e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(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 |
For the quarterly period ended March 31, 2009
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 |
For the transition period from to
Commission File Number: 001-33609
SUCAMPO PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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30-0520478
(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 |
(Address of principal executive offices,
including zip code)
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(Registrants telephone number,
including area code) |
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
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
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 May 1, 2009, there were 15,652,759 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
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Page |
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Part I. FINANCIAL INFORMATION |
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Item 1. |
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Condensed Consolidated Financial Statements (unaudited) |
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1 |
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Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008 |
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1 |
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Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three Months Ended March 31, 2009 and 2008 |
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2 |
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Condensed Consolidated Statement of Changes in Stockholders Equity for the Three Months Ended March 31, 2009 |
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3 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008 |
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4 |
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Notes to Condensed Consolidated Financial Statements |
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Item 2. |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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18 |
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Item 3. |
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Quantitative and Qualitative Disclosures About Market Risk |
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25 |
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Item 4. |
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Controls and Procedures |
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26 |
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Part II. OTHER INFORMATION |
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Item 1. |
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Legal Proceedings |
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28 |
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Item 1A. |
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Risk Factors |
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28 |
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Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
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29 |
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Item 3. |
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Defaults Upon Senior Securities |
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29 |
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Item 4. |
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Submission of Matters to a Vote of Security Holders |
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29 |
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Item 5. |
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Other Information |
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29 |
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Item 6. |
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Exhibits |
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30 |
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SIGNATURES |
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INDEX TO EXHIBITS |
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PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
SUCAMPO PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)
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March 31, |
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December 31, |
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2009 |
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2008 |
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ASSETS: |
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Current assets: |
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Cash and cash equivalents |
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$ |
17,797 |
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$ |
11,536 |
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Investments, current |
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103,257 |
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93,776 |
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Product royalties receivable |
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8,945 |
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9,725 |
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Unbilled accounts receivable |
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3,826 |
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4,373 |
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Accounts receivable |
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249 |
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878 |
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Prepaid and income taxes receivable |
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1,539 |
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133 |
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Deferred tax assets, net |
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413 |
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963 |
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Prepaid expenses and other current assets |
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3,209 |
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3,641 |
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Total current assets |
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139,235 |
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125,025 |
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Investments, non-current |
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9,494 |
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16,222 |
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Property and equipment, net |
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2,272 |
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2,275 |
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Deferred tax assets noncurrent, net |
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4,225 |
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4,026 |
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Other assets |
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873 |
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3,246 |
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Total assets |
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$ |
156,099 |
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$ |
150,794 |
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LIABILITIES AND STOCKHOLDERS EQUITY: |
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Current liabilities: |
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Accounts payable |
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$ |
2,763 |
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$ |
1,433 |
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Accrued expenses |
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8,910 |
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9,764 |
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Deferred revenue current |
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19,053 |
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15,599 |
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Total current liabilities |
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30,726 |
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26,796 |
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Deferred revenue, net of current portion |
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11,463 |
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8,061 |
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Other liabilities |
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2,047 |
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2,147 |
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Total liabilities |
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44,236 |
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37,004 |
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Commitments (Note 7) |
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Stockholders equity: |
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Preferred stock, $0.01 par value;
$5,000,000 shares authorized at March 31,
2009 and December 31, 2008; no shares
issued and outstanding at March 31, 2009
and December 31, 2008 |
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Class A common stock, $0.01 par value;
270,000,000 shares authorized at March 31,
2009 and December 31, 2008; 15,652,759 and
15,651,849 shares issued and outstanding at
March 31, 2009 and December 31, 2008,
respectively |
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156 |
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156 |
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Class B common stock, $0.01 par value;
75,000,000 shares authorized at March 31,
2009 and December 31, 2008; 26,191,050
shares issued and outstanding at March 31,
2009 and
December 31, 2008 |
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262 |
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262 |
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Additional paid-in capital |
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98,359 |
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98,243 |
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Accumulated other comprehensive income |
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86 |
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354 |
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Retained earnings |
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13,000 |
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14,775 |
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Total stockholders equity |
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111,863 |
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113,790 |
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Total liabilities and stockholders equity |
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$ |
156,099 |
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$ |
150,794 |
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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 March 31, |
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2009 |
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2008 |
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Revenues: |
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Research and development revenue |
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$ |
5,526 |
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$ |
6,110 |
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Product royalty revenue |
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8,946 |
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6,080 |
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Co-promotion revenue |
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896 |
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1,222 |
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Contract and collaboration revenue |
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146 |
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142 |
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Total revenues |
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15,514 |
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13,554 |
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Operating expenses: |
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Research and development |
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9,965 |
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11,216 |
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General and administrative |
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3,455 |
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3,167 |
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Selling and marketing |
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2,512 |
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2,848 |
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Milestone royalties related parties |
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500 |
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1,031 |
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Product royalties related parties |
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1,590 |
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1,081 |
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Total operating expenses |
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18,022 |
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19,343 |
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Loss from operations |
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(2,508 |
) |
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(5,789 |
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Non-operating income: |
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Interest income |
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312 |
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642 |
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Other income, net |
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822 |
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12 |
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Total non-operating income, net |
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1,134 |
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654 |
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Loss before income taxes |
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(1,374 |
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(5,135 |
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Income tax (provision) benefit |
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(401 |
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5,640 |
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Net (loss) income |
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$ |
(1,775 |
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$ |
505 |
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Net (loss) income per share: |
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Basic net (loss) income per share |
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$ |
(0.04 |
) |
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$ |
0.01 |
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Diluted net (loss) income per share |
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$ |
(0.04 |
) |
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$ |
0.01 |
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Weighted average common shares outstanding basic |
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41,844 |
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41,733 |
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Weighted average common shares outstanding diluted |
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41,844 |
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42,061 |
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Comprehensive (loss) income: |
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Net (loss) income |
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$ |
(1,775 |
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$ |
505 |
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Other comprehensive loss: |
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Unrealized loss on investments, net of tax effect |
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(65 |
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(840 |
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Foreign currency translation |
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(203 |
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330 |
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Comprehensive loss |
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$ |
(2,043 |
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$ |
(5 |
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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 (Unaudited)
(In thousands, except share data)
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Accumulated |
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Class A |
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Class B |
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Additional |
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Other |
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Total |
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Common Stock |
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Common Stock |
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Paid-In |
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Comprehensive |
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Retained |
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Stockholders |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Income (Loss) |
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Earnings |
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Equity |
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Balance at December 31, 2008 |
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15,651,849 |
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$ |
156 |
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26,191,050 |
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$ |
262 |
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$ |
98,243 |
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$ |
354 |
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$ |
14,775 |
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$ |
113,790 |
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Employee stock option expense |
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111 |
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111 |
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Stock issued under employee stock purchase plan |
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910 |
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5 |
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5 |
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Foreign currency translation |
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(203 |
) |
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(203 |
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Unrealized loss on investments, net of tax effect |
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(65 |
) |
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(65 |
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Net loss |
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(1,775 |
) |
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(1,775 |
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Balance at March 31, 2009 |
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15,652,759 |
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$ |
156 |
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26,191,050 |
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$ |
262 |
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$ |
98,359 |
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$ |
86 |
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$ |
13,000 |
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$ |
111,863 |
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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)
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Three Months Ended March 31, |
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2009 |
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|
2008 |
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Cash flows from operating activities: |
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Net (loss) income |
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$ |
(1,775 |
) |
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$ |
505 |
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Adjustments to reconcile net income to net cash used in operating activities: |
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Depreciation and amortization |
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122 |
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102 |
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Deferred tax provision (benefit) |
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394 |
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(5,640 |
) |
Stock-based compensation |
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111 |
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259 |
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Unrealized gain on trading securities |
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(2,672 |
) |
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Unrealized loss on settlement rights on auction rate securities |
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2,423 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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617 |
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(309 |
) |
Unbilled accounts receivable |
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547 |
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|
896 |
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Product royalties receivable |
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|
780 |
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|
2,587 |
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Prepaid and income taxes receivable and payable, net |
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|
(1,406 |
) |
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|
1,803 |
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Accounts payable |
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|
1,382 |
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|
|
1,413 |
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Accrued expenses |
|
|
(811 |
) |
|
|
(1,592 |
) |
Deferred revenue |
|
|
7,245 |
|
|
|
(318 |
) |
Other assets and liabilities, net |
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|
348 |
|
|
|
(86 |
) |
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Net cash provided by (used in) operating activities |
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|
7,305 |
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|
|
(380 |
) |
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Cash flows from investing activities: |
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Purchases of investments |
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|
(77,289 |
) |
|
|
(45,909 |
) |
Proceeds from the sales of investments |
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|
47,452 |
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|
38,325 |
|
Maturities of investments |
|
|
29,504 |
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|
15,000 |
|
Purchases of property and equipment |
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|
(127 |
) |
|
|
(171 |
) |
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Net cash (used in) provided by investing activities |
|
|
(460 |
) |
|
|
7,245 |
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Cash flows from financing activities: |
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Proceeds from exercise of stock options |
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|
42 |
|
Proceeds from employee stock purchase plan |
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|
5 |
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|
|
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|
|
|
|
|
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Net cash provided by financing activities |
|
|
5 |
|
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|
42 |
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|
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|
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Effect of exchange rates on cash and cash equivalents |
|
|
(589 |
) |
|
|
267 |
|
|
|
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|
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Net increase in cash and cash equivalents |
|
|
6,261 |
|
|
|
7,174 |
|
Cash and cash equivalents at beginning of period |
|
|
11,536 |
|
|
|
25,559 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
17,797 |
|
|
$ |
32,733 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
1. Business Organization and Basis of Presentation
Description of the Business
Sucampo Pharmaceuticals, Inc. (Sucampo or the Company) is a biopharmaceutical 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.
Sucampo is focused on developing prostones for the treatment of gastrointestinal, respiratory,
vascular and central nervous system diseases and disorders for which there are unmet or underserved
medical needs and significant commercial potential. Sucampo was established in December 1996.
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. In April 2008, the Company received a second marketing approval from the
FDA for Amitiza to treat irritable bowel syndrome with constipation in adult women. Amitiza is
being marketed and developed in the United States and Canada for gastrointestinal indications under
a collaboration and license agreement with Takeda Pharmaceutical Company Limited (Takeda). Sucampo
is primarily responsible for development activities under the agreement. Sucampo and Takeda
initiated commercial sales of Amitiza in the United States for the treatment of chronic idiopathic
constipation (CIC) in April 2006 and for the treatment of irritable bowel syndrome with
constipation in May 2008 and they are currently developing Amitiza for the treatment of
opioid-induced bowel dysfunction (OBD).
In February 2009, Sucampo entered into a license, commercialization and supply agreement with
Abbott Japan Co. Ltd.(Abbott) for Amitiza in Japan. Under the terms of the agreement, Abbott
received exclusive rights to commercialize lubiprostone in Japan for the treatment of CIC and
received the right of first refusal to any additional indications for which lubiprostone is
developed in Japan. Sucampo is primarily responsible for development activities under the
agreement. Abbott is responsible for all commercialization expenses and efforts. The Company has
retained the right to co-promote lubiprostone in Japan.
