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SCMP > SEC Filings for SCMP > Form 10-Q on 6-Aug-2014All Recent SEC Filings

Show all filings for SUCAMPO PHARMACEUTICALS, INC.

Form 10-Q for SUCAMPO PHARMACEUTICALS, INC.


6-Aug-2014

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 filings with the Securities and Exchange Commission, or the SEC, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which we filed with the SEC on March 12, 2014. 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, 2013 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 to treat gastrointestinal, ophthalmic, neurologic, and oncology-based inflammatory disorders, and we are also considering other potential therapeutic applications of our drug technologies.

We currently generate revenue mainly from product royalties, development milestone payments, product sales and clinical development activities. 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 approved products and other compounds, and seek partnering opportunities for the approved products and compounds on a global basis.

Our operations are conducted through subsidiaries based in the United States, Japan, Switzerland and the United Kingdom. Our reportable geographic segments are the Americas, Asia 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 have direct or indirect interests in our controlling stockholder, S&R Technology Holding, LLC, and are married to each other. 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 drug products for commercial use and clinical development.

Product Pipeline

The table below summarizes the development status of lubiprostone, unoprostone isopropyl and several other product candidates. We currently hold all of the commercialization rights to the 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 Pharmaceutical Company Limited, or Takeda, and Abbott Japan Co. Ltd., or Abbott, and other than for RESCULA in Japan, Korea, Taiwan and the People's Republic of China, or the R-Tech Territory. Commercialization of each product candidate may be implemented after successful completion of clinical studies and approval from appropriate governmental agencies.


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

                                  Marketed in Switzerland         _____

                                  Marketed in the U.K.            Consider seeking approval for AMITIZA in other
                                  Initiated mutual recognition    E.U. countries following the MRP
                                  process (MRP) for approval in
                                  other E.U. countries.

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

                  Opioid-induced  Marketed in the U.S. and        Discuss with MHRA regulatory options for obtaining
                  constipation    Switzerland                     OIC approval in the U.K.
                  (OIC)
                  in patients
                  with
                  chronic
                  non-cancer pain

                  Chronic         Marketed in Japan               _____
                  constipation

                  Reformulation   Phase 3 trial results           Undertake additional formulation optimization work
                  for             available
                  lubiprostone

                  Pediatric       Pivotal phase 3 initiated       Complete phase 3 program and file sNDA
                  functional
                  constipation

 Unoprostone      Primary open    Marketed in the U.S.            _____
Isopropyl         angle glaucoma
(RESCULA ®)       and ocular
                  hypertension

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

                  Retinitis       In phase 3 by development       Meet with the U.S. and European regulators prior
                  pigmentosa      partner R-Tech Ueno.            to the interim results of Japanese trial
                                  Orphan drug status obtained in
                                  the U.S. and E.U.

IV Ion Channel    Lumbar spinal   Phase 2a completed              Initiate additional phase 2a trial
Activator         stenosis

PO Ion Channel    Lumbar spinal   Phase 1b initiated              Complete phase 1b trial
Activator         stenosis

Cobiprostone      Oral            Phase 1b completed              Initiate phase 2a trial
                  mucositis


AMITIZA (lubiprostone)

United States

In the United States, we began co-promoting AMITIZA for OIC in adults with chronic, non-cancer pain in the first quarter of 2014 with a contract sales force of approximately 40 sales representatives.

Japan

In Japan, the two-week limitation on prescriptions, generally applied to all new approvals of products for the first year after NHI reimbursement price approval, was removed in December 2013. AMITIZA is Japan's only prescription medicine for chronic constipation. On July 14, 2014, Abbott announced that it had entered into a definitive agreement with Mylan Inc. or Mylan whereby Mylan will acquire Abbott's non-U.S. developed markets specialty and branded generics business in an all-stock transaction, which includes a portfolio of more than 100 specialty and branded generic pharmaceutical products in five major therapeutic areas (cardio/metabolic, gastrointestinal, anti-infective/respiratory, CNS/pain and women's and men's health) and several patent-protected, novel and/or hard-to-manufacture products. We believe that under the license, commercialization and supply agreement, or the Abbott Agreement, which AMITIZA is marketed, is one of the assets Abbott has agreed to sell to Mylan as part of this transaction. We expect to have discussions with Mylan about its performance of the Abbott Agreement and do not anticipate any adverse impact to sales of AMITIZA in Japan in 2014.

