rodman & renshaw - $vtus may 2011 update

For definitions and the distribution of analyst ratings, and other disclosures, please refer to pages 9 - 10 of this report.

®

May 3, 2011

Ventrus Biosciences Inc (VTUS)RAISING TARGET PRICE

LIFE SCIENCES

Market Outperform / Aggressive Risk

Michael J Higgins212-430-1784

[email protected]

FDA’s agrees on iferanserin's endpoints; Raises our price target from $12 to $25.

MARKET DATA 5/2/2011Price $17.00Exchange NASDAQTarget Price $25.0052 Wk Hi - Low $17.51 - $5.75Market Cap(MM) $122.2EV(MM) $109.5Shares Out (MM) 7.2Avg. Daily Vol 46,032Short Interest 33,210

BALANCE SHEET METRICSCash (MM) $14.6LTD (MM) $0.0Debt/Capital NACash/Share $2.16Book Value(MM) NABook Value/Share $1.72

EARNINGS DATA ($)FY - Dec 2010A 2011E 2012EQ1 (Mar) -- (0.36) --Q2 (Jun) -- (0.47) --Q3 (Sep) -- (0.42) --Q4 (Dec) -- (0.44) --Full Year EPS (2.13) (1.69) (1.88)Revenue (MM) 0.0 0.0 0.0

VALUATION METRICSPrice/Earnings NM NM NMEV/RevenueY/Y EPS Growth 108.8% NM 11.2%

INDICESDJIA 12,807.4SP-500 1,361.2NASDAQ 2,404.2NBI 1,124.0

Q3 Q1 Q23

6

9

12

15

18

2011

1 Year Price History

Created by BlueMatrix

00.050.10.150.20.25

Like a blowout Super Bowl, the FDA may not want to stick aroundfor the second half. After the close yesterday, Ventrus announced thatthe FDA determined that a seven day treatment arm should be includedin the previous plans to dose the company’s novel 0.5% iferanserincream for fourteen days in a placebo-controlled Phase 3 trial. Given thatthe iferanserin cream has shown statistical efficacy in three days, itappears that the FDA would like to see if this intra-anal cream can workwhen dosed for seven days instead of fourteen days. Similar to theFDA’s proposal earlier this year, we see this proposal as one whichimproves the value of this program. Specifically, if the seven day armbecomes the recommended labeling it not only increases iferanserin’spricing power but gathers increased revenues from the patients thatkeep applying the intra-anal cream for more than seven days. To beclear, we expect the company will price the product for its clinical benefit,not based on a pre-determined CGS ratio.

No change to “game time”… results are expected in less than 12months. We recall that when the S-1 was filed in late 2010 thatmanagement had mentioned an increase in clinical site requests forinclusion in the iferanserin Phase 3 trial. Investors should recall thatthere are roughly four million physician visits annually for hemorrhoidtherapy despite no FDA approved product… which translates to pent-upphysicians and patient demand. Therefore, we believe management willhave little trouble opening up more sites to accommodate the 50%increase in the number of patients to enroll in this third arm. We estimatethe cost at $2 to $3 million more, with cash running into Q212 instead ofQ312. While Ventrus is conservative with their capital (burning <$1million per month in 2011), we believe investors are primarily focused onthe value for Ventrus’ clinical stage assets, including their revenuepotential and the clinical/regulatory risk in reaching the market. While thefourteen day arm is more likely to demonstrate a clinical benefit over theseven day arm, we believe management will only need to take thefourteen day arm forward to the confirmatory Phase 3 trial (scheduled tostart 2H12), which keeps the remaining $20 million budget untouchedand on track.

We maintain our Market Outperform rating and increase our PriceTarget from $12 to $25. As noted in our initiation report, we hadattributed a 40% discount rate in reaching our price target to account forthe “first to NDA” assets that supported our price target. With the FDAagreeing to “the definition of the primary and secondary endpoints thathad been proposed and with the basic design elements of the study”,along with the improved risk profile from these two proposed trial designchanges, we believe it is appropriate to reduce the risk in the companyreaching our financial projections from 40% to 35%. We continue tomodel a 22.5% royalty rate on iferanserin and diltiazem sales. Onestimated 2017 royalty revenues of $90 million producing a diluted EPSforecast of $4.27 we place a PE of 35x to account for the growth rateduring that period to reach our $25.00 price target.

