UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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ANNUAL
REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2011
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TRANSITION
REPORT
PURSUANT TO
SECTION 13
OR 15(d) OF
THE SECURITIES
EXCHANGE ACT
OF 1934
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For the transition period
from __________ to __________.
Commission File Number: 001-33609
SUCAMPO PHARMACEUTICALS, INC.
(Exact name of registrant as specified
in its charter)
Delaware
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30-0520478
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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4520 East-West Highway, 3rd Floor
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(301) 961-3400
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Bethesda, MD 20814
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(Registrant’s telephone number)
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(Address of principal executive offices,
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including zip code)
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Securities registered pursuant to Section
12(b) of the Act:
Title of each class
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Name of each exchange
on which registered
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Class A common stock, par value $0.01
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The NASDAQ Global Market
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Securities registered
pursuant to Section 12(g) of the Exchange Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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No
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Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes
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No
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
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No
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Indicate
by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
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No
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Indicate
by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
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Accelerated Filer
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Non-Accelerated Filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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No
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The aggregate market
value of the 11,485,779 shares of class A common stock held by non-affiliates of the registrant (based on the closing price of
the registrant’s class A common stock on the last business day of the registrant’s most recently completed second
fiscal quarter) was $47.1 million.
As of February 27,
2012, there were outstanding 15,704,314 shares of the registrant’s class A common stock, par value $0.01 per share, and
26,191,050 of the registrant’s class B common stock, par value $0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s
Proxy Statement for its 2012 Annual Meeting of Stockholders to be held on May 25, 2012, which Proxy Statement is to be filed within
120 days after the end of the registrant’s fiscal year ended December 31, 2011, are incorporated by reference in Part III
of this Annual Report on Form 10-K.
Sucampo Pharmaceuticals, Inc.
Form 10-K
Table of Contents
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Page
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Part I
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Item 1.
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Business
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3
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Item 1A.
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Risk Factors
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27
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Item 1B.
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Unresolved Staff Comments
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38
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Item 2.
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Properties
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38
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Item 3.
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Legal Proceedings
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39
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Item 4.
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Mine Safety Disclosures
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39
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Part II
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Item 5.
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Markets for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
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40
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Item 6.
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Selected Financial Data
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42
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Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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43
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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59
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Item 8.
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Financial Statements and Supplementary Data
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59
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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59
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Item 9A.
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Controls and Procedures
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60
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Item 9B.
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Other Information
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60
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Part III
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Item 10.
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Directors, Executive Officers and Corporate Governance
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61
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Item 11.
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Executive Compensation
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61
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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61
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Item 13.
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Certain Relationships and Related Transactions, and Director Independence
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61
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Item 14.
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Principal Accounting Fees and Services
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61
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Part IV
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Item 15.
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Exhibits and Financial Statement Schedule
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62
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Signatures
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69
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Index to Consolidated Financial Statements
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F-1
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PART I
This Annual Report
on Form 10-K, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results
of Operations,” contains forward-looking statements regarding us and our business, financial condition, results of operations
and prospects within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified
by the words “project,” “believe,” “anticipate,” “plan,” “expect,”
“estimate,” “intend,” “should,” “would,” “could,” “will,”
“may” or other similar expressions. In addition, any statements that refer to projections of our future financial
performance, our anticipated growth and trends in our business and other characterizations of future events or circumstances are
forward-looking statements. We cannot guarantee that we will achieve the plans, intentions or expectations expressed or implied
in our forward-looking statements. There are a number of important factors that could cause actual results, levels of activity,
performance or events to differ materially from those expressed or implied in the forward-looking statements we make. These important
factors are described under “Risk Factors” set forth below. In addition, any forward-looking statements we make in
this document speak only as of the date of this document, and we do not intend to update any such forward-looking statements to
reflect events or circumstances that occur after that date.
ITEM 1. BUSINESS
Overview
We are a global pharmaceutical
company. Our mission is to develop, register and commercialize safe and effective drugs, with novel mechanisms of action, to meet
the major unmet medical needs of patients on a global basis.
We are focused on
the discovery, development and commercialization of proprietary drugs based on prostones and other novel drug technologies that
can supplement our drug development pipeline. Prostones are a class of fatty acid compounds that occur naturally in the human
body as a result of the enzymatic catalysis by 15-Prostaglandin Dehydrogenase (15-PGDH) of eicosanoids, like prostaglandins, and
other docosanoid molecules specifically synthesized with 15 position keto groups.
To date, two prostone
products have received marketing approval, AMITIZA® (lubiprostone) and RESCULA® (unoprostone isopropyl). A third prostone,
cobiprostone, has been studied in phase II trials in humans; two other prostones have also been developed for human testing, SPI
017 and SPI 3608.
We generate revenue
mainly from product royalties, development milestone payments, and clinical development activities. We expect to continue to incur
significant expenses for the next several years as we continue our research and development activities and as we seek regulatory
approvals for additional indications for AMITIZA, RESCULA and other compounds on an international basis. We conduct our business
through our subsidiaries based in Japan, the United States, Switzerland, the United Kingdom and Luxembourg.
The therapeutic potential
of prostones was first identified by one of our founders, Dr. Ryuji Ueno. Our lead compounds primarily focus on ClC-2 chloride
and BK potassium related ion channels. ClC-2 channel activators restore and repair tight junctions, maintain chloride homeostasis
and increase fluid. BK channel activators are neuroprotective via hyperpolarization of excitable membranes, counteract vasoconstriction
by endothelin-1, relax vascular smooth muscles cells, increase microvascular circulation, stabilize the mitochondrial membrane,
and decrease cell death. Both ClC-2 and BK channel activators have anti-inflammatory properties. Prostones offer a wide-ranging
therapeutic potential, particularly for age-related diseases. We are focused on developing prostones to treat gastrointestinal,
ophthalmologic, CNS, vascular, and respiratory diseases as well as other potential therapeutic applications.
The Prostone
Platform and Related Physiology
The body produces
prostaglandins to initiate and accelerate an inflammatory and immunologic response to infection, to tissue damage or injury, and
to disease processes. In this way, inflammatory prostaglandins are created as an essential part of the body’s response to
viral, fungal and/or bacterial infections, to parasitic invasion, to toxins, to allergens, to immuno-gens, to auto-immune diseases
and to trauma. In this capacity, pro-inflammatory prostaglandins act physiologically to activate the immune system, to activate
macrophages and other immuno-inflammatory response cells, to constrict peripheral blood vessels, to increase vaso-permeability,
to induce blood aggregation and coagulation, and to accelerate programmed cell death (apoptosis).
Inflammatory prostaglandins
work by binding to and thereby activating specific prostaglandin cell surface (DP1, DP2, EP1, EP2, EP3, EP4, and FP1) receptors
and nuclear receptors (PPARS). Prostaglandin cell surface receptors specifically activate inflammatory and apoptotic response
pathways within cells. At the organ level pro-inflammatory prostaglandins can affect both specific organ functions as well as
full systemic functions.
We know the symptoms
of the systemic prostaglandin inflammatory response to be fever, pain, swelling, blood clotting and lassitude. In this way the
prostaglandin mediated immuno-inflammatory response can change both local and systemic fluid handling, blood circulation, immune
cell migration, oxygenation, and membrane integrity from normal homeostatic functions. Prostaglandins, however, do not appear
to play a significant, direct role in the body’s conversion from an immuno-inflammatory injury response to a wound healing
and restorative response. The body, therefore, must rely on other pathways to convert from an inflamed immuno-activated state
to a normal homeostatic state after an immune response has peaked, after an initial injury is controlled, or after an infection
has been eliminated. We believe that the action of 15-PGDH and the prostones 15-PGDH produces are essential to that wound healing
response.
The direct action
of 15-PGDH on prostaglandins catalyzes the oxidation of the 15 position hydroxyl group common to all pro-inflammatory prostaglandins
to a 15 position keto group. This 15 keto conversion significantly reduces the resulting metabolites’ physiologic affinity/activation
potential for all pro-inflammatory prostaglandin cell surface receptors. Thus, high levels of 15-PGDH can rapidly metabolize and
inactivate pro-inflammatory prostaglandins. 15-PGDH expression is tightly controlled. 15-PGDH expression is strongly inhibited
by several early-stage, profoundly pro-inflammatory agents, such as TNF-α, IL-1β and interferon gamma. 15-PGDH expression
and concentration are fully induced only after an initial immuno-inflammatory response has peaked. 15-PGDH is induced by TGF-β,
IL-10 and other wound healing agents. As natural metabolites of pro-inflammatory prostaglandins created by 15-PGDH, prostones
do not activate pro-inflammatory prostaglandin receptors at physiologically-observed levels.
We believe that endogenous
creation of active prostones by 15-PGDH may be as important to the wound healing process as the neutralization of the effects
of prostaglandins by 15-PGDH. Ion channel function is essential to peri-cellular ion transport and thereby intra-cellular and
trans-membrane fluid transport, fluid pH, fluid osmolarity and fluid volume balance. Ion channel stimulation can hyperpolarize
cell membranes and stabilize intra-cellular ion stores in a fashion that can inactivate intra-cellular inflammatory signaling
pathways. Ion channel stimulation can reverse intra-cellular fluid sequestration and ion gradients created by inflammatory pathway
stimulation. Ion channel activation by prostones supports wound healing, tissue regeneration, and epithelial repair. All available
data suggest that 15 keto fatty acids, prostones selectively and profoundly activate ion channels at the physiologic levels created
by 15-PGDH. Prostone stimulation of ion channels appears to counter-act many of the immuno-inflammatory activities of prostaglandins.
Ion channels are among the most active and essential trans-membrane proteins for control of cell homeostasis, metabolism, function
and survival. Prostones accordingly appear to reverse immuno-inflammatory responses, to restore cells and membranes to homeostasis,
to reverse peripheral vasoconstriction, to decrease peripheral vaso-permeability, to induce tight junction restoration which repairs
epithelial barrier integrity, to desensitize immuno-inflammatory cell responses, to restore homeostatic fluid and electrolyte
balance and to decrease or to arrest apoptotic pathway activity.
BK (also called Maxi-K)
potassium ion channel activation can hyper-polarize cell membranes, stabilize intra-cellular ion levels and alter cytosolic fluid
levels so as to control the activities of intra-cellular pathways, in particular inflammatory, immuno-modulatory and apoptotic
response pathways. BK ion channels are particularly effective at blocking the effect of key pro-inflammatory mediators, such as
endothelin, which is the most profound vasoconstrictor in the peripheral microcirculation. Excess endothelin levels leading to
hypoxia, inflammation and apoptosis in the eye, has been identified as a major risk factor in the incidence and progression of
neurodegeneration in retinitis pigmentosa, or RP, primary open angle glaucoma, or POAG, and age related macular degeneration,
or AMD.
Other ion channels,
such as the ClC-2 chloride channel, act as strong regulators of membrane permeability, integrity and function as well as trans-membrane
fluid, electrolyte, oxygen, and nutritional flows. In this way, ion channels are essential to maintenance of normal cellular and
organ function and homeostasis as well as cellular and tissue regeneration and repair. For Maxi-K stimulation ophthalmic, respiratory
and CNS indications are particularly promising. For ClC-2 stimulation, gastroenterology, oncology and respiratory indications
are particularly promising.
In the gastro-intestinal
tract, prostones modulate the amount and components of trans-membrane fluid secretion and uptake that are essential to the normal
function of the digestive process. Proper homeostasis of fluid uptake and the volume and contents of the lumen of the intestines
are essential to maintaining proper nutritional, immunologic, cardiovascular, hepatic and renal health. By ClC-2 stimulation,
prostones also modulate the production and restoration of tight junctions between cells in the mucosal membranes of the intestines.
The integrity of the tight junctions in the gut is essential to proper secretion and uptake of fluids, electrolytes and nutrition
while protecting the body from the toxins, immuno-gens, allergens, and pathogens taken in with food and created in the process
of digestion. Recent studies have implicated excess gut permeability with significant co-morbidities, including diabetes, heart
disease, obesity, infections and auto-immune diseases.
Our Prostone
Products, Approved and in the Clinic
AMITIZA (lubiprostone)
AMITIZA was approved
by the U.S. Food and Drug Administration, or FDA, in 2006 for chronic treatment for chronic idiopathic constipation, or CIC, in
adults of both genders and in 2008 for chronic treatment for irritable bowel syndrome with constipation, or IBS-C, in women aged
18 years and older. AMITIZA is also approved for chronic treatment of CIC in Switzerland and is under regulatory review in Japan
and United Kingdom, or U.K, for chronic treatment of CIC with approval expected in both countries in 2012.
AMITIZA has a well-tolerated
and well-established profile for safety and efficacy. In the past 6 years, AMITIZA has been dispensed approximately 6 million
times. Post marketing safety monitoring is similar to the well-tolerated safety profile for AMITIZA seen in clinical trials. Side
effects reported in clinical testing were predominantly mild to moderate and transient in nature.
Nausea was the most
common side effect observed in pivotal clinical trials when 24mcg BID AMITIZA for CIC was taken without food; 29.7% of patients
taking AMITIZA reported an event of nausea during the course of the full pivotal trials. The vast majority of nausea events were
described as either mild (defined as noticed some nausea but had no effect on daily activities and acceptable; >64% of reported
events) or moderate (defined as noticed with some impact on daily activities and acceptable; >27% of reported events). In other
words, most patients reporting nausea in 24mcg BID AMITIZA CIC pivotal clinical trials, 21.9% of total patients (or 93% of the
patients reporting nausea) had reported one event of nausea, 1.0% of total patients (or 4% of patients reporting nausea) reported
had two events of nausea; 0.3% of total patients (or 1.4% of patients reporting nausea) reported three events of nausea and 0.3%
of total patients (or 1.4% of patients reporting nausea) reported having four events of nausea.
Nausea was reduced
when 24 mcg BID AMITIZA is taken with food 19.8%. Long term studies of patients who took 24 mcg BID AMITIZA with food showed only
1.08 patient days with an event of nausea per 1,000 patient days on 24mcg BID therapy and over 97% of these events were reported
as mild or moderate. In patients treated up to 52 weeks in an open label safety study of AMITIZA for CIC taken with food approximately
5.2% of patients reported discontinuance for nausea.
Nausea rates for
the 8 mcg BID dose for AMITIZA for IBS-C were similar to placebo (8% AMITIZA and 4% placebo) in pivotal trials. In the open label
safety study with patients treated up to 52 weeks, nausea was reported by 6.5% of AMITIZA patients. Most events (99.2%) were described
as mild or moderate and acceptable. In long-term safety studies with 8 mcg BID AMITIZA for IBS-C only 0.6% of patients discontinued
AMITIZA because of nausea.
AMITIZA is the only
medicine indicated for IBS-C and CIC and we plan to file a sNDA for AMITIZA to treat opioid bowel dysfunction, or OBD or opioid-induced
constipation, or OIC, in mid-2012. All of these diseases have large patient populations, many of whom are not satisfied with their
existing therapy, primarily laxatives, which are only indicated for occasional use.
Laxatives are approved
for occasional (i.e., self-limited) constipation with over-the-counter , or OTC, laxatives approved for a sub-chronic seven day
course and prescription PEG 3350 laxatives approved for a 14-day course of therapy. Laxatives are not approved for chronic use.
Laxatives are not approved for use in IBS-C, OBD or CIC. There have been no randomized controlled trials (RCTs) of laxatives in
IBS-C and there are no RCTs demonstrating laxatives relieve abdominal discomfort. A 2011 Cochrane Collaboration Review on the
use of laxatives in opioid pain patients (palliative care) reported that there have been no randomized clinical trials on any
laxative that evaluated laxation response rates, patient tolerability and acceptability.
AMITIZA users tend
to be the most satisfied with their treatment. In market research, the majority of AMITIZA users reported a high level of satisfaction
with AMITIZA (scoring 6 or 7 on a 7-point scale). In market research, physicians also rated AMITIZA higher (5 percentage point
difference) than MiraLAX
®
in the areas of overall efficacy, provides sustained relief, increases frequency of spontaneous
bowel movements, relieves abdominal pain, relieves abdominal bloating and discomfort, improves stool consistency, improves time
to first bowel movement. There are no efficacy categories where MiraLAX was rated higher than AMITIZA. Overall tolerability was
similar between the brands. AMITIZA was rated higher than MiraLAX in not causing changes in serum electrolytes and and having
low incidence of diarrhea. MiraLAX scored higher in having low incidence of nausea and no pregnancy warning.
We believe that due
to the lack of best efforts by our commercial partner, AMITIZA has low patient awareness, low physician awareness of disease morbidity
and co-morbidities, low therapy awareness among primary care and gastroenterology specialist physicians and inappropriate managed
care restrictions on access. Better managed care treatment, as well as higher levels of both patient and physician education are
required to achieve acceptable commercial utilization of AMITIZA for CIC and IBS-C, especially among primary care physicians.
Previously, three
medicines used to treat IBS were either removed from the market or had severely reduced labeling due to safety concerns. An important
consideration in any IBS medicine is having an established safety profile. We believe new medicines indicated for chronic treatment
of CIC, IBS or OBD will have to establish a safety profile prior to extensive first line use.
RESCULA (unoprostone
isopropyl)
RESCULA® (unoprostone
isopropyl) first launched in Japan in 1994, expanded globally and is FDA approved for lowering of intra-ocular pressure, or IOP,
in open-angle glaucoma or ocular hypertension in patients who are intolerant of or insufficiently responsive to other IOP lowering
medications. RESCULA has a well-established safety profile with global utilizations in approximately 32 million patient exposure
months.
