Sucampo Pharmaceuticals' CEO Discusses Q2 2013 Results - Earnings Call Transcript

Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP)

Q2 2013 Earnings Conference Call

August 8, 2013 17:00 ET

Executives

Silvia Taylor - Senior Vice President, Investor Relations, Public Relations and Corporate Communications

Dr. Ryuji Ueno - Chairman, Chief Executive Officer and Chief Scientific Officer

Stan Miele - President, Sucampo Pharma Americas LLC and Senior Vice President, Sales and Marketing

Taryn Joswick - Vice President, Clinical Development

Cary Claiborne - Chief Financial Officer

Tom Knapp - Executive Vice President, Chief Legal Officer, and Corporate Secretary

Analysts

Irina Rivkind - Cantor Fitzgerald

Jason Aryeh - JALAA Equities

Ed Arce - MLV & Company

Dr. Shaukat Khan - Maxim Group

Operator

Good afternoon, and welcome to the Sucampo Second Quarter 2013 Financial Results Operating Highlights Conference Call. For opening remarks and introductions, I would like to turn the call over to Silvia Taylor, Sucampo’s Senior Vice President of Investor Relations, Public Relations and Corporate Communications. Please go ahead.

Silvia Taylor - Senior Vice President, Investor Relations, Public Relations and Corporate Communications

Thank you and good afternoon everyone. Thank you for joining us today. The earnings release and its attachments announcing Sucampo’s second quarter 2013 financial and operational highlights was distributed this afternoon. For those of you who have not yet seen it you will find it posted in the Investors section of our website at sucampo.com. We also plan to file our 10-Q this week, and once filed, a link to that document will also be posted on our website.

The agenda for our call today is as follows: Dr. Ryuji Ueno, Chairman of the Board, Chief Executive Officer and Chief Scientific Officer will provide an overview of the quarter. Stan Miele, President of Sucampo Pharma Americas LLC and Senior Vice President of Sales and Marketing will review developments in the U.S. for AMITIZA and RESCULA, as well as AMITIZA developments in Japan and Europe. Taryn Joswick, Vice President of Clinical Development will review our pipeline activities, followed by Cary Claiborne, Sucampo’s CFO who will review the financials.

Finally, Dr. Ueno will provide closing comments just ahead of the Q&A portion of the call. Additional members of Sucampo’s team are present and available to answer your questions then. Before we begin, please note that various remarks management makes on this conference call and the information contained in today’s earnings release are as of August 8, 2013. The company assumes no obligation to update forward-looking statements contained in this conference call, earnings release or the attachment as a result of new information or future events or developments.

This conference call, earnings release and the attachments contain forward-looking information about the company’s future operating and financial performance, business plans and prospects, in-line products and product candidates, and share repurchase plans that involve substantial risks and uncertainties. Please refer to the forward-looking statement in the 10-K found on our website for additional risk factors affecting our forward-looking statements.

And now, I will turn the call over to Dr. Ueno. Please go ahead, Dr. Ueno.

Dr. Ryuji Ueno - Chairman, Chief Executive Officer and Chief Scientific Officer

Thank you, Silvia. Hello everyone. Thank you for joining our conference call today. I would like to begin today’s call by following up on the press release we just issued announcing that Sucampo has begun the search for new CEO. We also announced that once the Board of Directors name a new CEO, I will focus exclusively on my role as Chief Scientific Officer of Sucampo.

Sucampo’s scientific force is its proprietary platform technology since I co-founded Sucampo in 1996 with just three full-time employees. The company has experienced tremendous change and has grown into a global biopharmaceutical company with two approved products and revenue on three continents. Today, we are poised to continue Sucampo’s growth and enhance shareholder value through new indications and expanded market for AMITIZA. The search for partners who can help us unlock the value of our AMITIZA franchise, the continued commercialization of RESCULA, and the development of our rich prostone-based pipeline.

Sucampo’s growth scenario is already in place with AMITIZA approaching $300 million in sales, the opioid-induced constipation indication approved for AMITIZA in the United States and the successful launch of AMITIZA in Japan, which is exceeding our expectations. These are the ongoing drivers for the growth of Sucampo. When I co-founded Sucampo almost two decades ago, our mission was to develop and commercialize prostone-based medicines to meet the major unmet medical needs of patients on a global basis.

I am proud of the progress we have made since then to advance that mission, and it is more true today than ever. The foundation of our company is science, and if we take seriously our responsibility and opportunity to bring the power of our prostone technology to the millions of patients who may benefit from it. I am convinced that there is still significant and untapped therapeutic potential for prostones with additional prostone product to be discovered.

Sucampo is now poised for its next phase of growth, which will be driven by continued scientific innovation, development of additional indications for our two approved products, AMITIZA and RESCULA, as well as entirely new prostone compounds that can meet underserved patient needs in novel ways. To fuel that growth, we have a pediatric indication and a liquid formulation in development for AMITIZA. We are also looking at novel applications, such as IBS mixed and IBS with diarrhea. And for RESCULA, we are investigating retinal disease, such as retinitis pigmentosa, which is currently in Phase 3.

