The Disclosure Section may be found on pages 31 - 34 of this report.

R

Initiation of CoverageApril 4, 2012

SPECIALTY PHARMACEUTICALS

Equity Research Irina Rivkind212-915-1237

irivkind@cantor.com

Ventrus Biosciences, Inc. (VTUS-$10.04)Rating: BUYTarget Price: $29.00

Near-Term Binary Play; Initiating with a BUY and $29 Price Target

REV 1Q 2Q 3Q 4Q2011A 0.0A 0.0A 0.0A 0.0A2012E 0.0E 0.0E 0.0E 0.0E2013E — — — —

EPS 1Q 2Q 3Q 4Q2011A (0.38)A (0.97)A (0.50)A (1.72)A2012E (0.60)E (0.67)E (0.65)E (0.70)E2013E — — — —

FY 2011A 2012E 2013EREV 0.0A 0.0E 0.0EP/S — — —

EPS (3.57)A (2.62)E (1.98)EP/E (2.8)x (3.8)x (5.1)x

■ Unique asset in a large, attractive market: The company is developingiferanserin, a topical ointment for the treatment of hemorrhoids, which would bea first-in-class prescription drug in an extremely large market with no meaningfulcompetitors. The first Phase III trial reads out in June 2012; if positive, webelieve it could result in a significant run-up in the stock or a potential companyacquisition.

■ Remaining assets are interesting but smaller: Ventrus is also developingdrugs for the treatment of anal fissure and fecal incontinence. We expect PhaseIII data for the fissure drug in May 2012, which should be a second, moretempered catalyst for the stock. Given that the drug is topical diltiazem, whichis already compounded by pharmacists for the treatment of anal fissure, welike the odds of a positive outcome. The company is postponing work on theincontinence product for now, and we view contribution from this drug asminimal.

■ Risks are manageable, in our view: (1) The iferanserin Phase III trial couldfail, or the drug may fail to gain FDA approval if safety concerns arise. Giventhe strong efficacy signal seen in Phase II and solid Phase III study design, weremain hopeful. (2) We believe that the company will need to raise additionalfinancing in 2012. (3) We model profitability only in 2018 but think that thetakeout prospects for the company are good, which may present earlier exitopportunities.

■ Iferanserin is critical to valuation: We utilize DCF with a 14% WACC and1% terminal growth rate, which generates a $29 price target. The hemorrhoidcatalyst in June is critical to this valuation and the company's path forward.

Current Statistics

Market Cap ($Mil) $124.6Avg. Daily Trading Volume (3 mo.): 72,732Shares Out (Mil): 12.406

Float Shares (Mil): 12.500Dividend Yield: 0.00%

Company Description

Ventrus Biosciences is a small, development-stage specialty pharmaceutical company that is focused on gastroenterology. The companyis working to launch three investigational drugs in hemorrhoids, anal fissure, and fecal incontinence.

2

Summary

We appreciate the unique asset in a large, attractive market: Ventrus is developing iferanserin, a

topical ointment for the treatment of hemorrhoids that would be a first-in-class prescription drug in an

extremely large market with no meaningful competitors actively promoting their brands. The first

Phase III trial reads out in June 2012 and if positive, could result in a significant run-up in the stock or

a potential company acquisition. This is a highly binary event for the company, and we therefore

expect stock movement in advance of the event, as well. Should the results come out negative, we

believe that share price pullback could be severe.

Remaining assets are interesting but smaller: Ventrus is also developing drugs for the treatment of

anal fissure and fecal incontinence. We expect Phase III data for the fissure drug in May 2012, which

should be a second (albeit more tempered) catalyst for the stock and could begin the movement in

share price ahead of the iferanserin data in June. Given that the drug is topical diltiazem (a well-known

cardiovascular drug), which is already compounded by pharmacists for the unapproved treatment of

anal fissure, we think that the Ventrus product has strong odds of demonstrating efficacy. If the

outcome is unexpectedly negative, we believe that the diltiazem program contributes approximately $6

to valuation, so our overall thesis would still remain intact.

The company is postponing work on the incontinence product (topical phenylephrine gel) for now, and

we view contribution from this drug as minimal. Management is currently considering an Orphan Drug

pathway for this product for fecal incontinence associated with colectomy procedures, which may

restrict broader use.

Key risks are manageable, in our view:

(1) The iferanserin Phase III trial could fail or the drug may fail to gain FDA approval in 2015 if

safety concerns arise. Given the strong efficacy signal seen in Phase II and solid Phase III study

design, we remain hopeful. There is always the risk that the drug could behave differently in U.S.

patients than in the foreign patients used in Phase II. However, we think that management has designed

the Phase III primary endpoint in such a way that it sets a high hurdle for responder qualification,

which should help distinguish the drug from placebo to hit statistical significance. Furthermore, the

Phase III trial is quite large, which should help generate positive data. On the safety front, we do not

expect to see any true safety signals until early 2013 upon the availability of the 12-month open label

data from the first Phase III trial, and then again in 2014 upon readout of the long-term recurrence

study and carcinogenicity data.

(2) We believe that the company will need to raise additional financing in 2012. We currently

model a $50 million stock issue in 2012. Because we don’t think the company can get profitable before

2018, we also added a second $80 million equity financing in 2013. We still see significant upside to

the stock if Phase III data for iferanserin are positive, which may compensate for any investor

hesitation to buy the stock ahead of a financing event.

(3) We model profitability only in 2018 but think that the takeout prospects for the company are

good, which may present earlier exit opportunities. We think that Ventrus could become extremely

attractive to strategic buyers with a gastroenterology presence if Phase III iferanserin data are positive.

Companies with a gastroenterology franchise could include Salix, Shire, Ironwood, and Forest

Laboratories.

(4) Commercialization risk is inherent. It may prove more difficult to convert over-the-counter

(OTC) hemorrhoid patients to prescription medication than originally intended. Management may

struggle to get good managed care access, the launch could stall, and other competitors may enter the

space over time. The company’s partners may not prioritize the product, and OUS sales may come in

April 4, 2012

3

below expectations. We think that our projections are already risk-adjusted for approval likelihood and

relatively conservative for both U.S. and OUS markets.

(5) Generic risk on iferanserin could create an overhang on the stock. We expect iferanserin to

receive five years of Hatch-Waxman exclusivity in 2015, which means that generic filers could not

emerge until 2019. However, down the line this event may create a significant overhang on the stock.

Both iferanserin and the diltiazem anal fissure drug have life-cycle extension opportunities, and

generic filers may need to conduct clinical trials to demonstrate bioequivalence.

Iferanserin is critical to valuation: We utilize discounted cash flow analysis (DCF) with a 14%

weighted average cost of capital (WACC) and a 1% terminal growth rate, which generates a $29 price

target. We point out that the majority of the value from this analysis resides in the terminal value for

the company based on the expectation of iferanserin persistence in the market beyond 2020 (the

company has filed a patent application that could protect the drug until 2030, but it has not yet been

allowed). Subtracting out terminal value, we are left with a hypothetical $4 price target.

Our valuation assumes that Ventrus will secure a primary care co-promote partner in the U.S. If the

company fails to do so, we believe that fair valuation would be in the $8 range, which is some 20%

below current trading levels.

If the company were acquired for a 3x multiple of iferanserin 2020 risk-adjusted sales of $381 million

(plus $370 million in cash), we generate a hypothetical $30 price target, which supports our BUY

rating. This assumption utilizes 24.5 million diluted shares, since we model increased dilution over

time.

Company History

Ventrus is a small-cap, gastroenterology-focused specialty pharmaceutical company. Ventrus

originated as a seed-stage company founded by Paramount BioSciences, a healthcare venture capital

firm. The company’s second largest shareholder is Dr. Lindsey Rosenwald, who is Chairman and CEO

of Paramount BioSciences. Ventrus Chairman and CEO Dr. Russell Ellison is an EVP of Paramount

BioSciences. Paramount has previously been involved in multiple start-up companies including Cougar

Biotechnology (acquired by Johnson & Johnson for almost $1 billion in 2009), Cypress Bioscience

(acquired for $255 million by Ramius LLC), Ziopharm Oncology (a publicly traded company with

market cap of approximately $440 million), and Bradley Pharmaceuticals (acquired by Nycomed for

$346 million in 2007).

Ventrus was incorporated in Delaware in October 2005 under the name South Island BioSciences, Inc.

and changed its name to Ventrus Biosciences, Inc. in April 2007 when Paramount BioSciences

licensed VEN 307 (anal fissure) and VEN 308 (fecal incontinence) from S.L.A. Pharma. Ventrus

acquired the licenses for all three of its pipeline assets from Paramount BioSciences and also borrowed

funds from Paramount. Ventrus completed a series of convertible promissory note offerings in 2007 in

the amount of $5.3 million and in 2010 in the amount of $3.4 million, and then held its IPO in

December 2010 where it offered 3.335 million shares at $6.00/share and raised $17.5 million in net

proceeds. The company held a secondary offering in July 2011 where it issued 5.175 million shares of

stock at $10.00 per share and raised net proceeds of $47.5 million. In January 2012 the company filed

a $100 million shelf, which became effective on February 10, 2012. In conjunction with the shelf,

Ventrus initiated a controlled equity offering of up to $20 million of common stock.

The company is currently developing three investigational compounds for the treatment of

hemorrhoids, anal fissures, and fecal incontinence. Based on timelines provided by management, we

do not expect Ventrus to generate revenues until 2015 under a best case scenario.

April 4, 2012

4

Industry Overview

Ventrus is focused exclusively on gastroenterology, with an eye to both the prescription and over-the-

counter (OTC) segments of the market. This sector remains scientifically and commercially exciting

since there are still several unmet needs in large markets that represent lucrative opportunities for drug

manufacturers. Conditions such as hemorrhoids and anal fissures remain underserved with suboptimal

treatment options, and, therefore, we believe that the Ventrus assets represent innovative solutions in

large markets.

Newer gastroenterology-focused companies include Ironwood, Synergy, and Tranzyme, which are

developing new products for the treatment of constipation, constipation-predominant irritable bowel

syndrome (IBS-C), and gastroparesis. There are also multiple companies with a presence in the sector,

including Sucampo (Amitiza), Progenics (partnered with Salix on Relistor), Cubist, Theravance, and

Nektar, all of which are developing drugs in opioid-induced constipation. Furiex has a Phase III-ready

asset in diarrhea-predominant irritable bowel syndrome (IBS-D). We summarize the sector in Exhibit 1

below. Since Ventrus has global rights to iferanserin but lacks a large primary care sales force, we

would expect the company to be engaged in multiple partnering and/or M&A discussions with larger

companies such as Salix, Astra-Zeneca, or Forest Laboratories, which already have a presence in either

gastroenterology or primary care.

Exhibit 1: Gastroenterology Players ($ in millions)

Source: Company websites and Thomson One

Company Overview

We like the therapeutic niches that Ventrus has targeted, since its assets have large market

opportunities and represent potentially meaningful improvements to existing products. Furthermore,

we believe that management is being thorough in its approach to drug development. Though

management has gastroenterology commercialization expertise, we think that the company will need to

identify one or more partners in primary care as well as consider divesting its assets to maximize

shareholder value.