AMITIZA in the U.S. and Canada
In
October 2004, we entered into a collaboration and license agreement, or Takeda Agreement, with Takeda Pharmaceutical Company Limited,
or Takeda, to jointly develop and commercialize AMITIZA for CIC and IBS-C and other gastrointestinal indications in the U.S. and
Canada. At the time of the Takeda Agreement, we entered into a supply and a manufacturing agreement with Takeda and
R-Tech
Ueno, Ltd, or R-Tech,
a pharmaceutical research, development and manufacturing company in Japan that
is majority owned by our founders. Following FDA approval, commercial sales of AMITIZA were initiated in April 2006 for the treatment
of CIC and in May 2008 for the treatment of IBS-C. We retain, among other rights, the right to develop and commercialize AMITIZA
in the U.S. and Canada for gastrointestinal indications under the terms of the Takeda Agreement, subject to its right of first
refusal, as well as the exclusive right to develop and commercialize AMITIZA in the U.S. and Canada for all indications other
than gastrointestinal indications. In early 2006, in response to a notice of material breach sent to Takeda in 2005, we entered
into a settlement agreement which resolved certain disputes with Takeda, and a supplemental agreement, or the Supplemental Takeda
Agreement, which further defined certain rights and responsibilities of the parties, but did not supersede the terms of the Takeda
Agreement between Takeda and us, including but not limited to, Takeda’s obligation to exert its best efforts to maximize
the net sales revenues of AMITIZA.
Takeda
currently promotes AMITIZA in the U.S. to only office-based specialty and a limited number of primary care physicians. Takeda
reimburses the Company for a significant portion of our research and development activities as well as part of our co-promotion
activities. Takeda records all sales of AMITIZA within the U.S. and pays us a tiered royalty based on net sales. Takeda is primarily
responsible for the sales and marketing of AMITIZA in the U.S. Takeda has not sought approval for either CIC or IBS-C in Canada.
We are primarily responsible for AMITIZA research and development efforts and hold the new drug application, or NDA. In addition,
subject to approval from Takeda, we have the right to co-promote AMITIZA in the U.S. and Canada, and to be reimbursed by Takeda
for certain co-promotion expenses. We co-promote AMITIZA through our specialty sales force which focuses on the institutional
marketplace, including long-term care and veteran’s affairs facilities.
The reimbursement of co-promotion costs under
the Supplemental Takeda Agreement expired on May 31, 2011. Co-promotion costs after May 31, 2011 are reimbursed under the Takeda
Agreement. The previous reimbursement terms of the Supplemental Takeda Agreement were based on a per diem amount by the number
of our sales representatives in the field promoting AMITIZA. The current terms are based on actual details presented to health
care prescribers.
O
n
March 12, 2010, we submitted for filing with the International Court of Arbitration, International Chamber of Commerce, or ICC,
a demand for arbitration under the applicable provisions of the Takeda Agreement, which specify that New York law will govern
the procedural and substantive aspects of the arbitration. The arbitration hearing concluded on December 20, 2011. Under a recent
order from the ICC, the final arbitration award is expected by the end of April 2012. After the final arbitration award issues,
one or both parties will file a court action seeking confirmation of the award. We have undertaken substantial planning in anticipation
of the award. We have filed a motion for interim relief with the arbitration panel to restrain Takeda from making major unilateral
decisions prior to the final arbitration award. It is not known if the issuance of the ICC arbitration award will remain on schedule
or how long the court confirmation proceedings will take to conclude. We have spent and expect to spend significant resources
in the dispute with Takeda, and these arbitration matters may require the continuing attention of our senior management.
We are currently
pursuing approval of a third gastrointestinal indication of AMITIZA, for the treatment of either OBD or OIC in patients treated
chronically with opiates other than methadone. OBD is a condition that affects greater than 10 million people in the U.S. and
E.U. and is a significant unmet medical need. There are over 250 million opioid prescriptions written in the US alone on an annual
basis. At any given time approximately 80.0% of patients are constipated from opioid use. Our current OBD trials do not include
patients treated chronically with opiates for pain incident to cancer which would be an additional indication under the Takeda
Agreement. In February 2012, we reported that the third phase 3 trial (OBD1033) met the primary endpoint in a phase 3 clinical
trial. Patients received lubiprostone 24-mcg capsule or placebo capsule twice daily for 12 weeks. The primary endpoint was the
overall spontaneous bowel movement, or SBM, response rate. The response rate for lubiprostone-treated patients was 26.9% (n=219)
versus 18.6% (n=220) for placebo-treated patients (p=0.035). This data along with the data from a successful phase 3 efficacy
study, OBD0631, in which statistical significance (p=0.0226) was achieved for its primary endpoint will be presented to the FDA
as part of the sNDA filing in the first half of 2012. As per our agreement with Takeda, approximately half of this third phase
3 study’s expenses were funded by us. We are now evaluating the performance of additional opioid-induced bowel dysfunction
studies to include patients with cancer treated chronically with opiates other than methadone.
AMITIZA in Japan
In February 2009,
we entered into a license, commercialization and supply agreement with Abbott Japan Co. Ltd., or Abbott, for lubiprostone in Japan,
or the Abbott Agreement. Under the terms of the Abbott Agreement, Abbott received exclusive rights to commercialize lubiprostone
for the treatment of CIC in Japan and also received the right of first exclusive negotiation to any additional indications for
which lubiprostone is developed in Japan. Abbott is responsible for all commercialization efforts and expenses and we are responsible
for the development effort and expenses.
To date, we have
received a total of $22.5 million in payments from Abbott, consisting of an upfront payment and clinical and regulatory milestone
payments. We could receive additional milestone payments based on achieving other specified development and commercialization
goals, including $15.0 million due on the first commercial sale in Japan. We have retained the development right to lubiprostone
in Japan and commercialization rights to all other indications of lubiprostone and other therapeutic areas subject to Abbott’s
right of first exclusive negotiation.
In September 2010,
we submitted a NDA, in Japan with the Pharmaceuticals and Medical Devices Agency, or PMDA, for lubiprostone at a dosage strength
of 24 micrograms for the indication of CIC. We have had meetings with PMDA and anticipate a decision by the Ministry of Health,
Labor and Welfare, or MHLW, on the NDA by mid-2012. The submission includes the results of a pivotal phase 3 efficacy trial of
lubiprostone in Japanese CIC patients which met its primary endpoint with statistical significance (p<0.001) and demonstrated
a safety profile consistent with previously reported clinical lubiprostone data. The primary endpoint of this trial was a change
in the number of SBMs at the end of the first week of treatment. This pivotal, double-blinded, placebo-controlled trial evaluated
124 Japanese CIC patients each of whom received one lubiprostone 24-mcg, or placebo, capsule twice daily for 28 days. If AMITIZA
is approved for sale in Japan, it will be the first new drug indicated for constipation in Japan in more than ten years. Currently,
the total prescription market for constipation patients in Japan is approximately $483.0 million. Magnesium oxide is a leading
laxative treatment for constipation in Japan and, in 2010, generated annual sales of approximately $202.0 million. Future market
growth is expected to continue to be fueled by an increasingly older population and changes in eating and lifestyle habits.
We continue to negotiate
with third parties for commercial rights in Japan to the OBD indication; Abbott, under the terms of our agreement, will have forty-five
days to meet the terms and conditions of any third party bona fide offer.
AMITIZA in other
territories
We have 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 Europe we have submitted a filing for approval of AMITIZA to treat CIC, in the U.K and we expect a decision by the Medicines
and Healthcare products Regulatory Agency, or MHRA, in the third quarter of 2012. If we receive approval in the U.K., we will
seek approval in other European countries following the mutual recognition procedure or MRP.
AMITIZA
is approved in Switzerland for the treatment of CIC. We are currently in discussions with the Swiss Federal Office of Public Health,
or Bundesamt für Gesundheit,
or the BAG, for pricing approval. In February 2012 we commenced
marketing AMITIZA, on a limited basis, in Switzerland. We continue to evaluate the opportunity to commercialize AMITIZA within
the European Union, or E.U.
RESCULA
In April 2009, we
entered into agreements with R-Tech, to acquire for $3.5 million the development and commercialization rights to RESCULA in the
U.S. and Canada. Under these agreements, we hold the exclusive rights to commercialize RESCULA in the U.S. and Canada for its
approved indication and all new ophthalmic indications developed by us. We also have the right of first refusal to commercialize
RESCULA in the U.S. and Canada for any additional ophthalmic indication developed by R-Tech or us. We plan to re-launch RESCULA
in the U.S. for its approved indication in the event of approval of an enhanced label from the FDA.
On
March 22, 2011,
we entered into a license agreement with R-Tech for unoprostone isopropyl, expanding our development and
commercialization rights as well as our territories beyond our previously agreed territory of the United States and Canada to
the rest of the world, with the exception of Japan, Korea, Taiwan and the People’s Republic of China, or the R-Tech Territory.
We are now evaluating the opportunities to obtain an appropriate label in the E.U. and other European countries as well as obtaining
reauthorization in those countries to commercialize unoprostone isopropyl.
We plan to evaluate
conducting a phase 2a clinical trial in 2012 of unoprostone isopropyl for the indication of dry age-related macular degeneration,
or dry AMD. If this study is successful, there would need to be further studies to be completed that may take several years before
commercialization.
We continue to pursue
additional intellectual property as well as further clinical development of RESCULA. We are solely responsible for the development,
regulatory and commercialization activities and expenses for RESCULA throughout the world excluding the R-Tech Territory. R-Tech
is exclusively responsible for the supply of RESCULA to us within our licensed territories.
Our Development Programs
We are developing
prostone compounds for the treatment of a broad range of diseases. The most advanced of these programs are:
Lubiprostone (AMITIZA)
in other indications
In
September 2011, preclinical data were presented at the annual scientific meeting of the Japanese Biochemical Society, held in
Kyoto, Japan, by Sachiko Tsukita, Ph.D., Professor at the Graduate School of Frontier Biosciences and Graduate School of Medicine,
of Osaka University. These data demonstrate that lubiprostone significantly reduces expression of inflammatory cytokines (p<0.01)
vs. the control in an animal model of inflammatory bowel disease, or IBD. In addition, lubiprostone significantly (p<0.01)
protects
the intestinal epithelial barrier function
, as compared to the control. Based on this
data, we will be evaluating further studies to explore the IBD indication.
Unoprostone isopropyl
(RESCULA)
We may develop RESCULA
as a treatment for additional ophthalmic diseases including dry AMD. We initiated an exploratory clinical study for the ophthalmic
indication of dry AMD in the second quarter of 2011, which is intended to evaluate the effects of RESCULA in a small number of
patients with dry AMD. That study has concluded and we are now analyzing the data. We are considering the design of a phase 2
trial.
Other development areas
On July 8, 2011,
we obtained the development and commercial rights to a peptide compound from CuroNZ, a New Zealand company, for a loan of $100,000
that will augment our ophthalmic development opportunities. CuroNZ has start
e
d to evaluate the lead compound for use in
animal models of glaucoma and retinitis pigmentosa.
On September 8, 2011,
we entered into a research and development collaboration with Numab AG, or Numab, of Wadenswil, Switzerland. In February 2012,
we purchased certain equipment and leased it to Numab for its use in the development under the collaboration agreement. Under
the Loan Guarantee and Development Agreement with Numab, we will have access to Numab’s proprietary technology for the discovery
of high-affinity antibodies against certain selected targets. We will have exclusive commercial rights to any biologic products
successfully developed and commercialized in the course of the collaboration. We have agreed to provide Numab with up to CHF 5,000,000
as collateral for a loan to Numab from a third party. We may name up to four targets against which Numab will use their technology
to discover high-affinity antibodies and will develop these to an investigational new drug, or IND, -ready stage. Numab is eligible
for payments based on an agreed rate for the number of full time employees assigned to the development project and discovery success-dependent
fees. If a biologic is successfully developed, we may enter into a license arrangement with Numab in which they will be entitled
to clinical development milestone payments and increasing tiered royalties on net sales. We will be responsible for clinical development
and will retain all commercial rights to any resulting biologic product. Numab has commenced work on the Company’s first
target.
Product Pipeline
The table below summarizes
the development status of AMITIZA, RESCULA and several other prostone-based product candidates. We currently hold all of the commercialization
rights to the prostone compounds in our product pipeline, other than for commercialization of AMITIZA in the U.S., Canada and
Japan, which is covered by our collaboration and license agreements with Takeda and Abbott, and for RESCULA, for which we hold
all rights except in the R-Tech Territories. Commercialization may be several years after successful completion of studies.
Product/Product Candidate
|
|
Target Indication
|
|
Development Phase
|
|
Next Milestone
|
AMITIZA
® (lubiprostone)
|
|
Chronic idiopathic constipation (CIC) (adults of all ages)
|
|
Marketed in the U.S.
|
|
_____
|
|
|
|
|
|
|
|
|
|
|
|
Marketed in Switzerland
|
|
Pricing negotiations with government ongoing
|
|
|
|
|
|
|
|
|
|
|
|
Marketing Authorization Application (MAA) submitted in 2011 in UK
|
|
MAA approval
|
|
|
|
|
|
|
|
|
|
|
|
New Drug Application (NDA) submitted in 2010 to authorities (PMDA) in Japan, and updated in early 2011 with results of long-term safety study
|
|
Approval of NDA, to be followed by pricing negotiations with government
|
|
|
|
|
|
|
|
|
|
Irritable bowel syndrome with constipation (adult women) (IBS-C)
|
|
Marketed in the U.S.; phase 4 study on higher dosage and with additional male subjects
|
|
_____
|
|
|
|
|
|
|
|
|
|
Pediatric constipation
|
|
Open-labeled clinical study completed in patients 3
–
17 years
|
|
Initiate well-controlled Phase 3 clinical studies
|
|
|
|
|
|
|
|
|
|
Inflammatory bowel disease (IBD)
|
|
Preclinical
|
|
_____
|
|
|
|
|
|
|
|
|
|
Opioid-induced bowel dysfunction (OBD) or opioid-induced constipation (OIC) in patients with chronic non-cancer pain
|
|
Phase 3 completed
|
|
NDA submisison (U.S. and EU)
|
|
|
|
|
|
|
|
|
|
Opioid-induced bowel dysfunction (OBD) in cancer patients
|
|
Phase 3 clinical trial design underway
|
|
Initiation of phase 3 clinical trial
|
|
|
|
|
|
|
|
RESCULA ®
(unoprostone isopropyl)
|
|
Dry age-related macular degeneration (dry AMD)
|
|
Phase 2a completed
|
|
Analyze results
|
|
|
|
|
|
|
|
|
|
|
|
Phase 2b clinical trial design underway
|
|
Updated label and reauthorization in the EU and Switzerland
|
|
|
|
|
|
|
|
|
|
Glaucoma and ocular hypertension
|
|
Approved in the U.S.
|
|
Updated label
|
|
|
|
|
|
|
|
|
|
Retinitis pigmentosa
|
|
Orphan drug status achieved in the U.S. On going phase 2b trial by R-Tech
|
|
Awaiting results of R-Tech trial in this indication
|
|
|
|
|
|
|
|
Cobiprostone
|
|
Gastrointestinal
|
|
|
|
|
|
|
Oral mucositis
|
|
Formulation development
|
|
Initiate phase 1a/b studies
|
|
|
|
|
|
|
|
|
|
Prevention of non-steroidal anti-inflammatory drug (NSAID)-induced ulcers
|
|
Phase 2 completed
|
|
Evaluating phase 2 results
|
|
|
|
|
|
|
|
|
|
Inflammatory bowel disease (IBD)
|
|
Preclinical
|
|
Evaluating preclinical results
|
|
|
|
|
|
|
|
|
|
Pulmonary
|
|
|
|
|
|
|
Chronic obstructive pulmonary disease (COPD)
|
|
Preclinical
|
|
Evaluating next steps
|
|
|
|
|
|
|
|
|
|
Cystic Fibrosis
|
|
Phase 2a completed
|
|
Evaluating next steps
|
|
|
|
|
|
|
|
|
|
Dermatology
|
|
|
|
|
|
|
Wound Healing
|
|
Preclinical
|
|
Evaluating next steps
|
|
|
|
|
|
|
|
SPI-3608
|
|
Spinal stenosis
|
|
Preclinical
|
|
Initiate phase 1 trial
|
|
|
|
|
|
|
|
SPI-017
|
|
Spinal stenosis
|
|
Phase 1 completed
|
|
Evaluating phase 2 design
|
|
|
|
|
|
|
|
|
|
Peripheral arterial disease (PAD)
|
|
Phase 1 completed
|
|
Evaluating phase 2 design
|
Acquisition
activities
Following
our acquisition of Sucampo AG, or SAG, in December 2010, a patent-holding company based in Switzerland, we continue integrating
SAG for future operational efficiencies through a simplified group structure and consolidation of intellectual property. On June
10, 2011,
Sucampo Manufacturing & Research AG, or SMR, a direct wholly owned subsidiary of us, was merged into SAG,
and
SAG assumed all existing obligations of SMR. On June 28, 2011,
Sucampo AG Japan, or SAG-J,
an indirect wholly owned subsidiary of us, merged into Sucampo Pharma, Ltd., or SPL, and SPL assumed all existing obligations
of SAG-J. On September 29, 2011, our subsidiaries SPA, SPL and Sucampo Pharma Europe Ltd, or SPE transferred certain intellectual
property and licenses to SAG, and SAG entered into agreements with the subsidiaries to perform certain services for the subsidiaries
related to the intellectual property, licenses and other business activities.
