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SCMP > SEC Filings for SCMP > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for SUCAMPO PHARMACEUTICALS, INC.

Form 10-Q for SUCAMPO PHARMACEUTICALS, INC.


9-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q contains forward-looking statements regarding Sucampo Pharmaceuticals, Inc., or the Company, we, us, or our, and our business, financial condition, results of operations and prospects within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included elsewhere in this Quarterly Report Form 10-Q and in our other Securities Exchange Commission, or SEC, filings, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which we filed with the SEC on March 18, 2013. You should also read the following discussion and analysis of our financial condition and results of operations in conjunction with our Consolidated Financial Statements as of and for the year ended December 31, 2012 included in our Annual Report on Form 10-K.

Overview

We are a global biopharmaceutical company focused on innovative research, discovery, development and commercialization of proprietary drugs based on prostones and other novel drug technologies. The therapeutic potential of prostones was first discovered by our cofounder, Dr. Ryuji Ueno, and under his leadership we have pioneered the field of prostones. Prostones are naturally occurring fatty acid metabolites. Originally thought to be biologically inert, prostones have emerged as a promising compound class with unique physiological activities which can be targeted for the treatment of unmet or underserved medical needs.

We are focused on developing and/or commercializing prostone-based drugs to treat gastrointestinal, ophthalmic, neurologic, and oncology-based inflammatory disorders, and are also considering other potential therapeutic applications of our drug technologies.

We currently generate revenue mainly from product royalties, development milestone payments, clinical development activities and product sales. We expect to continue to incur significant expenses for the next several years as we continue our research and development activities, seek additional regulatory approvals and additional indications for AMITIZA® (lubiprostone), RESCULA® (unoprostone isopropyl) and other compounds, and commercialize our approved products (as discussed below) on a global basis.

To date, two prostone products, AMITIZA and RESCULA, have received marketing approvals. A third prostone, cobiprostone, or SPI-8811, completed phase 1a clinical development for the target indication of prevention and/or treatment of oral mucositis, or OM, in the second quarter of 2013, and is expected to initiate the next phase of clinical development in the fourth quarter of 2013. Two additional prostones, SPI-017 and SPI-3608, have also been developed for human testing for the indication of management of pain caused by spinal stenosis. SPI-017 is currently in a phase 2a trial that is expected to conclude by the fourth quarter of 2013. In June 2013, SPI-3608 completed phase 1 clinical development and is expected to begin the next phase of clinical development in the first quarter of 2014.

Our operations are conducted through subsidiaries based in Japan, the United States, Switzerland, the United Kingdom and Luxembourg. Our reportable geographic segments are Asia, the Americas and Europe and we evaluate the performance of these segments based primarily on income (loss) from operations, as well as other factors that depend on the growth of these subsidiaries. Such measures include the progress of research and development activities, collaboration and licensing efforts, commercialization activities and other factors.

Drs. Ryuji Ueno and Sachiko Kuno are our controlling stockholders and are married to each other. Dr. Ueno is our Chief Executive Officer and Chairman of our Board of Directors. Dr. Kuno was a member of our Board of Directors and our executive advisor on international business development through September 30, 2012. Drs. Ueno and Kuno, together, directly or indirectly, own a majority of the stock of R-Tech Ueno, Ltd., or R-Tech, a pharmaceutical research, development and manufacturing company in Japan. R-Tech is responsible for the manufacture and supply of all of our prostone products for commercial use or clinical development.

Our Prostone Products, Approved and in Clinical Development

We are developing prostone compounds for the treatment of a broad range of diseases. The most advanced of these programs are:


AMITIZA in the United States and Canada

In April 2013, we received approval for a supplemental new drug application, or sNDA, for AMITIZA at dosage strength of 24 micrograms twice daily as the first and only oral medication for the treatment of opioid-induced constipation, or OIC, in adult patients with chronic, non-cancer pain. Upon the first commercial sale of AMITIZA for OIC, we recognized a $10.0 million milestone payment from Takeda, which we received in the second quarter of 2013.

