e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2007
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number:
001-33609
SUCAMPO PHARMACEUTICALS,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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13-3929237
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. employer
identification no.)
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4520 East-West Highway, Suite 300
Bethesda, MD 20814
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(301) 961-3400
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(Address of principal executive
offices, including zip code)
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(Registrants telephone
number, including area code)
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. Please see definition of accelerated and large
accelerated filer in
Rule 12b-2
of the Exchange Act. Large Accelerated Filer
o Accelerated
Filer
o Non-Accelerated
Filer
þ
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of November 14, 2007, there were 15,538,518 shares
of the registrants class A common stock outstanding
and 26,191,050 shares of the registrants class B
common stock outstanding.
Sucampo
Pharmaceuticals, Inc.
Form 10-Q
Index
PART I
FINANCIAL INFORMATION
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Item 1.
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Condensed
Consolidated Financial Statements (Unaudited)
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SUCAMPO
PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
(In
thousands, except share data)
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|
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September 30,
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December 31,
|
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2007
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2006
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(Unaudited)
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ASSETS:
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Current assets:
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Cash and cash equivalents
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$
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29,228
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|
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$
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22,481
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Short-term investments
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60,451
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29,399
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Accounts receivable
|
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|
4,394
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|
|
|
1,537
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|
Product royalties receivable
|
|
|
6,998
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|
|
|
2,029
|
|
Income taxes receivable
|
|
|
2,180
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|
|
|
2,355
|
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Deferred tax assets, net
|
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15
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|
1,612
|
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Prepaid income taxes
|
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933
|
|
|
|
|
|
Prepaid expenses and other current assets
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1,672
|
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|
|
536
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|
|
|
|
|
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|
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Total current assets
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105,871
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|
|
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59,949
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Restricted cash
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220
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|
213
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Property and equipment, net
|
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|
2,258
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|
343
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Deferred tax assets noncurrent, net
|
|
|
473
|
|
|
|
3,289
|
|
Deposits and other assets
|
|
|
177
|
|
|
|
3,290
|
|
|
|
|
|
|
|
|
|
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Total assets
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|
$
|
108,999
|
|
|
$
|
67,084
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|
|
|
|
|
|
|
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LIABILITIES AND STOCKHOLDERS EQUITY:
|
Current liabilities:
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|
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Accounts payable
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$
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4,347
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$
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2,391
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Accrued expenses
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6,563
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5,410
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Deferred revenue current
|
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|
580
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|
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11,517
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Other current liabilities
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|
|
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8
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|
|
|
|
|
|
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Total current liabilities
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11,490
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19,326
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Deferred revenue, net of current portion
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8,768
|
|
|
|
9,192
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Other liabilities
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1,712
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|
|
|
33
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|
|
|
|
|
|
|
|
|
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Total liabilities
|
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21,970
|
|
|
|
28,551
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|
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|
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|
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Commitments (Note 8)
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Stockholders equity:
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Series A convertible preferred stock, $0.01 par value;
no shares authorized at September 30, 2007 and
10,000 shares authorized at December 31, 2006; no
shares issued and outstanding at September 30, 2007
(unaudited) and 3,780 shares issued and outstanding at
December 31, 2006
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|
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20,288
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|
Class A common stock, $0.01 par value;
75,000,000 shares authorized; 15,538,518 shares issued
and outstanding at September 30, 2007 (unaudited) and
8,799,385 shares issued and outstanding at
December 31, 2006
|
|
|
155
|
|
|
|
88
|
|
Class B common stock, $0.01 par value;
75,000,000 shares authorized; 26,191,050 shares issued
and outstanding at September 30, 2007 (unaudited) and
December 31, 2006
|
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262
|
|
|
|
262
|
|
Additional paid-in capital
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96,142
|
|
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41,555
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Accumulated other comprehensive loss
|
|
|
(89
|
)
|
|
|
(294
|
)
|
Accumulated deficit
|
|
|
(9,441
|
)
|
|
|
(23,366
|
)
|
|
|
|
|
|
|
|
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Total stockholders equity
|
|
|
87,029
|
|
|
|
38,533
|
|
|
|
|
|
|
|
|
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Total liabilities and stockholders equity
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|
$
|
108,999
|
|
|
$
|
67,084
|
|
|
|
|
|
|
|
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
SUCAMPO
PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations and
Comprehensive (Loss) Income (Unaudited)
(In
thousands, except per share data)
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2007
|
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|
2006
|
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|
2007
|
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|
2006
|
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(Restated)
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Revenues:
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|
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|
|
|
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Research and development revenue
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$
|
4,652
|
|
|
$
|
6,759
|
|
|
$
|
52,105
|
|
|
$
|
38,900
|
|
Contract revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
Collaboration revenue
|
|
|
37
|
|
|
|
37
|
|
|
|
110
|
|
|
|
110
|
|
Contract revenue related parties
|
|
|
114
|
|
|
|
129
|
|
|
|
344
|
|
|
|
263
|
|
Product royalty revenue
|
|
|
6,998
|
|
|
|
79
|
|
|
|
18,869
|
|
|
|
4,563
|
|
Co-promotion revenue
|
|
|
1,051
|
|
|
|
1,290
|
|
|
|
3,318
|
|
|
|
2,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total revenues
|
|
|
12,852
|
|
|
|
8,294
|
|
|
|
74,746
|
|
|
|
47,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Research and development
|
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|
6,760
|
|
|
|
2,810
|
|
|
|
20,054
|
|
|
|
12,355
|
|
General and administrative
|
|
|
3,028
|
|
|
|
2,778
|
|
|
|
19,664
|
|
|
|
10,978
|
|
Selling and marketing
|
|
|
2,695
|
|
|
|
3,068
|
|
|
|
9,652
|
|
|
|
7,073
|
|
Milestone royalties related parties
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
1,250
|
|
Product royalties related parties
|
|
|
1,244
|
|
|
|
14
|
|
|
|
3,354
|
|
|
|
981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
13,727
|
|
|
|
8,670
|
|
|
|
54,224
|
|
|
|
32,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(875
|
)
|
|
|
(376
|
)
|
|
|
20,522
|
|
|
|
15,257
|
|
Non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
780
|
|
|
|
436
|
|
|
|
1,575
|
|
|
|
1,403
|
|
Interest expense
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(8
|
)
|
|
|
(84
|
)
|
Other (expense) income, net
|
|
|
(224
|
)
|
|
|
26
|
|
|
|
(184
|
)
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income, net
|
|
|
552
|
|
|
|
458
|
|
|
|
1,383
|
|
|
|
1,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(323
|
)
|
|
|
82
|
|
|
|
21,905
|
|
|
|
16,864
|
|
Income tax provision
|
|
|
(151
|
)
|
|
|
|
|
|
|
(7,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(474
|
)
|
|
$
|
82
|
|
|
$
|
13,925
|
|
|
$
|
16,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share (Note 4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per share
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
$
|
0.38
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per share
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
$
|
0.38
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
39,312
|
|
|
|
34,986
|
|
|
|
36,447
|
|
|
|
34,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
39,312
|
|
|
|
35,303
|
|
|
|
36,835
|
|
|
|
34,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(474
|
)
|
|
$
|
82
|
|
|
$
|
13,925
|
|
|
$
|
16,864
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
281
|
|
|
|
(13
|
)
|
|
|
205
|
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
$
|
(193
|
)
|
|
$
|
69
|
|
|
$
|
14,130
|
|
|
$
|
16,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
SUCAMPO
PHARMACEUTICALS, INC.
Condensed Consolidated Statement of Changes in
Stockholders Equity
(In
thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Series A Convertible
|
|
|
Class A
|
|
|
Class B
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
Equity
|
|
|
Balance at December 31, 2006
|
|
|
3,780
|
|
|
$
|
20,288
|
|
|
|
8,799,385
|
|
|
$
|
88
|
|
|
|
26,191,050
|
|
|
$
|
262
|
|
|
$
|
41,555
|
|
|
$
|
(294
|
)
|
|
$
|
(23,366
|
)
|
|
$
|
38,533
|
|
Stock-based compensation (unaudited)
|
|
|
|
|
|
|
|
|
|
|
401,133
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
6,140
|
|
|
|
|
|
|
|
|
|
|
|
6,144
|
|
Issuance of 3,125,000 shares of class A common stock
at $11.50 per share, net of offering costs incurred in 2007
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
3,125,000
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
31,310
|
|
|
|
|
|
|
|
|
|
|
|
31,341
|
|
Reclassification of offering costs incurred and capitalized in
2006 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,119
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,119
|
)
|
Conversion of series A preferred stock to class A
common stock (unaudited)
|
|
|
(3,780
|
)
|
|
|
(20,288
|
)
|
|
|
3,213,000
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
20,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205
|
|
|
|
|
|
|
|
205
|
|
Net income (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,925
|
|
|
|
13,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007 (unaudited)
|
|
|
|
|
|
$
|
|
|
|
|
15,538,518
|
|
|
$
|
155
|
|
|
|
26,191,050
|
|
|
$
|
262
|
|
|
$
|
96,142
|
|
|
$
|
(89
|
)
|
|
$
|
(9,441
|
)
|
|
$
|
87,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
SUCAMPO
PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(Restated)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
13,925
|
|
|
$
|
16,864
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
153
|
|
|
|
50
|
|
Loss on disposal of property and equipment
|
|
|
63
|
|
|
|
|
|
Deferred tax provision
|
|
|
4,413
|
|
|
|
|
|
Stock-based compensation
|
|
|
6,144
|
|
|
|
2,983
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,831
|
)
|
|
|
(1,303
|
)
|
Product royalties receivable
|
|
|
(4,969
|
)
|
|
|
(61
|
)
|
Prepaid income taxes
|
|
|
(933
|
)
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(1,136
|
)
|
|
|
(499
|
)
|
Deposits and other assets
|
|
|
|
|
|
|
(84
|
)
|
Accounts payable
|
|
|
1,951
|
|
|
|
515
|
|
Accrued expenses
|
|
|
1,145
|
|
|
|
2,204
|
|
Income taxes payable and receivable, net
|
|
|
174
|
|
|
|
(3,146
|
)
|
Deferred revenue
|
|
|
(11,376
|
)
|
|
|
(19,169
|
)
|
Other liabilities
|
|
|
1,685
|
|
|
|
(1,440
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
8,408
|
|
|
|
(3,086
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Investments in restricted cash
|
|
|
(8
|
)
|
|
|
|
|
Purchases of short-term investments
|
|
|
(86,847
|
)
|
|
|
(656
|
)
|
Proceeds from the sales and maturities of short-term investments
|
|
|
55,795
|
|
|
|
25
|
|
Purchases of property and equipment
|
|
|
(2,128
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(33,188
|
)
|
|
|
(737
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Issuance of common stock, net of offering costs
|
|
|
31,341
|
|
|
|
23,898
|
|
Payments of IPO costs
|
|
|
|
|
|
|
(2,376
|
)
|
Issuance of notes payable related parties
|
|
|
|
|
|
|
1,200
|
|
Payments on notes payable related parties
|
|
|
|
|
|
|
(4,754
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
31,341
|
|
|
|
17,968
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
186
|
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
6,747
|
|
|
|
14,063
|
|
Cash and cash equivalents at beginning of period
|
|
|
22,481
|
|
|
|
17,436
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
29,228
|
|
|
$
|
31,499
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
SUCAMPO
PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
1.
|
Business
Organization and Basis of Presentation
|
Description
of the Business
Sucampo Pharmaceuticals, Inc. (SPI), was incorporated in the
State of Delaware on December 5, 1996 and is headquartered
in Bethesda, Maryland. On May 23, 2006, SPIs Board of
Directors approved a transaction to have SPI acquire the capital
stock of its affiliated European and Asian operating companies,
Sucampo Pharma Europe, Ltd. (SPE) and Sucampo Pharma, Ltd.
(SPL). On September 28, 2006, SPI completed this
reorganization transaction and acquired the capital stock of SPE
and SPL. The reorganization was accounted for at historical cost
as of the earliest period presented as a merger of companies
under common control. Hereinafter, SPI, SPE and SPL are referred
to collectively as the Company. The Company is a
specialty pharmaceutical company focused on the discovery,
development and commercialization of proprietary drugs based on
prostone technology.
The Company is a member of a group of affiliated companies
(Affiliates) in which the Companys founders and
controlling stockholders own directly or indirectly the majority
holdings. Currently, one of the Companys founders is a
member of some of the Affiliates Boards and serves as the
Chief Executive Officer and Chief Scientific Officer of the
Company (see Note 9).
In January 2006, the Company received marketing approval from
the U.S. Food and Drug Administration (FDA) for its first
product,
AMITIZA®
(lubiprostone), to treat chronic idiopathic constipation in
adults. Commercialization of AMITIZA began in April 2006
throughout the United States.
Basis
of Presentation
The accompanying unaudited condensed consolidated financial
statements of the Company have been prepared in accordance with
generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission (SEC) for
interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial statements
and should be read in conjunction with the Companys
consolidated financial statements as of and for the year ended
December 31, 2006 included in the Companys
Registration Statement on
Form S-1,
as amended (Registration
No. 333-135133),
which was declared effective by the SEC on August 2, 2007.
The financial information as of September 30, 2007 and for
the three and nine months ended September 30, 2007 and
September 30, 2006, respectively, is unaudited. In the
opinion of management, all adjustments, consisting only of
normal recurring adjustments or accruals, considered necessary
for a fair statement of the results of these interim periods
have been included. The results of the Companys operations
for any interim period are not necessarily indicative of the
results that may be expected for any other interim period or for
a full fiscal year.
