Sucampo Pharmaceuticals Rescula US launch

Transcription

1 Sucampo Pharmaceuticals Rescula US launch Competitive footing for Rescula Sucampo s launch of glaucoma drug Rescula onto the US market is its first selfcommercialisation effort. Careful product positioning and a targeted commercial campaign, emphasising Rescula s novel mode of action, should give the drug a competitive foothold in a highly competitive market. The wholesale acquisition cost (WAC) of $99 per script (30-day eye drop supply) is on a par with some branded prostaglandins (Zioptan) and is higher than our previous price assumption. We raise our peak US sales estimate for Rescula to $90m (previously $65m) and increase our valuation of Sucampo to $335m or $8.00 per share (vs $315m, $7.52 per share). Year end Revenue PBT* EPS* ($) DPS ($) P/E (x) Yield (%) 12/ (0.07) 0.0 N/A N/A 12/ (19.9) (0.41) 0.0 N/A N/A 12/12e (0.00) 0.0 N/A N/A 12/13e 83.0 (4.6) (0.13) 0.0 N/A N/A Note:*PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments. Pharma & biotech 5 March 2013 Price US$5.14 Market cap US$215m Shares in issue 41.9m Free float 27% Code SCMP Net cash $32m Primary exchange NASDAQ Share price performance Still room in the market Prostaglandin analogues Xalatan (now generic), Lumigan, Travatan are once-daily eye drops used most commonly as the first line of therapy for lowering intraocular pressure (IOP) in patients with open-angle glaucoma or ocular hypertension. However, tolerability, particularly hyperaemia (red eye), is an issue with prostaglandins, leaving a decent portion (c 50%) of the glaucoma market for alternatives, currently occupied by beta-blockers, alpha agonists and carbonic anhydrase inhibitors (CAIs). Positioning and label is key Rescula, with its prostone-based, ion channel (BK and ClC-2) activating technology, offers an alternative mechanism of action to prostaglandins and the key second-line therapies. Although Rescula can be used as a first-line agent, Sucampo will primarily focus on positioning the drug as a safe and more convenient second-line option for patients intolerant, or failing to respond, to prostaglandins. Better chance this time Rescula, a twice-daily eye drop, was approved by the FDA in 2000 and marketed in the US ( ) by previous licensee Ciba Vision, but uptake was restricted by its classification as a prostaglandin, bracketed as a me too to the fast-growing brands. The recent FDA approval of Rescula s revised label, not classified as a prostaglandin, was vital, and clearer positioning of the product, supported by 40 reps directly targeting 50% of specialist prescribers, gives Rescula a stronger competitive position. Valuation: Increased to $335m, $8.00 per share We increase our valuation of Sucampo to $335m (vs $315m) or $8.00 per share ($7.52), mainly as a result of raising our peak US sales estimate for Rescula to $90m (vs $65m) Rescula now contributes $110m, or $2.62 per share, to our total DCFbased valuation. We note that peak sales could be considerably higher (up to $150m), but await prescription trends, especially beyond the initial phase of heavy sampling. % 1m 3m 12m Abs 3.9 (1.2) 10.8 Rel (local) (3.1) 2.2 (34.2) 52-week high/low US$8.44 US$3.88 Business description Sucampo Pharmaceuticals is a US-based pharmaceutical company focused on developing and commercialising medicines based on prostones. Amitiza (GI disorders) is approved and partnered with Takeda in the US and Abbott in Japan. Rescula (glaucoma) has gained FDA approval and Sucampo is commercialising in the US. Next events FDA approval for Amitza in OIC (snda) Start Phase III paediatric study for Amitiza Start Phase Ib/IIa study for cobiprostone in US End-April 2013 Q313 Q313 Analysts Christian Glennie +44 (0) Robin Davison +44 (0) healthcare@edisoninvestmentresearch.co.uk Edison profile page Sucampo Pharmaceuticals is a research client of Edison Investment Research Limited