Europe

In Switzerland, we announced in February 2014 that the Bundesamt fur Gesundheit revised several reimbursement limitations with which AMITIZA was first approved for reimbursement and inclusion in the Specialitätenliste to allow all Swiss physicians to prescribe AMITIZA to patients who have failed previous treatments with at least two laxatives over a nine month period. In July 2014, we announced that Swissmedic, the Swiss Agency for Therapeutic Products, approved AMIITZA for the treatment of OIC in chronic, non-cancer adult patients.

In the United Kingdom, we announced in July 2014 that the National Institute for Health and Care Excellence published the technology appraisal guidance recommending the use of AMITIZA in the treatment of CIC and associated symptoms in adults who have failed laxatives. We filed for the OIC indication in the United Kingdom and in March 2014, we received notification from Medicines and Healthcare Products Regulatory Agency, or MHRA, that the application was not approved. We are in continued discussion with MHRA exploring all available options. We will be seeking approval for AMITIZA for the CIC indication in other European Union countries following the Mutual Recognition Procedure.

Other Global Markets

We and Takeda are currently exploring the commercialization of AMITIZA in Canada. We have met with Health Canada to discuss the best ways to proceed with AMITIZA registration in Canada which we intend to file in the second half of 2014.

We continue to explore options to develop and commercialize lubiprostone in other geographic regions, including Latin America, Russia, the Middle East, the People's Republic of China and other Asian countries.

RESCULA (unoprostone isopropyl)

Under our 2009 and 2011 agreements with R-Tech, we hold the exclusive rights to commercialize and develop unoprostone isopropyl worldwide, excluding the 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 and we may consider using third party proprietary drug delivery technologies. We are exploring research programs with those third parties.

In the United States, RESCULA may be used as a first-line agent or concomitantly with other topical ophthalmic drug products to lower intraocular pressure, or IOP, according to the approved product labeling. RESCULA is a big potassium channel activator and has a different mechanism of action than other IOP lowering agents on the market. We currently promote RESCULA through a limited contract sales force.


Our Other Clinical Development Programs

Lubiprostone

Liquid Reformulation for Pediatric Functional Constipation

As announced previously, Takeda has agreed to fund 100% of the costs for additional reformulation work for lubiprostone. Feasibility testing for this work is ongoing and is expected to be completed in the fourth quarter of 2014. If successful, the reformulation will enable future studies of lubiprostone in adults and younger children who may not be able to swallow the current soft gelatin capsule formulation of lubiprostone. Currently, two of the four planned phase 3 studies for this pediatric functional constipation development program are ongoing, both of which are testing the current soft gelatin capsule formulation of lubiprostone in patients 6 to 17 years of age: a 12-week, randomized, placebo-controlled trial that initiated in December 2013 and a follow-on, long-term safety extension study that initiated in March.

Intravenous and Oral Ion Channel Activators

Lumbar Spinal Stenosis

Two ion channel activators, in both the intravenous, or IV, and oral forms, are in clinical development for the treatment of lumbar spinal stenosis, or LSS. Positive top-line results from a phase 1b trial evaluating the safety and pharmacokinetics, or PK, of the orally administered ion channel activator demonstrated the compound to be generally well-tolerated. This trial is expected to conclude in the third quarter of 2014. We plan to conduct an additional phase 2a study in the second half of 2014 to evaluate the clinical effectiveness of the IV ion channel activator with LSS.

Cobiprostone

Oral Spray for Oral Mucositis

Cobiprostone is in development for the target indication of prevention and/or treatment of oral mucositis. In the first quarter of 2014, we completed our phase 1b trial that evaluated the safety and PK of an oral spray formulation of cobiprostone. The results of the phase 1b trial showed that cobiprostone was well-tolerated overall and revealed low systematic exposure. The next phase of clinical development, a phase 2a trial, is expected to begin in the second half of 2014.


Results of Operations

Comparison of three months ended June 30, 2014 and June 30, 2013

Revenues

The following table summarizes our revenues:

                                                                 Three Months Ended
                                                                      June 30,
                          (In thousands)                          2014          2013
                          Research and development revenue     $    1,700     $ 11,461
                          Product royalty revenue                  13,888       12,000
                          Product sales revenue                     7,543        3,399
                          Co-promotion revenue                        723            -
                          Contract and collaboration revenue          215          163
                          Total                                $   24,069     $ 27,023

Total revenues were $24.1 million for the three months ended June 30, 2014 compared to $27.0 million for the three months ended June 30, 2013, a decrease of $3.0 million or 10.9%.