Patent, manufacturing,
license and supply arrangements
We are party to exclusive
supply arrangements with R-Tech to provide us with clinical and commercial supplies of RESCULA and clinical supplies of AMITIZA,
cobiprostone and SPI-017. These arrangements include provisions requiring R-Tech to assist us in connection with applications
for marketing approvals for these compounds world-wide, including assistance with regulatory compliance for chemistry, manufacturing
and controls.
AMITIZA
®
(lubiprostone)
Overview
AMITIZA is the only
prescription product that has been approved by the FDA for the chronic treatment of CIC in adults of both genders and for IBS-C
in women aged 18 years and older with demonstrated safety and effectiveness for use beyond 12 weeks. We will be filing for FDA
approval for the treatment of OBD in mid-2012.
Chronic Idiopathic
Constipation (CIC)
Disease Overview.
Constipation is characterized by infrequent and difficult passage of stool and becomes chronic when a patient suffers
specified symptoms for over 12 non-consecutive weeks within a 12-month period. Chronic constipation is idiopathic if it is not
caused by other diseases or by use of medications. Symptoms of CIC include straining, hard stools, bloating and abdominal pain
or discomfort.
Current Treatment.
Some patients suffering from occasional constipation may be treated with lifestyle modification, dietary changes and increased
fluid and fiber intake, although there is very limited well-controlled clinical trial data in support of these alternatives in
CIC or IBS-C patients. For patients who fail to respond to these approaches, physicians typically recommend laxatives, most of
which are available OTC for acute use. The most commonly used laxatives can be categorized as stimulants, stool softeners, bulk-forming
agents, osmotics or lubricants. These agents do not have approved indications for long-term use by CIC or IBS-C patients. MiraLAX
(polyethylene glycol 3350), an osmotic, was approved in late 2008 for sale as an OTC treatment for up to seven days. In addition,
lubricants, such as orally administered mineral oil, can be inconvenient and unpleasant for patients to ingest. For those patients
who fail to respond to laxatives, Zelnorm
®
(tegaserod maleate), a 5-HT
4
serotonin-receptor agonist, was often prescribed. However, in March 2007, at the request of the FDA, Zelnorm was withdrawn
from the U.S. market by Novartis. The FDA requested that Novartis discontinue marketing Zelnorm based on a finding of an increased
risk of serious cardiovascular adverse events associated with its use. Zelnorm has subsequently been withdrawn from most international
markets as well. As noted before, AMITIZA is the only FDA approved chronic therapy for CIC and there are no OTC therapies with
approved indications for long-term use for CIC or IBS-C. Acute use laxatives have never been demonstrated as either safe or effective
in chronic use and some trials of osmotic laxatives have demonstrated the risk and inappropriateness of their chronic use in CIC.
Market Opportunity.
Studies published in
The American Journal of Gastroenterology
estimate that approximately 42.0 million people in
the United States suffer from some form of constipation. Constipation becomes chronic when a patient suffers specified symptoms
for more than 12 non-consecutive weeks within a 12-month period. Chronic constipation is deemed idiopathic if it is not caused
by other diseases or by use of medication. AMITIZA is the only FDA approved prescription therapeutic product for the treatment
of CIC in adults of both genders with demonstrated safety and effectiveness for chronic use. CIC sufferers include a gender-balanced
level of males and females but the severity and prevalence of CIC tends to increase with age. By the time most CIC patients seek
care from a physician, they have typically tried dietary and lifestyle changes as well as a number of available OTC, remedies
and remain unsatisfied. OTC medications include laxatives, stool softeners or fiber supplementation. While some of these OTC therapies
offer limited success in acute transit-related symptoms, they often lose effect over time and offer limited effect on CIC symptoms.
For the most part OTC remedies have limited evidence of success in chronic treatment of IBS-C or CIC. Some OTC remedies pose significant
issues of dependency, habituation and/or side effects. Chronic use of OTC medications is off label and is not supported by long-term,
well-controlled pivotal clinical trial data. Fiber and laxatives can exacerbate bloating and abdominal pain, the same symptoms
from which many patients are seeking relief and which are the most troubling to treat.
In 2011, AMITIZA
generated net sales of $226.4 million in the U.S.; AMITIZA prescriptions grew by 6.6% from 2010 to 2011. However despite Takeda’s
failure to use best efforts to maximize net sales, we believe AMITIZA, with a competitive marketing and sales campaign, still
has great potential for future growth in the US given:
|
·
|
CIC,
IBS-C and OBD are
large, fundamentally
under-served patient
populations;
|
|
·
|
Available
epidemiology indicates
that approximately
12-19% (37 million
to 59 million) of
people in the US
suffer from some
form of constipation;
|
|
·
|
We
estimate that over
14 million patients
suffer from IBS-C;
|
|
·
|
We
estimate that approximately
12 million patients
are seeking care
and have sought
care and/or been
diagnosed with constipation
or IBS by their
physician;
|
|
·
|
There
are approximately
12 million CIC and
IBS-C patients who
have sufficiently
severe disease to
actively seek chronically
effective therapeutic
relief on a more
or less daily basis;
|
|
·
|
These
12 million most-in-need
patients regularly
self-medicate with
OTC laxatives;
|
|
·
|
Most
of these 12 million
patients are dissatisfied
with such OTC therapies;
|
|
·
|
We
believe , today
only a small fraction,
3%, of the millions
of the patients
with at least one
diagnosis claim
for either constipation
or IBS, as defined
by ICD-9 codes,
have filled a prescription
for AMITIZA .
|
|
·
|
There
were 245 million
courses of therapy
dispensed or purchased
for constipation
or IBS-C;
|
|
·
|
A
much higher fraction
of CIC and IBS-C
patients who have
gotten access to
AMITIZA report satisfaction
with therapy than
the fraction of
patients reporting
satisfaction with
therapy who only
get access to off-label/OTC
remedies;
|
|
·
|
Many
of the patients
who receive AMITIZA
annually, report
greater satisfaction
with AMITIZA than
with any other therapeutic
option for IBS-C
or CIC;
|
|
·
|
AMITIZA
had an average length
of therapy per patient
of approximately
155 days compared
to approximately
132 days for Zelnorm;
|
|
·
|
Laxatives
are only labeled
by the FDA for short
term use in the
treatment of occasional
(i.e., self-limited,
non-chronic) constipation
and are not indicated
for the chronic
treatment of IBS-C,
CIC or OBD;
|
|
·
|
We
believe that the
clinical evidence
supporting off label
use of laxatives
in CIC and IBS-C
is inadequate, because
the long term safety
and efficacy of
laxatives have not
been established
in long-term well-controlled
repeated clinical
trials;
|
|
·
|
Laxatives
are not recommended
for use in U.S.
professional IBS-C
treatment guidelines;
|
|
·
|
We
believe that there
is no professional
treatment guideline
that has indicated
that the highest
level of clinical
evidence —
repeated, rigorous,
robust, well designed,
well controlled
and statistically
significant clinical
trials reviewed
and approved by
an independent regulatory
agency – is
available to support
the off label chronic
use of OTC/Rx laxatives
in CIC or IBS-C
as safe and effective;
|
|
·
|
Recent
studies and a formal
finding by the FDA
also indicate that
electrolyte imbalances,
in particular serum
hyperphosphatemia,
caused by improper
fluid and electrolyte
handling induced
by acute use of
osmotic laxatives,
can acutely induce
irreversible kidney
damage and death;
|
|
·
|
This
finding along with
the lack of long-term
safety data of OTC
osmotic laxatives
in CIC or IBS-C
patients, underscore
the safety concerns
posed by off-label
chronic use of osmotic
laxatives that the
FDA suggests is
associated with
hyperphosphatemia;
|
|
·
|
In
published surveys,
CIC and IBS-C patients
report wanting safe,
reliable, chronic,
relief of multiple
symptoms including
bloating, pain,
straining and abdominal
discomfort;
|
|
·
|
In
published surveys,
almost half of laxative
users indicate ineffective
relief of multiple
symptoms whereas
AMITIZA has shown
efficacy in treatment
of multiple symptoms
in CIC and IBS-C;
|
|
·
|
AMITIZA
is expected to be
the first oral medicine
approved for chronic
use in OBD;
|
|
·
|
OBD
is a severe form
of constipation
affecting up to
80% of patients
taking opioids;
|
|
·
|
OBD
negatively impacts
the quality of life
in non-cancer pain
patients;
|
|
·
|
Some
patients discontinue
opioid therapy and
thereby endure pain
rather than suffer
from the constipation
the opioids cause;
|
|
·
|
We
believe that all
OBD patients are
currently in the
care of physicians
and that physicians
want to better treat
this side effect;
|
|
·
|
OBD
occurs in approximately
4 million chronic
non-cancer pain
suffers; and
|
|
·
|
There
are over 200 million
prescriptions for
opioids in the US
and a substantial
number of these
are for patients
with non-cancer
pain.
|
Irritable Bowel
Syndrome with Constipation (IBS-C)
Disease Overview.
Irritable bowel syndrome is a disorder of the intestines with symptoms that include severe cramping, pain, bloating and
changes of bowel habits, such as diarrhea or constipation. Patients diagnosed with irritable bowel syndrome are commonly classified
as having one of four forms: IBS-C, irritable bowel syndrome with diarrhea, mixed-pattern irritable bowel syndrome alternating
between constipation and diarrhea and unspecified irritable bowel syndrome. Currently, irritable bowel syndrome in all its forms
is considered to be one of the most common gastrointestinal disorders.
Current Treatment.
Most treatment options for IBS-C focus on addressing separate symptoms, such as pain or infrequent bowel movements. Some
patients suffering from IBS-C may be successfully treated with dietary measures, such as increasing fiber and fluid intake, and
these treatments are generally tried first. If these measures prove ineffective, laxatives are frequently used for the management
of this condition though they are not approved for IBS-C. Zelnorm was the only FDA approved drug indicated for the treatment of
IBS-C before it was withdrawn in March 2007. As noted above, AMITIZA is now the only FDA approved therapy for the treatment of
IBS-C in women aged 18 years and older.
Market Opportunity.
According to
The American College of Gastroenterology
, irritable bowel syndrome affects 58.0 million people in
the United States. IBS-C accounts for approximately one third of these cases or about 19.0 million patients in the U.S. Obtaining
a diagnosis of IBS-C can take multiple primary care physician visits and oftentimes a referral to a gastroenterology specialist
before a diagnosis is made. According to IMS Health, there were approximately 2.0 million annual patient visits for IBS in 2009
in the United States. These numbers of diagnosed annual patient visits were down from a peak in 2006 of annual IBS patient visits
of 3.2 million when Zelnorm was on the market in the United States. AMITIZA is currently the only approved prescription product
for the chronic treatment of IBS-C in the U.S for women aged 18 years and older.
Opioid-induced
Bowel Dysfunction (OBD) or opioid-induced constipation (OIC)
Disease Overview.
OBD comprises a variety of gastrointestinal side effects, the most prominent of which include constipation and related
symptoms, that originate from the use of narcotic medications (opioids) such as morphine. Physicians prescribe opioids for patients
with advanced illnesses, such as cancer and AIDS, patients undergoing surgery and patients who experience chronic pain. Despite
their pain-relieving effectiveness, opioids are known to produce gastrointestinal side effects that lead to opioid-induced constipation.
These include inhibition of large intestine motility, decreased gastric emptying and hard stools. OIC is the predominate subset
of OBD.
Current Treatment.
Current treatment options for OBD include the use of stool softeners, enemas, suppositories and peristaltic stimulants
such as senna, which stimulate muscle contractions in the bowel. The effectiveness of these products for the treatment of OBD
is limited due to the severity of the constipation caused by opioids. In addition, physicians often cannot prescribe peristaltic
stimulants for the duration of narcotic treatment because of the potential for dependence upon these stimulants. The FDA recently
approved Relistor (methylnaltrexone bromide) for OIC in patients with late-stage and advanced illness experiencing severe constipation.
However, Relistor is available only as an injectable medication and is not recommended for patients with known or suspected intestinal
obstructions. Common side effects of Relistor include abdominal pain, gas, nausea, dizziness and diarrhea.
Market
Opportunity.
In 2008,
epidemiology researchers at Boston University estimate that opioids are used by more than
10 million American adults. Of those, approximately 4.3 million U.S. adults are regular users, taking opioids at least five days
per week for a minimum of four weeks. Constipation is a recognized common side-effect of opioid use. While estimates of constipation
vary across numerous studies, Kalso, et al. report in an extensive meta-analysis of non-cancer opioid use published in PAIN that
41.0% of opioid patients experience constipation as an adverse event.
Opioid drugs are
known to increase absorption of electrolytes, including chloride, in the small intestine, resulting in the constipating effects
of these analgesics.
We believe that AMITIZA, as a chloride channel activator, may directly counteract
this side effect without interfering with the analgesic benefits of opioids. As a result, we believe that AMITIZA, if approved
for the treatment of OBD or OIC, could hold a competitive advantage over drugs that do not work through this mechanism of action.
Development
Status.
In September 2007, we initiated two pivotal phase 3 clinical trials, OBD0631 and OBD0632, of orally administered
AMITIZA for the treatment of OBD. A total of 873 participants were enrolled at 187 participating sites in the U.S. and Canada.
These phase 3 pivotal trials were designed as double-blind, randomized, 12-week clinical trials to demonstrate the efficacy and
safety of AMITIZA for the treatment of OBD in adults using twice daily doses of 24 mcg each. The primary efficacy endpoint for
these trials was the change from baseline in SBM frequency at week 8. In addition, several secondary endpoints included the change
from baseline in SBM frequency at week 12 and overall; percentage of patients with a first post-dose SBM within 24 hours or 48
hours; overall responder rates; overall mean change from baseline in straining, stool consistency, constipation severity, abdominal
bloating, abdominal discomfort, bowel habit regularity, and overall treatment effectiveness. Top-line results of these two phase
3 trials, reported in July 2009, showed that in one trial, OBD0631, lubiprostone met the primary endpoint in a statistically significant
manner (p=0.0226). Although a positive treatment effect in favor of AMITIZA was reported, study OBD0632 did not achieve statistical
significance for the primary endpoint. With respect to the conduct of study OBD0632, we filed a lawsuit against the contract research
organization, or CRO, for its malperformance under the contract. A third confirmatory study was conducted and recently completed
to further evaluate the safety and efficacy of AMITIZA in OBD patients.
In study OBD0631,
subjects treated with lubiprostone showed a statistically significant increase in the frequency of SBMs at Week 8 from their baseline,
from 1.42 to 4.54 SBMs. A similar result was observed in OBD0632 (change from baseline of 1.60 SBMs per week to 4.10 SBMs at Week
8) but did not achieve statistical significance.
Among the key results
from OBD0631 were:
|
·
|
The
primary efficacy
endpoint, the change
from baseline in
SBM frequency at
Week 8 in patients
without reduction
in dose of study
medication, was
met with statistical
significance (p=0.0226)
by patients taking
lubiprostone (n=167)
as compared to
placebo (n=169).
|
|
·
|
Patients
taking lubiprostone
achieved a statistically
significant (p=0.02)
greater increase
in the mean number
of SBMs per week
in 8 of the 12
weeks of the trial,
as compared to
placebo patients.
|
|
·
|
The
percentage of patients
who achieved a
SBM within 24 hours
and 48 hours was
significantly higher
with lubiprostone
as compared to
placebo (p=0.0126
at 24 hours, and
p=0.0360 at 48
hours).
|
|
·
|
Statistical
significance was
achieved for the
overall change from
baseline in constipation-associated
symptom endpoints
including: constipation
severity (p=0.0006);
stool consistency
(p<0.0001); abdominal
discomfort (p=0.0246);
and, straining (p<0.0001).
|
|
·
|
The
most commonly reported
adverse events
in this trial were
nausea, diarrhea,
and abdominal distension.
Overall 4.6% of
patients (3.2%
placebo vs. 5.9%
lubiprostone) discontinued
due to an adverse
event.
|
Study OBD0632 did
not meet the primary endpoint with statistical significance. However, statistically significant improvements with lubiprostone
were achieved for two of the secondary endpoints and positive trends were observed in four of the other secondary endpoints.
In both trials, a
post-hoc sub-population analysis showed that subjects on methadone treatment regimens who were randomized to receive lubiprostone
showed a lower SBM response when compared to lubiprostone patients treated with other opioid medications. Additionally, in both
trials, methadone patients treated with lubiprostone did not show improvement in OBD symptomatic endpoints while lubiprostone
patients treated with other opioids showed statistically significant improvement in abdominal discomfort/pain, constipation severity,
stool consistency and straining over the placebo.
The overall adverse
event rate for the combined trials was 54.9% for lubiprostone and 51.6% for placebo. The most common adverse events were nausea,
15.0% for lubiprostone compared to 7.5% for placebo, and diarrhea, 8.5% for lubiprostone compared to 3.7% for placebo.
Based on a subsequent meeting with the
FDA, we decided to conduct one additional phase 3 efficacy study in order to submit a sNDA for the OBD indication. This third
phase 3 study of lubiprostone to evaluate its effectiveness as a treatment of OBD was initiated in December 2010 and was completed
in December 2011. In February 2012, we reported that the third phase 3 trial (OBD1033) met the primary endpoint. Patients received
lubiprostone 24mcg capsule or placebo capsule twice daily for 12 weeks. The primary endpoint was the overall SBM response rate.
The response rate for lubiprostone-treated patients was 26.9% (n=219) versus 18.6% (n=220) for placebo-treated patients (p=0.035).
This data along with the data from a successful phase 3 efficacy study, OBD0631, in which statistical significance (p=0.0226)
was achieved for its primary endpoint and the accompanying long-term safety trial will be presented to the FDA as part of the
sNDA filing in the first half of 2012 and the regulatory authorities in Europe with request for an expedited review. As per our
agreement with Takeda, approximately half of this third phase 3 study’s expenses were funded by us.
