,345DRG: 332

46810121416182022

Dec Feb Apr Jun

SOURCE: FactSet

VTUS: Emerging player in large GI markets — initiating coverage with a BUY rating and $24 PT

Small cap BioPharma targeting large unmet medical needs — success would make Ventrus big player in the space. In our opinion, Ventrus is uniquely positioned to develop treatments for large unmet GI disorders that lack effective prescription treatments, as they have been relatively ignored by large BioPharma companies. VEN 309 (iferanserin for hemorrhoids) and VEN 307 (diltiazem for anal fissures) could be important new therapies with little competition.

Market cap belies stage of development and proof of concept of lead drug candidates. A market cap of $156M stands in contrast to the proof of concept and late stages of clinical testing of the company’s lead assets, in our opinion. Savvy investors may wish to take advantage of the obscure genesis of Ventrus and the inefficient manner in which the market may have valued the company.

Ventrus could address markets alone or become an acquisition candidate for GI-focused market player. The unmet medical need for effective treatments should position VEN 309 and VEN 307 as drugs of substantial potential. We believe the commercial markets are addressable by a focused sales force that leverages the unmet medical need and the search for effective alternatives.

Valuation and risks. Our $24 PT for VTUS shares is derived from the NPV for VEN 309 and VEN 307. Risks include successful clinical development of lead assets, regulatory approval and commercial market penetration.

DECEMBER YEAR 2010 2011E 2012E1Q11A 2Q11 3Q11 4Q11 YEAR

Revenue (M) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0EBITDA (M) NM NM NM NM NM NM NMEPS $(24.67) $(0.38) $(0.68) $(0.44) $(0.44) $(1.94) $(0.55)FCF/S NM NM NM NM NM NM NM

CAPITALIZATION

Shares Outstanding (M) 13.1Total Net Debt (M) NMEnterprise Value (M) 106.1MTotal Debt / Capitalization NM

VALUATION 2010 2011E 2012E

P/E NM NM NMRel. to S&P 500 NM NM NMEV/EBITDA NM NM NMFCF Multiple NM NM NM

2

KEY DRIVERS TO MONITOR TRADING / DIVIDEND DATA

Range Since IPO on 12/17/10 $20-$6Avg. Daily Trading Volume (000) 125Dividend / Yield $0.00 / 0.0%

1) Data from Phase III trial of VEN 309 in Q1 2012 2) Data from European Phase III trial of VEN 307 in 2Q12 3) VEN 307 NDA filing in 2013

KEY RISKS TO MONITOR BENCHMARKS

ROIC NMBook Value P/S * NMPrice/Book * NMFree Cash Flow Yield * NMProjected 3-year EPS Growth Rate -3%Institutional Ownership 10%

* Last actual quarter

1) Successful completion of VEN 309 Phase III trial 2) Successful completion of E.U. VEN 307 Phase III trial 3) Uptake of Rectiv as a treatment for anal fissures (approved 6/21/11)

FOREC AST PERCENT CH ANGE (Y /Y) DECEMBER YEAR 2010 2011E 2012E

1Q11A 2Q11 3Q11 4Q11 YEARRevenue NM NM NM NM NM NM NMEBITDA NM NM NM NM NM NM NMEPS NM NM NM NM NM NM NMFCF/S NM NM NM NM NM NM NM

COMPANY DESCRIPTION

Ventrus is a specialty BioPharma company developing therapeutics to treat gastrointestinal disorders for which available treatments are relatively ineffective. VEN 309 (iferanserin) is a 5HT-2a receptor agonist for treating hemorrhoids. By modulating vasomotion, the drug could be effective for reducing swelling caused by blood vessel engorgement that is characteristic of hemorrhoids. If approved, VEN 309 would be the only prescription treatment indicated for the condition and should fare well, in our opinion, as an alternative to topical creams. Proof of concept has been demonstrated in numerous Phase II trials, and commencement of Phase III testing is expected to commence in 2H11. VEN 307 is a cream preparation of the calcium channel blocker diltiazem (originally approved as Cardizem for treating hypertension) and is being developed for treating anal fissures. Diltiazem is currently being used by some physicians (obtained from compounding pharmacies), so its effectiveness would appear to have been established in real-world settings. Availability of a prescription formulation would likely be more attractive to physicians unwilling to search for or rely upon drug obtained from compounding pharmacies. The focused nature of the markets could allow Ventrus to commercialize the products without the need for a commercial partner.

