Item 1.
Financial Statements
SUCAMPO PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
|
|
March 31,
2016
(unaudited)
|
|
December 31,
2015
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
130,077
|
|
|
$
|
108,284
|
|
Product royalties receivable
|
|
|
16,501
|
|
|
|
22,792
|
|
Accounts receivable, net
|
|
|
16,074
|
|
|
|
22,759
|
|
Restricted cash
|
|
|
26,944
|
|
|
|
55,218
|
|
Inventories
|
|
|
24,437
|
|
|
|
33,121
|
|
Prepaid expenses and other current assets
|
|
|
14,097
|
|
|
|
9,186
|
|
Total current assets
|
|
|
228,130
|
|
|
|
251,360
|
|
Property and equipment, net
|
|
|
6,944
|
|
|
|
6,393
|
|
Intangible assets
|
|
|
133,599
|
|
|
|
130,315
|
|
Goodwill
|
|
|
65,787
|
|
|
|
60,937
|
|
In-process research and development
|
|
|
6,614
|
|
|
|
6,171
|
|
Deferred charge, non-current
|
|
|
1,400
|
|
|
|
1,400
|
|
Convertible note receivable
|
|
|
5,000
|
|
|
|
-
|
|
Other assets
|
|
|
736
|
|
|
|
605
|
|
Total assets
|
|
$
|
448,210
|
|
|
$
|
457,181
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,135
|
|
|
$
|
11,213
|
|
Accrued expenses
|
|
|
13,689
|
|
|
|
10,886
|
|
Collaboration obligation
|
|
|
5,197
|
|
|
|
5,623
|
|
Income tax payable
|
|
|
3,468
|
|
|
|
6,507
|
|
Notes payable, current
|
|
|
27,839
|
|
|
|
39,083
|
|
Other current liabilities
|
|
|
7,097
|
|
|
|
14,815
|
|
Total current liabilities
|
|
|
62,425
|
|
|
|
88,127
|
|
Notes payable, non-current
|
|
|
207,862
|
|
|
|
213,277
|
|
Deferred revenue, non-current
|
|
|
941
|
|
|
|
1,088
|
|
Deferred tax liability, net
|
|
|
59,188
|
|
|
|
52,497
|
|
Other liabilities
|
|
|
16,951
|
|
|
|
15,743
|
|
Total liabilities
|
|
|
347,367
|
|
|
|
370,732
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
(note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 5,000,000 shares authorized at March 31, 2016 and December 31, 2015; no shares issued and outstanding at March 31, 2016 and December 31, 2015
|
|
|
-
|
|
|
|
-
|
|
Class A common stock, $0.01 par value; 270,000,000 shares authorized at March 31, 2016 and December 31, 2015; 45,640,318 and 45,509,150 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively
|
|
|
456
|
|
|
|
455
|
|
Class B common stock, $0.01 par value; 75,000,000 shares authorized at March 31, 2016 and December 31, 2015; no shares issued and outstanding at March 31, 2016 and December 31, 2015
|
|
|
-
|
|
|
|
-
|
|
Additional paid-in capital
|
|
|
102,115
|
|
|
|
99,212
|
|
Accumulated other comprehensive income
|
|
|
28,959
|
|
|
|
13,412
|
|
Treasury stock, at cost; 3,009,942 shares at March 31, 2016 and December 31, 2015
|
|
|
(46,269
|
)
|
|
|
(46,269
|
)
|
Retained earnings
|
|
|
15,582
|
|
|
|
19,639
|
|
Total stockholders' equity
|
|
|
100,843
|
|
|
|
86,449
|
|
Total liabilities and stockholders' equity
|
|
$
|
448,210
|
|
|
$
|
457,181
|
|
The accompanying Notes are an integral part of these Condensed Consolidated
Financial Statements.
SUCAMPO PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations and Comprehensive
Income (Loss) (Unaudited)
(In thousands, except per share data)
|
|
Three Months Ended
March 31,
|
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
|
|
|
|
Product royalty revenue
|
|
$
|
16,716
|
|
|
$
|
15,745
|
|
Product sales revenue
|
|
|
26,595
|
|
|
|
11,145
|
|
Research and development revenue
|
|
|
3,430
|
|
|
|
2,345
|
|
Contract and collaboration revenue
|
|
|
467
|
|
|
|
245
|
|
Total revenues
|
|
|
47,208
|
|
|
|
29,480
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Costs of goods sold
|
|
|
23,338
|
|
|
|
6,110
|
|
Research and development
|
|
|
14,671
|
|
|
|
6,793
|
|
General and administrative
|
|
|
8,927
|
|
|
|
6,283
|
|
Selling and marketing
|
|
|
775
|
|
|
|
640
|
|
Total costs and expenses
|
|
|
47,711
|
|
|
|
19,826
|
|
Income (loss) from operations
|
|
|
(503
|
)
|
|
|
9,654
|
|
Non-operating income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
25
|
|
|
|
40
|
|
Interest expense
|
|
|
(6,270
|
)
|
|
|
(276
|
)
|
Other expense, net
|
|
|
(347
|
)
|
|
|
(203
|
)
|
Total non-operating expense, net
|
|
|
(6,592
|
)
|
|
|
(439
|
)
|
Income (loss) before income taxes
|
|
|
(7,095
|
)
|
|
|
9,215
|
|
Income tax benefit (provision)
|
|
|
3,038
|
|
|
|
(2,807
|
)
|
Net income (loss)
|
|
$
|
(4,057
|
)
|
|
$
|
6,408
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.10
|
)
|
|
$
|
0.14
|
|
Diluted
|
|
$
|
(0.10
|
)
|
|
$
|
0.14
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
42,539
|
|
|
|
44,366
|
|
Diluted
|
|
|
42,539
|
|
|
|
45,912
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(4,057
|
)
|
|
$
|
6,408
|
|
Other comprehensive income (expense):
|
|
|
|
|
|
|
|
|
Unrealized loss on pension benefit obligation
|
|
|
(8
|
)
|
|
|
(7
|
)
|
Unrealized gain (loss) on investments, net of tax effect
|
|
|
-
|
|
|
|
(6
|
)
|
Foreign currency translation gain (loss)
|
|
|
15,555
|
|
|
|
175
|
|
Comprehensive income (loss)
|
|
$
|
11,490
|
|
|
$
|
6,570
|
|
The accompanying Notes are an integral part of these Condensed Consolidated
Financial Statements.
SUCAMPO PHARMACEUTICALS, INC.
Condensed Consolidated Statement of Changes in Stockholders’
Equity (Unaudited)
(In thousands, except share data)
|
|
Class A
Common Stock
|
|
Additional
Paid-In
|
|
Accumulated
Other
Comprehensive
|
|
Treasury Stock
|
|
Retained
|
|
Total
Stockholders'
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Income (Loss)
|
|
Shares
|
|
Amount
|
|
Earnings
|
|
Equity
|
Balance at December 31, 2015
|
|
|
45,509,150
|
|
|
$
|
455
|
|
|
$
|
99,212
|
|
|
$
|
13,412
|
|
|
|
3,009,942
|
|
|
$
|
(46,269
|
)
|
|
$
|
19,639
|
|
|
$
|
86,449
|
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
1,971
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,971
|
|
Stock issued under exercise of stock options
|
|
|
124,883
|
|
|
|
1
|
|
|
|
756
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
757
|
|
Stock issued under employee stock purchase plan
|
|
|
6,285
|
|
|
|
-
|
|
|
|
58
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
58
|
|
Windfall tax benefit from stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
118
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
118
|
|
Unrealized loss on pension benefit obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8
|
)
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,555
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,555
|
|
Net income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,057
|
)
|
|
|
(4,057
|
)
|
Balance at March 31, 2016
|
|
|
45,640,318
|
|
|
$
|
456
|
|
|
$
|
102,115
|
|
|
$
|
28,959
|
|
|
|
3,009,942
|
|
|
$
|
(46,269
|
)
|
|
$
|
15,582
|
|
|
$
|
100,843
|
|
The accompanying Notes are an integral part of these Condensed Consolidated
Financial Statements.
SUCAMPO PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(4,057
|
)
|
|
$
|
6,408
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
15,573
|
|
|
|
83
|
|
Deferred tax provision
|
|
|
2,347
|
|
|
|
(114
|
)
|
Deferred charge
|
|
|
-
|
|
|
|
74
|
|
Stock-based compensation
|
|
|
1,971
|
|
|
|
1,069
|
|
Amortization of premiums on investments
|
|
|
-
|
|
|
|
26
|
|
Unrealized currency translations
|
|
|
4,226
|
|
|
|
18
|
|
Shortfall from stock-based compensation
|
|
|
(62
|
)
|
|
|
(68
|
)
|
Windfall benefit from stock-based compensation
|
|
|
(180
|
)
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Product royalties receivable
|
|
|
6,292
|
|
|
|
2,830
|
|
Accounts receivable
|
|
|
8,378
|
|
|
|
(2,707
|
)
|
Unbilled accounts receivable
|
|
|
(1,087
|
)
|
|
|
(112
|
)
|
Inventory
|
|
|
1,774
|
|
|
|
(328
|
)
|
Prepaid and income taxes receivable and payable, net
|
|
|
(3,295
|
)
|
|
|
556
|
|
Accounts payable
|
|
|
(6,266
|
)
|
|
|
(2,727
|
)
|
Accrued expenses
|
|
|
(2,067
|
)
|
|
|
1,200
|
|
Accrued interest payable
|
|
|
4,743
|
|
|
|
275
|
|
Deferred revenue
|
|
|
58
|
|
|
|
(446
|
)
|
Collaboration obligation
|
|
|
(425
|
)
|
|
|
(61
|
)
|
Other assets and liabilities, net
|
|
|
(4,366
|
)
|
|
|
(1,397
|
)
|
Net cash provided by operating activities
|
|
|
23,557
|
|
|
|
4,579
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of investments
|
|
|
-
|
|
|
|
(25,987
|
)
|
Maturities of investments
|
|
|
-
|
|
|
|
5,250
|
|
Convertible note receivable
|
|
|
(5,000
|
)
|
|
|
-
|
|
Changes in restricted cash
|
|
|
10,598
|
|
|
|
-
|
|
Squeeze-out liability for non-tendering R-Tech shareholders
|
|
|
(8,213
|
)
|
|
|
-
|
|
Purchases of property and equipment
|
|
|
(735
|
)
|
|
|
(12
|
)
|
Net cash used in investing activities
|
|
|
(3,350
|
)
|
|
|
(20,749
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments of notes payable
|
|
|
(17,574
|
)
|
|
|
-
|
|
Changes in restricted cash
|
|
|
17,676
|
|
|
|
-
|
|
Proceeds from exercise of stock options
|
|
|
757
|
|
|
|
3,270
|
|
Proceeds from employee stock purchase plan
|
|
|
58
|
|
|
|
11
|
|
Windfall benefit from stock-based compensation
|
|
|
180
|
|
|
|
869
|
|
Net cash provided by financing activities
|
|
|
1,097
|
|
|
|
4,150
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
489
|
|
|
|
37
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
21,793
|
|
|
|
(11,983
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
108,284
|
|
|
|
71,622
|
|
Cash and cash equivalents at end of period
|
|
$
|
130,077
|
|
|
$
|
59,639
|
|
The accompanying Notes are an integral part of these Condensed Consolidated
Financial Statements.
1. Business Organization and Basis of Presentation
Description of the Business
Sucampo Pharmaceuticals, Inc., (Company) is
a global biopharmaceutical company focused on innovative research and development of proprietary drugs to treat gastrointestinal,
ophthalmic, autoimmune
, inflammatory, and oncology disorders.
