Sucampo Pharmaceuticals

Transcription

1 March 16, 2015 Sucampo Pharmaceuticals Current Recommendation Prior Recommendation Neutral Date of Last Change 12/03/2014 Current Price (03/13/15) $17.84 Target Price $21.00 OUTPERFORM (SCMP-NASDAQ) SUMMARY Sucampo reported earnings per share of $0.21 in the fourth quarter of 2014, easily exceeding the Zacks Consensus Estimate of $0.17 and the yearago figure of $0.06. Revenues came in at $37.8 million, up 54.1% from the year-ago quarter and in line with the Zacks Consensus Estimate of $27 million. Amitiza, Sucampo s flagship product, is approved in the U.S. for the treatment of CIC, OIC and IBS-C. The company is presently working on label expansion of the drug. We are impressed by the recent patent litigation settlements and amendment of the agreement with Takeda, which should boost growth prospects. Hence, we maintain an Outperform recommendation. SUMMARY DATA 52-Week High $ Week Low $5.90 One-Year Return (%) Beta 1.58 Average Daily Volume (sh) 399,964 Shares Outstanding (mil) 44 Market Capitalization ($mil) $785 Short Interest Ratio (days) 8.55 Institutional Ownership (%) N/A Insider Ownership (%) N/A Annual Cash Dividend $0.00 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) 14.8 Earnings Per Share (%) Dividend (%) N/A using TTM EPS 44.6 using 2015 Estimate 28.3 using 2016 Estimate 20.3 Zacks Rank *: Short Term 1 3 months outlook 2 - Buy * Definition / Disclosure on last page Risk Level * Above Average Type of Stock Small-Growth Industry Large Cap Pharma Zacks Industry Rank * 105 out of 267 ZACKS ESTIMATES Revenue (In thousands of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) A 27 A 21 A 24 A 90 A A 24 A 31 A 38 A 115 A E 32 E 35 E 35 E 132 E E Note: Quarterly figs. may not add up to annual figs. due to rounding off. Earnings Per Share (EPS is operating earnings before non-recurring items) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) $0.08 A $0.14 A $0.09 A $0.06 A $0.22 A 2014 $0.02 A $0.04 A $0.14 A $0.21 A $0.40 A 2015 $0.14 E $0.15 E $0.16 E $0.18 E $0.63 E 2016 $0.88 E Note: Quarterly figs. may not add up to annual figs. due to rounding off. Projected EPS Growth - Next 5 Years % N/A 2015 Zacks Investment Research, All Rights reserved S. Riverside Plaza, Chicago IL 60606