Ventrus Biosciences (VTUS) 3

INVESTMENT THESIS

Ventrus is a specialty BioPharma company developing therapeutics to treat gastrointestinal disorders for which available treatments are relatively ineffective. VEN 309 (iferanserin) is a 5HT-2a receptor antagonist for treating hemorrhoids. By modulating vasomotion, the drug could be effective for reducing swelling caused by blood vessel engorgement that is characteristic of hemorrhoids. If approved, VEN 309 would be the only prescription treatment indicated for that condition and should fare well, in our opinion, as an alternative to topical creams and off-label treatments. Proof of concept has been demonstrated in numerous Phase II trials, and commencement of Phase III testing is expected in 2H11. VEN 307 is a cream preparation of the calcium channel blocker diltiazem (originally approved as Cardizem for treating hypertension) and is being developed for treating anal fissures. Diltiazem is currently used by some physicians (obtained from compounding pharmacies), so its effectiveness would appear to have been established in a real-world setting. Availability of a prescription formulation would likely be more attractive to physicians unwilling to search for or rely upon drug obtained from compounding pharmacies. The focused nature of the markets could allow Ventrus to commercialize the products without the need for a commercial partner.

REASONS TO BUY

Valuation is compelling. As discussed in a subsequent section of this report, we estimate the fair value of VTUS shares at $24, so we view the stock as being significantly undervalued at the current price. By our analysis, either the market views successful development of VEN 309 and/or 307 as of low probability or our revenue estimates are too aggressive.

Meaningful catalysts lie ahead. Results from the Phase III trial of VEN 309 for treating hemorrhoids could become available in 1Q12. Results from a Phase III trial of VEN 307 being conducted in the E.U. in patients with anal fissures should become available shortly thereafter.

Ventrus could develop the first FDA-approved prescription medication for treating hemorrhoids. In the U.S., an estimated 4M prescriptions are written each year for medications that are not approved as a treatment for the condition. An estimated 22M units of over-the-counter (OTC) products are sold each year for treating hemorrhoids as well. Most current treatments provide only temporary symptom relief and do not address the underlying disease pathology. Patients with persistent symptoms may progress to rubber band ligation, an invasive procedure that involves banding the internal hemorrhoid for 4-7 days.

Product portfolio offers attractive blend of development and regulatory risks. Our expert physician channel checks suggest that successful development of VEN 309 is not without challenges given that a well-defined path to develop treatments for the condition does not exist. Obviously, given the number of prescriptions and OTC units dispensed each year, the demand for an effective treatment could be robust. VEN 307, by contrast, may be easier to develop given that abundant proof of concept exists in the real-world setting by virtue of the use


of compounded diltiazem. Our checks reveal that availability of prescription diltiazem, FDA approved and marketed by a biopharma company, might still be an attractive alternative in the face of more inexpensive compounded material.

Ventrus could be a natural acquisition candidate. We believe Ventrus could be an attractive target for companies with business operations that focus on gastrointestinal disorders or others that may be seeking to enter those markets.

RISKS

Development risks. As with practically any development-stage biopharma company, the primary risk associated with investing in VTUS shares relates to development and commercial activities. VEN 309 may blaze a trail with the FDA as to how hemorrhoid treatments should be developed. The company attempted to negotiate a Special Protocol Assessment (SPA) with the FDA but believed that reaching an agreement would unnecessarily delay pivotal clinical testing. We note that SPAs are by no means a binding contract with the Agency. We suspect the company will, nevertheless, design the study to assess appropriate endpoints that assess the drug’s safety and effectiveness.

Regulatory risks. VEN 309 has not been approved by the FDA, so there is an obvious, albeit generic, risk that the Agency might not approve the drug. We see less risk with VEN 307 given that the drug is essentially repurposed diltiazem. Because the anal fissure indication will likely encompass a much smaller patient population than the original hypertension one, we doubt the FDA will have significant issues with approval.

Competition from Rectiv. Rectiv (nitroglycerin ointment) was approved on June 21, 2011, as the first prescription drug for the treatment of pain associated with chronic anal fissures. Consultants do not view it as a suitable alternative given the side effects, especially when there exists substantial variability in blood flow at the site of application, as would likely be the case with anal fissures.