AMITIZA in Japan

In June 2012, we received approval from the Ministry of Health, Labour and Welfare in Japan, for the use of AMITIZA for chronic constipation, or CC, excluding constipation caused by organic diseases. In November 2012, Abbott Japan Co. Ltd., or Abbott, began marketing AMITIZA in Japan for CC. AMITIZA is Japan's only prescription medicine for CC.

AMITIZA in other territories

In the United Kingdom, we are currently working to achieve National Institute for Care Excellence endorsement and launch AMITIZA to treat CIC in the United Kingdom. In Switzerland, we began active marketing of AMITIZA in the first quarter of 2013.

In the first quarter of 2013, we commenced the Mutual Recognition Procedure, or MRP, approval process in other European Union countries for CIC. In the first quarter of 2013, we also filed for the OIC indication in the United Kingdom and Switzerland. If we receive approval in the United Kingdom, we will seek approval in other countries of the European Union following an MRP for OIC.

RESCULA

Under our 2009 and 2011 agreements with R-Tech, we hold the exclusive rights to commercialize and develop RESCULA worldwide except for Japan, Korea, Taiwan and the People's Republic of China, or R-Tech Territory, for its approved indication and all new ophthalmic indications developed by us. We are also evaluating the opportunities in the European Union and other European countries to commercialize unoprostone isopropyl there. We also seek to develop new formulations using third party proprietary drug delivery technologies. We are exploring research programs with those third parties.

A sNDA for RESCULA (unoprostone isopropyl ophthalmic solution) 0.15% for the lowering of intraocular pressure, or IOP, in patients with open-angle glaucoma or ocular hypertension was approved by the U.S. Food and Drug Administration, or FDA, in December 2012 and we began commercializing the product in February 2013. In April 2013, we paid a $500,000 milestone payment to R-Tech upon the February 2013 RESCULA re-launch. According to the approved product labeling, RESCULA may be used as a first-line agent or concomitantly with other topical ophthalmic drug products to lower IOP. RESCULA is a big potassium channel activator and has a different mechanism of action than other IOP lowering agents on the market.

In February 2013, we announced that the Japan Science and Technology Agency, or JST, adopted unoprostone isopropyl ophthalmic solution 0.15% in the Adaptable and Seamless Technology Transfer Program. As part of this program, R-Tech, our development partner, has signed an agreement for unoprostone isopropyl with the JST under which the Japanese government shall provide the majority of the funding for phase 3 clinical development costs for unoprostone isopropyl for retinitis pigmentosa, or RP. We are co-developing unoprostone isopropyl with R-Tech. In May 2013, we received orphan drug designation in the European Union for unoprostone isopropyl for the treatment of RP. Unoprostone isopropyl has also previously achieved orphan drug status for RP in the U.S.

Product Pipeline

The table below summarizes the development status of lubiprostone, unoprostone isopropyl and several other prostone-based product candidates. We currently hold all of the commercialization rights to the prostone compounds in our product pipeline, other than for commercialization of AMITIZA in the United States, Canada and Japan, which is covered by our collaboration and license agreements with Takeda and Abbott, and for RESCULA, for which we hold all rights except in the R-Tech Territory. Commercialization may be implemented after successful completion of clinical studies.


Product/Product      Target Indication      Development Phase      Next Milestone
   Candidate
AMITIZA ®          Chronic idiopathic      Marketed in the       _____
(lubiprostone)     constipation (CIC)      U.S.
                   (adults of all ages)

                                           Marketed in           _____
                                           Switzerland

                                           Marketing             Obtain NICE
                                           Authorization         endorsement within
                                           Application (MAA)     the U.K. Following
                                           approved for CIC in   OIC approval in the
                                           August 2012 in U.K.   U.K., will advance
                                           Initiated mutual      MRP process
                                           recognition process
                                           (MRP) for approval
                                           in other E.U.
                                           countries.