2 OVERVIEW Sucampo Pharmaceuticals (SCMP) is a global biopharmaceutical company, which primarily focuses on the research, discovery, development and commercialization of proprietary drugs to treat gastrointestinal, ophthalmic, neurologic and oncology-based inflammatory disorders. Sucampo currently has one marketed product Amitiza. Amitiza is approved in the U.S. for chronic idiopathic constipation (CIC) in adults, irritable bowel syndrome with constipation (IBS-C) among adult women and opioid-induced constipation (OIC) in patients with chronic non-cancer pain. Amitiza is marketed by Takeda Pharmaceuticals in the U.S. and Abbott (in Japan). The company mainly generates revenue mainly from product royalties, development milestone payments, product sales and clinical development activities. Revenues in 2014 came in at $115.4 million, up 28.9% from REASONS TO BUY Amitiza Continues to Drive Growth: Total Amitiza prescriptions in the U.S. were up over 5% to 354,354 in the fourth quarter of 2014, while sales reported by Takeda for royalty calculation purposes surged 18% to $331.6 million in Amitiza is evidently gaining traction outside the U.S. as well, with sales increasing $32.1 million in Japan, which is a key market given the absence of competition. Label expansion of Amitiza: Sucampo is currently working on the label expansion of Amitiza to include pediatric functional constipation. The company had initiated a phase III program (first series) in Dec 2013 to evaluate the efficacy, safety and pharmacokinetics of Amitiza in patients in the age group of 6 17 years suffering from pediatric functional constipation. This is one of the four phase III studies planned for this indication. Two other ongoing studies are evaluating the soft gelatin capsule formulation of Amitiza in patients in the same age group. The fourth study is a follow-on, long-term safety extension study that had been initiated in March Meanwhile, Sucampo is currently evaluating the timing of initiation of the second series of the trial in its phase III program for the abovementioned indication in children aged 6 months to less than 6 years, which will require the new formulation. The successful development and commercialization of Amitiza for other indications will boost its sales substantially. Amendment of agreements with Takeda and patent litigation settlement: Sucampo has recently settled patent litigations and amended major agreements related to Amitiza. The company has an exclusive license, development, commercialization and supply agreement with Takeda Pharmaceutical, whereby Takeda has the exclusive rights to further develop and commercialize Amitiza in all global markets, except in the U.S., Canada, Japan and China. Sucampo amended its agreement with Takeda in Oct The amendment covered commercialization rights for Amitiza in the U.S. and Canada, and included various modifications including the extension of the current term, minimum commercial investment during the current term and various governance changes, thereby allowing Takeda better flexibility of commercialization. The extended term will begin on Jan 1, 2021, during which Takeda will split the gross profits from the sales of Amitiza with Sucampo for any strength and form of dosage for existing indications in the U.S. and Canada. Takeda will not reimburse the product details made by Sucampo sales representatives to health care professionals as well as other ancillary costs of the sales force, effective from Apr 1, Moreover, in Oct 2014, Sucampo, along with R-Tech Ueno, Ltd. and Takeda, entered into a settlement and license agreement with Anchen Pharmaceuticals, Inc. and Par Pharmaceutical Companies, Inc. regarding a patent litigation related to Sucampo s Amitiza (8 mcg and 24 mcg soft gelatin capsules). Sucampo and its partners had filed a patent infringement lawsuit against Anchen Equity Research Page 2

3 and Par in the U.S. District Court for the District of Delaware in Feb The two companies were looking to get their generic versions of Amitiza approved in the U.S. However, with all the companies signing a settlement agreement, the lawsuit will be dismissed. Sucampo and R-Tech will grant a nonexclusive license to Par to market its generic version of Amitiza in the U.S. for the approved indications starting Jan 1, 2021 (or earlier, under certain circumstances). Gross profits from product sales will be divided between Par and Sucampo until the expiry of each of the patents covering Amitiza. Additionally, under the terms of a manufacturing and supply agreement, Sucampo will supply an authorized generic version of Amitiza to Par at a negotiated price, if necessary. Focus on Pipeline: With its decision to decease marketing activities for Rescula, Sucampo is currently focusing on developing cobiprostone. The company is evaluating cobiprostone for oral mucositis (OM) and non-erosive reflux disease (NERD) and dosed its first patient in a phase II trial on cobiprostone for NERD. RISKS RECENT NEWS Dependence on Amitiza Sucampo is heavily dependent on Amitiza for its growth. The drug faces stiff competition from Linzess which has recently been approved for two of the three indications for which Amitiza has been approved in the U.S and for IBS-C in certain European countries. This in turn will adversely impact Amitiza sales as well as Sucampo s growth markets leading us to revisit our recommendation. Decision to forgo Rescula: Under an agreement with R-Tech, Sucampo held exclusive rights to commercialize and develop Rescula for its approved and potential indications globally except for Japan, China, Taiwan and Korea. The indications include lowering of intraocular pressure in patients with open-angle glaucoma or ocular hypertension, retinitis pigmentosa and geographic atrophy. However, Sucampo ceased marketing Rescula in the third quarter of 2014 following the analysis of preliminary top-line data from a phase III trial on unoprostone isopropyl in retinitis pigmentosa. The trial was being conducted by R-Tech. Pipeline Setbacks: Sucampo needs to develop its pipeline soon in order to reduce its dependence on Amitiza. Sucampo recently decided to shift its focus away from the development of the intravenous and oral versions of the ion channel activators that were in development for lumbar spinal stenosis (LSS). Contrary circumstances may lead the company to postpone or discontinue the studies and we will reconsider our recommendation in such a scenario. Sucampo Returns Rescula Rights to R-Tech Ueno Mar 9, 2015 Sucampo announced that it will immediately return all licenses for Rescula to R-Tech Ueno, Ltd. Under an agreement with R-Tech, Sucampo held exclusive rights to commercialize and develop Rescula worldwide for its approved and potential indications globally except for Japan, China, Taiwan and Korea. The indications include lowering of intraocular pressure in patients with open-angle glaucoma or ocular hypertension, retinitis pigmentosa and geographic atrophy. However, Sucampo ceased marketing Rescula in the third quarter of 2014 following the analysis of preliminary top-line data from a phase III trial on unoprostone isopropyl in retinitis pigmentosa. The trial was being conducted by R-Tech Ueno, Ltd. Sucampo now plans to focus on label expansion of its other approved drug Amitiza, which includes phase III trials in pediatric functional constipation and a new formulation of the drug in adults and Equity Research Page 3