On April 23, 2009, Sucampo entered into two agreements with R-Tech Ueno Ltd. (R-Tech), a
Japanese manufacturing and research and development company that is majority owned by the Companys
founders, to acquire all patents and other intellectual property rights related to Rescula®
(unoprostone isopropyl) in the United States and Canada. Although Rescula eye drops were approved
by the FDA for the treatment of open-angle glaucoma and ocular hypertension in 2000, Rescula is not
currently being marketed in the United States or Canada. Under the terms of the agreements, the
Company made an upfront payment of $3.0 million and is required to make up to $5.5 million in
additional milestone payments to R-Tech based on the achievement of specified development and
commercialization goals.
The Companys founders own directly or indirectly the majority holdings in Sucampo as well as
in other companies that have significant contractual relationships with Sucampo as described more
fully in Note 7. One of the Companys founders serves as the chairman of the board of directors,
chief executive officer and chief scientific officer of the Company and the second founder serves
as a director and as executive advisor of international business development.
The Companys operations are conducted through its subsidiaries based in the United States,
United Kingdom and Japan.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in the United States
(GAAP) 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 GAAP 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, 2008 included
in the Companys Annual Report on Form 10-K. The financial information as of March 31, 2009 and for
the three months ended March 31, 2009 and 2008 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 Sucampo and its wholly
owned subsidiaries. All significant inter-company balances and transactions have been eliminated in
the consolidated accounts.
2. Summary of Significant Accounting Policies
5
Cash and Cash Equivalents
For the purpose of the condensed consolidated balance sheets and condensed consolidated
statements of cash flows, cash equivalents include all highly liquid investments with an original
maturity of 90 days or less at the time of purchase.
Current and Non-current Investments
Current and non-current investments consist primarily of U.S. Treasury bills and notes,
municipal bonds and auction rate securities (ARS). The Company classifies its investments into
current and non-current based on their maturities and managements reasonable expectation to
realize these investments in cash. These investments are accounted for under the guidance of
Statements of Financial Accounting Standards (SFAS) No.115, Accounting for Certain Investments in
Debt and Equity Securities. Investments in U.S. Treasury bills, notes and municipal bonds are
classified as available for sale securities and unrealized gains or losses, net of related tax
effects, are reported in other comprehensive income. Pursuant to the Companys acceptance of
settlement rights for its investments in ARS in October 2008, the Company classifies its
investments in ARS as trading securities and records gains or losses resulting from the changes in
fair values of its ARS and related settlement rights in other income, net. The fair value of the
settlement rights related to ARS is recorded as non-current other assets. The fair value of the
settlement rights has been derived from the par value of the Companys investment in ARS and the
fair value of ARS as of the recognition date, since the settlement rights obligate the broker to
redeem the ARS at par value.
Fair Value
The carrying amounts of the Companys financial instruments, which include cash and cash
equivalents, restricted cash, current and non-current investments, receivables, accounts payable
and accrued liabilities, approximate their fair values based on their short maturities, independent
valuations or internal assessments. As of March 31, 2009 there was no material impact on condensed
consolidated financial statements upon adoption of SFAS No.157, Fair Value Measurements (SFAS 157)
for non-financial assets and liabilities.
Revenue Recognition
The Companys primary sources of revenue are derived from collaboration and license agreements
and 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), Emerging
Issues Task Force (EITF) No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent
(EITF 99-19), and EITF No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables
(EITF 00-21).
The Company evaluated the multiple deliverables within the collaboration and license
agreements in accordance with the provisions of EITF 00-21 to determine whether the delivered
elements that are the obligation of the Company have value to other parties to the agreement on a
stand-alone basis and whether objective reliable evidence of fair value of the undelivered items
exists. Deliverables that meet these criteria are considered a separate unit of accounting.
Deliverables that do not meet these criteria are combined and accounted for as a single unit of
accounting. The appropriate recognition of revenue is then applied to each separate unit of
accounting. The Companys deliverables under the Abbott and Takeda agreements are more fully
described in Note 8.
The Company applies a time-based model of revenue recognition for cash flows associated with
research and development deliverables under the Takeda collaboration and license agreement. Under
this model, cash flow streams related to each unit of accounting are recognized as revenue over the
estimated performance period. Upon receipt of cash payments, revenue is recognized to the extent
the accumulated service time, if any, has occurred. The remainder is deferred and recognized as
revenue ratably over the remaining estimated performance period. A change in the period of time
expected to complete the deliverable is accounted for as a change in estimate on a prospective
basis. Revenue is limited to amounts that are nonrefundable and that the other party to the
agreement is contractually obligated to pay to the Company.
The Company applies a proportional-performance model using the percentage-of-completion method
of revenue recognition for cash flows associated with research and development deliverables under
the Abbott license, commercialization and supply agreement. Since the Company has previous research
and development experience and the expected cost to complete the development can be reasonably
estimated, the Company believes a proportional-performance methodology of revenue recognition is
appropriate. Under
this method, revenue in any period is recognized as a percentage of the actual cost expended
in that period relative to the total
6
estimated costs required to satisfy the performance
obligations under the arrangement related to the development. Revenue recognized is limited to the
amounts that are non-refundable and that the other party to the agreement is contractually
obligated to pay to the Company.
The Company recognizes reimbursable research and development costs under the Takeda agreement
as research and development revenue using a time-based model over the estimated performance period.
The research and development revenue for these obligations is limited to the lesser of the actual
reimbursable costs incurred or the straight-line amount of revenue recognized over the estimated
performance period. Revenues are recognized for reimbursable costs only if those costs are
supported by an invoice or final contract with a vendor. Research and development costs are not
reimbursable under the Abbott agreement.
Under the Takeda agreement, 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. Under the Abbott agreement, should Amitiza be
commercialized in Japan, the Company will purchase and assume title to inventories of Amitiza and
recognize revenues from the sales of such product when earned.
Contract revenue related to
development and consulting activities with related parties is also accounted for under the
time-based model.
The Company considers its participation in the joint committees under the collaboration
agreements as separate deliverables under the contracts and recognizes the fair value of the such
participation as revenue over the period of the participation obligated as per the terms of the
contract.
Based on the guidance of EITF 99-19, the Company has determined that it is acting as a
principal under both the Takeda and Abbott agreements and, as such, records revenue on a gross
basis in the condensed consolidated statements of operations and comprehensive (loss) income.
Certain Risks, Concentrations and Uncertainties
Financial instruments that potentially subject the Company to significant concentrations of
credit risk consist of cash and cash equivalents, restricted cash, investments and receivables. The
Company places its cash and cash equivalents, restricted cash and investments with highly rated
financial institutions. At March 31, 2009 and December 31, 2008, the Company had approximately
$130.2 million and $118.6 million, respectively, of cash and cash equivalents, restricted cash and
investments in excess of government insured limits. The Companys uninsured cash, cash equivalents
and investments as of March 31, 2009 consisted primarily of $33.1 million of U.S. Treasury notes,
$18.9 million of money market funds guaranteed under the U.S. Treasurys Temporary Guarantee
Program, $27.1 million of municipal securities, $18.9 million of investments in auction rate
securities, $14.8 million of other money market funds and $14.4 million of ordinary deposit
accounts in foreign subsidiaries. The Company has not experienced any losses on these accounts
related to amounts in excess of insured limits.
As of March 31, 2009, all of the Companys ARS consisted of two non-mortgage related auction
rate securities. On April 29, 2009, the issuer of one of the Companys ARS redeemed the security at
par value of $9.4 million. The condensed consolidated financial statements as of March 31, 2009
included valuation adjustments and related gains relating to this redemption and classified this
investment as current investments.
The settlement rights between the Company and UBS AG (ARS broker) obligate the ARS broker to
purchase the remaining auction rate security at par during a two-year period beginning June 30,
2010 if the Company exercises its related settlement rights. The Company does not anticipate having
to sell the remaining security in order to operate its business before the expected redemption
date.
The Companys products and product candidates under development require approval from the FDA
or other international regulatory agencies prior to commercial sales. For those product candidates
or indications 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 products, Amitiza and Rescula, compete 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
7
customer requirements or changes in regulatory requirements or industry standards, or any
significant delays in the development or introduction of products could have a material adverse
effect on the Companys business, operating results and future cash flows.
The Companys expected activities may necessitate significant uses of working capital. The
Companys working capital requirements will depend on many factors, including the successful sales
of Amitiza and Rescula, research and development efforts to develop new products or indications,
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 with product royalty revenue as well as with cash
received from milestones and other revenue related to its joint collaboration, license and supply
agreements entered into with Takeda, Abbott and R-Tech.
Revenues from one unrelated party, Takeda, accounted for 97% and 99% of the Companys total
revenues for the three months ended March 31, 2009 and March 31, 2008, respectively. Accounts
receivable, unbilled accounts receivable and product royalties receivable from Takeda accounted for
99% and 97% of the Companys total accounts receivable, unbilled accounts receivable and product
royalties receivable at March 31, 2009 and December 31, 2008, respectively. The Company depends
significantly upon the collaboration with Takeda and its activities may be impacted if this
relationship is disrupted (Note 8).
The Company has an exclusive supply arrangement with R-Tech, to provide it with commercial and
clinical supplies of its product and product candidates. R-Tech also provides certain preclinical
and other research and development services. Any difficulties or delays in performing the services
under these arrangements may cause the Company to lose revenues, delay research and development
activities or otherwise disrupt the Companys operations (Note 7).
The Company has previously entered into a restated license agreement with Sucampo AG (SAG) to
grant the Company a royalty-bearing, exclusive, worldwide license to develop prostone compounds,
including Amitiza and cobiprostone. SAG is a Swiss-patent holding company and an entity wholly
owned by the Companys founders. The Companys success depends, in part, on SAGs ability to obtain
and maintain proprietary protection for the intellectual property rights relating to the prostone
technology and products (Note 7).
Reclassifications
Certain amounts in the previously issued financial statements have been reclassified to
conform with the current presentation. The Company reclassified expenses that have been previously
included within general and administrative expenses to research and development expenses. Such
expenses primarily include salaries and other employee benefits of personnel who oversee the
research and development process, and allocated depreciation and rent expenses and insurance costs.
The Company also reclassified allocated depreciation and rent expenses and insurance costs from
general and administrative expenses to selling and marketing expenses. For the three months ended
March 31, 2008, the Company reclassified $1.1 million and $80,000 of general and administrative
expenses to research and development expenses and selling and marketing expenses, respectively.
Recent Accounting Pronouncements
In December 2007, the FASB ratified EITF Issue No. 07-1, Accounting for Collaborative
Arrangements (EITF 07-1). The consensus prohibits the equity method of accounting for collaborative
arrangements under APB 18, The Equity Method of Accounting for Investments in Common Stock, unless
a legal entity exists. Payments between the collaborative partners will be evaluated and reported
in the income statement based on applicable GAAP. Absent specific GAAP, the participants to the
arrangement will apply other existing GAAP by analogy or apply a reasonable and rational accounting
policy consistently. The guidance in EITF 07-1 is effective for periods that begin after December
15, 2008 and applies to arrangements in existence as of the effective date. The effect of the new
consensus shall be accounted for as a change in accounting principle through retrospective
application. The Company adopted the provisions of EITF 07-1 effective January 1, 2009 and such
adoption did not have a material impact on the condensed consolidated financial statements.