2 Update: Rescula now available in US pharmacies Rescula (unoprostone) is now widely available in US pharmacies and Sucampo has 40 specialist reps in place to directly engage ~4,000 ophthalmologists and optometrists in the US, representing c 50% of glaucoma prescriptions filled. And by detailing to key centres, Sucampo estimates it will indirectly reach a further 30% of prescribers, potentially covering 80% of the market. Priced at $99 per 5ml bottle, providing a 30-day supply for two drops in each eye per day, Rescula has a competitive price to Zioptan ($97 WAC), the latest prostaglandin to be launched in 2012 by Merck & Co. This is encouraging, as it pitches Rescula as a premium product. Key to the long-term uptake and awareness of Rescula will be an initial period of heavy sampling, with Sucampo offering a 30-day free trial to the majority of first-time patients, especially via new prescribers. Therefore, it may be a few quarters before the real uptake curve is revealed, but we are encouraged by the longer-term potential for Rescula. Carving out a niche Prostaglandin analogues reduce IOP by increasing the outflow of aqueous humour from the eye, by increasing uveoscleral outflow. For patients with a baseline IOP of mmhg, these agents, dosed once-daily, typically reduce IOP by 6-8 mmhg through the day. Combined annual sales of Xalatan, Lumigan and Travatan alone reached $2.9bn in 2010, before Xalatan s patent expiry in Rescula, a prostone-based ion channel activator of BK (big potassium) and ClC-2 (chloride) channels, is believed to reduce IOP by increasing the outflow of aqueous humour through the trabecular meshwork. In patients with a mean baseline IOP of 23 mmhg, Rescula, dosed twice-daily (0.15% ophthalmic solution), lowered IOP by 3-4 mmhg through the day. Although Rescula has a slightly inferior efficacy profile to the widely used prostaglandins, the drug s alternative mechanism of action and generally greater tolerability profile certainly provides an opportunity to carve out a decent niche as a second-line therapy in the highly competitive glaucoma market. Use as a first-line agent for ocular hypertension, a milder condition than IOP in glaucoma, may also be a target for Rescula, given the drug s better tolerability profile. While prostaglandins are particularly effective at lowering IOP, it can come at a tolerability price, particularly the incidence of conjunctival hyperaemia, which occurs in as many as 50% of patients treated with Travatan and as few as 5% of patients treated with Xalatan 1. Hyperemia may compromise the outcome of glaucoma filtration surgery, while it may also represent a cosmetic problem to the patient, leading to non-compliance. In terms of Rescula s potential as a good second-line option, a low incidence of hyperaemia is obviously key, but so is its ability to maintain an effective reduction in IOP. To this end, studies have shown that Rescula can maintain a stable IOP in patients having switched from receiving prostaglandins (see Exhibit 1). In 23 eyes switched to Rescula, after an average of eight months on prostaglandins, with a mean initial IOP of 24.7 mmhg at baseline and 17.2 mmhg at treatment switch, no significant change in IOP was recorded in the following 12 months (p=0.41). Rescula s mechanism of action is summarised in Exhibit 2. As for safety and importantly, with respect to the drug s potential as a second-line alternative to betablockers, Rescula has an incidence of injection-related hyperaemia similar to timolol maleate and does not appear to affect cardiovascular or pulmonary function. 1 Feldman, RM. Conjunctival hyperemia and the use of topical prostaglandins in glaucoma and ocular hypertension. J Ocul Pharmacol Ther Feb;19 (1):