Our prostone pipeline is also rich in new therapeutic areas and compounds we are moving from research into the clinic. Therefore, I believe that now is the right time for me to focus exclusively on advancing the scientific potential of our prostone technology. As a result, Sucampo announced today that it has begun a search for my replacement and that once a new CEO is named by the Board, I will remain at Sucampo as CSO. My commitment to my fellow shareholders, partners, employees, and the many customers we serve is that I will work with the management team of Sucampo as well as our Board to ensure a smooth transition period.

Now, I’d like to turn our attention to our second quarter results. The highlight of the second quarter was the approval of our supplemental new drug application by the FDA for AMITIZA, the first and only oral indication for the treatment of opioid-induced constipation, OIC, in patients with chronic non-cancer pain. Although we are still in the early days of launching this third indication for AMITIZA, we are receiving positive feedback on the OIC launch. Following the commercial launch of AMITIZA for OIC, we received the $10 million milestone payment from our U.S. partner, Takeda. We are excited that AMITIZA prescriptions continue to grow this quarter. Stan Miele will talk more about the AMITIZA progress later on in this call. We are also excited by the success that AMITIZA is having in Japan as sales continue to exceed our expectations.

Sucampo’s revenue from sales of AMITIZA to our Japanese partner Abbott Japan grew an impressive 49% this quarter to almost $3.3 million. Abbott reports to us that AMITIZA is gaining traction with physicians and patients in Japan, where it is the first prescription product approved for chronic constipation. Abbott has a concerted commercialization strategy in Japan to capitalize on patient demand then completed a dTC, disease awareness pilot in June that consisted of television and newspaper advertisement in select markets. We are looking forward to leaning the results of the pilot in the near future.

In Europe, we are actively marketing AMITIZA in Switzerland, while in the United Kingdom we continue to work on securing the nice endorsement. We are working with regulators in the UK and Switzerland to progress our applications for the OIC indication. We look forward to continuing to update you on our European progress in the coming months.

During our Q1 earnings call, we discussed the significant interest we are receiving for strategic alliance for AMITIZA for other global markets outside of the U.S. and Japan, including Europe and several Asian and emerging markets. Those discussions are progressing, and we’ll update you as they evolve. At the same time, we have increased the efficiency of our European operations and look forward to expanded opportunities in the region. The U.S. launch activities to support RESCULA, product for the lowering of intraocular pressure IOP in patients with open-angle glaucoma ocular hypertension continues. We are seeing monthly sales growth and positive feedback for physicians whose patients have used this product. Stan will discuss our progress on RESCULA in greater detail.

This quarter, we also continued to make progress in advancing our pipeline of prostone-based candidates. As we recently announced, we received open drug designation in the European Union for unoprostone isopropyl for the treatment of retinitis pigmentosa or RP. As you may know, unoprostone also has open drug designation for RP in United States. RP is degenerative disease of photoreceptor cells in the retina which causes progressive vision loss and ultimately blindness. There are no pharmacological agents currently approved for RP.

Our development partner, R-Tech Ueno is in a Phase 3 clinical trial for their compound for this indication and a substantial portion of the development costs for the program are being funded by the Japan Science and Technology Agency. Sucampo has global rights to the clinical data for potential filing in Europe, the U.S. and the other regions. And we will decide on our path forward upon reviewing the interim results of the Japanese trial late next year.

Planning continues for development program of AMITIZA for pediatric functional constipation in the U.S. and Europe. We are on track to initiate the first Phase 3 trial in the second half of this year. And Taryn Joswick will provide some more details on this program. Our liquids formulation development program is also on schedule. We are looking forward to continuing to report on our progress in the months to come. As we’ve recently announced this quarter, we completed the Phase 1a trial for SPI-3608 which is being investigated for the oral treatment of lumbar spinal stenosis. The study result indicated that SPI-3608 was generally well tolerated across the dosing range. We are pleased by these results and will begin the next phase of development in the first quarter of 2014.

Our Phase 2a trial of SPI-017 for the intravenous treatment of severe lumbar spinal stenosis also continues. We expect this trial to conclude in the fourth quarter of 2013 and we look forward to updating you on those results in early 2014. Additionally, as reported in our Q1 earnings and the recently announced, we completed a Phase 1a study for an oral spray formulation of cobiprostone, our compound for prevention and/or treatment of oral mucositis, which demonstrated that the product was generally well tolerated overall. We are now moving forward with Phase 1b trial of cobiprostone in the fourth quarter.

Cary Claiborne will provide additional financial details on the quarter later in this call. But first I want to provide some quick highlights. Several months ago, I reaffirmed my commitment and that of my team to increasing long-term shareholder’s value. I talked to you about the efforts we’re making to streamline our operations and expenses in many areas across the company. This quarter, we decreased spending across several areas and experienced a 23% year-over-year decline in total operating expenses. We’ve increased our efficiency without sacrificing our productivity and we achieved net income of $6.1 million this quarter. This compares to net loss of $0.8 million for the prior year period.