Need for additional capital. We forecast Ventrus becoming profitable in 2015, and our model contemplates a raise of $50M in 2013. Inability to raise capital could negatively impact the commercial launch of the products.

FINANCIAL MODEL AND VALUATION

Probability-weighted NPV analysis yields a fair value of $24 per share. We view the fair value of VTUS shares as being driven mainly by the successful completion of Phase III testing and commercialization of VEN 309 for treating hemorrhoids and VEN 307 for treating anal fissures. We have not included any contribution from VEN 308 (phenylephrine gel for fecal intolerance) in our financial model as the company is not actively developing it at this time. Based on our revenue models, the value attributed to each drug is shown in the NPV analysis in Exhibit 1. When additional proof of concept is provided, we would likely be inclined to increase the probability of technical success (pTS) and that would have the effect of increasing the value of each asset. For example, at a pTS


of 100%, the fair value per share would be $24 for VEN 309 and $23 for VEN 307.

Exhibit 1. VTUS share valuation VTUS NPV Valuation

NPV pTS Adjusted NPV Fair Value/ShareVEN 309 $314 50% $157 $12VEN 307 $305 50% $153 $12

Shares (M), 2011E 13.1Fair Value $24

Source: LCM research; pTS = probability of Technical Success

The market model for VEN 309 is depicted in Exhibit 13 at the end of this report. In brief, we use a prevalence of approximately 12.5M persons with hemorrhoids in the U.S. and approximately 28M in the E.U. We assume the monthly cost to be approximately $150 at launch with 4% annual price increases going forward.

Our financial model assumes that Ventrus sells VEN 309 in the U.S. and receives royalties of 25% of gross sales from a partner in the E.U. We project that Ventrus will pay royalties of 3.5% and 1.2% to Amer in the U.S. and E.U., respectively. Projections assume FDA approval in 2014, with sales commencing in 2015. Penetration of the hemorrhoid market grows from 1% after launch to a peak of 20% in the U.S. and 15% in the E.U. Each 5% market share translates into approximately $250M in sales.

Based on the proof of concept data, we believe the probability that VEN 309 is effective for treating hemorrhoids is relatively high. However, given that the program is not without development risk, we applied a discount rate of 25% and a probability of technical success (pTS) of 50% to the NPV estimate to arrive at our per share estimate of $24.

Exhibit 2 provides details of our modeled future payments to Amer for VEN 309.


Exhibit 2. VEN 309 Modeled Payments to Amer

Source: LCM Research

The market model for VEN 307 is depicted in Exhibit 14 at the end of this report. We model Ventrus selling VEN 307 in the U.S. and paying royalties of 8% to S.L.A. Pharma. Projections assume FDA approval in 2014, with sales commencing in 2015. Penetration of the anal fissure market grows from 1% after launch to a peak of 20%. Each 5% market share translates into approximately $240M in sales.

Exhibit 3 provides details of our modeled future payments to S.L.A. Pharma for VEN 307.

Exhibit 3. VEN 307 Modeled Payments to S.L.A. Pharma


Given that VEN 309 could address large markets and encounter little in the way of meaningful competition, we believe it may be most helpful to conduct sensitivity analyses around major variables such as pTS, pricing and market penetration. In that way, investors can better assess the reasonableness of the assumptions and the impact of deviation from them.

Exhibit 4 depicts a sensitivity analysis varying pTS for both assets and the discount rate. As noted in Exhibit 1, we applied a pTS of 50% for both VEN 309 and VEN 307.


Exhibit 4. VTUS Discount Rate / pTS Sensitivity VTUS Disc. Rate/pTS Sensitivity

Discount Rate23.6$ 15% 20% 25% 30% 35%

30.0% 26.8$ 19.4$ 14.2$ 10.5$ 7.8$ 40.0% 35.8$ 25.8$ 18.9$ 14.0$ 10.4$

pTS 50.0% 44.7$ 32.3$ 23.6$ 17.5$ 13.0$ 60.0% 53.6$ 38.7$ 28.3$ 20.9$ 15.6$ 70.0% 62.6$ 45.2$ 33.0$ 24.4$ 18.2$


We also wanted to examine the impact of pricing and market penetration on the NPV of the assets. Exhibit 5 depicts sensitivity analyses varying monthly cost and peak market penetration. As depicted in the VEN 309 market model in Exhibit 13, we assume a cost of treatment of $150/month and peak market penetration of 20%. Our revenue model has been set up such that market penetration for years preceding peak penetration are derived by subtracting set basis points of market share from the preceding year, specifically (working backward from peak), 450bps, 450bps, 500bps, 250bps and 200bps.