3 Key to Rescula s success will be the initial promotional campaign, which Sucampo reports has been well received so far 50% of eye specialists contacted have requested samples of Rescula as well as managed care coverage. Sucampo estimates that 55%-75% of Medicare Part D patients will eventually be covered for Rescula, although this will initially be lower at 30%-40% during the first 12 months. Sucampo is also offering a pay-no-more-than $20 voucher programme for eligible patients to significantly discount the cost of each prescription. Exhibit 1: Rescula maintains IOP in patients intolerant to prostaglandins Exhibit 2: Unoprostone s mechanism of action, via BK channels and trabecular outflow Source: Goseki T et al. Jpn. J Clin Ophthalmol. 2006;60: Source: Quigley et al. Br J Ophthalmol 2006 Mar;90(3): Valuation We increase our valuation of Sucampo to $335m (vs $315m) or $8.00 per share ($7.52), mainly as a result of raising our peak US sales estimate for Rescula to $90m (vs $65m), due to the higher-thanexpected WAC. Our valuation model is based on a sum-of-the-parts DCF valuation, applying a standard 12.5% discount rate, and a breakdown of our key assumptions is displayed in Exhibit 3. This includes estimated end-2012 net cash of $32m ($93m cash/restricted cash and $61m debt). Exhibit 3: Risk-adjusted NPV valuation model and key assumptions Amitiza for CIC + IBS-C (USA) Amitiza for OIC (USA) Amitiza for CC (Japan) Rescula for IOP in glaucoma (US) New pipeline (cobiprostone, SPI-017/SPI-3608) rnpv rnpv / share ($) Prob. of success Launch Peak sales Royalty estimate Patent expiry Key assumptions % 2006 $375m 18% million patients seeking care beyond OTC/lifestyle options. $750 estimated net annual cost of Rx therapy % Q213 $215m 18% million patients taking opioids for non-cancer pain; 40-50% experience OIC. $750 net annual cost. $10m milestone on first commercial sale % Nov 12 $225m 15% million patients seeking care. 15% is effective rate of transfer sales to Abbott. $15m milestone on first commercial sale (21 November 2012) % Feb 13 $90m million patients with open-angle glaucoma in the US; 30 million prescriptions filled per year. $99 WAC per Rescula Rx for 30-day supply % 2017 c $350m 15% - R&D (78) (1.87) SG&A (139) (3.31) Tax (53) (1.25) Net cash Estimated year-end 2012 net cash (includes c $18m restricted cash) Valuation Source: Edison Investment Research Our peak sales estimate for Rescula equates to a 3% share of the 30 million prescriptions written annually in the US for glaucoma. We note that peak US sales of Rescula could be considerably higher 3

4 still (company guidance is for a 3-5% share, or peak sales range of $90m-$150m) but await prescription trends, beyond the initial heavy sampling period (free 30-day pack), to reassess Rescula s potential. A factor in our peak sales assumption for Rescula being at the lower end of company guidance is the relatively short expected period of market exclusivity Rescula s core composition-of-matter patent (5,221,763) expired in July 2012, having already been granted a two-year patent term extension. There are two method-of-use patents listed on the FDA s Orange Book, 6,770,675 (compositions and methods for reducing ocular hypertension) and 6,458,836 (treatment of ocular hypertension and glaucoma), which expire in November 2018 and July 2021 respectively. Our current assumption is that Resula enjoys US market exclusivity until 2018, with generics launching in Our overall valuation of $335m represents clear upside to Sucampo s market capitalisation of $214m. In addition, we still do not include Amitiza s potential value in Europe (launches for CIC in the UK and Switzerland are expected in Q113, coupled with submissions in the same countries for OIC), Amitiza s potential in paediatric constipation (a significant opportunity given Linzess s black box warning against use in children, (Phase III to start Q313) and Rescula s potential beyond glaucoma (such as retinitis pigmentosa - R-Tech Ueno is conducting a Phase III study in Japan). As such, significant further upside potential exists as Sucampo aims to diversify its portfolio and reduce its reliance on Amitiza. Sensitivities The timing and extent of potential generic competition against Amitiza in the US is a key sensitivity for Sucampo. Following Par Pharmaceutical s submission of an ANDA with Paragraph IV certification against Amitiza in the US, we assume that some form of generic competition starts in 2018, with a 50% erosion rate, although an earlier or later entrance of generics would have a significantly negative or positive impact on our