Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP)
Q1 2009 Earnings Call
May 7, 2009, 05:00 pm ET
Ryuji Ueno - Co-founder, Chairman, CEO and CSO
Stan Miele - SVP, Sales & Marketing
Jan Smilek - VP, Finance and CFO
Kate de Santis - VP, IR and Corporate Communications
Jim Molloy - Caris & Company
Ian Sanderson - Cowen & Company
Andrew Finkelstein - Leerink Swann
Good afternoon and welcome to Sucampo's first quarter 2009 financial results conference call.
For opening remarks and introductions, I would like to turn the call over to Kate de Santis, Sucampo's Vice President of Investor Relations and Corporate Communications. Please go ahead.
Kate de Santis
Thank you, operator and good afternoon everyone.
With me on today's call are Dr. Ryuji Ueno, Sucampo's Co-founder, Chairman and Chief Executive and Scientific Officer; Stan Miele, Senior Vice President of Sales and Marketing and Jan Smilek, Vice President of Finance and Chief Financial Officer. Other members of Sucampo's management team are here as well and available to answer your questions during the Q&A portion of this call.
We announced our first quarter 2009 results this afternoon, just after the close of the US financial market and our press release can be found on our website at www.sucampo.com in the for investors section. The format of today's call is as follows.
Dr. Ueno will begin with an overview of the quarter and recent highlights, including the acquisition of US and Canadian rights to Rescula from R-Tech Ueno then he will outline Sucampo's upcoming clinical and pre-clinical milestones for the remainder of 2009.
Stan will follow with an update on our current Amitiza trends and Sucampo's commercial activities. Jan, will then conclude our prepared remarks with a summary of our financial results for the first quarter.
Before we begin, please note that various remarks that management makes on this conference call about Sucampo's future expectations, plans and prospects, constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may be identified by the words, project, believe, anticipate, plan, expect, estimate, estimates, intent, should, would, could, will, may or other similar expressions. These statements involve risks and uncertainties and we encourage listeners to review them, as they are found in the company's filings with the Securities and Exchange Commission. These filings can be accessed through the for investors page of Sucampo's website.
In addition, any forward-looking statements represent the company's views as of today, May 07, 2009. These statements should not be relied upon as representing the company's view as of any subsequent date. While Sucampo might elect to update forward-looking statements at some point in the future, the company specifically disclaims any obligation to do so.
I will now turn the call over to Dr. Ueno. Dr. Ueno?
Thank you, Kate. Good afternoon, everyone. Before, we discuss the financial results for the quarter and current commercial activities I want to review the licensing agreement with R-Tech Ueno, RTU, which was announced on April 23.
Under the terms of the agreement Sucampo has the exclusive rights to commercialize Rescula in the United States and in Canada, for the treatment of glaucoma and ocular hypertension. We have the right to develop and commercialize Rescula for any additional indications. RTU will be exclusively responsible for the supply of Rescula to Sucampo for the US and Canada.
We made an upfront payment to RTU of $3 million and are responsible for up to $5.5 million in additional milestone payments, based on the achievements of specified development and commercialization goals. Sucampo will be responsible for the development, regulatory and the commercialization activities and expenses for Rescula in the United States and the Canada.
For those investors that may be unfamiliar, Rescula received its first marketing approval in Japan in 1994 for the treatment of glaucoma and ocular hypertension. In 2000, Rescula was approved by the Food and Drug Administration, FDA, for the treatment of open-angle glaucoma and ocular hypertension. Rescula is not currently being marketed in the US or Canada. We plan to relaunch it for these indications in the US in 2010.
Glaucoma is the group of diseases that can damage the eye optic nerve or retina resulting in vision loss and blindness. Glaucoma is most frequently observed in elderly populations and estimates are that over 4 million Americans have glaucoma and that it accounts for 9% to 12% of all cases of blindness in the United States.
Rescula is a synthetic prostone called unoprostone isopropyl that are designed for ophthalmic indications and is administered as liquid eye drop. Unlike Amitiza, which activates type II chloride channel, Rescula activates the BK channels, one of the potassium channels in the eye. We believe that this activation of BK channels lower in intraocular pressure or IOP by increasing the outflow of our aqueous humor.