Exhibit 5. VEN 309 Price (monthly)/Penetration Sensitivities


Exhibit 6 depicts a similar analysis for VEN 307 for the U.S. market only.

Exhibit 6. VEN 307 Price (monthly)/Penetration Sensitivity



VEN 309 — NOVEL APPLICATION OF A CNS DRUG

Iferanserin is a new chemical entity (NCE) that has been formulated as an ointment for intra-anal application to treat hemorrhoids. The pharmacophore is a highly selective, 5HT-2a receptor antagonist that was initially developed by scientists at a major pharmaceutical company for treating various disorders of the central nervous system (CNS). Beset by poor penetration of the blood-brain barrier, development of the drug was directed toward use as a treatment of vascular diseases.

Peripheral 5-HT2a receptors are believed to be involved in blood clotting and in the contraction of arteries and veins, two events that are likely associated with the formation of hemorrhoids. By reducing 5-HT2a receptor activity, it would be predicted that VEN 309 might improve blood flow from the dilated veins that comprise the hemorrhoid, thereby reducing bleeding, itchiness and pain.

On June 5, 2011, Ventrus entered into an Asset Purchase Agreement with Sam Amer & Co., Inc. to acquire all rights, title and interest to VEN 309 for the topical treatment of symptomatic hemorrhoids.

HEMORRHOIDS ARE SWOLLEN VEINS IN THE RECTUM OR ANUS

Hemorrhoids are described as swollen/inflamed veins in the rectum and anus, and they often arise as a result of straining during defecation and heavy lifting. Occurrence of hemorrhoids during pregnancy is also not uncommon. It has been estimated that, by age 50, approximately half of adults have experienced symptoms of hemorrhoids.

Physiologically, progressive occlusion of venous return vessels is believed to induce stretching of the vessels that can lead to vascular stasis. Ultimately, hemorrhoids can become swollen and inflamed and trapped blood leads to the formation of piles (protruding skin folds that are filled with static and thrombosed blood). Typical patient symptoms include bleeding, pain, itching, swelling and difficulty defecating. Exhibit 7 depicts an illustration of hemorrhoids.


Exhibit 7. Internal and External Hemorrhoids


According to data from the National Institute of Diabetes and Digestive Kidney Diseases, there are approximately 12.5M adults in the U.S. affected by hemorrhoids. The significant size of the patient population notwithstanding, there are currently no FDA-approved prescription drugs for treating the condition. As a consequence, patients commonly resort to use of over-the-counter (OTC) treatments, with the majority of them providing only temporary relief from the symptoms and not addressing the underlying disease pathology, i.e., the vascular dysfunction. Alternatively, prescription drugs (e.g., corticosteroids) are often used in an off-label manner.

If those interventions do not provide adequate relief, ultimately surgical procedures may be resorted to. External hemorrhoids can sometimes be dealt with by a simple incision providing relief by draining pooled blood. More invasive procedures can involve rubber band ligation that essentially chokes off the blood supply at the base of the structure. Sclerotherapy (sometimes used for treating varicose veins) involves injection of a chemical solution such as sodium tetradecyl sulfate into the hemorrhoid. Logic suggests that treatments that avoid the need for more aggressive intervention might be met by a receptive market.

PIVOTAL TESTING OF VEN 309 RESTS ON PREVIOUS WORK

Phase III testing of VEN 309 is expected to begin in 2H11, and the trial has been designed to include approximately 600 patients in a double-blind, 3-arm design. Iferanserin (0.5%) ointment will be compared with placebo ointment in the following cohorts: 1) placebo as needed for 14 days, 2) iferanserin as needed for 14 days and 3) iferanserin as needed for 7 days followed by placebo as needed for 7 days. Approximately 80 trial sites are expected to participate, and all patients will be evaluated for follow-up at 28 days. All patients will roll over to active treatment after 28 days with a 12 month follow-up to assess recurrence (open label).

