Sucampo Pharmaceuticals' CEO Discusses Q4 2013 Results - Earnings Call Transcript

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Sucampo Pharmaceuticals, Inc (NASDAQ:SCMP) Q4 2013 Earnings Conference Call February 26, 2014 5:00 PM ET


Silvia Taylor - SVP, IR

Ryuji Ueno - Chairman, Chief Scientific Officer & CEO

Stan Miele - President of Sucampo Pharma Americas and SVP, Sales and Marketing

Taryn Joswick - VP, Clinical Development

Cary Claiborne - CFO

Tom Knapp - EVP, Chief Legal Officer & Corporate Secretary


Irina Rivkind - Cantor Fitzgerald

Jason Kolbert - Maxim Group

Graig Suvannavejh - MLV & Co


Good day ladies and gentlemen and welcome to the Q4 2013 Sucampo Pharmaceuticals Incorporated Earnings Conference Call. My name is Sarah and I will be your operator for today. (Operator Instructions).

I would now like to turn the conference over to your host for today Silvia Taylor, Senior Vice President of Investor Relations. Please proceed.

Silvia Taylor

Thank you. Good afternoon everyone. Thank you for joining us today. The earnings release and its attachments announcing Sucampo’s Fourth 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 We also plan to file our 2013 10-K on March 7th and once filed a link to that document will also be posted on our website.

The agenda for 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 and highlights for the year. Stan Miele, President of Sucampo Pharma Americas, LLC, and Senior Vice President of Sales and Marketing will review global commercial developments.

Taryn Joswick, Vice President of Clinical Development, will review our clinical development and pipeline activities followed by Cary Claiborne, Sucampo’s Chief Financial Officer, 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 at that time.

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 today February 26, 2014. The company assumes no obligation to update forward-looking statements contained in this conference call, earnings release, or the attachments as a result of new information or future events or developments.

This conference call, earning 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 statements in the most recent form 8-K and 10-K found on our website for additional risk factors affecting our forward-looking statements.

Now I will turn the call over to Dr. Ueno. Please go ahead.

Ryuji Ueno

Thank you Silvia. Hello everyone. Thank you for joining our conference call today. 2013 was a year of significant growth for Sucampo with expansion of our business through new indication and new market. I’m also pleased to report that we’re profitable making excess use of capital while growing our revenues and achieving many important milestones.

AMITIZA received approval as the first and the only oral treatment option for opioid induced constipation or OIC in adult patients with chronic, non-cancer pain. With this approval we brought an important new treatment options of patients to suffer from OIC debilitating side effect of chronic opioid use.

In Japan, sales of our AMITIZA continued to exceed Sucampo's and our partner Abbott’s expectations. Sucampo also began booking revenue on three continents with a launch of AMITIZA for chronic idiopathic constipation or CIC in Switzerland.

We are pleased that physicians and patients in Switzerland and UK have given us positive early feedback that AMITIZA is an important new treatment option for them. And we look forward to telling you more about our progress in Europe later on this call.

To-date since its launch for CIC in 2006 AMITIZA has had $1.9 billion in accumulated growth sales or $1.6 billion in net sales in the United States. We also launched RESCULA unoprostone isopropyl in the U.S. market to both ophthalmologist and optometrist for the lowering of intraocular pressure in patients with open-angle glaucoma or ocular hypertension.

Finally, we continue to make progress in clinical development in 2013. We advanced several key clinical programs and Cary Claiborne will tell you about them later on in this call. As we announced early this month on March 3 I will transitioning out of my Chief Executive Officer and Board roles with Sucampo and on March 31, I will also be transitioning out of my Chief Scientific Officer role. I’m pleased with the selection of Peter Greenleaf as the new Chief Executive Officer and Board member and believe that he brings the right level of experience to lead Sucampo as we accelerate our growth.

I’m also pleased with the appointment of Dr. Dan Getman, Chairman of the Board. Dan has been a Director of Sucampo since 2011 and he is the current Chairman of Sucampo’s Science and Technology Committee. Dan brings scientific and research and development expertise to his role that I believe will be a strong compliment to Peter’s commercial, strategic and business development expertise.

When I co-founded Sucampo almost two decades ago our mission was to develop and commercialize prostone-based medicines to meet the furious unmet medical needs of patients on a global basis. As a company we have made much progress to advance that mission and I’m proud of the fact that millions of patients around the world are benefiting from medicines with a promise of many millions more. As I have said many times I’m convinced that there is still significant untapped therapeutic for prostone’s.

With additional prostone product to be discovered and potential new indications for our existing product. I’m looking forward to supporting new CEO Peter Greenleaf, the Board of Directors and the Senior Management team of Sucampo in my new consulting role as co-founder, Chairman Emeritus and Scientific Advisor beginning in April of this year.

As you know Sucampo’s goals are to deliver first in class medicines that bring value to patients and healthcare providers and to deliver long term shareholder value. As you will see during this call Sucampo made great progress in 2013 achieving the majority of our value drivers of the year. We also did this in a financially sound manner and I’m pleased to say that we exceeded our 2013 earnings guidance of $3 million to $5 million of net income with net income excluding special items of $9.4 million for the year or $0.22 per share.