The condensed consolidated financial statements include the
accounts of SPI and its wholly-owned subsidiaries. All
significant inter-company balances and transactions have been
eliminated.
Certain prior year amounts have been reclassified to conform to
current year presentation.
Initial
Public Offering
In August 2007, the Company consummated its initial public
offering, consisting of 3,125,000 shares of class A
common stock sold by the Company and 625,000 shares sold by
a stockholder of the Company, at a public offering price of
$11.50 per share, resulting in gross proceeds to the Company of
approximately $35.9 million. After deducting payment of
underwriters discounts, commissions, and expenses of the
offering, including costs of $3.1 million incurred in 2006,
the Company raised net proceeds of $28.2 million. In
connection with the initial public offering, the Company
implemented an 8.5-to-one stock split of the Companys
common stock in the form of a stock dividend. This stock
dividend was effective July 12, 2007. All historical common
stock and per share common stock information has been
retroactively restated to reflect this stock split. Historical
preferred stock
5
SUCAMPO
PHARMACEUTICALS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
information has not been changed except to reflect the
modification of the conversion ratio to 850-to-one, after giving
effect to this stock split. In connection with this stock split,
the Company amended its certificate of incorporation to increase
the authorized number of shares of class A common stock to
75,000,000 and the authorized number of shares of class B
common stock to 75,000,000. Upon consummation of the initial
public offering, all shares of the Companys series A
Preferred Stock were converted into an aggregate of
3,213,000 shares of class A common stock.
Capital
Resources
The Company has a limited operating history and its expected
activities will necessitate significant uses of working capital
throughout 2007 and beyond. The Companys working capital
requirements will depend on many factors, including the
successful sales of AMITIZA, research and development efforts to
develop new products, payments received under contractual
agreements with other parties, the status of competitive
products and market acceptance of the Companys new
products by physicians and patients. The Company plans to
continue financing operations in part with cash received from
its initial public offering and from its joint collaboration and
license agreement and the supplemental agreement entered into
with Takeda Pharmaceutical Company Limited (Takeda) (see
Note 10).
|
|
2.
|
Restatement
of Previously Issued Condensed Consolidated Financial
Statements
|
The Company has restated its previously issued condensed
consolidated financial statements and related footnotes for the
nine months ended September 30, 2006, as set forth in these
condensed consolidated financial statements. The Company has
restated its condensed consolidated financial statements to
correct an error in accounting for the revenue recognition of
the collaboration and license agreements with Takeda. All
amounts in these condensed consolidated financial statements
have been updated to reflect this restatement.
Description
of Error
The Company identified an error at its operating company in the
United States. This error originated in the fourth quarter of
2004 and continued throughout 2005 and part of 2006. The
identification of this error occurred as a result of the Company
evaluating its assumptions under Emerging Issues Task Force
(EITF)
No. 00-21,
Revenue Arrangements with Multiple Deliverables
(EITF 00-21),
in accounting for arrangements with multiple deliverables that
require significant judgment and estimates.
The Company reassessed whether each of its required deliverables
under the
16-year
joint collaboration and license agreement with Takeda (Takeda
Agreement) (see Note 10), which was executed in October
2004, had value to Takeda on a stand-alone basis and whether
there is objective and reliable evidence of the fair value of
each of those deliverables. This reassessment determined that
the previous assessment of a single unit of accounting for the
deliverables under the Takeda Agreement was not appropriate. In
addition, the Company determined that the substantive milestone
method was not appropriate to account for the cash payments
received from Takeda related to the Company completing these
required deliverables and a time-based model, which is amortized
over the performance period of the development, would be more
appropriate to account for such cash payments from Takeda.
Accordingly, in the restated condensed consolidated financial
statements for the nine months ended September 30, 2006,
the Company reduced the milestone revenue and increased research
and development revenue. As a result, total revenues increased
by approximately $9.3 million for the nine months ended
September 30, 2006.
6
SUCAMPO
PHARMACEUTICALS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents the effects of the restatement
adjustments on the affected line items in the previously
reported condensed consolidated statements of operations and
comprehensive income for the nine months ended
September 30, 2006. The restatement adjustments did not
affect the overall cash (used in) provided by operating,
investing or financing activities or the effect of exchange
rates on cash and cash equivalents in the condensed consolidated
statements of cash flows for nine months ended
September 30, 2006.
Impact on
Condensed Consolidated Statement of Operations and Comprehensive
Income Items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2006
|
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
Restatement
|
|
(In thousands, except per share data)
|
|
|
Milestone revenue
|
|
$
|
20,000
|
|
|
$
|
(20,000
|
)
|
|
$
|
|
|
Research and development revenue
|
|
|
9,057
|
|
|
|
29,843
|
|
|
|
38,900
|
|
Contract revenue
|
|
|
2,428
|
|
|
|
(928
|
)
|
|
|
1,500
|
|
Collaboration revenue
|
|
|
|
|
|
|
110
|
|
|
|
110
|
|
Co-promotion revenue
|
|
|
2,267
|
|
|
|
291
|
|
|
|
2,558
|
|
Total revenues
|
|
|
38,578
|
|
|
|
9,316
|
|
|
|
47,894
|
|
General and administrative expenses
|
|
|
11,061
|
|
|
|
(83
|
)
|
|
|
10,978
|
|
Selling and marketing expenses
|
|
|
6,746
|
|
|
|
327
|
|
|
|
7,073
|
|
Income from operations
|
|
|
6,186
|
|
|
|
9,071
|
|
|
|
15,257
|
|
Income before income taxes
|
|
|
7,793
|
|
|
|
9,071
|
|
|
|
16,864
|
|
Net income
|
|
|
7,793
|
|
|
|
9,071
|
|
|
|
16,864
|
|
Basic net income per share
|
|
|
0.23
|
|
|
|
0.26
|
|
|
|
0.49
|
|
Diluted net income per share
|
|
|
0.23
|
|
|
|
0.26
|
|
|
|
0.49
|
|
Comprehensive income
|
|
|
7,593
|
|
|
|
9,071
|
|
|
|
16,664
|
|
|
|
3.
|
Summary
of Significant Accounting Policies
|
Short-term
Investments
Short-term investments consist entirely of auction rate
securities and a money market account. The Companys
investments in these securities are classified as
available-for-sale securities under Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting
for Certain Investments in Debt and Equity Securities
(SFAS 115). Although the auction rate securities have
variable interest rates which typically reset every 7 to
35 days, they have long-term contractual maturities,
spanning from March 1, 2022 to October 1, 2041, which
is why they are not classified as cash equivalents. These
investments are classified within current assets because the
Company has the ability and the intent to liquidate these
securities if needed within a short-term time period. These
available-for-sale securities are accounted for at fair market
value and unrealized gains and losses on these securities, if
any, are included in accumulated other comprehensive loss in
stockholders equity. Interest and dividend income is
recorded when earned and included in interest income. Premiums
and discounts, if any, on short-term investments are amortized
or accreted to maturity and included in interest income. The
Company uses the specific identification method in computing
realized gains and losses on sale of short-term investments.
Product
Royalties Receivable
Product royalties receivable represents amounts due from Takeda
for the Companys royalties on sales of AMITIZA, which are
based on reports obtained directly from Takeda.
7
SUCAMPO
PHARMACEUTICALS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Prepaid
Expenses and Other Current Assets
Prepaid expenses and other current assets include costs incurred
for the Companys operations. As of September 30,
2007, the Company had prepaid approximately $416,000 in
directors and officers insurance, approximately $450,000 in
commercial expenditures and approximately $378,000 in research
and development costs.
Deposits
and Other Assets
At December 31, 2006, the Company was uncertain of when the
initial public offering would be completed; therefore, the
Company capitalized costs of $3.1 million associated with
its initial public offering and recorded the costs as other
assets. Upon the completion of the initial public offering in
August 2007, the Company reclassified these costs to
Additional paid-in capital at the closing date of
the offering.
Revenue
Recognition
Collaboration
and License Agreements
The Companys primary sources of revenue include up-front
payments, development milestone payments, reimbursements of
development and co-promotion costs and product royalties. The
Company recognizes revenue from these sources in accordance with
Staff Accounting Bulletin (SAB) No. 104, Revenue
Recognition (SAB 104), EITF
No. 99-19,
Reporting Revenue Gross as a Principal Versus Net as an
Agent
(EITF 99-19),
and EITF
No. 00-21.
The application of
EITF 00-21
requires subjective analysis and requires management to make
estimates and assumptions about whether deliverables within
multiple-element arrangements are separate units of accounting
and to determine the fair value to be allocated to each unit of
accounting.
Based on the guidance of
EITF 99-19,
the Company has determined that it is acting as a principal
under the Takeda Agreement and, as such, records these amounts
as collaboration revenue and research and development revenue.
Reimbursements of co-promotion costs for the Companys
sales force efforts and reimbursements of miscellaneous
marketing costs under the Takeda supplemental agreement, which
was executed in February 2006 (Supplemental Agreement) (see
Note 10), are recognized as revenue as the related costs
are incurred and Takeda becomes contractually obligated to pay
the amounts. Based on the guidance of
EITF 99-19,
the Company has determined that it is acting as a principal as
it relates to these activities under the Supplemental Agreement
and, as such, records reimbursements of these amounts as
co-promotion revenue.
Royalties from licensees are based on third-party sales of
licensed products and are recorded on the accrual basis when
earned in accordance with contractual terms when third-party
results are reliably measurable, collectability is reasonably
assured and all other revenue recognition criteria are met.
Because of the lack of historical data regarding sales returns,
royalty payments related to the portion of sales by Takeda that
are subject to a right of return are not reported as revenue
until the period of right of return lapses.
Milestone
Royalties Related Parties
The milestone royalties related parties represent
royalties to be paid to Sucampo AG (SAG), a company organized in
Switzerland, affiliated through common ownership. The milestone
royalty is 5% of milestone payments received under any
sublicensing agreements for AMITIZA. In addition, for each
indication for AMITIZA for which there is regulatory approval,
the Company must pay a $250,000 milestone. Milestone
royalties related parties are expensed as incurred
immediately when the related milestone payments are due from
Takeda. The Company did not incur such expenses during the three
months ended September 30, 2007 and 2006. For the nine
months ended September 30, 2007 and 2006, the Company
expensed and paid $1.5 million and $1.3 million in
milestone royalties, respectively.
8
SUCAMPO
PHARMACEUTICALS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Product
Royalties Related Parties
Product royalties related parties represent the
Companys obligation to SAG for 3.2% of net sales for
AMITIZA and are expensed as incurred. The Company expensed
approximately $1.2 million and $14,000 in product royalties
for the three months ended September 30, 2007 and 2006,
respectively. For the nine months ended September 30, 2007
and 2006, the Company expensed approximately $3.4 million
and $1.0 million in product royalties, respectively. The
Company has recorded a corresponding liability of approximately
$1.2 million and $361,000 as Accrued expenses
as of September 30, 2007 and December 31, 2006,
respectively.
Employee
Stock-Based Compensation
The Company accounts for employee stock-based compensation
expenses in accordance with the fair value recognition
provisions of SFAS No. 123R, Share-Based
Payment (SFAS 123R), which requires the
measurement and recognition of compensation expense for all
share-based payments made to employees and directors be based on
estimated fair values.
As employee stock-based compensation expense recognized in the
condensed consolidated statements of operations for the three
and nine months ended September 30, 2007 and 2006 is based
upon awards expected to ultimately vest, it has been reduced for
estimated forfeitures. SFAS 123R requires forfeitures to be
estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates.
The Company recognizes employee stock-based compensation expense
under SFAS 123R for its fixed awards with pro-rata vesting
based on a straight-line basis.
The Company recorded a cumulative out-of-period adjustment of
approximately $358,000 during the nine months ended
September 30, 2007 to reduce an overstatement of additional
paid-in capital and general and administrative expenses that had
been recorded as of and for the year ended December 31,
2006 in connection with certain employee stock options awarded
in 2006. The error resulted from applying the incorrect
contractual term for certain employee stock options. The impacts
of this adjustment were not material to the consolidated
financial statements for the year ended December 31, 2006,
for the corresponding interim periods or for the period in which
it was recorded, as the adjustment consisted of insignificant
amounts related to each of the quarterly reporting periods
dating back to the quarter ended June 30, 2006.
The employee stock-based compensation expense under
SFAS 123R recorded in the Companys condensed
consolidated statements of operations and comprehensive (loss)
income for three and nine months ended September 30, 2007
and 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
Selling and marketing expense
|
|
$
|
54
|
|
|
$
|
104
|
|
|
$
|
154
|
|
|
$
|
489
|
|
General and administrative expense
|
|
|
19
|
|
|
|
225
|
|
|
|
236
|
|
|
|
2,494
|
|
Founders stock-based awards (Note 9)
|
|
|
|
|
|
|
|
|
|
|
6,112
|
|
|
|
|
|
Cumulative out-of-period adjustment
|
|
|
|
|
|
|
|
|
|
|
(358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock-based compensation expense included in operating
expenses
|
|
$
|
73
|
|
|
$
|
329
|
|
|
$
|
6,144
|
|
|
$
|
2,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
The Company accounts for income taxes under the liability method
in accordance with provisions of SFAS No. 109,
Accounting for Income Taxes (SFAS 109),
which requires companies to account for deferred
9
SUCAMPO
PHARMACEUTICALS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
income taxes using the asset and liability method. Under the
asset and liability method, current income tax provision or
benefit is the amount of income taxes expected to be payable or
refundable for the current year. A deferred income tax asset or
liability is recognized for future tax consequences attributable
to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
bases and tax credits and loss carryforwards. Deferred tax
assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Tax rate
changes are reflected in income during the period such changes
are enacted. Changes in ownership may limit the amount of net
operating loss carryforwards that can be utilized in the future
to offset taxable income.