The Company currently generates revenue mainly
from product royalties, upfront and milestone payments, product sales and reimbursements for development activities. The Company
expects to continue to incur significant expenses for the next several years as the Company continues its research and development
activities, seeks additional regulatory approvals and additional indications for approved products and other compounds and seeks
strategic opportunities for in-licensing new products and product candidates.
AMITIZA
®
(lubiprostone) is being marketed for three gastrointestinal indications under the collaboration and license agreement (as amended
in October 2014, the North America Takeda Agreement) with Takeda Pharmaceutical Company Limited (Takeda). These indications are
chronic idiopathic constipation (CIC) in adults, irritable bowel syndrome with constipation (IBS-C) in adult women and opioid-induced
constipation (OIC) in adults suffering from chronic non-cancer related pain. Under the North America Takeda Agreement, the Company
is primarily responsible for clinical development activities, while Takeda is responsible for commercialization of AMITIZA in the
United States (U.S.) and Canada. The Company and Takeda initiated commercial sales of AMITIZA in the U.S. for the treatment of
CIC in April 2006, for the treatment of IBS-C in May 2008 and for the treatment of OIC in May 2013. Takeda is required to provide
a minimum annual commercial investment during the current term of the North America Takeda Agreement and may reduce the minimum
annual commercial investment when a generic equivalent enters the market. In October 2015, Health Canada approved AMITIZA for CIC
in adults. In October 2014, the Company and Takeda executed amendments to the North America Takeda Agreement which, among other
things, extended the term of the North America Takeda Agreement beyond December 2020. During the extended term beginning in January
2021, Takeda and the Company will split the annual net sales revenue of the branded AMITIZA products. In addition, the North America
Takeda Agreement was amended to, beginning in April 2015, terminate the Company’s right to perform commercialization activities
with respect to AMITIZA and Takeda’s obligation to reimburse the Company for such commercialization activities.
In Japan, AMITIZA
is marketed under a license, commercialization and supply agreement (the Japan Mylan Agreement) that was transferred to Mylan,
Inc. (Mylan) from Abbott Laboratories, Inc. (Abbott), as of February 2015, as part of Mylan’s acquisition of a product portfolio
from Abbott. The Company received approval of its new drug application (NDA) for AMITIZA for the treatment of chronic constipation
(CC), excluding constipation caused by organic diseases, from Japan’s Ministry of Health, Labour and Welfare in June 2012
and pricing approval in November 2012. AMITIZA is Japan’s only prescription medicine for CC. The Company did not experience
any significant changes in the commercialization of AMITIZA in Japan as a result of the transfer of the Japan Mylan Agreement from
Abbott to Mylan.
In May 2015, the Company
entered into an exclusive license, development, commercialization and supply agreement (the China Gloria Agreement) with Harbin
Gloria Pharmaceuticals Co., Ltd. (Gloria), for AMITIZA in the People’s Republic of China. Under the China Gloria Agreement,
Gloria is responsible for all development activities and costs, as well as commercialization and regulatory activities, for AMITIZA
in the People’s Republic of China. The Company will be the exclusive supplier of AMITIZA to Gloria at an agreed upon supply
price. Upon entering into the China Gloria Agreement, the Company received an upfront payment of $1.0 million. In June 2015, the
China Food and Drug Administration accepted an Investigational New Drug (IND) application for a pivotal trial of AMITIZA in patients
with CIC; as a result the Company received an additional payment of $500,000 from Gloria. In addition to the $1.5 million in payments
received and recognized as revenue through June 2015, the Company is eligible to receive an additional payment in the amount of
$1.5 million upon the occurrence of a specified regulatory or commercial milestone event.
In October 2014, the Company entered
into an exclusive license, development, commercialization and supply agreement (the Global Takeda Agreement) for lubiprostone
with Takeda, through which Takeda has the exclusive rights to further develop and commercialize AMITIZA in all global
markets, except the U.S., Canada, Japan and the People’s Republic of China. Takeda became the marketing authorization
holder in Switzerland in April 2015, in the United Kingdom (U.K.), Austria, Belgium, Germany, Ireland and Luxembourg in early
2016, and is expected to become the marketing authorization holder in
Italy, the Netherlands and Spain in the first half of 2016.
Before the execution of the Global Takeda
Agreement, the Company retained full rights to develop and commercialize AMITIZA for the rest of the world’s markets outside
of the U.S., Canada and Japan. In the U.K., the Company received approval in September 2012 from the Medicines and Healthcare
Products Regulatory Agency (MHRA) for the use of AMITIZA to treat CIC. The Company made AMITIZA available in the U.K. in the fourth
quarter of 2013. In 2014, the Company resubmitted an application to the MHRA for approval of the OIC indication following its
initial decision to not approve in March 2014. In January 2016, the Company received notification from the MHRA that the appeal
for the OIC indication was not approved. In July 2014, National Institute of Health and Care Excellence (NICE) published the
technology appraisal guidance recommending the use of AMITIZA in the treatment of CIC and associated symptoms in adults who have
failed laxatives. In January 2015, the Company successfully completed the European mutual recognition procedure (MRP) for AMITIZA
for the treatment of CIC in select European countries, resulting in a recommendation for marketing authorization.
In Switzerland, AMITIZA was approved to treat
CIC in 2009. In 2012, the Company reached an agreement with the Bundesamt fur Gesundheit, (BAG), the Federal Office of Public
Health in Switzerland, on a reimbursement price for AMITIZA in Switzerland, and began active marketing in the first quarter of
2013.
In February 2014, the Company announced that the BAG revised several reimbursement
limitations with which AMITIZA was first approved for reimbursement and inclusion in the Spezialitätenliste (SL) to allow
all Swiss physicians to prescribe AMITIZA to patients who have failed previous treatments with at least two laxatives over a nine
month period. In July 2014, AMITIZA was approved for the treatment of OIC in chronic, non-cancer adult patients by the Swissmedic,
the Swiss Agency for Therapeutic Products.
In October 2015, the Company and Takeda obtained
approval of the clinical trial application (CTA) for AMITIZA for the treatment of CIC and IBS-C in Russia that was submitted in
June 2015. In December 2015, a CTA was filed for AMITIZA for the treatment of CIC, IBS-C and OIC in Mexico and South Korea. The
Company expects Takeda to initiate phase 3 registration trials in Russia, Mexico, and South Korea in the first half of 2016. An
NDA for the treatment of CIC, IBS-C, and OIC was submitted in Kazakhstan in December 2015
.
In the U.S., the Company ceased marketing
RESCULA in the fourth quarter of 2014 and no product was made available after the March 2015 expiration date. In May 2015, the
Company returned all licenses for unoprostone isopropyl to R-Tech. As part of the acquisition of R-Tech in October 2015, the Company
acquired all rights to RESCULA. RESCULA is being commercialized by Santen Pharmaceutical Co., Ltd in Japan, Dong-A Pharmaceutical,
Co., Ltd in South Korea and Zuelliq Pharma Co., Ltd in Taiwan
.
The Company’s other clinical development
programs include the following:
Lubiprostone Alternate Formulation
The Company has been developing an alternate
formulation of lubiprostone for both adult and pediatric patients who are unable to tolerate capsules and for naso-gastric tube
fed patients. Takeda has agreed to fund 100% of the costs, up to a cap, of this alternate formulation work and the Company
expects to initiate a phase 3 trial of the alternate formulation of lubiprostone in the second half of 2016.
Lubiprostone for Pediatric Functional
Constipation
The phase 3 program required to support an
application for marketing approval of lubiprostone for pediatric functional constipation comprises four clinical trials, two of
which are currently ongoing and are both testing the soft gelatin capsule formulation of lubiprostone in patients 6 to 17 years
of age. The first of the two trials is a pivotal 12-week, randomized, placebo-controlled trial which was initiated in December
2013. The second trial is a follow-on, long-term safety extension trial that was initiated in March 2014. Following the successful
completion of the phase 3 trial for the alternative formulation of lubiprostone, which Takeda is funding 100% up to a cap, as described
above, the Company is also planning to initiate two additional trials in its phase 3 program for pediatric functional constipation,
which will be in children aged 6 months to less than 6 years testing the alternative formulation. Takeda has agreed to fund 70%
of the costs, up to a cap, of this pediatric functional constipation program.
Cobiprostone for Oral Mucositis
In May 2015, the U.S.
FDA granted Fast Track Designation for cobiprostone for the prevention of OM. In September 2015, the Company initiated a phase
2a clinical trial in the U.S. of cobiprostone oral spray for the prevention of OM in patients suffering from head and neck cancer
(HNC) receiving concurrent radiation therapy (RT) and chemotherapy (CT).
Cobiprostone for Proton Pump Inhibitor-Refractory
Non-Erosive Reflux Disease (NERD)/symptomatic Gastroesophageal Reflux Disease (sGERD)
In December 2014, the Company initiated a phase
2a clinical trial in Japan for cobiprostone in NERD/sGERD patients who have had a non-satisfactory response to proton pump inhibitors.
In April 2016, the
Company reported that its analysis of the top-line date from this study showed that the trial did not meet its primary endpoints
and, as a result, the Company would discontinue development of cobiprostone for this indication.
VAP-1 Inhibitor for RTU-1096
RTU-1096 is an oral
compound under development for the treatment of diseases such as nonalcoholic steatohepatitis (NASH), chronic obstructive pulmonary
disease (COPD), diabetic macular edema (DME) and diabetic retinopathy (DR) and immune-oncology. In the first quarter of 2016, the
Company completed a phase 1 in healthy individuals that evaluated the safety and pharmacokinetics expects to receive results from
this trial in the first half of 2016. The Company will also look to generate additional preclinical data in the emerging area of
immune-oncology, to support partnership opportunities of combination therapy in cancer patients of our molecules with check-point
pathway inhibitors.
VAP-1 Inhibitor for RTU-009
RTU-009 is a pre-clinical
stage, injectable VAP-1 inhibitor that is planned to be studied in acute cerebral infarction. The Company’s next step would
be to complete IND-enabling studies, and thereafter initiate clinical-stage development.
CPP 1-X/Sulindac Combination Product
In
January 2016,
the Company entered into an option and collaboration agreement under which Cancer Prevention Pharmaceuticals,
Inc. (CPP) has granted the Company the sole option to acquire an exclusive license to commercialize CPP-1X/sulindac combination
product in North America.
This product is currently in a phase 3 clinical trial, which is being conducted
by CPP for the treatment of familial adenomatous polyposis (FAP). Under the agreement with CPP, the Company has the exclusive option
to license this product for North America. There are currently no approved treatments for FAP. The ongoing phase 3 study
is a 150-patient, three-arm, double-blind, randomized trial of the combination agent and the single agent comparators. Enrollment
in the study is expected to be complete in the first half of 2016 and the trial is expected to conclude in 2018. More information
regarding the Company’s arrangement with CPP is set forth in note 19.
Basis of Presentation
The accompanying unaudited
Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the
United States of America (GAAP) and the rules and regulations of the U.S. Securities and Exchange Commission (SEC) for interim
financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial
statements and should be read in conjunction with the Company’s Consolidated Financial Statements as of and for the year
ended December 31, 2015 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on March 11, 2016,
as amended. The financial information as of March 31, 2016 and for the three months ended March 31, 2016 and 2015 is unaudited.