Company Ticker Market Cap Therapeutic focus

Alfa-Wassermann private N/A Xifaxan

Aptalis private N/A Gastroenterolgy & Cystic Fibrosis Nutrition

Braintree Labs private N/A Bowel Preps

Cubist CBST $2,721 GI surgery and Opioid-Induced Constipation

Edusa Pharmaceuticals private N/A Heartburn

Furiex FURX $236 Diarrhea-predominant IBS

Ironwood IRWD $980 Constipation, IBS-C

Nektar NKTR $941 Opioid-induced Constipatiion

Norgine private N/A Bowel Preps & Xifaxan

Progenics PGNX $335 Opioid-induced Constipatiion

Salix SLXP $3,126 Gastroenterology

Santarus SNTS $358 Ulcerative colitis and traveler's diarrhea

Sucampo SCMP $119 Constipation, IBS-C

Synergy SGYP $218 Constipation and Ulcerative Colitis

Tioga private N/A Diarrhea-predominant IBS

Theravance THRX $1,681 Opioid-induced Constipatiion

Tranzyme TZYM $67 Gastroparesis, Post-operative Ileus

Warner Chilcott WCRX $4,191 Ulcerative colitis

April 4, 2012

5

Hemorrhoids represent the key opportunity

Iferanserin (VEN 309) is a topical 5-HT2 (serotonin) antagonist that was designed to not cross the

blood-brain barrier. This drug has a long and colorful history since it was developed in the early 1990s,

licensed to a Japanese company and Novartis for the U.S. market, and returned to its inventor after

Novartis decided to exit gastroenterology in 2005. Ventrus acquired all rights and title to iferanserin in

November 2011 for $12.5 million, which allows the company to pay royalties of 3.0-4.0% of net

annual sales in the U.S. and 1.0-1.3% of gross annual sales OUS to Sam Amer & Co. (the drug’s

inventor and licensor). Furthermore, Ventrus will be obligated to pay total milestones of $10.5 million,

the first of which will begin after the first anniversary of product sales.

Iferanserin has composition of matter patent protection until August 2015 and if approved, would also

be protected by five years of Hatch-Waxman exclusivity. Ventrus has filed an additional patent

application (12/860,974) in August 2010, which, if issued, could protect the drug until 2030. We note

that this application is still in very early stages of review at the U.S. Patent Office, and we don’t expect

allowance in the next year. Furthermore, there are opportunities to reformulate the product for once-

daily use as a life-cycle extension strategy. For now we conservatively assume that the drug could get

approved in 2015, with market exclusivity until 2020.

Hemorrhoid background

Using 1992 data from the National Center of Health Statistics, we estimate that approximately 12.8%

of U.S. adults have had hemorrhoids in the past year1. This translates to over 30 million adults with the

condition. Other estimates are more modest and describe 10 million U.S. patients, one-third of which

are seeking medical treatment2. Ventrus market research based on a survey of 10,202 adults identifies

21.7 million adults who have been affected by hemorrhoids in the past year, 14 million adults who

have been affected in the past month, and 6.7 million adults who have been affected by the condition

on any given day.

Hemorrhoids are swollen and inflamed veins present in the anus and lower rectum. Hemorrhoids are

categorized as either internal or external, and typical symptoms include bleeding, pain and itching. The

severity of hemorrhoids is rated on a four-point scale, which we have condensed as follows: (1) Grade

I-II hemorrhoids are characterized by minimal protrusion and prolapse and are treated with

conservative therapy such as fiber, sitz baths, and stool softeners, avoidance of triggers, and topical

medications; (2) Grade II-III hemorrhoids have more visible prolapse and protrusion. These

hemorrhoids are also initially treated with conservative non-surgical approaches, and topical

medications; and (3) Grade III-IV symptomatic hemorrhoids protrude beyond the anal canal and may

be irreducible and prolapsed. These hemorrhoids are treated with office-based procedures such as

rubber banding, or surgically.

There are multiple medical products available for the treatment of hemorrhoids, including prescription

steroids such as Anusol and Proctocort and OTC products such as Preparation H or Tucks pads. While

these topical agents may ease the symptoms of hemorrhoids such as pain and itching, they do not

inhibit bleeding and need to be administered 4-6 times per day, which is cumbersome. In 2011 there

were approximately 4.4 million prescriptions for hemorrhoidal medications as reported by Source

Healthcare Analytics. Management reports that there are also approximately 20-22 million

OTC/Preparation H prescriptions sold in the U.S. on an annual basis, so the overall market is quite

substantial.

We could not identify any U.S. topical competitors to the Ventrus compound based on our search of

www.clinicaltrials.gov. A Phase III oral tablet is being tested by Vidfarma Industria de Medicamentos

1 Vital and Health Statistics of the National Center of Health Statistics. Number 212, March 24, 1992.

2 http://emedicine.medscape.com/article/775407-overview#a0156

April 4, 2012

6

Ltda, a privately-held Brazilian pharmaceutical company. The product is called Varicell, and it is being

evaluated for the symptomatic treatment of chronic venous insufficiency and/or hemorrhoidal

syndrome, and we therefore do not think that this drug is comparable to iferanserin. Thus, we believe

that this drug will be launching in a market with no other meaningful competitors.

Getting to know the iferanserin molecule

Iferanserin has selective antagonism of 5-HT2A receptors, particularly ones involved in contraction of

vascular smooth muscle and blood clotting. The drug in its current state is the S-isomer. Iferanserin has

been shown to have a half-life of 1.6-1.8 hours, with no accumulation of drug on twice-daily dosing.

This short half-life coupled with the drug’s unexpected efficacy over the duration of the day with

twice-daily dosing implies a long receptor residence time, which is being confirmed in the lab.

Ventrus still needs to conduct standard drug-drug interaction trials in cardiovascular drugs with a

narrow therapeutic window and warfarin as well as in drugs metabolized by the CYP2D6 enzyme such

as Cymbalta and Dextromethorphan (to determine if the drug interaction results in elevated blood

levels of iferanserin and resultant side effects). The CYP2D6 trials are currently underway and if

negative, may permit for the inclusion of concomitant SSRI medications in the second Phase III trial of

iferanserin. If, on the other hand, the studies show that iferanserin interacts with Dextromethorphan (a

mild/moderate CYP2D6 inhibitor), the company will likely need to exclude most CYP2D6 drugs from

its Phase III program and flag potentially exclusionary drugs in its product label. Results from the

CYP2D6 drug-drug interaction trials are expected to be available in June 2012 around the same time as

the Phase III results from the first trial.

Management is not expecting any alarming signals from the standard drug-drug interaction trials. In an

early Phase I trial, a healthy volunteer who was unable to metabolize iferanserin via the CYP2D6

pathway was exposed to a maximum drug concentration that was 3x the maximum exposure observed

in other patients. Because this patient did not experience any adverse events, management feels that the

drug-drug interaction trials are relatively low-risk. We learned that approximately 7-10% of

Caucasians and 3-8% of African Americans are poor metabolizers of CYP2D6 substrates, so the drug-

drug interaction data are important. The company also plans to conduct QT prolongation trial in 2013,

the results from which may further de-risk the drug. We summarize the clinical work to date in Exhibit

2 below.

April 4, 2012

7

Exhibit 2: Iferanserin Clinical Program

Source: Company reports

Dietrich HA and Aitchinson R. Intra-anal Iferanserin 10 mg BID for Hemorrhoid Disease: A Prospective, Randomized, Double-Blind, Placebo-Controlled Trial. Clin Ther. 2012 Feb; 34(2): 329-40. Epub 2012 Jan 11.

Study Phase Patients Dose Endpoints Results Safety Comments

Pharmacology (2 trials) I n=24 1% PK characterized

Peak concentrations are

below the lowest

exposure where toxicity

was observed in animals

7 mild adverse events; a patient

with compromised CYP2D6

enzyme had maximum exposure

3x that of other patients and AUC

17x observed in other patients

Drug interaction studies

with SSRI

antidepressants, and

other CYP2D6 inhibitors

such as tamoxifen to be

conducted

Proof-of-concept U.S. study I/II

n=26, grades I-III external

hemorrhoids 1%, TID x 5 days Bleeding, symptoms

Statistically significant

improvements in ease of

defecation, throbbing,

fullness, bleeding, and

tenderness. Not reported N/A

Early Phase II dose-ranging

Japan study II

n=72; symptomatic internal

an mixed internal/external

hemorrhoids

0.25%, 0.5%, 1.0%,

BID x 14 days Bleeding, symptoms

Statistically significant

improvement in bleeding

for 0.5% dose; diaries

indicate symptoms

improved on day 1,

peaking at day 7, and

maintained to day 14

5/45 adverse events related to

iferanserin; mostly mild diarrhea

or lower abdominal discomfort,

mild elevated bilirubin

Unexpected dose-

response finding

Late Phase II Japan study II

n=104, grades I-III internal

hemorrhoids

0.25%, 0.5%, 1.0%,

BID x 28 days

Physician-rated size

reduction of

hemorrhoids,

symptoms

0.5% and 1%

concentrations showed

improvements for

secondary symptoms Not reported Primary endpoint not met

German Study IIb/III

n=121, grades I-III

symptomatic internal

hemorrhoids 0.5%, BID x 14 days

Bleeding, itching,

pain/discomfort,

physician evaluation

for prolapse

Statistically significant

reduction in bleeding,

and itching

Mild and infrequent adverse

events

Post-hoc analysis using

the bleeding endpoint to

be studied in pivotal trials

was statistically significant

(p<0.01)

April 4, 2012

8

More work is required to eliminate clinical risk

Ventrus has been advised by the FDA that it will need the following data for its iferanserin NDA

submission:

A total safety database of 1,500 patients, a proportion of which needs to be followed for

repeat use for 6 and 12 months, according to International Conference on Harmonization

guidelines.

Two placebo-controlled trials, with the primary endpoint of cessation of bleeding for a

minimum of three days.

A thorough QT study, drug-drug interaction studies, pharmacology in special populations.

Carcinogenicity studies in two species exposed for 104 weeks, preceded by dose ranging

studies and 6 months toxicology in rats and 9 months in dogs.

Though the company applied for a special protocol assessment (SPA), it did not obtain a final SPA

agreement with the FDA. Management indicated that it entered the SPA process to get feedback from

the FDA and went through seven rounds of meetings/comments. The company did not want to further

delay its Phase III study start and therefore decided to move forward without official signoff on the

SPA. Management believes that FDA has provided written agreement on its primary endpoint,

statistical analysis plan, inclusion/exclusion criteria, patient comprehension testing, open label

extension and treatment arms. We like how thorough management has been with regards to soliciting

feedback and think that the team has been extremely careful to design a study that has a good chance

of hitting its endpoints while simultaneously satisfying FDA concerns. We do not think that an SPA

ensures an approval, so we are not concerned by the company’s termination of that process.

In addition to its drug-drug interaction trials, Ventrus is currently wrapping up the first of its two Phase

III placebo-controlled studies in hemorrhoids, with results from the double-blind portion expected in

June 2012 along with a portion of the follow-up data from the 12-month open-label extension period.