The Company accounts for its interim tax provision using
Accounting Principles Board (APB) Opinion No. 28,
Interim Financial Reporting (APB 28). Under
APB 28, the interim tax provision is calculated based on the
Companys projected annual effective tax rate.
Accounting
for the Uncertainty of Income Taxes
On January 1, 2007, the Company adopted Financial
Accounting Standards Board (FASB) Interpretation (FIN)
No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48). FIN 48 prescribes a
recognition threshold that a tax position is required to meet
before being recognized in the financial statements and provides
guidance on derecognition, measurement, classification, interest
and penalties, accounting in interim periods, disclosure and
transition issues. The adoption of FIN 48 did not have a
significant impact on the Companys condensed consolidated
financial statements.
The Company conducts business in the U.S., Japan and the United
Kingdom and is subject to tax in those jurisdictions. As a
result of its business activities, the Company files tax returns
that are subject to examination by the respective federal,
state, local and foreign tax authorities. For income tax returns
filed by the Company, the Company is no longer subject to
U.S. federal, state and local, or foreign income tax
examination by tax authorities for years before 2003, although
carryforward tax attributes that were generated prior to
2003 may still be adjusted upon examination by tax
authorities if they either have been or will be utilized. The
Company has not received any communications by taxing
authorities that cause it to believe it is currently under
examination by the tax authorities in any of the jurisdictions
in which it operates.
The Company recognizes interest and penalties accrued related to
unrecognized tax benefits as a component of income tax
provision. For the three and nine months ended
September 30, 2007, there have been no interest and
penalties recorded as a component of income tax provision.
Certain
Risks, Concentrations and Uncertainties
The Companys product candidates under development require
approval from the FDA or other international regulatory agencies
prior to commercial sales. For those product candidates that
have not yet been approved by the FDA or international
regulatory agencies, there can be no assurance the products will
receive the necessary approval. If the Company is denied
approval or approval is delayed, it may have a material adverse
impact on the Company.
The Companys product competes in a rapidly changing,
highly competitive market, which is characterized by advances in
scientific discovery, changes in customer requirements, evolving
regulatory requirements and developing industry standards. Any
failure by the Company to anticipate or to respond adequately to
scientific developments in its industry, changes in customer
requirements or changes in regulatory requirements or industry
standards, or any significant delays in the development or
introduction of products or services could have a material
adverse effect on the Companys business, operating results
and future cash flows.
Revenues from one unrelated party, Takeda, accounted for 99%,
98%, 100% and 99% of the Companys total revenues for the
three months ended September 30, 2007 and 2006 and the nine
months ended September 30, 2007 and 2006, respectively.
Accounts receivable and product royalties receivable from one
unrelated party, Takeda,
10
SUCAMPO
PHARMACEUTICALS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
accounted for $11.2 million (98%) and $3.5 million
(99%) of the Companys accounts and product royalty
receivables at September 30, 2007 and December 31,
2006, respectively.
Segment
Information
Management has determined that the Company has three reportable
segments, which are based on its method of internal reporting,
which disaggregates its business by geographical location. The
Companys reportable segments are the United States, Europe
and Japan (see Note 13).
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could
differ from those estimates.
Recent
Accounting Pronouncements
In September 2006, the FASB Staff issued FASB Statement
No. 157, Fair Value Measurements
(SFAS 157), which addresses how companies should
measure fair value when they are required to use a fair value
measure for recognition or disclosure purposes under generally
accepted accounting principles. The Company will be required to
adopt SFAS 157 for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years. The Company is assessing SFAS 157 and its impact on
the Companys future consolidated financial statements.
In February 2007, the FASB Staff issued FASB Statement
No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS 159),
which provides entities with the opportunity to measure certain
financial instruments at fair value. The Company will be
required to adopt SFAS 159 for the fiscal years beginning
after November 15, 2007. The Company is assessing
SFAS 159 and its impact on the Companys future
consolidated financial statements.
In June 2007, the EITF issued EITF
No. 07-3,
Accounting for Nonrefundable Advance Payments for Goods
or Services to Be Used in Future Research and Development
Activities
(EITF 07-3),
which provides guidance to research and development companies on
how to account for the nonrefundable portion of an advance
payment made for research and development activities. The
Company will be required to adopt
EITF 07-3
for the year beginning after December 15, 2007. The Company
is currently assessing
EITF 07-3
and does not expect a material impact on its future condensed
consolidated financial statements upon its adoption.
|
|
4.
|
(Loss)
Earnings per Share
|
Historical
Basic net (loss) income per share is computed by dividing net
(loss) income by the sum of the weighted average class A
and B common shares outstanding. Diluted net income per share is
computed by dividing net income by the weighted average common
shares and potential dilutive common shares outstanding. Diluted
net loss per share is computed by dividing net loss by the
weighted average common shares outstanding.
11
SUCAMPO
PHARMACEUTICALS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Computation
of (Loss) Earnings per Share
The computation of historical and diluted net (loss) income per
share for the three and nine months ended September 30,
2007 and 2006 is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
Basic net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(474
|
)
|
|
$
|
82
|
|
|
$
|
13,925
|
|
|
$
|
16,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average class A and B common shares outstanding
|
|
|
37,252
|
|
|
|
34,986
|
|
|
|
35,753
|
|
|
|
34,172
|
|
Conversion of series A preferred stock to class A
common shares outstanding
|
|
|
2,060
|
|
|
|
|
|
|
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,312
|
|
|
|
34,986
|
|
|
|
36,447
|
|
|
|
34,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per share
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
$
|
0.38
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(474
|
)
|
|
$
|
82
|
|
|
$
|
13,925
|
|
|
$
|
16,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average class A and B common shares outstanding
for diluted net (loss) income per share
|
|
|
39,312
|
|
|
|
34,986
|
|
|
|
36,447
|
|
|
|
34,172
|
|
Assumed exercise of stock options under the treasury stock method
|
|
|
|
|
|
|
317
|
|
|
|
388
|
|
|
|
317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,312
|
|
|
|
35,303
|
|
|
|
36,835
|
|
|
|
34,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per share
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
$
|
0.38
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the periods listed above, the potentially dilutive
securities used in the calculations of diluted historical net
income per share as of September 30, 2007 and 2006 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Series A preferred stock
|
|
|
|
|
|
|
3,780
|
|
Employee stock options
|
|
|
640,900
|
|
|
|
863,600
|
|
Non-employee stock options
|
|
|
510,000
|
|
|
|
510,000
|
|
Each share of series A preferred stock was converted into
850 shares of class A common stock in connection with
the initial public offering, which was completed in August 2007.
12
SUCAMPO
PHARMACEUTICALS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
5.
|
Property
and Equipment
|
Property and equipment consists of the following as of:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
(In thousands)
|
|
|
|
|
|
|
|
Computer and office machines
|
|
$
|
946
|
|
|
$
|
587
|
|
Furniture and fixtures
|
|
|
333
|
|
|
|
290
|
|
Leasehold improvements
|
|
|
1,270
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
2,549
|
|
|
|
946
|
|
Less: accumulated depreciation and amortization
|
|
|
(291
|
)
|
|
|
(603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,258
|
|
|
$
|
343
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the three months ended
September 30, 2007 and 2006 was $90,000 and $17,000,
respectively, and for the nine months ended September 30,
2007 and 2006 was $153,000 and $50,000, respectively.
Leasehold improvements are amortized over the shorter of ten
years or the life of the lease. The leasehold improvements as of
September 30, 2007 are related to tenant improvements to
the Companys new headquarters in Bethesda, MD, which the
Company relocated to in July 2007.
Accrued expenses consist of the following as of:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
(In thousands)
|
|
|
|
|
|
|
|
Research and development costs
|
|
$
|
2,689
|
|
|
$
|
2,460
|
|
Selling and marketing costs
|
|
|
632
|
|
|
|
986
|
|
Employee compensation
|
|
|
1,454
|
|
|
|
1,238
|
|
Legal service fees
|
|
|
92
|
|
|
|
213
|
|
Royalty liability related party
|
|
|
1,244
|
|
|
|
361
|
|
Other expenses
|
|
|
452
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,563
|
|
|
$
|
5,410
|
|
|
|
|
|
|
|
|
|
|
Other liabilities consist of the following as of:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
(In thousands)
|
|
|
|
|
|
|
|
Deferred leasehold incentive
|
|
$
|
1,109
|
|
|
$
|
|
|
Lease liability
|
|
|
347
|
|
|
|
33
|
|
Lease loss liability (Note 8)
|
|
|
251
|
|
|
|
|
|
Other liabilities
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,712
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
13
SUCAMPO
PHARMACEUTICALS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
In July 2007, the Company relocated to new offices (see
Note 8). Under the terms of the new lease, the Company
received $1.1 million in associated leasehold incentives.
The Company is amortizing these incentives over the term of the
lease using the straight-line method.
Operating
Leases
The Company leases office space in the United States, United
Kingdom and Japan under operating leases through 2017. The
leases require the Company to make certain non-cancelable lease
payments until expiration. Total future minimum lease payments
under operating leases are $10.3 million as of
September 30, 2007.
Rent expense for all operating leases was approximately $288,000
and $137,000 for the three months ended September 30, 2007
and 2006, respectively, and approximately $751,000 and $403,000
for the nine months ended September 30, 2007 and 2006,
respectively.
The Company is party to a non-cancelable operating lease
agreement for office space in the United States, which expires
in November 2009. The Company vacated these premises in July
2007 to relocate to a new leased facility. According to
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (SFAS 146), a
liability for costs that will continue to be incurred under a
lease for its remaining term without economic benefit to the
Company shall be recognized and measured when the Company ceases
using the right conveyed by the lease, reduced by estimated
sublease rentals that could be reasonably obtained. In
accordance with SFAS 146, the Company recorded non-cash
charges relating to the abandonment of its former office of
approximately $310,000 during the three and nine months ended
September 30, 2007. This is reflected in General and
administrative expenses in the accompanying condensed
consolidated statement of operations and comprehensive (loss)
income.
Research
and Development Costs
The Company routinely enters into several agreements with
third-party contract research organizations (CROs) to oversee
clinical research and development studies provided on an
outsourced basis. The Company generally is not contractually
obligated to pay the CRO if the service or reports are not
provided. Total future estimated costs under these agreements as
of September 30, 2007 are $27.1 million.
|
|
9.
|
Other
Liabilities Related Parties
|
On June 19, 2007, the Compensation Committee of the
Companys Board of Directors authorized a one-time stock
and cash award to each of the Companys founders. These
awards were granted and fully vested on June 29, 2007 when
the founders agreed to their terms, but were not to be settled
until the earlier of the completion of the initial public
offering or December 31, 2007. In August 2007, the awards
were settled upon the completion of the initial public offering.
The Compensation Committee intended for these awards to
compensate the founders for the lost value of stock options that
had been granted to them in 2001 and 2002 and had been
understood by them to have ten-year terms, but which had expired
in 2006 and early 2007 as a result of the terms of the 2001
Stock Incentive Plan. The expired options would have entitled
the founders to purchase an aggregate of 578,000 shares of
class A common stock at a price of $0.21 per share and
136,000 shares at a price of $2.95 per share.
Upon their settlement at the completion of the initial public
offering, these stock and cash awards had an aggregate value
equal to the difference between the value of the shares that
could have been purchased under each of the expired options,
determined on the basis of the public offering price per share
of $11.50, and the respective aggregate exercise prices for such
shares as provided in the option agreements.
These awards consisted of a combination of cash and shares of
class A common stock. Of the aggregate value of each award,
40% was payable in cash and 60% in stock. For purposes of
determining the number of shares of
14
SUCAMPO
PHARMACEUTICALS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
class A common stock to be issued in connection with each
award, the stock was valued on the basis of the $11.50 public
offering price per share in the initial public offering.
The estimated fair value of these awards, totaling
$10.2 million on grant date, was based on using the
Black-Scholes pricing model, as allowed under SFAS 123R.
For the six months ended June 30, 2007, the Company
recorded $10.2 million of general and administrative
expense for these awards, of which $4.1 million was
recorded as Other liabilities related
parties for the cash settlement portion and
$6.1 million as Additional paid-in capital for
the stock settlement portion. The liability portion of the
awards was adjusted based upon the final cash settlement amount,
but the equity portion was fixed upon the grant date.
