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Edited Transcript of SCMP earnings conference call or presentation 1-Nov-17 12:30pm GMT

Thomson Reuters StreetEvents

Q3 2017 Sucampo Pharmaceuticals Inc Earnings Call

Bethesda Dec 6, 2017 (Thomson StreetEvents) -- Edited Transcript of Sucampo Pharmaceuticals Inc earnings conference call or presentation Wednesday, November 1, 2017 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Peter A. Kiener

Sucampo Pharmaceuticals, Inc. - Chief Science Officer

* Peter P. Pfreundschuh

Sucampo Pharmaceuticals, Inc. - CFO

* Peter S. Greenleaf

Sucampo Pharmaceuticals, Inc. - Chairman & CEO

* Silvia Taylor

Sucampo Pharmaceuticals, Inc. - SVP of IR and Corporate Affairs

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Conference Call Participants

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* Joseph Patrick Schwartz

Leerink Partners LLC, Research Division - MD, Biotechnology

* Michael Higgins

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Presentation

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Operator [1]

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Good morning, and welcome to Sucampo's Third Quarter 2017 Financial Results and Operating Highlights Conference Call. For opening remarks and introductions, I would like to turn the call over to Silvia Taylor, Sucampo's Senior Vice President of Investor Relations and Corporate Affairs. Please go ahead.

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Silvia Taylor, Sucampo Pharmaceuticals, Inc. - SVP of IR and Corporate Affairs [2]

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Thank you, and good morning, everyone. Thank you for joining us this morning. The earnings release and its attachments announcing Sucampo's Third Quarter 2017 Financial and Operational Highlights were distributed this morning. We also filed our 10-Q this morning. For those of you who have not yet seen these documents, you will find them posted in the Investors section of our website at sucampo.com. In addition, during this morning's call, we will be referring to presentation slides which are also posted in the same section of our website.

Joining me for the call this morning are Peter Greenleaf, Chairman and Chief Executive Officer; Dr. Peter Kiener, Chief Scientific Officer; and Peter Pfreundschuh, Chief Financial Officer.

Before we begin, please note that various remarks made on this conference call, as well as the information contained in today's earnings release, are based on expectations as of today, November 1, 2017. We assume no obligation to update forward-looking statements made in this conference call or contained in the earnings release as a result of new information, future events or developments. Forward-looking statements, including those about our future operating and financial performance, business plans and prospects, marketed products and product candidates, involve substantial risks and uncertainties, which may cause results to differ materially from those set forth in the statements. Please refer to our most recent annual and quarterly reports for additional risk factors affecting our forward-looking statements.

Additionally, during this call, we will make reference to non-GAAP information, including adjusted net income, EBITDA, adjusted EBITDA and free cash flow. Please refer to our earnings press release issued today, which features a reconciliation of GAAP to non-GAAP information. Adjusted net income adjusts for specified items that can be highly variable or difficult to predict and various noncash items, which include amortization of acquired intangibles, intangible impairments, legal settlement, restructuring costs, acquisition and integration-related expenses, amortization of debt financing cost, foreign currency effects and the tax impacts of these adjustments. EBITDA reflects net income, excluding the impact of provision for income taxes, interest expense, interest income, depreciation, amortization of acquired intangibles and intangible impairments. Adjusted EBITDA reflects EBITDA and adjusts for specified items that can be highly variable or difficult to predict and various noncash items, which include share-based compensation expense, restructuring costs, acquisition and integration-related expenses, legal settlements and foreign currency effects. Free cash flow reflects net cash provided by operating activities less expenditures made for property and equipment. These items are all detailed in today's earnings press release.

And now I'll turn the call over to Peter Greenleaf. Peter, please go ahead.

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Peter S. Greenleaf, Sucampo Pharmaceuticals, Inc. - Chairman & CEO [3]

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Well, thanks, Silvia, and welcome, everyone. We're pleased to be here with you this morning. So since our last quarter, we've continued to make important progress as a company. First, we have continued to advance our pipeline programs, VTS-270 and CPP-1X/sulindac fixed-dose combination, which positions us well to deliver on key clinical milestones in 2018. Most notable of which is the pivotal data readout from the ongoing trial of VTS-270 in Niemann-Pick Disease. Additionally, the FDA recently accepted our filing for AMITIZA in pediatric functional constipation in children ages 6 to 17 years with a priority review status.

