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Edited Transcript of SCMP earnings conference call or presentation 3-May-17 12:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 Sucampo Pharmaceuticals Inc Earnings Call

Bethesda May 19, 2017 (Thomson StreetEvents) -- Edited Transcript of Sucampo Pharmaceuticals Inc earnings conference call or presentation Wednesday, May 3, 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 and CEO

* Silvia Taylor

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

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Conference Call Participants

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* Ami Fadia

UBS Investment Bank, Research Division - Director and Equity Research Analyst

* Mi Zhou

Maxim Group LLC, Research Division - Associate

* Michael John Higgins

Roth Capital Partners, LLC, Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to Sucampo's First 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 today. The earnings release and its attachments announcing Sucampo's first quarter 2017 financial and operational highlights was distributed this morning. For those of you who have not yet seen it, you will find it 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. These are also posted in the same section of our website. We plan to file our 10-Q later today and, once filed, a link to that document will also be posted on our website.

Joining me for the call today 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, May 3, 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, inventory step-up adjustment, R&D intangible asset impairment, one-time severance payments, restructuring costs, acquisition-related expenses, amortization of debt financing cost, debt extinguishment, R&D license option expense, foreign currency translation and the tax impact of these adjustments.

EBITDA reflects net income, excluding the impact of provision for income taxes, interest expense, interest income, depreciation, R&D, intangible asset impairment, amortization of acquired intangibles and inventory step-up adjustment.

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, onetime severance payments, acquisition-related expenses, debt extinguishment, R&D license option, and foreign currency translation.

Free cash flow reflects net cash provided by operating activities less expenditures made for property and equipment. These costs are detailed in today's earnings press release.

Now I will turn the call over to Peter Greenleaf. Peter, please go ahead.

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

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Thank you, Silvia, and welcome, everyone. We're pleased to be with you this morning. We've had an incredibly busy and productive start to 2017 highlighted by our recent acquisition of Vtesse, which adds to our focus on specialized areas of high unmet medical need and contributes to our goal of building an increasingly diversified global biopharmaceutical company.

We also delivered strong financial performance for the quarter with $56.3 million in total revenue, an increase of 19% over the first quarter last year; $13 million in adjusted net income, an increase of 33% year-over-year; $28 million in adjusted EBITDA, an increase of 38% year-over-year; and $244 million in cash and cash equivalents compared to $199 million at December 31, 2016.

As we hosted a call only a few weeks ago to discuss the acquisition of Vtesse, the agenda for today's call will be just a brief review of the acquisition, an overview of the performance of AMITIZA, an update of our pipeline, and then a review of our first quarter financials. So let's get to it.

In April, we acquired -- in April this year, we acquired Vtesse, a patient-focused, rare disease company, with a late-stage orphan disease drug candidate, VTS-270, which is in a pivotal trial for Niemann-Pick Disease Type C1, or NPC-1. NPC-1 is an ultra-rare and fatal pediatric disease, usually diagnosed in the early childhood years, that is caused by defects in lipid transformation within the cells of the body.

There are no approved treatment options in the U.S., so VTS-270 has the potential to make an extreme difference on the lives of patients suffering with Niemann-Pick Disease Type C1 as well as their families and the physicians who care for them every day. The product has been granted orphan drug designation in both the U.S. and Europe. And in the U.S., it has also been granted a breakthrough therapy designation.

This acquisition builds on Sucampo's capabilities, global clinical development expertise and our focus on specialized areas of high unmet medical need, specifically, orphan and pediatric diseases. It's also an excellent strategic fit for Sucampo as it's complementary to our partner program with Cancer Prevention Pharmaceuticals in Familial Adeneomatous Polyposis, or FAP, which is also an orphan disease most often first diagnosed in pediatric patients.

It's also complementary to our development program in pediatric functional constipation with our lead asset, AMITIZA. Sucampo has the capabilities and resources to accelerate the global development, registration and reimbursement of VTS-270 and to successfully commercialize the product. We believe that this acquisition of Vtesse not only has the potential to make a difference in the lives of patients and the greater NPC community but to also create great value for shareholders.