The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required
by GAAP. In the opinion of the Company’s management, all adjustments, consisting only of normal recurring adjustments or
accruals, considered necessary for a fair statement of the results of these interim periods have been included. The results of
the Company’s operations for any interim period are not necessarily indicative of the results that may be expected for any
other interim period or for a full fiscal year.
The Condensed Consolidated
Financial Statements include the accounts of the Company and its wholly owned subsidiaries: Sucampo AG (SAG) based in Zug, Switzerland,
through which the Company conducts certain of its worldwide and European operations; Sucampo Pharma, LLC (SPL) based in Osaka,
Japan, through which the Company conducts its Asian operations; R-Tech Ueno, Ltd., based in Kobe, Japan, through which the Company
conducts manufacturing and certain development operations; Sucampo Pharma Americas LLC (SPA), based in Rockville, Maryland, through
which the Company conducts its North American operations; and Sucampo Pharma Europe, Ltd. (SPE), based in Oxford, United Kingdom.
All inter-company balances and transactions have been eliminated.
The preparation of financial statements in
conformity with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities at the date
of the financial statements, disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
2. Summary of Significant Accounting Policies
Restricted Cash
As
of March 31, 2016, restricted cash consisted primarily of $25.0 million related to the Credit Facility (see note 14).
As
of December 31, 2015, restricted cash consisted primarily of $25.0 million related to the Credit Facility and $17.7 million related
to the payment of the Ueno and Kuno Trust Notes, which were settled on February 1, 2016 (see note 13), and $8.2 million related
to the squeeze out of non-tendering R-Tech shareholders, which was settled in January 2016.
Certain Risks, Concentrations and Uncertainties
Financial instruments
that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents, restricted
cash and receivables. The Company places its cash, cash equivalents and restricted cash with highly rated financial institutions.
As of March 31, 2016 and December 31, 2015, approximately $2.4 million or 1.5%, and $5.9 million or 3.6%, respectively, of the
Company’s cash, cash equivalents, and restricted cash were issued or insured by the United States government or other government
agencies. The Company has not experienced any losses on these accounts related to amounts in excess of insured limits.
Revenues from Takeda,
an unrelated party, accounted for 61.5% and 61.8% of the Company’s total revenues for the three months ended March 31, 2016
and 2015, respectively. Accounts receivable and product royalties receivable from Takeda accounted for 76.1% and 78.1% of the Company’s
total accounts receivable and product royalties receivable at March 31, 2016 and December 31, 2015, respectively. Revenues from
another unrelated party, Mylan, accounted for 30.6% and 37.8% of the Company’s total revenues for the three months ended
March 31, 2016 and 2015, respectively. The Company depends significantly upon collaborations with Takeda and Mylan, and its activities
may be impacted if these relationships are disrupted.
Fair Value of Financial Instruments
The carrying values of the Company’s financial instruments approximate their fair values based on their
short maturities, independent valuations or internal assessments. The Company’s financial instruments include cash and cash
equivalents, restricted cash, current and non-current investments, receivables, accounts payable, convertible notes receivable,
collaboration obligation and accrued expenses. The carrying amounts of the notes payable at March 31, 2016 and 2015 approximated
fair value and are classified as a Level 2 instrument.
Variable Interest Entities
The Company performs
an initial and on-going evaluation of the entities with which it has variable interests, such as equity ownership, in order to
identify entities (i) that do not have sufficient equity investment at risk to permit the entity to finance its activities without
additional subordinated financial support or (ii) in which the equity investors lack an essential characteristic of a controlling
financial interest as variable interest entities (“VIE” or “VIEs”). If an entity is identified as a VIE,
the Company performs an assessment to determine whether the Company has both (i) the power to direct activities that most significantly
impact the VIE’s economic performance and (ii) have the obligation to absorb losses from or the right to receive benefits
of the VIE that could potentially be significant to the VIE. If both of these criteria are satisfied, the Company is identified
as the primary beneficiary of the VIE. As of March 31, 2016, the Company’s investment in CPP, in which we held a variable
interest, was determined to be a VIE. See note 19 for additional information.
Recent Accounting Pronouncements
In
April 2015
, the FASB issued ASU Number 2015-03,
Interest - Imputation
of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
(ASU 2015-03). ASU 2015-03 specifies that
debt issuance costs related
to a note shall be reported in the balance sheet as a direct
reduction from the face amount of the note. ASU 2015-03 is effective for annual reporting periods beginning after December 15,
2015, and interim periods within those fiscal years. ASU 2015-03 had no effect on the Company’s results of operations or
liquidity.
In November 2015, the FASB issued ASU No. 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification
of Deferred Taxes
, (ASU 2015-17). This new guidance requires businesses to classify deferred tax liabilities and assets on
their balance sheets as noncurrent. Under existing accounting, a business must separate deferred income tax liabilities and assets
into current and noncurrent. ASU 2015-17 was issued as a way to simplify the way businesses classify deferred tax liabilities and
assets on their balance sheets. Public companies must apply ASU 2015-17 to fiscal years beginning after December 15, 2016. Companies
must follow the requirements for interim periods within those fiscal years, but early adoption at the beginning of an interim or
annual period is allowed for all entities.
The Company has elected to early adopt the guidance and
applied the guidance on a prospective basis. The adoption has no impact on consolidated statements of operations and comprehensive
income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015.
In January 2016, the
FASB issued Accounting Standards Update 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
,
which requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net
income (other
than those accounted for under equity method of accounting). This guidance is effective for fiscal years,
and interim periods within those
years, beginning after December 15, 2017. The Company is currently assessing the impact
of the adoption of this guidance on its consolidated financial
statements and disclosures.
In February 2016,
the FASB issued Accounting Standards Update 2016-02,
Leases (Topic 842)
in which it provided new guidance related to accounting
for leases. The new standard requires the recognition of assets and liabilities arising from lease transactions on the balance
sheet and the disclosure of key information about leasing arrangements. Accordingly, a lessee will recognize a lease asset for
its right to use the underlying asset and a lease liability for the corresponding lease obligation. Both the asset and liability
will initially be measured at the present value of the future minimum lease payments over the lease term. Subsequent measurement,
including the presentation of expenses and cash flows, will depend on the classification of the lease as either a finance or an
operating lease. Initial costs directly attributable to negotiating and arranging the lease will be included in the asset. For
leases with a term of 12 months or less, a lessee can make an accounting policy election by class of underlying asset to not recognize
an asset and corresponding liability. Lessees will also be required to provide additional qualitative and quantitative disclosures
regarding the amount, timing and uncertainty of cash flows arising from leases. These disclosures are intended to supplement the
amounts recorded in the financial statements and provide additional information about the nature of an organization’s leasing
activities. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those
years, with early adoption permitted. In transition, lessees are required to recognize and measure leases at the beginning of the
earliest period presented using a modified retrospective approach. The transition guidance also provides specific guidance for
sale and leaseback transactions, build-to-suit leases and amounts previously recognized in accordance with the business combinations
guidance for leases. The Company is currently evaluating its expected adoption method and the impact of this new standard on its
consolidated financial statements and disclosures.
In March 2016, the FASB issued Accounting Standards
Update 2016-09,
Improvements to Employee Share Based Payment Accounting
, which requires all of
the tax effects related to share based payments to be recorded through the income statement. The new guidance also removes the
present requirement to delay recognition of a windfall tax benefit until it reduces current taxes payable, instead, it is required
to be recognized at the time of settlement, subject to normal valuation allowance considerations... This guidance is effective
for fiscal years, and interim periods within those
years, beginning after December 15, 2016. The Company is currently assessing
the impact of the adoption of this guidance on its Consolidated Financial
Statements and disclosures.
3. Net Income (Loss) per
Share
Basic net income (loss) per share is computed by dividing net income (loss) by the sum of the weighted average
class A common shares outstanding. Diluted net income per share is computed by dividing net income by the weighted average common
shares and potential dilutive common shares outstanding. Diluted net loss per share is computed by dividing net loss by the weighted
average common shares outstanding without the impact of potential dilutive common shares outstanding because they would have an
anti-dilutive impact on diluted net loss per share.
The computation of net income (loss) per share
for the three months ended March 31, 2016 and 2015 is shown below:
|
|
Three Months Ended
March 31,
|
(In thousands, except per share data)
|
|
2016
|
|
2015
|
Basic net income (loss) per share:
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(4,057
|
)
|
|
$
|
6,408
|
|
Weighted average class
A common shares outstanding
|
|
|
42,539
|
|
|
|
44,366
|
|
Basic
net income (loss) per share
|
|
$
|
(0.10
|
)
|
|
$
|
0.14
|
|
Diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(4,057
|
)
|
|
$
|
6,408
|
|
Weighted average class A common shares outstanding
|
|
|
42,539
|
|
|
|
44,366
|
|
Assumed
exercise of stock options under the treasury stock method
|
|
|
-
|
|
|
|
1,546
|
|
|
|
|
42,539
|
|
|
|
45,912
|
|
Diluted
net income (loss) per share
|
|
$
|
(0.10
|
)
|
|
$
|
0.14
|
|
The following securities were excluded from
the computation of diluted net loss per share as their effect would have been anti-dilutive for the three months ended March 31,
2016 and 2015:
|
|
Three Months Ended March 31,
|
(In thousands)
|
|
2016
|
|
2015
|
Employee stock options
|
|
|
5,537
|
|
|
|
957
|
|
4. Acquisition of R-Tech
On October 20, 2015, the Company acquired approximately 98% of the outstanding shares of R-Tech Ueno, Ltd.,
a Japanese company (R-Tech). The Company acquired the remaining 2% of outstanding shares of R-Tech through a squeeze-out process
under Japanese law on December 8, 2015. The total consideration for the acquisition was 33 billion Japanese Yen, or approximately
$275 million.
This transaction was accounted for under the acquisition method of accounting, with
the Company as the acquirer. Under the acquisition method of accounting, the assets and liabilities of R-Tech were recorded as
of the acquisition date at their respective fair values, and combined with those of the Company.
The purchase price
allocation was based upon preliminary estimates using information that was available to management at the time the financial statements
were prepared. These estimates and assumptions are subject to change within the measurement period, up to one year from the acquisition
date. Accordingly, the allocation may change. The Company continues to gather information about the fair value of all assets and
liabilities, including intangible assets, acquired and deferred tax assets and liabilities. The Company is in the process of finalizing
a valuation appraisal for an acquired building. There have been no material changes to the preliminary purchase price during the
first quarter of 2016. Acquisition related costs are expensed when incurred and are included in general and administrative expenses
in the consolidated statement of operations and comprehensive income.
The following unaudited pro forma information
is presented as if the acquisition had occurred on January 1, 2015, and combines the historical results of operations of the Company
and R-Tech for the three months ended March 31, 2016 and 2015.
|
|
Three months ended March 31,
|
(In thousands)
|
|
2016
|
|
2015
|
Pro forma revenue
|
|
$
|
47,208
|
|
|
$
|
42,916
|
|
Pro forma net loss
|
|
|
(4,057
|
)
|
|
|
(2,346
|
)
|
5. Segment Information
The Company has one operating segment which
is the development and commercialization of pharmaceutical products.
Summarized product category and geographic
information is shown in the tables below.
Product Category Information
Revenues for product categories are attributed
based on the following categories.
Product royalty revenue represents
royalty revenue earned on the net sales of AMITIZA in North America. Product sales revenue represents drug product net sales
of AMITIZA in North America, Japan and Europe and drug product net sales of RESCULA in Japan. Research and development
revenue represents funded development work primarily related to AMITIZA. Contract and collaboration revenue represents the
amortization of up-front payments under the North America Takeda Agreement and release of the collaboration obligation under
the Global Takeda Agreement (see note 15).