Second, our core AMITIZA business continued to demonstrate strong results during the third quarter. We delivered continued revenue growth with $61.3 million in total revenue, which represented an increase of 6% over the third quarter last year. This led to growth in adjusted earnings of $15.8 million, an increase of 22% year-over-year and $30.8 million in adjusted EBITDA, an increase of 3% year-on-year -- year-over-year even after incurring the additional R&D expense associated with the VTS acquisition, which was completed in the second quarter of this year. Our balance sheet remains strong post-acquisition as we had approximately $100 million in cash on hand at the end of October.

As a result of our strong performance thus far this year, today we are increasing guidance for the full financial measures across the year. So for 2017, we now expect total revenue of $250 million to $ 255 million, adjusted net income of $63 million to $68 million, adjusted EBITDA of $120 million to $125 million, adjusted EPS of $1.10 to $1.15 and lastly, adjusted free cash flow of $99 million to $104 million -- excuse me -- free cash flow, not adjusted, of $99 million to $104 million. Note that the revised guidance includes a onetime milestone of $10 million from Mylan that is expected in the fourth quarter. This milestone will be a result of achieving for the first time JPY 20 billion in annual net sales for AMITIZA for that market. So we have great momentum going into the end of 2017.

And I'd now like to talk some about our operational highlights for the quarter.

In our Phase III program for the treatment of Niemann-Pick Disease Type C1 or NPC1, we were pleased at the results from a Phase I/II study of the intrathecal administration of VTS-270, our drug candidate for NPC, were published in the Lancet. The open-label, dose-escalation Phase I/IIa trial studied safety, tolerability, changes in biomarkers and clinical efficacy of intrathecal administration of VTS-270 after 12 and 18 months of treatment. The study demonstrated clinically meaningful reduction in signs and symptoms of disease progression as measured by the NPC Neurological Severity Score, or NNSS, which looked at, among other domains, ambulation, fine motor ability, cognition, speech, memory and swallowing, compared to the natural history cohort. No serious adverse events were observed. As a reminder, VTS-270 has been granted orphan drug designation in both the U.S. and Europe and breakthrough therapy designation in the U.S. We anticipate pivotal data by mid-2018 and, if approved, to commence commercialization of VTS-270 in and around early 2019.

In our CPP-1X/sulindac Phase III program, which is a collaboration with our partner Cancer Prevention Pharmaceuticals, during the last quarter, the FDA granted us Fast Track status for the program. As a reminder, CPP-1X/sulindac is being developed for the treatment of familial adenomatous polyposis, which is a rare genetic disease that ultimately leads to cancer in the GI tract of these patients. If relevant criteria are met, Fast Track designation makes the product eligible for accelerated approval and priority review. Previously, the FDA also granted CPP-1X/sulindac orphan drug status for the U.S. Dr. Peter Kiener will provide additional details on both of these programs in his prepared remarks today.

I'd like to now focus on our financial and operational results for the quarter. AMITIZA once again experienced solid growth for the quarter, which drove our overall 6% year-on-year revenue increase. In the U.S. for the third quarter, Takeda reported that U.S. net sales of AMITIZA, for royalty calculation purposes, increased 6% year-over-year to $115.2 million. Royalty revenue to Sucampo from Takeda grew 11% to $23 million. In addition to this royalty revenue, we had $13.1 million of U.S. AMITIZA product sales to Takeda, bringing the total U.S. revenue to $36.2 million. The revenue growth in the U.S. was driven by a combination of price and increased volume. Total AMITIZA prescriptions as reported by IMS in the third quarter were approximately $375,000, which is a 1% year-over-year increase. AMITIZA's strong performance in the U.S. can be attributed to its competitive profile, specifically a favorable safety and efficacy profile, a unique mechanism of action and its status as the only product in the constipation market with 3 indications. Additionally, AMITIZA continues to hold a strong commercial and Part D managed care coverage status, including preferred formulary positions with CVS Caremark and Express Scripts, 2 of the largest pharmacy benefit managers in the U.S. With over 12 years on the market and solid positioning in the branded constipation space, AMITIZA continues to capitalize on the overall growth in the branded chronic constipation market.