For 2014 Sucampo expects to be profitable and will provide more specific guidance at the later time.

I would now like to turn the call over to Stan Miele for an update on our commercial development in the U.S., Japan and Europe. Stan?

Stan Miele

Thank you Dr. Ueno. Good afternoon everyone. Welcome to the call. The fourth quarter of 2013 was a strong quarter for AMITIZA in the United States. U.S. net sales of AMITIZA reported to us by our partner Takeda for royalty calculation purposes grew 5% for the quarter and 4% for the year. Cary Claiborne will go into more detail on the financials later in the call. Total prescriptions in the fourth quarter of 2013 were 341,000 and total prescriptions for the year were 1.3 million, an increase of 6% for the quarter and 5% for the year making the fourth quarter the strongest ever for AMITIZA and 2013 the highest ever yearly total prescriptions. Moreover when we look at scripts for the second half of 2013 we see a 7.4% increase in total prescriptions as compared to the first half of 2013. Additionally this outperforms the 6.7% increase for the market that we received for the same period.

As we have stated previously Takeda’s priority in 2013 was to solidify and grow our base CIC and IBS-C business and also launch in OIC. In the face of intense new competition this past year we’re pleased with the overall growth in AMITIZA prescriptions particularly the trend in total prescriptions for the last half of 2013 which occurred after the launch of the OIC indication in May.

We believe that not only stabilizing but modestly growing the AMITIZA business is a direct result of Takeda’s strategy to champion AMITIZA’s heritage messages. Takeda’s representatives have been successful in demonstrating AMITIZA’s efficacy data and strong safety record glean from over 8 million prescriptions dispensed over nearly 8 years of real world experience.

Another favorable factor was our success in having the FDA approved enhancements to the label in late 2012 which we believe has helped drive and increase in prescriptions. We’re also encouraged by the numbers of new patients coming into the branded prescription constipation market.

In the fourth quarter of 2013 the prescription constipation market grew 6% over the fourth quarter of 2012 which means more patients are entering the market for prescription therapies than ever and then even more encouraging trend when we look at patients who are new to brand meaning they have not filled a branded prescription in this category within the past 12 months. We see that more patients who need chronic therapy are entering the market for branded prescription products. So clearly AMITIZA is benefiting from consist market growth and our proven efficacy and safety are pulling patients into the brand. Our partner Takeda continued to call on additional OIC targets this quarter. Takeda added in excess of 20% more physicians to their call cycle after the launch of OIC and in the first quarter of this year Sucampo launched our own incremental co-promotion for AMITIZA and OIC.

As background we believe that there is significant opportunity for AMITIZA and OIC because AMITIZA is truly unique as the first and only oral prescription product currently approved for OIC. The scientific literature states that 40% to 80% of patients on chronic opioids will suffer from OIC and that when they do it tends to be more severe than it other forms of constipation. Additionally our internal estimates place the OIC market at around 2 million to 2.5 million moderate to severally constipated patients which we believe is a conservative estimate.

In addition to Takeda’s sales representatives who call on about 50,000 physician targets for AMITIZA overall. Our contracted sales representatives who have a call list of an additional 4000 physicians have been promotion the OIC indication specifically since January 2nd, while it is very early in that launch we are meeting with our new customers and are encouraged by their initial response to AMITIZA for this new indication and we expect to continue to see accelerated growth in high opioid prescribers.

The total prescription growth over the last year from OIC specialist has been encouraging in fact AMITIZA growth from pain specialist outpaced the national average by more than two times as of the end of 2013.

Our call list is comprised of high prescribers of opioids mainly pain specialist including anesthesiologist and general surgeons as well as internal medicine in primary care physicians who also write a substantial amount of opioids. We look forward to continuing to update you on our progress in OIC.

An important contributor of the current performance of AMITIZA is our preferred managed care physician which has resulted from the proactive effort by Takeda on defending and even growing our formulary coverage since the launch of new competition. In 2013 we were successful in maintaining not only a preferred managed care position versus the competition which translates into lower overall patient out of pocket cost. We even had some key wins for example United Healthcare Part D plan which previously did not cover AMITIZA placed it in Tier 3.

Nationally over 90% of insured lives have AMITIZA coverage with the majority of it in Tier 2. AMITIZA is also covered our 99.5% of Medicare Part D live [ph] nationally and we’re preferred in Part D.

The brand is also benefiting from the increased number of covered lives in Part D. Looking at fourth quarter Part D trends versus third quarter shows a volume increase in Part D scripts by 6%. Finally Takeda and we believe that patient awareness is key to the chronic constipation market especially for bringing patients from over the counter therapies to prescription products. We’re working with Takeda to move forward with a strong consumer awareness campaign with a focus on point of care programs. This includes direct to patient pharmacy, exam room and e-prescribing programs. As there are new entrants into the market it generates overall consumer awareness. If you look at both AMITIZA and (indiscernible) gaining new brand patients, this is indicative of the fact that both products are gaining new patient entrants and any additional consumer awareness can be beneficial and continuing to grow the market.