2RODMAN & RENSHAW EQUITY RESEARCH

FDA has offered two notable proposals this year. The current management team has been dutifully meeting with the FDA regarding the Phase 3 trial design in anticipation of starting the first Phase 3 trial around mid-year 2011. Since the beginning of the year, the company has offered clarity regarding the ongoing discussions with the FDA. On March 18th the company reported that the FDA has proposed a change in the definition of the Primary endpoint. From

nsecutive days, the FDA proposed the endpoints noted in Exhibit 1. Using the 121 patient Phase 2/3 study conducted in Germany on Grade I to III patients by the original sponsor, the chance that the upcoming Phase 3 trials would succeed increased, as the p-value changed from p<0.01 to p<0.0001 as the primary endpoints changed. Yesterday, the company announced that the FDA has proposed adding a third arm to the trial, one which includes patients being dosed for seven days with active drug and seven days with a placebo cream (see Exhibit 1 again). While there is no German data to leverage for insights into how this design change could impact the outcome of the upcoming Phase 3 trials, we can speculate that lower dosing can translate to lower efficacy. Given the p-value of 0.0001 for the 14 day endpoint (57% versus 20%, almost a 3x difference) and the greater separation of the curves at day seven than at day 14, we believe Ventrus has breathing room to reach this primary endpoint at seven days (see Exhibits 4, 5 & 6). As outlined in our February initiation report we believe the safety profile of this acute dosed, topical 5HT-3 cream with low bioavailability will be excellent.

e should be low.

Exhibit 1 Primary: Proportion of patients with cessation of bleeding by the end of Day 7 that persists for the remainder of the treatment period (through Day 14);; and Key Secondary: Proportion of patients with cessation of pain and/or itching by the end of Day 7 that persists for the remainder of the treatment period (through Day 14). Arm 1: placebo ointment twice daily intra-anally for 2 weeks;; Arm 2: Iferanserin ointment twice daily for 2 weeks;; and Arm 3: Iferanserin ointment twice daily for 1 week followed by placebo ointment twice daily for 1 week Sources: Ventrus Biosciences, Inc and Rodman & Renshaw estimates. During the development stage, pricing is elastic We expect Ventrus will price iferanserin cream based on the outcome of the course of therapy and will in no way be impacted by which study duration will move ahead into the second Phase 3 trial. So, if the one week arm is equally or more effective than the two week arm we expect the one week arm to get clinical and regulatory green light to move ahead. This would not cut our pricing assumptions in half. On the contrary, a shorter treatment that demonstrates some residual improvement with continued dosing could cause us to add a row in our models to account for those patients taking more than one week of dosing. For example, if results suggest that one week dosing is the preferred regimen yet a third of patients appear to benefit from another week, or two, we would increase our revenue estimates by a third or two-thirds. This trial design change reminds us of the March 18th announcement in which the clinical endpoints added value to VTUS. Here, the one week arm not only offers higher annual revenues for the one-time upfront cost of a 200 patient 14 day arm but we would expect the one week dosing would

rin cream. As noted in Exhibit 2, we expect

hemorrhoid patients that are more sensitive to compliance factors than the more severe patients. Seven day therapy not only reduces any safety risk, but the efficacy drop may be overcome by the increased

should be scoring in the years ahead.

Ventrus Biosciences Inc May 3, 2011


Exhibit 2: Peak iferanserin revenue estimate

Four G rades of hemorrhoids I I I I I I IV Tota l

Es tim ated share of 4.2 m illion, by G rade 40% 30% 20% 10% na

Es tim ated percent on iferanserin, by G rade 15% 40% 80% 90% 43%

Number on iferanserin (in m illions ) 0.252 0.504 0.672 0.378 1.806

A t $300/year, projec ted iferanserin revenues $76 $151 $202 $113 $542 Source: Rodman & Renshaw estimates

We believe the company and the FDA need to agree on the statistical methods underpinning the relative value of the

inclusion of the third arm in a placebo controlled trial directs the company towards a pre-specified statistical method. From our understanding, this can be determined before the clinical trial data is

-recruited sites with the news that they can include more patients in the trial, we believe the company will meet with the FDA to gain some clarity on this new issue, a determination of the statistical methods to measure efficacy in this new, three-arm trial. We summarize our opinion of the value of this SPA in the next section.