In February 2008, the FASB issued Financial Staff Positions (FSP), SFAS No.157-2, Effective
Date of FASB Statement No. 157, (FSP 157-2), which delays the effective date of SFAS 157, for all
nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis. FSP 157-2 partially defers the
effective date of SFAS 157 to fiscal years beginning after November 15, 2008. The Company adopted
the provisions of FSP 157-2 effective January 1, 2009 and such adoption did not have a material
impact on the condensed consolidated financial statements.
8
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles, (SFAS 162). SFAS 162 is intended to improve financial reporting by identifying a
consistent framework, or hierarchy, for selecting accounting principles to be used in preparing
financial statements of nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States of America. SFAS 162 is effective for fiscal
years beginning after November 15, 2008. The Company adopted the provisions of SFAS 162 effective
January 1, 2009 and such adoption did not have a material impact on the condensed consolidated
financial statements.
In October 2008, the FASB issued
FSP FAS No. 157-3, Determining the Fair Value of a Financial
Asset in a Market That is Not Active (FSP FAS 157-3). FSP FAS 157-3 clarifies the application of
SFAS 157 in a market that is not active. FSP FAS 157-3 addresses how management should consider
measuring fair value when relevant observable data does not exist. FSP FAS 157-3 also provides
guidance on how observable market information in a market that is not active should be considered
when measuring fair value, as well as how the use of market quotes should be considered when
assessing the relevance of observable and unobservable data available to measure fair value. FSP
FAS 157-3 is effective upon issuance, for companies that have adopted SFAS 157. Revisions resulting
from a change in the valuation technique or its application shall be accounted for as a change in
accounting estimate in accordance with SFAS 154, Accounting Changes and Error Corrections. The
application of the provisions of FSP FAS 157-3 did not have a material impact on the condensed
consolidated financial statements.
3. Earnings per Share
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, when applicable, is computed by dividing net loss by the
weighted average common shares outstanding without the impact of potential dilutive common shares
outstanding because they would have an anti-dilutive impact on diluted net loss per share.
The computation of net (loss) income per share for the three months ended March 31, 2009 and
2008 is shown below:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(In thousands, except per share data) |
|
2009 |
|
|
2008 |
|
Basic net (loss) income per share: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(1,775 |
) |
|
$ |
505 |
|
|
|
|
|
|
|
|
Weighted average class A and B common shares outstanding |
|
|
41,844 |
|
|
|
41,733 |
|
|
|
|
|
|
|
|
Basic net (loss) income per share |
|
$ |
(0.04 |
) |
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per share: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(1,775 |
) |
|
$ |
505 |
|
|
|
|
|
|
|
|
Weighted average class A and B common shares outstanding for diluted net
(loss) income per share |
|
|
41,844 |
|
|
|
41,733 |
|
Assumed exercise of dilutive stock options under the treasury stock method |
|
|
|
|
|
|
328 |
|
|
|
|
|
|
|
|
|
|
|
41,844 |
|
|
|
42,061 |
|
|
|
|
|
|
|
|
Diluted net (loss) income per share |
|
$ |
(0.04 |
) |
|
$ |
0.01 |
|
|
|
|
|
|
|
|
For the periods listed above, the potentially dilutive securities used in the calculations of
diluted net (loss) income per share as of March 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
(In thousands) |
|
2009 |
|
2008 |
Employee stock options |
|
|
|
|
|
|
608 |
|
Non-employee stock options |
|
|
|
|
|
|
510 |
|
For the periods listed above, the following securities were excluded from the computation of
diluted net (loss) income per share as their effect would be anti-dilutive as of March 31, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
(In thousands) |
|
2009 |
|
2008 |
Employee stock options |
|
|
694 |
|
|
|
268 |
|
Non-employee stock options |
|
|
450 |
|
|
|
|
|
9
4. Current and Non-Current Investments
The Company adopted the provisions of SFAS 157, Fair Value Measurements, as of January 1, 2008
for its financial assets and liabilities. The Companys financial assets and liabilities subject to
the disclosure requirements of SFAS 157 include investments and ARS related settlement rights
assets.
SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted
prices in active markets; Level 2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in
which little or no market data exists, therefore requiring an entity to develop its own
assumptions.
At March 31, 2009 and December 31, 2008, investments consisted of the following securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
(In thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bills and notes |
|
$ |
33,061 |
|
|
$ |
27 |
|
|
$ |
|
|
|
$ |
33,088 |
|
Money market funds |
|
|
33,662 |
|
|
|
|
|
|
|
|
|
|
|
33,662 |
|
Municipal securities |
|
|
27,111 |
|
|
|
|
|
|
|
(4 |
) |
|
|
27,107 |
|
Auction rate securities |
|
|
9,400 |
|
|
|
|
|
|
|
|
|
|
|
9,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
103,234 |
|
|
$ |
27 |
|
|
$ |
(4 |
) |
|
$ |
103,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities |
|
$ |
10,000 |
|
|
$ |
|
|
|
$ |
(506 |
) |
|
$ |
9,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
(In thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bills and notes |
|
$ |
42,620 |
|
|
$ |
130 |
|
|
$ |
|
|
|
$ |
42,750 |
|
Money market funds |
|
|
51,026 |
|
|
|
|
|
|
|
|
|
|
|
51,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
93,646 |
|
|
$ |
130 |
|
|
$ |
|
|
|
$ |
93,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities |
|
$ |
19,400 |
|
|
$ |
|
|
|
$ |
(3,178 |
) |
|
$ |
16,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company records unrealized gains and losses resulting from changes in the fair value of
the auction rate securities and related settlement rights within other income, net, in the
condensed consolidated statements of operations and comprehensive (loss) income.
The Companys assets measured at fair value on a recurring basis, which are subject to the
disclosure requirements of SFAS 157, at March 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
Total as of |
|
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
March 31, |
|
(In thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2009 |
|
U.S. Treasury bills and notes |
|
$ |
33,088 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
33,088 |
|
Municipal securities |
|
|
27,107 |
|
|
|
|
|
|
|
|
|
|
|
27,107 |
|
Auction rate securities |
|
|
|
|
|
|
|
|
|
|
18,894 |
|
|
|
18,894 |
|
Settlement rights for auction rate securities* |
|
|
|
|
|
|
|
|
|
|
395 |
|
|
|
395 |
|
Other available-for-sale securities |
|
|
33,662 |
|
|
|
|
|
|
|
|
|
|
|
33,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value |
|
$ |
93,857 |
|
|
$ |
|
|
|
$ |
19,289 |
|
|
$ |
113,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
included in non-current other assets in the accompanying condensed consolidated balance sheets |
10
The following table presents the Companys assets measured at fair value on a recurring basis
using significant unobservable inputs (Level 3) as defined in SFAS 157 during the three months
ended March 31, 2009:
|
|
|
|
|
|
|
Auction Rate |
|
|
|
Securities |
|
|
|
and Related |
|
|
|
Settlement |
|
(In thousands) |
|
Rights |
|
Balance at December 31, 2008 |
|
$ |
19,040 |
|
Total net unrealized gains included in earnings |
|
|
249 |
|
|
|
|
|
Balance at March 31, 2009 |
|
$ |
19,289 |
|
|
|
|
|
5. Accrued Expenses
Accrued expenses consisted of the following as of:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Research and development costs |
|
$ |
5,620 |
|
|
$ |
7,086 |
|
Employee compensation |
|
|
788 |
|
|
|
1,748 |
|
Selling and marketing costs |
|
|
39 |
|
|
|
346 |
|
Product royalty liability related party |
|
|
1,582 |
|
|
|
|
|
Other accrued expenses |
|
|
881 |
|
|
|
584 |
|
|
|
|
|
|
|
|
Total |
|
$ |
8,910 |
|
|
$ |
9,764 |
|
|
|
|
|
|
|
|
6. Commitments
Operating Leases
The Company leases office space in the United States, the United Kingdom and Japan under
operating leases through 2017. Total future minimum, non-cancelable lease payments under operating
leases, which do not include future sub-lease receipts of $199,000, were as follows as of March 31,
2009:
|
|
|
|
|
(In thousands) |
|
|
|
|
2009 (April-December) |
|
$ |
1,145 |
|
2010 |
|
|
1,140 |
|
2011 |
|
|
1,001 |
|
2012 |
|
|
963 |
|
2013 |
|
|
992 |
|
2014 and thereafter |
|
|
3,297 |
|
|
|
|
|
Total minimum lease payments |
|
$ |
8,538 |
|
|
|
|
|
Rent expense for all operating leases was $301,000 and $285,000 for the three months ended
March 31, 2009 and 2008, respectively.
Research and Development Costs
The Company routinely enters into agreements with third-party clinical research organizations
(CROs) to oversee clinical research and development studies provided on an outsourced basis. The
Company is not generally contractually obligated to pay the CRO if the service or reports are not
provided. Total future estimated costs under these agreements as of March 31, 2009 were
approximately $14.7 million.
7. Related Party Transactions
R-Tech Ueno, Ltd.
The Company is a party to multiple exclusive license and supply agreements with R-Tech.
On February 23, 2009, Sucampo entered into an Exclusive Manufacturing and Supply Agreement,
under which it granted R-Tech the exclusive right to manufacture and supply lubiprostone to meet
its commercial and clinical requirements in Asia, Australia and
11
New Zealand. In consideration, R-Tech made an up-front payment of $250,000 to the Company and
is obligated to make milestone payments of $500,000 upon regulatory approval of lubiprostone in
Japan and $250,000 upon the commercial launch of lubiprostone in Japan.
The Company recorded the following expenses under its agreements with R-Tech:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Clinical supplies |
|
$ |
1,044 |
|
|
$ |
388 |
|
Other research and development services |
|
|
5 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
$ |
1,049 |
|
|
$ |
398 |
|
|
|
|
|
|
|
|
The following table summarizes the amounts included in deferred revenue resulting from the
deferral of upfront payments relating to the exclusive supply agreements with R-Tech:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Deferred revenue current |
|
$ |
430 |
|
|
$ |
419 |
|
Deferred revenue, net of current portion |
|
|
6,552 |
|
|
|
6,444 |
|
|
|
|
|
|
|
|
|
|
$ |
6,982 |
|
|
$ |
6,863 |
|
|
|
|
|
|
|
|
The Company recognized approximately $105,000 of deferred revenue relating to its agreements
with R-Tech for each of the three months ended March 31, 2009 and 2008, which was recorded as
contract and collaboration revenue in the accompanying condensed consolidated statements of
operations and comprehensive (loss) income.