Company revenues by product category for the
three months ended March 31, 2016 and 2015 were as follows:
|
|
Three Months Ended March 31,
|
(In thousands)
|
|
2016
|
|
2015
|
Product royalty revenue
|
|
$
|
16,716
|
|
|
$
|
15,745
|
|
Product sales revenue - AMITIZA
|
|
|
23,434
|
|
|
|
11,151
|
|
Product sales revenue - RESCULA
|
|
|
3,161
|
|
|
|
(6
|
)
|
Research and development revenue
|
|
|
3,430
|
|
|
|
2,345
|
|
Contract and collaboration revenue
|
|
|
467
|
|
|
|
245
|
|
Total
|
|
$
|
47,208
|
|
|
$
|
29,480
|
|
Geographical Information
Revenues are attributable to countries based
on the location of the customer. The Company operates a manufacturing facility in Japan that supplies products to customers as
well as the Company’s subsidiaries in other countries. The sales from the manufacturing operations to other countries are
included in the net sales of the country in which the manufacturing location is based. The intersegment portions of such sales
are excluded to derive consolidated revenues. The Company’s country of domicile is the United States.
Company revenues by geographic location for
the three months ended March 31, 2016 and 2015 were as follows:
|
|
Three Months Ended March 31,
|
(In thousands)
|
|
2016
|
|
2015
|
United States
|
|
$
|
28,939
|
|
|
$
|
18,225
|
|
Japan
|
|
|
17,848
|
|
|
|
11,157
|
|
Rest of the world
|
|
|
421
|
|
|
|
98
|
|
Total
|
|
$
|
47,208
|
|
|
$
|
29,480
|
|
The Company’s long-lived assets by geographic
location where located on March 31, 2016 and 2015 were as follows:
(In thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
United States
|
|
$
|
3,238
|
|
|
$
|
3,105
|
|
Japan
|
|
|
3,657
|
|
|
|
3,232
|
|
Rest of the world
|
|
|
49
|
|
|
|
56
|
|
Total
|
|
$
|
6,944
|
|
|
$
|
6,393
|
|
6. Fair Value measurements
The Company performs fair value measurements
in accordance with the Financial Accounting Standards Board’s (FASB) guidance for fair value measurements and disclosures,
which defines fair value as the exchange price that would be received for selling an asset or paid to transfer a liability in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. A fair value hierarchy is established which requires the Company to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. The Company classifies its investments into the following categories based
on the three levels of inputs used to measure fair value:
Level 1
: quoted prices in active markets
for identical assets or liabilities;
Level 2
: inputs other than Level 1 that
are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted
prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can
be corroborated by observable market data for substantially the full term of the assets or liabilities; or
Level 3
: unobservable inputs that are
supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company has elected the fair value option
on its investment in CPP; as such, it is measured at fair value on a recurring basis. As of March 31, 2016, the fair value of
the convertible note is $5.0 million using level 3 inputs (see note 19) provided by a valuation specialist using market level
inputs and assumptions. The Company re-evaluates the fair value on a quarterly basis. Changes in the fair value can result from
adjustments to the market level inputs and assumptions. The election was made upon the acquisition of the financial asset and
cannot be revoked. The changes in fair value are recorded in current earnings within Other Income. As of March 31, 2016, there
were no changes in the fair value of the note recorded in earnings related to the convertible note received from CPP. There were
no other financial instruments measured at fair value on a recurring basis as of March 31, 2016, and no financial instruments
were measured at fair value on a recurring basis as of December 31, 2015.
7. Restructuring
In December 2015, the Company adopted a plan to restructure certain operations and consolidate certain functions
in the Company’s corporate headquarters located in Rockville, Maryland. During the three months ended March 31, 2016, the
Company recorded pretax charges of approximately $183,000. The restructuring plan primarily included headcount reductions. These
costs are reflected within operating expenses between research and development, general and administrative expenses, and selling
and marketing expenses. As of March 31, 2016, a restructuring accrual of $94,000 was included in accrued liabilities. The Company
expects to record additional restructuring charges in 2016 related to this program and in connection with the integration of R-Tech. The restructuring charges incurred under this plan total $1.0 million.
The following table summarizes the cash components
of the restructuring costs at March 31, 2016.
(In thousands)
|
|
Termination
Benefits
|
|
Facility
Related
|
|
Contract &
Other Costs
|
|
Total
|
Balance at December 31, 2015
|
|
$
|
851
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
851
|
|
Expenses incurred
|
|
|
183
|
|
|
|
-
|
|
|
|
-
|
|
|
|
183
|
|
Amounts paid
|
|
|
(940
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(940
|
)
|
Balance at March 31, 2016
|
|
$
|
94
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
94
|
|
8. Inventory
Inventories are stated at the lower of cost
or net realizable value. Inventories consist of raw materials, work-in-process and finished goods. The Company’s inventories
include the direct purchase cost of materials and supplies and manufacturing overhead costs. In connection with the acquisition
of R-Tech, all inventory held by R-Tech was stepped-up in fair value to $37.6 million as of the acquisition date. As of March 31,
2016 and December 31, 2015, the remaining balance of inventory step-up was $6.1 million and $14.3 million, respectively. The remaining
balance of inventory step-up will amortize evenly through costs of goods through May 2016.
Inventory consisted of the following at March
31, 2016 and December 31, 2015:
(In thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
Raw materials
|
|
$
|
1,696
|
|
|
$
|
5,554
|
|
Work in process
|
|
|
21,674
|
|
|
|
26,926
|
|
Finished goods
|
|
|
1,067
|
|
|
|
641
|
|
Total
|
|
$
|
24,437
|
|
|
$
|
33,121
|
|
9. Intangible Assets
Intangible assets by major class consisted
of the following as of March 31, 2016 and December 31, 2015:
|
|
March 31, 2016
|
|
December 31, 2015
|
(In thousands)
|
|
Weighted average life
(in months)
|
|
Carrying amount
|
|
Weighted average life
(in months)
|
|
Carrying amount
|
Amortized intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent and license rights
|
|
|
69
|
|
|
$
|
10,513
|
|
|
|
72
|
|
|
$
|
10,513
|
|
Manufacturing know-how
|
|
|
74
|
|
|
|
134,600
|
|
|
|
76
|
|
|
|
134,600
|
|
Accumulated amortization
|
|
|
|
|
|
|
(14,375
|
)
|
|
|
|
|
|
|
(8,463
|
)
|
Impairment losses
|
|
|
|
|
|
|
(5,651
|
)
|
|
|
|
|
|
|
(5,651
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
8,512
|
|
|
|
|
|
|
|
(684
|
)
|
Total amortized intangible assets
|
|
|
|
|
|
$
|
133,599
|
|
|
|
|
|
|
$
|
130,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process research and development
|
|
|
|
|
|
$
|
6,614
|
|
|
|
|
|
|
$
|
6,171
|
|
Goodwill
|
|
|
|
|
|
|
65,787
|
|
|
|
|
|
|
|
60,937
|
|
Total unamortized intangible assets
|
|
|
|
|
|
$
|
72,401
|
|
|
|
|
|
|
$
|
67,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
206,000
|
|
|
|
|
|
|
$
|
197,423
|
|
The changes in intangible assets for the three
months ended March 31, 2016 are as follows:
(In thousands)
|
|
Intangibles
|
|
Goodwill
|
|
In-process research & development
|
Balance at December 31, 2015
|
|
$
|
130,315
|
|
|
$
|
60,937
|
|
|
$
|
6,171
|
|
Additions
|
|
|
-
|
|
|
|
467
|
|
|
|
-
|
|
Amortization
|
|
|
(5,906
|
)
|
|
|
-
|
|
|
|
-
|
|
Foreign currency translation adjustment
|
|
|
9,190
|
|
|
|
4,383
|
|
|
|
443
|
|
Balance at March 31, 2016
|
|
$
|
133,599
|
|
|
$
|
65,787
|
|
|
$
|
6,614
|
|
10. Accrued Expenses and Other Current Liabilities
Accrued expenses consisted of the following
at March 31, 2016 and December 31, 2015:
(In thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
Research and development costs
|
|
$
|
5,266
|
|
|
$
|
3,843
|
|
Accrued interest
|
|
|
4,812
|
|
|
|
70
|
|
Employee compensation
|
|
|
1,671
|
|
|
|
4,860
|
|
Restructuring
|
|
|
95
|
|
|
|
851
|
|
Legal service fees
|
|
|
421
|
|
|
|
428
|
|
Other accrued expenses
|
|
|
1,424
|
|
|
|
834
|
|
Total
|
|
$
|
13,689
|
|
|
$
|
10,886
|
|
Other current liabilities consisted of the
following at March 31, 2016 and December 31, 2015:
(In thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
Indirect taxes payable
|
|
$
|
4,582
|
|
|
$
|
5,963
|
|
Squeeze out liability for non-tendering R-Tech shareholders
|
|
|
468
|
|
|
|
7,668
|
|
Deferred revenue
|
|
|
881
|
|
|
|
676
|
|
Other liabilities
|
|
|
1,166
|
|
|
|
508
|
|
Total
|
|
$
|
7,097
|
|
|
$
|
14,815
|
|
11. Other Liabilities
Other liabilities consisted of the following
at March 31, 2016 and December 31, 2015:
(In thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
Deferred grants
|
|
$
|
10,275
|
|
|
$
|
9,604
|
|
Unrecognized tax benefits
|
|
|
3,522
|
|
|
|
3,061
|
|
Deferred leasehold incentive
|
|
|
1,656
|
|
|
|
1,715
|
|
Other liabilities
|
|
|
1,498
|
|
|
|
1,363
|
|
Total
|
|
$
|
16,951
|
|
|
$
|
15,743
|
|
Deferred grants consisted of a $10.0 million grant from the Japan Science and Technology Agency for use in developing
unoprostone-related medicine for pigmentary degeneration of the retina, and a $300,000 government grant from Montgomery County,
Maryland related to the move of the Company’s headquarters. Both grants may have to be repaid if certain conditions are not
met.
12. Commitments and Contingencies
Operating Leases
The Company leases office space in the United
States, Switzerland and Japan under operating leases through 2027. Total future minimum, non-cancelable lease payments under operating
leases are as follows:
(In thousands)
|
|
March 31,
2016
|
2016
|
|
$
|
1,299
|
|
2017
|
|
|
976
|
|
2018
|
|
|
1,258
|
|
2019
|
|
|
1,029
|
|
2020
|
|
|
969
|
|
Total minimum lease payments
|
|
$
|
5,531
|
|
Rent expense for all
operating leases was approximately $645,000 and $333,000 for the three months ended March 31, 2016 and March 31, 2015, respectively.
Numab Commitment
The maximum contingent
liability under the Numab Agreement (see note 13) in the event that Numab defaults under its loan with Zurcher Kantonalbank is
$2.3 million. This guarantee is set to expire during September 2016. As of March 31, 2016 and December 31, 2015, due to the pay
down of the loan with Zurcher Kantonalbank, the potential amount of payments in the event of Numab’s default is $1.6 million
and $1.5 million, respectively. As of March 31 2016, the Company had a recorded liability of $208,000 in collateral callable to
meet a potential loan default by Numab.
13. Related Party Transactions
R-Tech Ueno, Ltd.