The company also initiated the dose-ranging trials necessary to inform the dose selection for the 2-year

carcinogenicity studies in August and plans to have those completed in August 2014. In the fall of

2012 management plans to start the second Phase III pivotal trial. The company also needs to conduct

a double-blind recurrence trial similar in design to Salix’s current Xifaxan retreatment trial (patients

are treated for their hemorrhoid episode with study drug, followed until recurrence, and then

randomized to receive either drug or placebo). Management needs to get the readout from the first

Phase III trial in order to determine the sample size and patient population for the recurrence trial and

estimates NDA submission timing in 4Q:14. We summarize the iferanserin clinical program in Exhibit

3 below.

April 4, 2012

9

Exhibit 3: Iferanserin Clinical Program

Source: Company reports and Cantor Fitzgerald estimates

Phase III study design has been informed by prior trials

Dose selection work is believed to be adequate: Management indicated that the FDA agreed that the

0.5% dose was acceptable for the Phase III program. Based on data gathered in the early Phase II

Japanese trial in 72 patients, the 0.5% dose had better efficacy than both the 0.25% and 1.0% doses,

which was an unexpected finding. In a subsequent larger Phase II Japanese trial (104 patients), both the

0.5% and 1.0% doses failed to reach statistical significance but did show an improvement in secondary

symptoms. This study was designed to evaluate a physician assessment of the hemorrhoid rather than

bleeding as a primary endpoint. Management indicated that the current twice-daily dosing regimen

does not allow the drug to accumulate and reach a steady state. We think that management

conservatively selected the lower efficacious dose, which should be satisfactory to the FDA.

Primary endpoint selection was based on solid data: In the German Phase II/III study in 121

patients that studied the 0.5% dose, the median time to complete cessation of bleeding was 4.5 days for

iferanserin ointment versus 10.5 days for placebo, which was statistically significant (p< 0.01). For the

primary endpoint from this trial (severity of bleeding on days 7 and 14), iferanserin demonstrated

highly statistically significant results (p<0.0001 at day 7, and p<0.0075 at day 14). Additionally, a

post-hoc analysis identified that 57% of iferanserin-treated patients had cessation of bleeding by Day

7, which was maintained through Day 14, compared to 20% of placebo-treated patients (p≤0.0001).

This definition of bleeding cessation has been turned into the primary endpoint to be used in the

pivotal program. Though the selection was based on a post-hoc analysis, we are comfortable since (1)

the 0.5% dose demonstrated statistically significant efficacy, confirming the work from the early

Japanese trial; (2) the magnitude of effect was large; and (3) the difference in effect was detected

between two small groups of patients, which leads us to believe that results could be even stronger in a

bigger patient population.

The ongoing Phase III trial therefore uses time to cessation of bleeding by the end of Day 7 that

persists through Day 14 as its primary endpoint. The bleeding endpoint is being measured via 5 yes/no

bleeding-related questions. The patient must answer “no” to every single question for the entire seven-

day period in order to be counted as a responder. Similarly, the secondary endpoints measure cessation

of pain and itching by Day 7, persisting to Day 14 which is measured via single yes/no questions (“did

Phase III #1

Drug-Drug Interaction Trials

Carc. Dose-ranging

2-yr Carc. Trial

DB Recurrence Trial

Phase III #2

QT Interval Trial

Toxicology

NDA Submission

2011 2012 2013 2014

PDUFA

2015

April 4, 2012

10

you have any discomfort today?” and “did you have any itching today?”), which must each be

answered “no” for the entire seven-day period. Management intentionally set a high hurdle for the

primary endpoint, which should result in significant separation from placebo. The downside to this

study design is that the magnitude of therapeutic effect may appear smaller because fewer patients will

qualify as responders.

We note that the German trial failed to detect a significant reduction in pain severity reported by

patients on drug or placebo. A post-hoc analysis did find that daily pain ceased in significantly more

iferanserin-treated patients than in the placebo group. We think that the trial failed to detect a

difference using a more challenging pain severity scale rather than a simpler binary yes/no question.

For this reason, the current trial utilizes the yes/no format to measure the pain endpoint.

The trial aims to enroll 600 patients who are followed for 28 days (14-day treatment period, 14-day

follow-up), with a 12-month open label extension period. Enrollment closed in December 2011. There

are two drug treatment arms and a single placebo arm (200 patients each), since the FDA was

interested to see if the product’s efficacy could be detected as early as 7 days post-treatment. The trial

utilizes the 0.5% concentration of iferanserin, which is formulated as an ointment and is administered

intra-anally twice daily. The drug is packaged in individual use tubes that can be discarded, which we

think improves convenience and the patient dosing experience. Other exploratory endpoints include

bleeding recurrence and iferanserin efficacy in treating recurrence. Patients log their responses via a

daily call-in system, which is automated to send reminder calls for missed data points, and site staff

call patients ahead of weekends to prevent gaps in data collection.

Key inclusion criteria require patients with symptomatic internal hemorrhoids, Grades I-III,

which bleed for two consecutive days prior to randomization, with either pain or itching also

required for two consecutive days prior to randomization.

Exclusion criteria notably forbid patients with a history of other gastrointestinal conditions,

cardiovascular disease, asthma, and several other conditions, or concomitant use of SSRIs,

Tamoxifen, Laxatives, Anti-coagulants, and Anti-platelet agents. We believe that the

exclusion criteria are extremely strict due to the lack of drug interaction data available for

iferanserin. Management indicated that it is also being careful about enrolling sick patients

into a trial with a 12-month open label period, since any unexpected adverse events may be

attributed to the drug during this time. The company also plans to allow for many more

concomitant medications in its second Phase III trial after it obtains results from its drug-drug

interaction studies. Management believes that inclusion of these patients later on will prevent

penalization of the product label with multiple exclusions and restrictions.

Management projects that the trial is adequately powered (>99%) to detect a difference between drug

and placebo for the primary endpoint, and >95% for the key secondary endpoints. A placebo effect is

expected in this trial since the placebo used is actually very similar to Preparation H, which has

therapeutic benefits. The company carefully designed its data collection instrument as a series of

objective yes/no questions, which should be a more effective way to detect a difference between

treatments than using a more subjective VAS or Likert scale. Patient safety is being monitored closely

via the daily phone diaries. For the longer-term open label data, patients with recurrences are being

given study drug for a 7-day period and then followed for 21 days to assess efficacy. This should help

provide retreatment data for the product label and also capture any long-term safety issues associated

with repeated use of this drug.

We still see several key risks with this program:

(1) Safety data have to be extremely clean since hemorrhoids are not life-threatening,

alternative treatments are available, and patients can be otherwise healthy. Given the large

size of the patient population, we believe that the FDA would want strong safety assurance

over long-term use, a large patient database for the NDA, and potentially, post-marketing

safety trials. The agency may also be interested in iferanserin treatment in patients who have

April 4, 2012

11

already undergone a hemorrhoid surgical or banding procedure. However, we think that the

company will not be obligated to study this patient population for the NDA submission. We

think that we may see a subset of the long-term safety data from the 12-month open label

portion of the first Phase III trial in June 2012, with full results in early 2013.

(2) The molecule is a serotonin antagonist. Management indicates that iferanserin does not

cross the blood-brain barrier and result in side effects similar to other agents in its class such

as Clozapine. Management noted that iferanserin is most closely related to eplivanserin, a

failed insomnia agent that was never approved by the FDA. We note that eplivanserin had an

imbalance in diverticulosis between the drug and placebo arms, and orthostatic hypotension

and prolonged pulse rates in the elderly. We do not expect the topically administered

iferanserin to have similar issues. Management explained that the Phase III program is

collecting information on diverticulosis, though this condition was not an exclusion criterion

to enrollment. We believe that any FDA concerns around the nature of the molecule could be

highly detrimental to the drug’s approval prospects. Right now we see nothing alarming.

(3) Drug development is proceeding out of order. Ideally, we believe that drug-drug interaction

studies, the QT-interval trial and much of the pharmacology work should have been done

before proceeding into Phase III. We are also uncomfortable with having to wait several years

to get a read-out from the carcinogenicity trial, which, if negative, could halt the entire

hemorrhoid program. Management remains comfortable with the pharmacology program and

the QT trial, but the carcinogenicity trial is unpredictable, in our view. Eplivanserin had

evidence of liver tumors in rodents, but we are not sure if the doses are comparable—though

the issue warrants vigilance.

(4) Manufacturing risks are possible. The current Phase III trial is being conducted in a

refrigerated formulation of iferanserin. Management indicated that the second pivotal trial

will be conducted in the commercial/non-refrigerated form. Accelerated stability work is

currently being conducted and is expected to be available in May/June 2012. The company

also produced 10% of its expected commercial lots to ensure that bridging studies will not be

necessary. The API supplier and drug product supplier for this drug are foreign (but located in

a developed country), while packaging and labeling will occur in the U.S. While we don’t

expect manufacturing to be a major issue for the product, we are keeping an eye on it as a

source of potential risk to approval.

Meaningful commercial opportunity exists

With a large population of hemorrhoid sufferers (10-30 million in the U.S.) and a dearth of effective

treatments, we believe that the hemorrhoid market is very attractive. Hemorrhoids are a condition

where symptom relief is quickly noticeable to patients, and this awareness assures stronger drug

compliance and repeat use. We think that a hemorrhoid treatment would benefit from direct-to-

consumer (DTC) promotion as well as a primary care sales force. Management plans to hire a small

GI-focused sales force of 50-60 reps who would initially detail the diltiazem product (VEN 307) for

anal fissure. Once iferanserin is approved, management would expand this team to approximately 100

reps and seek out a partner or contract sales force for the primary care market. Since we think that

VEN 307 will be delayed until 2015, we model the full 100 reps in 2015. Management wants

marketing control of this asset, and plans to invest in multiple forms of patient outreach and DTC

promotion, spanning public relations, television, and point-of-purchase marketing. We like this

approach in a symptomatic condition that has a motivated patient base. Our only concern for

iferanserin is difficult managed care coverage, which may mandate a step edit through existing

products such as generic prescription steroids or OTC products.

Ventrus has compiled extensive market research on the opportunity. The company commissioned

Princeton Brand Econometrics (PBE) to conduct an internet survey of 10,202 adults and develop a

predictive model to predict physician and patient behavior. The company learned that 85% of the

hemorrhoid patients had been treated for their condition at some point. Of this group, 86% used OTC

medications while 14% received prescription medications. When patients who have ever had

hemorrhoids were presented with the iferanserin product concept, 75% indicated that they would

request a prescription at their next visit, and PBE calculated that approximately 25% of these

April 4, 2012

12

respondents would actually request a prescription. Furthermore, 66% of patients would fill a

prescription at a $35 co-pay level.

Ventrus also cites Nielsen Homescan data for the 52 weeks ending July 2, 2011, which indicates that

9.5 million unique households purchased one or more OTC hemorrhoid medications, on average

purchasing 1.7 units per year. Finally, iferanserin’s inventor conducted market research in 2001 which

demonstrated that average satisfaction with current prescription treatment was 6/10 on a 10-point scale,

and the most desired treatment effect for a new hemorrhoidal medication was “fast onset” and

“bleeding cessation.”