When the initial public offering was completed in August 2007,
the awards were settled and 401,133 shares of class A
common stock were issued to the founders. In addition, as a
result of the lower public offering price compared to the
estimated public offering price at June 30, 2007, the
Company recorded an adjustment of $1.0 million to reduce
the amount of expense and related liability for the cash portion
of the awards, which was paid to the founders.
|
|
10.
|
Collaboration
and License Agreements
|
The following table summarizes the cash streams and related
revenue recognition under the Takeda Agreement and the
Supplemental Agreement, which are described in more detail below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
Cash Received
|
|
|
Recognized
|
|
|
|
|
|
|
|
|
|
for the
|
|
|
for the
|
|
|
|
|
|
|
Amount
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
Amount
|
|
|
|
Deferred at
|
|
|
Ended
|
|
|
Ended
|
|
|
Deferred at
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front payment associated with our obligation to participate
in joint committees with Takeda
|
|
$
|
2,058
|
|
|
$
|
|
|
|
$
|
110
|
|
|
$
|
1,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front payment remainder
|
|
$
|
1,977
|
|
|
$
|
|
|
|
$
|
1,977
|
|
|
$
|
|
|
Development milestones
|
|
|
5,609
|
|
|
|
30,000
|
|
|
|
35,609
|
|
|
|
|
|
Reimbursement of research and development expenses
|
|
|
3,365
|
|
|
|
7,379
|
|
|
|
14,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,951
|
|
|
$
|
37,379
|
|
|
$
|
52,105
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
|
|
|
|
|
|
|
|
|
Accounts
|
|
|
|
Receivable at
|
|
|
|
|
|
|
|
|
Receivable at
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
2007
|
|
|
Product royalty revenue
|
|
$
|
2,029
|
|
|
$
|
13,900
|
|
|
$
|
18,869
|
|
|
$
|
6,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Co-promotion revenue
|
|
$
|
708
|
|
|
$
|
3,648
|
|
|
$
|
3,318
|
|
|
$
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development milestone
|
|
$
|
|
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursement of research and development expenses
|
|
$
|
|
|
|
$
|
7,379
|
|
|
$
|
11,154
|
|
|
$
|
3,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
SUCAMPO
PHARMACEUTICALS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
On October 29, 2004, the Company entered into the Takeda
Agreement to exclusively co-develop, commercialize and sell
products that contain lubiprostone for gastroenterology
indications in the United States and Canada. Payments to the
Company under the Takeda Agreement include a non-refundable
up-front payment, non-refundable development and commercial
milestone payments, reimbursement of certain development and
co-promotion costs and royalties.
|
|
|
|
|
The Company granted Takeda an exclusive license of lubiprostone
to co-develop, commercialize, and sell products for
gastroenterology indications in the United States and Canada.
There are no defined contractual cash flows within the Takeda
Agreement for the grant of this license, but the Company did
receive a non-refundable up-front payment of $20.0 million
upon executing the Takeda Agreement. The license was granted to
Takeda on October 29, 2004 and will expire when the Takeda
Agreement expires or is terminated. After commercial launch,
Takeda has paid and will pay the Company pre-determined
royalties on net revenues on a quarterly basis for the products
sold by Takeda during the term of the Takeda Agreement. The
level of royalties is tiered based on the net sales recognized
by Takeda. Royalty payments, which the Company began to earn in
April 2006 and receive in July 2006, will cease when the Takeda
Agreement is terminated and all cash payments due to the Company
are paid. The Company has recorded product royalty revenue of
approximately $7.0 million and $79,000 for the three months
ended September 30, 2007 and 2006, respectively, and
$18.9 million and $4.6 million for the nine months
ended September 30, 2007 and 2006, respectively. This
revenue is recorded as product royalty revenue in the condensed
consolidated statements of operations and comprehensive (loss)
income.
|
|
|
|
The Company participates in the following committees, along with
Takeda: Joint Steering Committee, Joint Development Committee,
Joint Commercialization Committee and Joint Manufacturing
Committee. There are no separate cash flows identified within
the Takeda Agreement associated with the participation by the
Company in these committees. There is no defined performance
period for this obligation, but the performance period will not
exceed the term of the Takeda Agreement. The Company expects its
participation on all committees to continue throughout the term
of the Takeda Agreement, except for the Joint Development
Committee, which will continue until development work is
complete.
|
|
|
|
The Company has provided development work necessary for an NDA
submission to the FDA for the treatment of chronic idiopathic
constipation and irritable bowel syndrome with constipation, or
IBS-C, indications. Takeda funded the initial $30.0 million
of development costs, the Company was obligated to fund the
first $20.0 million in excess of the initial
$30.0 million funded by Takeda and the two parties were to
equally share any required development costs in excess of
$50.0 million. Although there was no defined performance
period for this development work, the period to perform the work
would not exceed the term of the Takeda Agreement. In January
2006, the Company received approval for its NDA for AMITIZA to
treat chronic idiopathic constipation and completed and
submitted the supplemental NDA for IBS-C to the FDA in June 2007.
|
As a result of its reassessment of the deliverables under the
Takeda Agreement (see Note 2), the Company determined there
were four separate units of accounting as of the inception of
the Takeda Agreement. The Company has assessed these required
deliverables under the guidance of
EITF 00-21
to determine which deliverables are considered separate units of
accounting.
The Company determined that there were four separate units of
accounting when the Takeda Agreement was executed
(1) participation in the Joint Steering Committee,
(2) participation in the Joint Manufacturing Committee,
(3) participation in the Joint Commercialization Committee
and (4) the combined requirement of the development work of
chronic idiopathic constipation and IBS-C and participation in
the Joint Development Committee.
Upon receipt of the $20.0 million up-front payment, the
Company deferred approximately $2.4 million to be
recognized using the time-based model over the performance
period of the participation in these meetings. During
16
SUCAMPO
PHARMACEUTICALS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
the three months ended September 30, 2007 and 2006, the
Company recognized approximately $37,000 of this deferred amount
as collaboration revenue on the condensed consolidated
statements of operations and comprehensive income and $110,000
of this deferred amount as collaboration revenue during the nine
months ended September 30, 2007 and 2006. The related
deferred revenue as of September 30, 2007 was approximately
$1.9 million.
Since the execution of the Takeda Agreement through
December 31, 2006, the Company deferred the residual amount
of the $20.0 million up-front payment totaling
approximately $17.6 million, development milestone payments
received totaling $50.0 million, and reimbursement of the
initial $30.0 million of research and development costs for
the development of AMITIZA for chronic idiopathic constipation
and IBS-C indications. These deferred amounts were applied
towards the unit of accounting combining the participation in
the Joint Development Committee and the development of chronic
idiopathic constipation and IBS-C and are being recognized over
the performance period of developing the chronic idiopathic
constipation and IBS-C NDA submissions. During the nine months
ended September 30, 2007 and 2006, the Company recognized
approximately $11.0 million and $38.3 million,
respectively, of these deferred amounts as research and
development revenue in the condensed consolidated statements of
operations and comprehensive (loss) income. There was no related
deferred revenue as of September 30, 2007. In June 2007,
the Company recognized, in full, $30.0 million from Takeda
upon the filing of the supplemental NDA for AMITIZA to treat
IBS-C as the Company had completed its development.
The Company incurred research and development costs for this
development work of approximately $726,000, $2.7 million,
$13.6 million and $7.5 million for the three months
ended September 30, 2007 and 2006 and for the nine months
ended September 30, 2007 and 2006, respectively.
On February 1, 2006, the Company entered into the
Supplemental Agreement with Takeda, which amended the
responsibilities of both the Company and Takeda for the
co-promotion of AMITIZA and clarified the responsibilities and
funding arrangements for other marketing services to be
performed by both parties.
Upon execution of the Supplemental Agreement, the Company was
required to complete several deliverables, which Takeda was
responsible to fund. The following are the required deliverables
of the Company, along with the related contractual cash flows
from Takeda and the associated obligations and performance
period of the Company, under the Supplemental Agreement:
|
|
|
|
|
The Company is obligated to co-promote AMITIZA with Takeda by
employing a sales force of approximately 38 representatives to
supplement Takedas sales activities. Takeda is obligated
to reimburse the Company a specified amount per day per sales
force representative, but such reimbursements shall not exceed
certain pre-defined amounts. The term of this reimbursement
arrangement ceases five years following the first date that the
Company deployed sales representatives, which was in April 2006.
The Company has recognized approximately $1.1 million and
$1.3 million of revenues for the three months ended
September 30, 2007 and 2006, respectively, and
approximately $3.3 million and $2.6 million of
revenues for the nine months ended September 30, 2007 and
2006, respectively, reflecting these co-promotion
reimbursements, which is recorded as co-promotion revenue in the
condensed consolidated statements of operations and
comprehensive income.
|
|
|
|
The Company is obligated to perform miscellaneous marketing
activities for AMITIZA, the majority of which would be
reimbursed by Takeda. There is no defined performance period,
but the performance period would not extend beyond
January 31, 2007. The Company has recorded no
reimbursements of miscellaneous costs for the three months ended
September 30, 2007 but has recorded $130,000, $158,000 and
$291,000, of reimbursements of miscellaneous costs for the three
months ended September 30, 2006 and for the nine months
ended September 30, 2007 and 2006, respectively. These
amounts are recorded as co-promotion revenue in the condensed
consolidated statements of operations and comprehensive income
|
The Company views the deliverables under the Supplemental
Agreement as economically independent of those in the original
Takeda Agreement.
17
SUCAMPO
PHARMACEUTICALS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The Company has assessed these required deliverables under the
guidance of
EITF 00-21
to determine which deliverables are considered separate units of
accounting. The Company was able to determine that its sales
force miscellaneous marketing activities are treated as separate
units of accounting. The Company is recognizing the cost
reimbursements received for these deliverables as co-promotion
revenues when services are performed and the reimbursement
payments are due under the Supplemental Agreement. For the three
months ended September 30, 2007 and 2006 and for the nine
months ended September 30, 2007 and 2006, the Company
recognized approximately $1.1 million, $1.3 million,
$3.3 million and $2.6 million, respectively, of
co-promotion revenue for its sales force efforts and
approximately $0, $130,000, $158,000 and $291,000, respectively,
for its miscellaneous marketing efforts.
During the quarter ended June 30, 2006, the Joint
Commercialization Committee granted approval for the Company and
Takeda to begin three new studies related to funding
arrangements discussed in both the Takeda Agreement and the
Supplemental Agreement. The following are the three additional
deliverables of the Company, along with the related contractual
cash flows from Takeda and the associated obligations and
performance period of the Company, when the three studies were
agreed upon:
|
|
|
|
|
The Company is obligated to perform studies in connection with
changes to labeling for chronic idiopathic constipation. Takeda
is obligated to fund 70% of the labeling studies and the
Company is obligated to fund the remaining 30%. There is no
defined performance period, but the performance period will not
exceed the term of the Takeda Agreement. The Company initiated
the first labeling study for chronic idiopathic constipation in
August 2006, which is expected to be completed in January 2008.
|
|
|
|
The Company is obligated to perform studies in work for the
development of an additional indication for opioid-induced bowel
dysfunction. Takeda is obligated to fund all development work up
to a maximum aggregate of $50.0 million for each additional
indication and $20.0 million for each new formulation. If
development costs exceed these amounts, Takeda and the Company
shall equally share such excess costs. There is no defined
performance period, but the performance period will not exceed
the term of the Takeda Agreement. The Company initiated work on
the first additional indication for AMITIZA in July 2006, which
is estimated to be completed in June 2009 and is expected to
exceed $50.0 million in development costs.
|
|
|
|
The Company is obligated to perform all development work
necessary for Phase IV studies, for which Takeda is
obligated to fund all development work. There is no defined
performance period, but the performance period will not exceed
the term of the Supplemental Agreement. The Company began work
on a Phase IV study for chronic idiopathic constipation in
August 2006, which is estimated to be completed in June 2008.
|
The Company has assessed these required deliverables under the
guidance of
EITF 00-21
to determine which deliverables are considered separate units of
accounting. As a result of the Company and Takeda agreeing to
perform and fund these studies simultaneously, the Company
determined that there is no objective and reliable evidence to
determine the fair value for each of the studies. Accordingly,
the Company has combined these three required deliverables as a
single unit of accounting. All cash payments from Takeda related
to these three deliverables will be deferred upon receipt and
recognized over the entire period to complete the three studies
using the time-based model. The estimated completion date is
June 2009. During the three months ended September 30, 2007
and 2006 and the nine months ended September 30, 2007 and
2006, the Company recognized approximately $4.7 million,
$0 million, $11.0 million and $0 million related
to these three deliverables as research and development revenue
on the condensed consolidated statements of operations and
comprehensive (loss) income, respectively.
18
SUCAMPO
PHARMACEUTICALS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
A summary of the activity under the Companys 2001 Stock
Incentive Plan is presented below for the nine months ended
September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise Price
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
per Share
|
|
|
Value
|
|
(In thousands, except share and per-share data)
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2006
|
|
|
826,200
|
|
|
$
|
9.02
|
|
|
$
|
958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(25,925
|
)
|
|
|
10.00
|
|
|
|
|
|
Options expired
|
|
|
(159,375
|
)
|
|
|
3.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, September 30, 2007
|
|
|
640,900
|
|
|
|
10.24
|
|
|
$
|
328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2006
|
|
|
518,075
|
|
|
|
8.37
|
|
|
$
|
958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2007
|
|
|
538,900
|
|
|
|
10.28
|
|
|
$
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2007, approximately $407,000 of total
unrecognized compensation costs, net of estimated forfeitures,
related to non-vested awards are expected to be recognized over
a weighted average period of 4.73 years.
On October 18, 2007, the Companys Board of Directors
approved an amendment to the 2006 Stock Incentive Plan (the
Plan). The Plan includes an evergreen provision by
which the number of shares of the Companys class A
common stock available for issuance under the Plan increases
automatically on the first day of each calendar year by a number
equal to 5% of the aggregate number of shares of the
Companys class A common stock and class B common
stock outstanding on such date, or such lesser number as the
Board of Directors may determine. As amended, the Plan will
provide that the number of shares of class A common stock
included in each annual increase will be 500,000, or such lesser
number as the Board of Directors may determine. The Board of
Directors also determined that the amount of the increase in the
shares available for issuance under the Plan as of
January 1, 2008, pursuant to the evergreen
provision, would be zero.
Under the Companys 2001 Stock Incentive Plan, as of
September 30, 2007, there are 510,000 non-employee stock
options outstanding and exercisable with a weighted average
exercise price per share of $5.85.