In clinical studies, patients with a mean baseline IOP of 23 millimeter mercury, Rescula lowers IOP by approximately 3 to 4 millimeter mercury throughout the day. In clinical and pre-clinical studies Rescula has increased ocular blood flow to the optic nerve and in the choroid, maintained visual field, delayed retinal degeneration induced by rhodoposin by inhibiting apoptosis, inhibited topographic and the blood changes in an ischemic optic nerve head, and lowered intraocular pressure.
We believe that these effects suggest that Rescula could potentially be effective in the treatment of other ocular diseases, most notably as a potential treatment for dry age-related macular degeneration or dry AMD. Rescula existing FDA approval status and demonstrated safety profile should facilitate entry into clinical trials for dry AMD patients.
More than 8 million people in the United States currently have age-related macular degeneration AMD, a disease which causes damage to the retina resulting in loss of vision. AMD is the leading cause of irreversible blindness in adults, in US. The prevalence of AMD in the US is expected to increase by more than 50% to approximately 12 million by 2020.
More than 85% of all people with intermediate and advanced AMD have the dry form. Currently, no drugs have been approved by regulatory authorities for the treatment of dry AMD. Although, we are still in the initial stages of designing a development program for Rescula, our plan is to initiate a phase 2 clinical trial with Rescula for dry AMD in 2010.
In summary, we believe Rescula will become an important and integral part of our product portfolio. We believe that there are sales synergies between Rescula and the Amitiza market segments, within the elderly population we are now serve and touch, this is a very nice fit for our commercial team.
Both Rescula and Amitiza are created from the prostone technology, whose therapeutic potential I discovered in the 1980s, which is also the basis for Sucampo's clinical and pre-clinical pipeline compounds. We look forward to relaunch Rescula for its currently approved indications and to developing it as a potential treatment for dry AMD.
Before, I turn the call over to Stan I also want to discuss our partnership with Abbott covering Amitiza in Japan that was completed during the first quarter. We discussed that agreement in detail during our 2008 year-end call. So I will just provide a quick overview.
We believe Abbott is an ideal partner for Japan, because of their strong presence and infrastructure. As we have indicated previously, entering the Japanese market represents a key element of Sucampo's overall growth strategy.
Abbott has exclusive right to commercialize Amitiza in Japan for the treatment of chronic idiopathic constipation and has a right or first refusal to any additional indications in Japan. Abbott will be responsible for all commercialization expenses and efforts. We received an upfront payment of $10 million. Jan, our CFO, will discuss the accounting treatment of this upfront payment later in the call.
We expect to receive additional milestone payments based on achieving specified development and commercialization goals. We will continue to lead the development of and regulatory activity for Amitiza in Japan. We retain the right to co-promote Amitiza in Japan, at our own cost.
Sucampo plans to initiate a phase 3 clinical testing of Amitiza for CIC in Japanese patients, during the second quarter of 2009. If this trial is successful and we receive marketing authorization and pricing approval, Abbott will purchase finished products from us for distribution. Amitiza for Japanese market will be manufactured for us by R-Tech, under an agreement that we also signed in February.
Now, I'll turn the call over to, Stan to review our commercial activities during the first quarter. Stan?
Thank you, Dr. Ueno and good afternoon everyone. I'll start with a brief review of the overall prescription market, followed by some recent trends for Amitiza. Lastly, I will provide an overview of sales in the institutional and Long-Term Care segments targeted by the Sucampo's sales force.
Despite a previously unstable environment for the prescription constipation IBSC market and the economy in general, we are encouraged by recent prescription trends of the overall constipation IBSC market. According to IMS, the total retail prescriptions in the constipation IBSC markets for 2008 were 2.8 million for the first quarter of 2009 versus 2.7 million for the fourth quarter of 2008.
As you are aware, our partner Takeda is responsible for sales activity in the retail segments. Total retail prescriptions for Amitiza in the first quarter 2009 as reported by IMS, was appropriately 275,000 prescriptions. This is similar to total prescriptions reported for the fourth quarter 2008.
Our own Sucampo sales force, which targets long-term care facilities and key opinion leaders within the academic medical centers, continues to perform inline with our internal expectations. Sales within the Sucampo segments are not reflected in the IMS retail prescription data, but are available from IMS in the hospital, Department of Defense and Long-Term Care segments. Sales in Sucampo segments are included in the total Amitiza dollar sales, reported by Takeda.