At this stage we believe it is important to remind ourselves and investors that we might be taking

et cap is just north of $100 million with enough cash to

2012, the value of the company mean that it shows an efficacy advantage over the placebo cream with no real safety concerns. We believe larger partners are likely to come running and generate a bidding war, regardless of the SPA or potential need to repeat this first Phase 3

pharma is interested (and we believe several GI- will take a deep dive in 12 months), they would have little difficulty in embarking on a $50+ million trial program to confirm

keeping our feet on the floor and recognizing the bird in the hand, we believe the ongoing back-and-forth meetings with the FDA ha currently planned pivotal trial design. Key, material iferanserin events We look forward to the peer-reviewed publication of the German study and further details of the bioavailability of iferanserin. We believe the low systemic absorption and wide inter-patient variability will

claiming bioequivalency to the reference listed drug. Regardless of the outcome of the battle between ViroPharma

suggestive that there will continue to difficulty for ANDA filers to gain approval without running clinical trials. And finally, we look forward to the start of the first Phase 3 iferanserin trial this summer.



Exhibit 3: Valuation matrix

20% 25% 30% 35% 40% 45% 50%

15 $21.80 $17.07 $13.49 $10.75 $8.65 $7.00 $5.7220 $29.07 $22.75 $17.98 $14.34 $11.53 $9.34 $7.6225 $36.34 $28.44 $22.48 $17.92 $14.41 $11.67 $9.5330 $43.60 $34.13 $26.97 $21.51 $17.29 $14.01 $11.4335 $50.87 $39.82 $31.47 $25.09 $20.17 $16.34 $13.3440 $58.14 $45.51 $35.97 $28.68 $23.06 $18.68 $15.2445 $65.41 $51.20 $40.46 $32.26 $25.94 $21.01 $17.1550 $72.67 $56.89 $44.96 $35.85 $28.82 $23.35 $19.05

Discount ra te

Multiple

Sources: Ventrus Biosciences, Inc and Rodman & Renshaw estimates. Exhibit 4: Cessation of bleeding

Source: Ventrus Biosciences and Rodman & Renshaw estimates



Exhibit 5: Cessation of pain

Source: Ventrus Biosciences and Rodman & Renshaw estimates Exhibit 6: Cessation of itching

Source: Ventrus Biosciences and Rodman & Renshaw estimates



Exhibit 7: Key events in the development of iferanserin. 11/91 IND filed by investigator 1992 Method of use patent filed by Sam Amer, PhD (former Dir of R&D, BMS) 1/14//94 IND transferred to Sam Amer & Co 7/14/98 Composition of matter patents granted on S-isomer by Dr. Amer 1998 Licensed Japanese rights to Tsumura & Co. 1998 & 1999 Tsumura & Co conducted pharmacology studies: one single dose in 18 healthy patients and six

receiving the 1% dose for six days (S-isomer) 2002 & 2003 Sam Amer & Co conducted a non-pivotal Phase 3 study in Germany 2/28/03 Tsumura returned Japanese rights to Sam Amer after running two Phase 1 and two Phase 2 trials 2003 Novartis in-licensed the rights, improved the manufacturing process, ran toxicology and metabolite

studies 2005 Novartis returned rights to Sam Amer after the GI franchise was marginalized 2/5/08 Amer and Ventrus held an end-of-Phase 2 meeting with FDA 3/17/08 Ventrus in-licensed exclusive WW rights to topical forms of iferanserin from Sam Amer 6/08 Filed SPA, process not completed due to lack of funding 3/10 Filed new SPA submission;; clarified May - Communication with FDA on SPA filing: definition of PE, how to assess itching, pain & recurrence,

etc 8/23/10 10/28/10 Officially filed SPA submission based on the recent FDA discussions 2/1/11 Completes hiring of Clinical Development staff 3/3/11 6/11 Expected completion of SPA process Q311 Start 1st Phase 3 study 2H11 Start dose-ranging carcinogenicity program 2H11 First publication of the Phase 2/3 German study Q112 Data from 1st Phase 3 study 1H12 Start carcinogenicity program Mid-12 Potentially secure North American marketing partner 2H12 Start drug interaction studies 2H12 Start thorough QT study 2H12 Start 2nd Phase 3 study YE13 Data from 2nd study Mid-14 Data from carcinogenicity studies 2014 Potential start of life cycle extension products: combinations with steroids, etc. 2H14 File NDA 2H15 FDA approval & launch 8/7/15 -isomer) 1/23/18 expires (S-isomer) 2H20 5 year Hatch-Waxman NCE protection expires 2030 If granted, the dose-range patent (0.5%) expires Source: Ventrus Biosciences and Rodman & Renshaw estimates