For the three months ended September 30, 2007 and 2006, the
Companys consolidated effective tax rate was 46.7% and 0%,
respectively. For the nine months ended September 30, 2007
and 2006, the Companys consolidated effective tax rate was
36.4% and 0%, respectively. The increase in the effective tax
rate for the three months and nine months ended
September 30, 2007 from the three months and nine months
ended September 30, 2006 was due to the utilization of
U.S. deferred tax assets and an increase in current tax
expense resulting from the income earned in the current period
for the Companys U.S. operations. The utilization of the
Companys U.S. deferred tax assets for the three
months ended September 30, 2006 was offset by a
corresponding release of the Companys valuation allowance,
which resulted in a 0% effective tax rate. As of
September 30, 2007, the Companys remaining valuation
allowance against its U.S. deferred tax assets was
$8.6 million.
As required under Accounting Principles Board Opinion
No. 28, Interim Financial Reporting, the
Company has estimated its annual effective tax rate for the full
fiscal year 2007 and 2006 and applied that rate to its income
before income taxes in determining its income tax provision for
the interim periods.
19
SUCAMPO
PHARMACEUTICALS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The Company has determined that it has three reportable
geographic segments based on the Companys method of
internal reporting, which disaggregates business by geographic
location. These segments are the United States, Europe and
Japan. The Company evaluates performance of these segments based
on income from operations. The reportable segments have
historically derived their revenue from joint collaboration and
strategic alliance agreements. Transactions between the segments
consist primarily of loans and the provision of research and
development services by the European and Japanese entities to
the domestic entity. Following is a summary of financial
information by reportable geographic segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany
|
|
|
|
|
|
|
United States
|
|
|
Europe
|
|
|
Japan
|
|
|
Eliminations
|
|
|
Consolidated
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue
|
|
$
|
4,652
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,652
|
|
Contract revenue related parties
|
|
|
105
|
|
|
|
|
|
|
|
219
|
|
|
|
(210
|
)
|
|
|
114
|
|
Collaboration revenue
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
Product royalty revenue
|
|
|
6,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,998
|
|
Co-promotion revenue
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
12,843
|
|
|
|
|
|
|
|
219
|
|
|
|
(210
|
)
|
|
|
12,852
|
|
Depreciation and amortization
|
|
|
85
|
|
|
|
1
|
|
|
|
7
|
|
|
|
|
|
|
|
93
|
|
Other operating expenses
|
|
|
12,587
|
|
|
|
520
|
|
|
|
737
|
|
|
|
(210
|
)
|
|
|
13,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
171
|
|
|
|
(521
|
)
|
|
|
(525
|
)
|
|
|
|
|
|
|
(875
|
)
|
Interest income
|
|
|
782
|
|
|
|
|
|
|
|
3
|
|
|
|
(5
|
)
|
|
|
780
|
|
Interest expense
|
|
|
(4
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
5
|
|
|
|
(4
|
)
|
Other non-operating expense, net
|
|
|
(65
|
)
|
|
|
(16
|
)
|
|
|
(143
|
)
|
|
|
|
|
|
|
(224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
884
|
|
|
$
|
(537
|
)
|
|
$
|
(670
|
)
|
|
$
|
|
|
|
$
|
(323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
788
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue
|
|
$
|
6,759
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,759
|
|
Contract revenue related parties
|
|
|
104
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
129
|
|
Collaboration revenue
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
Product royalty revenue
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
Co-promotion revenue
|
|
|
1,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
8,269
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
8,294
|
|
Depreciation and amortization
|
|
|
12
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
15
|
|
Other operating expenses
|
|
|
8,527
|
|
|
|
83
|
|
|
|
45
|
|
|
|
|
|
|
|
8,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(270
|
)
|
|
|
(85
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
(376
|
)
|
Interest income
|
|
|
432
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
436
|
|
Interest expense
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Other non-operating (expense) income, net
|
|
|
(3
|
)
|
|
|
20
|
|
|
|
9
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
155
|
|
|
$
|
(64
|
)
|
|
$
|
(9
|
)
|
|
$
|
|
|
|
$
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
106
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
SUCAMPO
PHARMACEUTICALS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany
|
|
|
|
|
|
|
United States
|
|
|
Europe
|
|
|
Japan
|
|
|
Eliminations
|
|
|
Consolidated
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue
|
|
$
|
52,105
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
52,105
|
|
Contract revenue related parties
|
|
|
314
|
|
|
|
|
|
|
|
660
|
|
|
|
(630
|
)
|
|
|
344
|
|
Collaboration revenue
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
Product royalty revenue
|
|
|
18,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,869
|
|
Co-promotion revenue
|
|
|
3,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
74,716
|
|
|
|
|
|
|
|
660
|
|
|
|
(630
|
)
|
|
|
74,746
|
|
Depreciation and amortization
|
|
|
143
|
|
|
|
1
|
|
|
|
9
|
|
|
|
|
|
|
|
153
|
|
Other operating expenses
|
|
|
52,201
|
|
|
|
829
|
|
|
|
1,671
|
|
|
|
(630
|
)
|
|
|
54,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
22,372
|
|
|
|
(830
|
)
|
|
|
(1,020
|
)
|
|
|
|
|
|
|
20,522
|
|
Interest income
|
|
|
1,573
|
|
|
|
|
|
|
|
7
|
|
|
|
(5
|
)
|
|
|
1,575
|
|
Interest expense
|
|
|
(8
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
5
|
|
|
|
(8
|
)
|
Other non-operating expense, net
|
|
|
(56
|
)
|
|
|
(25
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
(184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
23,881
|
|
|
$
|
(855
|
)
|
|
$
|
(1,121
|
)
|
|
$
|
|
|
|
$
|
21,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
2,128
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue (restated)
|
|
$
|
38,900
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
38,900
|
|
Contract revenue (restated)
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
Contract revenue related parties
|
|
|
209
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
263
|
|
Collaboration revenue (restated)
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
Product royalty revenue
|
|
|
4,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,563
|
|
Co-promotion revenue (restated)
|
|
|
2,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues (restated)
|
|
|
46,340
|
|
|
|
1,500
|
|
|
|
54
|
|
|
|
|
|
|
|
47,894
|
|
Depreciation and amortization
|
|
|
42
|
|
|
|
1
|
|
|
|
7
|
|
|
|
|
|
|
|
50
|
|
Other operating expenses (restated)
|
|
|
32,105
|
|
|
|
342
|
|
|
|
140
|
|
|
|
|
|
|
|
32,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations (restated)
|
|
|
14,193
|
|
|
|
1,157
|
|
|
|
(93
|
)
|
|
|
|
|
|
|
15,257
|
|
Interest income
|
|
|
1,398
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
1,403
|
|
Interest expense
|
|
|
(12
|
)
|
|
|
(43
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
(84
|
)
|
Other non-operating income, net
|
|
|
31
|
|
|
|
71
|
|
|
|
186
|
|
|
|
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
15,610
|
|
|
$
|
1,186
|
|
|
$
|
68
|
|
|
$
|
|
|
|
$
|
16,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
106
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
2,174
|
|
|
$
|
|
|
|
$
|
84
|
|
|
$
|
|
|
|
$
|
2,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
112,149
|
|
|
$
|
541
|
|
|
$
|
2,499
|
|
|
$
|
(6,190
|
)
|
|
$
|
108,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
253
|
|
|
$
|
2
|
|
|
$
|
88
|
|
|
$
|
|
|
|
$
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
68,943
|
|
|
$
|
496
|
|
|
$
|
2,544
|
|
|
$
|
(4,899
|
)
|
|
$
|
67,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This Report on
Form 10-Q
contains forward-looking statements regarding us and our
business, financial condition, results of operations and
prospects within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements
include those that express plans, anticipation, intent,
contingency, goals, targets or future development
and/or
otherwise are not statements of historical fact. These
forward-looking statements are based on our current expectations
and projections about future events and they are subject to
risks and uncertainties known and unknown that could cause
actual results and developments to differ materially from those
expressed or implied in such statements. You should read the
following discussion and analysis of our financial condition and
results of operations in conjunction with our consolidated
financial statements as of and for the year ended
December 31, 2006 included in our Registration Statement on
Form S-1,
as amended (Registration
No. 333-135133),
which was declared effective by the Securities and Exchange
Commission on August 2, 2007.
Restatement
of Previously Issued Condensed Consolidated Financial
Statements
We have restated our previously issued condensed consolidated
financial statements and related footnotes for the nine months
ended September 30, 2006. This was done to correct an error
in accounting for the revenue recognition of our collaboration
and license agreement and related agreements with Takeda
Pharmaceutical Company Limited, or Takeda. All amounts in this
discussion and analysis have been updated to reflect this
restatement. For additional information regarding this
restatement, see Note 2 to our condensed consolidated
financial statements.
The error we corrected in the restatement originated in the
fourth quarter of 2004 and continued throughout 2005 and part of
2006. The identification of this error occurred as a result of
our reevaluation of the assumptions we used under Emerging
Issues Task Force, or EITF, Issue
No. 00-21,
Revenue Arrangements with Multiple
Deliverables, or
EITF 00-21,
in accounting for arrangements with multiple deliverables that
require significant judgment and estimates.
During the preparation of our annual financial statements, we
reassessed the stand-alone value to Takeda of the deliverables
under our joint collaboration and license agreement with Takeda,
at the time we became obliged to make such deliverables, by
examining objective and reliable evidence of the fair value of
the undelivered items. As a result of this reassessment, we
determined that the previous application of a single unit of
accounting for the deliverables from the joint collaboration and
license agreement with Takeda was not appropriate. In addition,
we determined that the substantive milestone method of revenue
recognition we had been using was not appropriate to account for
the cash payments received from Takeda related to our completion
of these required deliverables and that a time-based model,
which is amortized over the performance period of the
development, would be more appropriate to account for these cash
payments. Accordingly, in the restated condensed consolidated
financial statements for the nine months ended
September 30, 2006, we reduced the milestone revenue and
increased research and development revenue. Total revenue
increased by $9.3 million for the nine months ended
September 30, 2006.
All data included in this discussion and analysis for the nine
months ended September 30, 2006 are derived from our
restated financial statements for those periods. The financial
statements for the three months ended September 30, 2006
have not been previously issued and have not been restated.
Overview
We are a specialty pharmaceutical company focused on the
discovery, development and commercialization of proprietary
drugs based on prostones, a class of compounds derived from
functional fatty acids that occur naturally in the human body.
In January 2006, we received marketing approval from the
U.S. Food and Drug Administration, or FDA, for our first
product, AMITIZA, for the treatment of chronic idiopathic
constipation in adults.
We are party to a collaboration and license agreement with
Takeda, or the Takeda Agreement, to jointly develop and
commercialize AMITIZA for chronic idiopathic constipation,
irritable bowel syndrome with constipation, or IBS-C,
opioid-induced bowel dysfunction, or OBD, and other
gastrointestinal indications in the United States and
Canada. We have the right to co-promote AMITIZA along with
Takeda in these markets. We and
22
Takeda initiated commercial sales of AMITIZA in the United
States for the treatment of chronic idiopathic constipation in
adults in April 2006. Under the Takeda Agreement, Takeda records
all product revenue and we receive a royalty on product revenue
for such sales.
We first generated product royalty revenue for commercial sales
of AMITIZA in the second quarter of 2006. Since inception, we
have periodically incurred operating losses and, as of
September 30, 2007, we had an accumulated deficit of
$9.4 million. We recognized net income of
$13.9 million for the nine months ended September 30,
2007 and $16.9 million for the nine months ended
September 30, 2006. Historically, we have generated losses
resulting principally from costs incurred in our research and
development programs and from our general and administrative
expenses. We expect to continue to incur significant and
increasing expenses for the next several years as we continue to
expand our research and development activities, seek regulatory
approvals for additional indications for AMITIZA and for other
compounds as they are developed and augment our sales and
marketing capabilities. Whether we are able to sustain
profitability will depend upon our ability to generate revenues
and receive payments under our contracts with Takeda or similar
arrangements in the future that exceed these expenses. In the
near term, our ability to generate product revenues will depend
primarily on the successful commercialization and continued
development of additional indications for AMITIZA.
We hold an exclusive worldwide royalty-bearing license from
Sucampo AG, an affiliate, to develop and commercialize AMITIZA
and all other prostone compounds covered by patents and patent
applications held by Sucampo AG. We are obligated to assign to
Sucampo AG all patentable improvements that we make in the field
of prostones, which Sucampo AG is obligated in turn to license
back to us on an exclusive basis. If we have not committed
specified development efforts to any prostone compound other
than AMITIZA, SPI-8811 (cobiprostone) and SPI-017 by the end of
a specified period, which ends on the later of June 30,
2011 or the date upon which Drs. Kuno and Ueno, our
founders, no longer control our company, then the commercial
rights to that compound will revert to Sucampo AG, subject to a
15-month
extension in the case of any compound that we designate in good
faith as planned for development within that extension period.
Our
Clinical Development Programs
We are developing AMITIZA and our other prostone compounds for
the treatment of a broad range of diseases. The most advanced of
these programs are:
|
|
|
|
|
AMITIZA (lubiprostone). In connection with our
marketing approval for AMITIZA for the treatment of chronic
idiopathic constipation in adults, we committed to the FDA to
conduct post-marketing studies to evaluate the safety of the
product in pediatric patients, in patients with renal impairment
and in patients with hepatic impairment. We initiated these
studies in January 2007. In addition, we are developing AMITIZA
to treat IBS-C and OBD. We recently completed two pivotal
Phase III clinical trials of AMITIZA for the treatment of
IBS-C and a follow-on safety study to assess the long-term use
of AMITIZA as a treatment for this indication. Based on the
results of these trials, we are seeking marketing approval for
AMITIZA for the treatment of this indication and submitted a
supplement to our existing new drug application, or sNDA, for
AMITIZA in June 2007. In addition, we commenced Phase III
pivotal clinical trials of AMITIZA for the treatment of OBD in
the third quarter of 2007. Our collaboration and co-promotion
arrangement with Takeda also covers these additional indications
for AMITIZA.
|
|
|
|
SPI-8811 (cobiprostone). We are developing
orally administered cobiprostone to treat various
gastrointestinal and liver disorders, including non-steroidal
anti-inflammatory drug, or NSAID, induced ulcers, portal
hypertension, non-alcoholic fatty liver disease and
gastrointestinal disorders associated with cystic fibrosis. We
also are planning to develop an inhaled formulation of
cobiprostone for the treatment of respiratory symptoms of cystic
fibrosis and chronic obstructive pulmonary disease. Our near
term focus is on the development of cobiprostone as a treatment
for NSAID-induced ulcers. We have completed Phase I clinical
trials of cobiprostone in healthy volunteers and commenced a
Phase II clinical trial of this product candidate for the
treatment of NSAID-induced ulcers in the third quarter of 2007.