Increasing transparency with shareholders and the financial community is also a priority for us. Therefore today we will be providing guidance for 2013 and 2014 earnings. We are currently forecasting to be approximately breakeven in 2013 with profitability anticipated in 2014. In addition, we are considering ways to share profitability with shareholders in the future such as payment of an annual dividend assuming future net profitability. Cary Claiborne will discuss our financial highlights in greater detail later on during this call.

I will now turn the call over to Stan Miele for an update on our commercial developments in the United States, Japan, and Europe. Stan?

Stan Miele - President, Sucampo Pharma Americas LLC and Senior Vice President, Sales and Marketing

Thank you, Dr. Ueno and good afternoon everyone. Welcome to the call. From a commercial standpoint, the highlight of the second quarter was the approval of a third indication for AMITIZA in the U.S. for opioid-induced constipation in patients with chronic non-cancer pain and the receipt of our $10 million milestone payment from our U.S. partner Takeda upon the commercial launch of OIC. As mentioned earlier by Dr. Ueno, AMITIZA is the first ever oral medication approved for this indication. And during this quarter Takeda mounted a comprehensive campaign designed to capitalize on this opportunity for AMITIZA.

Let’s start with a recap of the commercial opportunity for OIC. OIC is an area of unmet medical need with more than 200 million prescriptions for opioid used in the U.S. annually and 40% to 80% of patients on chronic opioids will experience OIC. To put some numbers behind it that’s 2 million to 2.5 million patients that we conservatively estimate will have moderate-to-severe OIC. Analysts estimate that this could double AMITIZA sales at peak. Sucampo and Takeda intend to capitalize on this OIC opportunity. As reported by our partner they are putting the appropriate resources behind this launch. And they have added several thousand physicians to their target list since the middle of May, including pain specialists and primary care physicians who are high prescribers of chronic opioids. We are pleased with the initial efforts and believe that we are already starting to see some early lift as a result especially among specialist. IMS data demonstrates that pain specialist and anesthesiologist have had a marked increase in prescribing AMITIZA immediately following the OIC launch in mid-May.

While we find these early data points encouraging, we believe it’s too early to see the full impact of the AMITIZA OIC launch. We believe the analyst reports that show a modest growth for the balance of 2013, substantial growth in 2014 and a doubling of AMITIZA sales at OIC peak, our reasonable forecast of the opportunity. We are also quite pleased that AMITIZA volume continues to grow without really seeing the benefit of the OIC launch in mid-May.

As we reported earlier today, AMITIZA net sale have increased during the quarter by 3% to $66.7 million for the second quarter of 2013 as reported by our partner. This growth in net sales was primarily due to both volume and price increases. Total prescriptions for AMITIZA grew approximately 3% in the quarter versus the same quarter in 2012. In the phase of intense new competition, we had experienced no significant erosion in our established CIC and IBSC business. In fact we believe that the new market entrant has helped to expand the overall prescription market. And based on IMS data, the majority of new AMITIZA prescriptions are coming from over-the-counter products.

Our assessment of prescribers indicates that more than 50% of our overall prescription share is with primary care physicians, physician assistance, and nurse practitioners. This number continues to grow based on our perceived safety advantage and our time tested seven years on the market in more than 7 million prescriptions. Additionally, we have maintained consistent share among gastroenterologists. We continue to focus on vigorously defending and growing our core base business indications, and we have confidence in the growth potential of OIC. As is usual practice not only do we collaborate with Takeda, but we do continue to monitor all their commercial activities. Given the excitement following the recent OIC approval in the U.S. and growth in base business, there has been renewed interest from Takeda Canada to explore commercializing AMITIZA in Canada and we are planning to meet with Health Canada on best ways to proceed with AMITIZA registration in this market in the near future.

Turning now to RESCULA to round out our U.S. update, in the second quarter, we continued our launch efforts for RESCULA targeting ophthalmologists and optometrists. As Dr. Ueno mentioned, we are seeing steady and consistent monthly sales growth and positive feedback from physicians and patients who have used the product. All of our wholesalers have had several reorders to the forward distribution centers indicating we have worked through much of our initial inventory. We are very pleased with the feedback we are getting from eye specialists who have prescribed RESCULA. Recent market research indicates that for those who have prescribed 75% had a favorable clinical response and clearly recognized the role for a medicine with RESCULA safety and tolerability profile.

Also as reported by the eye specialists who have prescribed RESCULA, the drug’s efficacy is meeting or exceeding their initial expectations. Despite distributing 90,000 samples, our early uptake curve has not met our initial expectations. This is primarily due to community eye specialists waiting to hear from peers where they are using RESCULA before utilizing the samples and also because of reimbursement issues with managed care. We have begun peer-to-peer programs in June as now the initial RESCULA adopters have had sufficient experience to articulate the patient types, where they use RESCULA. We will increase these programs in the second half of the year. We are working hard to solidify our managed care positions and are aggressively negotiating with all PBMs and managed care plans representing over 80% of the covered lives. We are confident we can improve our position on managed care, but it may take the next six months to get on the key Medicare Part D plans. While we would have hoped for even more RESCULA prescriptions at this time, we are encouraged by the positive feedback from current prescribers and the unique place in treatment for RESCULA among patients who do not tolerate or are non-responsive to prostaglandins. We will continue our strong efforts to increase trial among additional eye specialists.