Inclusion criteria call for patients with symptomatic grade I to III internal hemorrhoids who have experienced bleeding and pain or itching for two


consecutive days prior to randomization. These grades encompass hemorrhoids that do not prolapse and those that prolapse upon defecation and spontaneously reduce or must be manually reduced. Grade IV internal hemorrhoids, or those that are prolapsed and cannot be manually reduced, will be excluded. The primary endpoint is no bleeding on days 7-14, which is during the second week of treatment. A secondary endpoint will consider no pain or itching during the same period of time.

Questions have arisen as to why the trial was not designed to test VEN 309 against an active comparator. As it relates to pharmacologic treatment, because there are no FDA-approved drugs with an indication for hemorrhoids, there is no valid prescription comparison. Versus an OTC product such as Preparation H (14% mineral oil, 71.9% petrolatum and 0.25% phenylephrine HCl), it could be argued that the placebo being used in Phase III testing is not all that different.

According to the company, Phase IIb testing was conducted in Germany in 2003-2004, in a trial that included 121 patients randomized to receive iferanserin 0.5% (same as the Phase III dose) twice per day vs. placebo. Baseline and weekly visits were conducted over the two week trial with follow-up at 45 days. A bleeding scale of 1-10, with 1 indicating the absence of the symptom and 10 indicating the worst symptom, was the primary endpoint, with itching and pain scales used as secondary endpoints. Exhibit 8 depicts the mean daily bleeding scores, and Exhibits 9 and 10 depict the mean daily itching and pain scores, respectively.

Exhibit 8. VEN 309 Phase IIb Mean Daily Bleeding Score (Germany)

Source: Company Presentation


Exhibit 9. VEN 309 Phase IIb Mean Daily Itching Score (Germany)


Exhibit 10.VEN 309 Phase IIb Mean Daily Pain Score (Germany)


The company modeled the potential performance of the primary and secondary endpoints that will be used in the Phase III trial using data from the German Phase IIb trial. The expected primary endpoint results based on this data are shown in Exhibit 11 below.


Exhibit 11. Analysis of German Phase IIb study for Phase III Endpoint

Source: Company Presentation.

VEN 307 — A PRECRIPTION FORMULATION OF A CURRENTLY USED DRUG

VEN 307 (diltiazem cream) is being developed as a topical treatment for relief of pain associated with anal fissures. Anal fissures are small tears or cuts in the lining of the anus or anal canal that cause bleeding and pain that is often severe. Patients frequently resort to surgery for relief, although surgery itself can lead to unsatisfactory outcomes such as fecal incontinence. It is estimated that there are approximately 4M cases of anal fissures in the U.S. Verispan L.L.C., a pharmaceutical market research firm, indicated that this population made about 1M office visits in the U.S. in 2003.


Exhibit 12. Anal Fissures

Source: VTUS Investor Presentation

VEN 307 is a pre-mixed and pre-packaged proprietary formulation of diltiazem that is applied topically. It yields less than one-tenth the amount of diltiazem in the blood from the lowest oral dose used for cardiovascular treatment, and yet has a considerably greater effect on sphincter tone than diltiazem when taken orally. Gastroenterologists’ existing familiarity with the use of diltiazem may allow for accelerated market penetration if the drug is approved. Ventrus licensed the exclusive North American rights to VEN 307 for the topical treatment of anal fissures from S.L.A. Pharma, which completed early-stage clinical trials, toxicology studies and manufacturing up to the end of Phase II. S.L.A. Pharma commenced a Phase III clinical trial in the E.U. in November 2010 that is expected to be completed in the second quarter of 2012. The company intends to develop the topical formulation as a Section 505(b)(2) NDA filing due to previous approval of diltiazem as a systemic agent for hypertension and angina. This, in combination with the Phase III trial being conducted by S.L.A. Pharma and the planned Phase III U.S. trial, will form the basis of the NDA application. If the U.S. trial is successful, the company intends to conduct three short-term dermal toxicology studies and file an IND with the FDA for one pivotal Phase III trial or two parallel pivotal Phase III trials. Depending on the results of those trials, an NDA filing could be expected in 2013. In June 2011, the FDA approved Rectiv, a nitroglycerin ointment, as the first prescription product to treat anal fissures. However, a significant number of patients experience headaches as a side effect of nitroglycerin. As mentioned previously, consultants do not view nitroglycerin as a suitable alternative given the side effects, especially when there exists substantial variability in blood flow at the site of application, as would likely be the case with anal fissures.