We also plan to commence a Phase II proof-of-concept study
of cobiprostone in patients with portal hypertension in the
fourth quarter of 2007.
|
23
|
|
|
|
|
SPI-017. We are developing SPI-017 to treat
vascular disease and central nervous system disorders. We are
initially focused on developing an intravenous formulation of
this product candidate for the treatment of peripheral arterial
disease. We also are developing an oral formulation of SPI-017
for the treatment of Alzheimers disease. We plan to
commence Phase I clinical trials of the intravenous formulation
of SPI-017 in 2008.
|
Founders
Awards
On June 19, 2007, the Compensation Committee of our board
of directors authorized a one-time stock and cash award to each
of our founders. These awards were granted on June 29, 2007
when the founders agreed to their terms and settled on
August 2, 2007 upon the effectiveness of our initial public
offering. The Compensation Committee intended for these awards
to compensate the founders for the lost value of stock options
that had been granted to them in 2001 and 2002 and had been
understood by them to have ten-year terms, but which had expired
in 2006 and early 2007 as a result of the terms of our 2001
stock incentive plan. The expired options would have entitled
the founders to purchase an aggregate of 578,000 shares of
class A common stock at a price of $0.21 per share and
136,000 shares at a price of $2.95 per share. These awards
were fully vested at the grant date.
Upon the completion of the initial public offering, these stock
and cash awards had an aggregate value equal to the difference
between the value of the shares that could have been purchased
under each of the expired options, determined on the basis of
the public offering price per share of $11.50 in the initial
public offering, and the respective aggregate exercise prices
for such shares as provided in the option agreements.
These awards consisted of a combination of cash and shares of
class A common stock. Of the aggregate value of each award,
40% was payable in cash and 60% in stock. For purposes of
determining the number of shares of class A common stock to
be issued in connection with each award, the stock was valued on
the basis of the public offering price per share in the initial
public offering.
The estimated fair value of these founders awards,
totaling $10.2 million on grant date, was based on using
the Black-Scholes pricing model, as allowed under Statement of
Financial Accounting Standard (SFAS) No. 123R,
Share-Based Payment (SFAS 123R). For the
six months ended June 30, 2007, we recorded
$10.2 million of general and administrative expense for
these awards, of which $4.1 million was recorded as
Other liabilities related parties for
the cash settlement portion and $6.1 million as
Additional paid-in capital for the stock settlement
portion. The liability portion of the awards would then be
adjusted based upon the final cash settlement amount, but the
equity portion was fixed upon the grant date.
When the initial public offering was completed in August 2007,
the awards were settled and 401,133 shares of class A
common stock were issued to the founders. In addition, as a
result of the lower public offering price compared to the
estimated public offering price at June 30, 2007, we
recorded an adjustment of $1.0 million to reduce the amount
of expense and related liability cash portion of the awards,
which was paid to the founders.
24
Results
of Operations
Comparison
of three months ended September 30, 2007 and
September 30, 2006
Revenues
The following table summarizes our revenues for the three months
ended September 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
(In thousands)
|
|
|
|
|
|
|
|
Research and development revenue
|
|
$
|
4,652
|
|
|
$
|
6,759
|
|
Collaboration revenue
|
|
|
37
|
|
|
|
37
|
|
Contract revenue related parties
|
|
|
114
|
|
|
|
129
|
|
Product royalty revenue
|
|
|
6,998
|
|
|
|
79
|
|
Co-promotion revenue
|
|
|
1,051
|
|
|
|
1,290
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,852
|
|
|
$
|
8,294
|
|
|
|
|
|
|
|
|
|
|
Total revenues were $12.9 million for the three months
ended September 30, 2007 compared to $8.3 million for
the three months ended September 30, 2006, an increase of
$4.6 million. This increase was primarily due to the
$6.9 million increase in product royalty revenue from sales
of AMITIZA, partially offset by a $2.1 million decrease in
research and development revenue.
Research and development revenue was $4.7 million for the
three months ended September 30, 2007 compared to
$6.8 million for the three months ended September 30,
2006, a decrease of $2.1 million. This decrease was
primarily due to our completion of the development of AMITIZA to
treat chronic idiopathic constipation and IBS-C, which was
completed June 30, 2007 and the recognition as revenue of
payments previously received from Takeda. We recognized our
revenue for this development work ratably over the estimated
performance period associated with the development of AMITIZA
and it was completely recognized before the commencement of the
quarter ended September 30, 2007.
The specific revenue streams associated with research and
development revenue for the three months ended
September 30, 2007 were as follows:
|
|
|
|
|
We began to perform services and receive payments from Takeda
during the third quarter of 2006 for the following three
deliverables: post-marketing studies to evaluate the safety of
AMITIZA in patients with renal impairment and patients with
hepatic impairment, Phase IV clinical trials of AMITIZA for
the treatment of chronic idiopathic constipation in pediatric
patients and clinical trials of AMITIZA for the treatment of
OBD. Total research and development revenue associated with
these three deliverables for the three months ended
September 30, 2007 was $4.7 million. During the three
months ended September 30, 2007, we enrolled our first
patient in a Phase III study of lubiprostone for the
treatment of OBD.
|
The specific revenue streams associated with research and
development revenue for the three months ended
September 30, 2006 were as follows:
|
|
|
|
|
In March and May 2005, we received development milestone
payments from Takeda totaling $30.0 million related to our
efforts to develop AMITIZA. We recognized these payments as
research and development revenue ratably over the performance
period, which was completed in June 2007, resulting in
$2.0 million of research and development revenue for the
three months ended September 30, 2006 and no research and
development revenue for the three months ended
September 30, 2007 after the performance period was
completed.
|
|
|
|
In January 2006, we received a $20.0 million development
milestone payment from Takeda related to our efforts to develop
AMITIZA, which we recognized as research and development revenue
ratably over the performance period, resulting in
$1.3 million of research and development revenue for the
three months ended September 30, 2006.
|
25
|
|
|
|
|
We have received a total of $30.0 million of reimbursement
payments for research and development costs from Takeda related
to our efforts to develop AMITIZA, which we recognized as
research and development revenue ratably over the performance
period, resulting in $2.0 million for the three months
ended September 30, 2006.
|
|
|
|
In October 2004, we received an up-front payment of
$20.0 million from Takeda, of which $17.6 million was
associated with the development of AMITIZA. This amount was
recognized ratably over the estimated performance period,
resulting in $1.2 million for the three months ended
September 30, 2006.
|
We began to recognize product royalty payments from Takeda as
revenue in the second quarter of 2006 following the product
launch of AMITIZA. For the three months ended September 30,
2007, we recognized $7.0 million of product royalty revenue
compared to $79,000 for the three months ended
September 30, 2006. This increase reflects the higher
market penetration of AMITIZA in the U.S. market, which was
the result of several factors, including the increase of our
sales force and Takedas sales force and the withdrawal of
Zelnorm, a competing product.
We began to receive reimbursement from Takeda of costs for our
sales force in the second quarter of 2006 following the product
launch of AMITIZA. For the three months ended September 30,
2007 and 2006, we recognized $1.1 million and
$1.3 million, respectively, of co-promotion revenues for
reimbursement of sales force costs.
Research
and Development Expenses
Research and development expenses represent costs incurred in
connection with the in-licensing of our compounds, clinical
trials, activities associated with regulatory filings and
manufacturing efforts. Currently, we outsource our clinical
trials to independent contract research organizations in order
to minimize our overhead. We expense our research and
development costs as incurred.
Total research and development expenses for the three months
ended September 30, 2007 were $6.8 million compared to
$2.8 million for the three months ended September 30,
2006, an increase of $4.0 million. In the three months
ended September 30, 2006, our research and development
expenses were primarily those associated with the ongoing
Phase III clinical trials of AMITIZA for the treatment of
irritable bowel syndrome with constipation. In the three months
ended September 30, 2007, our research and development
expenses were primarily those associated with the end of the
IBS-C trial; the initiation of post-marketing studies of AMITIZA
to evaluate its safety in pediatric patients, in patients with
renal impairment and in patients with hepatic impairment; the
initiation of Phase III clinical trials for OBD; and the
initiation of a Phase II clinical trial for the treatment
and prevention of NSAID-induced ulcers.
We consider the continued development of our product pipeline
crucial to our success, and we anticipate that our research and
development costs will continue to increase as we advance our
research and development activities associated with our product
candidates.
General
and Administrative Expenses
General and administrative expenses consist primarily of
expenses for salaries and related personnel costs and expenses
for corporate activities.
26
The following table summarizes our general and administrative
expenses for the three months ended September 30, 2007 and
2006:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
(In thousands)
|
|
|
|
|
|
|
|
Salaries, benefits and related costs
|
|
$
|
1,513
|
|
|
$
|
1,187
|
|
Legal and consulting expenses
|
|
|
638
|
|
|
|
576
|
|
Stock-based compensation
|
|
|
20
|
|
|
|
226
|
|
Founders stock-based award
|
|
|
(1,000
|
)
|
|
|
|
|
Lease loss
|
|
|
310
|
|
|
|
|
|
Other operating expenses
|
|
|
1,547
|
|
|
|
789
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,028
|
|
|
$
|
2,778
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses were $3.0 million for
the three months ended September 30, 2007 compared to
$2.8 million for the three months ended September 30,
2006, an increase of $250,000. This increase was primarily due
to an increase in operational headcount, rent for additional
leased office space and lease loss related to the abandonment of
our former office in Bethesda, MD, offset by the adjustment to
the founders stock-based award at the time we completed
our initial public offering and a decline in stock-based
compensation expense.
Selling
and Marketing Expenses
Selling and marketing expenses represent costs we incur to
co-promote AMITIZA and other selling and marketing expenses,
including costs for market research and analysis, marketing and
promotional materials, product samples and other costs.
Selling and marketing expenses were $2.7 million for the
three months ended September 30, 2007 compared to
$3.1 million for the three months ended September 30,
2006, a decrease of $373,000. This decrease was primarily due to
the termination of our agreement with Ventiv Commercial
Services, LLC, our contracted sales organization, as we
internalized the sales force.
Milestone
Royalties to Related Parties
Milestone royalties to related parties reflect the 5% we are
obligated to pay to Sucampo AG with respect to any development
milestone payments we earn from Takeda. In the three months
ended September 30, 2007 and 2006, we did not incur any
milestone royalty obligations because we did not earn any
milestone payments from Takeda during either period.
Product
Royalties to Related Parties
Product royalties to related parties represent our obligation to
pay Sucampo AG a royalty of 3.2% of net sales of AMITIZA. The
product royalties that we pay to Sucampo AG are based on total
product net sales, whether by us or a sublicensee, and not on
amounts actually received by us. We began to incur product
royalty expenses for net sales of AMITIZA in the second quarter
of 2006 following the product launch of AMITIZA. In the three
months ended September 30, 2007, we expensed
$1.2 million in product royalties to related parties
compared to $14,000 for the three months ended
September 30, 2006.
Income
Taxes
As required under Accounting Principles Board Opinion
No. 28, Interim Financial Reporting, or
APB No. 28, we have estimated our annual effective tax rate
for the full fiscal years 2007 and 2006 and applied that rate to
our income before income taxes in determining our provision for
income taxes for the three months ended September 30, 2007
and 2006, respectively. For the three months ended
September 30, 2007 and 2006, our
27
consolidated effective tax rate was 46.7% and 0%, respectively.
The increase in the effective tax rate for the three months
ended September 30, 2007 from the three months ended
September 30, 2006 was due to an increase in tax expense
resulting from the income earned in the current period for our
U.S. operations. The utilization of our U.S. deferred
tax assets for the three months ended September 30, 2006
was offset by a corresponding release of our valuation
allowance, which resulted in a 0% effective tax rate. As of
September 30, 2007, our remaining valuation allowance
against our U.S. deferred tax assets was $8.6 million.
Comparison
of nine months ended September 30, 2007 and
September 30, 2006
Revenues
The following table summarizes our revenues for the nine months
ended September 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
(In thousands)
|
|
|
|
|
(restated)
|
|
|
Research and development revenue
|
|
$
|
52,105
|
|
|
$
|
38,900
|
|
Contract revenue
|
|
|
|
|
|
|
1,500
|
|
Collaboration revenue
|
|
|
110
|
|
|
|
110
|
|
Contract revenue related parties
|
|
|
344
|
|
|
|
263
|
|
Product royalty revenue
|
|
|
18,869
|
|
|
|
4,563
|
|
Co-promotion revenue
|
|
|
3,318
|
|
|
|
2,558
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
74,746
|
|
|
$
|
47,894
|
|
|
|
|
|
|
|
|
|
|
Total revenues were $74.7 million for the nine months ended
September 30, 2007 compared to $47.9 million
(restated) for the nine months ended September 30, 2006, an
increase of $26.8 million. This increase was primarily due
to the recognition of $30.0 million of research and
development revenue in connection with a research and
development milestone payment earned from Takeda upon the filing
of the sNDA for AMITIZA to treat IBS-C in June 2007. This
increase also reflected a $14.3 million increase in product
royalty revenue from sales of AMITIZA.