RESCULA (unoprostone isopropyl)
Overview
RESCULA
was approved by the FDA, in 2000,
for lowering of IOP in open-angle glaucoma and ocular hypertension in patients who are
intolerant of or insufficiently responsive to other IOP lowering medications
. RESCULA is not currently
marketed in the United States or Canada. In September 2010, RESCULA received an Orphan Drug designation from the FDA for retinitis
pigmentosa. We plan to re-launch RESCULA in the U.S. for its approved indication in the event of approval of an enhanced label
from the FDA. To facilitate this launch, we have placed an order with R-Tech.
RESCULA is a synthetic
docosanoid that is administered topically as a liquid eye drop. It activates the BK channel in cells within the retina and facilitates
aqueous humor outflow and lowers intraocular pressure by means of increased vascular perfusion facilitated by inhibition of the
action of endothelin. By direct inhibition of the effect of endothelin and other vasoconstrictors, RESCULA relaxes contractile
cells in the trabecular meshwork, which decreases resistance across the trabecular outflow pathway. To a smaller extent, RESCULA
increases uveoscleral outflow, by relaxing the ciliary muscle, which permits easier passage of aqueous humor into the suprachoroidal
space and by facilitating bulk post vitreal aqueous humor flow by improving choroidal blood flow. RESCULA’s BK channel stimulation
demonstrably increases choroidal blood flow which is thought to promote aqueous humor fluid and waste product uptake by the choroid
to lower IOP. Clinical studies have shown that in patients with a mean baseline IOP of 23 mm Hg unoprostone isopropyl lowers IOP
by approximately 3 to 4 mm Hg through the day.
In clinical and preclinical
studies, RESCULA has increased ocular blood flow to the optic nerve and in the choroid; maintained visual field; delayed retinal
degeneration induced by rhodoposin; inhibited topographic and blood changes in an ischemic optic nerve head; and lowered intraocular
pressure. We believe that these clinical effects suggest that RESCULA could potentially be effective in the treatment of other
ocular diseases such as dry AMD.
Potential Indication
Dry
AMD
.
According to the National Eye Institute, or NEI, more
than 8 million people in
the U.S. currently have AMD, a disease which causes damage to the retina resulting in loss of vision. AMD is the leading cause
worldwide of irreversible blindness in adults. The prevalence of AMD in the U.S. is expected to increase by more than 50.0%, to
approximately 12 million by 2020, as the population age
s according to a report published by Visiongain Ltd
.
More than 85.0% of all people with intermediate and advanced AMD have the dry form
based on information developed by the
NEI
.
AMD is a disease
associated with aging that gradually destroys sharp, central vision. Central vision is needed for seeing objects clearly and for
common daily tasks such as reading and driving. AMD affects the macula, the part of the eye that allows the seeing of fine detail.
The macula is located in the center of the retina, the light sensitive tissue at the back of the eye. The retina instantly converts
light, or an image, into electrical impulses or nerve signals, which are sent to the brain. Dry AMD occurs when the light-sensitive
cells in the macula slowly break down, gradually blurring central vision in the affected eye. The most common symptom of dry AMD
is slightly blurred vision and a need for more light to read and do other tasks. Dry AMD affects both eyes, but vision can be
lost in one eye while the other eye seems unaffected. Currently no drugs have been approved by the FDA for the treatment of dry
AMD. Based on the mechanism of action of unoprostone isopropyl, we believe that RESCULA has the potential to be a treatment for
dry AMD. We are currently awaiting the results of our phase 2a clinical trial of RESCULA for dry AMD.
Cobiprostone
Overview
We are developing
the prostone compound cobiprostone for oral administration to treat various gastrointestinal and liver disorders, including NSAID-induced
ulcers. Based on the preclinical data, we believe that cobiprostone has wound healing effects and could also be developed for
IBD. We are also developing an inhaled formulation of cobiprostone for the treatment of respiratory symptoms of cystic fibrosis
and chronic obstructive pulmonary disease. We believe that cobiprostone, like AMITIZA, is an activator of the chloride ion channel
ClC-2, which is known to be present in gastrointestinal, liver and lung cells. In addition, we are developing cobiprostone as
a treatment for oral mucositis based on results from preclinical studies.
Oral Mucositis
Disease Overview.
Oral Mucositis refers to the inflammation of oral mucosa resulting from chemotherapy, or CT, and or radiation therapy,
or RT. Oral Mucositis (or tissue swelling) symptoms include mouth pain, sores, infection, and bleeding. The condition is typically
manifested as erythema or ulcerations, and may be exacerbated by local factors. Erythematous mucositis typically appears 7-10
days after initiation of high-dose cancer therapy. Oral mucositis is the primary dose limiting side effect that accounts for greater
than 60.0% of the treatment interruptions. Other resulting outcomes of oral mucositis include weight loss, use of feeding tube,
hospitalization and dysphagia. RT patients for Head and Neck Cancer, or HNC, are at high risk of developing oral mucositis in
the 89.0%-100.0% range depending on if the radiation therapy is in combination with chemotherapy or altered fractionation RT.
RT or chemotherapy receiving other cancer patients will have some level of OM (1.0%-53.0%) during the course of the treatment
(e.g., 53% in GI cancers, 46% in esophageal cancer). Some chemotherapies have a higher incidence of grade 3-4 oral mucositis (e.g.
Docetaxel/5FU – 66.0%)
Current Treatment.
Oral mucositis current treatment includes basic oral care, cryotherapy, topical rinses such as lidocaine and MuGuard and
Kepivance (palifermin), a growth factor. None of the above products have been completely successful in treating mucositis and
a high unmet medical need exists.
Market Opportunity.
There are approximately 350,000 head and neck cancer patients worldwide including approximately 100,000 in the U.S. While
this is an orphan indication, 89.0%-100.0% of this population will get oral mucositis. In addition there are >4M stage 3-4
cancer patients worldwide (>1m in US) that are receiving high doses of CT or a combination of CT/RT that develop oral mucositis
1.0%-53.0% of the time.
Development
Status.
We have completed a preclinical study of cobiprostone in animals and have obtained positive results. Currently
the spray formulation is under development and we expect to conduct phase 1a/b study in 2012.
Marketing and Sales
AMITIZA
Takeda Collaboration
Under
the Takeda Agreement, we and Takeda jointly develop and Takeda commercializes AMITIZA for gastrointestinal indications in the
U.S. and Canada. We have limited co-promotion rights under the agreement. Takeda does not have the right to manufacture AMITIZA.
We also entered into ancillary agreements: a supply and manufacturing agreement with Takeda and R-Tech, under which R-Tech manufactures
and Takeda purchases all supplies of the product from R-Tech; and an intellectual property agreement with Takeda. We also entered
into a settlement agreement and Supplemental Takeda Agreement which resolved certain disputes with Takeda and further defined
certain rights and responsibilities of the parties, including the right of Sucampo to employ a specialty sales force focused on
the institutional marketplace and specialist physicians based in hospitals, long-term care facilities and Department of Defense
facilities.
Through the Supplemental Takeda Agreement, Takeda was responsible for, among other things, development of publications,
abstracts, and manuscripts directed primarily to the scientific community; developing publications on general disease states or
quality-of-life issues; retaining or employing a dedicated sales force in both the primary and secondary positions for promotion
of AMITIZA for CIC; and reimbursement of certain stated amounts for our limited sales force deployed in the primary position to
institutional customers.
Development Costs.
Under the Takeda Agreement, Takeda funds all development costs for AMITIZA as a treatment for CIC and IBS-C up to $30.0 million.
We have received this full amount. We are required to fund the next $20.0 million in development costs for these two indications,
and all development costs in excess of $50.0 million are shared equally between Takeda and us. In addition, Takeda and we share
equally in all external costs of regulatory-required studies up to $20.0 million, with Takeda funding any remaining costs related
to such studies. For development of any additional indications beyond CIC and IBS-C and for development of new formulations of
AMITIZA, Takeda has agreed to fund all development costs, including regulatory-required studies, to a maximum of $50.0 million
for each new indication and $20.0 million for each new formulation. Takeda and we have agreed to share equally all costs in excess
of these amounts. With respect to any studies required to modify or expand the label for AMITIZA for the treatment of CIC or IBS-C,
Takeda has agreed to fund 70% of the costs of such studies and we have agreed to fund the remainder. The development costs for
AMITIZA for the treatment of CIC in pediatric patients will be funded entirely by Takeda. From inception of the Takeda Agreement
to December 31, 2011, Takeda paid an aggregate of $97.1 million in research and development reimbursement payments.
Commercialization
Funding Commitment.
Takeda is obliged to maintain a specific level of funding for activities in relation to the commercialization
of AMITIZA. If we and Takeda determine to conduct a full-scale direct-to-consumer television advertising campaign for AMITIZA,
Takeda’s funding obligation for commercialization activities will be a minimum of $80.0 million per year for three years.
After the three year period, or during April 2011, the joint commercialization committee will agree upon the level of funding.
If there is no full-scale direct-to-consumer advertising campaign in a 12-month period, the total commercialization funding commitment
will at a minimum be $40.0 million per year for a three year-period following the NDA approval for the IBS-C indication.
Promotion and
Marketing.
Takeda is required to provide the sales force necessary to fulfill its best effort obligations under the agreement.
In addition, Takeda is required to perform specified minimum numbers of professional product detail meetings with certain health
care professionals throughout the term of the agreement depending upon the indications for which AMITIZA has been approved.
Co-Promotion
Rights.
Under the license agreement, we retain the right to co-promote AMITIZA for gastrointestinal indications under the
terms of the collaboration and license agreement with Takeda, as well as the exclusive right to develop and commercialize AMITIZA
in the U.S. and Canada for all indications other than gastrointestinal indications. The reimbursement of co-promotion costs under
the Supplemental Takeda Agreement expired on May 31, 2011. Co-promotion costs after May 31, 2011 are reimbursed under the Takeda
Agreement.
The previous reimbursement terms of the Supplemental Takeda Agreement were based on a per diem reimbursement
by number of sales representatives in the field promoting AMITIZA. The current terms are based on actual details presented to
health care prescribers.
Licensing Fees,
Milestone Payments and Royalties.
Takeda made an upfront payment of $20.0 million in 2004 and has paid total development milestone
payments of $130.0 million through December 31, 2011. Subject to reaching future development and commercial milestones, we are
entitled to receive an additional $10.0 million development milestone payment upon commercial launch of the OBD indication and
up to $50.0 million in commercial milestone payments. Takeda records all sales of AMITIZA and pays us a tiered royalty based on
net sales of AMITIZA in the U.S. and Canada.
Administration.
Our collaboration with Takeda is administered in part by four committees consisting of an equal number of representatives
from both companies. These consist of a joint steering committee, which considers any conflicts arising within the other committees;
a joint development committee; a joint commercialization committee; and, a joint manufacturing committee. In the case of a deadlock
within the joint steering committee, our chief executive officer has the determining vote on matters arising from the joint development
and manufacturing committees, while the chief operating officer of Takeda has the determining vote on matters arising from the
joint commercialization committee. If disputes relating to an alleged breach of the agreement arise that are resolved by the chief
executive officer of our company and chief operating officer of Takeda, those disputes are resolved under the breach, termination
and arbitration provisions of the agreement.
New Indications.
Takeda has a right of first refusal to obtain a license to develop and commercialize AMITIZA in the U.S. and Canada for any
new gastrointestinal indications that we may develop, such as OBD or OIC. We retain the rights to AMITIZA for all other therapeutic
areas. Takeda has not sought approval for either CIC or IBS-C in Canada.
If one of our subsidiaries
or licensees wishes to use certain proprietary data or information developed under the collaboration with Takeda outside the U.S.
or Canada, for example in support of a regulatory filing in Europe or Asia, we are obligated to pay to Takeda upon the first commercial
sale a certain one-time fee for the use of such data or information. The amount of the fee for each territory is to be agreed
between us and Takeda.
Term.
The
Takeda Agreement continues until 2020 unless terminated earlier. We may terminate the agreement if Takeda fails to achieve specific
levels of net sales revenue or if Takeda comes under the control of another party and launches a product competitive with AMITIZA.
Alternatively, either party has the right to terminate the agreement in the following circumstances:
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a
material breach
of the agreement
by the other party
that is not cured
within 90 days
of notice thereof,
or 30 days in the
case of a breach
of payment obligations;
|
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·
|
a
change of control
of the other party
in which the new
controlling party
does not expressly
affirm its continuing
obligations under
the agreement;
or
|
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insolvency
of the other party.
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Abbott Collaboration
In February 2009,
we entered into a 19-year license, commercialization and supply agreement with Abbott to develop and commercialize lubiprostone
for the treatment of CIC in Japan. The Abbott Agreement also grants Abbott the right of first exclusive negotiation to any additional
indications for which lubiprostone is developed in Japan under all relevant patents, know-how and trademarks. We have retained
all other rights to AMITIZA in Japan.
Development Costs.
We are required to fund and complete all the development work including additional clinical studies required to obtain regulatory
approval for the treatment of CIC in Japan. We own all the rights covered under the regulatory filings.
Commercialization
Funding Commitment.
Abbott is required to fund and undertake all commercialization efforts including pre-launch and post-launch
marketing, promotion and distribution. Abbott is required to maintain the number of sales staff and the estimated level of annual
net sales based on the commercialization plan to be developed and approved by the joint commercialization and steering committee
described below.
Co-Promotion Rights.
We have retained the right to co-promote the product in Japan and all other development and commercialization rights to all
other therapeutic areas and are responsible for the cost of co-promotion.
Licensing Fees
and Milestone Payments.
Abbott made an upfront payment of $10.0 million in 2009 and has paid total development milestone payments
of $12.5 million through December 31, 2011, which includes a $5.0 million milestone payment as a result of submitting a marketing
application to the PMDA in September 2010. The next milestone of $15.0 million is due upon the first commercial sale in Japan.
There can be no assurances that we will receive additional development or commercial milestone payments under our agreement with
Abbott.
Product Revenue.
Once AMITIZA is commercialized in Japan, we will purchase and assume title to inventories of AMITIZA and recognize revenues
from the sales, to Abbott, of such product when earned.
Administration.
Our collaboration efforts under the Abbott Agreement are administered by two committees consisting of an equal number of representatives
from both parties. The joint commercialization and steering committee oversees commercialization-related activities and resolves
any conflicts arising from a joint development committee, which oversees the development-related activities in Japan. The dispute
mechanism under the Abbott Agreement provides Abbott with final decision regarding disputes over commercialization of the products,
while we have the same rights with respect to disputes over the development of the product.
New Indications.
Abbott has a right of first exclusive negotiation to obtain a license to develop and commercialize AMITIZA in Japan for any
new indications that we may develop, such as OBD or OIC. We retain the rights to AMITIZA for all other therapeutic uses.
Term.
The
Abbott Agreement continues until 2027 unless terminated earlier. Either party has the right to terminate the agreement in the
following circumstances:
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a
material breach of the agreement
by the other party that is
not cured within 90 days
of notice, or
|
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insolvency
of either party.
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Intellectual Property
Our success depends
in part on our ability, and that of R-Tech, to obtain and maintain proprietary protection for the technology and know-how upon
which our products are based, to operate without infringing on the proprietary rights of others and to prevent others from infringing
on our proprietary rights.
Through
our December 2010 acquisition of SAG, we hold the ownership rights to develop and commercialize lubiprostone and many other prostone
compounds covered by patents and patent applications held by SAG. In addition d
uring 2011 we consolidated our intellectual
property within SAG.
Our portfolio of patents includes patents or patent applications with claims directed
to compositions of matter, including both compounds and pharmaceutical formulations, or methods of use, or a combination of these
claims, or methods of manufacturing lubiprostone, cobiprostone, SPI-017 and SPI-3608. These include a total of 34 U.S. patents,
44 U.S. patent applications, 17 European patents, 28
European patent applications, 23 Japanese patents and 27 Japanese
patent applications. . Depending upon the timing, duration and specifics of FDA approval of the use of a compound for a specific
indication, some of our U.S. patents may be eligible for a limited patent term extension under the Drug Price Competition and
Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act.
The patent rights
relating to lubiprostone consist of 15 issued U.S. patents, 10 issued European patents, and 11 issued Japanese patents relating
to compositions of matter, methods of use and methods of manufacturing. These patent rights also include various U.S., European
and Japanese patent applications relating to dosing regimens, pharmaceutical formulations and other claims. The U.S. patents relating
to compositions of matter expire between 2014 and 2027. The other U.S. and foreign patents expire between 2020 and 2029.
The patent rights
relating to cobiprostone consist of 15 issued U.S. patents, 9 issued European patents, and 13 issued Japanese patents relating
to compositions of matter, methods of use and methods of manufacturing. These patent rights also include various U.S., European
and Japanese patent applications relating to dosing regimens, pharmaceutical formulations and other claims. The U.S. patents relating
to compositions of matter expire between 2012 and 2020. The other U.S. and foreign patents expire between 2012 and 2029.
The patent rights
relating to SPI-017 consist of 6 issued U.S. patents, 4 issued European patents and 5 issued Japanese patents relating to compositions
of matter and methods of use. The U.S. patent relating to composition of matter expires in 2021. The U.S. patents relating to
methods of use and the other U.S. and foreign patents expire between 2012 and 2026.
The patent rights
relating to SPI-3608 consist of 5 issued U.S. patents, 4 issued European patents and 5 issued Japanese patents relating to compositions
of matter and methods of use. The U.S. patents relating to methods of use and the other U.S. and foreign patents expire between
2012 and 2026.