Sucampo reported sales by IMS were roughly 41.3% over the first quarter in 2008 and about 2.3% over the fourth quarter of 2008. As Medicare Part D becomes an important variable for reimbursement in the elderly population, we closely monitor the first quarter of each as many patients transfer plans and begin their new policies for the year. We are actively analyzing this with our partner to ensure we have some proactive solutions moving forward.
Additionally, Sucampo was focused on maximizing sales within our segments and evaluating ways to improve sales within the retail arena. As Amitiza 8 microgram and 24 microgram have no upper age restriction and a favorable adverse event profile, we continue to believe the product is well suited for broader use in not only Long-Term Care, but all of the markets, both companies target.
Internationally, we are planning on having a significant presents at the Gastro 2009 Conference in the UK in November. We believe this presence will be valuable, if we received European approvals. We expect to hear from the European authorities by the end of 2009.
Regarding Rescula, we are extremely excited to have a second FDA approved product, under the Sucampo umbrella. Plans are underway to increase our infrastructure appropriately and ensure that we will be ready for a relaunch for the glaucoma and ocular hypertension indications sometime in 2010.
As previously mentioned by Dr. Ueno, this compound has a long history outside the United States. It has an excellent safety profile and we are confident that we can parlay some of this experience within the segments we cover.
I will now turn the call over to, Jan to review the financial results for the quarter. Jan?
Thank you, Stan and good afternoon everyone. Sucampo recorded a net loss of $1.8 million or $0.04 per share compared to a net income of $0.5 million or $0.01 per share in the first quarter of 2008. I believe that it is important to point out that the net income in the first quarter of 2008 was driven primarily by a tax benefit of $5.6 million recognized during the first quarter of 2008.
That benefit resulted from a discreet release of the US deferred tax asset valuation allowances and a reduction in the estimated effective tax rate for 2008, based on the receipt of $50 million milestone payment and an increase in projected product royalty income.
On a pre-tax basis, our loss for the first quarter of 2009 was $1.4 million, compared to a pre-tax loss of %5.1 million for the first quarter of 2008. Let me summarize the main aspects that led to this favorable variance.
Our product royalty revenue during the first quarter of 2009 increased to $8.9 million from $6.1 million in the first quarter of 2008, which reflects increased growth in Amitiza sales after the FDA approval of Amitiza 8 mcg in April of 2008.
When compared to the fourth quarter of 2008, our product royalty revenue decreased by about $800,000 from $9.7 million. This decrease is primarily due to the lower initial royalty rate used to calculate the royalty income on the first year of annual net sales. The net sales as reported by Takeda Pharmaceuticals were approximately $50 million in the first quarter of 2009, compared to about $59 million in the fourth quarter of 2008.
As we discussed, during the 2008 year-end earnings conference call, the fourth quarter 2008 net sales as reported by Takeda and the fourth quarter product royalty revenue that was reported by us, reflect a difference in timing of revenue recognition that is used by Takeda and Sucampo in respect to the initial stocking of Amitiza 8 microgram.
While Takeda recognized revenue from the initial stockings mainly in the third and fourth quarter of 2008, we recognize the product royalty revenue in the second quarter of 2008. We do not expect similar differences in the revenue recognition in 2009.
Our R&D revenue for the first quarter of 2009 decreased to $5.5 million from $6.1 million for the first quarter of 2008, primarily, due to reduced revenue recognized with respect to the ongoing development programs for Amitiza funded by Takeda. The decrease was partially offset by about $400,000 of revenue recognized from the initial upfront payment of $10 million received from Abbott in Japan.
The research and development expenses decreased to $10 million in the first quarter of 2009 from $11.2 million in the comparable quarter in 2008. The amounts for the first quarter of 2008 included approximately $2.5 million of expenses incurred in connection with our European marketing authorization applications for Amitiza that we filed in 2008. This decrease was offset in part by an increase in costs for ongoing clinical and preclinical development programs for Amitiza, cobiprostone and SPI-017 during the first quarter of 2009.
In respect to our recent agreement with RTU for Rescula, we expect to amortize the $3 million upfront payment for the rights for Rescula over the term of the license agreement. As you have noted from our press release, we had provided more data on the financial results of our three subsidiaries that are operating in different geographical areas of the world. These results continue to reflect the varying stages of development of these segments and our continuing investment in the international expansion.
