Japanese Amitiza Launch Provides Immediate Upside For Sucampo Pharmaceuticals

By Jake King

Sucampo Pharmaceuticals (NASDAQ:SCMP) has announced that its commercialization partner for Japan, Abbott Labs (NYSE:ABT), recorded the first sale in the country of Sucampo's prescription treatment for chronic constipation, Amitiza, resulting in a $15 million milestone payment to Sucampo. That $15 million in cash is equivalent to $0.36 per share, an immediate addition to SCMP's balance sheet that should, in theory, improve the stock's value by roughly 8% from Monday's close.

Abbott has indicated in the past that a new chronic constipation agent could address a multihundred-million-dollar market opportunity in Japan, the world's third largest market for prescription drugs. Conservatively, we estimate a $100 million market, and at an estimated 10% yield to Sucampo (Abbott buys Amitiza directly from Sucampo at a discount), Sucampo stands to earn roughly $10 million annually. A 10% discount rate equates to $100 million in additional, incremental value for SCMP's market capitalization.

SCMP has been trading just above its 52-week lows this month, and the stock stands to gain considerably on today's news, particularly as the milestone payment is an immediate improvement to the balance sheet. The cash addition, plus the implications of Amitiza sales in Japan and the market opportunity for the drug, suggest upside for SCMP in the coming weeks. Coming off of its bottom this month, SCMP is poised to move higher into the new year as the company also expects Amitiza to receive approval for a third, and large, indication in the U.S.

New Indication Offers Further Upside

Amitiza is approved in the U.S. for the treatment of chronic idiopathic constipation (CIC) and irritable bowel syndrome with constipation (IBS-C), and Sucampo has partnered the product with Takeda (OTCPK:TKPYY) for domestic commercialization. The FDA granted a priority review to Amitiza for a third potential indication, opioid induced constipation (OIC), which should receive an approval decision by the end of April.

According to Sucampo, there are approximately 3 million patients in the U.S. on chronic opioid therapy, and roughly 80% experience opioid induced constipation. Assuming that Amitiza is used in just 10% of this population (annual cost/patient of ~$2,800 per year), this would translate into $675 million in new sales of the drug. Amitiza is known to have some side effects that could limit the product from optimum market penetration -- hence our conservative estimate. At an 18% royalty rate on total sales, revenues to Sucampo could hit $120 million annually. Given Sucampo's $200 million market capitalization, an OIC approval in late April could more than double the stock price.

Amitiza was launched two weeks ago in Japan, and we see no reason to believe that the launch ramp will not go smoothly. Abbot is responsible for all commercialization expenses in the Asian country, but aside from Amitiza sales, Sucampo will receive no future milestone payments under the current agreement. With Tuesday's cash addition, and the implications of the Japanese market, we see a greater valuation based on financials alone. More importantly in the long run, however, the potential for a new and lucrative indication in April offers significant upside for SCMP.

Disclosure: I am long SCMP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: PropThink is a team of editors, analysts, and writers. This article was written by Jake King. We did not receive compensation for this article, and we have no business relationship with any company whose stock is mentioned in this article. Use of PropThink’s research is at your own risk. You should do your own research and due diligence before making any investment decision with respect to securities covered herein.You should assume that as of the publication date of any report or letter, PropThink, LLC and persons or entities with whom it has relation ships (collectively referred to as "PropThink") has a position in all stocks (and/or options of the stock) covered herein that is consistent with the position set forth in our research report. Following publication of any report or letter, PropThink intends to continue transacting in the securities covered herein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation. To the best of our knowledge and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable, and not from company insiders or persons who have a relationship with company insiders. PropThink was not compensated to publish this article. Our full disclaimer is available at www.propthink.com/disclaimer.

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