Turning now to our global markets, we also believe that ex-U.S. markets are important growth drivers for the business. Let’s start with Japan, where sales continue to be above our partner Abbott’s original projections. In the quarter, our sales to Abbott in Japan were up 49% to $3.3 million compared to $2.2 million for the first quarter of the year. According to in-path track data, a Japanese sales information provider, in June over 70% of doctors’ surveys answered that they will either maintain or increase their level of prescribing of AMITIZA.

Market research also demonstrates that the top reason that doctors use AMITIZA is because of its unique mechanism of action as a chloride channel activator. The next reason to prescribe AMITIZA is efficacy in their patients. Also while Japanese physicians are currently limited to writing prescriptions for only two weeks at a time, this limitation will be removed this November. Additionally Dr. Ueno mentioned earlier, we are looking forward to the result of a pilot DTC campaign run by Abbott in June. We expect that the positive reaction we are having from prescribers and physicians, the removal of the two-week limitation and other important initiatives planned by Abbott will result in increasing sales of AMITIZA in Japan.

In Europe, we have begun active marketing of AMITIZA in Switzerland and already gastroenterologists are beginning to initiate therapy on CIC patients. We hope to receive regulatory approval in the first half of 2014 for OIC in the United Kingdom and Switzerland. The MHRA has begun their assessment report as part of the mutual recognition procedure to expand AMITIZA’s approval to additional EU markets. The MHRA is expected to finalize their report following the OIC approval. And at that point, we will decide how broadly we will file throughout the EU.

In the United Kingdom, we continue to work on securing the nice endorsement for AMITIZA. We have also been streamlining our European operations to ensure that we are operating as efficiently as possible. We also initiated partnership discussions for strategic alliances for AMITIZA for global markets outside of the U.S. and Japan, including Europe and several Asian and emerging markets. We hope to have news of the outcome of these decisions sometime next year.

I would now like to turn the call over to Taryn Joswick to discuss our pipeline development activities.

Taryn Joswick - Vice President, Clinical Development

Thank you, Stan, and good afternoon, everyone. I’d like to begin by updating you on the AMITIZA Phase 3 development program for pediatric functional constipation. As you may know, constipation is one of the most common gastrointestinal complaints in children. Prevalence of pediatric constipation worldwide is estimated to be approximately 18%. In the United States alone, this means that 13.5 million patients under the age of 18 maybe suffering from constipation with no prescription treatment options labeled for use in this population. Literature meta-analysis suggests that up to 50% of children who are diagnosed with constipation will remain severely constipated at 5-year follow-up visits despite treatment with existing OTC therapies.

Sucampo has already completed an open-label study of AMITIZA in 124 patients aged 3 to 17 years of age. We look forward to sharing some results from this study at the 2013 Annual Meeting of the North American Society for Pediatric Gastroenterology, Hepatology and Nutrition, or NASPGHAN in early October in Chicago. The full results of this study will be published in the near future. The planned program built upon the successful open-label study and consists of two well-controlled pivotal studies with parallel designs, one in younger patients aged six months to under six years, and another in patients 6 to 17 years of age. We also plan to evaluate the long-term safety of AMITIZA in these populations. We have made significant progress this quarter and are planning for the launch of the pediatric program, including discussions with the FDA on the study design. We have also been working closely with pediatric gastroenterologists on the study protocol.

Study feasibility is complete, and I am happy to report that we have identified substantial numbers of clinical investigative sites in 10 countries in North America and Europe. These clinicians are excited to participate in what will be the first robust well-controlled studies of a pharmaceutical therapy for this indication. We believe we are on track to enroll the first patient in the second half of this year. And I look forward to continuing to update you on our progress. Takeda is funding 70% of the clinical development costs for this indication, as well as 100% of the costs for a liquid formulation of AMITIZA, which will provide an alternative dosing option for patients.

Finally, as Stan outlined, we believe that there is significant opportunity with AMITIZA, and we have been exploring different lifecycle management opportunities with our partners. As we reported yesterday, this quarter we completed a Phase 1a study of SPI-3608 which is under development as an oral treatment of mild-to-moderate lumbar spinal stenosis. Lumbar spinal stenosis, or LSS, is a common degenerative disease of the spine caused by a narrowing of and diminished blood flow to the spinal cord. LSS causes numbness and muscle weakness in the lower extremities, along with increased pain while walking. The Phase 1a study which was conducted in Japan assessed the tolerability and the pharmacokinetic profile of single SPI-3608 dose administration in healthy men and demonstrated that SPI-3608 was generally well tolerated across the range of doses tested. We plan to begin the next phase of development for this compound in the first quarter of 2014. We are also continuing our progress on the Phase 2 trial of SPI-017 for the intravenous treatment of severe lumbar spinal stenosis and we expect to conclude this trial in the fourth quarter of this year.

There are currently no approved medications in the United States or Europe for LSS and in Japan the only approved medication is an oral PGE1 analog. We believe that prostone technology has the unique ability to target several aspects of this disease. And we look forward to continuing to update you on the progress of our clinical program for both the oral and IV compounds.