Turning next to Japan. The region continues to drive significance AMITIZA global revenue growth. Reported revenue from AMITIZA sales to Mylan increased 18% to $20.5 million in the quarter, which compares to $17.4 million in the prior year period. This increase was driven by strong volume growth of 35% year-over-year. AMITIZA's performance in Japan so far in 2017 is a direct result of continued market demand based on the products strong efficacy and safety profile. And as new competitors enter the Japanese market and provide alternative treatments for chronic constipation, we expect AMITIZA to continue to hold the solid position with prescribers and to benefit from the increased disease education and awareness.

Overall, based on the financial results of AMITIZA in the key markets of U.S. and Japan, we continue to expect mid to high single-digit global prescription growth for the rest of this year and to meet the increased guidance on revenue and other measures that I outlined earlier in the call.

Finally, in August, we also received a Paragraph IV notification letter regarding an Abbreviated New Drug Application submitted by -- to the FDA by Teva, requesting the approval to market and sell a generic version of the 8-microgram and 24-microgram AMITIZA soft gelatin capsule products. In response in December, we, along with Takeda, filed a patent infringement lawsuit in the U.S. District Court in the District of New Jersey against Teva. Under the Hatch-Waxman Act, as a result of the patent infringement lawsuit, final FDA approval of Teva's ANDA will be stayed for up to 30 months from the date of the receipt of this notice letter. We will continue to vigorously enforce the AMITIZA patent franchise.

Now I'd like to turn the call over to Dr. Kiener to take us through our clinical development update. Peter?

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Peter A. Kiener, Sucampo Pharmaceuticals, Inc. - Chief Science Officer [4]

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Thank you, Peter, and good morning, everyone. Before I begin my remarks on the pipeline, I want to let you know that we are planning to host an R&D Day in New York on November 16 for institutional investors and analysts. At this event, we will be joined by 3 distinguished physicians who are leaders in the fields of NPC or FAP. They will provide significant detail on these diseases and the potential of our clinical programs in the treatment of these patients. We think they will provide you with valuable insight and hope to see you there.

I'd now like to provide you with an update on VTS-270. As you may know, VTS-270 is in development for patients suffering from NPC1 disease and is currently in a blinded global single pivotal Phase IIb/III trial with a sham treatment control. The trial is being conducted in 7 countries. Both the FDA and EMA have informed us that this trial would be sufficient for review and potential approval. As we have previously announced, the trial is fully enrolled.

To quickly review the study design, the trial is divided into 3 parts, and this is illustrated in the slide. For the first 12 patients, Part A was a 12 months dose confirming period, which was followed by Part B where patients received either sham treatment or 900 milligrams of VTS-270 intrathecally every 2 weeks for an additional 10 months. The remaining 42 patients, all in part B, receive either sham treatment or 900 milligrams of drug for 12 months. All patients are then eligible to be rolled into the open-label Part C where they receive drug until a regulatory decision is made.

Currently, all patients in the trial are either in Part B or C. It's important to know that Part B is expected to be completed at the end of March 2018, and consequently, as Peter mentioned, top line pivotal data should be available in the middle of 2018. Completion of this data package will be the key milestone in allowing us to submit the NDA to the FDA and the MAA to the EMA. As Peter previously mentioned, we expect to commence commercialization in 2019.

We are also progressing our efforts in additional products innovation for VTS-270. These efforts are important as we believe they will provide increasingly effective therapy and easy access for patients with this devastating disease as well as potentially generate new intellectual property.

One such ongoing effort is the delivery of drugs through an implanted port that will provide the patients on more convenient alternative through administration via lumbar puncture. We are progressing in this and have begun the work that will allow us to undertake a study in Europe to test the safety and tolerability of VTS-270 in this device. Development in the U.S. requires additional information and data, and we are working with our partner to undertake the studies that are required to bring a device together with the VTS drug to regulatory approval in the U.S.