RODMAN & RENSHAW RATING SYSTEM: Rodman & Renshaw employs a three tier rating system for evaluating both the potentialreturn and risk associated with owning common equity shares of rated firms. The expected return of any given equity is measured on aRELATIVE basis of other companies in the same sector, as defined by First Call. The price objective is calculated to estimate the potentialmovement in price a given equity could achieve given certain targets are met over a defined time horizon. Price objectives are subject toexogenous factors including industry events and market volatility. The risk assessment evaluates the company specific risk and accountsfor the following factors, maturity of market, maturity of technology, maturity of firm, cash utilization, and valuation considerations.Potential factors contributing to risk: relatively undefined market, new technologies, immature firm, high cash burn rates, intrinsic valueweighted toward future earnings or events.

RETURN ASSESSMENT Market Outperform (Buy): The common stock of the company is expected to outperform a passive index comprised of all the

common stock of companies within the same sector, as defined by First Call. Market Perform (Hold): The common stock of the company is expected to mimic the performance of a passive index comprised

of all the common stock of companies within the same sector, as defined by First Call. Market Underperform (Sell): The common stock of the company is expected to underperform a passive index comprised of all

the common stock of companies within the same sector, as defined by First Call.

RISK ASSESSMENT Speculative - The common stock risk level is significantly greater than market risk. The stock price of these equities is

exceptionally volatile. Aggressive - The common stock risk level is materially higher than market level risk. The stock price is typically more volatile

than the general market. Moderate - The common stock is moderately risky, or equivalent to stock market risk. The stock price volatility is typically in-line

with movements in the general market.

Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q23

6

9

12

15

18

2009 2010 2011

02/02/11I:MO:$12

Rating and Price Target History for: Ventrus Biosciences Inc (VTUS) as of 05-02-2011

Created by BlueMatrix

RATING SUMMARY

Distribution of Ratings TableIB Serv./Past 12 Mos

Rating Count Percent Count PercentMarket Outperform(MO) 143 57.90% 35 24.48%Market Perform(MP) 45 18.20% 4 8.89%Market Underperform(MU) 8 3.20% 0 0.00%Under Review(UR) 51 20.60% 16 31.37%Total 247 100% 55 100%



Investment Banking Services include, but are not limited to, acting as a manager/co-manager in the underwriting or placement ofsecurities, acting as financial advisor, and/or providing corporate finance or capital markets-related services to a company or one of itsaffiliates or subsidiaries within the past 12 months.

ADDITIONAL DISCLOSURESRodman & Renshaw, LLC. (the "Firm") is a member of FINRA and SIPC and a registered U.S. Broker-Dealer.

ANALYST CERTIFICATIONI, Michael J Higgins, hereby certify that the views expressed in this research report accurately reflect my personal views about the subjectcompany(ies) and its (their) securities.None of the research analysts or the research analyst's household has a financial interest in the securities of Ventrus Biosciences Inc(including, without limitation, any option, right, warrant, future, long or short position).

As of Mar 31 2011 neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securities of VentrusBiosciences Inc.

Neither the research analyst nor the Firm has any material conflict of interest with Ventrus Biosciences Inc, of which the research analystknows or has reason to know at the time of publication of this research report.The research analyst principally responsible for preparation of the report does not receive compensation that is based upon any specificinvestment banking services or transaction but is compensated based on factors including total revenue and profitability of the Firm, asubstantial portion of which is derived from investment banking services.The Firm or its affiliates did not receive compensation from Ventrus Biosciences Inc for any investment banking services within twelvemonths before, but intends to seek compensation from the companies mentioned in this report for investment banking services withinthree months, following publication of the research report.

Neither the research analyst nor any member of the research analyst's household nor the Firm serves as an officer, director or advisoryboard member of Ventrus Biosciences Inc.

The Firm does make a market in Ventrus Biosciences Inc securities as of the date of this research report.

Any opinions expressed herein are statements of our judgment as of the date of publication and are subject to change without notice.Reproduction without written permission is prohibited. The closing prices of securities mentioned in this report are as of May 02 2011.Additional information is available to clients upon written request. For complete research report on Ventrus Biosciences Inc, please call(212) 356-0500.Readers are advised that this analysis report is issued solely for informational purposes and is not to be construed as an offer to sell orthe solicitation of an offer to buy. The information contained herein is based on sources which we believe to be reliable but is notguaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. Past performanceis no guarantee of future results.


rodman & renshaw - $vtus may 2011 update

Investor Relations