On April 23, 2009, the Company entered into two agreements with R-Tech to acquire rights to
Rescula in the United States and Canada. Under the terms of the agreements, the Company holds the
exclusive rights to commercialize Rescula, in the United States and Canada for the treatment of
glaucoma and ocular hypertension and any new indication developed by the Company and has the right
of first refusal to commercialize in the United States and Canada, any additional indications for
which unoprostone isopropyl is developed by R-Tech. Under the terms of the agreements, the Company
made an upfront payment of $3.0 million and is required to make up to $5.5 million in additional
milestone payments to R-Tech based on the achievement of specified development and
commercialization goals. The Company is solely responsible for the development, as well as
regulatory and commercialization activities and expenses, for Rescula in the United States and
Canada and R-Tech is exclusively responsible for the supply of Rescula to the Company within the
United States and Canada.
Sucampo AG License Agreements
In February 2009, the Company entered into an addendum to the Amended and Restated Patent
Access Agreement originally entered between the Company and Sucampo AG (SAG) on June 30, 2006.
Under the addendum, the patent and know-how royalties Sucampo Japan is obligated to pay to SAG were
reduced with respect to sales of lubiprostone in Asia, Australia and New Zealand as follows:
|
|
|
the patent royalty on net sales, due until the expiration of the last patent covering
lubiprostone that existed at the time of the Companys initial public offering, was reduced
from 4.5% to 2.2%; |
|
|
|
|
the patent royalty on net sales, due thereafter until all other patents covering
lubiprostone have expired in the relevant country, was reduced from 2.25% to 1.1%; and |
|
|
|
|
the know-how royalty on net sales, due until the fifteenth anniversary of the first
commercial sale of lubiprostone, was reduced from 2.0% to 1.0%. |
In February 2009, the Company entered into a Technology Assignment and License Agreement with
R-Tech and SAG, under which the parties agreed that R-Tech and SAG would share joint ownership of
eight U.S. patents and patent applications, and several related international patents and patent
applications, which had previously been filed by R-Tech. These patents relate to specific prostone
compounds and formulations and to methods for producing prostone compounds. The parties also agreed
that R-Tech and SAG would share joint ownership of know-how and other inventions previously created
by R-Tech relating to prostones. R-Tech and SAG cross-licensed to each other, on a worldwide,
royalty-free, perpetual, exclusive basis, their respective rights in these patents, patent
applications, know-how and other inventions. R-Techs right to utilize the licensed intellectual
property is limited to uses in connection with research, development and commercialization of
Rescula, and three other prostone compounds it is currently
12
developing. SAGs right to utilize the licensed intellectual property is limited to uses in
connection with research, development and commercialization of all other prostone compounds. SAGs
rights under this agreement are in turn licensed to the Company under the existing patent license
arrangements. None of the parties made any monetary payments to the other parties under this
agreement.
During the first quarter of 2009, pursuant to the license and commercialization agreement with
Abbott for the development of lubiprostrone in Japan, the Company received a $10.0 million upfront
payment from Abbott. The receipt of the upfront payment triggered the obligation on the part of the
Company under the license agreement with SAG to make a $500,000 payment to SAG. The Company
recorded the expense as milestone royalties related parties during the three months ended March
31, 2009.
The Company expensed approximately $1.6 million and $1.1 million in product royalties
related parties under the license agreement with SAG for the three months ended March 31, 2009 and
2008, respectively, reflecting 3.2% of Amitiza net sales during each of these periods.
8. Collaboration and License Agreements
Abbott license and commercialization and supply agreement
In February 2009, the Company entered into a 15-year license, commercialization and supply
agreement with Abbott to develop and commercialize lubiprostone for the treatment of chronic
idiopathic constipation (CIC) in Japan. The agreement grants Abbott exclusive rights to
commercialize lubiprostone in Japan for the treatment of CIC and also the right of first refusal to
any additional indications for which lubiprostone is developed in Japan under all relevant patents,
know-how and trademarks.
The collaboration efforts under the agreement are governed by two committees consisting of an
equal number of representatives from both parties. The joint commercialization and steering
committee oversees commercialization-related activities and resolves any conflicts arising from a
joint development committee, which oversees the development-related activities in Japan.
The Company is required to fund and complete all the development work including additional
clinical studies required to obtain regulatory approval for the treatment of CIC in Japan. The
Company owns all the rights covered under the regulatory filings.
Abbott is responsible to fund and undertake all commercialization efforts including pre-launch
and post-launch marketing, promotion and distribution. Abbott is required to maintain the number of
sales staff and the estimated level of annual net sales based on the commercialization plan to be
developed and approved by the joint commercialization and steering committee described above. The
Company has retained the right to co-promote the product in Japan and is responsible for such cost
of co-promotion. Abbott shall procure finished product ready for commercial sale from the Company
at agreed-upon prices.
Under the terms of the agreement, payments to the Company include a non-refundable upfront
payment and non-refundable development and commercial milestone payments based on achieving
specified development, regulatory and sales goals. Following marketing authorization and pricing
approval, Abbott will purchase the finished product from the Company for distribution in Japan.
Based on the terms of the agreement, the Company received an upfront payment of $10.0 million upon
execution of the agreement in February 2009.
The following table summarizes the cash streams and related revenue recognized under the
license, commercialization and supply agreement with Abbott for the three months ended March 31,
2009:
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Received |
|
|
Recognized |
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
for the |
|
|
for the |
|
|
Currency Effects |
|
|
|
|
|
|
Amount |
|
|
Three Months |
|
|
Three Months |
|
|
for the Three |
|
|
Amount |
|
|
|
Deferred at |
|
|
Ended |
|
|
Ended |
|
|
Months Ended |
|
|
Deferred at |
|
|
|
December 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
(In thousands) |
|
2008 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
Collaboration revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front payment associated with
the Companys obligation to
participate in joint
commercialization and steering
committee with Abbott |
|
$ |
|
|
|
$ |
677 |
|
|
$ |
5 |
|
|
$ |
34 |
|
|
$ |
638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front payment |
|
$ |
|
|
|
$ |
9,323 |
|
|
$ |
374 |
|
|
$ |
475 |
|
|
$ |
8,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Takeda commercialization and license agreement
In October 2004, the Company entered into a 16-year collaboration and license agreement with
Takeda to exclusively co-develop, commercialize and sell products that contain lubiprostone for
gastroenterology indications in the United States and Canada. On February 1, 2006, the Company
entered into a 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. Payments to the Company
under these agreements include a non-refundable up-front payment, non-refundable development and
commercial milestone payments, reimbursement of certain development and co-promotion costs and
product royalties.
The Company has received a total of $150.0 million in up-front and development milestone
payments through March 31, 2009 under these agreements. Subject to future development and
commercial milestones, the Company is potentially entitled to receive up to $10.0 million in
additional development milestone payments and up to $50.0 million in commercial milestone payments,
under the collaboration and license agreements with Takeda, although there can be no assurance that
the Company will receive any such payments.
The following table summarizes the cash streams and related revenue recognized under the
collaboration and license agreements with Takeda for the three months ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
Cash Received |
|
|
Recognized |
|
|
Accounts |
|
|
|
|
|
|
|
|
|
|
for the |
|
|
for the |
|
|
Receivable |
|
|
|
|
|
|
Amount |
|
|
Three Months |
|
|
Three Months |
|
|
for the Three |
|
|
Amount |
|
|
|
Deferred at |
|
|
Ended |
|
|
Ended |
|
|
Months Ended |
|
|
Deferred at |
|
|
|
December 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
(In thousands) |
|
2008 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
Collaboration revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front payment associated with
the Companys obligation to
participate in joint committees
with Takeda |
|
$ |
1,764 |
|
|
$ |
|
|
|
$ |
37 |
|
|
$ |
|
|
|
$ |
1,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursement of research and
development expenses |
|
$ |
|
|
|
$ |
18,126 |
|
|
$ |
5,152 |
|
|
$ |
(540 |
) |
|
$ |
12,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product royalty revenue |
|
$ |
|
|
|
$ |
9,891 |
|
|
$ |
8,946 |
|
|
$ |
(945 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Received |
|
|
Recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
for the |
|
|
for the |
|
|
|
|
|
|
|
|
|
Accounts |
|
|
Three Months |
|
|
Three Months |
|
|
Accounts |
|
|
Amount |
|
|
|
Receivable at |
|
|
Ended |
|
|
Ended |
|
|
Receivable at |
|
|
Deferred at |
|
|
|
December 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
(In thousands) |
|
2008* |
|
|
2009 |
|
|
2009 |
|
|
2009* |
|
|
2009 |
|
Research and development revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursement of research and
development expenses |
|
$ |
4,407 |
|
|
$ |
18,126 |
|
|
$ |
5,152 |
|
|
$ |
3,867 |
|
|
$ |
12,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product royalty revenue |
|
$ |
9,890 |
|
|
$ |
9,891 |
|
|
$ |
8,946 |
|
|
$ |
8,945 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Co-promotion revenue |
|
$ |
395 |
|
|
$ |
1,165 |
|
|
$ |
896 |
|
|
$ |
126 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes billed and unbilled accounts receivable. |
9. Stock Option Plans
The following table summarizes the employee stock option activity for the three months ended
March 31, 2009 under the Companys 2001 Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise Price |
|
|
Contractual |
|
|
Intrinsic |
|
(In thousands, except share and per share data) |
|
Shares |
|
|
Per Share |
|
|
Term (Years) |
|
|
Value |
|
Options outstanding, December 31, 2008 |
|
|
455,600 |
|
|
$ |
10.34 |
|
|
|
|
|
|
|
|
|
Options forfeited |
|
|
(850 |
) |
|
|
10.00 |
|
|
|
|
|
|
|
|
|
Options expired |
|
|
(7,650 |
) |
|
|
10.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, March 31, 2009 |
|
|
447,100 |
|
|
|
10.34 |
|
|
|
3.99 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, March 31, 2009 |
|
|
438,600 |
|
|
|
10.35 |
|
|
|
3.93 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the employee stock option activity for the three months ended
March 31, 2009 under the Companys 2006 Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise Price |
|
|
Contractual |
|
|
Intrinsic |
|
(In thousands, except share and per share data) |
|
Shares |
|
|
Per Share |
|
|
Term (Years) |
|
|
Value |
|
Options outstanding, December 31, 2008 |
|
|
275,000 |
|
|
$ |
13.86 |
|
|
|
|
|
|
|
|
|
Options forfeited |
|
|
(46,750 |
) |
|
|
13.38 |
|
|
|
|
|
|
|
|
|
Options expired |
|
|
(2,000 |
) |
|
|
14.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, March 31, 2009 |
|
|
226,250 |
|
|
|
13.96 |
|
|
|
6.27 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, March 31, 2009 |
|
|
118,250 |
|
|
|
14.34 |
|
|
|
5.23 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company did not grant any stock options during the three months ended March 31, 2009. As
of March 31, 2009, approximately $658,000 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 1.93 years.