Research and development revenue was $52.1 million for the
nine months ended September 30, 2007 compared to
$38.9 million (restated) for the nine months ended
September 30, 2006, an increase of $13.2 million. This
increase was primarily due to the recognition of the
$30.0 million research and development milestone payment
for the completion of our development of AMITIZA to treat
chronic idiopathic constipation and IBS-C and the recognition of
payments previously received from Takeda. We recognize our
revenue for this development work ratably over the estimated
performance period associated with the development of AMITIZA,
which was completed in June 2007. Excluding this milestone, we
had a $16.8 million decrease in research and development
revenue primarily due to a $14.2 million decrease in the
recognition of deferred revenue for six months in 2007 compared
to nine months in 2006.
28
The following table summarizes the cash streams and related
revenue recognition under the Takeda Agreement and the
Supplemental Agreement, which are described in more detail below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
Cash Received
|
|
|
Recognized
|
|
|
|
|
|
|
Amount
|
|
|
for the Nine
|
|
|
for the Nine
|
|
|
Amount
|
|
|
|
Deferred at
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
Deferred at
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front payment associated with our obligation to participate
in joint committees with Takeda
|
|
$
|
2,058
|
|
|
$
|
|
|
|
$
|
110
|
|
|
$
|
1,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front payment remainder
|
|
$
|
1,977
|
|
|
$
|
|
|
|
$
|
1,977
|
|
|
$
|
|
|
Development milestones
|
|
|
5,609
|
|
|
|
30,000
|
|
|
|
35,609
|
|
|
|
|
|
Reimbursement of research and development expenses
|
|
|
3,365
|
|
|
|
7,379
|
|
|
|
14,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,951
|
|
|
$
|
37,379
|
|
|
$
|
52,105
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
|
|
|
|
|
|
|
|
|
Accounts
|
|
|
|
Receivable at
|
|
|
|
|
|
|
|
|
Receivable at
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
2007
|
|
Product royalty revenue
|
|
$
|
2,029
|
|
|
$
|
13,900
|
|
|
$
|
18,869
|
|
|
$
|
6,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Co-promotion revenue
|
|
$
|
708
|
|
|
$
|
3,648
|
|
|
$
|
3,318
|
|
|
$
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development milestone
|
|
$
|
|
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursement of research and development expenses
|
|
$
|
|
|
|
$
|
7,379
|
|
|
$
|
11,154
|
|
|
$
|
3,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The specific revenue streams associated with research and
development revenue for the nine months ended September 30,
2007 and 2006 were as follows:
|
|
|
|
|
In October 2004, we received an up-front payment of
$20.0 million from Takeda, of which $17.6 million was
associated with the development of AMITIZA. This amount was
recognized ratably over the estimated performance period,
resulting in $2.0 million and $5.0 million of research
and development revenue for the nine months ended
September 30, 2007 and 2006, respectively. The smaller
amount of revenue recognized for the nine months ended
September 30, 2007 is a result of our determination in June
2006 to extend the estimated completion of the development
period to June 2007.
|
|
|
|
In March and May 2005, we received development milestone
payments from Takeda totaling $30.0 million related to our
efforts to develop AMITIZA. We recognized these payments as
research and development revenue ratably over the performance
period, resulting in $3.4 million of research and
development revenue for the nine months ended September 30,
2007 and $8.5 million for the nine months ended
September 30, 2006. The smaller amount of revenue
recognized for the nine months ended September 30, 2007 is
a result of our determinations in June 2006 to extend the
estimated completion of the development period to June 2007.
|
|
|
|
In January 2006, we received a $20.0 million development
milestone payment from Takeda related to our efforts to develop
AMITIZA, which we recognized as research and development revenue
ratably over the performance period, resulting in
$2.2 million of research and development revenue for the
nine months ended September 30, 2007 and $16.4 million
for the nine months ended September 30, 2006. We recognized
a significant portion of this milestone payment in the three
months ended March 31, 2006, the quarter in which it was
received, reflecting the fact that we were then well into the
estimated development period. The smaller amount of revenue for
the nine months ended September 30, 2007 also reflects our
determinations, subsequent to our receipt of this payment, to
extend the estimated completion in June 2006 of the development
period to June 2007.
|
29
|
|
|
|
|
Since inception of our agreement with Takeda, we have received a
total of $30.0 million of reimbursement payments for
research and development costs from Takeda related to our
efforts to develop AMITIZA, which we recognized as research and
development revenue ratably over the performance period,
resulting in $3.4 million of research and development
revenue for the nine months ended September 30, 2007 and
$8.5 million for the nine months ended September 30,
2006. The smaller amount of revenue recognized for the nine
months ended September 30, 2007 is a result of our
determination in June 2006 to extend the estimated completion of
the development period to June 2007.
|
|
|
|
We also began to perform services and receive payments from
Takeda during the third quarter of 2006 for the following three
deliverables: post-marketing studies to evaluate the safety of
AMITIZA in patients with renal impairment and patients with
hepatic impairment, Phase IV clinical trials of AMITIZA for
the treatment of chronic idiopathic constipation in pediatric
patients and clinical trials of AMITIZA for the treatment of
OBD. Total research and development revenue associated with
these three deliverables for the nine months ended
September 30, 2007 and 2006 was $11.0 million and
$1.1 million, respectively.
|
We had no contract revenue for the nine months ended
September 30, 2007 compared to $1.5 million (restated)
for the nine months ended September 30, 2006. Contract
revenue represents amounts released from previously deferred
revenue that we recognized upon the expiration in January 2006
of the option we had previously granted to Takeda for joint
development and commercialization rights for AMITIZA in Europe,
Africa and the Middle East.
We began to recognize product royalty payments from Takeda as
revenue in the second quarter of 2006 following the product
launch of AMITIZA. For the nine months ended September 30,
2007, we recognized $18.9 million of product royalty
revenue compared to $4.6 million for the nine months ended
September 30, 2006.
We began to receive reimbursement of costs for our sales force
in the second quarter of 2006 following the product launch of
AMITIZA. For the nine months ended September 30, 2007, we
recognized $3.3 million of co-promotion revenues, of which
approximately $158,000 was for reimbursement of costs for
miscellaneous marketing activities and approximately
$3.2 million was for reimbursement of sales force costs.
For the nine months ended September 30, 2006, we recorded
$2.6 million (restated) as co-promotion revenues, of which
approximately $291,000 was for reimbursement of costs for
miscellaneous marketing activities and $2.3 million was for
reimbursement of sales force costs.
Research
and Development Expenses
Total research and development expenses for the nine months
ended September 30, 2007 were $20.1 million compared
to $12.4 million for the nine months ended
September 30, 2006, an increase of $7.7 million. The
higher costs in 2007 reflect the significant research and
development expenses incurred by us during that period in
connection with the filing of the sNDA for the treatment of
IBS-C; the initiation of post-marketing safety studies in
pediatric patients, in patients with renal impairment and in
patients with hepatic impairment; the initiation of
Phase III studies for OBD; and the initiation of a
Phase II study of NSAID-induced ulcers. In 2006, our
research and development expenses were primarily those
associated with the ongoing Phase III clinical trials of
AMITIZA for the treatment of IBS-C. In the quarter ended
September 30, 2007, we enrolled our first patient in a
Phase III study for OBD, which we expect to be completed in
the second quarter of 2009. We also enrolled our first patient
in a multi-center Phase II study of NSAID-induced ulcers.
30
General
and Administrative Expenses
The following summarizes our general and administrative expenses
for the nine months ended September 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
(In thousands)
|
|
|
|
|
(restated)
|
|
|
Salaries, benefits and related costs
|
|
$
|
4,756
|
|
|
$
|
3,986
|
|
Legal and consulting expenses
|
|
|
2,005
|
|
|
|
2,407
|
|
Stock-based compensation
|
|
|
(122
|
)
|
|
|
2,494
|
|
Founders stock-based awards
|
|
|
9,187
|
|
|
|
|
|
Lease loss
|
|
|
310
|
|
|
|
|
|
Other operating expenses
|
|
|
3,528
|
|
|
|
2,091
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,664
|
|
|
$
|
10,978
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses were $19.7 million for
the nine months ended September 30, 2007 compared to
$11.0 million (restated) for the nine months ended
September 30, 2006, an increase of $8.7 million. This
increase was due primarily to the founders stock-based
award of $9.2 million granted in June 2007, offset in part
by the decline in stock-based compensation expenses from the
$2.5 million recorded in the prior year. This increase also
reflected increases in operational headcount, rent for
additional leased office space and lease loss related to the
abandonment of our former office in Bethesda, MD.
We recorded a cumulative out-of-period adjustment of
approximately $358,000 during the nine months ended
September 30, 2007 to reduce an overstatement of additional
paid-in capital and general administrative expenses that had
been recorded as of and for the year ended December 31,
2006 in connection with certain employee stock options awarded
in 2006. The error resulted from applying the incorrect
contractual term for certain employee stock options. The impacts
of this adjustment were not material to the consolidated
financial statements for the year ended December 31, 2006,
for the corresponding interim periods or for the period in which
it was recorded, as the adjustment consisted of insignificant
amounts related to each of the quarterly reporting periods
dating back to the quarter ended September 30, 2006.
Selling
and Marketing Expenses
Selling and marketing expenses were $9.7 million for the
nine months ended September 30, 2007 compared to
$7.1 million (restated) for the nine months ended
September 30, 2006, an increase of $2.6 million. This
increase was due to increased costs for market research and
analysis, marketing and promotional materials, product samples
and other costs, for nine months in 2007 compared to six months
in 2006.
Milestone
Royalties to Related Parties
Milestone royalties to related parties were $1.5 million
and $1.3 million for the nine months ended
September 30, 2007 and 2006, respectively. These royalties
were paid to Sucampo AG, reflecting the 5% we owed them for the
$30.0 million development milestone earned from Takeda
during that period. The milestone royalties to related parties
of $1.3 million for the nine months ended
September 30, 2006 were paid to Sucampo AG reflecting the
5% we owed them for the $20.0 million development milestone
payment we received from Takeda during that period, and a
$250,000 milestone payment for regulatory approval of
AMITIZA.
Product
Royalties to Related Parties
We began to incur product royalty expenses for net sales of
AMITIZA in the second quarter of 2006 following the product
launch of AMITIZA. In the nine months ended September 30,
2007, we expensed $3.4 million in product royalties to
related parties compared to $981,000 for the nine months ended
September 30, 2006.
31
Income
Taxes
As required under APB No. 28, we have estimated our annual
effective tax rate for the full fiscal years 2007 and 2006 and
applied that rate to our income before income taxes in
determining our provision for income taxes for the nine months
ended September 30, 2007 and 2006. For the nine months
ended September 30, 2007 and 2006, our consolidated
effective tax rate was 36.4% and 0%, respectively. The increase
in the effective tax rate for the nine months ended
September 30, 2007 from the nine months ended
September 30, 2006 was due to the utilization of
U.S. deferred tax assets and an increase in current tax
expense resulting from the income earned in the current period.
The utilization of our U.S. deferred tax assets for the
nine months ended September 30, 2006 was offset by a
corresponding release of our valuation allowance, which resulted
in a 0% effective tax rate. As of September 30, 2007, our
remaining valuation allowance against our U.S. deferred tax
assets was $8.6 million.
Reportable
Geographic Segments
We have determined that we have three reportable geographic
segments based on our method of internal reporting, which
disaggregates business by geographic location. These segments
are the United States, Europe and Japan. We evaluate the
performance of these segments on the basis of income from
operations. The following is a summary of financial information
by reportable segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany
|
|
|
|
|
(In thousands)
|
|
United States
|
|
|
Europe
|
|
|
Japan
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Three Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
12,843
|
|
|
$
|
|
|
|
$
|
219
|
|
|
$
|
(210
|
)
|
|
$
|
12,852
|
|
Income (loss) from operations
|
|
|
171
|
|
|
|
(521
|
)
|
|
|
(525
|
)
|
|
|
|
|
|
|
(875
|
)
|
Income (loss) before income taxes
|
|
|
884
|
|
|
|
(537
|
)
|
|
|
(670
|
)
|
|
|
|
|
|
|
(323
|
)
|
Identifiable assets (end of period)
|
|
|
112,149
|
|
|
|
541
|
|
|
|
2,499
|
|
|
|
(6,190
|
)
|
|
|
108,999
|
|
Three Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
8,269
|
|
|
$
|
|
|
|
$
|
25
|
|
|
$
|
|
|
|
$
|
8,294
|
|
Loss from operations
|
|
|
(270
|
)
|
|
|
(85
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
(376
|
)
|
Income (loss) before income taxes
|
|
|
154
|
|
|
|
(64
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
82
|
|
Nine Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
74,716
|
|
|
$
|
|
|
|
$
|
660
|
|
|
$
|
(630
|
)
|
|
$
|
74,746
|
|
Income (loss) from operations
|
|
|
22,372
|
|
|
|
(830
|
)
|
|
|
(1,020
|
)
|
|
|
|
|
|
|
20,522
|
|
Income (loss) before income taxes
|
|
|
23,881
|
|
|
|
(855
|
)
|
|
|
(1,121
|
)
|
|
|
|
|
|
|
21,905
|
|
Identifiable assets (end of period)
|
|
|
112,149
|
|
|
|
541
|
|
|
|
2,499
|
|
|
|
(6,190
|
)
|
|
|
108,999
|
|
Nine Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues (restated)
|
|
$
|
46,340
|
|
|
$
|
1,500
|
|
|
$
|
54
|
|
|
$
|
|
|
|
$
|
47,894
|
|
Income (loss) from operations (restated)
|
|
|
14,193
|
|
|
|
1,157
|
|
|
|
(93
|
)
|
|
|
|
|
|
|
15,257
|
|
Income before income taxes (restated)
|
|
|
15,609
|
|
|
|
1,186
|
|
|
|
69
|
|
|
|
|
|
|
|
16,864
|
|
Liquidity
and Capital Resources
Sources
of Liquidity
We require cash principally to meet our operating expenses. We
have financed our operations since inception with a combination
of private placements of equity securities, our initial public
offering, up-front and milestone payments received from Takeda
and R-Tech Ueno, Ltd., or R-Tech, an affiliate, and research and
development expense reimbursements from Takeda. From inception
through September 30, 2007, we had raised net proceeds of
$55.3 million from private equity financings and net
proceeds of $28.2 million from our initial public offering
in August 2007. From inception through September 30, 2007,
we had also received an aggregate of $140.5 million in
up-front, milestone, option and expense reimbursement payments
from third parties. We operated profitably in the nine months
ended September 30, 2007 and 2006, principally as a result
of the development milestones and product royalties that we
earned from Takeda. As of September 30, 2007, we had cash
and cash equivalents and short-term investments of
$89.7 million.