Sucampo Pharma Americas or SPA, was primarily focuses is currently on US operations, recorded income before taxes of about $1.2 million, compared to a pre-tax loss of $2.9 million, mainly as a result of an increase in product growth revenue and lower R&D expenses.
Our European subsidiary, Sucampo Pharma Europe or SPE recorded a loss before taxes of $0.5 million for the first quarter of 2009, compared to a loss of $1.8 million in the first quarter of 2008. The 2008 pre-tax loss resulted primarily from expenses that we incurred in 2008 in connection with our European filings for Amitiza.
Our Japanese subsidiary, Sucampo Pharma Limited, recorded a loss before taxes of $2 million in the first quarter of 2009, as compared to a loss of $0.4 million during the first quarter of 2008. These losses reflect the ongoing investments to plan and implement a phase 3 clinical program for Amitiza in Japanese stations and ongoing phase 1 trial of SPI-017 for peripheral arterial disease and ongoing pre-clinical programs for other prostone-based compounds.
As Dr. Ueno mentioned earlier, our Japanese subsidiary received a $10 upfront payment under our agreement with Abbott, Japan and as a result SPL recognized to appropriately $0.4 million of R&D revenue. This represents the first revenue from our Japanese operations.
We will be recognizing this payment together with other milestones that we may receive during the Amitiza's development in Japan over the development period. The revenue will be recognized, using a percentage of completion method. In other words, the revenue will be linked to the progress of our Amitiza research and development and regulatory process in Japan.
Our tax provision for the first quarter of 2009 mainly pertains to taxable income generated by our US subsidiary. Our effective tax rate for 2009 is expected to be in mid-to-high 30s, in respect to the US results from operations, while it is expected to be zero in regards to the international operations.
We do not expect to pay any taxes in Japan this year, as we believe, we will be able to utilize our cumulative net operating losses there. We will however continue to provide full valuation allowances against any international deferred tax assets. We continue to work on optimizing our tax overall tax structure.
Let me finish by highlighting our strong financial and liquidity position. Sucampo continues to have no debt. Our cash, cash equivalent and investments totaled $130.6 million at March 31, 2009 compared with $121.5 million at the end of 2008.
The increase is primarily attributable to the $10 million payment received from Abbott and also a change in valuations of our investments in auction rate securities, offset by changes in our working capital and cash used in our operations.
I will now turn the call back to Dr. Ueno for closing remarks. Dr. Ueno?
Thank you. To conclude, I want to highlight Sucampo's continued progress and anticipated key events for the remainder of 2009. Despite the difficult economic turmoil, Sucampo continues to demonstrate substantial progress in a number of areas.
We are continuing to invest in research and development of new prostone molecules and our international operations. We completed a licensing, commercialization and supply agreement with Abbott in Japan and acquisition of US and Canadian rights of Rescula. We continue to have ongoing discussions with potential partners for Amitiza and are focused on the build-out of our international infrastructure.
We look forward to keeping you informed about all of the key activities as we proceed through 2009. These include, first, phase 3 trial of Amitiza for chronic idiopathic constipation in Japan. We continue to anticipate initiating that trial in mid-2009.
Second, for Amitiza for OBD, we continue to expect to announce topline efficacy results from the two pivotal phase 3 trials of Amitiza for treatment of opioid-induced bowel dysfunction about the middle of 2009. Also, for the OBD program, we anticipate announcing topline results from the safety extension trial at the very end of 2009.
Third, for Amitiza in Europe, we continue to anticipate receiving final marketing application decisions for Amitiza in up to 10 European countries during 2009. If we receive approval in each of these countries, we may then proceed to pricing negotiations with the relevant authorities.
For cobiprostone, we continue to anticipate reporting topline results of the phase trial for the prevention of NSAID-induced ulcers in mid-2009. For SPI-017, we anticipate continuing the phase 1 trial of the IV formulation in Japan into 2010.
I would like to conclude my comments by reiterating that, Sucampo's financial position remains strong. Our portfolio of commercial products has been expanded and our R&D pipeline is advancing as anticipated. That ends our prepared comments for this evening, and we will now be happy to answer your questions.
(Operator Instructions). Your first question comes from the line of Jim Molloy with Caris & Company. Please proceed.