The following table summarizes the non-employee stock option activity for the three months
ended March 31, 2009 under the Companys 2001 Incentive Plan:
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise Price |
|
|
Contractual |
|
|
Intrinsic |
|
(In thousands, except share and per share data) |
|
Shares |
|
|
Per Share |
|
|
Term (Years) |
|
|
Value |
|
Options outstanding, December 31, 2008 |
|
|
450,000 |
|
|
$ |
5.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, March 31, 2009 |
|
|
450,000 |
|
|
|
5.85 |
|
|
|
6.09 |
|
|
$ |
126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, March 31, 2009 |
|
|
450,000 |
|
|
|
5.85 |
|
|
|
6.09 |
|
|
$ |
126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no non-employee stock options that were exercised, forfeited or expired for the
three months ended March 31, 2009.
Employee Stock Purchase Plan
Under the 2006 Employee Stock Purchase Plan (ESPP), a total of 910 shares of class A common
stock were purchased during the three months ended March 31, 2009. The ESPP is intended to qualify
as an Employee Stock Purchase Plan as defined in Section 423 of the Internal Revenue Code of 1986
and in accordance with SFAS No. 123(R), this plan is non-compensatory. The Company received $5,299
upon purchase of shares under the ESPP for the three months ended March 31, 2009.
10. Income Taxes
For the three months ended March 31, 2009 and 2008, the Company recorded a tax provision of
$401,000 and a tax benefit of $5.6 million, respectively. The tax provision for the three months
ended March 31, 2009 primarily pertained to taxable income generated by the Companys U.S.
subsidiary. The Companys other subsidiaries based in Japan and Europe incurred pre-tax losses for
the three months ended March 31, 2009, for which no tax benefit was recognized. The tax benefit
recorded for the three months ended March 31, 2008 was primarily due to a discrete release of U.S.
deferred tax asset valuation allowances and a reduction in the projected effective tax rate for
2008 based on an increase in projected milestone and product royalty income.
As required under Accounting Principles Board Opinion (APB) No. 28, Interim Financial
Reporting, the Company has estimated its annual effective tax rate for the full fiscal year 2009
and 2008 and applied that rate to its income before income taxes in determining its income tax
provision for the interim periods. There is no tax benefit provided on the net operating losses
incurred in the foreign jurisdictions due to the lack of evidence supporting the Companys ability
to use these losses in the future.
Uncertain Tax Positions
The Company applies the provisions of FASB Interpretation (FIN) No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48). FIN 48 requires the application of a more likely than not
threshold to the recognition and derecognition of uncertain tax positions.
The Company had an outstanding non-current income tax liability of $525,240 for uncertain tax
positions as of March 31, 2009. The amount represented the aggregate tax effect of differences
between tax return positions and the amounts otherwise recognized in the Companys condensed
consolidated financial statements, and is reflected in other liabilities in the accompanying
condensed consolidated balance sheets. The liability for uncertain tax positions as of March 31,
2009 mainly pertained to the Companys interpretation of nexus in certain states related to revenue
sourcing for state income tax purposes.
The Company recognizes accrued interest and penalties related to uncertain tax positions as a
component of the income tax provision. The Company has identified no uncertain tax position for
which it is reasonably possible that the total amount of liability for unrecognized tax benefits
will significantly increase or decrease within 12 months, except for recurring accruals on existing
uncertain tax positions.
11. Segment Reporting
The Company has determined that it has three reportable geographic segments based on the
Companys method of internal reporting of its three operating entities. These segments are the
United States, Europe and Japan. The Company evaluates the performance of these segments based
primarily on income (loss) from operations, as well as other factors that depend on the development
status of the operating entities. Such measures include the progress of research and development
activities, collaboration and licensing efforts, commercialization activities and other measures.
The reportable segments have historically derived their revenue from collaboration and license
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 United States
entity.
16
Following is a summary of financial information by reportable geographic segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany |
|
|
|
|
(In thousands) |
|
United States |
|
|
Europe |
|
|
Japan |
|
|
Eliminations |
|
|
Consolidated |
|
Three Months Ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue |
|
$ |
5,152 |
|
|
$ |
|
|
|
$ |
374 |
|
|
$ |
|
|
|
$ |
5,526 |
|
Product royalty revenue |
|
|
8,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,946 |
|
Co-promotion revenue |
|
|
896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
896 |
|
Contract and collaboration revenue |
|
|
141 |
|
|
|
|
|
|
|
215 |
|
|
|
(210 |
) |
|
|
146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
15,135 |
|
|
|
|
|
|
|
589 |
|
|
|
(210 |
) |
|
|
15,514 |
|
Depreciation and amortization |
|
|
117 |
|
|
|
3 |
|
|
|
2 |
|
|
|
|
|
|
|
122 |
|
Other operating expenses |
|
|
14,458 |
|
|
|
480 |
|
|
|
3,172 |
|
|
|
(210 |
) |
|
|
17,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
560 |
|
|
|
(483 |
) |
|
|
(2,585 |
) |
|
|
|
|
|
|
(2,508 |
) |
Interest income |
|
|
359 |
|
|
|
|
|
|
|
3 |
|
|
|
(50 |
) |
|
|
312 |
|
Other non-operating income (expense), net |
|
|
244 |
|
|
|
(36 |
) |
|
|
564 |
|
|
|
50 |
|
|
|
822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
1,163 |
|
|
$ |
(519 |
) |
|
$ |
(2,018 |
) |
|
$ |
|
|
|
$ |
(1,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
127 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue |
|
$ |
6,110 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,110 |
|
Product royalty revenue |
|
|
6,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,080 |
|
Co-promotion revenue |
|
|
1,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,222 |
|
Contract and collaboration revenue |
|
|
142 |
|
|
|
|
|
|
|
207 |
|
|
|
(207 |
) |
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
13,554 |
|
|
|
|
|
|
|
207 |
|
|
|
(207 |
) |
|
|
13,554 |
|
Depreciation and amortization |
|
|
100 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
102 |
|
Other operating expenses |
|
|
16,944 |
|
|
|
1,838 |
|
|
|
669 |
|
|
|
(210 |
) |
|
|
19,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(3,490 |
) |
|
|
(1,838 |
) |
|
|
(464 |
) |
|
|
3 |
|
|
|
(5,789 |
) |
Interest income |
|
|
656 |
|
|
|
4 |
|
|
|
3 |
|
|
|
(21 |
) |
|
|
642 |
|
Other non-operating (expense) income, net |
|
|
(27 |
) |
|
|
19 |
|
|
|
2 |
|
|
|
18 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
$ |
(2,861 |
) |
|
$ |
(1,815 |
) |
|
$ |
(459 |
) |
|
$ |
|
|
|
$ |
(5,135 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
171 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
2,143 |
|
|
$ |
36 |
|
|
$ |
93 |
|
|
$ |
|
|
|
$ |
2,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets, net of intercompany loans and investments |
|
$ |
140,984 |
|
|
$ |
2,564 |
|
|
$ |
13,044 |
|
|
$ |
(493 |
) |
|
$ |
156,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
2,134 |
|
|
$ |
39 |
|
|
$ |
102 |
|
|
$ |
|
|
|
$ |
2,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets, net of intercompany loans and investments |
|
$ |
146,074 |
|
|
$ |
568 |
|
|
$ |
4,469 |
|
|
$ |
(317 |
) |
|
$ |
150,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements regarding Sucampo
Pharmaceuticals, Inc. (Sucampo, the Company, we, us, or our) 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, 2008 included in our Annual Report on Form
10-K.
Overview
We are an international biopharmaceutical 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® (lubiprostone), for the treatment of chronic idiopathic constipation, or CIC, in adults.
In April 2008, the FDA approved Amitiza for its second indication for the treatment of irritable
bowel syndrome with constipation in adult women. We are currently developing Amitiza for the
treatment of opioid-induced bowel dysfunction, or OBD.
In the United States and Canada, Amitiza is being marketed and developed under a collaboration
and license agreement with Takeda Pharmaceutical Company Limited, or Takeda, for gastrointestinal
indications. Under the agreement with Takeda, we are primarily responsible for the research and
development of Amitiza, while Takeda is primarily responsible for the commercialization and
marketing activities. Additionally, Takeda funds the majority of our research and development
activities in the United States and part of the co-promotion activities of our own sales force, per
the terms of the agreement. Takeda records all product revenue and we receive a royalty on such
product sales.
In February 2009, we entered into a license, commercialization and supply agreement with
Abbott Japan Co. Ltd., or Abbott, for Amitiza in Japan. Under the terms of the agreement, Abbott
received exclusive rights to commercialize lubiprostone in Japan for the treatment of CIC and
received the right of first refusal to any additional indications for which lubiprostone is
developed in Japan under all relevant patents, know-how and trademarks. Abbott is responsible for
all commercialization expenses and efforts. We are responsible for development activities under the
agreement. We have retained the right to co-promote lubiprostone in Japan and we are responsible
for such costs of co-promotion. Based on the terms of the agreement, we received an upfront payment
of $10.0 million upon execution of the agreement in February 2009. We will recognize revenue from
the upfront payment over the term of the CIC development program in Japan on a percentage of
completion basis.
On April 23, 2009, we entered into two agreements with R-Tech Ueno Ltd., or R-Tech, a Japanese
manufacturing and research and development company that is majority owned by our founders, to
acquire all patents and other intellectual property rights related to Rescula® (unoprostone
isopropyl) in the United States and Canada. Although Rescula eye drops have been approved by the
FDA for the treatment of open-angle glaucoma and ocular hypertension since 2000, Rescula is not
currently being marketed in the United States or Canada. Under the terms of the agreements, we made
an upfront payment of $3.0 million and are required to make up to $5.5 million in additional
milestone payments to R-Tech based on the achievement of specified development and
commercialization goals. We plan to re-launch Rescula in the United States for the treatment of
glaucoma and ocular hypertension and to initiate clinical trials of Rescula for the treatment of
dry aged-related macular degeneration, or dry AMD, in 2010. We plan to capitalize and amortize the
upfront payment over the estimated life of the license agreement,
which approximates the useful life of the underlying rights and data.
We generate revenue mainly from product royalties, development milestone payments, and
research and development activities. We expect to continue to incur significant 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 in the United
States and abroad and expand our international operations. Although we reported net income for the
years ended December 31, 2008, 2007 and 2006, whether we are able to sustain profitability will
depend upon our ability to generate sufficient revenues and receive payments under our contracts
with Takeda, Abbott and similar future arrangements. In the near term, our ability to generate
product revenues will depend primarily on the growth of Amitiza sales in the United States,
continued development of additional indications for Amitiza, successful development and approval of
our pipeline of prostone product candidates and additional future licensing agreements.
18
We hold an exclusive worldwide royalty-bearing license from Sucampo AG, or SAG, a Swiss
patent-holding company and an entity wholly owned by our founders, to develop and commercialize
Amitiza and all other prostone compounds covered by patents and patent applications held by SAG.
We are obligated to assign to SAG all patentable improvements that we make in the field of
prostones, which in turn SAG is obligated to license back to us on an exclusive basis.