The patent rights
relating to unoprostone isopropyl licensed by us from R-Tech consist of 13 issued U.S. patents relating to compositions of matter,
methods of use, pharmaceutical formulations and other claims. The U.S. patents relating to compositions of matter expire between
2012 and 2018. The other U.S. and foreign patents expire between 2012 and 2027.
We are actively seeking
to augment the patent protection of our compounds by focusing on the development of new chemical entities, or NCEs, such as lubiprostone,
unoprostone isopropyl, cobiprostone, SPI-017 and SPI-3608, which have not previously received FDA approval. Upon approval by the
FDA, NCEs are entitled to market exclusivity in the U.S. with respect to generic drug products for a period of five years from
the date of FDA approval, even if the related patents have expired.
Manufacturing
We do not own manufacturing
facilities for the production of commercial quantities of AMITIZA or preclinical or clinical supplies of the other prostone compounds
that we are testing in our development programs. Instead, we contract with R-Tech as the sole manufacturer of our products, to
produce AMITIZA, RESCULA, cobiprostone and SPI-017 and any of our future prostone compounds.
We have entered into
multiple exclusive supply arrangements with R-Tech and we have granted to R-Tech the exclusive right to manufacture and supply
AMITIZA and other products and compounds to us to meet our commercial and clinical requirements. With the exception of the exclusive
supply agreements with Takeda, R-Tech is prohibited from supplying AMITIZA to anyone other than us during this period. Our supply
arrangement with R-Tech also provides that R-Tech will assist us in connection with applications for marketing approval for AMITIZA,
including assistance with regulatory compliance for chemistry, manufacturing and controls. In consideration of these exclusive
rights, R-Tech has paid to us $8.3 million in upfront and milestone payments as of December 31, 2011. Either we or R-Tech may
terminate the supply arrangement with respect to us in the event of the other party’s uncured breach or insolvency. R-Tech
is obligated to make additional payment upon regulatory or commercial milestones.
Under the supply
agreement we have with Takeda and R-Tech, which covers the period of our Takeda Agreement, R-Tech agreed to supply all Takeda’s
commercial supplies, including product samples, for AMITIZA for the U.S. and Canadian market. Pursuant to the terms of these agreements,
Takeda is required to provide R-Tech with a rolling 24-month forecast of its product and sample requirements and R-Tech is required
to keep adequate levels of inventory in line with this forecast. Upon a termination of the collaboration and license agreement
between Takeda and us, Takeda and we may terminate these supply agreements by notice to R-Tech and Takeda is not required to purchase
the quantity of the product and/or samples contained in its binding forecast..
R-Tech is Takeda’s
and our sole supplier of AMITIZA. In the event that R-Tech cannot meet some or all of Takeda’s or our demand, neither Takeda
nor we have alternative manufacturing arrangements in place. However, R-Tech has agreed to maintain at least a six-month supply
of AMITIZA and a six-month supply of the active ingredient used in manufacturing AMITIZA as a backup inventory. R-Tech may draw
down this backup inventory to supply AMITIZA to us in the event that R-Tech is unable or unwilling to produce AMITIZA to meet
our demand. We also have the right to qualify a back-up supplier for AMITIZA. In the event that R-Tech is unwilling or unable
to meet our demand, R-Tech will grant to that back-up supplier a royalty-free license to use any patents or know-how owned by
R-Tech relating to the manufacturing process for AMITIZA and will provide, upon our reasonable request and at our expense, consulting
services to the back-up supplier to enable it to establish an alternative manufacturing capability for AMITIZA. We may purchase
AMITIZA from the back-up supplier until R-Tech is able and willing to meet our demand for AMITIZA.
R-Tech operates a
manufacturing facility near Osaka, Japan that we believe is compliant with current good manufacturing practices, or cGMP. R-Tech
passed cGMP inspection from the FDA in April 2010 and from the MHRA in October 2008.
In
2009, we entered into an exclusive supply agreement with R-Tech for ten years to provide us with RESCULA manufacturing services
for the U.S. and Canada. In addition we have also entered into an exclusive supply arrangement with R-Tech to provide us with
clinical supplies of our product candidates, cobiprostone and SPI-017, as well as any other prostone compounds we may designate,
and to assist us in connection with applications for clinical trials and marketing approval for these, including assistance with
regulatory compliance for chemistry, manufacturing and controls. This clinical supply arrangement has a two year term which renews
automatically for one-year periods unless we and R-Tech agree not to renew it. Either we or R-Tech may terminate the clinical
supply arrangement with respect to us or one of our operating subsidiaries in the event of the other party’s uncured breach
or insolvency.
R-Tech has informed us that it is relocating its manufacturing facility for unoprostone isopropyl beginning
April 2012 and will not be able to manufacture and supply unoprostone isopropyl for up to 18 months. In order to mitigate this
risk, we have placed an order to sufficiently cover this supply period based on our forecasts for the launch of RESCULA in the
U.S. and regulatory requirements in the E.U.
Competition
The biotechnology
and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on
proprietary products. While we believe that our technologies, knowledge, experience and resources provide us with competitive
advantages, we face potential competition from many different sources, including commercial pharmaceutical and biotechnology enterprises,
academic institutions, government agencies, and private and public research institutions. AMITIZA and any other product candidates
that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available
in the future.
Many patients are
treated for CIC with competing OTC or prescription products that are sold for occasional or infrequent constipation. Additionally
the evolving definition of IBS-C and the required study outcomes can have an impact on future commercialization efforts.
Several companies
also are working to develop new drugs and other therapies for these same diseases and conditions. Some of these potential competitive
drug products include:
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There
are currently four
drugs in development
for the indication
of IBS-C. From
a mechanism of
action, there are
two drugs being
designed to target
serotonin receptors.
The first is Renzapride,
being developed
by Alizyme plc.
and the second
is DDP733, being
developed by Dynogen
Pharmaceuticals,
Inc. Based on the
limited clinical
efficacy in phase
3 clinical trials,
Alizyme discontinued
further clinical
development for
Renzapride and
in the light of
a bankruptcy filing
by Dynogen, future
clinical trials
for DDP733 are
unclear. The other
two IBS-C compounds
in development
are Linaclotide,
being developed
by Ironwood Pharmaceuticals
Inc., or Ironwood,
and Placanotide
being developed
by Synergy Pharmaceuticals,
Inc., or Synergy.
Ironwood has completed
phase three studies
and has filed submissions
in both the U.S.
and E.U. Synergy
has completed a
phase 2a study.
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Oral
opioid antagonists
such as methylnaltrexone,
are being developed
by Progenics Pharmaceuticals,
Inc., or Progenics,
and Salix Pharmaceuticals,
Inc., or Salix,
for the treatment
of opioid-induced
bowel dysfunction.
Progenics received
FDA approval of
methylaltrexone
in 2008 for the
subcutaneous formulation
of this drug in
treating OBD in
patients receiving
palliative care.
This formulation
is also approved
in the E.U. Progenics
and Salix continue
to move forward
with an oral form
of methylaltrexone.
They have completed
one phase 3 clinical
trial for the indication
of OIC and intend
to file in the
US based on the
results of the
single pivotal,
oral trial.
Progenics
is collaborating
with Ono Pharmaceuticals
Co., Ltd. in Japan
in the development
of methylnaltrexone
in OIC and in November
2010 announced
the start of a
phase 2 study in
Japan. Another
oral opioid antagonist
is NKTR-118, being
developed by Nektar
Therapeutics/AstraZeneca.
This oral product
has also completed
phase 2 studies
and has initiated
phase 3 studies
and is being studied
for an OIC indication.
There are two additional
products in development
for the treatment
of OIC. The first
is TD1211 which
is being developed
by Theravance Inc.,
or Theravance,
and is in phase
3, and the other
is ADL5945 being
developed by Adolor
Corporation, or
Adolor. ADL5945
is in phase 2.
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For
the CIC indication,
Ironwood has completed
phase 3 for Linaclotide
and has filed for
CIC indication
in the U.S. and
E.U. Linaclotide
is a Guanylin Agonist
which is dosed
at once a day.
The marketing of
Linaclotide will
be by both Ironwood
and Forrest Pharmaceuticals,
Inc. in the U.S.
European rights
for Linaclotide
are with Almirall,
S.A. and Japan
rights are with
Astellas Pharma
US, Inc.. Japanese
development of
Linaclotide is
in phase 1. Resolor
(procalopride)
is being developed
and marketed by
Movetis N.V. for
the treatment of
chronic constipation
in adults in the
E.U. Resolor received
marketing approval
in the E.U., Switzerland,
Iceland, Liechtenstein
and Norway for
the symptomatic
treatment of chronic
constipation in
women in whom laxatives
fail to provide
adequate relief.
Resolor was launched
in German in January
2010, the U.K.
in March 2010 and
in Belgium in September
2010. Movetis was
acquired by Shire
in September 2010
and intends to
study Resolor in
the US for CIC.
|
|
·
|
Synergy
is developing Placanotide
for the indication
of CIC and they
are in a phase
2/3 development
program. Theravance
is developing Velusetrag
and has completed
phase 2 studies
in the U.S. Aryx
Therapeutics, Inc.
is developing ATI
7505 for the treatment
of chronic constipation
and they have completed
phase 2 in the
US. Adolor continues
to develop A3309
also for the treatment
of chronic constipation
in the U.S. market
and they have completed
a phase 2 study.
|
|
·
|
RESCULA
faces many competitors
which promote for
primary
open-angle glaucoma,
or
POAG,
and ocular hypertension.
Products such as
Latanaprost, manufactured
by Pfizer Inc.
became generic
in March 2011 which
can have a significant
impact usage of
this prostaglandin
therapy as first
line therapy. Other
competitive products
on the market which
also have sales
force presence
and a focus on
ophthalmology include
Travatan Z, Lumigan,
Combigan, Asopt,
Trusopt, Alphagan
P and generic beta
blockers. Merck
& Co. Inc.,
or Merck recently
received approval
for ZIOPTAN(TM)
(tafluprost ophthalmic
solution) 0.0015%,
a preservative-free
prostaglandin analog
ophthalmic solution,
for reducing elevated
intraocular pressure
(IOP) in patients
with open-angle
glaucoma (OAG)
or ocular hypertension.
Prostaglandin analogues
continue to have
significant first
line market share
followed by generic
beta blockers.
Other products
are in development
for POAG and ocular
hypertension. Another
combination product
of Travatan and
Timolol, to be
marketed by Alcon,
Inc., has also
filed an NDA.
|
We face similar competition
from approved therapies and potential drug products for the diseases and conditions addressed by lubiprostone, unoprostone isopropyl,
cobiprostone and SPI-017, and are likely to face significant competition for any other product candidates we may elect to develop
in the future.
Government Regulation
Government authorities
in the U.S., at the federal, state and local level, and in other countries extensively regulate, the research, development, testing,
approval, manufacturing, labeling, post-approval monitoring and reporting, packaging, promotion, storage, advertising, distribution,
marketing and export and import of pharmaceutical products such as those we are developing. The process of obtaining regulatory
approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the
expenditure of substantial time and financial resources.
U.S. Government
Regulation
In the U.S., the
FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, as amended, and implementing regulations. The FDA has jurisdiction
over all of our products and administers requirements covering the safety, effectiveness, manufacturing, quality control, distribution,
labeling, marketing, advertising, dissemination of information, post-marketing study, and pharmacovigilance of our pharmaceutical
products. Information that must be submitted to the FDA in order to obtain approval to market a drug varies depending upon whether
the drug is a new product whose safety and efficacy have not previously been demonstrated in humans or a drug whose active ingredients
and certain other properties are the same as those of a previously approved drug. The results of product development, preclinical
studies and clinical trials must be submitted to the FDA as part of the approval process. The FDA may deny approval if the applicable
regulatory criteria are not satisfied, or it may require additional clinical data or analyses or even an additional clinical trial.
Even if such data are submitted, the FDA may ultimately decide that the application does not satisfy the criteria for approval.
Obtaining FDA approval
for new products and manufacturing processes can take a number of years and involve the expenditure of substantial resources.
To obtain FDA approval for the commercial sale of a therapeutic agent, the potential product must undergo testing programs on
animals, the data from which is used to file an IND with the FDA. In addition, there are three phases of human testing following
Good Clinical Practices, or GCP, guidelines:
|
·
|
Phase
1 consists of safety
tests with human
clinical evaluations,
generally in normal,
healthy volunteers;
|
|
·
|
Phase
2 programs expand
safety tests and
measure efficacy
along with dose
finding evaluations
and are conducted
in volunteers with
a particular disease
condition that
the drug is designed
to treat; and
|
|
·
|
Phase
3 programs are
greatly expanded
clinical trials
to determine the
effectiveness of
the drug at a particular
dosage level in
the affected patient
population.
|
The data from these
clinical tests are combined with data regarding chemistry, manufacturing and animal pharmacology and toxicology, and is then submitted
in the form of a NDA, to the FDA. The preparation of an NDA requires the expenditure of substantial funds and the commitment of
substantial resources.
Failures to comply
with the applicable FDA requirements at any time during the product development process, approval process or following approval
may result in administrative or judicial sanctions. These sanctions could include the FDA’s imposition of a hold on clinical
trials, refusal to approve pending applications, withdrawal of an approval, warning letters, product recalls, product seizures,
total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution. Any agency
or judicial enforcement action could have a material adverse effect on us.
The FDA extensively
regulates all aspects of manufacturing quality under its current Good Manufacturing Practice, or cGMP, regulations. The FDA inspects
the facility or the facilities at which drug products are manufactured. The FDA will not approve the product unless cGMP compliance
is satisfactory. If the FDA determines the application, manufacturing process or manufacturing facilities, are not acceptable,
it will outline the deficiencies in the application and often will request corrective actions including additional validation
or information.
The pharmaceutical
testing and approval process requires substantial time, effort and financial resources, and each may take several years to complete.
Data obtained from clinical activities are not always conclusive and may be susceptible to varying interpretations, which could
delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely basis, or at all. We may encounter difficulties
or unanticipated costs in our efforts to secure necessary governmental approvals, which could delay or preclude us from marketing
our products. The FDA may limit the indications for use or place other conditions on any approvals that could restrict the commercial
application of the products. After approval, some types of changes to the approved product, such as manufacturing changes and
additional labeling claims, are subject to further FDA review and approval.
Post-Approval
Requirement
After regulatory
approval of a product is obtained, we are obligated to comply with a number of post-approval requirements. For example, the FDA
may require post marketing, or phase 4 clinical trials to assess additional elements of the product’s safety or efficacy.
In addition, holders of an approved NDA are required to report certain adverse drug reactions and production problems to the FDA,
to provide updated safety information and to comply with requirements concerning advertising and promotional labeling for their
products. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes certain fiscal,
procedural, substantive and recordkeeping requirements.
We rely, and expect
to continue to rely, on third parties for the production of clinical and commercial quantities of our drug products at our instruction
and on our behalf. Future FDA inspections may identify compliance issues at our facilities or at the facilities of our manufacturers
that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of problems with
a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder
of an approved NDA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial
action that could delay or prohibit further marketing. Newly discovered or developed safety or effectiveness data may require
changes to a product’s approved labeling, including the addition of new warnings, precautions and contraindications. Also,
new government requirements, including those resulting from new legislation, may be established that could delay or prevent regulatory
approval of our products under development.
Regulation
Outside of the U.S.
In addition to regulations
in the U.S., we are subject to a variety of regulations in other jurisdictions most notably by the European Medicines Agency in
the E.U., Swissmedic in Switzerland and the MHLW in Japan. Whether or not we obtain FDA approval for a product, we must obtain
permission or approval by the comparable regulatory authorities of countries outside the U.S. before we can commence clinical
trials or marketing of the product in those countries. The requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary greatly from country to country, and the time for approval is country dependent and may be longer
or shorter than that required by the FDA.
Europe
In Europe medicinal
products are governed by a framework of E.U. directives which apply across all E.U. member states. To obtain regulatory approval
of a drug under the E.U. regulatory system, we may submit a MAA, either under a centralized, decentralized, or mutual recognition
procedure. The centralized procedure, which is compulsory for medicines produced by certain biotechnological processes and optional
for those which are innovative, provides for the grant of a single marketing authorization that is valid for all E.U. member states.
The decentralized procedure provides for a member state, known as the reference member state, to assess an application, with one
or more concerned, member states subsequently approving that assessment. The mutual recognition procedure provides approval in
one country and then allows for a request from subsequent countries to mutually recognize the original country’s approval.
The E.U. also governs among other areas, the authorization and conduct of clinical trials, the marketing authorization process
for medical products, manufacturing and import activities, and post-authorization activities including pharmacovigilance. The
E.U. has established regulations on pediatric medicines which impose certain obligations on pharmaceutical companies with respect
to the investigation of their products in children.
Japan
In Japan, pre-marketing
approval and clinical studies are required for all pharmaceutical products. The regulatory requirements for pharmaceuticals in
Japan have in the past been so lengthy and costly that it has been cost-prohibitive for many pharmaceutical companies. Historically,
Japan has required that pivotal clinical data submitted in support of a new drug application be performed on Japanese patients.