Integration activities for Vtesse are progressing at a very brisk pace, and I'm extremely pleased with our progress to date. We continue to expect the transaction to be accretive to earnings beginning in 2019 when we expect the approval of VTS-270 and the commencement of our commercialization activities. Dr. Peter Kiener will provide some additional detail on VTS-270 in his remarks.

Now I'd like to discuss the first quarter financial and operational results. We saw continued strength in the AMITIZA franchise, which led to our strong year-over-year revenue growth to $56.3 million. Starting with the U.S. market, in the first quarter, Takeda reported that U.S. net sales of AMITIZA for royalty calculation purposes increased 12% year-over-year to $102.4 million. This growth was driven by a combination of both increased volume and pricing. Royalty revenue for Takeda also grew 12% to $18.4 million. In addition to this royalty revenue, we had $11.3 million of U.S. AMITIZA -- of AMITIZA product sales to Takeda, bringing total U.S. revenue to $29.7 million.

Total AMITIZA prescriptions for the first quarter of the year were approximately 381,000 as reported by IMS. This was an increase of 5% compared to the first quarter of last year. We believe some of the increase in the first quarter can be attributed to regaining the CVS Caremark commercial business, as AMITIZA was removed from their exclusion list as of January 1 of this calendar year.

With AMITIZA's more than 12 years on the market as a safe and efficacious treatment for multiple forms of constipation, Takeda continues to provide strong marketing and promotional support to ensure that AMITIZA remains competitive as the only brand with 3 indications and a unique mechanism of action.

Turning next to Japan. We're pleased that the region continues to be a major driver of AMITIZA's global revenue growth. Reported revenue from AMITIZA's sales to Mylan increased 38% to $20 million for the quarter compared to $14.5 million in the prior year period. This increase was driven by strong volume growth of 34% year-over-year.

And AMITIZA continues to grow in this key market as patient demand remains strong for an effective branded constipation treatment. I could say, 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 the year.

Additionally, we remain confident in the guidance we provided at the time of the Vtesse acquisition. As a reminder, for 2017, we expect total revenue of $220 million to $230 million; adjusted net income of $56 million to $66 million; adjusted EBITDA of $109 million to $119 million; adjusted EPS of $1 to $1.10; and finally, free cash flow of $86 million to $96 million. Peter Pfreundschuh will go through the more -- into more detail on our financial results shortly.

So before handing the call over to Dr. Peter Kiener to review our pipeline progress, I'd like to provide a brief update on the Paragraph IV certification notice letter we received in March from Amneal Pharmaceuticals relating to patents covering our 8-microgram and 24-microgram soft gel capsule lubiprostone products that are marketed by our partner, Takeda, under the trademark AMITIZA.

On April 13, we filed a patent infringement lawsuit against Amneal in the U.S. district court -- of the district of New Jersey. The filing of this lawsuit automatically triggers a stay of the approval of the Amneal ANDA by the FDA for 30 months or the entry of a district court decision finding the patents invalid or not infringed, if that should occur earlier, of course.

As you may recall, we've gone through this process a few times already versus Par Pharmaceuticals and, more recently, with Dr. Reddy's Laboratories. We're at the very early stages of this litigation with Amneal and, as said in the past, we intend to vigorously enforce our intellectual property.

With that, I'd like to now turn the call over to Dr. Peter Kiener for the R&D 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. I'd like to begin this morning by talking about VTS-270. In the treatment of NPC-1 disease, VTS-270 has a mechanism and route of administration that directly addresses the disease's debilitating neurological manifestations which, in turn, give rise to the most common causes of fatality in the children.

The product is a highly purified complex mixture of 2-hydroxypropyl-beta-cyclodextrins with a specific compositional fingerprint that targets the aberrant intracellular transport of both cholesterol and single lipids in NPC-1. As we detailed in our last call, the preclinical and early clinical data have shown very encouraging results. Recently, additional data for VTS-270 have been published in the peer-reviewed journal, PLOS ONE. These add further to the scientific rationale for the drug to be used in the treatment of NPC-1.

We believe this study is important because the results support the specific compositional fingerprint and purity of VTS-270 that may distinguish it from other mixtures of hydroxypropyl-beta-cyclodextrins. The defined and reproducible fingerprint of VTS-270 is likely linked to its potential safety and clinical efficacy. As such, these results will be part of the data in our regulatory filings and are important to further the scientific community's understanding of the therapeutic.