Before the R-Tech acquisition on October 20,
2015, R-Tech was a related party through common ownership. Prior to the R-Tech acquisition the Company did not own manufacturing
facilities. Instead, the Company contracted with R-Tech as the sole manufacturer of the Company’s products to produce AMITIZA
and RESCULA. The Company had entered into multiple exclusive supply arrangements with R-Tech and had granted to R-Tech the exclusive
right to manufacture and supply AMITIZA and other products and compounds to the Company to meet its commercial and clinical requirements.
Since 2003, the Company has received upfront,
development and milestone payments under these agreements totaling $9.0 million through October 20, 2015. The Company recorded
the following expenses under all of its agreements with R-Tech for the three months ended March 31, 2015:
(In thousands)
|
|
Three Months Ended March 31,
2015
|
Clinical supplies
|
|
$
|
31
|
|
Other research and development services
|
|
|
5
|
|
Commercial supplies
|
|
|
6,142
|
|
|
|
$
|
6,178
|
|
(In thousands)
|
|
March 31,
2015
|
Deferred revenue, current
|
|
$
|
138
|
|
Deferred revenue, non-current
|
|
|
4,240
|
|
|
|
$
|
4,378
|
|
The Company recognized approximately $138,000
of revenue relating to its agreements with R-Tech for the three months ended March 31, 2015, which was recorded as contract and
collaboration revenue in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income.
Numab AG
In September 2011,
the Company entered into a loan guarantee and development agreement (the Numab Agreement) with Numab AG (Numab). Under the terms
of the Numab Agreement, which extends through September 2016, the Company would provide Numab with up to CHF 5.0 million as collateral
and would serve as guarantor for a loan to Numab from a third party, Zurcher Kantonalbank. Following the payment of the first success
fee during the first quarter of 2013, this amount was reduced to CHF 2.2 million, or approximately $2.3 million as of March
31, 2016.
As of March 31, 2016, collateral of CHF 2.2
million had been deposited by the Company and Numab has utilized CHF 1.5 million of its loan facility, or approximately $1.6 million.
At March 31, 2016 and December 31, 2015, the Company has a recorded guarantee liability of $208,000 and $202,000, respectively,
in collateral callable to meet a potential loan default by Numab.
Subordinated Unsecured Promissory Notes
In connection with the SAG acquisition in 2010,
the Company issued subordinated unsecured promissory notes (Notes) to the Ueno Trust and Kuno Trust, former shareholders of SAG.
The Ueno Trust and Kuno Trust are considered related parties. Each of the Notes was issued with an initial principal balance of
approximately $25.9 million, or approximately $51.9 million in the aggregate. The interest rate for the Notes is the sum of the
London Interbank Offered Rate, or LIBOR, plus 4.0%, and was reset on December 1, 2015 to 4.7%. On February 1, 2016, the Notes
were paid in full.
14. Credit Facility and Notes Payable
On October 16, 2015, the Company entered into a Credit Agreement (Credit Facility) with Jefferies Financing
LLC. Term Loans under the Credit Facility bear interest, at the Company’s option, at the Adjusted Eurodollar Rate plus 7.25%
or the Adjustable Base Rate plus 6.25%. The average interest rate on the notes payable for the three months ending March 31, 2016
was 8.39%. The Company was in compliance with all covenants under the credit facility as of March 31, 2016.
The Company’s debt is subject to the
fair value disclosure requirements as discussed in note 2, and is classified as a Level 2 security.
15. Collaboration Obligation
Due to signing of the Global
Takeda Agreement, the Company received an upfront payment from Takeda of $14.0 million in 2014, of which the Company is
obligated to reimburse Takeda for the first $6.0 million in developmental expenses incurred by Takeda. As of March 31, 2016
and December 31, 2015, the collaboration obligation was $5.2 million and $5.6 million, respectively.
16. Collaboration and License Agreements
North America Takeda Agreement
The following table summarizes the cash streams
and related revenue recognized or deferred under the North America Takeda Agreement for the three months ended March 31, 2016:
(In thousands)
|
|
Amount
Deferred at
December 31,
2015
|
|
Cash Received
for the Three
Months Ended
March 31,
2016
|
|
Revenue
Recognized for
the Three
Months Ended
March 31,
2016
|
|
Change in
Accounts
Receivable for the
Three Months
Ended March 31,
2016
|
|
Foreign Currency
Effects for the
Three Months
Ended March 31, 2016
|
|
Amount
Deferred at
March 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product royalty revenue
|
|
$
|
-
|
|
|
$
|
22,792
|
|
|
$
|
16,500
|
|
|
$
|
(6,292
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales revenue
|
|
$
|
-
|
|
|
$
|
13,391
|
|
|
$
|
8,974
|
|
|
$
|
(3,939
|
)
|
|
$
|
(478
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursement of research and development expenses
|
|
$
|
-
|
|
|
$
|
3,309
|
|
|
$
|
3,429
|
|
|
$
|
120
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front payment associated with the Company's obligation to participate in joint committees
|
|
$
|
736
|
|
|
$
|
-
|
|
|
$
|
37
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
699
|
|
Japan Mylan Agreement
The following table summarizes the cash streams
and related revenue recognized or deferred under the Japan Mylan Agreement for the three months ended March 31, 2016:
(In thousands)
|
|
Amount Deferred at December 31,
2015
|
|
Cash Received for the Three Months Ended March 31,
2016
|
|
Revenue Recognized for the Three Months Ended March 31,
2016
|
|
Change in Accounts Receivable for the Three Months Ended March 31,
2016
|
|
Foreign Currency Effects for the Three Months Ended March 31,
2016
|
|
Amount Deferred at March 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales revenue
|
|
$
|
-
|
|
|
$
|
14,881
|
|
|
$
|
14,460
|
|
|
$
|
1,277
|
|
|
$
|
(1,698
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front payment associated with the Company's obligation to participate in joint committees
|
|
$
|
416
|
|
|
$
|
-
|
|
|
$
|
9
|
|
|
$
|
-
|
|
|
$
|
30
|
|
|
$
|
437
|
|
The Company has recorded
product sales revenue under the Japan Mylan Agreement for the three months ended March 31, 2016 and 2015 of approximately $14.5
million and $11.1 million, respectively.
China Gloria Agreement
The Company has no
recorded product sales revenue under the China Gloria Agreement for the three months ended March 31, 2016.
Japan Santen Agreement
The Company has recorded Rescula product sales revenue under the Japan Santen Agreement for the three months
ended March 31, 2016 of approximately $3.4 million. The Company has recorded no revenues under the Japan Santen Agreement for the
three months ended March 31, 2015
17. Stock Option Plans
A summary of employee
stock option activity for the three months ended March 31, 2016 under the Company’s Amended and Restated 2001 Stock Incentive
Plan is presented below:
|
|
Shares
|
|
Weighted Average Exercise Price Per Share
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
Aggregate Intrinsic Value
|
Options outstanding, December 31, 2015
|
|
|
37,400
|
|
|
$
|
10.00
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(20,400
|
)
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
Options outstanding, March 31, 2016
|
|
|
17,000
|
|
|
|
10.00
|
|
|
|
0.09
|
|
|
$
|
15,810
|
|
Options exercisable, March 31, 2016
|
|
|
17,000
|
|
|
|
10.00
|
|
|
|
0.09
|
|
|
$
|
15,810
|
|
Options vested and expected to vest, March 31, 2016
|
|
|
17,000
|
|
|
|
10.00
|
|
|
|
0.09
|
|
|
$
|
15,810
|
|
A summary of employee stock option activity
for the three months ended March 31, 2016 under the Company’s Amended and Restated 2006 Stock Incentive Plan is presented
below:
|
|
Shares
|
|
Weighted Average Exercise Price Per Share
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
Aggregate Intrinsic Value
|
Options outstanding, December 31, 2015
|
|
|
4,440,608
|
|
|
$
|
9.37
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
1,224,450
|
|
|
|
13.69
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(104,483
|
)
|
|
|
6.10
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(28,209
|
)
|
|
|
14.29
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(12,025
|
)
|
|
|
15.86
|
|
|
|
|
|
|
|
|
|
Options outstanding, March 31, 2016
|
|
|
5,520,341
|
|
|
|
10.35
|
|
|
|
8.36
|
|
|
$
|
11,809,367
|
|
Options exercisable, March 31, 2016
|
|
|
2,100,317
|
|
|
|
8.05
|
|
|
|
6.95
|
|
|
$
|
7,503,522
|
|
Options vested and expected to vest, March 31, 2016
|
|
|
4,356,237
|
|
|
|
9.95
|
|
|
|
8.14
|
|
|
$
|
10,352,390
|
|
The weighted average grant date fair value
of options granted during the three months ended March 31, 2016 and the year ended December 31, 2015 was $13.69 and $15.18, respectively.
Employee Stock Purchase Plan
Under the Company’s 2006 Employee Stock
Purchase Plan, the Company received $58,391 and $11,483 upon employees’ purchase of 6,285 and 950 shares of class A common
stock during the three months ended March 31, 2016 and 2015, respectively.
Accumulated Other Comprehensive Income (Loss)
The following table details the accumulated
other comprehensive income (loss) activity for the three months ended March 31, 2016 and 2015:
(In thousands)
|
|
Foreign currency translation adjustments
|
|
Unrealized income (loss) on investments, net of tax effect
|
|
Unrealized income (loss) on pension benefit obligation
|
|
Accumulated other comprehensive income (loss)
|
Balance January 1, 2016
|
|
$
|
14,243
|
|
|
$
|
42
|
|
|
$
|
(873
|
)
|
|
$
|
13,412
|
|
Other comprehensive income before reclassifications
|
|
|
15,555
|
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
15,547
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance March 31, 2016
|
|
$
|
29,798
|
|
|
$
|
42
|
|
|
$
|
(881
|
)
|
|
$
|
28,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2015
|
|
$
|
15,208
|
|
|
$
|
35
|
|
|
$
|
(978
|
)
|
|
$
|
14,265
|
|
Other comprehensive income before reclassifications
|
|
|
175
|
|
|
|
(6
|
)
|
|
|
(7
|
)
|
|
|
162
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance March 31, 2015
|
|
$
|
15,383
|
|
|
$
|
29
|
|
|
$
|
(985
|
)
|
|
$
|
14,427
|
|
18. Income Taxes
The provision for
income taxes is based upon the estimated annual effective tax rates for the year applied to the current period income before tax
plus the tax effect of any significant unusual items, discrete events or changes in tax law. Our operating subsidiaries are exposed
to effective tax rates ranging from zero to approximately 40%. Fluctuations in the distribution of pre-tax income among our operating
subsidiaries can lead to fluctuations of the effective tax rate in the condensed consolidated financial statements. In the three-month
periods ended March 31, 2016 and 2015, the actual effective tax rates were 42.8% and 30.5%, respectively.
We assess uncertain tax positions in accordance with ASC 740 (ASC 740-10 Accounting for Uncertainties in
Tax). As of March 31, 2016, our net unrecognized tax benefits totaled approximately $3.5 million. Of this balance $2.2 million
would favorably impact our effective tax rate in the periods if they are recognized. Management has not identified any uncertain
tax positions that are reasonably likely to be released during the next 12 months due to lapse of statutes
of limitations or settlements with tax authorities.
We conduct business
globally and, as a result, file numerous consolidated and separate income tax returns in the U.S., Switzerland and Japan, as well
as in various other state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing
authorities throughout the world. Currently tax years 2011 to 2015 remain open and subject to examination in the major tax jurisdictions
in which tax returns are filed. The tax years 2009-2011 were examined by the U.S. tax authorities and resulted in no tax adjustments.