Drs. Ryuji Ueno and Sachiko Kuno, our founders, own directly or indirectly the majority of our
common stock, a majority of the stock of R-Tech and all of the stock of SAG. Dr. Ueno serves as the
chairman of our board of directors and is our chief executive officer and chief scientific officer.
Dr. Kuno is a member of our board of directors and executive advisor of international business
development.
We conduct our business through our subsidiaries based in the United States, the United
Kingdom and Japan. These subsidiaries represent our reportable geographic segments and we evaluate
the performance of these segments based primarily on income (loss) from operations, as well as
other factors that depend on the development status of these subsidiaries. Such measures include
the progress of research and development activities, collaboration and licensing efforts,
commercialization activities and other measures.
Our Clinical Development Programs
We are developing prostone compounds for the treatment of a broad range of diseases. The most
advanced of these programs are:
|
|
|
Amitiza (lubiprostone) in the United States and Canada. We currently are developing
Amitiza to treat opioid-induced bowel dysfunction. We recently have completed enrollment
into two identically designed Phase III placebo-controlled pivotal clinical trials of
Amitiza for the treatment of OBD and we expect to complete these trials in mid-2009. We are
also conducting a follow-on open label safety extension trial that we plan to complete by
the end of 2009. If these trials are successful, we plan to file a supplemental new drug
application for Amitiza in OBD with the FDA in 2010. |
|
|
|
|
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, which were initiated in January 2007. We anticipate filing
results from these post-marketing studies with the FDA in the second quarter of 2009. In
connection with our marketing approval for Amitiza for the treatment of irritable bowel
syndrome with constipation in adult women, we committed to the FDA to conduct a
post-marketing study to evaluate the safety and efficacy for the treatment of irritable bowel
syndrome in pediatric patients ages 6 to 17. In addition, we committed to conduct a
post-marketing study in male and female patients with irritable bowel syndrome with
constipation utilizing a higher dose than currently recommended for this indication. In
accordance with the collaboration and co-promotion arrangement, Takeda funds the majority of
Amitizas development program in the United States. |
|
|
|
|
Amitiza (lubiprostone) in other countries. We currently are awaiting responses to our
marketing authorization applications for lubiprostone, 24 mcg, for the treatment of chronic
idiopathic constipation in adults filed in ten European countries in early 2008. |
|
|
|
|
In September 2008, we announced positive results from our multi-center Phase 2b dose-ranging
study in Japan to evaluate the safety and efficacy of lubiprostone for treating chronic
idiopathic constipation in adults. The results enabled us to enter into the license agreement
with Abbott in Japan. We plan to initiate Phase III clinical trials in Japan during the
second quarter of 2009. |
|
|
|
|
Rescula. In April 2009, we licensed from R-Tech the development and commercialization
rights to Rescula (unoprostone isopropyl) in the United States and Canada, including all
associated patents and other intellectual property. Although Rescula has been approved for
marketing in the United States for the treatment of open-angle glaucoma and ocular
hypertension since 2000, it was marketed only to a limited extent by a previous licensee
shortly after the approval and is not currently commercialized in these countries. We plan
to relaunch Rescula in the United States for the treatment of glaucoma and ocular
hypertension in 2010. We also intend to initiate a phase 2 clinical trial of unoprostone
isopropyl to treat dry age-related macular degeneration in 2010. |
|
|
|
|
Cobiprostone. We are developing orally administered cobiprostone to treat various
gastrointestinal and liver disorders, including the prevention of non-steroidal
anti-inflammatory drug-induced ulcers and the treatment of non-alcoholic fatty |
19
|
|
|
liver disease. We also plan to develop an inhaled formulation of cobiprostone for the
treatment of respiratory symptoms of cystic fibrosis and chronic obstructive pulmonary
disease and a topical formulation for the treatment of ulcers and wounds. |
|
|
|
|
Our near-term focus is on the development of cobiprostone for the prevention of non-steroidal
anti-inflammatory drug-induced ulcers. We commenced a Phase II clinical trial of cobiprostone
for the prevention of non-steroidal anti-inflammatory drug-induced ulcers in the third
quarter of 2007. The trial was fully enrolled in December 2008 and we anticipate completion
of the study in mid-2009. In December 2008, we discontinued enrollment into a Phase II
proof-of-concept study of cobiprostone for the treatment of portal hypertension in patients
with liver cirrhosis due to lower than anticipated enrollment resulting from lack of patient
eligibility, interest and study compliance. We are reviewing the trial design to determine if
future studies for this indication are warranted. |
|
|
|
|
SPI-017. We are conducting pre-clinical development of 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 commenced a phase 1 clinical trial of the intravenous formulation of SPI-017
in December 2008 in Japan. |
Reclassifications
We have reclassified certain amounts in the previously issued financial statements to conform
with the current presentation. We reclassified expenses that have been previously included within
general and administrative expenses to research and development expenses. Such expenses primarily
include salaries and other employee benefits of personnel who oversee the research and development
process, and allocated depreciation and rent expenses and insurance costs. We also reclassified
allocated depreciation and rent expenses and insurance costs from general and administrative
expenses to selling and marketing expenses. During the three months ended March 31, 2008, we
reclassified $1.1 million and $80,000 of general and administrative expenses to research and
development expenses and to selling and marketing expenses, respectively.
Results of Operations
Comparison of three months ended March 31, 2009 and March 31, 2008
Revenues
The following table summarizes our revenues for the three months ended March 31, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Research and development revenue |
|
$ |
5,526 |
|
|
$ |
6,110 |
|
Product royalty revenue |
|
|
8,946 |
|
|
|
6,080 |
|
Co-promotion revenue |
|
|
896 |
|
|
|
1,222 |
|
Contract and collaboration revenue |
|
|
146 |
|
|
|
142 |
|
|
|
|
|
|
|
|
Total |
|
$ |
15,514 |
|
|
$ |
13,554 |
|
|
|
|
|
|
|
|
Total revenues were $15.5 million for the three months ended March 31, 2009 compared to $13.6
million for the three months ended March 31, 2008, an increase of $1.9 million or 14.5%.
Research and development revenue was $5.5 million for the three months ended March 31, 2009
compared to $6.1 million for the three months ended March 31, 2008, a decrease of $584,000 or 9.6%.
This decrease was primarily due to reduced revenue recognized in respect to the pediatric, renal,
hepatic and OBD trials for Amitiza funded by Takeda, offset in part by $374,000 in revenue
recognized from the initial $10.0 million upfront payment received under the agreement with Abbott
in Japan. The revenue from the upfront and development milestone payments from Abbott in Japan are being
recognized using a percentage of completion model through the
estimated date of approval of CIC by the regulatory authorities of
Japan.
Product royalty revenue represents royalty revenue earned on net sales of Amitiza in the
United States. For the three months ended March 31, 2009 and 2008, we recognized $8.9 million and
$6.1 million, respectively, of product royalty revenue, an increase of $2.8 million or 47.1%. The
increase reflects the continued acceptance by patients and physicians of Amitiza, 8 mcg, for the
treatment of irritable bowel syndrome with constipation in adult women, following its approval by
the FDA in April 2008.
20
Co-promotion revenue represents partial reimbursement by Takeda of Amitiza co-promotion costs
for our 38 member specialty sales force targeting long-term care facilities. For the three months
ended March 31, 2009 and 2008, we recognized $900,000 and $1.2 million, respectively, of
co-promotion revenue for reimbursement of our sales force costs. The co-promotion reimbursement is
capped at $4.5 million annually and is calculated for twelve month periods ending March 31. The
reduced revenue during the three months ended March 31, 2009 reflects this annual limit.
Research and Development Expenses
The following summarizes our research and development expenses for the three months ended
March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Direct costs: |
|
|
|
|
|
|
|
|
Amitiza |
|
$ |
6,771 |
|
|
$ |
8,986 |
|
Cobiprostone |
|
|
890 |
|
|
|
994 |
|
SPI - 017 |
|
|
1,637 |
|
|
|
679 |
|
Other |
|
|
144 |
|
|
|
135 |
|
|
|
|
|
|
|
|
Total |
|
|
9,442 |
|
|
|
10,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect costs |
|
|
523 |
|
|
|
422 |
|
|
|
|
|
|
|
|
Total |
|
$ |
9,965 |
|
|
$ |
11,216 |
|
|
|
|
|
|
|
|
Total research and development expenses for the three months ended March 31, 2009 were $10.0
million compared to $11.2 million for the three months ended March 31, 2008, a decrease of $1.2
million or 11.2%. During the three months ended March 31, 2008, we incurred filing and data
purchase costs of approximately $2.5 million, which were necessary to submit our European
regulatory filings. No such expenditure was recorded during the three months ended March 31, 2009.
The increase in the SPI-017 costs reflect the costs associated with the ongoing phase 1 trial for
SPI-017 for peripheral arterial disease in Japan as well as non-clinical expenses for the
exploration of other indications.
General and Administrative Expenses
The following summarizes our general and administrative expenses for the three months ended
March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Salaries, benefits and related costs |
|
$ |
1,159 |
|
|
$ |
915 |
|
Legal, consulting and other professional expenses |
|
|
1,077 |
|
|
|
958 |
|
Other operating expenses |
|
|
1,219 |
|
|
|
1,294 |
|
|
|
|
|
|
|
|
Total |
|
$ |
3,455 |
|
|
$ |
3,167 |
|
|
|
|
|
|
|
|
General and administrative expenses were $3.5 million for the three months ended March 31,
2009 compared to $3.2 million for the three months ended March 31, 2008, an increase of $288,000 or
9.1%. The increase in salaries, benefits and related costs was primarily attributable to severance
payments made during the three months ended March 31, 2009 as a result of a reduction in force in
January 2009. The increase in legal, consulting and other professional expenses was associated with
our license agreement with Abbott partially offset by the reduction in compliance and regulatory
consulting expenses.
Selling and Marketing Expenses
Selling and marketing expenses represent costs we incur to co-promote Amitiza, including
salaries, benefits and related costs of our sales force and other sales and marketing personnel,
costs of market research and analysis and other selling and marketing expenses. Selling and
marketing expenses were $2.5 million for the three months ended March 31, 2009 compared to $2.8
million for the three months ended March 31, 2008, a decrease of $336,000 or 11.8%. The decrease
was primarily due to streamlined operations of promotional programs and a reduction in market
research expenses.
Milestone Royalties Related Parties
21
Milestone royalties related parties expense was $500,000 for the three months ended March
31, 2009, reflecting the 5% royalty payment we owed to SAG as a result of the $10.0 million upfront
payment we received from Abbott. We expensed $1.0 million for the three months ended March 31,
2008, reflecting a payment to SAG in connection with our European regulatory filings. We are
required to pay $1.0 million for the first foreign regulatory filing, in each of the three
following territories covered by the license agreement with SAG: North, Central and South America
(including the Caribbean); Asia; and the rest of the world. Our European filings represented the
first such filing for the rest-of-the-world territory.
Product Royalties Related Parties
Product royalties related parties expense, representing 3.2% of Amitiza net sales for the
respective periods payable to SAG, increased to $1.6 million for the three months ended March 31,
2009 from $1.1 million for the three months ended March 31, 2008, proportionally with the increase
of product royalty revenue.