Finally, yesterday we also reported the results of the Phase 1a trial for an oral spray formulation of cobiprostone which is underdevelopment for the prevention and or treatment of oral mucositis. Oral mucositis is a debilitating side effect of radiation therapy and chemotherapy in cancer patients. The disease can be treatment-limiting meaning that radiation therapy may have to be stopped due to the effects of oral mucositis.

The symptoms include severe pain and dry mouth. Eventually due to the formation of ulcers, some patients cannot eat or drink. While there are a few compounds available to address various stages of oral mucositis, there is currently no treatment available to address multiple aspects of this disease. As we reported the Phase 1a trial cobiprostone demonstrated that the compound was generally well tolerated. We intend to advance cobiprostone into Phase 1b trial in the fourth quarter of this year.

And now, I'd like to turn the call over to Cary Claiborne for financial update.

Cary Claiborne - Chief Financial Officer

Thanks Taryn. Good afternoon, everyone. I would like to review the financial highlights for the quarter with you. Total revenue for the second quarter of 2013 was $27 million compared to $16.7 million in the second quarter of 2012, a growth rate of 62%. Total revenue for the first six months of 2013 was $43.9 million compared to $31.1 million for the same period in 2012, a growth rate of 41%.

R&D revenue for the second quarter of 2013 was $11.5 million compared to $3.1 million during last year’s second quarter. R&D revenue for the first half of 2013 was $14.2 million compared to $5.7 million in the same period last year. The increase in R&D revenue was primarily due to the receipt of the $10 million milestone payment from Takeda upon the launch of OIC, partially offset by a decrease in R&D activities reimbursable to us by Takeda when compared to the second quarter of 2012 which had higher costs associated with our Phase 3 trial for AMITIZA in OIC patients.

Product royalty revenue for the second quarter of 2013 was $12 million, an increase of $0.3 million from $11.7 million in last year's second quarter. Product royalty revenue for the first six months of 2013 was $23.7 million, an increase of $1.1 million from $22.6 million in last year’s first half. The increase in product royalty revenue for both periods was due to an increase in net sales of AMITIZA. Product sales revenue for the second quarter of 2013 was $3.4 million compared to nil in last year’s second quarter.

Product sales revenue for the first six months of 2013 was $5.6 million compared to nil in last year’s first half. The increase was primarily due to the sale of AMITIZA product to Abbott in Japan. As we have mentioned previously, our sales in Japan continued to exceed our initial forecast. Additionally, when you factor in the decline in the Japanese yen versus the dollar this year, the growth above our expectations is even more impressive.

One notable reduction in our net revenue this year is in the co-promotion revenue. This line item represents a reimbursement by Takeda to a portion of the cost of our specialty sales force for co-promoting AMITIZA in the U.S. Co-promotion revenue for the second quarter of 2013 was nil compared to $1.8 million in last year’s second quarter. Co-promotion revenue for the first six months of 2013 was $0.1 million compared to $2.5 million in last year’s first half. The decrease for both periods was driven a shift of our sales force from selling AMITIZA which had been partially reimbursed by Takeda to selling RESCULA which is fully funded by Sucampo.

And finally as it relates to revenues, U.S. net sales of AMITIZA as reported to us by our partner Takeda for royalty calculation purposes increased 3% to $66.7 million for the second quarter of 2013 compared to $65 million for the second quarter of 2012. And for the first six months of 2013 increased 5% to $131.5 million compared to $125.7 million for the same period in 2012.

The slide before you shows some additional detail from our P&L for the second quarter results. I have already covered our revenue driver so I’ll go right to expenses from this slide. R&D expenses which are comprised of expenses for clinical development of the lubiprostone pediatric indication and liquid formulation Phase 1 trial expenses for oral mucositis and clinical development expenses for our lumbar spinal stenosis program was $4.4 million for the second quarter of 2013 compared to $5.2 million in last year’s second quarter. The decrease in R&D expense was primarily due to higher costs incurred in 2012 related to our Phase 3 program for lubiprostone for OIC patients.

R&D expenses for the first half of 2013 were $10 million compared to $8.6 million in the first half of 2012. The increase was primarily driven by costs on our Phase 2 program for lumbar spinal stenosis, higher costs associated with our clinical development of AMITIZA pediatric indication, higher indirect costs including regulatory fees and a provision related to the loan guarantee for Numab.

G&A expenses were $6 million in the second quarter of 2013 compared to $8 million for the same period in 2012, a decrease of $2 million or 26%. G&A expenses were $13.2 million in the first six months of 2013 compared to $15.3 million in last year’s first half, a decrease of $2.1 million or 14%. For both periods the decrease in G&A expense 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 $0.5 million and $1.6 million increase in pharmacovigilance costs associated with the launch of AMITIZA in Japan for the second quarter and six-month period respectively. Excluding the impact of pharmacovigilance costs which are typically much higher during the launch phase of a new drug, G&A expenses decreased $2.6 million or 33% in the second quarter and $3.7 million or 25% in the first half of 2013. So, we are quite pleased with our cost control performance so far this year.