19. Investments
On January 9, 2016, the Company entered into a Securities Purchase Agreement and an Option and Collaboration
Agreement
with Cancer Prevention Pharmaceuticals (CPP) for the development and commercialization
of CPP-1X/sulindac combination.
Under the terms of a
Securities Purchase Agreement, the Company made a $5.0
million loan to CPP in exchange for a convertible note. The note will automatically convert into CPP securities at a discount upon
a Qualified Financing as defined by the Securities Purchase Agreement. The Company has also agreed to purchase up to $5.0 million
of CPP’s securities in a Qualified Financing. CPP filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission in December 2015.
Under the terms of an Option and Collaboration Agreement, CPP granted the Company the sole option to acquire
an exclusive license to commercialize CPP-1X/Sulindac combination product in North America. This product is currently in a Phase
3 clinical trial for the treatment of familial adenomatous polyposis (FAP). Target enrollment in the study was achieved in April
of 2016 and the trial is expected to conclude in 2018. The Company will pay CPP an option fee of $7.5 million, payable in two tranches.
The first tranche of $3.0 million was paid in January 2016 and expensed as R&D expense and the second tranche of $4.5 million
is due upon achievement of certain results of the ongoing feasibility study (expected in the third quarter of 2016). CPP will complete
the ongoing Phase 3 trial under the oversight of a joint steering committee between CPP and the Company. Upon exercise of its exclusive
option, the Company would acquire the rights to negotiate an exclusive license to develop and commercialize the product in North
America for all indications in connection with the exercise and finalization of the license right, the Company would
be obligated to pay CPP up to an aggregate of $190.0 million of specified clinical development and sales milestones. Under the
terms of the license, the Company and CPP would share equally in net profits from the sale of licensed products.
The Company has elected the fair value option on the convertible note received from CPP due to the nature
of the financial characteristics of the investment. As of March 31, 2016, the fair value of the convertible note is $5.0 million
using level 3 inputs (see note 6).
CPP is considered a variable
interest entity in which the Company has a variable interest. It has been determined that the power to direct the activities
that most significantly impact CPP’s economic performance is held by the board of directors of CPP. The Company does
not have a representative on CPP’s board and does not have the right to appoint or elect such a representative. Therefore, the
Company is not the primary beneficiary of CPP and the entity is not consolidated. The company’s maximum exposure to
loss as a result of its involvement with CPP is $5.0 million as of March 31, 2016, which is the investment in the convertible
security of $5.0 million. As of December 31, 2015, CPP had total assets of $1.8 million and total liabilities of $12.5
million.
Item 2.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
This Quarterly
Report on Form 10-Q contains forward-looking statements regarding Sucampo Pharmaceuticals, Inc., or the Company, we, us”
or our, and our business, financial condition, results of operations and prospects within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements include those that express plans, anticipation, intent, contingency,
goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are
based on our current expectations and projections about future events and they are subject to risks and uncertainties known and
unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.
Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed
in the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and in our other filings
with the Securities and Exchange Commission (SEC) including our Annual Report on Form 10-K for the fiscal year ended December 31,
2015, which we filed with the SEC on March 11, 2016, as subsequently amended. Statements made herein are as of the date of the
filing of this Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Unless otherwise required by applicable
law, we do not undertake, and we specifically disclaim any obligation to update any forward looking statements to reflect occurrences,
developments, unanticipated events or circumstances after the date of such statement.
The following
discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited
condensed consolidated financial statements and related notes that appear in Item 1 of this Form 10-Q and with our
consolidated financial statements and related notes for the year ended December 31, 2015 which are included in our Annual
Report on Form 10-K.
Overview
We are a global biopharmaceutical company
focused on innovative research and development of proprietary drugs to treat gastrointestinal, ophthalmic, autoimmune,
inflammatory, and oncology disorders.
We currently generate revenue mainly from product
royalties, development milestone payments, product sales and reimbursements for clinical development activities. We expect to continue
to incur significant expenses for the next several years as we continue our research and development activities, seek additional
regulatory approvals and additional indications for our approved products and other compounds and seek strategic opportunities
for in-licensing new products.
Our operations are conducted through subsidiaries
based in the United States (U.S.), Japan and Switzerland. We operate as one segment, which focuses on the development and commercialization
of pharmaceutical products.
AMITIZA (lubiprostone)
United States and Canada
AMITIZA is marketed in the U.S. for three gastrointestinal
indications under a collaboration and license agreement (North America Takeda Agreement) with Takeda Pharmaceutical Company Limited
(Takeda). These indications are chronic idiopathic constipation (CIC) in adults, irritable bowel syndrome with constipation (IBS-C)
in adult women and opioid-induced constipation (OIC) in adults suffering from chronic non-cancer related pain. Under the North
America Takeda Agreement, we are primarily responsible for clinical development activities, while Takeda is responsible for commercialization
of AMITIZA in the U.S. and Canada. Takeda is required to provide a minimum annual commercial investment during the current term
of the North America Takeda Agreement and may reduce the minimum annual commercial investment when a generic equivalent enters
the market. In October 2014, we signed an amendment (Takeda Amendment) to the North America Takeda Agreement which, among other
things, extended the term of the North American Takeda Agreement beyond December 2020; during the extended term, we will share
with Takeda the net sales revenue on branded AMITIZA sales. We have also partnered with Par Pharmaceuticals, Inc. (Par) in connection
with the settlement of our patent litigation with Par in the U.S. related to our AMITIZA (lubiprostone) 8 mcg and 24 mcg soft gelatin
capsule products. Under our agreement with Par, we granted Par a non-exclusive license to market Par’s generic version of
lubiprostone 8 mcg soft gelatin capsule and 24 mcg soft gelatin capsule in the U.S. for the indications approved for AMITIZA beginning
January 1, 2021, or earlier under certain circumstances. Beginning on January 1, 2021, Par will split with us the gross profits
of the licensed products sold during the term of the agreement, which continues until each of our related patents has expired.
In the event Par elects to launch an authorized generic form of lubiprostone, we agree to supply Par under the terms of a manufacturing
and supply agreement at a negotiated price.
In October 2015, Health Canada approved AMITIZA
for CIC in adults. AMITIZA will be marketed by Takeda Canada Inc. under the North America Takeda Agreement. Takeda Canada is currently
assessing launch feasibility and timing.
Japan
In Japan, AMITIZA is the only prescription
medicine for chronic constipation and is marketed under a license, commercialization and supply agreement (Japan Mylan Agreement)
originally entered into with Abbott Laboratories, Inc. (Abbott). Abbott marketed AMITIZA in Japan for chronic constipation excluding
constipation caused by organic diseases. In February 2015, Mylan purchased Abbott’s non-U.S. developed markets specialty
and branded generics business, as a result of which Mylan acquired the rights to commercialize AMITIZA in Japan. We did not experience
any significant changes in the commercialization of AMITIZA in Japan as a result of the transfer of the Japan Mylan Agreement from
Abbott to Mylan.
People’s Republic of China
In May 2015, we entered into an exclusive license,
development, commercialization and supply agreement (China Gloria Agreement) with Harbin Gloria Pharmaceuticals Co., Ltd. (Gloria)
for AMITIZA in the People’s Republic of China. We will be the exclusive supplier of AMITIZA to Gloria at an agreed upon supply
price. Under the China Gloria Agreement, Gloria is responsible for all development activities and costs, as well as commercialization
and regulatory activities, for AMITIZA in the People’s Republic of China. Upon entering into the China Gloria Agreement,
we received an upfront payment of $1.0 million. In June 2015, the China Food and Drug Administration accepted an Investigational
New Drug (IND) application for a pivotal trial of AMITIZA in patients with CIC, as a result of which we received an additional
payment of $500,000 from Gloria. In addition to the $1.5 million in payments received and recognized as revenue through June 2015,
we are eligible to receive an additional payment in the amount of $1.5 million upon the occurrence of a specified regulatory or
commercial milestone event.
Other Global Markets
In October 2014, we entered into an exclusive
license, development, commercialization and supply agreement (Global Takeda Agreement) for lubiprostone with Takeda. Under
the Global Takeda Agreement, Takeda develops and markets AMITIZA globally except in the U.S., Canada, Japan and the People’s
Republic of China. We supply Takeda with the clinical and commercial product at a negotiated price. Takeda currently markets AMITIZA
for CIC and OIC in Switzerland, and for CIC in the U.K.
In January 2016, we received
notification from the Medicines and Healthcare Products Regulatory Agency of the United Kingdom (U.K.) that our appeal for
the OIC indication was not approved. In January 2015, we successfully completed the European mutual recognition procedure for
AMITIZA for the treatment of CIC in Austria, Belgium, Germany, Italy, Ireland, Luxembourg, Netherlands and Spain, resulting
in a recommendation for marketing authorization in these markets. Takeda became the marketing authorization holder in
Switzerland in April 2015, in the United Kingdom (U.K.), Austria, Belgium, Germany, Ireland and Luxembourg in early 2016 and
is expected to become the marketing authorization holder in Italy, the
Netherlands and Spain in the first half of 2016.
In October 2015, we and Takeda obtained approval
of the clinical trial application (CTA) for AMITIZA for the treatment of CIC and IBS-C in Russia that was submitted in June 2015.
In December 2015, a CTA was filed for AMITIZA for the treatment of CIC, IBS-C and OIC in Mexico and South Korea. We expect to initiate
phase 3 registration trials in Russia, Mexico, and South Korea in the first half of 2016. A new drug application (NDA) for the
treatment of CIC, IBS-C, and OIC was submitted in Kazakhstan in December 2015
.
RESCULA (unoprostone isopropyl)
As part of the acquisition of R-Tech Ueno,
Ltd. (R-Tech) in October 2015, we acquired global rights to RESCULA, an ophthalmology product used to lower intraocular pressure
(IOP).
In the fourth quarter of 2014 we ceased marketing
RESCULA in the United States and no product was made available after the March 2015 expiration date. In May 2015, we returned
all licenses for unoprostone isopropyl to R-Tech. In March 2016, we initiated the withdrawal of the marketing authorization for
RESCULA in the U.S.
In Japan, RESCULA was approved by the MHLW
in 1994 for the treatment of glaucoma and ocular hypertension. In Japan, RESCULA is no longer protected by regulatory or intellectual
property exclusivity. In March 2012, R-Tech signed a distribution agreement (Japan Santen Agreement) with Santen Pharmaceutical
Co., Ltd. (Santen) to commercialize RESCULA in Japan. As part of the acquisition of R-Tech in 2015, we acquired R-Tech’s
rights and obligations under the Japan Santen Agreement.
In South Korea, we signed a distribution agreement
with Dong-A Pharm, Co., Ltd in April 2010 for the promotion and sale of RESCULA.
In Taiwan, we signed a manufacturing and supply
agreement with Sinphar Pharmaceutical, Co., Ltd and also executed the distribution agreement with Zuelliq Pharma, Ltd in April
2013.
Product Pipeline
The table below summarizes
the development status of our marketed products and key product candidates. The commercialization rights to lubiprostone have been
licensed to Takeda on a global basis other than Japan and the People’s Republic of China, to Mylan for Japan, and to Gloria
for the People’s Republic of China. For cobiprostone, we hold all of the commercialization rights globally. Commercialization
of each product candidate may occur after successful completion of clinical trials and approval from appropriate governmental agencies.