valuation. Sucampo, together with its US partner Takeda, filed a patent infringement lawsuit against Par Pharmaceutical in early-february 2013, triggering a 30-month stay to FDA approval of Par s generic version. Sucampo is claiming infringement against six patents listed in the FDA s Orange Book that expire between 2020 and Other sensitivities relate to fresh competition from Linzess in the CIC and IBS-C market, which presents a threat and an opportunity for Amitiza. The challenge for Sucampo and Takeda is to differentiate Amitiza (particularly its proven safety record with long-term use) from Linzess, while attempting to benefit from the increased patient and physician awareness of the medical need and the availability of prescription treatment options that should result from an extensive promotional effort planned by Ironwood and its US partner Forest Labs. Hence our base-case approach to valuing Amitiza in this setting and upside potential if sales growth continues to gather momentum. Financials Our previous financial forecasts are largely maintained, summarised in Exhibit 3. The only modification of note is a slight revision to initial sales of Rescula, now pegged at c $3m for 2013 and c $13.5m for 2014 (previously $3.5m and $16m respectively), to reflect the heavy sampling required during the first few quarters of commercial launch. Previous estimates for operating expenses are unchanged. 4

5 Exhibit 3: Financial summary $'000s e 2013e 2014e Year end 31 December US GAAP US GAAP US GAAP US GAAP US GAAP PROFIT & LOSS Revenue 61,870 54,761 77,355 83, ,599 Cost of Sales (413) (2,025) Gross Profit 61,870 54,761 77,355 82, ,574 R&D Expenses (23,955) (33,497) (21,702) (29,125) (33,494) General and Administrative Expenses (27,867) (41,270) (29,098) (29,389) (29,683) Sales and Marketing Expenses (10,201) (8,783) (19,180) (26,634) (29,297) EBITDA (153) (17,689) 7,375 (2,560) 14,100 Operating Profit (153) (17,689) 7,375 (2,560) 14,100 Net Interest 533 (2,206) (2,164) (2,016) (2,082) Other (3,700) (2,019) Profit Before Tax (norm) 380 (19,895) 5,211 (4,576) 12,018 Profit Before Tax (FRS 3) (3,320) (21,914) 5,938 (4,576) 12,018 Tax 565 4,608 (5,993) (814) (2,404) Profit After Tax (norm) 945 (15,287) (781) (5,390) 9,615 Profit After Tax (FRS 3) (2,755) (17,306) (54) (5,390) 9,615 Average Number of Shares Outstanding (m) EPS - normalised ($) (0.07) (0.41) (0.00) (0.13) 0.23 EPS - FRS 3 ($) (0.07) (0.41) (0.00) (0.13) 0.23 Dividend per share ($) BALANCE SHEET Fixed Assets 14,730 42,653 20,555 19,750 19,682 Intangible Assets 3,070 8,364 7,417 6,445 6,202 Tangible Assets 2,025 1,669 1,603 1,770 1,945 Other 9,635 32,620 11,535 11,535 11,535 Current Assets 134, , , , ,573 Stocks ,000 1,200 Debtors 12,344 17,447 15,152 15,152 15,152 Cash 103,767 75,114 75,448 71,057 86,986 Other 18,432 22,355 21,746 22,236 22,236 Current Liabilities (40,002) (47,081) (39,469) (38,460) (42,044) Creditors (20,480) (26,681) (19,169) (18,160) (21,744) Short term borrowings (19,522) (20,400) (20,300) (20,300) (20,300) Long Term Liabilities (55,441) (71,894) (55,901) (59,812) (63,113) Long term borrowings (44,439) (39,227) (41,464) (43,845) (46,282) Other long term liabilities (11,002) (32,667) (14,437) (15,967) (16,830) Net Assets 53,830 38,594 37,531 30,923 40,098 CASH FLOW Operating Cash Flow (661) (20,106) 7,398 1,976 18,186 Net Interest 0 2,288 (502) (2,016) (2,082) Tax (2,689) (2,173) (51) (4,184) (850) Capex (328) (3,259) (3,346) (167) (175) Acquisitions/disposals (28,118) Financing 14 (581) (474) 0 0 Dividends (13,728) Other (14,900) (2,187) (432) 0 0 Net Cash Flow (60,410) (26,018) 2,593 (4,391) 15,078 Opening net debt/(cash) (133,854) (39,806) (15,487) (13,684) (6,913) Exchange rate movements (4,664) (1,590) 1, Other (28,974) 3,289 (6,234) (2,381) (1,588) Closing net debt/(cash) (39,806) (15,487) (13,684) (6,912) (20,403) Source: Company accounts, Edison Investment Research EDISON INVESTMENT RESEARCH LIMITED Edison Investment Research Limited (Edison) is a leading international investment research company. 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