VTS-270 is currently in a single global pivotal Phase 2/3 trial in 7 countries. Importantly, the FDA and the EMA have both stated that a single pivotal trial will be sufficient for review and potential approval. The trial, which is divided into 3 phases, has been fully enrolled.

All the patients in the previous Phase 1/2a study who rolled over into this study are currently more than 36 months into the open-label extension portion of the study, which is the third and final phase. Top line pivotal data are expected in mid-2018, with approval anticipated in the first half of 2019.

As we stated in our call earlier this month, we are working on additional product innovations, including evaluation of new delivery methods, potential new formulations and further evolution of the treatment. We believe these will provide increasingly effective therapy of this devastating disease as well as generate new intellectual property.

One such effort in this is the delivery of the drug through a device to be implanted in the patients that will be a port through which to dose VTS-270, rather than as currently administered by lumbar puncture. The potential benefits for such a device are that it would eliminate the need for sedation for administration of the drug and then would also obviate the need for bi-weekly lumbar punctures. Instead, health care professionals could administer VTS-270 to patients comfortably and easily via the port without an invasive procedure.

In the second half of this year, we plan to begin a study in Europe that will test the safety and tolerability of this device, and this will be followed by a study in the U.S. in 2018.

Before I move on from VTS-270, I'd also like to note that we have current patent applications as well as new patent opportunities that we're working to develop that we believe could extend exclusivity of VTS-270 through 2036.

Next, I want to move on to our collaboration with Cancer Prevention Pharmaceuticals, or CPP. Just to remind you, we have an exclusive option for North America for CPP-1X/sulindac, a combination product which has been granted orphan drug status and that is in Phase 3 development for FAP. The ongoing Phase 3 study is a 150-patient, 3-arm, double-blind, randomized trial of the combination agent, that is sulindac and eflornithine, compared to the single agents. Enrollment in the study has been completed, and the FAP-related events are progressing.

I want to remind you that this trial is event-driven; specifically the primary endpoint is time to FAP-related events. As we have previously reported, CPP remains on track to complete the futility analysis of the trial, which is triggered by reaching 50% of the total number of events by the middle of this year. We expect to reach the full number of events in the second half of 2018. This will be followed by the assessment of the topline pivotal data, with an approval anticipated in 2019.

Finally, with regard to the life cycle management programs for AMITIZA, using the current formulation in children 6 to 17 years of age, we expect to file a supplementary NDA in the second half of this year, with potential approval in the first half of 2018. As we have previously discussed, the clinical development of a sprinkle formulation of lubiprostone was initiated in December of last year.

An initial healthy volunteer comparative pharmacokinetics, food effect and bioavailability studies was completed in the first quarter of this year, with results that enabled us to move forward into the randomized placebo-controlled bioequivalence study that compares the sprinkle and capsule formulations in adult CIC patients. We expect to have these topline Phase 3 results in the second half of this year, and we remain on track for filing the supplementary NDA for this alternate sprinkle formulation of AMITIZA in adults in the second half of this year.

Finally, we expect the Phase 3 study of the sprinkle formulation in the children aged 6 months through 5 years of age will begin in the first half of 2018, but this is pending on further interactions with the FDA on the final design of the study. I will now turn this call over to Peter Pfreundschuh to detail the financial results for the first quarter of 2017. 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 first quarter results in our press release today, and I'd like to go over some of the highlights with you this morning.

For the 3 months ended March 31, 2017, we reported revenue of $56.3 million, which represents year-over-year growth of 19%. Product sales increased 28% to $34.2 million due to continued growth in both the U.S. and Japan. Product royalty revenue associated with AMITIZA increased 12% to $18.4 million due to an increase in AMITIZA net sales reported by Takeda. This was primarily driven by a mix of product price and volume increases.

In addition, RESCULA sales in Japan for the quarter were $2.6 million. On a GAAP basis, we reported net income of $4.6 million and diluted EPS of $0.10 per share during the first quarter versus a net loss of $4.1 million and diluted loss per share of $0.10 from the prior period.