Next, I want to move on to CPP-1X/sulindac, a product that is being developed by our partner, Cancer Prevention Pharmaceuticals, to treat familial adenomatous polyposis or FAP. FAP is a rare genetic disease that eventually develops into cancer and almost all of the patients who have the mutations in the APC gene.

The ongoing Phase III study is 170-patient, 3-arm, double-blind, randomized trial of the combination agent that is sulindac and eflornithine compared to the single-agent arms. Enrollment in the study has been completed, and the FAP-related events are progressing. By definition, this trial is event driven. Specifically, the primary endpoint is time to next FAP-related event. As Peter mentioned, we are very pleased that in the last quarter, the FDA granted Fast Track status to this program, which we believe reflects the importance of bringing effective therapies to patients suffering from this disease. We are also pleased that over the summer, the trial passed the prespecified interim futility analysis, which was triggered upon reaching 50% of the total number of events. As we discussed in the last quarter, an independent data monitoring committee made a recommendation to continue the trial based on safety and lack of futility. Currently, based on the observed rate of events, we expect that we could reach the total prespecified number of events to end the trial as early as the second half of 2018, which will then allow us to initiate data analysis. We anticipate approval in 2019 with commercialization later that year.

Finally, in our life-cycle management for the current capsule formulation of AMITIZA in children 6 to 17 years of age, we recently announced that the FDA has accepted our filing of the supplementary NDA for AMITIZA in children in this age range, who have pediatric functional constipation. We submitted the sNDA at the end of July, and we're very pleased that the filing received priority review designation from the FDA, who has assigned a PDUFA date of January 28, 2018, for this program. If approved, AMITIZA will be the first branded product available for certain pediatric patients that suffer from pediatric functional constipation.

This quarter, we also announced for the Phase III study to evaluate the bioequivalence of the sprinkle and capsule formulations of AMITIZA both compared to placebo in adult subjects with CIC did not show bioequivalence, and as such, we will not be moving forward with an NDA submission for the sprinkle formulation in adults.

Sucampo's focus continues to be on the potential approval of AMITIZA in the pediatric indication. Based on the clinical trial data in adults that demonstrated this new formulation while being well tolerated and also showing activity but lacked bioequivalence with the capsule formulation, we will continue to have discussions with the FDA in the upcoming months about the most appropriate pathway forward in our ongoing commitment to pediatric functional constipation in younger children aged 6 months through 5 years of age. We will continue to keep you updated as these discussions progress.

In summary, this is a very exciting time for the company with several milestones over the next 12 to [8] months, including data from 2 Phase III programs and a PDUFA date early in the year for AMITIZA in the pediatric population. I hope to see many of you at our R&D Day on November 16 this year. I will now turn the call over to Peter Pfreundschuh to detail the financial results for the quarter. Peter?

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Peter P. Pfreundschuh, Sucampo Pharmaceuticals, Inc. - CFO [5]

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Thank you, Peter, and good morning, everyone. We announced third quarter results in our press release today, and I'd like to go over some of the highlights with you this morning. On a GAAP basis, we reported net income of $10.4 million and diluted EPS of $0.19 during the third quarter versus net income of $8.1 million and diluted EPS of $0.19 in the prior year period. On a non-GAAP basis, we reported adjusted net income of $15.8 million and adjusted diluted EPS of $0.27 for the third quarter of 2017 as compared to adjusted net income of $12.9 million and diluted EPS of $0.30 for the same period in 2016. The decrease year-over-year in diluted EPS was driven largely by the inclusion of diluted shares associated with convertible note, which we entered into in December 2016. EBITDA was $27.4 million for the third quarter of 2017 as compared to $35.6 million for the same period in 2016. Adjusted EBITDA increased 3% to $30.8 million for the third quarter as compared to $30 million for the same period in 2016. This increase was largely driven by the increase in AMITIZA sales, offset by $6.7 million in VTS-270-related research and development and commercialization expense.

As mentioned at the beginning of the call, adjusted net income, adjusted EPS and adjusted EBITDA adjust for specific items of cash and non-cash nature. For the 3 months ended September 30, 2017, we reported revenue of $61.3 million, which represents year-over-year growth of 6%. AMITIZA product sales increased 16% to $33.7 million due to continued growth in both the U.S. and Japan. Product royalty revenue associated with AMITIZA increased 11% to $23 million due to increases in AMITIZA net sales reported by Takeda. In addition, RESCULA sales in Japan for the quarter were $2.2 million.