Non-Operating Income
The following table summarizes our non-operating income and expense for the three months ended
March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Interest income |
|
$ |
312 |
|
|
$ |
642 |
|
Other income, net |
|
|
822 |
|
|
|
12 |
|
|
|
|
|
|
|
|
Total non-operating income, net |
|
$ |
1,134 |
|
|
$ |
654 |
|
|
|
|
|
|
|
|
Interest income was $312,000 for the three months ended March 31, 2009 compared to $642,000
for the three months ended March 31, 2008, a decrease of $330,000, or 51.4%. The decrease was
primarily due to lower prevailing interest rates earned by our investments in U.S. Treasury funds,
notes and money market securities during the three months ended March 31, 2009 as compared to three
months ended March 31, 2008. The increase in other income was primarily attributable to foreign
exchange gains and fair value changes in auction rate securities, or ARS, and related settlement
rights.
Income Taxes
We recorded a tax provision of $401,000 and a tax benefit of $5.6 million for the three months
ended March 31, 2009 and 2008, respectively. The tax provision for the three months ended March 31,
2009 mainly pertained to taxable income generated by our U.S. subsidiary. Our other subsidiaries
based in Japan and Europe incurred pre-tax losses for the three months ended March 31, 2009, for
which no tax benefit was recognized. The tax benefit recorded for the three months ended March 31,
2008 was primarily due to a reversal of U.S. deferred tax asset valuation allowances of $4.8
million based on a $50.0 million milestone payment from Takeda and expected increase of product
royalty income. As of March 31, 2009, we had an outstanding non-current income tax liability of
$525,240 for uncertain tax positions which represented the aggregate tax effect of differences
between tax return positions and the amounts otherwise recognized in the our condensed consolidated
financial statements. The liability for uncertain tax positions as of March 31, 2009 was mainly a
result of our interpretation of nexus in certain states related to revenue sourcing for state
income tax purposes.
Cost Reduction Initiatives
To conserve cash and more closely align our spending towards our strategic objectives, we
implemented cost reduction initiatives in January 2009, including a workforce reduction and a
refocusing of our research and development plans. We expect that these initiatives will result in
reduced costs of approximately $3.0 million during 2009. However, there is no assurance that we
will be successful in achieving these cost savings if actual spending varies from our estimates.
Reportable Geographic Segments
We have determined that we have three reportable 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 based primarily on income
(loss) from operations, as well as other factors, including the results of operations, the progress
of research and development activities and other measures.
22
The financial results of our segments reflect their varying stages of development. Our United
States segment recorded income before taxes of $1.1 million for the three months ended March 31,
2009 compared to a loss before taxes of $2.9 million for the three months ended March 31, 2008,
primarily due to an increase in product royalty revenues offset in part by a decrease in research
and development expenses.
Our segment in Europe recorded a loss before taxes of $519,000 for the three months ended
March 31, 2009 compared to a loss before taxes of $1.8 million for the three months ended March 31,
2008, primarily related to the expenses incurred in connection with our European regulatory filings
during the three months ended March 31, 2008.
Our segment in Japan recorded a loss before taxes of $2.0 million for the three months ended
March 31, 2009 as compared to a loss before taxes of $460,000 during the three months ended March
31, 2008. These losses reflect the ongoing investment to plan and implement a phase 3 clinical
program for Amitiza, the ongoing phase 1 trial of SPI-017 for peripheral arterial disease and the
ongoing preclinical programs for other prostone-based compounds.
The following is a summary of financial information by reportable segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany |
|
|
(In thousands) |
|
United States |
|
Europe |
|
Japan |
|
Eliminations |
|
Consolidated |
Three Months Ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
15,135 |
|
|
$ |
|
|
|
$ |
589 |
|
|
$ |
(210 |
) |
|
$ |
15,514 |
|
Income (loss) before taxes |
|
|
1,163 |
|
|
|
(519 |
) |
|
|
(2,018 |
) |
|
|
|
|
|
|
(1,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
13,554 |
|
|
$ |
|
|
|
$ |
207 |
|
|
$ |
(207 |
) |
|
$ |
13,554 |
|
Loss from before taxes |
|
|
(2,861 |
) |
|
|
(1,815 |
) |
|
|
(459 |
) |
|
|
|
|
|
|
(5,135 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets, net of intercompany loans and investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2009 |
|
$ |
140,984 |
|
|
$ |
2,564 |
|
|
$ |
13,044 |
|
|
$ |
(493 |
) |
|
$ |
156,099 |
|
At December 31, 2008 |
|
|
146,074 |
|
|
|
568 |
|
|
|
4,469 |
|
|
|
(317 |
) |
|
|
150,794 |
|
Liquidity and Capital Resources
Sources of Liquidity
We require cash principally to meet our operating expenses. Historically, we have financed our
operations with a combination of up-front payments, milestone and royalty payments and research and
development expense reimbursements, private placements of equity securities and our initial public
offering.
Our cash, cash equivalents and investments consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Cash and cash equivalents |
|
$ |
17,797 |
|
|
$ |
11,536 |
|
Investments, current |
|
|
103,257 |
|
|
|
93,776 |
|
Investments, non-current |
|
|
9,494 |
|
|
|
16,222 |
|
|
|
|
|
|
|
|
|
|
$ |
130,548 |
|
|
$ |
121,534 |
|
|
|
|
|
|
|
|
Our cash and cash equivalents are deposits in operating accounts and highly liquid investments
with an original maturity at time of purchase of 90 days or less.
As of March 31, 2009, our short-term investments consisted of money market funds, U.S.
Treasury notes and bills which have short-term maturities. Our non-current investments primarily
consist of investments in ARS. Pursuant to a settlement rights agreement from our ARS broker, we
can require the broker to purchase our ARS at par value between June 30, 2010 and July 2, 2012. We
do not anticipate having to sell these securities in order to operate our business before the
expected redemption dates.
Cash Flows
23
The following table summarizes our cash flows for the three months ended March 31, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
7,305 |
|
|
$ |
(380 |
) |
Investing activities |
|
|
(460 |
) |
|
|
7,245 |
|
Financing activities |
|
|
5 |
|
|
|
42 |
|
Effect of exchange rates |
|
|
(589 |
) |
|
|
267 |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
$ |
6,261 |
|
|
$ |
7,174 |
|
|
|
|
|
|
|
|
Three Months ended March 31, 2009
Net cash provided by operating activities was $7.3 million for the three months ended March
31, 2009. This reflected a net loss of $1.8 million, which included a non-cash unrealized loss on
settlement rights of $2.4 million, offset in part by a $2.7 million unrealized gain on trading
securities, an increase in deferred revenue of $7.2 million, and an increase in accounts payable of
$1.4 million and a $1.4 million increase in prepaid and income taxes receivable and payable, net.
The increase in deferred revenue primarily related to a $10.0 million upfront payment from Abbott
upon execution of the license and commercialization agreement by Sucampo Japan in February 2009.
Net cash used in investing activities of $460,000 for the three months ended March 31, 2009
primarily reflected our purchases of investments, offset in part by proceeds from the sales and
maturities of investments.
Net cash provided by financing activities of $5,000 for the three months ended March 31, 2009
resulted from proceeds we received under our employee stock purchase plan.
Three Months ended March 31, 2008
Net cash used in operating activities was $380,000 for the three months ended March 31, 2008.
The net income of $505,000 was offset primarily by a non-cash reversal of deferred tax asset
valuation allowances of $5.6 million, an increase in product royalties receivable of $2.6 million
related to product royalty revenue for Amitiza, an increase in prepaid and income taxes receivable
and payable of $1.8 million, an increase in accounts payable of $1.4 million and a decrease in
accrued liabilities of $1.6 million.
Net cash provided by investing activities of $7.2 million for the three months ended March 31,
2008 primarily reflected our purchases of investments, offset in part by proceeds from the sales
and maturities of investments.
Net cash provided by financing activities of $42,000 for the three months ended March 31, 2008
was attributable to net proceeds we received from the exercise of stock options.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as such term is defined in Item 303(a)(4)
of Regulation S-K under the Securities Act of 1933, as amended.
Funding Requirements
We will need substantial amounts of capital to continue growing our business. We will require
this capital, among other things, to:
|
|
|
fund our share of the development program of Amitiza in the United States; |
|
|
|
|
fund development and regulatory efforts in Europe and Japan for Amitiza; |
|
|
|
|
fund development and regulatory activities for Rescula in the United States and
Canada; |
|
|
|
|
fund research and development activities for other prostone compounds including
cobiprostone and SPI-017; |
24
|
|
|
fund the expansion of our commercialization activities in the United States and the
initiation of commercialization efforts in non-U.S. markets; |
|
|
|
|
fund costs for capital expenditures to support the growth of our business; and |
|
|
|
|
fund the purchase of shares of our class A common stock up to $10.0 million, if we
elect to do so, pursuant to our board-approved stock repurchase program. |
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 pursue 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.
Fair Value Estimates
We adopted the provisions of Statement of Financial Accounting Standards, or SFAS 157, Fair
Value Measurements, effective January 1, 2008 for our financial assets and liabilities and adopted
SFAS 157 for non-financial assets and liabilities effective January 1, 2009. The carrying amounts
of our financial instruments, which include cash and cash equivalents, restricted cash, current and
non-current investments, receivables, accounts payable and accrued liabilities, approximate their
fair values based on their short maturities, independent valuations or internal assessments. The
adoption of SFAS 157 for non-financial assets and liabilities did not have a material impact on the
accompanying condensed consolidated financial statements.
For the three months ended March 31, 2009, we recorded a net $249,000 gain within other
income, net in the accompanying condensed consolidated statements of operations and comprehensive
(loss) income as a change in the fair value of our investments in ARS and related settlement
rights.
Recent Accounting Pronouncements
Recent accounting pronouncements applicable to our financial statements are described in Note
2 to the accompanying condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Exchange Risk
We are subject to foreign exchange risk for revenues and expenses denominated in foreign
currencies. Foreign currency risk arises from the fluctuation of foreign exchange rates and the
degree of volatility of these rates relative to the United States dollar. We do not believe that we
have any material risk due to foreign currency exchange. We do not currently hedge our foreign
currency transactions.
25
Interest Rate Risk
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. We
ensure the safety and preservation of invested funds by attempting to limit default risk, market
risk and reinvestment risk. We attempt to mitigate default risk by investing in investment grade
securities. A hypothetical one percentage point decline in interest rates would not have materially
affected the fair value of our interest-sensitive financial instruments as of March 31, 2009.
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.
Credit Risk
Our exposure to credit risk consists of cash and cash equivalents, restricted cash,
investments and receivables. We place our cash and cash equivalents, restricted cash and
investments with what we believe to be highly rated financial institutions. Our uninsured cash,
cash equivalents and investments as of March 31, 2009 consisted primarily of $33.1 million of U.S.