                   Chronic constipation    Marketed in Japan     _____
                                           since Q4 2012

                   Opioid-induced          sNDA approved in      OIC approval in
                   constipation (OIC) in   U.S. in Q2            Switzerland and
                   patients with chronic   2013. MAA submitted   U.K.; MRP-wide E.U.
                   non-cancer pain         in Switzerland and    approval after U.K.
                                           U.K. in Q1 2013       approval

                   Pediatric functional    Phase 3 in U.S. and   Enroll first
                   constipation            Europe                patient in second
                                                                 half of 2013

                   Irritable bowel         Marketed in the       Initiate phase 4
                   syndrome with           U.S.                  study on higher
                   constipation (adult                           dosage and with
                   women) (IBS-C)                                additional male
                                                                 subjects

RESCULA ®          Primary open angle      Launch in the U.S.    _____
(unoprostone       glaucoma and ocular     in Q1 2013
isopropyl)         hypertension

                   Glaucoma and ocular     _____                 Updated label and
                   hypertension                                  reauthorization in
                                                                 the E.U. and
                                                                 Switzerland

                   Retinitis pigmentosa    In Phase 3 by         Decide path forward
                                           development partner   for U.S. and Europe
                                           R-Tech Ueno. Orphan   following the
                                           drug status           interim results of
                                           obtained in the       Japanese trial
                                           U.S. and E.U.

Cobiprostone       Gastrointestinal
(SPI-8811)
                   Oral mucositis          Phase 1a completed    Initiate Phase 1b
                                           for spray             trial
                                           formulation

SPI-3608           Spinal stenosis         Phase 1a completed    Initiate Phase 1b
                                                                 trial, pending
                                                                 results of SPI-017
                                                                 phase 2 results

SPI-017            Spinal stenosis         Phase 2 ongoing       Complete phase 2a
                                                                 study

Results of Operations

Comparison of three months ended June 30, 2013 and June 30, 2012

Revenues

The following table summarizes our revenues for the three months ended June 30, 2013 and 2012:


                                       Three Months Ended
                                            June 30,
(In thousands)                          2013          2012
Research and development revenue     $   11,461     $  3,096
Product royalty revenue                  12,000       11,703
Product sales revenue                     3,399            -
Co-promotion revenue                          -        1,757
Contract and collaboration revenue          163          127
Total                                $   27,023     $ 16,683

Total revenues were $27.0 million for the three months ended June 30, 2013 compared to $16.7 million for the three months ended June 30, 2012, an increase of $10.3 million, or 62.0%.

Research and development revenue

Research and development revenue was $11.5 million for the three months ended June 30, 2013 compared to $3.1 million for the three months ended June 30, 2012, an increase of $8.4 million. The increase in research and development revenue was primarily due to the receipt of the $10.0 million milestone payment from Takeda upon the first commercial sale of AMITIZA for OIC, partially offset by lower clinical development revenue in 2013.

Product royalty revenue

Product royalty revenue represents royalty revenue earned on net sales of AMITIZA in the United States. Product royalty revenue was $12.0 million for the three months ended June 30, 2013 compared to $11.7 million for the three months ended June 30, 2012, an increase of $297,000, or 2.5%. The increase in product royalty revenue was primarily due to the higher price and volume of AMITIZA sales.

Product sales revenue

Product sales revenue represents drug product net sales of AMITIZA in Japan and RESCULA in the United States. Product sales revenue was $3.4 million for the three months ended June 30, 2013 compared to nil for the three months ended June 30, 2012, an increase of $3.4 million Product sales in Japan started in the fourth quarter of 2012.

Co-promotion revenue

Co-promotion revenues represent reimbursement by Takeda of co-promotion costs for our specialty sales force. Co-promotion revenue was nil for the three months ended June 30, 2013 compared to $1.8 million for the three months ended June 30, 2012, a decrease of $1.8 million, or 100.0%. The decrease in co-promotion revenue was attributable to a shift of our sales force from selling AMITIZA, which was partially reimbursed by Takeda, to selling RESCULA.