We reported adjusted net income of $13 million and adjusted diluted EPS of $0.23 per share for the first quarter of 2017. This is compared to adjusted net income of $9.8 million and diluted EPS of $0.23 per share for the same period in 2016. EBITDA was $18 million for the first quarter of 2017 as compared to EBITDA of $14.3 million for the same period in 2016, an increase of 26%. Adjusted EBITDA increased 38% to $28 million for the first quarter as compared to $20.2 million for the same period in 2016.

As previously mentioned, adjusted net income, adjusted EPS, adjusted EBITDA, adjust for specific items of cash and noncash nature. These are defined in our earnings release.

Gross margin, calculated as product sales revenue less cost of goods sold as a percentage of product sales revenue, was 51% for the first quarter of 2017 as compared to 12% for the same period in 2016. The increase was primarily due to the inclusion of inventory step-up costs in the first quarter of 2016 and increased AMITIZA sales in Japan. Excluding intangible asset amortization and release of inventory step-up and onetime milestones, gross margin on product sales was 70%, which was an increase of 2% year-over-year.

Research and development, general and administrative, selling and marketing expenses were a total of $28.5 million for the quarter as compared to $24.4 million for the first quarter of 2016. The increase of 17% was primarily due to the Vtesse transaction, partially offset by discontinuation of cobiprostone development and RTU legacy programs and nonrecurring CPP option costs in 2016.

The effective tax rate based on GAAP net income for the first quarter of 2017 was 44%. This compares to 43% for the same period in 2016. The increase was primarily due to a shift in product mix to higher tax jurisdictions, offset by discretionary items related to foreign currency fluctuations related to tax liabilities associated with the RTU acquisition. We anticipate more normalized rate in 2017 in the range of 34% to 38% on full year basis.

Moving to the balance sheet. As of March 31, 2017, our cash, cash equivalents and restricted cash was $243.7 million as compared to $198.5 million as of December 31, 2016. The increase in cash is primarily due to the increase in earnings period-over-period coupled with the settlement of trade accounts receivable from year-end. Notes payable at the end of the quarter were $291 million, all of which is reflected as long-term. This compares to $290.5 million as of December 31, 2016.

The net debt position of the company as of March 31, 2017, was $47.3 million as compared to $92 million at the end of 2016. The company reiterates its guidance and expects to generate between $86 million and $96 million of free cash flow for 2017. And we anticipate having approximately $110 million in cash and cash equivalents on hand at the end of this year.

Before I conclude my remarks, I want to let you know that we expect to account for the Vtesse transaction as an asset acquisition under the new accounting guidance ASU 2017-01. This means that we expect to incur an in-process research and development charge of $180 million to $200 million and no related current tax benefit in the second quarter of this year. With that, I'm going to turn back the call to Peter Greenleaf for concluding remarks.

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

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Well, thank you, Peter. And as I noted in our last call, our focus from now until the end of the year remains to deliver the following: first, to continue to deliver strong financial performance as a company; we'll also continue to accelerate our priority-critical programs which are, of course, the pivotal VTS-270 program, in addition to AMITIZA life cycle management and our partnership with Cancer Prevention Pharmaceuticals; and finally, we'll 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 this morning, and I look forward to taking your questions. I'll now turn the call 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 will come from the line of Jason Kolbert with Maxim Group.

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Mi Zhou, Maxim Group LLC, Research Division - Associate [2]

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It's Gabrielle Zhou for Jason. So I do have one on VTS-270. There has been some really interesting data coming out of the NIH around the gene therapy approach to Niemann-Pick Disease. But in published research, they discussed the potential to maximize therapeutic benefits of combination approaches with VTS-270. So are you looking at using the drug candidate as a monotherapy initially? And are you thinking about combination approaches?

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

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Just to make sure we got the question right, I'll just reiterate, and then I'll pass it to Peter Kiener. The question was on the NIH doing other therapies, such as gene therapies, and how do we potentially see the cyclodextrin product that we're working on, VTS-270, being used today or in the future in combination with other types of approaches. So Peter, do you want to maybe just give a little forward look on that?