Selling and marketing expenses were $4.6 million in the second quarter compared to $6.1 million in last year’s second quarter. Selling and marketing expenses for the first half of 2013 were $9.9 million compared to $10.2 million in last year’s first half. The decrease in selling and marketing expenses primarily relates to non-recurring pre-commercialization planning activities for both AMITIZA and RESCULA that occurred in 2012 and did not occur in 2013.

Let’s look at income next, for the second quarter of 2013 income from operations was $10.2 million compared to a loss of $2.7 million in the second quarter of 2012. Income from operations for the first six months of 2013 was $7.6 million compared to a loss of $3 million in last year’s first half. For the second quarter of 2013, Sucampo recorded a net income of $6.1 million, or $0.14 per diluted share compared to a net loss of $0.8 million, or $0.02 per diluted share in the second quarter of 2012. Sucampo’s net income for the first half of 2013 was $3 million, or $0.07 per diluted share compared to a net loss of $2.7 million, or $0.07 per diluted share in the first half of 2012.

Let’s move on to the balance sheet. As of June 30, 2013, cash, cash equivalents, restricted cash, and investments were $93.5 million compared to $91.4 million at December 31, 2012. As of June 30, 2013, notes payable were $57.7 million compared to $52.9 million as of December 31, 2012. I want to update you on our stock purchase program. The authorized amount of our share repurchase program remains unchanged with the company being authorized to buyback up to $5 million of our common stock. Since inception, we have repurchased approximately $2.3 million of our common stock. We believe that the cumulative repurchases made through the first half of this year mitigate any dilutive impact of employee and others exercises of stock options in the same period. The repurchase program maybe used in the future to continue to address any such dilutive effects. We also announced today our earnings guidance for 2013 and 2014. We are guiding to be approximately breakeven in 2013 and to be profitable in 2014. In addition, as Dr. Ueno mentioned earlier, we will be considering ways to share profitability with our shareholders in the future.

With that, I’d like to now turn the call back over to Dr. Ueno for concluding remarks before we go back to Q&A. Dr. Ueno?

Dr. Ryuji Ueno - Chairman, Chief Executive Officer and Chief Scientific Officer

Thank you, Cary. We have set the following key value drivers for the year as we believe will increase shareholder value. As Miele said, we have achieved 7 of our 13 value drivers in the first half of this year, which are as follows, approval of the OIC indication for AMITIZA in the United States, receipt of a $10 million milestone payment from our partner, Takeda, following the commercial launch of AMITIZA for OIC, continued growth of AMITIZA sales in Japan, which continue to be above both our and Abbott’s expectations, filing for approval of AMITIZA in the treatment of OIC in the United Kingdom and Switzerland, beginning active marketing of AMITIZA in Switzerland for CIC, the launch of RESCULA in the United States and completion of our oral mucositis Phase 1a trial for cobiprostone in the second quarter of 2013.

We are on track to achieve our remaining 2013 value drivers, which are engaging in discussions for strategic alliance for AMITIZA for new indications and new territories outside of the United States including Europe and several Asian and emerging markets achieving first-patient first-visit in our pediatric constipation Phase 3 trial for AMITIZA in the second half of 2013.

In UK, filing for NICE endorsement and launching AMITIZA, submission of filing for AMITIZA in other European markets, initiation of the next trial in the program for oral mucositis in the fourth quarter of 2013, and completion of our spinal stenosis Phase 2a trial for SPI-017 in the fourth quarter of 2013. In addition as we have discussed during the second half of the year, Sucampo will be actively engaged in the search for new Chief Executive Officer. We are looking forward to this next phase in the company’s evolution.

As you can see, the second half of this year promises to be a busy and productive one. I thank you for your continued support as we advanced our mission of delivering important medicines for patients and work to increase shareholder value. We are now ready to start the Q&A portion of the call. Operator, please open up the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Irina Rivkind representing Cantor Fitzgerald. Please proceed.

Irina Rivkind - Cantor Fitzgerald

Hey, guys. Thanks for taking the questions. I just wanted to talk a little bit about the expense rates and the run rates going into the back half of the year. Should we look at this quarter as sort of a good place for the reminder of the year or you are expecting, for example, R&D to kind of tick up as you start some of these additional trials? That’s the first question? And then maybe if we could flip to AMITIZA and the OIC launch maybe you could comment on acquiring new prescribers and how that’s going and if they are writing additional – more scripts over time, are you are getting them more comfortable and how is the OIC launch offsetting any competitive pressure from Linzess? Thanks.

Dr. Ryuji Ueno

Yes, I’ll take the expense side first. I think on the R&D side, I think Q2 without giving specific guidance, we are starting, we gave you earnings guidance, and now you want the line item guidance, Irina, we are going to give you a little bit out of time here, but I think if you take our average for Q1 and Q2, that gives you a pretty close approximation for an average in the second half of the year.