Jim Molloy - Caris & Company
$15 million was the topline number from Takeda for Amitiza. Is that correct?
That is correct.
Jim Molloy - Caris & Company
Any thoughts on that number going forward or why down pretty sharply from fourth quarter '08, any thoughts to what happened there?
Jim, we are trying to explain in the prepared remarks was that there was a difference in revenue recognition and that quarter four 2008 numbers were slightly higher, because they recognized some of the revenue on the initial shipments in that period. Definitely there was a reduction between the fourth and the first quarter.
Jim Molloy - Caris & Company
Any thoughts on, what gets the product growing again, I mean, you look at the second and third quarter 49, 51, now 50 in the first quarter, here kind of flattish for coming on the year now. When we'll get to the next level, do you think?
Well, Jim at this time, we are disappointed with the level of Amitiza sales, we're seeing from Takeda. We are looking into ways to address the situation at this time. We are in constant discussions with them to look at ways that we can do to improve sales in the retail sector.
Jim Molloy - Caris & Company
Any ways you would get your share?
Well, at this point in time, I'd rather not. Just due to the competitive environment, we don't reveal certain things. I'm refraining from just any real detailed follow-up, just due to the competitive environment we are facing right now.
Your next question comes from the line of Ian Sanderson with Cowen & Company. Please proceed.
Ian Sanderson - Cowen & Company
Hopefully, you can hear me okay. Maybe Stan, if you could discuss the Rescula relaunch plans. You did mention that or hinted at expanding the sales marketing infrastructure in preparation for that. Can you talk about just, what you're looking to do there?
Would it be complementary to the existing kind of long-term care sales force or would you do something targeting ophthalmologists as the specialty? Secondly, talk a little bit about the same issues in Europe and Japan, whether the Sucampo plans to build-out infrastructures in those markets?
Well, without revealing too much information, I will say as it relates to Rescula, we are basically looking at doing both. I mean we certainly feel that, based on the safety profile and the current indications of Rescula it's a very good fit for the current segments that we cover. So, with the existing sales force, it would be a nice natural fit as a second product within their bag.
As it relates to some other internal infrastructure areas, we are definitely looking at in increase infrastructure on many different fronts. But we will have additional call points at some point eventually, where we would include certain ophthalmology or retina specialists within our call cycle, that certainly a work in progress that we would get into more detailed next year.
As it relates to our European operations, clearly there is a template and there is plan's in place for us, once we start getting some of the approvals, towards the later part of the year, but, we are clearly looking to ramp things up, and have great expectations for our European launch in the certain countries depending on reimbursement and approval, as well as, with some other potential partners in the Western European area.
Ian Sanderson - Cowen & Company
May I ask you in Japan are there any plans, now that you separated out the financials in to the different subsidiaries any plans to build an infrastructure in Japan?
At this point in time, there are no immediate plans and certainly the study completion is a bit of a ways off. At this point in time, there are no immediate plans.
(Operator Instructions). And your next question comes from the line of Andrew Finkelstein with Leerink Swann. Please proceed.
Andrew Finkelstein - Leerink Swann
Assuming we have the OBD data in the middle of this year, can you give any more clarity in terms of where the filing timeline is from there?
Well, we have the expertise's results by the middle of this year. We expect to have the long-term study will be completed, our last phase of that would be in late September, and so we will anticipate a filing with FDA in the first quarter of 2010.
Andrew Finkelstein - Leerink Swann
In terms of the Rescula program for AMD, is there any numbers you need to put around, the kind of investment you're contemplating there? What options you might have in terms of funding that? Whether you're going to take it all the way through yourself or consider partnering it at some point?
We don't yet have a definitive plan for the AMD, but the RTU is now conducting a trial for retinal degeneration in Japan. So, that result may help to calculate or plan our future and the trial.
Anyhow, we are targeting a dry AMD and currently none of the drug is approved. So, maybe talking with FDA and setting the right protocol is the first priority. So, we are now studying about all these potential possibilities.
I'd say the first thing we have to do is agree on a protocol for dry AMD with FDA for our phase 2 and that will be a phase 2 trial. So it'll be a dose ranging study and then depending upon the results from that, we will proceed to our phase 3 study.
At this time, you have no further questions.
Okay. Thank you very much everyone for joining for our earning release call of the first quarter of 2009. Thank you very much.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.
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