Recently, however, as a part of the global drug harmonization process, Japan has signaled a willingness to accept U.S. or E.U.
patient data when submitted along with a bridging study, which demonstrates that Japanese and non-Japanese subjects react comparably
to the product. This approach, which is executed on a case-by-case basis, may reduce the time required for approval and introduction
of new products into the Japanese market. To obtain manufacturing/marketing approval, we must submit an application for approval
to the MHLW with results of nonclinical and clinical studies to show the quality, efficacy and safety of a new drug. A data compliance
review, GCP on-site inspection, GMP audit and detailed data review are undertaken by the PMDA. The application is then discussed
by the committees of the Pharmaceutical Affairs and Food Sanitation Council, or PAFSC, and MHLW. Based on the results of these
reviews, the final decision on approval is made by MHLW. After the approval, negotiations regarding the reimbursement price with
MHLW will begin. The price will be determined within 60 to 90 days unless the applicant disagrees, which may result in extended
pricing negotiations.
Regulation
of the Health Care Industry
In addition to the
regulatory approval requirements described above, we are or will be directly or indirectly through our customers, subject to extensive
regulation of the health care industry by the federal and state government and foreign countries in which we may conduct our business.
The laws that directly or indirectly affect our ability to operate our business include the following:
|
·
|
The
federal Medicare
and Medicaid Anti-Kickback
laws, which prohibit
persons from knowingly
and willfully soliciting,
offering, receiving
or providing remuneration,
directly or indirectly,
in cash or in kind,
to induce either
the referral of
an individual,
or furnishing or
arranging for a
good or service,
for which payment
may be made under
federal healthcare
programs such as
the Medicare and
Medicaid programs;
|
|
·
|
Other
Medicare laws,
regulations, rules,
manual provisions
and policies that
prescribe the requirements
for coverage and
payment for services
performed by our
customers, including
the amount of such
payment;
|
|
·
|
The
federal False Claims
Act, which imposes
civil and criminal
liability on individuals
and entities who
submit, or cause
to be submitted,
false or fraudulent
claims for payment
to the government;
|
|
·
|
The
federal False Statements
Act, which prohibits
knowingly and willfully
falsifying, concealing
or covering up
a material fact
or making any materially
false statement
in connection with
the delivery of
or payment for
healthcare benefits,
items or services;
|
|
·
|
The
Foreign Corrupt
Practices Act,
which prohibits
certain payments
made to foreign
government officials;
|
|
·
|
State
and foreign law
equivalents of
the foregoing and
state laws regarding
pharmaceutical
company marketing
compliance, reporting
and disclosure
obligations; and
|
|
·
|
the
Patient Protection
and Affordable
Care Act, which
among other things
changes access
to healthcare products
and services; creates
new fees for the
pharmaceutical
and medical device
industries; changes
rebates and prices
for health care
products and services;
and requires additional
reporting and disclosure.
|
If our operations
are found to be in violation of any of these laws, regulations, rules or policies or any other law or governmental regulation,
or if interpretations of the foregoing change, we may be subject to civil and criminal penalties, damages, fines, exclusion from
the Medicare and Medicaid programs and the curtailment or restructuring of our operations.
Pharmaceutical Pricing and Reimbursement
In the U.S. and markets
in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part on
the availability of reimbursement from third-party payers. Third-party payers include government health administrative authorities,
managed care providers, pharmacy benefit managers, private health insurers and other organizations. These third-party payers are
increasingly challenging the price and examining the cost-effectiveness of medical products and services. In addition, significant
uncertainty exists as to the reimbursement status of newly approved healthcare product candidates. We may need to conduct expensive
pharmacoeconomic studies in order to demonstrate the cost-effectiveness of our products. Our products may not be considered cost-effective.
Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate
return on our investment in product development.
Federal,
state and local governments in the U.S. continue to work towards significant legislation aimed to limit the growth of healthcare
costs, including the cost of prescription drugs. In March 2010, the Patient Protection and Affordable Care Act, as amended by
the Health Care and Education Reconciliation Act (together, the U.S. Healthcare Reform Act), was enacted. This legislation has
both current and longer-term impacts on us. The provisions of the U.S. Healthcare Reform Act are effective on various dates over
the next several years. The principal provisions affecting us provide for the following:
|
·
|
an
increase, from
15.1% to 23.1%,
in the minimum
rebate on branded
prescription drugs
sold to Medicaid
beneficiaries (effective
January 1, 2010);
|
|
·
|
extension
of Medicaid prescription
drug rebates to
drugs dispensed
to enrollees in
certain Medicaid
managed care organizations
(effective March
23, 2010);
|
|
·
|
expansion
of the types of
institutions eligible
for the “Section
340B discounts”
for outpatient
drugs provided
to hospitals meeting
the qualification
criteria under
Section 340B of
the Public Health
Service Act of
1944 (effective
January 1, 2010);
|
|
·
|
discounts
on branded prescription
drug sales to Medicare
Part D participants
who are in the
Medicare “coverage
gap”, known
as the “doughnut
hole” (effective
January 1, 2011);
and
|
|
·
|
for
tax purposes, a
non-deductible
annual fee payable
to the federal
government based
on a company’s
prior-calendar-year
share of branded
prescription drug
sales to specified
government programs
(effective January
1, 2011, with the
total fee to be
paid each year
by the entire pharmaceutical
industry increasing
annually through
2018).
|
Another development
that may affect the pricing of drugs is proposed Congressional action regarding drug re-importation into the U.S. Proposed legislation
would allow the re-importation of approved drugs originally manufactured in the U.S. into the U.S. from other countries where
the drugs are sold at a lower price. If such legislation or similar regulatory changes were enacted, they could reduce the price
we receive for any approved products, which, in turn, could adversely affect our revenues.
Further, both the
U.S. House of Representatives and U.S. Senate are considering patent reform legislation that may impact the intellectual property
protections of the products we are developing.
Different pricing
and reimbursement schemes exist in other countries. In Europe, governments influence the price of pharmaceutical products through
their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of such products
to consumers. The approach taken varies from member state to member state. Some jurisdictions permit products to be marketed only
after a reimbursement price has been agreed. Other member states allow companies to fix their own prices for medicines, but monitor
company profits. In some cases, pharmacoeconomic analyses from clinical studies and other available resources are used to establish
pricing using risk-benefit comparisons with currently available products.
In
Switzerland, t
he Swiss health care system is a compulsory private system where patients pay a monthly variable fee to a
registered health insurance fund. All insurers reimburse against a common national formulary, the specialitätenliste. The
BAG, makes the decisions on reimbursement and pricing of all prescription drugs in the market with their review taking three to
four months. For new drugs it is not uncommon for there to be several rounds of review. It also conducts regular price reviews
of the drugs on the formulary. The Federal Commission on drugs or Arzneimittelkommission, or EAK, is a body assisting the BAG
with expert advice. Once a product is approved the BAG, in consultation with EAK, decides whether or not the drug will appear
on the specialitätenliste. After EAK’s evaluation of a drug, BAG and EAK decide on the maximum price in the market.
The criteria used are:
|
·
|
Internal
comparison with
reimbursed and
non-reimbursed
therapeutic equivalents,
|
|
·
|
External
cross country comparison
(reference countries:
Denmark, Germany,
the U.K. and the
Netherlands),
|
In Japan, pricing
is established utilizing various information including reference prices from other international markets. However, the MHLW biannually
reviews the pharmaceutical prices of individual products. In the past, these reviews have resulted in price reductions. We expect
similar price reviews in the future, in line with the government’s previously announced plan for controlling health care
costs. It is not possible to predict the outcome of these reviews, and it is possible that Japanese authorities will again reduce
drug reimbursement rates, which could adversely affect the reimbursement levels for our products or product candidates.
Executive Officers
The following table
lists our executive officers and their ages as of March 15, 2012.
Name
|
|
Age
|
|
Position
|
Ryuji Ueno, M.D., Ph.D., Ph.D.
|
|
58
|
|
Chief Executive Officer, Chief Scientific Officer and Director, Chairman of the Board of Directors
|
|
|
|
|
|
James J. Egan
|
|
61
|
|
Chief Operating Officer
|
|
|
|
|
|
Cary J. Claiborne
|
|
51
|
|
Chief Financial Officer
|
|
|
|
|
|
Stanley G. Miele
|
|
47
|
|
President, Sucampo Pharma Americas, Inc. and Senior Vice President of Sales and Marketing
|
|
|
|
|
|
Gayle Dolecek
|
|
69
|
|
Executive Advisor, Research and Development Affairs and member of the Board of Directors
|
|
|
|
|
|
Thomas J. Knapp
|
|
59
|
|
Senior Vice President, General Counsel and Corporate Secretary
|
Ryuji Ueno, M.D.,
Ph.D., Ph.D.
Dr. Ueno is a founder of our company and has been our Chief Executive Officer since September 2006 and our Chief
Scientific Officer since August 2004. Dr. Ueno became the Chairman of our Board of Directors effective June 1, 2007 following
the resignation of Dr. Sachiko Kuno from that position. Dr. Ueno also served as Chief Operating Officer from December 1996 to
November 2000 and again from March 2006 to September 2006 and as Chief Executive Officer from December 2000 to September 2003.
Dr. Ueno has been a director since 1996 and served as Chairman of our Board of Directors from December 2000 to September 2006.
Dr. Ueno co-founded our affiliate R-Tech in September 1989 and served as its President from 1989 to March 2003. Dr. Ueno also
co-founded SAG in December 1997 and served as its Chairman of the Board or Vice Chairman of the Board since its inception. Dr.
Ueno received his M.D. and a Ph.D. in medicinal chemistry from Keio University in Japan, and he received a Ph.D. in Pharmacology
from Osaka University. Dr. Ueno is married to Dr. Sachiko Kuno, one of our founders and a member of our Board of Directors.
James J. Egan.
Mr. Egan joined us September 2009 as Chief Operating Officer. Prior to joining our company, he was Chief Business Officer
at ESBATech AG, a privately held biotech company in Zurich, Switzerland, until ESBATech’s acquisition by Alcon S.A. in August
2009. From June 2001 to January 2006, he was Senior Vice President, Licensing & Corporate Development at Idenix Pharmaceuticals,
Inc., a Cambridge, Massachusetts-based biotech company. From June 2000 to June 2001, Mr. Egan was on the board of directors and
the CEO of NeuroNZ Limited, a privately held company based in Auckland, New Zealand. From 2004 to 2005, he was on the board of
directors of Viteris Holdings, Inc. From September 1993 to June 2000, he served as the Senior Director, Global Licensing, Business
Development, Mergers and Acquisitions at G.D. Searle & Co. and from April 1984 to September 1993 he served as Division Counsel,
International Operations at Abbott Laboratories. He also served as a Trial Attorney, Foreign Commerce Section, Antitrust Division
of the U.S. Department of Justice and a Foreign Services Officer at the U.S. Embassy in Tokyo, Japan. Mr. Egan earned a B.S. in
Foreign Service at Georgetown University, in Washington, D.C. and a J.D. at University of Santa Clara School of Law, in Santa
Clara, California.
Cary J. Claiborne.
Mr. Claiborne joined us March 2011 as Interim Chief Financial Officer until he was promoted to Chief Financial Officer in
October 2011. Prior to joining our company, he had been President, CEO, and a member of the board of directors of New Generation
Biofuels, Inc., of Columbia, Maryland, a publicly traded biofuel technology company, as well as its CFO since 2007. From December
2004 to November 2007, Mr. Claiborne had been CFO of Osiris Therapeutics, Inc., a stem cell therapeutics company. From December
2001 to June 2004, he was VP-Financial Planning & Analysis of Constellation Energy Group. From April 2000 to November 2001,
he was VP-Financial Planning & Analysis of The Home Depot, Inc. From July 1997 to March 2000, he was VP-Financial Planning
& Analysis at MCI Corporation. He also held a series of progressively more responsible positions in financial management and
senior management, including President and CEO of New Enterprise Wholesale Services at GE Capital since 1982. Mr. Claiborne graduated
from Rutgers University where he earned a B.A., Business Administration and an MBA, in Finance, from Villanova University.
Stanley G. Miele.
Mr. Miele was our Senior Vice President of Sales and Marketing since October 2008 until he was promoted to President of Sucampo
Pharma Americas, Inc. in September 2009. He had been our Vice President of Sales and National Director of Sales since February
2006. Prior to joining Sucampo as a Sales Director, Mr. Miele managed a national level team of specialty sales representatives
and engineering consultants that sold and marketed blood gas analyzers and point of care diagnostic equipment used in acute-care
areas within hospitals at Abbott Point of Care beginning in October 2005. Prior to that, Mr. Miele held a series of positions
at Millennium Pharmaceuticals and COR Therapeutics, prior to its acquisition by Millennium, including National Sales Director,
Cardiology where he was responsible for managing the overall hospital-based cardiovascular sales function beginning January 2003.
Previously, Mr. Miele was a Division Sales Representative with Abbott Laboratories’ Hospital Products Division, of Abbott
Park, Illinois, and a Sales Representative for Syntex Labs, of Palo Alto, California. Mr. Miele earned a B.A. in Management/Communications
from the University of Dayton.
Gayle R. Dolecek.
In September 2011 Dr. Dolecek became our Executive Advisor, after serving as our Senior Vice President of Research and Development
since May 2006, He continues as a member of our Board of Directors a position he has held since August 2008. From August 1995
to April 2006, he was a Senior Consultant at AAC Consulting Group, Inc., a provider of regulatory consulting services to the pharmaceutical
industry. Prior to 1995, Dr. Dolecek was an officer with the U.S. Public Health Service where he served in pharmacy and health
service related positions. He completed his career with the government in the Food and Drug Administration as Director of Compendial
Operations in the Center for Drug Evaluation and Research. Dr. Dolecek received his B.S./P.D. in Pharmacy from the University
of Maryland and a M.P.H. in Health Services and Planning from the University of Hawaii.
Thomas J. Knapp.
Mr. Knapp joined us February 2010 as Senior Vice President General Counsel and Corporate Secretary. Prior to joining our company,
he was Of Counsel at Exemplar Law Partners, LLC and a Partner and member at Knapp Law Firm beginning September 2008. From March
2003 to August 2008, he was Deputy General Counsel and then Vice President, General Counsel and Corporate Secretary at NorthWestern
Corporation. From January 2001 to December 2002, Mr. Knapp served as Of Counsel of Paul Hastings Janofsky & Walker, LLP, in
Washington, D.C. and from May 1998 to December 2000 as Assistant General Counsel at The Boeing Company in Seattle, Washington.
Mr. Knapp also served as Of Counsel of Paul Hastings Janofsky & Walker, LLP, in Washington, D.C. from May 1996 to April 1998
and he served in various in-house positions culminating with Labor Counsel at The Burlington Northern & Santa Fe Railway Company,
in Chicago, Illinois and Fort Worth, Texas from September 1980 to December 1995. Mr. Knapp earned a B.A in Political Science at
University of Illinois-Urbana and a J.D. at Loyola University of Chicago School of Law.
Employees
As of February 27,
2012, we had 108 full-time employees, including 36 with doctoral or other advanced degrees. Of our workforce, 25 employees are
engaged in research and development, 45 are engaged in sales and marketing and 38 are engaged in business development, legal,
finance and administration. None of our employees are represented by a labor union or covered by collective bargaining agreements.
We have never experienced a work stoppage and believe our relationship with our employees is good.
Research and Development
For information regarding
research and development expenses incurred during 2009, 2010 and 2011, see Item 7, “
Management Discussion and Analysis
of Financial Condition and Results of Operations—Research and Development Expense
”.
Financial Information About Geographic
Areas
We have determined
that we have three reportable segments based on our method of internal reporting, which disaggregates the business by geographic
location. These segments are the Americas, Europe and Asia. We evaluate the performance of these segments based primarily on income
(loss) from operations, as well as other factors that depend on the development status of these geographies. Such measures include
the progress of research and development activities, collaboration and licensing efforts, commercialization activities and other
factors.
The financial results
of our segments reflect their varying stages of development. Our Americas segment recorded a loss before taxes of $6.1 million
in 2011, compared to income before taxes of $3.8 million in 2010. These results primarily reflect the expenses associated with
initiating the additional phase 3 trial of lubiprostone for OBD in chronic non-cancer pain patients and the increased expenses
in legal matters, including our dispute with Takeda.
Our segment in Europe
recorded a loss before taxes of $10.3 million in 2011, compared to a loss before taxes of $6.2 million in 2010
.
These results primarily reflect
the on-going regulatory submission for AMITIZA, the interest accruing on the loan notes
issued for the December 2010 SAG acquisition and non-cash foreign exchange gains and losses.
Our segment in Asia
recorded a loss before taxes of $5.4 million in 2011, compared to a loss before taxes of $935,000 in 2010. These results primarily
reflect the reduction of revenue recognized during the year ended December 31, 2011 from the payments received from Abbott in
2009 and 2010.
(In thousands)
|
|
Americas
|
|
|
Europe
|
|
|
Asia
|
|
|
Consolidated
|
|
Year Ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
53,493
|
|
|
$
|
-
|
|
|
$
|
1,268
|
|
|
$
|
54,761
|
|
Income (loss) before taxes
|
|
|
(6,384
|
)
|
|
|
(10,086
|
)
|
|
|
(5,444
|
)
|
|
|
(21,914
|
)
|
Identifiable assets
|
|
|
96,490
|
|
|
|
47,925
|
|
|
|
13,154
|
|
|
|
157,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
50,756
|
|
|
$
|
-
|
|
|
$
|
11,114
|
|
|
$
|
61,870
|
|
Income (loss) before taxes
|
|
|
3,820
|
|
|
|
(6,205
|
)
|
|
|
(935
|
)
|
|
|
(3,320
|
)
|
Identifiable assets
|
|
|
102,096
|
|
|
|
30,789
|
|
|
|
16,388
|
|
|
|
149,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
57,887
|
|
|
$
|
-
|
|
|
$
|
9,464
|
|
|
$
|
67,351
|
|
Income (loss) before taxes
|
|
|
18,886
|
|
|
|
(4,298
|
)
|
|
|
(4,727
|
)
|
|
|
9,861
|
|
Identifiable assets
|
|
|
132,903
|
|
|
|
34,140
|
|
|
|
12,962
|
|
|
|
180,005
|
|
Our Dual Class Capital Structure
We have two classes
of common stock authorized: class A common stock and class B common stock. Holders of class A common stock and class B common
stock have identical rights, except that holders of class A common stock are entitled to one vote per share and holders of class
B common stock are entitled to ten votes per share on all matters on which stockholders are entitled to vote.