Gross margin, calculated as product sales revenue less cost of goods sold as a percentage of product sales revenue, was 70% for the third quarter of 2017 as compared to 72% for the same period in 2016. The reduction in gross margin is due primarily to a shift in geographical mix towards higher volumes of AMITIZA product sales in Japan, which has a higher cost of goods sold for the company as we absorb the packaging costs for both the Mylan/Japan product sales, coupled with foreign currency exchange rate fluctuations.

R&D, general administrative and selling and marketing expenses were a total of $22.6 million for the quarter as compared to $29 million for the third quarter of '16. Excluding R&D intangible impairment expense in the third quarter of '16, these expenses were $21.7 million in the third quarter of '16. Excluding this charge, cost in the third quarter of 2017 increased 4%, primarily driven by the inclusion of Vtesse results.

The effective tax rate based on a GAAP net income basis for the third quarter of 2017 was 41% as compared to 48% for the same period in 2016. The fluctuation was primarily due to a shift in profit split amongst the company's geographical regions. We anticipate a more normalized rate in 2017 in the 34% to 38% range on a full year basis.

Moving to the balance sheet. At September 30, 2017, our cash and cash equivalents and restricted cash was $75 million as compared to $198.5 million at December 31, '16. The decrease in cash was primarily due to the acquisition of Vtesse and timing associated with working capital items. As of October 31, we had approximately $100 million in cash and cash equivalents on hand, which demonstrates the strength of our balance sheet post-acquisition. Notes payable at the end of the quarter were $291.9 million, all of which is currently reflected as long term compared to $290.5 million at December 31, '16. The net debt position at September 30, 2017, was $216.9 million as compared to $92 million at the end of 2016. At the end of October, we entered into a senior secured credit facility, which will provide us with a 3-year revolving line of credit for up to $100 million. JPMorgan, which is the company's commercial bankers, served as the lead underwriter in this credit facility. The company intends to use this credit facility as a tool primarily for business development opportunities, if needed. This facility remains unused as of this time. As Peter Greenleaf stated, we increased our guidance, and we expect to generate between $99 million to $104 million of free cash flow in 2017. Additionally, we anticipate to have approximately $100 million to $110 million in cash and cash equivalents on hand at the end of this year.

With that, I'll now turn the call back over to Peter Greenleaf for concluding remarks before we go to Q&A. Peter?

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Peter S. Greenleaf, Sucampo Pharmaceuticals, Inc. - Chairman & CEO [6]

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Well, thanks, Peter, and thanks to everyone on the call. As noted on our last call, our focus from now until the end of the year is going to remain the same: first, to continue to deliver on strong financial performance; to also continue to accelerate our priority clinical programs which are the pivotal VTS-270 program, our partnership in FAP and the life-cycle management of AMITIZA; and lastly, to continue to evaluate and execute on business development opportunities to grow the company for sustained mid- to long-term growth.

I want to thank you all for listening today, and we look forward to taking your questions.

I'll now turn the call back over to the operator. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Joseph Schwartz from Leerink Partners.

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Joseph Patrick Schwartz, Leerink Partners LLC, Research Division - MD, Biotechnology [2]

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So my first question is on CPP-1X and sulindac. I was wondering if you could walk us through how the -- how you think the events or what your baseline assumptions heading into the Phase III trial have been in terms of how the events will be comprised with the types of events in the control arm. And then what are the assumptions as far as powering goes for how this trial could exceed its threshold for success in terms of the types of events and the magnitude that you would need to see for success?

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Peter S. Greenleaf, Sucampo Pharmaceuticals, Inc. - Chairman & CEO [3]

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Joe, thanks for the question. And I'm going to take it to Dr. Kiener to answer it, focus on the events, events rates, and it sounds like also what we've disclosed in terms of powering, et cetera. Peter?