Finally, we continue discussions with Takeda this quarter to explore commercializing AMITIZA in Canada and we’re going to meet with Health Canada on the best ways to proceed with AMITIZA registration in this market in the near future and hopefully file for approval this year.

Turning now to RESCULA, as we announced in the third quarter we shifted our focus on RESCULA this quarter to prioritize our commercialization efforts on current RESCULA prescribers in an effort to better match investment with revenue. Our contract sales representatives are spending about 20% of their time calling on these RESCULA prescribers. We also began to utilize a limited mix of inside sales efforts. While we continue to maintain our belief in the value that RESCULA can provide the patients with glaucoma and ocular hypertension. We’re excited about the development of unoprostone for back of the back of the eye diseases such as retinitis pigmentosa and as Taryn will go over in more detail we anticipate interim one year results in early 2015.

Turning now to our global markets, beginning with Japan, AMITIZA sales continued to be above our and our partner Abbott’s expectations. Japan AMITIZA sales have grown in the double digits year-to-date since launch. This positive sales performance reflected greater acceptance of AMITIZA by patients and prescribers and can be in part attributed to innovative marketing and engagement efforts with physicians.

Abbott continues to drive strong product uptake and sequential revenue growth on a quarter-over-quarter basis. In 2013 Sucampo sales of AMITIZA to Abbott Japan contributed almost 16 million in top line revenue. We believe this success is due to several factors. Abbott continues to apply more than half of it's detailing efforts for the entire Japanese market to AMITIZA clearly demonstrating their confidence in the product.

Sucampo has also established a strong scientific basis for the product through robust clinical data and AMITIZA is almost 8 years on the market. In addition as we discussed previously the two week limitation in Japan that is generally applied to all newly approved prescription products for their first year on the market was removed in early December. This an opportunity which Abbott anticipates will continue to increase AMITIZA sales. We look forward to continued growth in the Japanese market.

In Europe this past year we launched AMITIZA in Switzerland and began making the product available in the United Kingdom. In the UK we’ve had a good response from gastroenterologist which may result in AMITIZA being added to hospital and CCG formularies during the first half of 2014.

We also look forward with a nice submission for OIC and CIC and meeting is scheduled with NICE on May 7th of this year with a decision later in the second half of the year. In Switzerland Sucampo showed sequential quarterly sales growth for AMITIZA for CIC, gastroenterologist in this market have been using AMITIZA and have reported a positive experience which with a group of them to support our request for changes to AMITIZA’s reimbursement limitations. This month we announced that the BAG revised several limitations with which AMITIZA was first approved for reimbursement and inclusion in a specialty list allowing all Swiss physicians to prescribe AMITIZA not just gastroenterologist and also increasing the maximum treatment duration of AMITIZA from 12 to 52 weeks before a review was needed by a health insurance, healthcare practitioner.

While it will take some time before the message gets out to the PCP audience we look forward to seeing the positive impact of these restrictions being lifted. One of our priorities in Europe is achieving regulatory approval for AMITIZA for OIC in the United Kingdom and Switzerland for which we filed during the first quarter of last year.

Our discussions with regulators in support of those approvals have been progressing well and we expect to hear back from regulators in both the UK and Switzerland in the first half. Finally discussions continue with potential partners for strategic alliances for AMITIZA for global markets outside of the U.S., Canada and Japan including Latin America, China, European, Russia and emerging markets. We will update you on our progress later in the year.

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

Taryn Joswick

Thank you Stan. Good afternoon everyone. I would like to begin by updating you on lubiprostone lifecycle management. In December Sucampo announced the initiation of a global pivotal Phase III clinical program for lubiprostone in children and adolescents age 6 to 17 years with pediatric functional constipation. Our partner Takeda is funding 70% of the development cost for this program. Constipation is one of the most common gastrointestinal complaints in children. The prevalence of pediatric functional constipation worldwide is estimated to be anywhere between 4% and 37%. Only 50% to 70% of children with functional constipation demonstrate long term improvement with currently available treatments leaving many patients looking for alternative treatment options. We anticipate the first patient to roll over into a long term open label safety extension study within the first half of 2014. In the second half of this year we also expect to initiate a second pivotal Phase III trial which will use the liquid formulation of AMITIZA and will involve children age 6 months to less than 6 years with functional constipation.

In October we reported that Sucampo initiated a pivotal study of a liquid formulation of lubiprostone in adult subjects 18 years of age and older with chronic idiopathic constipation. We believe that physicians are interested in a new delivery option for their patients and our goal is to provide an alternate treatment formulation for patients who prefer not to take a capsule. Internal research indicates that AMITIZA liquid formulation could be an alternative for the estimated 10% of patients particularly those that are long term care space that have difficulty swallowing.