VEN 308 FOR TREATING FECAL INCONTINENCE

Ventrus licensed the exclusive North American rights to VEN 308 from S.L.A. Pharma, which developed the specific formulation of phenylephrine for the topical use of fecal incontinence and developed the manufacturing method. The company held a pre-IND meeting with the FDA in June 2007 concerning VEN 308 for the treatment of fecal incontinence associated with ileal pouch anal anastomosis. It was determined that the next clinical study should be a Phase IIb trial with multiple doses assessed and that existing toxicology data are sufficient to support the trial. At this time, the company is focusing on continuing development of VEN 307 and 309 and is not pursuing development of VEN 308. COMMERCIALIZATION POTENTIAL

We believe the commercial markets are addressable by a focused sales force of approximately 100 sales representatives. Gastroenterologists, colorectal surgeons and general practitioners would be the obvious prescribers for both VEN 307 and 309. A public relations effort, followed by direct-to-consumer marketing, would presumably be required in order to achieve our sales estimates. Given the size of the market and the extent of the unmet medical need (particularly for hemorrhoids) if effective, we suspect the ability to persuade physicians and patients to try the drug would not require an aggressive marketing campaign that requires a significant and prolonged investment.

INTELLECTUAL PROPERTY

VEN 309 is licensed from Sam Amer & Co., Inc. (Amer), which had developed the drug through Phase II trials and up to readiness for Phase III trials in the U.S. and Europe. The license includes rights to all existing intellectual property and any further improvements on VEN 309 owned by Amer related to the use of the product for the topical treatment of anorectal disorders. VEN 309 is covered for composition of matter in patents that will expire in August 2015 in the U.S. and February 2018 elsewhere. If approved, VEN 309 will receive five years of data exclusivity in the U.S. as an NCE under Hatch-Waxman and 10 years from the date of approval in Europe. Ventrus filed a new concentration range patent in August 2010 that, if issued, would grant patent protection until 2030 and prevent substitutable generic competition. On June 5, 2011, Ventrus entered into an agreement to purchase all rights, title and interest to VEN 309 from Amer. The transaction is expected to be complete by November 2011. Ventrus has licensed the exclusive North American rights to VEN 307 for the topical treatment of anal fissures from S.L.A. Pharma, which completed early-stage clinical trials, toxicology studies and manufacturing for VEN 307 up to the end of Phase II. Ventrus is using its own resources to pursue development. VEN


307 is covered by method of use in a patent that will expire in February 2018. If approved, VEN 307 will receive three years of data exclusivity in the U.S. under Hatch-Waxman. Ventrus has licensed the exclusive North American rights to VEN 308 from S.L.A. Pharma, which developed the specific formulation of phenylephrine for topical use in fecal incontinence and developed the manufacturing method. S.L.A. Pharma’s previous partner, Solvay, conducted pharmacokinetic studies. Ventrus does not expect to continue developing VEN 308 in the short term. VEN 308 is covered by a patent that will expire in December 2017. If approved, VEN 308 will receive seven years of data exclusivity in the U.S. under the Orphan Drug Act. FINANCING HISTORY

Ventrus was incorporated in October 2005 (as South Island Biosciences, Inc.) and began operations in April 2007.

In October 2005, Ventrus issued a promissory note payable to Paramount BioSciences, LLC (Paramount), an affiliate of one of the company’s significant stockholders. A second promissory note was issued in July 2007. In 2008, both notes were voluntarily converted into shares of common stock and warrants to purchase additional shares.

In April and July 2008, the company issued two additional promissory notes. During 2007 and 2008, the company issued approximately $5.3M of senior convertible notes in connection with a private placement. During 2009, Ventrus issued four separate promissory notes to Paramount Credit Partners, LLC (whose managing member is the same as Paramount BioSciences). The total principal amount borrowed was approximately $1.6M. In February, April and May of 2010, the company issued approximately $5.6M of senior convertible notes that provided funds to hire its management team and undertake an initial public offering.