Stan Miele

Hi, Irina, this is Stan. So, I think with respect to the OIC launch, a couple of things. And as you are aware of certainly with anesthesiologists and pain specialists, albeit, it’s just looking at the weekly data, but we have seen a very nice increase within that specialty segment. As it relates to the broader market specifically with primary care and the OIC launch, it’s still a bit early in the overall assessment to determine the impact and the effect. The good news is we see it is that clearly there has been no real erosion in our core base. But our biggest growth in prescribers, if we take a look at year-over-year on a quarterly basis, there is a 6% increase in our primary care prescribers. And then when we also take a look at osteopathic medicine as well as just some of the mid-level prescribers, we have also seen about a 7% increase in overall total prescription growth within those segments. So, we are adding prescribers, but we are adding it in the areas that we expect to see it, which is in primary care and in the mid-level prescribers.

Dr. Ryuji Ueno

And I just want to add one more, I would say on Q4, you probably will see R&D go up, probably the pediatric program, but you would see revenue go up as well on R&D side.

Irina Rivkind - Cantor Fitzgerald

Okay, thanks. And then on I think on the other call you mentioned the new-to-brand patients and in terms of the market growth, can you make comments about that in OIC areas or AMITIZA in general are you still seeing expansion in the market? Thanks.

Dr. Ryuji Ueno

Yes, we are still seeing. I don’t have the new-to-brand numbers with me, but we are certainly seeing new-to-brand if we take a look at where the majority of our growth is coming from. It still is very much in excess of 60% is still coming from over-the-counter segment. And then there is some stabilizing, which certainly has taken place now between Linzess as well as AMITIZA I think from the new to brand perspective in terms of branded product sort of beating each other up and competing for those patients, it has stabilized. And I can certainly get back to you on the new to brand numbers but we’re still pulling primarily from over-the-counter market which is exactly what we expected, which was to see the overall market growth.

Irina Rivkind - Cantor Fitzgerald

Thanks.

Operator

And your next question comes from the line of Jason Aryeh representing Equities (JALAA Equities). Please proceed.

Jason Aryeh - JALAA Equities

Hey, guys. Couple of questions, could you tell us a bit about what you are looking for as a profile of a new CEO, I commend you Dr. Ueno for giving up that title, I think that as you know, we have been, others have been advocating for that. I think you have to put people in a place that utilizes their skill sets the best and I think you’ve clearly realized and put yourself in that position. So, I know it’s a difficult thing when it’s been your baby, but I commend you for to taking that action and very much would like to hear what the profile of your replacement would be, because we certainly hope it’s someone who will focus on the terrific business that you have built here, rather than continuing forth with kind of a science project approach to the company?

Dr. Ryuji Ueno

Hi, Jason, this is Ryuji Ueno speaking. And the profile, the search of the new CEO, I believe the person need to be energetic and also have some experience on the biopharma segment. And as you know, I am a scientist originally so. And, as I mentioned, if we can do more on the scientific discovery or the advanced pipelines to introduce a third or fourth compound that will be a breakthrough for the next step for the company. And, I myself, I can’t do two things at one time. So, all the business, partnering and all these will be done mainly by our CEO, so that all the day-to-day activity needs to be done by the CEO. So, you can find out the Board will seek for very energetic person who can take care of that and then also with the Board. Yeah.

Silvia Taylor

Hi, Jason, it’s Silvia Taylor, how are you?

Jason Aryeh - JALAA Equities

Good.

Silvia Taylor

You know it’s a great question. I just want to add to what Dr. Ueno has just said. Our Board definitely has a set of criteria what they are looking for in the next CEO and as Dr. Ueno mentioned an experienced CEO of a biopharmaceutical company is key, we will also be looking for somebody who has knowledge about global multinational activities, someone who understands the R&D process but is not necessarily a researcher him or herself. And really importantly somebody who embraces the mission and the vision of Sucampo, that has historically been under Dr. Ueno and will remain the fact that Sucampo’s focus on patients who are suffering from unmet or underserved medical needs, so I hope that’s helpful.

Jason Aryeh - JALAA Equities

Right, it is, and I greatly appreciate being in this industry on both sides of the fence that goal but also as a public company, you have to be focused on shareholders, I mean that’s what the Board of Directors is the PDUFA is for the shareholders. And you know we have felt as you know in the past maybe there is too much of an emphasis on just developing drugs without driving shareholder value, I think it’s why the company trades at maybe a third or certainly half of what the average company does as a multiple of royalty revenues. And I think that that for that to change, you need to bring in leadership that is going to appreciate that the company is owned by shareholders chiefly Dr. Ueno, but it’s a public company and all shareholders and driving shareholder value needs to be a primary focus of the company. And just in that vein I’ll just go to my next question we and others have always said, we prefer that you didn’t launch RESCULA and I guess it’s not a surprise to us as you know that RESCULA launch is disappointed. So, I guess our question is at what point do we say our shareholders were right and I hope you all view us as, especially Dr. Ueno since we’re in this together as your biggest partner and I think we said not to pursue the Takeda arbitration, not to put Jamie in charge of things. And I think everything so far that many of your shareholders have said have born true. So, I guess at what point do we say, okay RESCULA is not a viable commercial product, I hope it is, but if its not at what point do we say, okay we’re going to do it in the best interest of our shareholders and stop marketing that product?