For CPP-1X/sulindac, we have an option to acquire an exclusive license to commercialize in North America.
|
Country
|
|
Program Type
|
|
Target Indication
|
|
Development Phase
|
|
Next Milestone
|
Lubiprostone (AMITIZA ®)
|
|
|
|
|
|
U.S.
|
|
Commercial
|
|
Chronic idiopathic constipation (CIC) adults of all ages
|
|
Marketed
|
|
_____
|
|
Canada
|
|
Clinical
|
|
CIC-adults of all ages
|
|
Received approval from Health Canada
|
|
Market in Canada
|
|
U.S.
|
|
Commercial
|
|
Irritable bowel syndrome with constipation (adult women) (IBS-C)
|
|
Marketed
|
|
Initiate phase 4 study on higher dosage and with additional male subjects
|
|
U.S.
|
|
Commercial
|
|
Opioid-induced constipation (OIC) in patients with chronic non-cancer pain
|
|
Marketed
|
|
_____
|
|
China
|
|
Clinical
|
|
CIC-adults of all ages
|
|
IND accepted
|
|
Initiate CIC study
|
|
Japan
|
|
Commercial
|
|
Chronic constipation
|
|
Marketed
|
|
_____
|
|
Switzerland
|
|
Commercial
|
|
CIC-adults of all ages
|
|
Marketed
|
|
_____
|
|
U.K.
|
|
Commercial
|
|
CIC-adults of all ages
|
|
Marketed
|
|
_____
|
|
European Union
|
|
Clinical
|
|
CIC-adults of all ages
|
|
Received national marketing approvals in Ireland, Germany, Austria, Belgium, the Netherlands, Luxembourg, Italy and Spain (where product is not yet launched)
|
|
Develop pricing and reimbursement assessments and based on outcome determine launch feasibility and plans for Ireland, Germany, Austria, Belgium, the Netherlands, Luxembourg, Italy and Spain
|
|
Switzerland
|
|
Commercial
|
|
OIC in patients with chronic non-cancer pain
|
|
Marketed
|
|
_____
|
|
Russia
|
|
Clinical
|
|
CIC-adults of all ages
|
|
CTA Approved
|
|
Initiate phase 3 trial
|
|
Russia
|
|
Clinical
|
|
IBS-C - adult women
|
|
CTA Approved
|
|
Initiate phase 3 trial
|
|
Mexico
|
|
Clinical
|
|
CIC-adults of all ages
|
|
Submitted CTA
|
|
Initiate phase 3 trial
|
|
Mexico
|
|
Clinical
|
|
IBS-C - adult women
|
|
Submitted CTA
|
|
Initiate phase 3 trial
|
|
Mexico
|
|
Clinical
|
|
OIC in patients with chronic non-cancer pain
|
|
Submitted CTA
|
|
Initiate phase 3 trial
|
|
South Korea
|
|
Clinical
|
|
CIC-adults of all ages
|
|
Submitted CTA
|
|
Initiate phase 3 trial
|
|
South Korea
|
|
Clinical
|
|
IBS-C - adult women
|
|
Submitted CTA
|
|
Initiate phase 3 trial
|
|
South Korea
|
|
Clinical
|
|
OIC in patients with chronic non-cancer pain
|
|
Submitted CTA
|
|
Initiate phase 3 trial
|
|
|
|
Clinical
|
|
Alternate formulation
|
|
In non-clinical development
|
|
Initiate phase 3 trial
|
|
|
|
Clinical
|
|
Pediatric functional constipation
(6 years - 17 years)
|
|
Pivotal and open label phase 3 trials ongoing
|
|
Complete pivotal and open label phase 3 trials
|
|
|
|
Clinical
|
|
Pediatric functional constipation
(6 months - 6 years)
|
|
Alternate formulation in development
|
|
Initiate phase 3 program
|
|
|
|
|
|
|
|
|
|
|
Unoprostone isopropyl (RESCULA®)
|
|
|
|
|
|
Japan
South Korea
|
|
|
|
Glaucoma and ocular hypertension
|
|
Marketed
|
|
_____
|
|
Taiwan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cobiprostone
|
|
|
|
|
|
|
|
Clinical
|
|
Oral mucositis
|
|
Phase 2a initiated
|
|
Complete phase 2a trial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Country
|
|
Program Type
|
|
Target Indication
|
|
Development Phase
|
|
Next Milestone
|
|
|
|
|
|
|
|
|
|
|
RTU-1096
|
|
|
|
|
|
Japan
|
|
Clinical
|
|
Inflammation/immune-related disorder
|
|
Phase 1 completed
|
|
Initiate phase 2a trial
|
|
|
|
|
|
|
|
|
|
|
RTU-009
|
|
|
|
|
|
Japan
|
|
Preclinical
|
|
Inflammation/immune-related disorder
|
|
Development on-going
|
|
Initiate IND-enabling studies
|
|
|
|
|
|
|
|
|
|
|
CPP-1X/sulindac combination product
|
|
|
|
|
|
U.S.
|
|
Option
|
|
Familial adenomatous polyposis (FAP)
|
|
Phase 3
|
|
Complete phase 3 trial
|
Our Clinical Development Programs
Lubiprostone
Alternate Formulation
We are developing an alternate formulation
of lubiprostone for both adult and pediatric patients who are unable to tolerate capsules and for naso-gastric tube fed patients.
Takeda has agreed to fund 100% of the costs, up to a cap, of this alternate formulation work and we expect to initiate a phase
3 trial of the alternate formulation of lubiprostone in the second half of 2016.
Pediatric Functional Constipation
The phase 3 program required to support
an application for marketing approval of lubiprostone for pediatric functional constipation comprises four clinical trials,
two of which are currently ongoing and are both testing the soft gelatin capsule formulation of lubiprostone in patients 6 to
17 years of age. The first of the two trials is a pivotal 12-week, randomized, placebo-controlled trial which was initiated
in December 2013 and completed enrollment in April 2016. The second trial is a follow-on, long-term safety extension trial that
was initiated in March 2014. Following the successful completion of the phase 3 trial for the alternative formulation
of lubiprostone, as described above, we are also planning to initiate two additional trials in its phase 3 program for
pediatric functional constipation, which will be in children aged 6 months to less than 6 years testing the alternative
formulation. Takeda has agreed to fund 70% of the costs, up to a cap, of this pediatric functional constipation program.
Cobiprostone
Oral Mucositis (OM)
In September 2015, we initiated a phase 2a
clinical trial of cobiprostone oral spray for the prevention of OM in patients suffering from head and neck cancer receiving concurrent
radiation and chemotherapy. In May 2015, the FDA granted Fast Track Designation for cobiprostone for this indication.
Proton Pump Inhibitor-Refractory Non-Erosive
Reflux Disease (NERD)/symptomatic Gastroesophageal Reflux Disease (sGERD)
In December 2014, we initiated a phase 2a program
in Japan for cobiprostone in NERD/sGERD in patients who have had a non-satisfactory response to proton pump inhibitors. In April
2016, we reported that our analysis of the top-line date from this study showed that the trial did not meet its primary endpoints
and, as a result, we would discontinue development of cobiprostone for this indication.
VAP-1 Inhibitors
RTU-1096
RTU-1096 is an oral compound under development
potentially for the treatment of nonalcoholic steatohepatitis (NASH), chronic obstructive pulmonary disease (COPD), diabetic macular
edema (DME) and diabetic retinopathy (DR) and immuno-oncology. In the first quarter of 2016, we completed a phase 1 trial in healthy
individuals to evaluate the safety and pharmacokinetics of RTU-1096 and intend to assess the results in the first half of 2016.
We will also look to generate additional preclinical data in the emerging area of immuno-oncology, to support the potential use
of our molecules as a combination therapy with check-point pathway inhibitors.
RTU-009
RTU-009 is a pre-clinical stage, injectable
VAP-1 inhibitor that is being studied in animal models of acute cerebral infarction. VAP-1 is found to cause increases in vascular
cell damage, which lead to stroke. RTU-009 may inhibit VAP-1 and control the underlying cause of disease. We intend to complete
IND-enabling studies, and thereafter initiate clinical development.
CPP 1-X/Sulindac Combination Product
In
January 2016,
we entered into an option and collaboration agreement under which Cancer Prevention Pharmaceuticals,
Inc. (CPP) has granted us the sole option to acquire an exclusive license to commercialize CPP-1X/sulindac combination
product in North America.
This product is currently in a Phase 3 clinical trial, conducted by
CPP for the treatment of familial adenomatous polyposis (FAP). Under our agreement with CPP, we have the exclusive option to
license this product for North America. There are currently no approved treatments for FAP. The ongoing Phase 3 study
is a 150-patient, three-arm, double-blind, randomized trial of the combination agent and the single agent comparators.
Enrollment in the study is expected to be complete in the first half of 2016 and the trial is expected to conclude in 2018.
More information regarding our arrangement with CPP is set forth in note 19 in the Notes to Condensed Consolidated Financial
Statements included elsewhere in this Quarterly Report on Form 10-Q.
Results of Operations
Revenues
The following table summarizes our revenues
for the three months ended March 31, 2016 and 2015:
|
|
Three Months Ended March 31,
|
(In thousands)
|
|
2016
|
|
2015
|
Product royalty revenue
|
|
$
|
16,716
|
|
|
$
|
15,745
|
|
Product sales revenue - AMITIZA
|
|
|
23,434
|
|
|
|
11,151
|
|
Product sales revenue - RESCULA
|
|
|
3,161
|
|
|
|
(6
|
)
|
Research and development revenue
|
|
|
3,430
|
|
|
|
2,345
|
|
Contract and collaboration revenue
|
|
|
467
|
|
|
|
245
|
|
Total
|
|
$
|
47,208
|
|
|
$
|
29,480
|
|
Total revenues were $47.2 million for the three months ended March 31, 2016, compared to $29.5 million for the
three months ended March 31, 2015, an increase of $17.7 million or 60.1%.
Product royalty revenue
Product royalty revenue
primarily represents royalty revenue earned on Takeda net sales of AMITIZA in North America and was $16.7 million for the three
months ended March 31, 2016 compared to $15.7 million for the three months ended March 31, 2015, an increase of $971,000 or 6.2%.
The increase was primarily due to higher Takeda reported AMITIZA net sales which were driven by a mix of price and volume increases.
Product sales revenue
Product sales revenue represents drug product sales of AMITIZA in North America, Japan and Europe, and drug product
sales of RESCULA in Japan. AMITIZA product sales revenue was $23.4 million for the three months ended March 31, 2016 compared to
$11.2 million for the three months ended March 31, 2015, an increase of $12.3 million or 110.2%. The increase was primarily due
to a $9.0 million increase in AMITIZA sales in Japan under the Japan Mylan Agreement. RESCULA product sales revenue was $3.2 million
for the three months ended March 31, 2016 compared to ($6,000) for the three months ended March 31, 2015, an increase of $3.2 million.
The increase was primarily due to the acquisition of R-Tech in October, 2015 and resulting sales of RESCULA under the Japan Santen
Agreement.
Research and development revenue
Research and development revenue was $3.4 million for the three months ended March 31, 2016 compared to $2.3 million
for the three months ended March 31, 2015, an increase of $1.1 million or 46.3%. The increase was due to increased activity on
the advancement of pediatric and alternative formulation studies in the first quarter of 2016.
Contract and collaboration revenue
Contract and collaboration revenue was $467,000 for the three months ended March 31, 2016 compared to $245,000
for the three months ended March 31, 2015, an increase of $222,000 or 90.6%. The increase was primarily due to the higher release
of the collaboration obligation under the Global Takeda Agreement (see note 15) in the first quarter
2016.
Costs of Goods Sold
Costs of goods sold were $23.3
million for the first quarter of 2016 compared to $6.1 million for the same period in 2015, an increase of $17.2 million or
282.0%. The increase was primarily due to the amortization of the R-Tech inventory step up of $8.9 million and
acquired intangible asset amortization of $5.9 million.