As of February 27,
2012, we had outstanding 15,704,314 shares of class A common stock and 26,191,050 shares of class B common stock. The class B
common stock represents approximately 94.3% of the combined voting power of our outstanding common stock. All of the shares of
class B common stock are owned by S&R Technology Holding, LLC, or S&R, an entity wholly-owned by our founders, Drs. Ueno
and Kuno. As a result, Drs. Ueno and Kuno are able to control the outcome of all matters upon which our stockholders vote, including
the election of directors, amendments to our certificate of incorporation and mergers or other business combinations.
We are not authorized
to issue additional shares of class B common stock except in limited circumstances, such as a stock split of both classes of common
stock or a stock dividend made in respect of both classes of common stock. Shares of class B common stock will automatically be
converted into shares of class A common stock upon transfer, with limited exceptions for transfers to family trusts. In addition,
all remaining outstanding shares of class B common stock will automatically be converted into shares of class A common stock upon
the death, legal incompetence or retirement from our company of both Drs. Ueno and Kuno or at such time as the number of outstanding
shares of class B common stock is less than 20.0% of the number of outstanding shares of class A and class B common stock together.
In this report, we
refer to our authorized class A common stock and class B common stock together as our common stock.
Our Corporate Information
Our predecessor was
incorporated under the laws of Delaware in December 1996.
The following is
a list of our subsidiaries as of December 31, 2011:
Subsidiary
|
|
State or other jurisdiction
of incorporation or organization
|
Sucampo Pharma Americas, Inc.
|
|
Delaware
|
|
|
|
Sucampo LLC
|
|
Delaware
|
|
|
|
Sucampo AG
|
|
Switzerland
|
|
|
|
Sucampo Pharma, Ltd.
|
|
Japan
|
|
|
|
Sucampo Pharma Europe Ltd.
|
|
United Kingdom
|
|
|
|
Ambrent Investments S.à r.l.
|
|
Luxembourg
|
Our principal executive
offices are located at 4520 East-West Highway, Bethesda, Maryland 20814, and our telephone number is (301) 961-3400.
Website Access to U.S. Securities and
Exchange Commission Reports
Our Internet address
is http://www.sucampo.com. Through our website, we make available, free of charge, access to all reports filed with the U.S. Securities
and Exchange Commission, or the SEC, including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current
Reports on Form 8-K and amendments to these reports, as filed with or furnished to the SEC pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC. Copies of any materials we file with, or furnish to, the SEC can also be obtained free of charge
through the SEC’s website at http://www.sec.gov or at the SEC’s Public Reference Room at 100 F Street, N.E., Room
1580, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
ITEM 1A. RISK
FACTORS
Before deciding to
purchase, hold or sell our common stock, you should carefully consider the risks described below in addition to the other cautionary
statements and risks described elsewhere and the other information contained in this report and in our other filings with the
SEC, including subsequent Quarterly Reports on Forms 10-Q and Current Reports on Form 8-K. We operate in a rapidly changing environment
that involves a number of risks. The risks and uncertainties described below are not the only ones we face. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may also affect our business. These known and unknown
risks could materially and adversely affect our business, financial condition, prospects, operating results or cash flows.
Risks Related to Our Business and Industry
We operate in a highly competitive
industry.
The pharmaceutical
industry is highly competitive. To be successful, we must be able to, among other things, effectively discover, develop, test
and obtain regulatory approvals for products. We or our partners must be able to effectively commercialize, market and promote
approved products, including communicating the effectiveness, safety and value of products to actual and prospective customers
and medical professionals. Many of our competitors have greater resources than we have. This enables them, among other things,
to make greater research and development investments, as well as increased levels marketing and promotion spend.
Developments by our
competitors, the entry of new competitors into the markets in which we compete, or consolidation in the pharmaceutical industry
could make our products or technologies less competitive or obsolete. Our future growth depends, in part, on our ability to develop
and introduce products which are more effective than those developed by our competitors. Royalties or sales from our existing
products may decline rapidly if a new product is introduced that represents a substantial improvement over our existing products.
Our future success depends upon
our ability to develop new products, and new indications for existing products, that achieve regulatory approval for commercialization.
For our business
model to be successful, we must continually develop, test and manufacture new products or achieve new indications or label extensions
for the use of our existing products. Prior to commercialization, these new products and product indications must satisfy stringent
regulatory standards and receive requisite approvals or clearances from regulatory authorities in the United States and other
countries. The development, regulatory review and approval, and commercialization processes are time consuming, costly and subject
to numerous factors that may delay or prevent the development, approval or clearance, and commercialization of new products, including
legal actions brought by our competitors. To obtain approval or clearance of new indications or products in the United States,
we must submit, among other information, the results of preclinical and clinical studies on the new indication or product candidate
to the FDA. The number of preclinical and clinical studies that will be required for FDA approval varies depending on the new
indication or product candidate, the disease or condition for which the new indication or product candidate is in development
and the regulations applicable to that new indication or product candidate. Even if we believe that the data collected from clinical
trials of new indications for our existing products or for our product candidates are promising, the FDA may find such data to
be insufficient to support approval of the new indication or product. The FDA can delay, limit or deny approval or clearance of
a new indication or product candidate for many reasons, including:
|
·
|
the
FDA may determine
that the new indication
or product candidate
is not safe and
effective;
|
|
·
|
the
FDA may interpret
our preclinical
and clinical data
in different ways
than we do;
|
|
·
|
the
FDA may require
us to perform post-marketing
clinical studies;
or
|
|
·
|
the
FDA may change
its approval policies
or adopt new regulations.
|
Products that we
are currently developing, other future product candidates or new indications or label extensions for our existing products, may
or may not receive the regulatory approvals or clearances necessary for marketing or may receive such approvals or clearances
only after delays or unanticipated costs.
We are predominantly a research
and development company and rely on certain third parties for the successful commercialization of our drug products. The success
of other third parties will affect our ability to continue to develop new drug candidates and the ability to reduce our reliance
on the performance of other third parties.
For most of our operating
history, we have been a research and development company. Our operations to date have been limited largely to organizing and staffing
our company, developing prostone technology, undertaking preclinical and clinical trials of our product candidates, pursuing the
regulatory approval processes for
AMITIZA and RESCULA, and planning the commercialization of RESCULA
.
We have relied upon the collaboration agreement with Takeda and Abbott to commercialize AMITIZA. To make the transition to a fully
integrated company, we will need to continue to staff and retain qualified human resources, contract with third parties to manufacture
a commercial scale product and conduct the sales and marketing activities on our own or with third parties necessary for successful
product commercialization. While we are currently utilizing R-Tech to perform these manufacturing functions and rely on Takeda
and Abbott to perform many of these sales and marketing functions with respect to the sale of
AMITIZA
in the respective territories, we may nevertheless encounter unforeseen expenses, difficulties, complications and delays
as we establish these commercial functions for
AMITIZA
and RESCULA and for other products for
which we may receive regulatory marketing approval. As we continue to develop and seek regulatory approval of additional product
candidates and additional indications for
AMITIZA and RESCULA
, and to pursue regulatory approvals
for
AMITIZA,
RESCULA and other products outside the U.S., it could be difficult for us to obtain
and devote the resources necessary to successfully manage our commercialization efforts.
Recent federal legislation will
increase the pressure to reduce prices of
prescription drugs paid for by Medicare, which could limit our ability
to generate
revenues.
In
March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (Healthcare
Reform Act), was enacted in the United States. This legislation may have both immediate and long-term impacts on us. A number
of the provisions of those laws require rulemaking action by governmental agencies to implement, which has not yet occurred. The
laws change access to health care products and services and create new fees for the pharmaceutical and medical device industries.
Future rulemaking could increase rebates, reduce prices or the rate of price increases for health care products and services,
or require additional reporting and disclosure. We cannot predict the timing or impact of any future rulemaking.
If we are unable to continue successful
commercialization of our first product,
AMITIZA
, for the
treatment of CIC in adults
of both genders and IBS-C in women aged 18 years and older and other indications for which
we are developing this
drug, or experience significant delays in doing so, our ability to generate product-based
revenues and achieve profitability
will be jeopardized.
In the near term,
our ability to increase product-based revenues will depend on the continued growth in commercialization by Takeda and continued
development of
AMITIZA by us
. The growth in sales of
AMITIZA
will depend on several factors, including the following:
|
·
|
the
best efforts of
Takeda to commercialize
and maximize net
sales revenue;
|
|
·
|
resolution
of our dispute
with Takeda;
|
|
·
|
our
ability to complete
clinical trials
and secure regulatory
approval of lubiprostone
in Japan and the
ability of Abbott
to obtain appropriate
pricing and successfully
commercialize lubiprostone;
|
|
·
|
the
ability of R-Tech,
which has the exclusive
right to manufacture
and supply
AMITIZA
,
or any substitute
manufacturer to
supply quantities
sufficient to meet
market demand and
at acceptable levels
of quality and
price;
|
|
·
|
continued
and growing acceptance
of the product
within the medical
community and by
third-party payers;
|
|
·
|
successful
completion of clinical
trials of
AMITIZA
for the
treatment of other
constipation-related
gastrointestinal
indications beyond
CIC and IBS-C,
and successful
commercialization
of these indications
within and outside
the U.S.; and
|
|
·
|
receipt
of marketing approvals
from the FDA and
similar foreign
regulatory authorities
for these other
indications.
|
If we are unable to obtain an enhanced
label from our sNDA for RESCULA or appropriate pricing from Centers for Medicare & Medicaid Services, or CMS, our ability
to generate significant product-based
revenues and achieve profitability will be jeopardized.
In the near term,
our ability to generate additional revenues will depend on the appropriate pricing, successful commercialization and continued
development of
RESCULA by us
. Such development and commercialization of
RESCULA
will depend on several factors, including the following:
|
·
|
approval
by FDA of the submitted
sNDA;
|
|
·
|
appropriate
pricing without
substantial rebates
for governmental
programs;
|
|
·
|
our
ability to complete
clinical trials
and secure regulatory
approval of unoprostone
isopropyl for glaucoma
in countries outside
of the United States;
|
|
·
|
the
ability of R-Tech,
which has the exclusive
right to manufacture
and supply
RESCULA
,
or any substitute
manufacturer to
supply quantities
sufficient to meet
market demand and
at acceptable levels
of quality and
price;
|
|
·
|
continued
and growing acceptance
of the product
within the medical
community and by
third-party payers;
|
|
·
|
successful
completion of clinical
trials of
RESCULA
for the
treatment of other
ophthalmic indications,
and acceptance
of the results
of these trials
by regulatory authorities;
and
|
|
·
|
receipt
of marketing approvals
from the FDA and
similar foreign
regulatory authorities
for other indications.
|
Our strategy of generating growth
through acquisitions and in-licensing may not be
successful if we are not able to identify suitable acquisition
or licensing
candidates, to negotiate appropriate terms of any such transaction or to successfully manage
the integration of any acquisition.
As part of our business
strategy, we intend to pursue strategic acquisitions and in-licensing opportunities with third parties to complement our existing
product pipeline. We have limited experience in completing acquisitions with third parties as well as performing under in-licensing
agreements and we may not be able to identify appropriate acquisition or licensing candidates or to successfully negotiate the
terms of any such transaction. The licensing and acquisition of pharmaceutical and biological products is a competitive area.
A number of more established companies are also pursuing strategies to license or acquire products in the pharmaceutical field,
and they may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization
capabilities. If we are unable to successfully complete acquisitions or in-licensing transactions for suitable products and product
candidates, our prospects for growth could suffer.
Even if we are successful
in completing one or more acquisitions, the failure to adequately address the financial, operational or legal risks of these transactions
could harm our business. To finance an acquisition, we could be required to use our cash resources, issue potentially dilutive
equity securities or incur or assume debt or contingent liabilities. Accounting for acquisitions can require impairment losses
or restructuring charges, large write-offs of in-process research and development expense and ongoing amortization expenses related
to other intangible assets. In addition, integrating acquisitions can be difficult, and could disrupt our business and divert
management resources. If we are unable to manage the integration of any acquisitions successfully, our ability to develop new
products and continue to expand our product pipeline may be impaired
Risks Related to Our Ongoing Dispute
with Takeda
We sent Takeda notices of material
breach and completed an arbitration hearing for which we await the outcome; if our dispute with Takeda continues or escalates,
we could be required to commit significant financial resources and management time and if we are not successful in our dispute
with Takeda, we may remain in an unsuccessful collaboration agreement and not have the cash resources needed for future expansion
of our business.
We believe Takeda
has breached its obligations to us by not generating an appropriate level of U.S. sales of AMITIZA and other failures of performance
under our agreements. We have sent Takeda notices of material breach and completed an arbitration hearing in the ICC. We await
the outcome of the arbitration where we have been seeking all appropriate relief, including production by Takeda of all information
to which we are entitled, a declaration of termination of applicable agreements, and all available monetary relief, equitable
relief, attorneys’ fees and costs. We are not certain when the arbitration will finally be resolved.
If the arbitration
continues for a longer period of time or escalates we will likely spend additional significant resources and will likely require
significant continuing attention from our senior management. If we are successful in resolving our dispute with Takeda, we may
be required to quickly expand our workforce, develop an infrastructure, plan and execute a commercialization plan and access substantial
capital. If we are unsuccessful in resolving our dispute with Takeda, we may be required to remain in a long-term unsuccessful
relationship with Takeda or we may not be able to fund future expansion of our operations.
In the event
of a favorable arbitration award, our future success will depend upon our ability to retain a qualified workforce, develop the
infrastructure to support the workforce and commercial activities, commercialize the product, and access sufficient capital. We
may also enter into a co-promotion arrangement with a pharmaceutical company to commercialize AMITIZA.
We are expecting
an arbitral award on or about April 30, 2012 and in the event the ICC determines that Takeda has breached the collaboration and
license agreement and terminates that agreement, we will begin commercializing the product. To successfully promote, market and
sell the product and maximize sales, we will need to hire a substantial and qualified workforce, build or contract for the infrastructure
necessary to support the workforce and commercialization activities as well as the further development activities, develop and
execute a commercialization plan, and access sufficient capital to support all of those activities. We may also enter into a co-promotion
arrangement with a pharmaceutical company to maximize the value of AMITIZA. We may not be able to hire the qualified workforce
necessary to promote, market and sell the product, to build or contract for the infrastructure to support the workforce and commercial
activities, execute the commercialization efforts, or access sufficient capital to support all of the activities necessary to
promote, market and sell the product. We may be unsuccessful in finding the appropriate pharmaceutical company to co-promote AMITIZA.
Risks Related to Our Commercial Operations
Any acquisitions we make could disrupt
our business and seriously harm our financial condition.
We may, from time
to time, consider acquisitions of complementary companies, products or technologies. Acquisitions involve numerous risks, including
difficulties in the assimilation of the acquired businesses, the diversion of our management’s attention from other business
concerns and potential adverse effects on existing business relationships with current customers and suppliers. In addition, any
acquisitions could involve the incurrence of substantial additional indebtedness. We cannot assure you that we will be able to
successfully integrate any acquisitions that we pursue or that such acquisitions will perform as planned or prove to be beneficial
to our operations and cash flow. Any such failure could seriously harm our business, financial condition and results of operations.
The acquisition of
SAG resulted in the issuance of two subordinated unsecured promissory notes in the aggregate amount of approximately $51.9 million.
If we do not generate sufficient cash flows from our operations, we may not be able to pay the obligations of the notes on a timely
basis, which may adversely affect our operating results. Our failure to comply with the covenants and/or obligations related to
the notes could result in an event of default, which could result in an immediate acceleration of the outstanding balance of the
notes that could materially and adversely affect our operating results and our financial condition.
Although we have reported profits
in previous years, we recorded a net loss in 2010 and 2011 and we may not regain or maintain
operating profitability
in the future which could force us to delay, reduce or abandon our commercialization efforts or product development programs.
We initiated commercial
sales of our first product,
AMITIZA
, for the treatment of CIC in adults of both genders in April
2006 and for the treatment of IBS-C in May 2008 for women aged 18 years and older and we first generated product royalty revenue
in the quarter ended June 30, 2006. Although we have reported net income for the past few years, this was primarily attributable
to our development milestones under our agreements with Takeda. We recorded a net loss of $17.3 million in 2011. Our primary cost
drivers result from expenses incurred in our research and development programs and from our general and administrative expenses.
We expect to continue to incur significant and increasing expenses for at least the next several years as we continue our research
activities, conduct development of the prostone technology, seek regulatory approvals for additional indications and additional
territories for
AMITIZA
and for other drug candidates, plan for commercialization of RESCULA,
seek licensing opportunities for third-party products, and enforce contractual obligations of our partners. We will also incur
significant operating expenses as we plan for a favorable arbitration award. Whether we are able to achieve sustainable operating
profitability in commercialization of AMITIZA outside of the U.S. and Canada and RESCULA within and outside of the United States,
the future will depend upon our ability to generate revenues that exceed our expenses and access sufficient capital. Changes in
market conditions, including the failure or approval of competing products, may require us to incur more expenses or change the
timing of expenses such that we may incur unexpected losses. We may not be able to sustain or increase profitability on a quarterly
or annual basis. If we are unable to maintain profitability, the market value of our class A common stock may decline.