Research and Development Expenses

The following table summarizes our research and development expenses for the
three months ended June 30, 2013 and 2012:


                                       25
--------------------------------------------------------------------------------

                          Three Months Ended
                               June 30,
(In thousands)             2013          2012
Direct costs:
Lubiprostone            $    1,710      $ 3,495
Cobiprostone                    10          271
SPI-017                        849           45
Unoprostone isoproypl          258          551
Other                          396          297
Total                        3,223        4,659

Indirect costs               1,202          576
Total                   $    4,425      $ 5,235

Total research and development expenses for the three months ended June 30, 2013 were $4.4 million, compared to $5.2 million for the three months ended June 30, 2012, a decrease of $810,000, or 15.5%. The decrease in research and development expenses was primarily due to the higher costs in 2012 associated with our phase 3 trial for lubiprostone for OIC patients, partially offset by higher indirect costs including regulatory fees and the Numab provision.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the
three months ended June 30, 2013 and 2012:

                                                      Three Months Ended
                                                           June 30,
(In thousands)                                         2013          2012
Salaries, benefits and related costs                $    2,019      $ 2,100
Legal, consulting and other professional expenses        1,207        3,985
Stock option expense                                       427          333
Pharmacovigilance costs                                    702          166
Other expenses                                           1,613        1,431
Total                                               $    5,968      $ 8,015

General and administrative expenses were $6.0 million for the three months ended June 30, 2013, compared to $8.0 million for the three months ended June 30, 2012, a decrease of $2.0 million, or 25.5%. The decrease in general and administrative expenses was primarily due to lower legal, consulting and other professional expenses as a result of the conclusion of certain legal matters in 2012, as well as expense reductions from 2013 productivity initiatives. These decreases were partially offset by an increase in pharmacovigilance costs associated with the launch of AMITIZA in Japan.

Selling and Marketing Expenses

The following table summarizes our selling and marketing expenses for the three
months ended June 30, 2013 and 2012:

                                               Three Months Ended
                                                    June 30,
(In thousands)                                  2013          2012
Salaries, benefits and related costs         $    1,732      $ 1,813
Consulting and other professional expenses        1,077        1,604
Stock option expense                                 84           66
Other expenses                                    1,660        2,624
Total                                        $    4,553      $ 6,107

Selling and marketing expenses represent costs we incur to promote or co-promote our products, including salaries, benefits and related costs of our sales force and other sales and marketing personnel, as well as costs of market research and analysis and other selling and marketing expenses. Selling and marketing expenses were $4.6 million for the three months ended June 30, 2013, compared to $6.1 million for the three months ended June 30, 2012, a decrease of $1.5 million, or 25.4%. The decrease in selling and marketing expenses relates primarily to non-recurring pre-commercialization planning activities for AMITIZA and RESCULA that occurred in 2012 that did not occur in 2013.


Non-Operating Income and Expense

The following table summarizes our non-operating income and expense for the
three months ended June 30, 2013 and 2012:

                                Three Months Ended
                                     June 30,
(In thousands)                  2013           2012
Interest income               $      23      $     30
Interest expense                   (493 )        (592 )
Other income (expense), net         744          (555 )
Total                         $     274      $ (1,117 )

Interest income was $23,000 for the three months ended June 30, 2013, compared to $30,000 for the three months ended June 30, 2012, a decrease of $7,000, or 23.3%.

Interest expense was $493,000 for the three months ended June 30, 2013, compared to $592,000 for the three months ended June 30, 2012, a decrease of $99,000, or 16.7%.

Other income was $744,000 for the three months ended June 30, 2013, compared to other expense of $555,000 for the three months ended June 30, 2012, an increase of $1.3 million. The increase in other income was primarily due to foreign exchange gains in the current period that are unrealized and non-cash and that relate to amounts held within subsidiaries.

Income Taxes

We recorded a tax provision of $4.3 million and a tax benefit of $3.0 million for three months ended June 30, 2013 and 2012, respectively. The tax provision for the three months ended June 30, 2013 primarily related to pre-tax income generated by our United States and Japanese subsidiaries. The consolidated global effective tax rate is higher than the statutory rate in these jurisdictions because of pre-tax losses generated in the European subsidiaries for which no tax benefit is recognized due to the full valuation allowance.