Our partner Takeda is funding 100% of the cost for the liquid formulation development program. Upon reviewing the results of this trial which are anticipated to be available in the first half of 2014 we plan to file a new drug application for approval with plans to launch the liquid formulation sometime in 2015 pending a favorable review of the NDA by the FDA.

As we discussed earlier we’re also very excited about the development of unoprostone isopropyl for the treatment of retinitis pigmentosa. RP is a degenerative disease of photoreceptor cells in the retina which causes progressive vision loss and is the leading hereditary cause of blindness. In RP light sensitive cells in the eye slowly degenerate which results in gradual loss of side vision, night vision and ultimately central vision as well. According to the National Institutes of Health 1 in 4000 individuals worldwide suffers from RP. There are currently no pharmacologic agents that stop the evolution of the disease or restore vision and the prognosis for patients is poor. Our partner R-Tech Ueno is conducting a Phase III study of unoprostone isopropyl in Japan and Sucampo has global rights for clinical data for potential filing in Europe, United States and other regions.

We will begin working with regulatory authorities in the U.S. and EU to determine our path forward for each region. It is also important to note that we have already received orphan drug status for unoprostone isopropyl for RP both in the United States and in Europe. We will be receiving interim data from this Phase III program in early 2015.

In addition we’re currently evaluating opportunities in other retinal diseases such as AMD and look forward to sharing these plans as they develop. Moving on to lumbar spinal stenosism this is a degenerative disease of the lumbar spine caused by narrowing of the spinal canal. LSS causes diminished blood flow, numbness and muscle weakness in the lower extremities as well as increased pain while walking. An estimated 400,000 Americans mostly over the age of 60 may be suffering from symptoms caused by LSS.

Due to a lack of treatment options globally there is clear unmet need worldwide. There are currently no approved medications in the United States or Europe for the symptoms of LSS and in Japan the only approved medication is in oral PGE1 analog.

In December we reported the results of our Phase 2a trial with an IV version on an ion channel activator for LSS and we were pleased to report that a responder analysis of data from the trial revealed that patients receiving the ion channel activator experienced a statistically significant improvement in pain as determined by improvements in the Visual Analog Scale or VAS score versus placebo.

With the response rate of 94.4% versus 62.5% with a p value of 0.035. We plan to initiate an additional Phase 2a study later this year. We also completed a Phase 1a study in LSS last year assessing the tolerability and pharmacokinetic profile of the of the oral dose administration of another ion channel activator in healthy adults and demonstrated that it was generally well tolerated across the range of doses tested. We plan to begin the next phase of development for this compound this quarter. In addition to LSS we’re also exploring additional potential indication for these compounds and will share more in coming months. Finally we also have an ongoing Phase 1b study for an oral spray formulation of cobiprostone which is under development for the prevention and treatment of oral mucositis. Oral mucositis is a debilitating side effect of radiation therapy and chemotherapy in cancer patients.

Into the formation of authors [ph] that resolved some patients cannot eat or drink which results in additional challenges for cancer treatment and recovery and some patients may even have to stop radio or chemotherapy treatment due to the severity of their oral mucositis. There are around 350,000 head/neck cancer patients in the United States and about 80% to 90% of them will experience some grade of oral mucositis during their treatment. Oral mucositis not only effects patients receive head and neck radio therapy but also patients who are treated with radio of chemotherapy for solid tumors as well as those patients receiving hematopoietic stem cell transplantation.

The global market for oral mucositis treatments has been estimated to be up to $500 million. While there are few compounds available to address the 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 and we look forward to updating you in the second quarter on the Phase 1b trial results.

This concludes our update on clinical development. And I look forward to taking your questions during Q&A.

I will now turn the call over to Cary Claiborne for our financial update.

Cary Claiborne

Thank you Taryn. Good afternoon everyone. Total revenue for the fourth quarter of 2013 was 24.5 million compared to 34.9 million in the fourth quarter of 2012, a decrease of 30%. The decrease in revenue compared to the prior was primarily driven by the receipt of a onetime $15 million milestone payment which we include in R&D revenue. In the fourth quarter of 2012 associated with the launch of AMITIZA in Japan.

Excluding the impact of the milestone payment revenue increased 4.6 million in the fourth quarter of 2013 versus the prior year. Total revenue for the full year of 2013 was 89.6 million compared to 81.5 million for the same period in 2012 a growth rate of 10%.

R&D revenue for the full year of 2013 was 20.4 million compared to 21.5 million in the same period last year, a decrease of 1.1 million. The decrease was primarily due to Sucampo receiving $5 million less in milestone payments in 2013. In 2012 we received $15 million from Abbott and in 2013 we received $10 million from Takeda excluding the impact of lower milestones R&D revenue increased 3.8 million year-over-year.

Product royalty revenue for the full year of 2013 was 52.1 million, an increase of 1.4 million from 50.7 million in the same period last year. For both periods the increase was primarily due to AMITIZA price increases. Product sales revenue for the full year of 2013 was 16.4 million compared to $5 million in last year’s full year. The increase was primarily due to the growth of product sale of AMITIZA in Japan which tripled from 2012 levels and the Q1 2013 commencement of product sales of RESCULA in the United States and AMITIZA in Switzerland.