The company’s IPO was completed in December 2010 and raised approximately $17.5M in net proceeds, including the underwriters’ over-allotment. The 2007, 2008, and 2010 convertible notes and 2008 promissory notes were converted into shares at the close of the IPO. Retail investors were the primary participants of the equity offering.

The company raised additional equity financing in a follow-on that priced in July 2011. For all intents and purposes, the transaction could be viewed as a “re-IPO,” and institutional investors participated in the offering. Including the underwriters’ over-allotment, Ventrus raised net proceeds of $47.5M and issued 5.175M shares of common stock. The company intends to use the capital to pay for the rights to VEN 309, pay down the 2009 promissory notes to Paramount, continue development of VEN 309, fund working capital requirements and other general corporate purposes.


VENTRUS MANAGEMENT

Russell H. Ellison, M.D., M.Sc.

Dr. Ellison joined Ventrus as a director, Chief Executive Officer and Chief Medical Officer in June 2010. He was elected Chairman of the Board in January 2011. Dr. Ellison’s prior experience includes positions at Paramount Biosciences LLC, a global pharmaceutical development and healthcare investment firm; Fibrogen, Inc., a privately held biotechnology company; Sanofi-Synthelabo, USA, a pharmaceutical company; Roche Laboratories, Inc., USA, a pharmaceutical company; and CorMedix, Inc. (NYSE Amex: CRMD), a pharmaceutical company that went public in March 2010. He currently serves as a director of several privately held development stage biotechnology companies. Dr. Ellison holds an M.D. from the University of British Columbia and an M.Sc. (with distinction) from The London School of Tropical Medicine and Hygiene. David J. Barrett

Mr. Barrett joined Ventrus as Chief Financial Officer in July 2010. His prior experience includes positions at Neuro-Hitech, Inc. (NHPI.PK), a publicly traded company focused on developing, marketing and distributing branded and generic pharmaceutical products; Overture Asset Managers and Overture Financial Services, which, at the time, was a start-up asset management firm that assembled investment products and platforms to distribute turnkey and unbundled investment solutions to financial intermediaries and institutional investors; and Deloitte & Touche, LLP. Mr. Barrett became a director of Coronado BioSciences, Inc., a biopharmaceutical company, in May 2011. Mr. Barrett received his B.S. in Accounting and Economics in May of 1998 and his M.S. in Accounting in May of 1999 from the University of Florida. He is a certified public accountant.


Exhibit 13. VEN 309 / Hemorrhoid Market Model, 2011E – 2020E



Exhibit 14. VEN 307 / Anal Fissure Market Model, 2011E – 2020E



Exhibit 15. Ventrus Income Statement, 2010 – 2015E



Exhibit 16. Ventrus Balance Sheet, 2010A – 2015E



Exhibit 17. Ventrus Cash Flow Statement, 2010 – 2015E



ANALYST CERTIFICATION

All of the recommendations and views about the securities and companies in this report accurately reflect the personal views of the research analyst named on the cover of this report. No part of this research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst in this research report.

IMPORTANT DISCLOSURES

Lazard Frères & Co. LLC has received compensation for investment banking services from VTUS within the past twelve (12) months.Lazard Capital Markets LLC has acted as manager or co-manager of a securities offering on behalf of VTUS within the past twelve (12) months.Lazard Capital Markets LLC makes a market in VTUS securities.

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VTUS - Current Rating: BUY, Price Target: $24

Data source: FactSet prices / LCM ratings and target prices

DISTRIBUTION OF INVESTMENT RATINGS (AS OF 07/22/11)OVERALL DISTRIBUTION BANKING CLIENT DISTRIBUTION*

BUY NEUTRAL SELL BUY NEUTRAL SELL60% 38% 2% 22% 7% 0%

* Indicates the percentage of each category in the Overall Distribution that were banking clients of Lazard Frères in the previous 12 months.

RATING GUIDELINE (return targets may be modified by risk or liquidity issues)BUY Expected to produce a positive total return of more than 10% in the next 12 months.NEUTRAL Fairly valued; expected to product a total return of ±10% in the next 12 months.SELL Expected to product a negative total return of more than 10% in the next 12 months.


DISCLAIMERS

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