Dr. Ryuji Ueno

Stan, you want to take that?

Stan Miele

Yes, so Jason I know you and I had some conversations about this at JPMorgan, but we are looking at several different areas with respect to the RESCULA launch. We – as I stated, perhaps we are a bit disappointed with the initial launch trajectory, but we are also picking up numerous prescribers on a week-over-week basis. And then when I look at our trade activity, it’s also substantially improved to a much greater degree than what we are actually seeing on the script side. Ultimately as Dr. Ueno and Cary have stated, we intend to be profitable next year and we intend to breakeven this year. And so we will do what’s necessary and efficient as it relates to the RESCULA launch and how we manage that into next year. We will continue to assess and evaluate that make sure that we do what’s in the best interest of our shareholders.

Jason Aryeh - JALAA Equities

Alight, again I appreciate Dr. Ueno your courageous move to give up the CEO title and look forward to seeing choice that will be it doing business friendly choice. Thank you.

Dr. Ryuji Ueno

Thank you, Jason.

Operator

And your next question comes from the line of Ed Arce representing MLV & Company. Please proceed.

Ed Arce - MLV & Company

Alright, good afternoon everyone. Thanks for taking my questions. Just a couple here on AMITIZA, I think in your prepared remarks you had discussed I missed I think part of the discussion around perhaps your agreement broadly or generally with a third-party’s assessment of the near term growth trajectory and I just wanted if you could discuss that again for us. And also I wanted to get a sense for this DTC campaign in Japan that Abbott has undertaken, when might we hear of some decision in that regard to either move forward or not?

Stan Miele

So, Ed this is Stan, so just a couple of things. I think the portion in my prepared remarks were from an OIC perspective. We expect to see modest growth this year with marketed growth next year and then we expect at peak that it would be basically doubling in overall size based on the OIC impact in the U.S. market. With respect to DTC in Japan that was – it was a non-branded campaign which is already concluded and it was in the month of…

Dr. Ryuji Ueno

A pilot.

Stan Miele

And it was a pilot in the month of June. So, they are assessing the impact of that right now. But we’re confident in sort of an awareness campaign that, that should have a favorable impact for AMITIZA in Japan.

Ed Arce - MLV & Company

So, there is no thinking about setting up something more permanent than a pilot?

Dr. Ryuji Ueno

Well, in Japan certainly that, there is, the way things are done from a DTC is different from a promotional standpoint. But I think Abbott will certainly be reviewing the results of that. And, as the marketing partner driving that and then we’ll certainly have ongoing discussions with them.

Ed Arce - MLV & Company

Okay, great thank you.

Operator

And your next question comes from the line of Jason Kolbert representing Maxim Group. Please proceed.

Dr. Shaukat Khan - Maxim Group

Hi, guys. How are doing? This is actually Dr. Shaukat Khan calling in for Jason Kolbert. I actually have two questions. The first of the questions is can you explain why your numbers for AMITIZA were light for the quarter?

Dr. Ryuji Ueno

Just why – was our prescriptions, or overall sales were light for the quarter?

Dr. Shaukat Khan - Maxim Group

Overall sales?

Dr. Ryuji Ueno

Yes, actually, I think its all relative in terms of how you look at the market. We actually grew, total prescriptions grew, and then we were also up on sales and royalty revenue. So, I mean, again in the face of intense competition from a new competitor essentially our market share in our core base business has remained stable and then we did see some growth. So, I am not quite sure what you are alluding to overall.

Dr. Shaukat Khan - Maxim Group

Alright, thanks for that. And second question actually is can you please explain to me your IP strategy, I mean, who has actually filed for generic AMITIZA, I mean, some of your patents are expiring, can you give me like sense of what’s your strategy is for IP?

Tom Knapp

Sure. Good question. This is Tom Knapp. As you probably know from our filings, the Anchen and Par Pharmaceuticals has filed ANDA with us, and with respect to lubiprostone. And our strategy with respect to that is also known because we filed a patent infringement action in Federal Court in the District of Delaware. And so we are confident of our position and we will keep moving along that litigation. So, we get a result prior to the end of the 30-month stay.

Dr. Shaukat Khan - Maxim Group

So, do you think this recent stock dip is actually due to those worries, or is it something else?

Tom Knapp

Well, as you know, we don’t really talk about the movement on the stock. As I said, we are confident in our position in the litigation and we are going to litigate it to a conclusion.

Dr. Shaukat Khan - Maxim Group

That’s fair. Thank you very much, guys.

Operator

(Operator Instructions) And there are no further questions in the queue at this time.

Silvia Taylor - Senior Vice President, Investor Relations, Public Relations and Corporate Communications

Great. Thank you very much everyone for joining us. Have a great question and please do not hesitate to follow-up with me should you have any more questions. Good night.

Operator

Ladies and gentlemen, that concludes the presentation for today’s conference. You may now all disconnect, and have a wonderful night.

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Sucampo (SCMP): Q2 EPS of $0.14 misses by $0.02. Revenue of $27.02M misses by $1.76M. (PR)