When notable reduction in net revenue this year is in co-promotion revenue. This line item represents a reimbursement by Takeda for a portion of the cost of our sales force for co-promoting AMITIZA in the U.S. Co-promotion revenue for the full year of 2013 was $61,000 compared to 3.6 million in the full year of 2012, the decrease was primarily driven by shift of our sales force concerning AMITIZA which have been partially reimbursed by Takeda to selling RESCULA which is fully funded Sucampo.

As Stan mentioned previously none of we have begun co-promoting AMITIZA again in the United States. You will start to see co-promotion revenue once again in 2014. 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 4.6% to $78 million in the fourth quarter of 2013 and 3.8% to 282.1 million for the full year of 2013 compared to 74.6 million and 271.9 million respectively for the same periods in 2012.

The slide before provides some additional detail from our P&L for the full year results. I’ve already covered the revenue drivers so I will go right to cost. Starting with cost of goods, cost of goods sold were 2.9 million for the fourth quarter of 2013 compared to 3 million for the fourth quarter of 2012. Cost of goods sold were 12.4 million for the full year of 2013 compared to 3 million for the prior year periods, an increase of 9.4 million. For the full year the increase in cost of goods sold relates to dry product sales of AMITIZA in Japan and Switzerland as well as RESCULA in the United States. As we discussed on our third quarter call in 2013 Sucampo reported a non-cash write-off of it's RESCULA inventory of $3 million to reflect excess quantities of data product.

The excess inventory was largely of the necessity to preorder product in advance of FDA label approval due to a plan change in manufacturing facility and a lower than anticipated sales within the useful likes of the data product.

R&D expenses for the full year 2013 were 21.5 million compared to 21.3 million in the full year of 2012. So for the full year the change in expense was primarily due to higher cost associated with clinical development of our Phase 2a trial for lumbar spinal stenosis and of the lubiprostone pediatric indication and liquid formulation programs partially offset by lower cost associated with our terminated Numab collaboration.

G&A were 25.4 million in the full year of 2013 compared to 30.2 million in the full year of 2012, a decrease of 4.7 million or 16%. For the full year period the decrease in G&A expense was primarily due to lower legal, consulting and other professional expenses as a result of conclusion of certain legal matters in 2012 as well as expense reductions for 2013 productivity initiatives.

Selling and marketing expenses for the full year of 2013 were 21.1 million compared to 18.7 million for the prior year period. The increase in selling and marketing expenses relates primarily to launch cost of RESCULA a 1.5 million non-cash write-off reported for excess RESCULA samples and restructuring cost for RESCULA. These were partially offset by non-recurring precommercialization planning activities for both AMITIZA and RESCULA that occurred in 2012 that did not occur in 2013.

Let’s look at income next, for the fourth quarter of 2013 Sucampo reported net income of 2.2 million or $0.05 per diluted share compared to net income of 13.5 million or $0.33 per diluted share in the fourth quarter of 2012. The year-over-year decrease in net income for the quarter was driven by the fact that in the fourth quarter of 2012 we received a $15 million milestone from Abbott Japan that was triggered by the first sale of AMITIZA in Japan. This onetime milestone does not repeat in the fourth quarter of 2013 which is why net income is down for the quarter.

Sucampo’s net income for the full year of 2013 was 6.4 million or $0.15 per diluted share compared to net income of 4.8 million or $0.12 per diluted share on the same period last year.

For the fourth quarter of 2013 Sucampo’s net income excluding special items was 2.4 million or $0.06 per diluted share compared to 13.5 million or $0.33 per diluted share in the fourth quarter of last year. The decrease in net income excluding special items and the year-over-year for the quarter was also driven by the Q4, 2012 Abbott milestone I just spoke about.

Special items for the fourth quarter and full year of 2013 were RESCULA inventory and sample, non-cash write-offs and restructuring cost were still $4.9 million pretax.

As a reminder our full year 2013 guidance was for a net income excluding special items range up 3 million to 5 million. So I’m very pleased to report that for the full year of 2013 we exceeded our guidance earning net income excluding special items of 9.4 million or $0.22 per diluted share, an increase of 94% compared to the 4.8 million or $0.12 per diluted share for the full year of 2012. I’m also pleased that we were able to achieve 94% earnings growth in a year which we invested significantly in launching RESCULA expanding commercially in Europe and we received 5 million less in milestone revenue.

We did this through our continued focus on cost management and global revenue growth. Let’s move on to the balance sheet. As of December 31, 2013 cash, cash equivalents, restricted cash and investments were $95.9 million compared to 91.4 million at December 31, 2012.

As of December 31, 2013 our cash balance reflects the issuance of 0.8 million shares of common stock issued during the fourth quarter of 2013 to our Cantor Fitzgerald at the market facility that raised net proceeds of Sucampo of $5.1 million.