PBE also surveyed 795 health care providers and used these data in combination with Source

Healthcare Analytics prescription data to estimate that 170,000 health care providers generate >4

million prescriptions and 2 million OTC recommendations. Approximately 21,000 health care

providers account for 50% of this prescribing.

Taken together, the research supports the idea that there is a large market opportunity for iferanserin

that is concentrated in a small number of physicians, and that there is patient dissatisfaction with

existing therapies that could be exploited with a DTC campaign and awareness building amongst both

patients and physicians.

Launch year market assumptions

We assume that 12.8% of U.S. adults have had hemorrhoids in the last 12 months and use the estimate

provided by the National Center for Health Statistics, which we believe to be more robust than the one

generated by Ventrus market research. Relying on the company’s omnibus internet survey of 10,202

U.S. adult consumers, we then assume that 85% of these patients were treated with medications (both

OTC and prescription), and then of this larger group, only 14% have received prescription medications

such as topical steroids (the remaining 86% received OTC treatments).

In thinking about the drug’s first year on the market, we focus only on the group of patients who are

taking prescription medications, since they are already seeing a physician and we believe that these are

the most accessible targets for the company while it ramps up promotion alone. We also apply Ventrus

market research data regarding the 66% of patients who are willing to pay a $35 co-pay for a

prescription.

Based on management guidance, we assume prescription pricing of $350, and 1.7 prescriptions filled

per year (according to Nielsen data). We further risk-adjust these estimates by 70% to account for

clinical risk associated with iferanserin.

Management indicated that it plans to launch the drug alone in the first year and then enter into a ~2-

year co-promotion agreement, with a top line revenue split with its partner. We model year 1 in Exhibit

4 below. If the company opts to sell the drug on its own, we would expect peak sales of $242 million

in 2020 as summarized in Exhibit 4.

Co-promote agreement assumptions

We think that driving OTC-using patients into the doctor’s office will require significant promotional

effort (via increased sales rep headcount in primary care, and significant DTC), which we layer on in

the second year of launch via a co-promote partnership. In this scenario, Ventrus would receive a 45%

top-line split with its partner, which we model for 2016-2017 in Exhibit 5 below. We assume that this

agreement would persist for two years and the company would thereafter benefit from the drug’s wider

acceptance to receive the higher revenue streams modeled in years 2018-2020 in Exhibit 5.

In thinking through the co-promote, we utilize the same population prevalence estimates as in our base

case scenario. However, in this exercise we assume a high degree of physician and patient awareness

for the drug, which leads to more patient requests and physician trial. Under this scenario we no longer

April 4, 2012

13

assume that the drug will be utilized just by patients receiving prescription medications, but expand

usage to all patients who utilize medications (both Rx and OTC).

Based on the omnibus survey we learned that approximately 25% of patients who were introduced to

the iferanserin product concept would ever ask for the drug. Furthermore, approximately 88-92% of

physicians exposed to the product concept would grant the patient request. We again layer on Ventrus

market research data regarding the 66% of patients who are willing to pay a $35 co-pay for a

prescription, which generates approximately 3.8 million patients who represent the expanded target

group in 2016. Again, we rely on management guidance to assume prescription pricing of $350, and

1.7 prescriptions filled per year. From there we model a gradual market build which picks up

significantly over the 2016-2018 period, with peak market share of 21% by 2020. We further risk-

adjust these estimates by 70% to account for clinical risk associated with iferanserin, which yields

revenues of approximately $381 million in 2020. If the drug is approved, we would raise our estimates

to over $544 million. We believe that this estimate is reasonable since it approximates sales of

Zelnorm in its sixth year on the market. Iferanserin is in a similarly large gastrointestinal category as

constipation and irritable bowel syndrome, yet it has no meaningful competitors, and we therefore

believe that our $544 million estimates are attainable with a co-promote partner.

If Ventrus were acquired, we believe that the buyer would utilize this second scenario to assess the

potential revenue stream for the product at peak.

April 4, 2012

14

Exhibit 4: Hemorrhoid Market Model—Assumes Ventrus Promotes Alone

Sources:

U.S. Census Bureau, Population Division; Table 1. Intercensal Estimates of the Resident Population by Sex and Age for the United States: April 1, 2000 to July 1, 2010 (US-EST00INT-01) National Center for Health Statistics. Advance Data, Number 212, March 24, 1992

Ventrus Princeton Brand Econometrics Proprietary internet survey of 10,202 adults

Ventrus WAC pricing estimates Nielsen Homescan data, July 2011 (1.7 OTC hemorrhoid preps purchased/year)

Cantor Fitzgerald estimates of market penetration

2015 2016 2017 2018 2019 2020

U.S. Adults (age 20+) 237.5 239.9 242.3 244.7 247.2 249.6

Percent with Hemorrhoids in last 12 months 12.8% 12.8% 12.8% 12.8% 12.8% 12.8%

Patients with Hemorrhoids in last 12 months (numbers in millions) 30.4 30.7 31.0 31.3 31.6 32.0

Percent treated with medications 85% 85% 85% 85% 85% 85%

Percent treated with prescription medications 14% 14% 14% 14% 14% 14%

VEN-309 Target Population (in millions) 3.6 3.7 3.7 3.7 3.8 3.8

Percent filling a $35 co-pay prescription 66.0% 66.0% 66.0% 66.0% 66.0% 66.0%

Patients potentially getting a VEN-309 Prescription (numbers in millions) 2.4 2.4 2.4 2.5 2.5 2.5

Prescription cost (assumed WAC) $350.0 $357.0 $364.1 $371.4 $378.9 $386.4

Prescriptions per year 1.7 1.7 1.7 1.7 1.7 1.7

Market opportunity ($ in millions) $1,420.8 $1,463.7 $1,507.9 $1,553.5 $1,600.4 $1,648.7

Market penetration 2.0% 8.0% 14.0% 17.0% 19.0% 21.0%

VEN-309 revenue estimates ($ in millions) $28.4 $117.1 $211.1 $264.1 $304.1 $346.2

Risk-adjustment 70% 70% 70% 70% 70% 70%

Risk-adjusted VEN-309 revenue estimates ($ in millions) $19.9 $82.0 $147.8 $184.9 $212.8 $242.4

April 4, 2012

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Exhibit 5: Hemorrhoid Market Model—Assumes Co-Promote Partner in 2016-2017

Sources: U.S. Census Bureau, Population Division; Table 1. Intercensal Estimates of the Resident Population by Sex and Age for the United States: April 1, 2000 to July 1, 2010 (US-EST00INT-01)

National Center for Health Statistics. Advance Data, Number 212, March 24, 1992

Ventrus Princeton Brand Econometrics Proprietary internet survey of 10,202 adults Ventrus WAC pricing estimates

Nielsen Homescan data, July 2011 (1.7 OTC hemorrhoid preps purchased/year)

Cantor Fitzgerald estimates of market penetration and revenue split

2015 2016 2017 2018 2019 2020

U.S. Adults (age 20+) 237.5 239.9 242.3 244.7 247.2 249.6

Percent with Hemorrhoids in last 12 months 12.8% 12.8% 12.8% 12.8% 12.8% 12.8%

Patients with Hemorrhoids in last 12 months (numbers in millions) 30.4 30.7 31.0 31.3 31.6 32.0

Percent treated with medications 85% 85% 85% 85% 85% 85%

Percent patients who would ask for Rx 25% 25% 25% 25% 25% 25%

Percent doctors who would grant prescription 88% 88% 88% 88% 88% 88%

VEN-309 Target Population (in millions) 5.7 5.7 5.8 5.9 5.9 6.0

Percent filling a $35 co-pay prescription 66.0% 66.0% 66.0% 66.0% 66.0% 66.0%

Patients potentially getting a VEN-309 Prescription (numbers in millions) 3.8 3.8 3.8 3.9 3.9 3.9

Prescription cost (assumed WAC) $350.0 $357.0 $364.1 $371.4 $378.9 $386.4

Prescriptions per year 1.7 1.7 1.7 1.7 1.7 1.7

Market opportunity ($ in millions) $2,232.7 $2,300.1 $2,369.6 $2,441.1 $2,514.9 $2,590.8

Market penetration 2.0% 8.0% 14.0% 17.0% 19.0% 21.0%

VEN-309 revenue estimates ($ in millions) $44.65 $184.01 $331.74 $414.99 $477.82 $544.07

Risk-adjustment 70% 70% 70% 70% 70% 70%

Risk-adjusted VEN-309 revenue estimates ($ in millions) $31.26 $128.81 $232.22 $290.50 $334.48 $380.85

Ventrus Revenue Split (assume 45%) $57.96 $104.50

April 4, 2012

16

OUS partnership may provide some incremental contribution

Ventrus holds global rights to iferanserin, and therefore, we would expect an OUS partnership with

royalties on iferanserin product sales. Management prefers to identify an OUS partner for the drug

rather than to partner worldwide rights to the compound, but has not dismissed either option. The

company has indicated that it is in active discussions with a variety of partners for both the OUS and

North American markets and will decide on next steps after the Phase III trial results are available.

Though the quickest exit opportunity may be to sell the company to a global pharmaceutical company

interested in the iferanserin asset, we also think that Ventrus may be able to drive additional value by

first launching the product itself, and it has the commercial expertise to do so. It is therefore too early

to call this outcome.

Management indicated that its EU approval strategy would be dependent on its partner. One option is

to submit the application in Germany via the mutual recognition procedure, which would require

carcinogenicity data (with submission in late 2014 or early 2015). The advantage of entering via

Germany is that it may assure higher pricing for the first year and drive better reference pricing in

Japan. Alternatively, the application could go through Italy, which would allow for earlier market entry

(carcinogenicity data not required), but pricing would be inferior to Germany. Ultimately, the strategy

depends on the company’s OUS partner. We believe that management would opt to pursue the most

lucrative pathway, and we therefore conservatively assume a later EU launch in 2016.

We believe that the commercial opportunity abroad is less favorable than that of the U.S. Management

expects pricing to be 2/3-1/2 of that in the U.S., and there is no DTC promotion permitted in Europe,

which would hinder patient awareness. Management indicated that competitive dynamics in EU are

similar to those in the U.S. though there are existing steroid products that are reimbursed by

government plans. Based on prior work on the constipation market, we estimate that there are

approximately 31 million EU patients who may have hemorrhoids, of which 11 million see a

physician. Of this group, we estimate that approximately 20% may receive prescription hemorrhoid

treatments, generating a market opportunity of approximately $500-600 million if we assume a 50%

discount to U.S. pricing. We therefore believe that iferanserin can capture approximately $100 million

in sales. Of this amount, we estimate a 12% royalty for Ventrus.

We make similar market assumptions in Japan, which generates a revenue stream that is relatively

comparable to Europe. In Japan we assume lower price deterioration than in Europe and also a higher

percentage of treatment-seeking patients. We delay Japanese market entry until 2017, since we think

that management may want to supplement its regulatory package with a head-to-head trial versus

steroids to drive improved pricing in this market. Taken together with EU, we estimate OUS

contribution in the $22 million range, which incorporates a 1% sales royalty paid to the compound’s

inventor. We summarize our OUS contribution assumptions in Exhibit 6 below.