Comparison of six months ended June 30, 2013 and June 30, 2012

Revenues

The following table summarizes our revenues for the six months ended June 30, 2013 and 2012:

                                       Six Months Ended
                                           June 30,
(In thousands)                         2013         2012
Research and development revenue     $ 14,261     $  5,681
Product royalty revenue                23,677       22,631
Product sales revenue                   5,616            -
Co-promotion revenue                       61        2,523
Contract and collaboration revenue        327          294
Total                                $ 43,942     $ 31,129

Total revenues were $43.9 million for the six months ended June 30, 2013 compared to $31.1 million for the six months ended June 30, 2012, an increase of $12.8 million, or 41.2%.

Research and development revenue

Research and development revenue was $14.3 million for the six months ended June 30, 2013 compared to $5.7 million for the six months ended June 30, 2012, an increase of $8.6 million. The increase in research and development revenue was primarily due to the receipt of the $10.0 million milestone payment from Takeda upon the first commercial sale of AMITIZA for OIC, partially offset by lower clinical development reimbursement revenue in 2013.


Product royalty revenue

Product royalty revenue represents royalty revenue earned on net sales of AMITIZA in the United States. Product royalty revenue was $23.7 million for the six months ended June 30, 2013 compared to $22.6 million for the six months ended June 30, 2012, an increase of $1.1 million, or 4.6%. The increase in product royalty revenue was primarily due to the higher price and volume of AMITIZA sales.

Product sales revenue

Product sales revenue represents drug product net sales of AMITIZA in Japan and RESCULA in the United States. Product sales revenue was $5.6 million for the six months ended June 30, 2013 compared to nil for the six months ended June 30, 2012, an increase of $5.6 million. Product sales in Japan started in the fourth quarter of 2012.

Co-promotion revenue

Co-promotion revenues represent reimbursement by Takeda of co-promotion costs for our specialty sales force. Co-promotion revenue was $61,000 for the six months ended June 30, 2013 compared to $2.5 million for the six months June 30, 2012, a decrease of $2.5 million, or 97.6%. The decrease in co-promotion revenue was attributable to a shift of our sales force from selling AMITIZA, which was partially reimbursed by Takeda, to selling RESCULA.

Research and Development Expenses

The following table summarizes our research and development expenses for the six
months ended June 30, 2013 and 2012:

                          Six Months Ended
                              June 30,
(In thousands)            2013         2012
Direct costs:
Lubiprostone            $   3,775     $ 4,244
Cobiprostone                  352         728
SPI-017                     1,695         151
Unoprostone isoproypl         694       1,335
Other                       1,758       1,112
Total                       8,274       7,570

Indirect costs              1,780       1,017
Total                   $  10,054     $ 8,587

Total research and development expenses for the six months ended June 30, 2013 were $10.1 million compared to $8.6 million for the six months ended June 30, 2012, an increase of $1.5 million, or 17.1%. The increase in research and development expenses was primarily due to the higher costs associated with our clinical development of the AMITIZA pediatric indication, lumbar spinal stenosis program, and higher indirect costs including regulatory fees and the Numab provision, partially offset by higher costs in 2012 associated with our phase 3 trial for lubiprostone for OIC patients.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the
six months ended June 30, 2013 and 2012:


                                       28
--------------------------------------------------------------------------------

                                                      Six Months Ended
                                                          June 30,
(In thousands)                                        2013         2012
Salaries, benefits and related costs                $  4,164     $  4,177
Legal, consulting and other professional expenses      3,252        7,507
Stock option expense                                     677          851
Pharmacovigilance costs                                1,767          178
Other expenses                                         3,335        2,629
Total                                               $ 13,195     $ 15,342

General and administrative expenses were $13.2 million for the six months ended June 30, 2013, compared to $15.3 million for the six months ended June 30, 2012, a decrease of $2.1 million, or 14.0%. The decrease in general and administrative expenses was primarily due to lower legal, consulting and other professional expenses as a result of the conclusion of certain legal matters in 2012, as well as expense reductions from 2013 productivity initiatives. These decreases were partially offset by an increase in pharmacovigilance costs associated with the launch of AMITIZA in Japan.

Selling and Marketing Expenses

The following table summarizes our selling and marketing expenses for the six
months ended June 30, 2013 and 2012:

. . .
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