As of December 31, 2013 notes payable were 52.7 million compared to 52.9 million as of December 31, 2012. And finally today we’re announcing that we’re affirming our 2014 earnings guidance of profitability. We will provide a specific earnings range at a future date.

So in summary we grew total of net revenue by 10% in 2013 and generated non-GAAP net income of 9.4 million up 94% from 2012 that exceeded the high end of our November guidance of 5 million at 88% and we ended the year with 96 million in cash, cash equivalents and investments.

With solid financial performance we have achieved in the year when we took great strides in building for the future by expanding our commercial products globally and making important advances in our clinical development programs. And now for the last time I will turn the call back over to Dr. Ueno for concluding remarks before we go to Q&A. Dr. Ueno

Ryuji Ueno

Thank you Cary. As we stated at the beginning of the call 2013 was a year of significant progress for Sucampo. I’m proud of the work we did in 2013 but our mission of providing prostone based treatments to patients with unmet medical needs while increasing shareholder return and I’m looking forward to supporting the new leadership team of Sucampo in 2014.

As I make my transition of my Chief Executive Officer, Chairman and Board roles I want to offer my sincere appreciation to our employees, shareholders, Board members and partners for your support of Sucampo and of me. Your commitment and perspective on our business allowed Sucampo to transform itself into the global commercial space biopharmaceutical company it is today. Most importantly you have helped us to deliver on our mission of serving the unmet or underserved needs of millions of patients and for that I’m honored and thankful.

Thank you very much for your support.

Silvia Taylor

Thanks Dr. Ueno, we’re now ready to start the Q&A portion of the call. Operator please open up the line for questions.

Question-and-Answer Session


(Operator Instructions). Our first question comes from Irina Rivkind from Cantor Fitzgerald. Please proceed.

Irina Rivkind - Cantor Fitzgerald

I just wanted to explore what happened with the guidance for the full year because you just guided the 3 million to 5 million in net income last quarter and then what changed this quarter that led to the really strong beat [ph], that’s question number one. And then the second question is about AMITIZA and just growth, it looks like you’re getting a lot of growth from the international market and you also mentioned that you expect more growth from OIC, do you expect overall stronger growth in the AMITIZA franchise year-over-year and you’ve this year and maybe you can just expand on that a little more. Thanks.

Cary Claiborne

I think as far as the beat on the guidance I think we want to build a track record of leading or exceeding guidance in this company and I think the quarter just went very well, royalty revenue came in higher than we had expected. In the U.S. Abbott continue as we mentioned in Japan, our revenue continued to outperform so revenue was higher for us overall. Some of the expense initiatives that we took continued to show productivity in the quarter as well and then there was a little bit of FX benefit that we saw with the weaker yen, the yen continuing to be weaker on some of our debt that we have in Japan.

So really was just a mix of a lot of things that kind of went in our favor in the quarter. As far as 2014 nice try but we’re not ready to give you any guidance there specifically to 2014 yet especially with Peter starting next week. We really think it's fair to having these, spend some time in the company before we come back to you guys with specifics on that.

Stan Miele

This is Stan with respect to AMITIZA, yes I think globally we certainly expect an anticipate continued growth not only coming from Japan but as we get our European operations further driving additional prescriptions in sales as well and then in the U.S. as we really start dissecting what’s going on with the OIC indication there is some good signals as we specifically look at the second half of this past year when we see in excess of 7% growth in total prescriptions versus the first half of this year and with a lot more of that growth coming from high prescribing opioids writers as well as primary care physicians. We’re encouraged by some of those signals because we see the bigger market being in the primary care space and we believe finally at some level be OIC indication is beginning to take hold and then lastly as our team gets out there and is having initial contacts with physicians, we’re encouraged by the feedback that we’re hearing from our new customers and believe we’re also going to have an impact as well as we look for further U.S. growth this year.


(Operator Instructions). And our next question comes from Jason Kolbert from Maxim. Please proceed.

Jason Kolbert - Maxim Group

You know that I have been really concerned and you continue to show that AMITIZA can generate market share. Can you give us a little bit more granularity on just what it's like in terms of the competitive landscape and couple of kind specific modeling questions too, it seems to me that the cost of goods was unusually this quarter and it strikes me that R&D and sales and marketing and G&A were a little bit high. How should we consider it those increases in terms of our modeling?

Cary Claiborne

Stan will talk about AMITIZA marketing and then I will talk about the model.

Stan Miele

So Jason specifically I think are you trying to get at are we able to tease out with more granularity what’s happening with the OIC launch or just in particular sort of where we’re seeing our growth coming from?

Jason Kolbert - Maxim Group

Yeah in particular where is the growth coming from and we know that the competitive landscape is fierce, we know that there has been a lot of price competition but it doesn’t seem like it's affecting you. So I’m just trying to understand what the sales dynamic is out of the physician’s office.