April 4, 2012

17

Exhibit 6: OUS Hemorrhoid Market Assumptions

Sources: EU Adult Population age 15-65 (Wolfram Alpha)

Percent with Chronic Constipation (using estimates provided by Movetis, subsequently acquired by Shire)

Percent seeing a Doctor (30-40% see a doctor for constipation as per Movetis) Fujiwara, KM, et al. Prevalence of overlaps between GERD, FD, and IBS and impact on health-related quality of life. J. Gastroenterol Hepatol. 2010 Jun; 25(6): 1151-6.

Shinozaki M, et al. High prevalence of irritable bowel syndrome in medical outpatients in Japan. J. Clin Gastroenterol. 2008 Oct; 42(9): 1010-6.Nielsen Homescan data, July 2011 (1.7 OTC

hemorrhoid preps purchased/year) Cantor Fitzgerald estimates of patients using prescription medications, price/Rx, market penetration, and royalty split

European Market 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

EU Adult Population (millions) 404.0 404.8 405.6 406.4 407.3 408.1 408.9 409.7 410.5 411.3

Percent with Chronic Constipation 7.7% 7.7% 7.7% 7.7% 7.7% 7.7% 7.7% 7.7% 7.7% 7.7%

Chronic Constipation Patients 31.1 31.2 31.2 31.3 31.4 31.4 31.5 31.5 31.6 31.7

Percent Seeing a Doctor 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%

Treatment-seeking Patients 10.9 10.9 10.9 11.0 11.0 11.0 11.0 11.0 11.1 11.1

Percent Receiving Rx Medications 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%

Potential Hemorrhoid Patients 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2

Prescriptions per year 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7

Price/Rx $175.0 $166.3 $157.9 $150.0 $142.5 $135.4 $128.6 $122.2 $116.1 $110.3

EU Market Opportunity 648 617 587 559 532 506 482 459 437 416

Assumed penetration 2.0% 8.0% 14.0% 18.0% 21.0% 21.4% 21.8% 22.2% 22.6% 23.0%

Iferanserin revenues 13 49 82 101 112 108 105 102 99 96

Growth 281% 67% 22% 11% -3% -3% -3% -3% -3%

Japanese Market 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Japanese Population (millions) 126.2 126.0 125.7 125.5 125.2 125.0 124.7 124.5 124.2 124.0

Percent with IBS-C/CC 15% 15% 15% 15% 15% 15% 15% 15% 15% 15%

IBS-C /CC Patients 18.9 18.9 18.9 18.8 18.8 18.7 18.7 18.7 18.6 18.6

Percent Seeking Treatment 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0%

Treatment-seeking Patients 9.5 9.4 9.4 9.4 9.4 9.4 9.4 9.3 9.3 9.3

Percent Receiving Rx Medications 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%

Potential Hemorrhoid Patients 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9

Prescriptions per year 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7

Price/Rx 166.3 164.6 162.9 161.3 159.7 158.1 156.5 155.0 153.4

Japan Market Opportunity 534 528 521 515 509 503 497 491 485

Assumed penetration 2.0% 8.0% 14.0% 18.0% 21.0% 21.4% 21.8% 22.2% 22.6%

Iferanserin revenues 11 42 73 93 107 108 108 109 110

Growth 295% 73% 27% 15% 1% 1% 1% 1%

Royalty Split with Partner (teens) 12% 12% 12% 12% 12% 12% 12% 12% 12% 12%

Ventrus Revenue 2 7 15 21 25 26 26 25 25 25

Subtract Amer Royalty 0.1 0.6 1.2 1.7 2.0 2.2 2.1 2.1 2.1 2.1

Ventrus Final Revenue 1.4 6.6 13.7 19.1 22.5 23.7 23.4 23.1 22.8 22.6

April 4, 2012

18

Anal fissure drug is smaller, in our view

VEN 307 is a topical diltiazem cream that is applied peri-anally three times per day, and is being

investigated for the treatment of anal fissure. Ventrus is still working to identify the final formulation

of this product. There is a European Phase III trial underway that is assessing 2% and 4%

concentrations of the drug, and management will determine which formulation and dose it wants to

pursue after this study reads out in May 2012.

VEN 307 was licensed from S.L.A. Pharma by Paramount, and Ventrus acquired the product from

Paramount in 2007 for $0.2 million and owed the company another $4.0 million to complete the

ongoing EU trial (paid in 2011). Ventrus is also responsible for a pending $0.4 million payment for the

completed study report. In addition, Ventrus is responsible for mid-to-upper single digit royalties on

VEN 307. The drug is protected by a method-of-use patent (8,048,875) that expires in February 2018

and has patent term extension opportunities into mid-2019. Given that the drug is a topical

formulation, it is possible that generic companies may need to conduct clinical trials to demonstrate

bioequivalence to the product, which could delay generic entry even further. We conservatively

assume generic entry in 2019, though we know that management could attempt to extend the product

life cycle.

Disease description

According to practice guidelines issued by the American Society of Colon and Rectal Surgeons, an

anal fissure is an ulcer-like longitudinal tear in the anal canal. Early fissures appear like a simple tear

in the skin, while chronic fissures also have swelling and fibrosis. Prevalence estimates in the literature

vary. One source estimates 235,000 new cases of anal fissure are reported every year in the U.S3.,

while another indicates that approximately 700,000 patients in the U.S. receive a diagnosis or

treatment for an anal fissure episode every year4. Ventrus believes that there are 1.1 million office

visits per year for anal fissure in the U.S. (or 700,000-800,000 unique visits). Approximately half of all

patients diagnosed with acute fissures heal without significant medical intervention (by using sitz

baths, fiber supplements, and topical anesthetics or anti-inflammatory ointments).

Treatment paradigm presents an opportunity

There are several approaches to treating anal fissures when less invasive methods are insufficient.

Topical nitroglycerin is recommended for first line use but is accompanied by a high incidence of

headache (20-30%), which limits tolerability and compliance. Topical calcium channel blockers such

as diltiazem are also recommended, and carry a lower incidence of side effects than nitroglycerin.

However, there is less data on this drug class, so it may be utilized less frequently than nitroglycerin.

There are currently no FDA approved diltiazem ointments, so physicians rely on unapproved

compounded formulations that may vary in consistency and quality. In contrast, there is now an FDA

approved nitroglycerin ointment (Rectiv) that is being marketed by privately-held Aptalis.

For patients who do not respond to topical treatments, physicians may opt to administer Botulinum

toxin injections or progress to more effective surgical techniques like lateral internal sphincterotomy

(LIS), which are generally reserved for chronic fissures. These more invasive methods carry risks of

incontinence, though surgery is believed to be consistently superior to medical therapy for chronic

fissure patients.

We think that VEN 307 could have the advantage of safety, convenience and pricing in a market that is

dominated by less tolerable nitroglycerin products or costly compounded diltiazem ointments that

retail for approximately $50-150 per prescription and are not covered by insurance. We note that

recently launched Rectiv costs $730 for a two-month supply. Weekly prescription trends for this

3 Madalinski, Mariusz H. Identifying the best therapy for chronic anal fissure. World J Gastrointest

Pharmacol Ther 2011 April 6 2(2): 9-16. 4 ProStrakan press release, June 22, 2011

April 4, 2012

19

product have been extremely weak (approximately 140 TRx per week according to Source Healthcare

Analytics). If VEN 307 reaches the market, then patients should have improved access to topical

diltiazem via an insurance co-pay (potentially with co-pay assistance), and will also have an alternative

to nitroglycerin if they find Rectiv intolerable.

We located a compounded diltiazem ointment recipe, which is represented in Exhibit 7 below.

Creating the drug is a multi-step process (potentially prone to error or variability), and we suspect that

application from a large container is inconvenient and messy. We therefore think that both physicians

and patients are likely to prefer an FDA-approved product that is packaged in individual applicators.

Exhibit 7: Recipe for Diltiazem 2% Topical Gel (Batch Size: 100 mL)

Source: http://www.factsandcomparisons.com/assets/hospitalpharm/aug2003_fix.pdf

The regulatory pathway is well established

Diltiazem was first approved in 1982 in the oral form for the treatment of angina and hypertension.

The drug is well known to the FDA and has been prescribed in oral doses from 240 mg to 360 mg per

day. VEN 307 would be dosed at a much lower daily dose of approximately 15-45 mg per day, and

applied topically.

Ventrus held a pre-IND meeting with the FDA in 2007 to determine the regulatory pathway going

forward. The company plans to utilize the 505(b)(2) NDA pathway, whereby it will refer to the

existing body of data for diltiazem. Ventrus needs two pivotal Phase III trials, preceded by three short-

term dermal toxicology studies (if the trials are conducted in the U.S.), though if the company is able

to generate highly statistically significant data from a single trial (p<0.0025), it may be able to submit

data from a single study instead.

S.L.A. Pharma has been conducting a European Phase III trial in 465 patients that assesses two

concentrations of VEN 307 (4% and 2%) that are administered three times per day. The primary

endpoint in this study is the change from baseline in average of worst anal pain associated with or

following defecation (for the 7 treatment days immediately preceding the Week 4 visit). The trial

utilizes an 11-point Likert scale to record pain severity over the course of the trial, and the NDA will

be reviewed by FDA’s Analgesia division.

Patients are screened for the first week to provide a baseline pain measurement and determine

eligibility, and then randomized to treatment and followed for 8 weeks, with a follow-up call at week

12 after cessation of therapy. Secondary endpoints include multiple measures of pain, quality of life,

anal fissure healing, and adverse events. This trial is expected to report out in May 2012 and will serve

to inform the company’s next steps with this compound.

Ingredients Quantities

Diltiazem 2 g

Propylene glycol 10 mL

Hydroxyethyl cellulose 2 g

Preserved water qs 100 mL

Compounding Notes

Weigh or measure each ingredient

Combine the diltiazem hydrochloride with the propylene glycol

Incorporate the hydroxyethyl cellulose and mix well

Package in a tight, light-resistant container

Shelf life: 30 days

Slowly, stir the mixture while incorporating the previously heated preserved water

(approximately 70 degrees Celsius) and thoroughly mix the ingredients.

April 4, 2012

20

If data are very positive, then Ventrus may move forward with the toxicology trials and the second

Phase III trial in the U.S. Alternatively, the company may opt to reformulate the drug (for more

convenient twice-daily dosing administration) and start the program from the beginning. There is

already a body of pre-existing work from investigator-initiated trials that utilized different forms of

diltiazem (both topical and oral) for the treatment of anal fissures. Though these studies had evidence

of positive safety and efficacy signals, they cannot be used to support the NDA. If the hemorrhoids

program is positive, we believe that Ventrus is likely to pursue the twice-daily formulation, and

therefore we estimate that the NDA submission may be delayed until late 2014 or even later.