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

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Sure. Our initial focus is to move this drug registration and approval in as a single monotherapy. Obviously, we are also looking further down the line and, in fact, we are working -- have been and we will continue to work with the NIH to look at potential add-on therapies or combination therapies, as you have suggested, to improve all symptoms not just neurological symptoms of this disease. So to summarize, the initial is focus on monotherapy but absolutely be very open and collaborative, particularly with the NIH, of enhancing treatment for these kids.

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Operator [5]

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Our next question will come from the line of Ami Fadia with UBS.

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Ami Fadia, UBS Investment Bank, Research Division - Director and Equity Research Analyst [6]

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I had a question on the VTS primary endpoints for the Phase 3 that's ongoing. You'd indicated during your last call that it consists of 2 co-primary endpoints. The second -- one is just a composite endpoint, measuring a couple of the parameters that were studied in a previous study. And then the second was the physician global score. Could you give us a little bit more color on what parameters or data points will be assessed in that physician global score, and if you have any previous data on this product from there?

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Peter A. Kiener, Sucampo Pharmaceuticals, Inc. - Chief Science Officer [7]

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This is Peter Kiener, Ami. I think what we said last time is that what the -- the primary endpoint is definitely going to include the NPS score, but there is under discussion of whether the physician global score is going to be an elevated secondary primary endpoint or a co-primary endpoint. And we are still in those discussions with the FDA.

And I don't want to direct them in any other way because, at the moment, it is not a co-primary endpoint, it's under discussion, and then what that needs to include is under discussion. Obviously, in the Phase 1/2 trial, which will be coming out in publication in a couple of months, there was a physician score. But I don't want to go further down this because I don't want to influence potential discussions with the FDA.

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Ami Fadia, UBS Investment Bank, Research Division - Director and Equity Research Analyst [8]

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Got it. Just to follow-up on this, and I'll get back in the queue. When do you think you would have the conversations with the FDA around what the final primary and/or the co-primary endpoints would be for this study?

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

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Those discussions are -- as you know, we have breakthrough therapy, so we have very frequent and ongoing discussions. So I expect that we'll be moving along that -- along the pathway for finalization on that in the next few months.

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Operator [10]

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Our next question will come from the line of Michael Higgins with Roth Capital Partners.

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Michael John Higgins, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [11]

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Thanks for the recaps on 270 and CPP. A couple questions on AMITIZA then a financial question. First, on AMITIZA, any feedback you're hearing from the field regarding the impact of Trulance on AMITIZA so far?

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

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Yes, while I think it's still early in script trends, we've been tracking script trends for Trulance. I think it's still too early to really assess what the impact will be. At this stage, the impact has been minimal because they're in the early stages of launch and scripts are at a low rate right now.

As we've said historically, we believe that there is ample opportunity for all products to grow in this market just through conversion of patients on the OTC side. And where the majority of prescriptions are still coming from in the U.S., which is from branded and -- or branded generics and generic products, many of which are not currently indicated for product utilization.

So we still think there's huge opportunity for many to compete in this space. Script trends have been light so far. It's still very early. They're still working on payer coverage, which we understand to be light right now for Trulance. And our data would say that it's somewhat underperforming relative to LINZESS' growth trajectory in the market today. So our script trends, obviously, 5% -- through the year is right where we want to be, so no, we don't think it's impacted us so far to date.

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Michael John Higgins, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [13]

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So it sounds like you're still on track for an FDA meeting in July with potential approval in kids. You talked a bit in the past about the differences in kids versus adults in terms of their reaction to having constipation. Can you give us a little more insight as to what endpoints you're proposing to the FDA?

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

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Yes. So I'm going to ask Peter to join me on this one. But remember that we're on a parallel path with 2 -- well, multiple objectives, but 2 high-level objectives with the agency. One is to review the data package that we have from the trial with the capsule in the larger -- in the higher age-range of kids, 6 years to 17 years of age, which we concluded on in the third quarter of 2016. I think that's the right time, when we announced it.

The second is to use that information and that dialogue to better understand how we evolve our next trial which is, of course, the trial in a new formulation, a sprinkle-like formulation that would act almost like a liquid for the lower-age range of kids. And we are on target for some time in the middle part of the year to have that dialogue with the agency.