Stan Miele

I think that’s very fair. So we have been really focusing on a few key attributes as it relates to the product. So first the only product that’s available now with all three indications is in a very important selling point especially in the primary care physician’s office. We do have that long term heritage. We also are promoting the sustained symptom relief that patients will receive from AMITIZA and quite frankly being out there eight years physicians are familiar with AMITIZA and what some of the secondary symptom relief is all about. With the label enhancement at the end of 2012 we’re also focused on the dual mechanism of action as a chloride channel activator but also how we have the intestinal permeability story and the repair and the effect on the tight junction and then we round that out quite frankly with a very strong position in managed care with 90% of the lives been covered both commercially and Part D overall, it puts us in a very, very strong position. So we’re focused and we see our biggest growth coming from primary care physicians and that’s really the corner stone of our efforts moving forward in addition to pain specialist but our biggest growth has come from primary care physicians as well as mid-level prescriber such as PAs and nurse practitioners.

Jason Kolbert - Maxim Group

I mean that’s really, really helpful for me and it's a great fundamental answer because it speaks to the underlying importance of the product attributes versus just traditional market dynamics detailing and promotion and sales it's exactly you know I think that makes sense in terms of what I’m seeing in the number. So thank you I appreciate that answer and Cary if you can just touch on the R&D expenses and G&A in the quarter that would be helpful. Thank you so much.

Cary Claiborne

So first on gross margin I think product gross margin it's pretty straightforward especially at these levels the majority of the gross margin is from the Abbott Japan business and that was 45% gross margin in the fourth quarter and it was 44% for the full year, it really stays in that range. So if you model it in that ball park we haven't seen it vary that much from there. R&D you saw it increase in the fourth quarter that’s driven by the pediatric indication and the liquid formulation but if you look at R&D revenue line you see that go up from Q3 to Q4 as well. So really part of that that’s driven by the timing of spending on those trials.

G&A, I think what you’re probably looking at is from Q3 to Q4 there was an increase in G&A and what you’re seeing there really is we’re starting to spend for the generic challenge. The legal expense, getting ready for that, heading into that into 2014 that is the increase primarily that you see in Q4 in G&A.


And our next question comes from Graig Suvannavejh from MLV & Co. Please proceed.

Graig Suvannavejh - MLV & Co

I’ve got several but first and my congratulations on a very nice quarter also let me commend Dr. Ueno on his contributions throughout his career at Sucampo and my best wishes to you during the next stage of your career. First question just has to do with you mentioned that you had a benefit on FX, is there a way that you can quantify with a magnitude of that FX was and how much that might have contributed to the beta source [ph] in the quarter and then my second question, actually let me just stop there and let Cary maybe answer that question first.

Cary Claiborne

FX gain, I mentioned that it's really on we have yen based loans in Japan, so the weaker yen led to a gain.

Graig Suvannavejh - MLV & Co

I appreciate that. I was wondering if there was a way that you might be able to quantify that just to see how much that FX is being contributed in the quarter? In other words if I were to strip out that FX gain I was wondering what net income or earnings might have been.

Cary Claiborne

Yeah it was roughly 900,000 pretax.

Graig Suvannavejh - MLV & Co

My second question and Cary I will just stay with you I know it's hard for you to perhaps give guidance for 2014 or perhaps you don’t want to at this stage of the game but maybe if there is a way that you might help us think about from a modeling perspective just quarterly progression in terms of how you see the evolution of the year whether it's on the spend side. I don’t know if there is any lumpiness but as we try to kind of come up with our first quarter through fourth quarter of ’14 quarterly estimates is there a way that you can kind of give us any guidance?

Cary Claiborne

Well one thing I do want to would like to do for you guys from a full year standpoint there is a lot special items this year and milestones. The way I think about the base to grow earnings off is our net income excluding item this year is $9.4 million but in that $9.4 million we had a $10 million milestone from Takeda for the OIC launch which isn't going to repeat in 2014, that’s about 6 million net. Well if you pull that out then sort of on an equivalent base line will be 3.4 million. So that’s where I think about the starting point as you’re going into 2014 to build your models off.

From a quarterly standpoint we’re not even sure we’re going to ever give quarterly guidance but I think kind of looking at Q4 it's probably a good benchmark to think about because the pediatric trials is moving along, the pipeline trials are in place. The Japan revenue has been growing so you can kindly trend off of that and we’re pretty familiar with how the U.S. is growing. Aside from that there is not a whole lot more detail. I can give you but that’s sort of the way I would think about it at this point.

Graig Suvannavejh - MLV & Co

Okay and so would you say that in terms of your G&A and S&M that we should use the fourth quarter as a good run-rate?

Cary Claiborne

I think fourth quarter the contract is sales force, that really wasn’t in place in the fourth quarter so selling and marketing you really can’t necessarily trim off of that because effective beginning of this year in January we added our sales force. Although we did have the internal sales force.

Graig Suvannavejh - MLV & Co

It sounds like you will have to get back to us. Maybe I would come at later time in terms of perhaps being able to give more granular guidance.