4 pediatrics. Amitiza is approved in the U.S. for chronic idiopathic constipation in adults, irritable bowel syndrome with constipation among adult women and opioid-induced constipation in patients with chronic non-cancer pain. Successful development and commercialization of Amitiza for other indications will boost its sales substantially. Meanwhile, Sucampo also has cobiprostone in its pipeline, which is being evaluated for non-erosive reflux disease and oral mucositis. The company plans to diversify its pipeline and is currently assessing new therapeutic areas. Sucampo Beats Earnings Estimates in Fourth Quarter Mar 5, 2015 Sucampo reported earnings per share of $0.21 in the fourth quarter of 2014, easily beating the Zacks Consensus Estimate of $0.17 and above the year-ago figure of $0.06. Revenues came in at $37.8 million, up 54.1% from the year-ago quarter, in line with the Zacks Consensus Estimate of $27 million. Quarter in Detail We note that Sucampo has one marketed product Amitiza, which had been approved by the FDA in 2006 for chronic idiopathic constipation (CIC) in adults. Thereafter, it gained FDA approval in 2008 for irritable bowel syndrome with constipation (IBS-C) in women aged above 18 years. Furthermore, it gained FDA approval for opioid-induced constipation (OIC) in Apr Amitiza is approved for CIC in Switzerland as well as the UK and for chronic constipation (CC) in Japan. Sucampo is developing Amitiza in collaboration with its partner Takeda Pharmaceuticals Inc., which markets the drug in the U.S. Product royalty revenue was up 25.3% to $18.6 million while product sales were up 41.4% to $7.7 million. Amitiza sales from the U.S. came in at $91.1 million, up 17% year over year. Total prescriptions for Amitiza increased 5% to 354,354. Research & development expenses were $5.9 million in the reported quarter, down from $7.0 million in the year-ago quarter. The decrease in expenditure was due to the discontinuation of studies for LSS, which were finished in the first half of General & administrative expenses were $7.7 million compared with $7.0 million in the year-ago quarter. We remind investors that Sucampo ceased marketing Rescula in the third quarter of Results Revenues in 2014 came in at $115.4 million, up 28.9% from 2013 and in line with the Zacks Consensus Estimate of $115 million. Earnings per share came in at $0.40, up from $0.22 in Guidance Sucampo provided earnings guidance for The company projects net income in the range of $25.0 million to $30.0 million, or $0.55 to $0.65 per diluted share in Equity Research Page 4