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Peter A. Kiener, Sucampo Pharmaceuticals, Inc. - Chief Science Officer [4]

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So Joe, good to talk. We haven't disclosed the actual powering. So I should upfront say, but it is -- this is a single pivotal trial, so expect us to power this very strongly. The powering was based on previous studies from polyp formation, which is different from what the events in the primary end point. The primary end point does include actually removal of large polyps, but it also includes excisional surgery and various degrees of excisional surgery, so not exactly the same events that originally the power -- the trial was powered on. I think that is -- the trial was set up that within 2 to 3 years, we should have reached the expected number of events. We believe it's going to be at the back end of 3 years now based on what we've seen. So I think that suggests, while there's several different explanations that could account for that, but I think it suggests that it takes longer to get to an excisional event than it does a simple polyp event. But we are still very, very confident. We know from looking at our futility analysis that actually only 15% of the events that we're seeing at 50% of total number of events, excluding the 2 percentage numbers, but only 15% of that 50% was due to polyp removal. The rest were to more serious events. So we're still very comfortable. It just means that the trial is going on for the events to happen a bit longer than we anticipated. Does that address the main points you asked? Quite a few questions in that, I want to make sure I hit on the main ones.

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Joseph Patrick Schwartz, Leerink Partners LLC, Research Division - MD, Biotechnology [5]

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Yes. I guess, I'll stay tuned for what you might also disclose at the R&D Day, but it sounds like that's what you're willing to share with us at this point, so that...

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Peter A. Kiener, Sucampo Pharmaceuticals, Inc. - Chief Science Officer [6]

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I think the R&D Day will be very informative because you'll hear a real expert physician telling you, one, about the severity of the disease and the impact of the disease but also the different manifestations and how our end point fits into the manifestations of the disease.

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Joseph Patrick Schwartz, Leerink Partners LLC, Research Division - MD, Biotechnology [7]

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Okay, great. And then my next question is on AMITIZA in a pediatric functional constipation indication. I was wondering if you had a sense of whether the FDA is expecting to hold an advisory committee for this potentially broadened label. And I did notice that you filed for patients 10 to 17, but that priority review was granted for 6 to 17. So any color that you can provide on those features?

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Peter S. Greenleaf, Sucampo Pharmaceuticals, Inc. - Chairman & CEO [8]

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First -- thanks, Joe. First and foremost, we have ended January time frame 2018 PDUFA date on this, so we look forward to hearing from the FDA on how they see the package that we filed. We have not been communicated to as to whether they would have an AdCom on this, but -- and historically, they've not, but we can always predict that. I'll ask Dr. Kiener to give any more color. But at this stage, it's not been something that's been discussed by the agency to us. And then on the specific difference between the age in the population, I'll just ask maybe Dr. Kiener to address that.

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Peter A. Kiener, Sucampo Pharmaceuticals, Inc. - Chief Science Officer [9]

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So Joe, you're right on thinking of that. The study was done for 6 to 17, so the FDA gives the priority review of what the study was done for. If you remember, when we looked at the data, we thought we had the most relevant activity in the slightly older kids, 10 to 17. So when we submitted the sNDA to the FDA, we analyzed all the different populations and requested that they look very closely at the 10 to 17 age group. But clearly, because the package covers all, the whole package gets priority review where ultimately, the age range that the FDA decide if we have shown an update to hopefully give us approval, that would be a subject of the discussion of review. But that explains to you the 2 different age ranges that you were talking about. One is our interpretation where we thought the drug worked best. The second is because that -- the whole study which gets the priority review was 6 to 17.

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Operator [10]

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(Operator Instructions) Our next question comes from the line of Michael Higgins from Roth Capital Partners.

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Michael Higgins, [11]

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On past quarters, and I think the most recent one included, we've talked a bit about Trulance's impact on managed care decisions, and it seems that you have significantly more confidence (inaudible) later in the year here as well, but your numbers are substantially higher for '17, if you can give us some insight into how you look at 2018 formularies and also your impact on -- your outlook on the impact to pricing as we look forward.