Cary Claiborne


Graig Suvannavejh - MLV & Co

I know you gave us a lot of nice details around that OIC launch but as we think about perhaps just AMITIZA generally speaking across the three continents as you talk about, within product sales which I assume to be on AMITIZA in Japan as well as on AMITIZA Europe to a certain degree. How do you see that evolve? We have been seeing nice growth but anything in particular you can add to that?

Stan Miele

Within the U.S. I think I try to at least outline what our expectations are and we are really working collaboratively with our partner Takeda to get aggressive this year with respect to focusing on the consumer and some consumer initiatives, direct to pharmacy programs that can hopefully exploit the OIC indication to a much greater degree and we’re also actively pursuing the possibility of a DTC media campaign as well based on the fact that 9 out of 10 times when a patient does ask for AMITIZA in the U.S. they get the prescription. We’re also encouraged, if our friends over at Forest and Ironwood do in fact do a DTC media campaign, we believe that it will be beneficial for the entire market as well as we see in the market grow. So we have strong expectations for our AMITIZA growth in the U.S. this year and certainly in Japan we expect to see significant growth with the lift of the restriction that we saw this past December. So Abbott is significantly geared up for that and then in Europe as well as we’re really getting things up and running, there is a lot of excitement. We’re available now in the United Kingdom, we’re waiting the OIC approvals in both Switzerland and the UK. We await to hear from NICE as well, the meeting which will occur in May.

So there is and then the restrictions being lifted in Switzerland although a smaller market I think it's a good precursor for what we expect on a broader level within Europe as well. So that’s I guess my overview at this point.

Graig Suvannavejh - MLV & Co

That’s very helpful and then my last question will be just on the new CEO I know he hasn’t started yet, in fact he doesn’t start until next week but do you’ve a sense of when you think we might be hearing directly from the new CEO relative to his vision or his plan? Or is it just really way too early to get a sense of that?

Cary Claiborne

Yes I think it's way too early. I mean I can commit for him but I’m not going to do that. I think we can’t speak for him but I know he's anxious to get in here and get going. So he'll be here Monday.


And our next question comes from Irina [Rivkind] from Cantor Fitzgerald. Please proceed.

Irina [Rivkind] - Cantor Fitzgerald

I just have a couple of follow-ups on the competitive landscape. With Forest Labs transitioning into Actavis by middle of this year, are you expecting to see any disruption in (indiscernible) promotion that’s I guess the number one and then the second part is the linaclotide Astellas Trial in Japan for IBS-C did not reach the typical significance I guess and so just wondering if that buys you more time or dominance in that market and how you view that? Thanks.

Stan Miele

I really can’t speak to the specifics. Do we suspect or predict any changes with the Aptalis acquisition. At this point in time I’ve really nothing further to add other than the fact that we’re just continuing with our plans as we see fit in the current landscape and know what we’re up against currently and so it's full steam ahead for us and our partner. And then with again in Japan as well we see it as a great opportunity for us to have again a further period of exclusivity. AMITIZA has been very well embraced in Japan and I think having Dr. Ueno being from Japan certainly has been beneficial to us but Abbott has done a remarkable job promotionally and then we’re supporting them clinically. So we see it as a win for us to have further exclusivity.

Ryuji Ueno

In Japan we have very good competitive landscape because there is no competitors in Japan, so AMITIZA is the only drug indicated for chronic constipation. So without any competition we can live up in this segment pretty well.


(Operator Instructions). And our next question comes from Graig Suvannavejh again. Please proceed.

Graig Suvannavejh - MLV & Co

Thanks for my follow-up question, just two quick ones, could you just give us a sense of what’s your expectations now are around RESCULA given your kind of downsized commercial efforts and are you able to kind of give us a sense of what revenues are from that product and how much you expect it to contribute in 2014 and then my second question is also actually related to the AMITIZA patent challenge and are there any specific dates or that you can give to us in terms of important timelines that we should be thinking about in terms of that litigation. Thanks.

Stan Miele

I will give the RESCULA answer and then Tom, General Counsel generic challenge. I mean as we say we don’t give guidance, I think the press release you can basically see what the sales were of RESCULA for 2013 as well as last quarter. We stated our disappointment in the third quarter earnings call and with that we had a significant restructure and reduction and we’re committed to where we’re moving forward but if you recall there was in excess of a 75% reduction in expenses related to the promotion of RESCULA. So in a limited way we’re promoting RESCULA, we’re building upon what the sales were for fourth quarter and again we don’t give any guidance but I think you can get a flavor of sort of where things were in the fourth quarter of last year and Tom.

Tom Knapp

In terms of the patent litigation we have got a schedule from the court now and we will be completing written discovery in the first half of the year. We have got a Markman hearing toward the end of March and then we will get into preparation for the trial which should start first week of December.


All right, there are no further questions in queue.

Silvia Taylor

Well thank you everyone for joining us this evening. We look forward to speaking with you again soon and of course if you have any follow-up questions please do not hesitate to contact us. Have a great evening.


Ladies and gentlemen this concludes today’s conference. Thank you for your participation. You may now disconnect and have a great day.

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