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Summary:

Sucampo Pharmaceuticals (NASDAQ:SCMP) is developing first-in-class drugs based on prostones. SCMP has been growing revenue at ~10% CAGR the past 4 years (2 products on market) and has a diverse pipeline, including one upcoming orphan indication. With a cash burn rate of ~$10M with a healthy balance sheet with ~$70M, ~10% debt to equity and net profit margin of 10%, the company is financially sound. In this article, I will analyze the potential of the current products out on the market, the upcoming indications in the pipeline and the long-term outlook of the company.

Prostones:

SCMP's drugs use synthetic analogs of naturally occurring prostones which are more potent, selective and stable. Prostones have unique physiological activities targeted for treatment of unmet or underserved medical needs. They restore normal function in cells and tissues, quickly metabolized to inactive form, targeted pharmacologic activity to specific organs and tissues. The mechanism of action is mainly via highly potent and selective ion channel activators, cell membranes that regulate flow of specific ions into and out of cells. There is potential to restore cellular homeostasis and promote tissue regeneration, together with anti-inflammatory properties. This fact alone could spell great potential for a diverse range of indications in organ systems and possibly anti-aging effects. SCMP is the only company marketing prostone-based medicines now. In their initial products on the market, the drugs have targeted CIC-2 and BK ion channels of different organ systems.

Constipation indications:

The opioid induced constipation (NYSE:OIC) market will be worth ~$2B by 2017. Though US in not the current market leader, by 2017, 90% of OIC sales will come from within the US. Amitza (SCMP's first marketed product) was first approved for idiopathic constipation (2006), irritable bowel syndrome (2008) and more recently in 2013 for OIC. The OIC market is expected to grow at a CAGR of 31.9% for the next few years and SCMP is well poised to take advantage of this trend. Moreover, the change in strategy to target new physician prescribers could increase sales of Amitza the next few quarters. Moreover, they have just been approved for marketing Amitza for OIC to Switzerland and UK. Analysts predict that the global sales of Amitza are expected to be $300-350M for 2014 according to Medtrack, with a ~10-20% yoy increase in the next 5 years.

Efforts are currently underway in preparation for Phase 3 trials of a drug similar to Amitza, lubiprostone for the chronic idiopathic constipation (CIC) and pediatric constipation. Takeda, SCMP's development partner is footing 100% of the bill for CIC and 70% for pediatric constipation. This is a smart strategy on SCMP's part to reduce upfront costs and risks and creates future royalty streams. To show further proof of concept of Amitza's efficacy for CIC, all physicians in Switzerland have been able to prescribe it for CIC starting from this month.

Retinitis pigmentosa indication:

SCMP has a drug, unoprostone isopropyl, for an orphan indication (both US and EU) in its pipeline; Retinitis Pigmentosa. There are some non-drug competitors (e.g. Second Sight Medical Products, Inc.) gaining ground in this area, but the technologies are too nascent. However, a pink sheet biotech, AMBS has been working on an IV retinitis pigmentosa treatment, though not in as advanced a stage as SCMP. AMBS predicts that the disease affects 100,000 US patients and has a 10B market size! However, we believe that AMBS has been over-estimating the market size. A more conservative estimate by Gensight puts the market size at $1.5B annually. There is no benchmark for the cost of treatment per year as the only way to alleviate symptoms currently is to wear sunglasses. Gensight puts the treatment at $15,000 a year, while AMBS puts it at $150,000 a year. Regardless of the exact treatment cost, any unmet disease market worth at least $1.5B will be attractive for market cornering for the first entrant.

The phase 3 study of unoprostone isopropyl ophthalmic solution with mean retinal sensitivity at four central points at one year, with 180 patients is currently underway. Moreover Japanese govt is providing the majority of funding for phase 3 clinical costs. The 1 year results are available in early 2015.

Intra-ocular/glaucoma indication:

Rescula eyedrops have been approved for intra-ocular pressure (IOP), open-angle glaucoma and ocular hypertension, which are variations of increased eye pressure leading to blindness. The market size for these indications is estimated to be 2.2 million Americans, according to a recent presentation by Sucampo.
Rescula has a similar mode of action as current treatments to treat increased eye pressure. These treatments are topical and reduce production of fluid in the eye or increase the outflow of fluid. Rescula faces a lot of competition with current topical treatments and unsurprisingly, sales traction has not been high in the past 2 years.

To alleviate this, Sucampo has reduced selling/marketing expenses by 75% in 2014 by hiring a contract sales organization to promote increased sales efficiency, flexibility and lower cost. They will also have a US launch for this indication later this quarter. I see this more as a way to streamline costs and de-risk the damaging effects of sustained low sales traction. According to Medtrack, the sales of Rescula are expected to be almost flat up to 2017.

Phase 1-2 candidates:

The recently completed Phase 2a study of intravenous ion channel activator for lumbar spinal stenosis has been promising. Patients receiving the ion channel activator experienced a statistically significant improvement in pain, as determined by improvements in the visual analog scale (VAS) score, versus placebo (94.4% versus 62.5%; p=0.035). The upcoming Phase 3 results update will be critical.
The market for spinal stenosis is attractive: 6M americans with 1.4M diagnosed annually. The disease is characterized by narrowing of and diminished blood flow to spinal cord, leading to pain, numbness, muscle weakness. Pain-killers and invasive surgery are currently the only options to alleviate the disease. Spinal stenosis is also the most common reason for back surgery for people >65. With the number of people aged over 60 in the USA to double in the next 20 years, SCMP is well placed to profit from this trend.

The Phase 1b trial for the oral mucositis indication began late 2013 for oral spray formulation of cobiprostone. Oral mucositis is a common side effect of radiation therapy and chemotherapy. According to Sucampo's recent presentation, the US has 350,000 patients, mainly head/neck cancer patients (80-90% of them) are affected. There are currently no comprehensive treatment options and this unmet market seems to be a promising long term prospect if results of the next two phases turn out to be positive, which will take a few more years.

Management team reshuffle:

The founder, Dr Ueno is stepping down from his CEO position to focus on the scientific part of the business. This is promising news for the company as the founder is the world expert on prostones and developing new indicators or more variations of the basic prostones will further deepen Sucampo's diverse pipeline. Sucampo's Amitza patent is set to expire in the mid 2020s and the company made an apt move in allowing Dr Ueno to concentrate on what he does best. With their 580 active patents, finding a compound that can pass the preclinical phase that can treat an unmet indication will not be challenging.

On the non-science side of management, Peter Greenleaf is the incoming CEO, with 20 years experience in commercialization and drug development. He is the current CEO of Histogenix startup. Before that, he was the former president of MedImmune, worldwide R&D arm of AstraZeneca. He presided over the expansion of MedImmune's extensive growth and pipeline and spearheaded industry-leading business development and venture deals. He also presided over more than 300M investments in early stage portfolio companies. He was also responsible for global marketing for MedImmune before his rise to president of the company. In Greenleaf, Sucampo has found a CEO who will take the company to the next level by casting its net wide in to capture more revenue from diverse indications using their novel prostone compounds. Moreover, this CEO has experience evaluating companies or patents to acquire (if needed) to further grow their business if their upcoming pre-approval products do not pan out as planned.

Summary:

Sucampo Pharma appears to be a fundamentally sound company. Their recent management reshuffle, dependence on partners for development and diverse pipeline derisks the medium-term prospects of the company.I will be looking forward to their next couple of quarters of earnings reports to find out how their strategic plans, market traction of Amitza and top line results of their ongoing trials.

Source: Analysis Of Sucampo Pharmaceuticals And Its Future Potential