Research and development revenue

Research and development revenue was $1.7 million for the three months ended June 30, 2014 compared to $11.4 million for the three months ended June 30, 2013, a decrease of $9.8 million or 85.2%. The decrease was primarily due to the 2013 receipt of the $10.0 million milestone payment from Takeda upon the first commercial sale of AMITIZA for OIC.

Product royalty revenue

Product royalty revenue represents royalty revenue earned on net sales of AMITIZA in the United States, as reported to us by our partner, Takeda. Product royalty revenue was $13.9 million for the three months ended June 30, 2014 compared to $12.0 million for the three months ended June 30, 2013, an increase of $1.9 million or 15.7%. The increase was primarily due to higher net sales of AMITIZA as reported by Takeda for royalty calculation purposes.

Product sales revenue

Product sales revenue represents drug product net sales of AMITIZA in Japan and Switzerland, and drug product net sales of RESCULA in the United States. Product sales revenue was $7.5 million for the three months ended June 30, 2014 compared to $3.4 million for the three months ended June 30, 2013, an increase of $4.1 million or 121.9%. The increase was primarily due to the increased volume of AMITIZA sales in Japan.

Co-promotion revenue

Co-promotion revenue represents reimbursements by Takeda of a portion of our co-promotion costs for our specialty sales force. Co-promotion revenue was $723,000 for the three months ended June 30, 2014 compared to nil for the three months ended June 30, 2013, an increase of $723,000. The increase resulted from our specialty sales force shifting back to co-promoting AMITIZA in 2014 after having shifted away from co-promoting AMITIZA in 2013.


Costs of Goods Sold

The following table summarizes our costs of goods sold expenses:

                                                                 Three Months Ended
                                                                      June 30,
                                           (In thousands)         2014          2013
                                           Product purchases   $    3,748      $ 1,862
                                           Distribution                48           46
                                           Total               $    3,796      $ 1,908

Total costs of goods sold for the three months ended June 30, 2014 were $3.8 million compared to $1.9 million for the three months ended June 30, 2013, an increase of $1.9 million or 99.0%. The increase was primarily due to the increased volume of AMITIZA sales in Japan.

Research and Development Expenses

The following table summarizes our research and development expenses:

                                                                 Three Months Ended
                                                                      June 30,
                                      (In thousands)              2014          2013
                                      Direct costs:
                                      Lubiprostone             $    2,309      $ 1,710
                                      Cobiprostone                    101           10
                                      Ion channel activators           16          849
                                      Unoprostone isoproypl           160          258
                                      3608                            415          202
                                      Other                           389          194
                                      Total                         3,390        3,223

                                      Indirect costs                  862        1,202
                                      Total                    $    4,252      $ 4,425

Total research and development expenses for the three months ended June 30, 2014 were $4.3 million compared to $4.4 million for the three months ended June 30, 2013, a decrease of $173,000 or 3.9%. The decrease was primarily due to lower costs associated with our LSS trials, partially offset by increased costs of our lubiprostone pediatric trial.

General and Administrative Expenses

The following table summarizes our general and administrative expenses:

                                                                 Three Months Ended
                                                                      June 30,
           (In thousands)                                         2014          2013
           Salaries, benefits and related costs                $    2,141      $ 2,019
           Legal, consulting and other professional expenses        3,484        1,207
           Stock option expense                                       524          427
           Pharmacovigilance                                          468          702
           Other expenses                                           1,580        1,613
           Total                                               $    8,197      $ 5,968

General and administrative expenses were $8.2 million for the three months ended June 30, 2014, compared to $6.0 million for the three months ended June 30, 2013, an increase of $2.2 million or 37.3%. The increase was primarily due to a significant increase in legal fees incurred prosecuting a patent infringement lawsuit filed by us in February 2013.


Selling and Marketing Expenses

The following table summarizes our selling and marketing expenses:

                                                                 Three Months Ended
                                                                      June 30,
                  (In thousands)                                  2014          2013
                  Salaries, benefits and related costs         $      674      $ 1,732
                  Consulting and other professional expenses        1,652        1,077
                  Stock option expense                                 20           84
                  Samples expense                                      98           74
                  Data purchases                                      234          227
                  Other expenses                                    1,335        1,359
                  Total                                        $    4,013      $ 4,553

Selling and marketing expenses were $4.0 million for the three months ended June 30, 2014, compared to $4.6 million for the three months ended June 30, 2013, a decrease of $540,000 or 11.9%. The decrease was primarily the result of the replacement of our in-house sales force in with a lower-cost contract sales force in 2014, partially offset by increased commercialization costs in Europe for AMITIZA.