32
Cash
Flows
The following table summarizes our cash flows for the nine
months ended September 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
8,408
|
|
|
$
|
(3,086
|
)
|
Investing activities
|
|
|
(33,188
|
)
|
|
|
(737
|
)
|
Financing activities
|
|
|
31,341
|
|
|
|
17,968
|
|
Effect of exchange rates
|
|
|
186
|
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
6,747
|
|
|
$
|
14,063
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 30, 2007
Net cash provided by operating activities was $8.4 million
for the nine months ended September 30, 2007. This
reflected net income of $13.9 million offset by an increase
in product royalties receivable of $5.0 million and in
accounts receivable of $7.8 million and a decrease in
deferred revenue of $11.4 million. The decrease in deferred
revenue primarily related to the amortization of deferred
research and development revenue over the performance period of
the development of AMITIZA.
Net cash used in investing activities was $33.2 million for
the nine months ended September 30, 2007. This primarily
reflected our purchases of short-term investments and purchases
of property and equipment associated with the move of our
offices in the United States in July 2007 offset by proceeds
from the sale of short-term investments.
Net cash provided by financing activities was $31.3 million
for the nine months ended September 30, 2007. This
reflected the net proceeds from the issuance of common stock in
our initial public offering, which was consummated in August
2007, of which the Company had prepaid $3.1 million of
offering expenses prior to 2007.
Nine
months ended September 30, 2006
Net cash used in operating activities was $3.1 million for
the nine months ended September 30, 2006. This reflected
net income of $16.9 million (restated), which included a
non-cash charge of $3.0 million of stock-based compensation
expense. We also had a decrease in deferred revenue of
$19.2 million (restated). The decrease in deferred revenue
primarily related to the amortization of deferred research and
development revenue over the performance period of the
development of AMITIZA.
Net cash used in investing activities was $737,000 for the nine
months ended September 30, 2006. This reflected our
purchases of auction rate securities and property and equipment,
offset in part by proceeds received from sales and maturities of
auction rate securities.
Net cash provided by financing activities was $18.0 million
for the nine months ended September 30, 2006. This
reflected $23.9 million in net proceeds raised in a private
placement sale of 2,398,759 shares of class A common
stock, $1.2 million in funds received from borrowings under
related party debt instruments, $2.4 million of payments
incurred for our completed initial public offering and
$4.8 million of repayments under related party debt
instruments.
Funding
Requirements
We believe that our existing cash and internally generated funds
will be sufficient to enable us to fund our operations at least
through the third quarter of 2008.
33
We will need substantial amounts of capital to continue growing
our business. We will require this capital to:
|
|
|
|
|
fund our 30% share of the two post-marketing studies of AMITIZA
to evaluate its safety in patients with renal impairment and
patients with hepatic impairment;
|
|
|
|
fund regulatory efforts by Sucampo Europe and Sucampo Japan for
AMITIZA and cobiprostone;
|
|
|
|
fund development and regulatory activities for cobiprostone and
SPI-017;
|
|
|
|
fund research and development activities for prostone compounds
other than AMITIZA, cobiprostone and SPI-017;
|
|
|
|
fund the expansion of our commercialization activities in the
United States and the initiation of commercialization efforts in
non-U.S. markets; and
|
|
|
|
fund costs for capital expenditures to support the growth of our
business.
|
The timing of these funding requirements is difficult to predict
due to many factors, including the outcomes of our research and
development programs and when those outcomes are determined, the
timing of obtaining regulatory approvals and the presence and
status of competing products. Our capital needs may exceed the
capital available from our future operations, collaborative and
licensing arrangements and existing liquid assets. Our future
capital requirements and liquidity will depend on many factors,
including, but not limited to:
|
|
|
|
|
the revenue from AMITIZA;
|
|
|
|
the future expenditures we may incur to increase revenue from
AMITIZA;
|
|
|
|
the cost and time involved to progress our research and
development programs;
|
|
|
|
our ability to establish collaborative arrangements and to enter
into licensing agreements and contractual arrangements with
others; and
|
|
|
|
any future change in our business strategy.
|
To the extent that our capital resources may be insufficient to
meet our future capital requirements, we may need to finance our
future cash needs through public or private equity offerings,
debt financings or corporate collaboration and licensing
arrangements. Except for research and development funding and
the future potential milestone payments of $110.0 million
from Takeda, we do not currently have any commitments for future
external funding.
Additional equity or debt financing, grants or corporate
collaboration and licensing arrangements may not be available on
acceptable terms, if at all. If adequate funds are not
available, we may be required to delay, reduce the scope of or
eliminate our research and development programs, reduce our
planned commercialization efforts or obtain funds through
arrangements with collaborators or others that may require us to
relinquish rights to certain product candidates that we might
otherwise seek to develop or commercialize independently. In
addition, any future equity funding may dilute the ownership of
our equity investors.
Off
Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or
relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured
finance or special purpose entities.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Our international sales generally are denominated in United
States Dollars, and are, therefore, not exposed to changes in
foreign currency exchange rates.
We do not use derivative financial instruments for trading or
speculative purposes. However, we regularly invest excess cash
in overnight repurchase agreements that are subject to changes
in short-term interest rates. We believe that the market risk
arising from holding these financial instruments is minimal.
34
Our exposure to market risks associated with changes in interest
rates relates primarily to the increase or decrease in the
amount of interest income earned on our investment portfolio
since we have minimal debt. We ensure the safety and
preservation of invested funds by limiting default risks, market
risk and reinvestment risk. We mitigate default risk by
investing in investment grade securities. A hypothetical
100 basis point adverse move in interest rates along the
entire interest rate yield curve would not have materially
affected the fair value of our interest sensitive financial
instruments as of September 30, 2007.
|
|
Item 4T.
|
Controls
and Procedures
|
|
|
a)
|
Evaluation
of Disclosure Controls and Procedures
|
Management, under the supervision and with the participation of
our Chief Executive Officer and Chief Financial Officer,
performed an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures
(as defined in
Rules 13a-15(e)
and
15d-15(e) of
the Securities Exchange Act of 1934, as amended) as of
September 30, 2007. Based upon this evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded
that, as of September 30, 2007, our disclosure controls and
procedures were effective to provide reasonable assurance that
the information required to be disclosed is recorded, processed,
summarized and reported within the time periods specified under
applicable rules of the Securities and Exchange Commission and
that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
|
|
b)
|
Remediation
of Previous Material Weakness
|
Management has concluded that sufficient controls and processes
were implemented in the first two quarters of 2007 to remediate
the material weakness of maintaining effective controls over the
preparation, review, and presentation of the financial
information prepared in accordance with U.S. generally
accepted accounting principles reflecting Sucampo Europe and
Sucampo Japan operations. Previously, effective controls were
not designed and in place to adequately review, analyze and
monitor these affiliates financial information, nor did we
have a standard reporting format for these affiliates,
accounting procedures and policies manuals, formally documented
controls and procedures or a formal process to review and
analyze financial information for these affiliates. We have
implemented the following entity level controls and processes:
|
|
|
|
|
implemented a formal review of monthly reporting packages that
requires each subsidiary to provide detailed financial data,
including identification of significant transactions;
|
|
|
|
implemented formal written processes to facilitate the
consolidation activities; and
|
|
|
|
implemented formal procedures for foreign currency translation
and US generally accepted accounting principals reporting.
|
As our business changes and grows, we expect the process of
improving our internal controls will require us to continue to
expend significant resources to design, implement and maintain a
system of internal controls that is adequate to satisfy our
reporting obligations as a public company. There can be no
assurance that any future action we take will be successful. We
will continue to evaluate the effectiveness of our disclosure
controls and procedures and internal control over financial
reporting on an on-going basis.
|
|
c)
|
Changes
in Internal Controls Over Financial Reporting
|
There were no changes in our internal control over financial
reporting during the three months ended September 30, 2007
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
35
Part II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
We are not currently a party to any legal proceedings the
negative outcome of which would have a material adverse effect
on our business, financial condition or results of operations.
We do not believe there have been material changes to the risk
factors affecting our business that we included in our Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 2007 and our Registration
Statement on
Form S-1,
as amended (Registration
No. 333-135133).
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
Use of
Proceeds from Initial Public Offering of Class A Common
Stock
In August 2007, we completed an initial public offering of
class A common stock pursuant to a Registration Statement
on
Form S-1
(Registration
No. 333-135133)
which the SEC declared effective on August 2, 2007.
Pursuant to the registration statement, we registered the
offering and sale of an aggregate of 4,312,500 shares of
our class A common stock, of which 3,125,000 shares
were sold by us and 625,000 shares were sold by a selling
stockholder, at a price of $11.50 per share. S&R Technology
Holdings, LLC, or S&R, which is wholly-owned by our
founders, Drs. Kuno and Ueno, granted to the underwriters
an option to purchase an additional 562,500 shares of our
class A common stock at the initial public offering price
of $11.50 per share to cover over-allotments, if any. The
initial closing of the offering occurred on August 2, 2007.
The underwriters exercised their over-allotment option and
purchased an additional 562,500 shares of class A
common stock from S&R on August 29, 2007. We did not
receive any proceeds from the sale of these shares by S&R.
The managing underwriters for the offering were Cowen and
Company, LLC, CIBC World Markets Corp. and Leerink
Swann & Co., Inc.
We raised a total of $35.9 million in gross proceeds from
the initial public offering, or approximately $28.2 million
in net proceeds after deducting underwriting discounts and
commissions of $3.0 million and other offering expenses of
approximately $4.7 million. The selling stockholder
received a total of approximately $7.2 million in gross
proceeds from the initial public offering, or approximately
$6.7 million of net proceeds after deducting the
underwriting discounts. S&R received a total of
approximately $6.5 million in gross proceeds from the
initial public offering, or approximately $6.0 million of
net proceeds after deducting the underwriting discounts.
We have not used any of the net proceeds from the offering to
make payments, directly or indirectly, to any director or
officer of ours, or any of their associates, to any person
owning 10% or more of our common stock or to any affiliate of
ours, and none of the expenses we incurred in connection with
the offering or the underwriting discounts and commissions were
paid, directly or indirectly, to any such persons. We did,
however, contemporaneously with the closing of our initial
public offering, make payments of approximately
$3.1 million in the aggregate to Ryuji Ueno, a director,
officer and 10% stockholder, and Sachiko Kuno, a 10%
stockholder, in settlement of special stock and cash awards that
had been made to them in June 2007.
We have invested the net proceeds from the offering in
short-term, investment grade, interest-bearing instruments.
There has been no material change in our planned use of the
balance of the net proceeds from the offering as described in
our final prospectus filed with the SEC pursuant to
Rule 424(b) under the Securities Act.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
36
|
|
|
|
|
Exhibits
|
|
Description
|
|
|
10
|
.1
|
|
Indemnification Agreement, dated as of October 18, 2007,
between the Registrant and Anthony C. Celeste
|
|
10
|
.2
|
|
Amended and Restated 2006 Stock Incentive Plan
|
|
31
|
.1
|
|
Certification of the Principal Executive Officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
Certification of the Principal Financial Officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
Certification of the Principal Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
Certification of the Principal Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
37
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
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Sucampo Pharmaceuticals, Inc.
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November 14, 2007
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By: /s/ Ryuji Ueno
Ryuji
Ueno, M.D., Ph.D., Ph.D.
Chief Executive Officer, Chief Scientific Officer and
Chair of the Board of Directors
(Principal Executive Officer)
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November 14, 2007
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By: /s/ Ronald W. Kaiser
Ronald
W. Kaiser
Chief Financial Officer
(Principal Financial Officer)
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November 14, 2007
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By: /s/ Mariam E. Morris
Mariam
E. Morris
Chief Accounting Officer
(Principal Accounting Officer)
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38
Sucampo
Pharmaceuticals, Inc.
Exhibit Index
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Exhibit
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|
Number
|
|
Description
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10
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.1
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Indemnification Agreement, dated as of October 18, 2007,
between the Registrant and Anthony C. Celeste
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10
|
.2
|
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Amended and Restated 2006 Stock Incentive Plan
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|
31
|
.1
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Certification of the Principal Executive Officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002
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31
|
.2
|
|
Certification of the Principal Financial Officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002
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|
32
|
.1
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Certification of the Principal Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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|
32
|
.1
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Certification of the Principal Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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39