Market opportunity is modest, in our view

We estimate that there are approximately 700,000 U.S. patients who see the doctor for anal fissures on

an annual basis. Of these, we believe that 50% are treated with conservative treatment that doesn’t rely

upon prescription medications. This yields a base patient group of 368,000 patients. We think that of

this group, approximately 30% may be treated with Botox or surgical intervention while 70% may

attempt medications as a first-line step. Based on management guidance, we assume prescription

pricing on parity to Rectiv (~$365 per month) and two prescriptions filled per year (based on the

treatment paradigm of Rectiv). Finally, we layer on peak market penetration of 42% in 2020 and risk-

adjust the estimates by an 80% probability of approval. This analysis yields peak revenues of $68

million in 2019; we assume that the drug will go generic in that year due to its patent expiration, so

some earlier deterioration is possible. We are more bullish on diltiazem risk than iferanserin given that

it is a well-known compound and would only require a 505(b)(2) NDA, and we therefore think that it

carries lower clinical risk. We summarize our market model in Exhibit 8 below.

April 4, 2012

21

Exhibit 8: Anal Fissure Market Model

Sources:

ProStrakan press release, June 22, 2011 Madalinski, Mariusz H. Identifying the best therapy for chronic anal fissure. World J Gastrointest Pharmacol Ther 2011 April 6 2(2): 9-16.

Perry, W.B. et.al. Practice Parameters for the Management of Anal Fissures (3rd Revision). Dis Colon Rectum 2010; 53: 1110-1115.

Ventrus WAC pricing estimates Cantor Fitzgerald percent treated with topicals and market penetration estimates

2015 2016 2017 2018 2019 2020

Total anal fissures 735,707 743,064 750,495 758,000 765,580 773,235

Percent treated with conservative therapy 50.0% 50.0% 50.0% 50.0% 50.0% 50.0%

Patients eligible for VEN-307 367,854 371,532 375,247 379,000 382,790 386,618

Percent treated with topicals 70% 70% 70% 70% 70% 70%

VEN-307 Target Population 257,497 260,072 262,673 265,300 267,953 270,632

Prescription cost (assumed WAC) $365.0 $372.3 $379.7 $387.3 $395.1 $403.0

Prescriptions per year 2 2 2 2 2 2

Market opportunity ($ in millions) $187,973,147 $193,649,937 $199,498,165 $205,523,009 $211,729,804 $218,124,044

Market penetration 8.0% 22.0% 28.0% 33.0% 38.0% 8.1%

VEN-307 revenue estimates $15,037,852 $42,602,986 $55,859,486 $67,822,593 $80,457,326 $17,668,048

Risk-adjustment 85% 85% 85% 85% 85% 85%

Risk-adjusted VEN-307 revenue estimates $12,782,174 $36,212,538 $47,480,563 $57,649,204 $68,388,727 $15,017,840

April 4, 2012

22

Competition is inferior, in our view

Recently approved Rectiv (nitroglycerin ointment) offers twice daily dosing that must be administered

by a plastic-covered finger (to avoid drug transference) and has poor tolerability (64% of treated

patients reported headaches, and 5% reported dizziness). Additionally there are multiple

contraindications, such as alcohol consumption, while using this drug. We note that weekly TRx have

been soft for this product, reaching approximately 140 TRx per week according to Source Healthcare

Analytics data. There are no other products in development for the treatment of anal fissure at this

time.

Fecal incontinence is a more distant project for now

VEN 308 is a topical gel formulation of phenylephrine, a medication that has been available in the oral

and nasal forms since the early 1940s for the treatment of nasal congestion. This drug was also

acquired from S.L.A. Pharma in August 2007, and the total payment obligation for this product will

not exceed $1.2 million. This drug works by increasing resting anal sphincter pressure, which helps the

patient to better control bowel movements.

Ventrus is interested in pursuing an Orphan Drug indication for VEN 308 for the treatment of patients

with an ileal pouch anal anastomsis (IPAA) following a total colectomy (surgical removal of the

colon). This procedure is typically performed on patients with ulcerative colitis, familial adenomatous

polyposis, and certain types of colon cancer. In ulcerative colitis patients, the cumulative likelihood of

requiring colectomy by 25 years is approximately 32%. We estimate that approximately 13% of

ulcerative colitis patients will undergo a colectomy within one year of diagnosis5. Furthermore,

approximately 15-20% of these patients may experience fecal incontinence. At this time we are not

expecting off-label use for this product given that the company plans to price relatively aggressively

due to its Orphan Drug indication.

Ventrus has not yet finalized the phenylephrine gel formulation that would be used in clinical trials.

While there is some proof-of-concept data from a small 12-patient investigator trial of a different

formulation of phenylephrine gel on IPAA-related fecal incontinence, other studies failed to

demonstrate an improvement in incontinence. Management indicated that sphincter manometry work

demonstrated clinical activity for the compound and would be used to determine the final formulation

that would go into clinical trials. Management believes that it may need to validate a scale for severity

of soiling episodes for the primary endpoint in the pivotal trials which sets up another hurdle to

approval in our view.

Preclinical work done in guinea pigs and rabbits by S.L.A. Pharma found that phenylephrine gel may

cause skin sensitivity reactions, though management indicated that this work was done with an earlier

formulation of the drug. Based on the early stage of development, we are therefore uncertain whether

this drug could demonstrate sufficient efficacy in treating fecal incontinence, and also, whether the

medication would be considered sufficiently safe for use.

Ventrus is mapping out a 505(b)(2) NDA submission for VEN 308 and plans to start a Phase IIb dose-

finding study in 2012. The company will also need to do two pivotal trials and a long-term dermal

toxicology trial and plans to submit an NDA in 2015. VEN 308 is protected by U.S. patent 6,635,678

(pharmaceutical compositions for treating fecal incontinence), which expires in December 2017. There

is also a Canadian patent (2,275,663) that protects VEN 308 until December 2017. Additionally, the

company would gain 7 years of Orphan Drug market exclusivity in the U.S.

The fecal incontinence market is expected to become more visible over the next several years as Salix

works to promote its injectable anal bulking agent, Solesta. Salix is expected to conduct significant

physician training on the product amongst gastroenterologists, which should raise awareness about the

disease state as well as help to identify patients with different degrees of incontinence. We believe that

5 http://www.ssat.com/cgi-bin/colitis.cgi

April 4, 2012

23

VEN 308 is somewhat upstream in the treatment paradigm from Solesta, and may be among the first

steps in the fecal incontinence treatment continuum of care.

Since we have not seen convincing proof-of-concept data for this product, we believe that it is still too

early to project revenues for VEN 308. If this product demonstrates safety and efficacy, the potential

market opportunity could be quite large. Salix is currently estimating peak sales of $500 million for

Solesta, which targets a more refractory patient population than VEN 308.

The company has North American rights to its anal fissure and fecal incontinence products and may

also decide to partner one or both of these assets, which may generate additional royalties.

Management

After reviewing the composition of the company’s Board of Directors we note that all three members

of the company’s executive management team (identified below) are also on its Board of Directors.

We have seen similar situations in other small companies. The Board is strengthened by the presence

of a gastroenterologist and directors with pharmaceutical commercialization expertise and financial

backgrounds, as well as prior records of Board service. We are therefore more comfortable with

corporate governance at Ventrus. We provide brief summaries of management’s background below.

Russell H. Ellison M.D., M.Sc. CEO and CMO: Dr. Ellison joined Ventrus in June 2010 and was

named Chairman of the Board in January 2011. From July 2007 to January 2010, Dr. Ellison served as

EVP of Paramount Biosciences LLC, a global pharmaceutical development and healthcare investment

firm. Previously, Dr. Ellison held senior roles at Fibrogen, Inc., Sanofi-Synthelabo, USA, and

Hoffman-La Roche, Inc. He also serves as a director of CorMedix, Inc and 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.

Thomas Rowland, Chief Business Officer: Mr. Rowland joined Ventrus Biosciences in April 2007

as a director, a position he held until January 2012. Mr. Rowland was also CEO of Ventrus until

February 2009 and served as the company’s acting President from March 2009 to June 2010, as well as

Chairman of the Board from May 2010 to January 2011. Prior to Ventrus, Mr. Rowland was Founder

and Principal of his own pharmaceutical consulting firm, and held senior positions in the

Gastroenterology divisions of Solvay Pharmaceuticals, Inc. and Scandipharm as well as marketing

positions of increasing responsibility at UCB. Mr. Rowland has a B.S. in Finance from Metropolitan

State University in Denver, Colorado.

David J. Barrett CFO: Mr. Barrett joined Ventrus in December 2010 after serving as a consultant to

the company from June 2010. From April 2006 to September 2009, Mr. Barrett served as CFO of

Neuro-Hitech, Inc. and from September 2003 to April 2006, Mr. Barrett was the CFO of Overture

Asset Managers and Overture Financial Services, which, at the time, was a start-up asset management

firm. From 1999 to 2003, Mr. Barrett was employed as a Manager at Deloitte & Touche, LLP. Mr.

Barrett holds a B.S. in Accounting and Economics and an M.S. in Accounting, which he earned from

the University of Florida. He is a certified public accountant.

Financial Performance and Outlook

Revenues: We do not expect any revenues from the company until 2015, versus 2014 for consensus.

Though management indicated that it may file the VEN 307 NDA as early as 2013, we think a more

likely scenario is that the company will attempt to pursue the improved twice-daily formulation, which

may delay submission until 2014. Thereafter we think that revenues could quickly ramp from DTC

advertising and co-promote efforts in years 2-3. We also think that the company would terminate its

co-promote after two years and then regain the entirety of its iferanserin revenues in 2018. At this time

April 4, 2012

24

we are conservatively not modeling any upfront payment to the company from prospective partners,

though we believe that partnership opportunities for iferanserin are good.

COGS: We model gross margins in the mid-80% range, growing to the high 80s by 2020. Our gross

margin assumptions include some royalty assumptions on VEN 307 and VEN 308.

SG&A: We summarize our assumptions for this expense line in Exhibit 9 below. We are not including

any sales force costs for co-promote partners since management indicated that it preferred not to

structure agreements based on a profit split but rather, on a split of the top-line.

Exhibit 9: SG&A Assumptions

Source: Cantor Fitzgerald estimates and company reports

R&D: According to the most recent 10-K filing, management expects to spend $40 million to develop

iferanserin, $20 million for VEN 307 and $15 million for VEN 308. There may be some additional

spending if the company opts to develop VEN 307 as a twice-daily formulation for anal fissures. We

have assumed almost $82 million in R&D spending over the 2012-2014 period as the company wraps

up these programs. Management guided to approximate distribution of expenses as 35%, 40%, and

25% over these three years. Thereafter we maintained and grew R&D spending levels to incorporate

assumptions for Phase IV post-marketing trials, pediatric commitments for anal fissure similar to

Rectiv, and new programs.

Tax: We model our first tax payments in 2018 when the company first generates net income. Ventrus

has $34.5 million in net operating loss carryforwards, so we model a lower tax rate in 2018 which then

moves up to 38%.

Share count: We model dilution in the share count based on what we believe will be two separate

equity raises in 2012 and 2013. Thereafter we model some gradual dilution over time from stock

option exercises.

Earnings: For 2012 we model EPS of ($2.62), which is below consensus estimates of ($1.99). This is

likely based on our assumption of increased spending on R&D in the back half of the year. Our

earnings estimates are above consensus in 2013-2014 given that we probably assume more dilution in

the share count.