Research and Development Expenses
The following table summarizes our research
and development expenses for the three months ended March 31, 2016 and 2015:
|
|
Three Months Ended
|
|
|
March 31,
|
(In thousands)
|
|
2016
|
|
2015
|
Direct costs:
|
|
|
|
|
|
|
|
|
Lubiprostone
|
|
$
|
5,626
|
|
|
$
|
3,513
|
|
Cobiprostone
|
|
|
2,109
|
|
|
|
1,261
|
|
CPP-1X
|
|
|
2,989
|
|
|
|
-
|
|
RTU-1096
|
|
|
920
|
|
|
|
-
|
|
VAP-1
|
|
|
29
|
|
|
|
-
|
|
Ion channel activators
|
|
|
-
|
|
|
|
275
|
|
Other
|
|
|
1,390
|
|
|
|
427
|
|
|
|
|
13,063
|
|
|
|
5,476
|
|
Indirect costs
|
|
|
1,608
|
|
|
|
1,317
|
|
Total
|
|
$
|
14,671
|
|
|
$
|
6,793
|
|
Total research
and development expenses for the three months ended March 31, 2016 were $14.7 million compared to $6.8 million for the three
months ended March 31, 2015, an increase of $7.9 million or 116.0%. The increase was primarily due to costs associated with
the CPP option, the initiation of phase 2 clinical trials for cobiprostone, an increase in expenses related to the ongoing AMITIZA
pediatric trials, the acquisition of R-Tech in October 2015 and the inclusion of the respective share of
R-Tech’s research and development costs during the post-acquisition period.
General and Administrative Expenses
The following table summarizes our general
and administrative expenses for the three months ended March 31, 2016 and 2015:
|
|
Three Months Ended
March 31,
|
(In thousands)
|
|
2016
|
|
2015
|
Salaries, benefits and related costs
|
|
$
|
2,847
|
|
|
$
|
2,497
|
|
Legal, consulting and other professional expenses
|
|
|
2,070
|
|
|
|
1,666
|
|
Stock-based compensation
|
|
|
1,278
|
|
|
|
723
|
|
Pharmacovigilance
|
|
|
428
|
|
|
|
187
|
|
Other expenses
|
|
|
2,304
|
|
|
|
1,210
|
|
Total
|
|
$
|
8,927
|
|
|
$
|
6,283
|
|
General and
administrative expenses were $8.9 million for the three months ended March 31, 2016, compared to $6.3 million for the three
months ended March 31, 2015, an increase of $2.6 million or 42.1%. The increase is primarily due to the inclusion of R-Tech
General and Administrative functions in the first quarter of 2016.
Selling and Marketing Expenses
Selling and marketing expenses were $775,000 for the three months ended March 31, 2016, compared to $640,000 for
the three months ended March 31, 2015, an increase of $135,000 or 21.1%. The increase was the result of the inclusion of R-Tech
RESCULA-related commercial activities in the first quarter of 2016.
Non-Operating Income and Expense
The following table summarizes our non-operating
income and expense for the three months ended March 31, 2016 and 2015:
|
|
Three Months Ended
March 31,
|
(In thousands)
|
|
2016
|
|
2015
|
Interest income
|
|
$
|
25
|
|
|
$
|
40
|
|
Interest expense
|
|
|
(6,270
|
)
|
|
|
(276
|
)
|
Other income (expense), net
|
|
|
(347
|
)
|
|
|
(203
|
)
|
Total
|
|
$
|
(6,592
|
)
|
|
$
|
(439
|
)
|
Interest income was $25,000 for the three
months ended March 31, 2016, compared to $40,000 for the three months ended March 31, 2015, a decrease of $15,000 or 37.5%.
Interest expense was $6.3 million for the three months ended
March 31, 2016, compared
to $276,000 for the three months ended March 31, 2015, an increase of $6.0 million, due to higher principal balances on our outstanding
notes payable.
Other expense, net was $347,000 for the three months ended
March 31, 2016, compared
to $203,000 for the three months ended March 31, 2015, an increase of $144,000 or 70.9%.
Income Taxes
We recorded an income
tax benefit of $3.0 million and expense of $2.8 million for the three months ended March 31, 2016 and 2015, respectively. The tax
provision for the three months ended March 31, 2016 primarily pertained to pre-tax profits and losses generated by our Japanese
and Swiss subsidiaries. The tax provision for the three months ended March 31, 2015 primarily pertained to pre-tax profits generated
by our U.S., Japanese and Swiss subsidiaries.
The effective tax
rate (ETR) for the first quarter of 2016 was 42.8%, compared to 30.5% in the same period of 2015. The ETR for the quarter was based
on a projection of the full year rate. The increase in the ETR was due to the shifting of profits from lower tax jurisdictions
to higher tax jurisdictions and the impact of Subpart F deemed dividend rules in the U.S.
Reportable Operating Segments
We have one operating
segment which is the development and commercialization of pharmaceutical products.
Financial Condition, Liquidity and Capital Resources
Financial Condition
Sources of Liquidity
We finance
our operations principally from cash generated from revenues, cash and cash equivalents on hand, debt and to a lesser extent, from
cash generated from the issuance and sale of our class A common stock and through the exercise of employee stock options. Revenues
generated from operations principally consist of a combination of product sales, royalty payments, upfront and milestone payments,
and research and development expense reimbursements received from Takeda, Mylan and other parties.
Our cash, cash equivalents and restricted
cash consist of the following as of March 31, 2016 and December 31, 2015:
(In thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
Cash and cash equivalents
|
|
$
|
130,077
|
|
|
$
|
108,284
|
|
Restricted cash, current
|
|
|
26,944
|
|
|
|
55,218
|
|
Total
|
|
$
|
157,021
|
|
|
$
|
163,502
|
|
Our cash and cash
equivalents are deposited in operating accounts and highly liquid investments with an original maturity at time of purchase of
90 days or less.
As of March 31, 2016,
our restricted cash consisted primarily of $25.0 million held in a restricted cash account, which is required by the Credit Facility,
until at least $35 million of the Term Loans have been repaid or prepaid. As of December 31, 2015, our restricted cash consisted
primarily of $25.0 million related to the Credit Facility, and as part of the R-Tech acquisition, $17.7 million was held in a restricted
cash account for payment of the Ueno and Kuno Trust Notes, and $8.2 million was held in restricted cash related to the squeeze
out of non-tendering R-Tech shareholders. As of March 31, 2016, the Ueno and Kuno Trust Notes had been repaid and the R-Tech acquisition
was completed.
Cash Flows
The following table summarizes our cash flows
for the three months ended March 31, 2016 and 2015:
|
|
Three Months Ended March 31,
|
(In thousands)
|
|
2016
|
|
2015
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
23,557
|
|
|
$
|
4,579
|
|
Investing activities
|
|
|
(3,350
|
)
|
|
|
(20,749
|
)
|
Financing activities
|
|
|
1,097
|
|
|
|
4,150
|
|
Effect of exchange rates
|
|
|
489
|
|
|
|
37
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
21,793
|
|
|
$
|
(11,983
|
)
|
Three months ended March 31, 2016
Net cash provided by operating activities was $23.6 million for the three months ended March 31, 2016. This
was primarily due to depreciation and amortization of $15.6 million, a decrease in receivables of $13.6 million, an increase in
payables and accrued expenses of $3.6 million, offset by a net loss of $4.1 million and a net change in other assets and liabilities
of $4.4 million.
Net cash used in
investing activities was $3.4 million for the three months ended March 31, 2016. This was primarily due to the payment of the
squeeze-out liability for non-tendering R-Tech shareholders of $8.2 million and investment in a convertible note receivable
of $5.0 million, offset by a decrease in restricted cash of $10.6 million.
Net cash
provided by financing activities was $1.1 million for the three months ended March 31, 2016. This was primarily realized
through the issuance of Class A common stock upon the exercise of options and the associated windfall benefit.
The effect of exchange
rates on the cash balances of currencies held in foreign denominations for three months ended March 31, 2016 was an increase of
$489,000.
Three months ended March 31, 2015
Net cash provided by operating activities was
$4.6 million for the three months ended March 31, 2015. This was primarily due to a net income of $6.4 million, non-cash stock-based
compensation expense of $1.1 million and a change in other assets and liabilities, net of $.7 million, offset by a decrease in
indirect taxes payable of $2.1 million and a decrease in accounts payable and accrued expenses of $1.5 million.
Net cash used in investing activities was $20.7
million for the three months ended March 31, 2015. This was primarily due to the purchases of $26.0 million of investments and
the maturities of $5.3 million of investments.
Net cash provided by financing activities was
$4.1 million for the three months ended March 31, 2015. This was primarily realized through the issuance of Class A common stock
upon the exercise of stock options.
The effect of exchange rates on the cash balances
of currencies held in foreign denominations for three months ended March 31, 2015 was an increase of $37,000.
Off-Balance Sheet Arrangements
As of March 31, 2016, we did not have any off-balance
sheet arrangements, as such term is defined in Item 303(a)(4) of Regulation S-K under the Securities Act of 1933, as amended.
Funding Requirements and Capital Resources
We may need substantial amounts of capital
to continue growing our business. We may require this capital, among other things, to fund:
|
·
|
our share of the on-going development program of AMITIZA;
|
|
·
|
research, development, manufacturing, regulatory and marketing efforts for our other products and
product candidates, including the RTU-009 VAP-1 inhibitor compound;
|
|
·
|
the costs involved in obtaining and maintaining proprietary protection for our products, technology
and know-how, including litigation costs and the results of such litigation;
|
|
·
|
activities to resolve our on-going legal matters;
|
|
·
|
any option and milestone payments under general option and licensing ventures, including our exclusive
option and collaboration agreement with CPP;
|
|
·
|
other business development activities, including partnerships, alliances and investments in or
acquisitions of other businesses, products and technologies;
|
|
·
|
the expansion of our commercialization activities including the purchase of inventory; and
|
|
·
|
the payment of principal and interest under our loan obligations.
|
The timing of these funding requirements is
difficult to predict due to many factors, including the outcomes of our preclinical and clinical research and development programs
and when those outcomes are determined, the timing of obtaining regulatory approvals and the presence and status of competing products.
Our capital needs may exceed the capital available from our future operations, collaborative and licensing arrangements and existing
liquid assets. Our future capital requirements and liquidity will depend on many factors, including, but not limited to:
|
·
|
the cost and time involved to pursue our research and development programs;
|
|
·
|
our ability to establish collaborative arrangements and to enter into licensing agreements and
contractual arrangements with others; and
|
|
·
|
any future change in our business strategy.
|
To the extent that our capital resources may
be insufficient to meet our future capital requirements, we may need to finance our future cash needs through at-the-market sales,
public or private equity offerings, further debt financings or corporate collaboration and licensing arrangements.
At March 31, 2016,
based upon our current business plan, we believe our future cash flows from operating activities and our existing capital resources
will be sufficient to meet our cash requirements for the next 12 months.
Effects of Foreign Currency
We currently receive a portion of our revenue,
incur a portion of our operating expenses, and have assets and liabilities in currencies other than the U.S. Dollar, the reporting
currency for our Consolidated Financial Statements. As such, the results of our operations could be adversely affected by changes
in exchange rates either due to transaction losses, which are recognized in the statement of operations, or translation losses,
which are recognized in comprehensive income. We currently do not hedge foreign exchange rate exposure via derivative instruments.