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Peter S. Greenleaf, Sucampo Pharmaceuticals, Inc. - Chairman & CEO [12]

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Thanks, Michael. So as we've said, historically, we believe that the entire constipation space, and we think the entire competitive set is aligned in this view is really ripe for growth because the patient unmet medical need, the demand for patients for novel products that have been more broadly studied and have greater efficacy and tolerability is there. The majority of this market is currently served by more generic and branded generic products out there that, at least in our view, have not been studied to the level of the novels out there. So just by converting those products to novels, there's plenty of room for multiple competitors to grow. Now that being said, having novel competitors launching in the space obviously increases competitiveness, and obviously managed care discussions happen each year annually. Michael, I guess to answer your question, we're not giving any 2018 direct guidance that I can tell you. Because as you know, many of those contracts for 2018 are negotiated in 2017. And our conversations with our partners at Takeda, they feel very good about our competitiveness in 2018. No specifics on pricing and discounting at this stage of the game, but also know watch out to say we feel that '18 is going to be problematic for us on the managed care front. We feel like we're going to continue to hold a strong position. As for pricing in the market space, we don't usually make that decision, or a partner doesn't usually make that decision until late 2017, early 2018. And we don't have any new information or guidance to give you there.

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Michael Higgins, [13]

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Okay, appreciate that. Regarding the sprinkle formulation, just wanted to tease out further comments if I could as to your outlook for working on another formulation if that's in your interest with your partner or when we may see some updates on that.

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Peter S. Greenleaf, Sucampo Pharmaceuticals, Inc. - Chairman & CEO [14]

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I'll start and, I guess, just ask Peter Kiener to join me in this. First off, we have to have a conversation with the FDA about what we saw with the sprinkle formulation and to refresh memories, while we saw efficacy with the sprinkle formulation, we did not meet our hurdle setup in the trial to show equivalence. And because of that, most likely we will not move forward with development of a sprinkle formulation. That being said, we have to talk to the agency about it and see if they have a difference in opinion and what they think of the data, et cetera. And to say we definitively know at this stage what's going to happen with the sprinkle formulation is probably a little bit early, but it is our -- I guess strategically as we think about it, it's probably most likely something we are not going to move forward with or would recommend not moving forward with as a company. Peter, what would you add?

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Peter A. Kiener, Sucampo Pharmaceuticals, Inc. - Chief Science Officer [15]

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I think Michael, we'll get actually more clarity, one, after our PDUFA date when we understand how the FDA feels about the current capsules in the kids 6 to 17 and then the potential even of going below 6 with the capsules and then what might be needed for an alternate formulation. We really can't have those discussions until we understand how the FDA is thinking about the current submission that they have in their hands. And so as Peter said, we will be having further discussions with them but don't expect those discussions to happen until after our PDUFA date.

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Michael Higgins, [16]

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And just one more, and I'll keep it on AMITIZA for now, how might you expect the marketing strategy to change with the younger age group coming online?

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Peter S. Greenleaf, Sucampo Pharmaceuticals, Inc. - Chairman & CEO [17]

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That's a great question, Michael. We're in those conversations right now with Takeda. I think we got to see where the agency comes out on this, but we fully expect them to capitalize on the opportunity, with the only caveat being that obviously, the product spend on the market now for north of a dozen years, and I think they'll have the right balance of opportunistic growth alongside of the product that's very well known in the general practitioner space in the gastroenterologist office but now trying to expand that message to pediatricians and [PDGIs], so more to come. I guess, the way I'd like to make sure, at least our investors here, the answer here is we're working with Takeda on it. But let's just make sure to remind ourselves that the product [expand] even with the opportunity has been on the market for quite a few years, and there needs to be the balance of investment relative to growth. We'll tell you more once we see if we are lucky enough to be able to get the opportunity of a labeled indication here or how the FDA treats it and then from there, think about the commercialization.

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Operator [18]

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Thank you. And at this time, I'm not showing any further questions. I would like to turn the call back over to Peter Greenleaf.

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Peter S. Greenleaf, Sucampo Pharmaceuticals, Inc. - Chairman & CEO [19]

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I want to thank everybody for joining us this morning. It's an exciting next 12 to 18 months in terms of our clinical pipeline, and our business progress in the third quarter of 2017 has exceeded our expectations to this point. We look forward to talking to investors both at our Analyst Day upcoming and at our next quarterly call. Thank you very much for your time and have a great day.

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Operator [20]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.