Valuation

We utilize discounted cash flow analysis (DCF) with a 14% weighted average cost of capital (WACC)

and a 1% terminal growth rate, which generates a $29 price target. We point out that the majority of

the value from this analysis resides in the terminal value for the company based on the expectation of

iferanserin’s persistence in the market beyond 2020 (the company has filed a patent application that

could protect the drug until 2030, but it has not yet been allowed). Subtracting out terminal value, we

are left with a hypothetical $4 price target.

Promotional Costs 2015 2016 2017 2018 2019 2020

Reps 100 105 110 115 120 125

Cost per rep $0.3 $0.3 $0.3 $0.3 $0.3 $0.4

Rep Costs $7.5 $28.1 $31.5 $35.2 $39.3 $43.8

DTC $0.0 $35.0 $50.0 $45.0 $40.0 $35.0

A&P Hemorrhoids + other products $15.0 $30.0 $35.0 $45.0 $50.0 $55.0

Total Sales & Marketing cost $22.5 $93.1 $116.5 $125.2 $129.3 $133.8

G&A $15.0 $18.0 $21.6 $23.8 $26.1 $28.7

SG&A $37.5 $111.1 $138.1 $149.0 $155.5 $162.6

April 4, 2012

25

Our valuation assumes that Ventrus will secure a primary care co-promote partner in the U.S. If the

company fails to do so, we believe that fair valuation would be in the $8 range, which is some 20%

below current trading levels.

If the company were acquired for a 3x multiple of iferanserin 2020 risk-adjusted sales of $381 million

(plus $370 million in cash), we generate a hypothetical $30 PT, which supports our BUY rating. This

assumption utilizes 23 million diluted shares, since we model increased dilution over time.

Risks

(1) The iferanserin Phase III trial could fail or the drug may fail to gain FDA approval in 2015 if

safety concerns arise. Given the strong efficacy signal seen in Phase II and solid Phase III study

design, we remain hopeful. There is always the risk that the drug could behave differently in U.S.

patients than in the foreign patients used in Phase II. However, we think that management has designed

the Phase III primary endpoint in such a way that it sets a high hurdle for responder qualification,

which should help distinguish the drug from placebo to hit statistical significance. Furthermore, the

Phase III trial is quite large, which should help generate positive data. On the safety front, we do not

expect to see any true safety signals until early 2013 upon the availability of the 12-month open label

data from the first Phase III trial, and then again in 2014 upon readout of the long-term recurrence

study and carcinogenicity data.

(2) We believe that the company will need to raise additional financing in 2012. We currently

model a $50 million stock issue in 2012. Because we don’t think the company can get profitable before

2018, we also added a second $80 million equity financing in 2013. We still see significant upside to

the stock if Phase III data for iferanserin are positive, which may compensate for any investor

hesitation to buy the stock ahead of a financing event.

(3) We model profitability only in 2018 but think that the takeout prospects for the company are

good, which may present earlier exit opportunities. We think that Ventrus could become extremely

attractive to strategic buyers with a gastroenterology presence if Phase III iferanserin data are positive.

Potentially interested companies could include Salix, Shire, Ironwood, and Forest Laboratories.

(4) Commercialization risk is inherent. It may prove more difficult to convert over-the-counter

(OTC) hemorrhoid patients to prescription medication than originally intended. Management may

struggle to get good managed care access, the launch could stall, and other competitors may enter the

space over time. The company’s partners may not prioritize the product, and OUS sales may come in

below expectations. We think that our projections are already risk-adjusted for approval likelihood and

relatively conservative for both U.S. and OUS markets.

(5) Generic risk on iferanserin could create an overhang on the stock. We expect iferanserin to

receive five years of Hatch-Waxman exclusivity in 2015, which means that generic filers could not

emerge until 2019. However, down the line this event may create a significant overhang on the stock.

Both iferanserin and the diltiazem anal fissure drug have life-cycle extension opportunities, and

generic filers may need to conduct clinical trials to demonstrate bioequivalence.

April 4, 2012

26

Exhibit 10: Ventrus Income Statement (dollars in millions)

Source: Company reports, Cantor Fitzgerald estimates, and Thomson Reuters Consensus

2009 2010 2011 1Q:12E 2Q:12E 3Q:12E 4Q:12E 2012 2013 2014 2015 2016 2017 2018 2019 2020

Net Sales - - - 32.7 95.6 158.6 361.8 422.0 418.4

COGS - - - 5.1 14.8 23.1 49.3 57.2 52.5

Gross Profit - - - - - - - - - - 27.5 80.8 135.5 312.5 364.8 365.8

SG&A 0.4 2.9 8.7 1.9 2.2 2.4 2.6 9.2 11.0 13.0 37.5 111.1 138.1 149.0 155.5 162.6

R&D 2.9 1.9 25.3 6.0 6.5 8.0 9.0 29.5 31.0 21.0 22.9 23.9 25.4 26.8 28.3 29.9

Operating Income (Loss) (3.3) (4.8) (34.0) (7.9) (8.7) (10.4) (11.6) (38.7) (42.0) (34.0) (32.8) (54.2) (28.0) 136.8 181.1 173.3

Interest Income 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.2 0.4 0.5 0.4 0.2 0.1 0.3 0.9 1.6

Interest expense (1.2) (10.5) (0.4) - - - - - - - - - - - - -

Pre-tax Income (4.5) (15.3) (34.3) (7.8) (8.6) (10.4) (11.6) (38.4) (41.6) (33.5) (32.5) (54.0) (27.9) 137.1 182.0 174.9

Tax Rate 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 32.0% 38.0% 38.0%

Tax - - - - - - - - - - - - - 43.9 69.2 66.5

Net income (Loss) (4.5) (15.3) (34.3) (7.8) (8.6) (10.4) (11.6) (38.4) (41.6) (33.5) (32.5) (54.0) (27.9) 93.2 112.8 108.4

Diluted Shares 0.45 0.6 9.6 13.0 13.0 16.0 16.5 14.6 21.0 21.5 22.0 22.5 23.0 23.5 24.0 24.5

EPS ($10.02) ($24.67) ($3.57) ($0.60) ($0.67) ($0.65) ($0.70) ($2.62) ($1.98) ($1.56) ($1.48) ($2.40) ($1.21) $3.97 $4.70 $4.43

0.0 0.0 0.0 0.0 0.0 0.0 18.3 87.7 91.0

($0.47) ($0.49) ($0.50) ($0.52) ($1.99) (2.11) (2.69) (0.79) (0.73)

Margin Analysis 2009 2010 2011 1Q:12E 2Q:12E 3Q:12E 4Q:12E 2012 2013 2014 2015 2016 2017 2018 2019 2020

Gross Margin 84.3% 84.5% 85.4% 86.4% 86.5% 87.4%

COGS 15.7% 15.5% 14.6% 13.6% 13.5% 12.6%

SG&A 140.0% 95.0% 65.0% 32.0% 30.0% 32.0%

R&D 70.0% 25.0% 16.0% 7.4% 6.7% 7.2%

Operating Margin -100.5% -56.7% -17.6% 37.8% 42.9% 41.4%

Net Income Margin -99.4% -56.5% -17.6% 25.8% 26.7% 25.9%

Growth (Y/Y) 2009 2010 2011 1Q:12E 2Q:12E 3Q:12E 4Q:12E 2012 2013 2014 2015 2016 2017 2018 2019 2020

Net Sales 194% 68% 131% 17% 0%

COGS 187% 56% 114% 16% -8%

Gross Profit 194% 68% 131% 17% 0%

SG&A 634% 199% 10% -42% 30% 96% 5% 20% 18% 188% 196% 24% 8% 4% 5%

R&D -37% 1266% 518% 110% 118% -49% 17% 5% -32% 9% 4% 6% 6% 6% 6%

Operating Income (Loss) 43% 613% 195% 26% 88% -38% 14% 9% -19% -3% 65% -48% 589% 32% -4%

Interest Income 3993% 1232% 336% 885% 107% 107% 208% 72% 15% -24% -45% -70% 431% 197% 69%

Interest expense 778% -96% -100% -100% -100% -100% -100% N/A N/A N/A N/A N/A N/A N/A N/A

Pre-tax Income 237% 125% 187% 24% 79% -39% 12% 8% -19% -3% 66% -48% 591% 33% -4%

Tax 58% -4%

Net income (Loss) -125% -187% -24% -79% 39% -12% -208% -181% -197% -266% -152% 234% 21% -4%

EPS -346% -114% -258% -169% -230% -141% -173% 24% 21% 5% -62% 49% 427% 19% -6%

Consensus Revs

Consensus EPS

April 4, 2012

27

Exhibit 11: Ventrus Risk-Adjusted Sales Estimates (dollars in millions)

Source: Company reports and Cantor Fitzgerald estimates

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

VEN 309 (Hemorrhoids) - - - - - - $19.9 $0.0 $0.0 $290.5 $334.5 $380.8

Growth -100% N/A N/A 15% 14%

VEN 309 Co-Promote Split (45% assumed) - - - - - - $58.0 $104.5 $0.0 $0.0 $0.0

Growth 80% -100% N/A N/A

VEN 307 (Anal fissure) - - - - - $12.8 $36.2 $47.5 $57.6 $68.4 $15.0

Growth 183% 31% 21% 19% -78%

VEN 308 (Fecal incontinence) - - - - - - $0.0 $0.0 $0.0 $0.0 $0.0

Growth

OUS VEN-309 Royalty (12% assumed) $1.4 $6.6 $13.7 $19.1 $22.5

Growth 363% 107% 40% 18%

Total Product Sales - - - - - - $32.7 $95.6 $158.6 $361.8 $422.0 $418.4

Growth 193% 66% 128% 17% -1%

April 4, 2012

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Exhibit 12: Ventrus Balance Sheet Estimates (dollars in millions)

Source: Company reports and Cantor Fitzgerald estimates

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Assets

Current assets

Cash and cash equivalents 0.1 14.6 37.0 56.7 103.9 80.1 58.3 16.3 2.9 115.9 245.7 369.9

Other current assets 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Total current assets 0.1 14.6 37.0 56.7 104.0 80.2 58.4 16.4 3.0 115.9 245.8 369.9

PP&E 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.2

Other assets 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total assets 0.2 14.6 37.0 56.7 104.0 80.2 58.4 16.5 3.1 116.1 245.9 370.1

Liabilities and Stockholders' Equity

Current liabilities

Accounts payable and accrued expenses 0.4 0.3 2.3 2.5 2.6 2.7 2.9 3.3 5.1 11.0 12.7 11.7

Other current liabilities 3.0 0.0 0.2 0.5 0.8 1.2 1.5 1.8 2.1 2.5 2.8 3.1

Line of credit 0.3 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Notes and notes payable 7.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Term note 0.0 0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Interest payable 1.2 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total current liabilities 12.4 1.7 2.5 3.0 3.4 3.9 4.3 5.1 7.3 13.4 15.5 14.8

Long-term debt 1.2 1.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other long-term liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total liabilities 13.5 3.0 2.5 3.0 3.4 3.9 4.3 5.1 7.3 13.4 15.5 14.8