5 Sucampo Sues Dr Reddy for Amitiza Nov 12, 2014 Sucampo and partner Takeda Pharmaceutical Company Limited filed a patent infringement lawsuit in the U.S. District Court for the District of New Jersey against Dr. Reddy's Laboratories. The lawsuit was against an Abbreviated New Drug Application (ANDA) that Dr. Reddy's had filed with the FDA pertaining to marketing, selling and using a generic version of Sucampo s 8 mcg and 24 mcg Amitiza soft-gelatin capsule products. The lawsuit claimed the violation of seven patents, of which the latest expires in 2027, listed in the FDA's Orange Book. Following the receipt of a notice letter sent by Dr Reddy s dated Oct 1, 2014 regarding the ANDA, Sucampo filed the lawsuit within the next 45 days. In the letter, Dr. Reddy s alleged that a few U.S. patents which cover compositions, formulations and methods of using Amitiza are invalid, unenforceable and/or will not be infringed by Dr. Reddy s manufacture, use or sale of the product described in its ANDA. Consequently, the final approval of Dr. Reddy's ANDA will be on hold for 30 months from the date of receipt of the notice letter, as per the Hatch-Waxman Act. Amitiza being a key product for Sucampo, the company is trying hard to prevent an earlier-than-expected entry of generics in the market. Sucampo/Takeda Amend Collaboration Agreement for Amitiza Oct 14, 2014 Sucampo announced that it has amended its existing collaboration and license agreement with Takeda Pharmaceutical Company Ltd. The amendment took place last week and covered commercialization rights for Amitiza in the U.S. and Canada. The amendment includes various modifications including the extension of the current term, minimum commercial investment during the current term and various governance changes, thereby allowing Takeda better flexibility of commercializing Amitiza. The extended term will begin on Jan 1, 2021 during which Takeda will split the gross profits from the sales of Amitiza with Sucampo for any strength and form of dosage for existing indications in the U.S. and Canada. Takeda will not reimburse the product details made by Sucampo sales representatives to health care professionals as well as other ancillary costs of the sales force, effective from Apr 1, We note that Sucampo presently has two marketed products Amitiza and Rescula. Amitiza, Sucampo s flagship product, generated net sales of $152 million in the first half of 2014, up 16% year over year. Amitiza is approved in the U.S. for the treatment of chronic idiopathic constipation (CIC) in adults and opioid-induced constipation (OIC) in adults with chronic, non-cancer pain. The drug is also approved for irritable bowel syndrome with constipation (IBS-C) in women aged 18 years and older in the U.S. Sucampo believes that this amendment of the agreement with Takeda will further expand Amitiza s business. Equity Research Page 5

6 VALUATION Sucampo reported earnings per share of $0.21 in the fourth quarter of 2014, easily exceeding the Zacks Consensus Estimate of $0.17 and the year-ago figure of $0.06. Revenues came in at $37.8 million, up 54.1% from the year-ago quarter and in line with the Zacks Consensus Estimate of $27 million. Amitiza, Sucampo s flagship product, is approved in the U.S. for the treatment of CIC, OIC and IBS-C. The company is presently working on the label expansion of the drug. We are impressed by the recent patent litigation settlements and amendment of the agreement with Takeda, which should boost growth prospects. Sucampo s current trailing 12-month earnings multiple is 44.6, compared to the industry average of 46.5x and the S&P s Over the last five years, shares of Sucampo have traded in a range of 13.2x to 411.0x trailing 12-month earnings. We maintain an Outperform recommendation as we believe the stock has upside potential at current levels. Our $21.00 price target is based on 33.3x our 2015 EPS estimate. Key Indicators F1 F2 Est. 5-Yr EPS Gr% P/CF 5-Yr High 5-Yr Low Sucampo Pharmaceuticals (SCMP) Industry Average S&P Enanta Pharmaceuticals, Inc. (ENTA) Evotec (EVTCY) Hyperion Therapeutics (HPTX) SciClone Pharmaceuticals, Inc. (SCLN) TTM is trailing 12 months; F1 is 2014 and F2 is 2015, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA SUCAMPO PHARMAC (SCMP) Industry Average S&P Equity Research Page 6

7 Earnings Surprise and Estimate Revision History Equity Research Page 7

8 DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of JNJ. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will underperform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1136 companies covered: Outperform %, Neutral %, Underperform 6.4%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Lead Analyst QCA Copy Editor Reason for Update Ekta Bagri Arpita Dutt Sayantani Sinharoy 4Q14 earnings update Analyst QCA & Lead Analyst Reason for Update Arpita Dutt Arpita Dutt Q3 Equity Research Page 8