Non-Operating Income and Expense

The following table summarizes our non-operating income and expense:

                                                                 Three Months Ended
                                                                      June 30,
                                 (In thousands)                  2014           2013
                                 Interest income               $      23       $    23
                                 Interest expense                   (392 )        (493 )
                                 Other income (expense), net         (53 )         870
                                 Total                         $    (422 )     $   400

Interest income was $23,000 for each of the three months ended June 30, 2014 and 2013.

Interest expense was $392,000 for the three months ended June 30, 2014, compared to $493,000 for the three months ended June 30, 2013, a decrease of $101,000, or 20.5%, primarily due to lower principal balances.

Other income (expense), net was ($53,000) for the three months ended June 30, 2014, compared to $870,000 for the three months ended June 30, 2013, a decrease of $923,000, or 106.1%. The majority of the decrease related to the change from unrealized and non-cash foreign exchange gains in the prior year period, to unrealized and non-cash foreign exchange losses in the current year period.

Income Taxes

We recorded income tax provisions of $1.8 million and $4.3 million for the three months ended June 30, 2014 and 2013, respectively. The tax provision for the three months ended June 30, 2014 primarily pertains to the pre-tax income and losses generated by our U.S., Japanese and Swiss subsidiaries. The tax provision for the three months ended June 30, 2013 primarily pertained to the pre-tax income generated by our U.S. and Japanese subsidiaries.


Comparison of six months ended June 30, 2014 and June 30, 2013

Revenues

The following table summarizes our revenues:

                                                                   Six Months Ended
                                                                       June 30,
                            (In thousands)                         2014         2013
                            Research and development revenue     $  3,484     $ 14,261
                            Product royalty revenue                27,389       23,677
                            Product sales revenue                  13,855        5,616
                            Co-promotion revenue                    1,085           61
                            Contract and collaboration revenue        417          327
                            Total                                $ 46,230     $ 43,942

Total revenues were $46.2 million for the six months ended June 30, 2014 compared to $43.9 million for the six months ended June 30, 2013, an increase of $2.3 million or 5.2%.

Research and development revenue

Research and development revenue was $3.5 million for the six months ended June 30, 2014 compared to $14.3 million for the six months ended June 30, 2013, a decrease of $10.8 million or 75.6%. The decrease was primarily due to the 2013 receipt of the $10.0 million milestone payment from Takeda upon the first commercial sale of AMITIZA for OIC.

Product royalty revenue

Product royalty revenue represents royalty revenue earned on net sales of AMITIZA in the United States, as reported to us by our partner, Takeda. Product royalty revenue was $27.4 million for the six months ended June 30, 2014 compared to $23.7 million for the six months ended June 30, 2013, an increase of $3.7 million or 15.7%. The increase was primarily due to higher net sales of AMITIZA as reported by Takeda for royalty calculation purposes.

Product sales revenue

Product sales revenue represents drug product net sales of AMITIZA in Japan and Switzerland, and drug product net sales of RESCULA in the United States. Product sales revenue was $13.9 million for the six months ended June 30, 2014 compared to $5.6 million for the six months ended June 30, 2013, an increase of $8.2 million or 146.7%. The increase was primarily due to the increased volume of AMITIZA sales in Japan.

Co-promotion revenue

Co-promotion revenue represents reimbursements by Takeda of a portion of our co-promotion costs for our specialty sales force. Co-promotion revenue was $1.1 million for the six months ended June 30, 2014 compared to $61,000 for the six months ended June 30, 2013, an increase of $1.0 million. The increase resulted from our specialty sales force shifting back to co-promoting AMITIZA in 2014 after having shifted away from co-promoting AMITIZA in 2013.


Costs of Goods Sold

The following table summarizes our costs of goods sold expenses:

                                                                   Six Months Ended
                                                                       June 30,
                                             (In thousands)        2014         2013
                                             Product purchases   $   7,077     $ 3,122
                                             Distribution              112          68
                                             Total               $   7,189     $ 3,190

Total costs of goods sold for the six months ended June 30, 2014 were $7.2 million compared to $3.2 million for the six months ended June 30, 2013, an increase of $4.0 million or 125.4%. The increase was primarily due to the increased volume of AMITIZA sales in Japan.

Research and Development Expenses
. . .
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