Stockholders' Equity

Common stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Additional paid-in capital 4.5 44.8 102.0 159.7 248.2 257.4 267.7 278.9 291.2 304.8 319.8 336.2

Accumulated earnings (deficit) (17.9) (33.2) (67.5) (106.0) (147.5) (181.1) (213.6) (267.5) (295.4) (202.2) (89.4) 19.1

Total stockholders' equity (13.4) 11.6 34.5 53.8 100.6 76.4 54.1 11.4 (4.2) 102.6 230.4 355.3

Total liabilities and stockholders' equity 0.2 14.6 37.0 56.7 104.0 80.2 58.4 16.5 3.1 116.1 245.9 370.1

April 4, 2012

29

Exhibit 13: Ventrus Statement of Cash Flows (dollars in millions)

Source: Company reports and Cantor Fitzgerald estimates

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Operating Cash Flow

Net income (loss) (4.54) (15.29) (34.34) (38.43) (41.59) (33.53) (32.49) (53.97) (27.90) 93.22 112.83 108.44

Stock-based compensation 0.12 2.36 6.97 7.67 8.44 9.28 10.21 11.23 12.35 13.59 14.95 16.44

Stock issued 0.03 0.39 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Depreciation 0.01 0.01 0.00 0.00 0.00 0.00 0.01 0.01 0.01 0.01 0.01 0.01

Amortization of deferred financing costs and debt discount 0.12 2.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33

Other 0.00 6.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Warrants 0.00 0.92 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Interest payable 0.74 1.14 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Working Capital 0.04 (3.07) 1.97 0.12 0.12 0.13 0.15 0.43 1.85 5.83 1.75 (1.03)

Net cash provided by operating activities (3.48) (5.21) (25.07) (30.30) (32.69) (23.79) (21.80) (41.98) (13.36) 112.97 129.86 124.19

Cash flows from investing activities

Purchase of PP&E (0.00) 0.00 (0.01) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.03) (0.03)

Purchase of other intangible assets 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Purchase of short-term investments 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Proceeds from maturity of short-term investments 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Net cash used in investing activities (0.00) 0.000 (0.01) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.03) (0.03)

Cash flows from financing activities

Proceeds from IPO/stock issued 0.00 15.18 49.99 50.00 80.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Proceeds from debt issued 3.48 5.18 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Proceeds from line of credit 0.15 0.10 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Proceeds from warrants exercised 0.00 0.00 0.29 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Payment for deferred financing costs (0.08) (0.76) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Payment received for stockholder receivable 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Repayment of notes 0.00 0.00 (2.79) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Repayment of line of credit 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Net cash used in financing activities 3.55 19.70 47.49 50.00 80.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Net increase (decrease) in cash and cash equivalents 0.07 14.49 22.40 19.68 47.29 (23.81) (21.82) (42.00) (13.39) 112.95 129.84 124.16

Cash at the beginning of the year 0.02 0.08 14.57 36.98 56.65 103.94 80.13 58.31 16.32 2.93 115.88 245.71

Cash at the end of the year 0.08 14.57 36.98 56.65 103.94 80.13 58.31 16.32 2.93 115.88 245.71 369.88

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Exhibit 14: Companies Mentioned

Source: Thomson Reuters and Cantor Fitzgerald estimate

Company Name Exchange Ticker Rating

Alfa Wassermann Private N/A NC

Aptalis Private N/A NC

ASTRAZENECA PLC NEW YORK STOCK EXCHANGE, INC. AZN NC

Braintree Labs Private N/A NC

CUBIST PHARMACEUTICALS, INC. NASDAQ CBST NC

Edusa Pharmaceuticals Private N/A NC

FOREST LABORATORIES, INC. NEW YORK STOCK EXCHANGE, INC. FRX BUY

Furiex NASDAQ FURX NC

IRONWOOD PHARMACEUTICALS, INC. NASDAQ IRWD SELL

JOHNSON & JOHNSON NEW YORK STOCK EXCHANGE, INC. JNJ NC

NEKTAR THERAPEUTICS NASDAQ NKTR NC

Norgine Private N/A NC

Novartis Inc. NEW YORK STOCK EXCHANGE, INC. NVS NC

PROGENICS PHARMACEUTICALS, INC. NASDAQ PGNX NC

S.L.A. Pharma Private N/A NC

SALIX PHARMACEUTICALS, LTD. NASDAQ SLXP BUY

SANTARUS, INC. NASDAQ SNTS NC

SHIRE PLC NASDAQ SHPGY NC

SUCAMPO PHARMACEUTICALS, INC. NASDAQ SCMP NC

Synergy Pharmaceuticals NASDAQ SGYPD NC

THERAVANCE, INC. NASDAQ THRX NC

Tioga Pharmaceuticals Private N/A NC

Tranzyme NASDAQ TZYM NC

Vidafarma Industria de Medicamentos Private N/A NC

WARNER CHILCOTT PUBLIC LIMITED COMPANY NASDAQ WCRX BUY

ZIOPHARM ONCOLOGY, INC. NASDAQ ZIOP NC

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Disclosures AppendixAnalyst CertificationThe analyst primarily responsible for this research report, and whose name appears on the front cover, certifies that: (i) all of the views expressed in

this research report accurately reflects his or her personal views about any and all of the subject securities or issuers featured in this report; and (ii) no

part of any of the 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 report.

Legal Disclosures

Lead or Co-manager: Cantor Fitzgerald and/or its affiliates, has acted as lead or co-manager in a public offering of equity and/or debt securities for

Ventrus Biosciences, Inc. within the last 12 months

Investment banking (last 12 months): Cantor Fitzgerald and/or its affiliates has received compensation for investment banking services in the last 12

months from Ventrus Biosciences, Inc..

Investment banking (next 3 months): Cantor Fitzgerald and/or its affiliates, expect to receive, or intend to seek, compensation for investment banking

services within the next three months from all of the companies referenced within this report.

Cantor Fitzgerald and/or its affiliates is a market maker in Ventrus Biosciences, Inc..

Lead or Co-manager: Cantor Fitzgerald and/or its affiliates, has not acted as lead or co-manager in a public offering of equity and/or debt securities

for Forest Laboratories, Inc. within the last 12 months

Cantor Fitzgerald and/or its affiliates has not received compensation for investment banking services in the last 12 months from Forest Laboratories, Inc..

Cantor Fitzgerald and/or its affiliates is a market maker in Forest Laboratories, Inc..

Lead or Co-manager: Cantor Fitzgerald and/or its affiliates, has not acted as lead or co-manager in a public offering of equity and/or debt securities

for Ironwood Pharmaceuticals, Inc. within the last 12 months

Cantor Fitzgerald and/or its affiliates has not received compensation for investment banking services in the last 12 months from Ironwood

Pharmaceuticals, Inc..

Cantor Fitzgerald and/or its affiliates is a market maker in Ironwood Pharmaceuticals, Inc..

Lead or Co-manager: Cantor Fitzgerald and/or its affiliates, has not acted as lead or co-manager in a public offering of equity and/or debt securities

for Salix Pharmaceuticals, Ltd. within the last 12 months

Cantor Fitzgerald and/or its affiliates has not received compensation for investment banking services in the last 12 months from Salix Pharmaceuticals,

Ltd..

Cantor Fitzgerald and/or its affiliates is a market maker in Salix Pharmaceuticals, Ltd..

Lead or Co-manager: Cantor Fitzgerald and/or its affiliates, has not acted as lead or co-manager in a public offering of equity and/or debt securities

for Warner Chilcott within the last 12 months

Cantor Fitzgerald and/or its affiliates has not received compensation for investment banking services in the last 12 months from Warner Chilcott.

Cantor Fitzgerald and/or its affiliates is a market maker in Warner Chilcott.

Cantor Fitzgerald's rating system

BUY: We have a positive outlook on the stock based on our expected 12 month return relative to its risk. The expected return is based on our view ofthe company and industry fundamentals, catalysts, and valuation. We recommend investors add to their position.HOLD: We have a neutral outlook on the stock based on our expected 12 month return relative to its risk. The expected return is based on our viewof the company and industry fundamentals, catalysts, and valuation.SELL: We have a negative outlook on the stock based on our expected 12 month return relative to its risk. The expected return is based on our viewof the company and industry fundamentals, catalysts, and valuation. We recommend investors reduce their position.NC: Not Covered. Cantor Fitzgerald does not provide an investment opinion or does not provide research coverage on this stock.

Prior to September 12, 2006, Cantor Fitzgerald had the below ratings:BUY - denotes stocks that we expect will provide a total return (price appreciation plus yield) of 15% or more over a 12-month period. a BUY ratedstock is expected to outperform the total average return of analyst's industry coverage universe on a risk adjusted basis.HOLD - denotes stocks that we suggest will provide a total return or total negative return of up to 15% over 12-month period. A HOLD rated stock isexpected to perform in-line with the total average return of the analyst's industry coverage universe on a risk adjusted basis.SELL - denotes stocks that we expect to provide a total negative return of more than 15% over a 12 month period. A SELL rated stock is expected tounderperform the total average return of the analyst's industry coverage universe on a risk adjusted basis.NC - Not Covered. Cantor Fitzgerald does not provide research coverage on this company.

Other DisclosuresThis report is for informational purposes only and is based on publicly available data believed to be reliable, but no representation is made that such dataare accurate or complete. Opinions and projections contained herein reflect our opinion as of the date of this report and are subject to change. Pursuantto Cantor Fitzgerald's policy, the author of this report does not own shares in any company he/she covers.

Additional material for UK investors

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This material is approved for distribution in the United Kingdom by Cantor Fitzgerald Europe, regulated by the Financial Services Authority (FSA).While we believe this information and the materials upon which this information was based is accurate, except for any obligations under the rules ofthe FSA, we do not guarantee its accuracy. This material is only intended for use by professionals or institutional investors who fall within articles 19or 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 and not the general investing public. None of the investmentsor investment services mentioned or described herein are available to other persons in the U.K and in particular are not available to "private customers"as defined by the rules of the FSA.

Disclosure for Canadian Institutional InvestorsThis research report was prepared by analysts of Cantor Fitzgerald & Co. and not by Cantor Fitzgerald Canada Corporation. As a result this report hasnot been prepared subject to Canadian Disclosure requirements. Cantor Fitzgerald Canada Corporation itself does not issue research reports but maydistribute research reports prepared by its affiliates.

RisksThe financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions basedon their specific investment objectives. Past performance should not be taken as an indication or guarantee of future performance. The price, value ofand income from, any of the financial instruments featured in this report can rise as well as fall and be affected by changes in economic, financial andpolitical factors. If a financial instrument is denominated in a currency other than the investor's currency, a change in exchange rates may adverselyaffect the price or value of, or income derived from, the financial instrument, and such investors effectively assume currency risk. In addition, investorsin securities such as ADRs, whose value is affected by the currency of the home market of the underlying security, effectively assume currency risk.

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Distribution of Ratings/Investment Banking Services (IB) as of 04/04/12

CantorIB Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY [B] 60 55.56 4 6.67HOLD [H] 36 33.33 1 2.78SELL [S] 12 11.11 0 0.00

(1)

Additional information available on request. Copyright (C) Cantor Fitzgerald 2012

April 4, 2012