Our expected outcomes, hard to tell at this stage. I think what we're trying to do is get feedback on the data package that we have for the previous trial and then also get feedback on the -- how we structure the approach moving forward for the new formulation. Peter, what would you add?

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

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Yes, so that's exactly right. Just to remind you, Michael, that the end -- primary endpoint that was in the study we did on these kids was actually the adult endpoint, which is responsiveness 9 weeks out of 12. And both the KOLs and in discussions with the FDA, it's not clear that, that is appropriate for the kids or is appropriate as the sole endpoint for the kids.

And so the discussions with the FDA have been what is it that makes a clinical significant -- a difference to these kids upon treatment with the AMITIZA. And we had very productive discussions with the FDA a few weeks ago. And their response was let's look at the entirety of the data, including the extension trial. And they agreed to -- as Peter said, agreed to have a discussion when we have the entirety of the data, both efficacy and safety that will allow us to guide the sprinkle formulation and then also decide what the label or indication may come out of the capsule trial.

So it's clear, everyone understands that the adult endpoint is not appropriate for the kids. The -- what is the meaning of clinical significance more broadly is still under discussion with the FDA.

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Michael John Higgins, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [16]

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Okay. That's very helpful. And then my last on the financial. Noticed the higher G&A in Q1 may be attributed to the Vtesse acquisition. Can you give us further granularity as to what the Q1 costs were for the acquisition?

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

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Yeah. I'll ask Peter -- well, I don't know if we're going to get into line item detail on the cost of the acquisition, but it is in there. I'm not sure we break it out in our reported financials. Maybe Peter can give a little more color on the mix that's there so you can understand a little bit around the magnitude.

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Peter P. Pfreundschuh, Sucampo Pharmaceuticals, Inc. - CFO [18]

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Okay. It's a little bit of a mix change when you compare it year-on-year. Clearly, there's a Viking-related -- or Vtesse-related aspect to the equation, which is a big significant piece for the first quarter of 2017. But that is offset, as I noted earlier, when we were talking about the inventory step-up cost which was approximately $9 million in the previous period; and then we did have additional cost in the previous year, quarter-on-quarter period, related to the option of CPP.

So I think those were disclosed at year-end to be around $3 million. So it gives you some kind of context. Overall, if you look at it quarter-on-quarter, we were at $47.7 million last year, first quarter 2016. We're at $45.4 million. So we're actually down by about $2.2 million. So it gives you a little bit of context.

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Operator [19]

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We have a follow-up question from the line of Ami Fadia with UBS.

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Ami Fadia, UBS Investment Bank, Research Division - Director and Equity Research Analyst [20]

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I just had a follow-up on the CPP-1X. I know we're waiting for the events. Is there any color you can provide us around timing? Do you see this getting extended beyond the middle of the year at this point?

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Peter A. Kiener, Sucampo Pharmaceuticals, Inc. - Chief Science Officer [21]

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I think middle of the year is very accurate, as we've reported.

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Ami Fadia, UBS Investment Bank, Research Division - Director and Equity Research Analyst [22]

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Okay. And then just a follow-up on AMITIZA Japan. When do we next hear about any color with respect to pricing in Japan? If you could give us any sort of a timeline around that and your expectation at this point.

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Peter S. Greenleaf, Sucampo Pharmaceuticals, Inc. - Chairman and CEO [23]

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Yes. I mean we, as we've said previously, think that pricing in Japan is going to come into play in 2018, probably sometime in the first half of the year. We're still kind of ranging in on target as to what that number might look like. Hard to tell until we get there. And as we've said previously, it's sort of -- it's a little bit of a mixed bag depending on the product and the circumstance. We would hope to give, as we do, as we have annually, give color on 2018 more specifically when we report 3Q earnings for 2017.

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Operator [24]

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And I'm showing no further questions at this time. So now it is my pleasure to hand the conference over to Mr. Peter Greenleaf for closing comments and remarks. Sir?

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Peter S. Greenleaf, Sucampo Pharmaceuticals, Inc. - Chairman and CEO [25]

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I want to thank everybody for joining us today. We wish you a great rest of your week. Bye.

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Operator [26]

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Ladies and gentlemen, thank you for your participation on today's conference. This does conclude the program, and you may all disconnect. Everybody have a wonderful day.