Treasury notes, $18.9 million of money market funds guaranteed under the U.S. Treasurys Temporary
Guarantee Program, $27.1 million of municipal securities, $18.9 million of investments in ARS,
$14.8 million of other money market funds and $14.4 million of ordinary deposit accounts in foreign
subsidiaries. We have not experienced any losses on these accounts related to amounts in excess of
insured limits.
|
|
|
|
|
|
|
March 31, |
|
(In thousands) |
|
2009 |
|
Cash and cash equivalents |
|
$ |
17,797 |
|
Investments |
|
|
112,751 |
|
Restricted cash |
|
|
213 |
|
Less: amounts subject to federally insured limits |
|
|
(578 |
) |
|
|
|
|
Total amounts in excess of federally insured limits |
|
$ |
130,183 |
|
|
|
|
|
As of March 31, 2009, we had $18.9 million invested in two non-mortgage related ARS. On April
29, 2009, one ARS was redeemed by the issuer at par and we received $9.4 million. Pursuant to the
settlement rights offered by our ARS broker, we have the right to require the broker to purchase
the remaining ARS at par value at any time during the two-year period beginning June 30, 2010. In
addition, given the complexity of ARS and their valuations, our estimates of their fair value may
differ from the actual amount we would be able to collect at the time of redemption under the
settlement rights offer or ultimate sale.
Item 4. Controls and Procedures
a) Evaluation of Disclosure Controls and Procedures
Our 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 Rule 13a-15(e) and 15d-15(e) of
the Securities Exchange Act of 1934, as amended) as of March 31, 2009. In designing and evaluating
such controls, management recognizes that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the benefits of possible controls and procedures
relative to their costs. Based upon this evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that, as of March 31, 2009, 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 management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosures.
b) Changes in Internal Controls
26
There were no changes in our internal control over financial reporting during the quarter
ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
27
Part II OTHER INFORMATION
Item 1. Legal Proceedings
We and our subsidiaries are not currently a party to any legal proceedings of which the
ultimate outcome, in our judgment, would have a material adverse effect on our business, financial
condition or results of operations.
Item 1A. Risk Factors
Except for the risk factors listed below, we do not believe that there have been material
changes to the risk factors affecting our business that we included in our Annual Report on Form
10-K for the year ended December 31, 2008.
Risks Related to Our Recently Licensed Product, Rescula ®
In April 2009, we acquired from R-Tech the development and commercialization rights to Rescula
(unoprostone isopropyl) in the United States and Canada, including all associated patents and other
intellectual property. Although Rescula has been approved for marketing in the United States for
the treatment of open-angle glaucoma and ocular hypertension since 2000, it was marketed only to a
limited extent by a previous licensee shortly after the approval and is not currently
commercialized in these countries.
Our existing sales force may not be sufficient to effectively market Rescula, which could limit our
ability to generate Rescula sales, require us to invest significant additional resources in our
sales force and hurt our sales of Amitiza.
We plan to re-launch Rescula in the United States for the treatment of glaucoma and ocular
hypertension in 2010. This will be a new product and a new market for us. We intend to market
Rescula using our existing specialty sales force, which currently consists of 38 sales
representatives who focus in the institutional segment of the gastrointestinal market, including
specialist physicians based in academic medical centers and long-term care facilities. This sales
force, which currently markets Amitiza, may not be sufficiently large and their focus may not be
broad enough to effectively market Rescula in the ophthalmic field. We may need to invest
significantly in enlarging our sales force to reach this new specialty market. We might also dilute
their current focus on the institutional gastrointestinal market by adding a second product to
their portfolio, which might compromise our sales of Amitiza.
The market for glaucoma and ocular hypertension treatments is highly competitive.
We will face significant competition for Rescula as a treatment for glaucoma and ocular
hypertension in the United States. There are currently several approved therapies for these
conditions, including Xalatan®, marketed by Pfizer; Travatan®, marketed by
Alcon; Cosopt and Trusopt, marketed by Merck; Alphagan/-P and Lumigan, marketed by Allergan; and
generic timolol. We may not be effective in differentiating Rescula from the established competing
products, which would compromise our ability to generate significant sales. Many of these
competitors have significantly greater financial resources and expertise in marketing
pharmaceutical products than we do.
Our planned clinical trials for other indications for Rescula will be expensive and may not
demonstrate safety and efficacy in humans.
A key element of our strategy with respect to Rescula is to pursue its development for other
indications. We plan to initiate a phase 2 clinical trial of Rescula to treat dry age-related
macular degeneration in 2010. This clinical trial will be expensive and we might need to divert
financial resources from our existing development efforts to fund this trial. As with all clinical
trials, there will be significant uncertainty about the potential efficacy and safety results. If
Rescula does not demonstrate effectiveness at treating dry age-related macular degeneration or any
other potential indication we may decide to pursue for it in the future, we may be limited to
commercializing it only for the existing indication and we may not be able to recover our
investments in Rescula. If safety issues develop in the trials, we would likely be required to
abandon our development for this indication and we might even be forced to discontinue marketing
Rescula for the currently approved indications.
Our dependence on a sole supplier to meet our commercial and clinical requirements for Rescula may
significantly impair our ability to successfully commercialize and develop the drug.
28
We have granted R-Tech the exclusive right to manufacture and supply Rescula to meet our
commercial and clinical requirements and we do not have an alternative source of supply for
Rescula. We do not own or operate manufacturing facilities and we have no experience in
manufacturing pharmaceutical products. We also do not have provisions for a backup supplier. If
R-Tech is not able to supply Rescula on a timely basis, in sufficient quantities or at acceptable
levels of quality, sales of Rescula would be significantly impaired and our Rescula development
program could be jeopardized.
Risk Related to Regulatory Approval and Oversight
Even if we receive regulatory approval for a product,
the product could be subject to regulatory restrictions or withdrawal from the market, and we may be subject to
penalties if we fail to comply with ongoing regulatory requirements.
Amitiza and any other product for which we obtain marketing approval, along with the manufacturing
processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be
subject to continual requirements of and review by the FDA and other regulatory bodies. These requirements include
submissions of safety and other post-marketing information and reports, registration requirements, cGMP
requirements relating to quality control, quality assurance and corresponding maintenance of records and
documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if regulatory
approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the
product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing
and surveillance to monitor the safety or efficacy of the product. We have, for example, recently become aware of a
petition filed with the FDA by a citizens activist group requesting additional label warnings for Amitiza. The
petition questions the original FDA approval process for the drug but does not present any new information arising
since the FDAs approval. We believe the petition is without merit, but we cannot assure you that the FDA will not
require an additional warning that would apply to some uses of Amitiza. If we fail to comply with applicable
regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions and criminal prosecution.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On December 11, 2008, we announced a stock repurchase program pursuant to which we are
authorized to purchase up to $10.0 million of our class A common stock from time to time in open
market transactions. During the quarter ended March 31, 2009, we did not purchase any shares under
this program.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the quarter ended March 31,
2009.
Item 5. Other Information.
None.
29
Item 6. Exhibits
(a) Exhibits
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
Description |
|
Reference |
|
|
|
|
|
|
3.1
|
|
Certificate of Incorporation
|
|
Exhibit 3.1 to the
Companys Current Report
on Form 8-K (filed
December 29, 2009) |
|
|
|
|
|
3.2
|
|
Certificate of Amendment
|
|
Exhibit 3.2 to the
Companys Current Report
on Form 8-K (filed
December 29, 2009) |
|
|
|
|
|
3.3
|
|
Restated Bylaws
|
|
Exhibit 3.3 to the
Companys Current Report
on Form 8-K (filed
December 29, 2009) |
|
|
|
|
|
4.1
|
|
Specimen Stock Certificate
evidencing the shares of class A
common stock
|
|
Exhibit 4.1 to
Registration Statement
No. 333-135133, Amendment
No. 5 (filed February 1,
2007) |
|
|
|
|
|
10.1*
|
|
Unoprostone Exclusive
Manufacturing and Supply
Agreement between R-Tech Ueno,
Ltd. and Sucampo Pharma Americas,
Inc.
|
|
Included herewith |
|
|
|
|
|
10.2*
|
|
Unoprostone NDA Transfer, Patent
and Know-how Licensing, and Data
Sharing Agreement between R-Tech
Ueno, Ltd. and Sucampo Pharma
Americas, Inc.
|
|
Included herewith |
|
|
|
|
|
31.1
|
|
Certification of the Principal
Executive Officer, as required by
Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
Included herewith |
|
|
|
|
|
31.2
|
|
Certification of the Principal
Financial Officer, as required by
Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
Included herewith |
|
|
|
|
|
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
|
|
Included herewith |
|
|
|
|
|
32.2
|
|
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
|
|
Included herewith |
|
|
|
* |
|
Confidential treatment has been requested for portions of this exhibit. |
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
Sucampo Pharmaceuticals, Inc.
|
|
May 11, 2009 |
By: |
/s/ RYUJI UENO
|
|
|
|
Ryuji Ueno, M.D., Ph.D., Ph.D. |
|
|
|
Chief Executive Officer, Chief Scientific Officer
and Chairman of the Board of Directors
(Principal Executive Officer) |
|
|
|
|
|
May 11, 2009 |
By: |
/s/ JAN SMILEK
|
|
|
|
Jan Smilek |
|
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
31
Sucampo Pharmaceuticals, Inc.
Exhibit Index
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
Description |
|
Reference |
|
|
|
|
|
|
3.1
|
|
Certificate of Incorporation
|
|
Exhibit 3.1 to the
Companys Current Report
on Form 8-K (filed
December 29, 2009) |
|
|
|
|
|
3.2
|
|
Certificate of Amendment
|
|
Exhibit 3.2 to the
Companys Current Report
on Form 8-K (filed
December 29, 2009) |
|
|
|
|
|
3.3
|
|
Restated Bylaws
|
|
Exhibit 3.3 to the
Companys Current Report
on Form 8-K (filed
December 29, 2009) |
|
|
|
|
|
4.1
|
|
Specimen Stock Certificate
evidencing the shares of class A
common stock
|
|
Exhibit 4.1 to
Registration Statement
No. 333-135133, Amendment
No. 5 (filed February 1,
2007) |
|
|
|
|
|
10.1*
|
|
Unoprostone Exclusive
Manufacturing and Supply
Agreement between R-Tech Ueno,
Ltd. and Sucampo Pharma Americas,
Inc.
|
|
Included herewith |
|
|
|
|
|
10.2*
|
|
Unoprostone NDA Transfer, Patent
and Know-how Licensing, and Data
Sharing Agreement between R-Tech
Ueno, Ltd. and Sucampo Pharma
Americas, Inc.
|
|
Included herewith |
|
|
|
|
|
31.1
|
|
Certification of the Principal
Executive Officer, as required by
Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
Included herewith |
|
|
|
|
|
31.2
|
|
Certification of the Principal
Financial Officer, as required by
Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
Included herewith |
|
|
|
|
|
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
|
|
Included herewith |
|
|
|
|
|
32.2
|
|
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
|
|
Included herewith |
|
|
|
* |
|
Confidential treatment has been requested for portions of this exhibit. |
32