We may need substantial additional
funding and be unable to raise capital when
needed, which could force us to delay, reduce or abandon our commercialization
efforts or product development programs.
We expect our research
and development expenses to increase in connection with our ongoing activities. We may need substantial additional funding and
be unable to raise capital when needed or on attractive terms, which would force us to delay, reduce or abandon our commercialization
efforts or development programs.
We have continued
to finance our operations by payments received under our collaboration agreements with Takeda and Abbott and milestone and other
payments from R-Tech. In the event the Takeda Agreement and Supplemental Takeda Agreement are terminated, we will need to generate
cash and cash equivalents necessary to support all of the activities necessary to develop, promote, market and sell the product.
We believe that our existing cash and cash equivalents and internally generated funds that we anticipate from
AMITIZA
product sales will be sufficient to enable us to fund our operating expenses under the collaboration agreements with Takeda
and Abbott but not for future research and development programs. Our future funding requirements, however, will depend on many
factors, including:
|
·
|
actual
levels of
AMITIZA
and RESCULA
product sales;
|
|
·
|
increasing
the workforce;
|
|
·
|
the
cost of commercialization
activities, including
product marketing,
sales and distribution;
|
|
·
|
the
scope and results
of our research,
preclinical and
clinical development
activities;
|
|
·
|
the
timing of, and
the costs involved
in, obtaining regulatory
approvals;
|
|
·
|
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;
|
|
·
|
our
ability to recruit
and retain internal
qualified human
resources to conduct
these activities;
|
|
·
|
the
extent to which
we acquire or invest
in businesses,
products and technologies;
|
|
·
|
the
success of our
collaboration with
Takeda and Abbott;
and
|
|
·
|
our
ability to establish
and maintain additional
collaborations.
|
If we are required
to raise additional funds from external sources, we might accomplish this through public or private equity offerings, debt financings
or corporate collaboration and licensing arrangements. If we raise additional funds by issuing equity securities, current stockholders
may experience dilution. Debt financing, if available, may involve agreements that include covenants limiting or restricting our
ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we
raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish
valuable rights and related intellectual property to our technologies, research programs, products or product candidates.
The Company is developing internationally
and increasing its foreign operations and exposure to fluctuations in foreign currency exchange rates may increase.
We expect that we
will continue to expand our international operations in the future. International operations inherently subject us to a number
of risks and uncertainties, including:
|
·
|
changes
in international
regulatory and
compliance requirements
that could restrict
our ability to
manufacture, market
and sell its products;
|
|
·
|
political
and economic instability;
|
|
·
|
diminished
protection of intellectual
property in some
countries outside
of the United States;
|
|
·
|
trade
protection measures
and import or export
licensing requirements;
|
|
·
|
difficulty
in staffing and
managing international
operations;
|
|
·
|
differing
labor regulations
and business practices;
|
|
·
|
potentially
negative consequences
from changes in
or interpretations
of tax laws;
|
|
·
|
changes
in international
medical reimbursement
policies and programs;
|
|
·
|
financial
risks such as longer
payment cycles,
difficulty collecting
accounts receivable
and exposure to
fluctuations in
foreign currency
exchange rates;
and
|
|
·
|
regulatory
and compliance
risks that relate
to maintaining
accurate information
and control over
sales and distributors’
and service providers’
activities that
may fall within
the purview of
the Foreign Corrupt
Practices Act.
|
Any of these factors
may, individually or as a group, have a material adverse effect on our business and results of operations.
As we expand our existing international
operations, we may encounter new risks. For example, as we focus on building our business in new geographic regions, we must continue
to develop relationships with qualified local distributors and trading companies. If we are not successful in developing and maintaining
these relationships, we may not be able to grow revenue in these geographic regions. These or other similar risks could adversely
affect our revenue and profitability.
Risks Related to Product Pipeline
If our preclinical studies do not
produce successful results or if our clinical
trials do not demonstrate safety and efficacy in humans, our ability
to develop and commercialize the prostone pipeline
will be impaired, which may jeopardize our business.
Before obtaining
regulatory approval for the sale of our product candidates from the prostone pipeline, we must conduct extensive preclinical tests
and clinical trials to demonstrate the safety and efficacy in humans of our product candidates. Preclinical and clinical testing
is expensive, is difficult to design and implement, can take many years to complete, is subject to varying regulatory requirements
and is uncertain as to outcome. Success in preclinical testing and early clinical trials does not ensure that later clinical trials
will be successful, and interim results of a clinical trial do not necessarily predict final results. A failure of one or more
of our clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result
of, preclinical testing and the clinical trial process that could delay or prevent our ability to receive regulatory approval
or commercialize our product candidates, including:
|
·
|
regulators
or institutional
review boards may
not authorize us
to commence a clinical
trial or conduct
a clinical trial
at a prospective
trial site;
|
|
·
|
clinical
research organizations
we retain to conduct
clinical trials
may not perform
according to the
terms of the contract,
causing delays
or negative results
in the clinical
trials;
|
|
·
|
our
preclinical tests
or clinical trials
may produce negative
or inconclusive
results, and as
a result we may
decide, or regulators
may require us,
to conduct additional
preclinical testing
or clinical trials
or we may abandon
projects that we
consider to be
promising;
|
|
·
|
design
of or enrollment
in our clinical
trials may be slower
than we currently
anticipate, resulting
in significant
delays, or participants
may drop out of
our clinical trials
at rates that are
higher than we
currently anticipate;
|
|
·
|
we
might have to suspend
or terminate our
clinical trials,
or perform additional
trials, if we discover
that the participating
patients are being
exposed to unacceptable
health risks;
|
|
·
|
regulators
or institutional
review boards may
require that we
hold, suspend or
terminate clinical
research for various
reasons, including
noncompliance with
regulatory requirements;
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the
cost of our clinical
trials may be greater
than we currently
anticipate;
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we
might have difficulty
obtaining sufficient
quantities of the
product candidate
being tested to
complete our clinical
trials;
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any
regulatory approval
we ultimately obtain
may be limited
or subject to restrictions
or post-approval
commitments that
render the product
not commercially
viable;
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we
face competition
from approved therapies
and potential drug
products for the
diseases and conditions
addressed by cobiprostone
and SPI-017, and
are likely to face
significant competition
for any other product
candidates we may
elect to develop
in the future;
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many
of our competitors
have significantly
greater financial
resources and expertise
in research and
development, manufacturing,
preclinical testing,
conducting clinical
trials, obtaining
regulatory approvals,
and marketing approved
products than we
do and smaller
or early stage
companies may also
prove to be significant
competitors, particularly
through collaborative
arrangements with
large and established
companies; and
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the
effects of our
product candidates
may not be the
desired or anticipated
effects or may
include undesirable
side effects, or
the product candidates
may have other
unexpected characteristics.
For example, in
preclinical tests
of
AMITIZA
,
the drug demonstrated
a potential to
cause fetal loss
in guinea pigs
and, as a result,
its label includes
cautionary language
as to its use by
pregnant women.
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If we are required
to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if
we are unable to successfully complete our clinical trials or other testing or if the results of these trials or tests are not
positive or are only modestly positive, we may:
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be
delayed in obtaining
marketing approval
for our product
candidates;
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not
be able to obtain
marketing approval;
or
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obtain
approval for indications
that are not as
broad as those
for which we apply.
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Our product development
costs will also increase if we experience delays in testing or approvals. We do not know whether our clinical trials will begin
as planned, will need to be restructured or will be completed on schedule, if at all. Significant clinical trial delays also could
allow our competitors to bring products to market before we do and impair our ability to commercialize our products or product
candidates.
We are required to conduct supplemental
post-marketing clinical trials of
AMITIZA
and
we may elect to perform additional
clinical trials for other indications or in
support of applications for regulatory marketing approval in jurisdictions
outside
the U.S. These supplemental trials could be costly and could result in
findings inconsistent
with or contrary to our historic U.S. clinical trials.
In connection with
our marketing approval for
AMITIZA
for the treatment of CIC in adults of both genders, we committed
to the FDA to conduct post-marketing studies of the product in pediatric patients, in patients with renal impairment and in patients
with hepatic impairment. In the future, we may be required, or we may elect, to conduct additional clinical trials of
AMITIZA
to improve the current label or address regulatory authorities concerns about AMITIZA
. In addition, if we seek marketing
approval from regulatory authorities in jurisdictions outside the U.S., such as the EMA, they may require us to perform additional
clinical trials that would be costly and difficult to know if there will be successful outcomes and to submit data from supplemental
clinical trials in addition to data from the clinical trials that supported our U.S. filings with the FDA. In connection with
labeling submission for RESCULA, we will conduct additional trials that may have uncertain outcomes. Any requirements to conduct
supplemental trials would add to the cost of developing our product candidates. Additional or supplemental trials could also produce
findings that are inconsistent with the trial results we have previously submitted to the FDA, in which case we would be obligated
to report those findings to the FDA. This could result in new restrictions on the existing marketing approval for AMITIZA or RESCULA
or could force us to stop selling
AMITIZA
or not sell RESCULA. Inconsistent trial results could
also lead to delays in obtaining marketing approval in the U.S. for other indications for
AMITIZA,
RESCULA
or for other product candidates and could cause regulators to impose restrictive conditions on marketing approvals
and could even make it impossible for us to obtain marketing approval. Any of these results could materially impair our ability
to generate revenues and to achieve or maintain profitability.
Risks Related to Employees and Managing
Growth
If we are unable to retain our chief
executive and chief scientific officer and other
key executives, we may not be able to successfully develop and
commercialize our
products.
We are highly dependent
on Dr. Ryuji Ueno, our chief executive officer and chief scientific officer, for the development of the prostone technology and
the other principal members of our executive and scientific teams to successfully manage the growth of the company. The loss of
the services of any of these persons might impede the achievement of our product development and commercialization objectives
and it might be difficult to recruit a replacement executive for any of their positions. We have employment agreements with these
executives, but these agreements are terminable by the employees on short or no notice at any time without penalty to the employee.
Risks Related to Our Dependence on
Third Parties, Including Related Parties
We have no manufacturing capabilities
and are dependent upon R-Tech to manufacture
and supply us with our product and product candidates. If R-Tech does
not manufacture
AMITIZA, RESCULA
or our other product candidates
in sufficient quantities, at acceptable
quality levels and at acceptable cost and if we are unable to identify a
suitable
replacement manufacturer, our sales of
AMITIZA, potential sales of RESCULA
and our further clinical development
and commercialization of other products could be delayed, prevented or impaired.
We do not own or
operate manufacturing facilities and have little experience in manufacturing pharmaceutical products. We currently rely, and expect
to continue to rely, exclusively on R-Tech to supply Takeda and us with
AMITIZA
, unoprostone
isopropyl, cobiprostone and SPI-017 and any future prostone compounds that we may determine to develop or commercialize. We have
granted R-Tech the exclusive right to manufacture and supply
AMITIZA
to meet our commercial
and clinical requirements throughout the world and we do not have an alternative source of supply for
AMITIZA
.
We also do not have an alternative source of supply for unoprostone isopropyl, cobiprostone or SPI-017, which R-Tech manufactures
and supplies to us. If R-Tech is not able to supply
AMITIZA
or these other compounds on a timely
basis, in sufficient quantities and at acceptable levels of quality and price and if we are unable to identify a replacement manufacturer
to perform these functions on acceptable terms, sales of
AMITIZA
would be significantly impaired
and our development programs could be seriously jeopardized. R-Tech has informed us that it is relocating its manufacturing facility
for unoprostone isopropyl beginning April 2012 and will not be able to manufacture and supply unoprostone isopropyl for up to
18 months. In order to mitigate this risk, we have placed an order to sufficiently cover this supply period based on our forecasts.
The risks of relying
solely on R-Tech for the manufacture of our products include:
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we
rely solely on
R-Tech for quality
assurance and their
continued compliance
with regulations
relating to the
manufacture of
pharmaceuticals;
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R-Tech’s
manufacturing capacity
may not be sufficient
to produce commercial
quantities of our
product, or to
keep up with subsequent
increases in the
quantities necessary
to meet potentially
growing demand;
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R-Tech
may not have access
to the capital
necessary to expand
its manufacturing
facilities in response
to our needs;
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in
light of the complexity
of the manufacturing
process for prostones,
if R-Tech were
to cease conducting
business, or if
its operations
were to be interrupted,
it would be difficult
and time consuming
for us to find
a replacement supplier
and the change
would need to be
submitted to and
approved by the
FDA;
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R-Tech
has substantial
proprietary know-how
relating to the
manufacture of
prostones and,
in the event we
must find a replacement
or supplemental
manufacturer or
we elect to contract
with another manufacturer
to supply us with
products other
than
AMITIZA
,
we would need to
transfer this know-how
to the new manufacturer,
a process that
could be both time
consuming and expensive
to complete;
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R-Tech
may experience
events, such as
a fire or natural
disaster, that
force it to stop
or curtail production
for an extended
period; and
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R-Tech
could encounter
significant increases
in labor, capital
or other costs
that would make
it difficult for
R-Tech to produce
our products cost-effectively.
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In addition, R-Tech
currently uses one supplier for the primary ingredient used in the manufacture of prostones. R-Tech could experience delays in
production should it become necessary to switch its source of supply for this ingredient to another supplier or to manufacture
the ingredient itself. R-Tech has subcontracted with a single contract manufacturer to encapsulate the bulk form
AMITIZA
supplied by R-Tech into gelatin capsules and to package the final product for distribution in the U.S. If this subcontractor
experiences difficulties or delays in performing these services for any reason, our ability to deliver adequate supplies of finished
product to physicians and patients will be impaired during the period in which R-Tech seeks a replacement manufacturer, which
could cause us to lose revenues. In addition, any change in the party providing encapsulation of
AMITIZA
would need to be approved by the FDA, and any change in the party packaging the product would need to be submitted to and
reviewed by the FDA, which could increase the time required to replace this subcontractor should that become necessary.
Our current and anticipated
future dependence upon R-Tech for the manufacture of our products and product candidates may adversely affect our future revenues,
our cost structure and our ability to develop product candidates and commercialize any approved products on a timely and competitive
basis. In addition, if R-Tech should cease to manufacture prostones for our clinical trials for any reason, we likely would experience
delays in advancing these trials while we seek to identify and qualify replacement suppliers. We may be unable to obtain replacement
supplies on a timely basis, on terms that are favorable to us or at all.
R-Tech and any other third-party
manufacturer of our products and product candidates
are subject to significant regulations governing manufacturing
facilities and
procedures.
R-Tech, R-Tech’s
subcontractors and suppliers and any other potential manufacturer of our products or product candidates may not be able to comply
with the FDA’s cGMP regulations, other U.S. regulations or similar regulatory requirements in force outside the U.S. These
regulations govern manufacturing processes and procedures and the implementation and operation of systems to control and assure
the quality of products approved for sale. In addition, the FDA or other regulatory agencies outside the U.S. may at any time
audit or inspect a manufacturing facility to ensure compliance with cGMP or similar regulations. Our failure, or the failure of
R-Tech, R-Tech’s subcontractors and suppliers or any other third-party manufacturer we use, to comply with applicable manufacturing
regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory
authorities to grant marketing approval of our product candidates, delays, suspension or withdrawal of approvals, license revocation,
seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly
and adversely affect supplies of our products and product candidates.
If it were to become
necessary for us to replace R-Tech as contract manufacturer of our product and product candidates, we would compete with other
products for access to appropriate manufacturing facilities and the change would need to be submitted to and approved by the FDA.
Among manufacturers that operate under cGMP regulations, there are a limited number that would be both capable of manufacturing
for us and willing to do so.
We depend significantly on our collaborations
with Takeda and Abbott, and may depend in the future on collaborations with other third parties, to develop and commercialize
our product candidates.
A key element of
our business strategy is to collaborate where appropriate with third parties, particularly leading pharmaceutical companies, to
develop, commercialize and market our products and product candidates. We are currently party to a 16-year joint collaboration
and license agreement with Takeda for the development and commercialization of
AMITIZA
for gastrointestinal
indications in the U.S. and Canada. We have experienced significant difficulties with Takeda’s performance under that agreement
and Takeda has failed to, among other things, use its best efforts to market, promote, and sell AMITIZA and maximize the net sales
revenue. We are also party to an agreement with Abbott for the development and commercialization of lubiprostone in Japan. Under
the Abbott Agreement, we are not certain that Abbott will obtain pricing that will allow us to earn a reasonable rate of return
on the development of AMITIZA in Japan.
The success of our
collaboration arrangement will depend heavily on the efforts and activities of Takeda and Abbott. The risks that we face in connection
with this collaboration and that we anticipate being subject to in any future collaborations, include the following:
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our
agreements with
Takeda and Abbott
are, and any future
collaboration agreements
that we may enter
into are likely
to be, subject
to termination
under various circumstances;
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Takeda,
Abbott and other
future collaborators
may develop and
commercialize,
either alone or
with others, products
and services that
are similar to
or competitive
with the products
that are the subject
of the collaboration
with us;
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Takeda,
Abbott and other
future collaborators
may underfund or
not commit sufficient
resources to the
testing, marketing,
distribution or
other development
of our products
or may use committed
resources inefficiently;
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Takeda,
Abbott and other
future collaborators
may not properly
maintain or defend
our intellectual
property rights
or may utilize
our proprietary
information in
such a way as to
invite litigation
that could jeopardize
or invalidate our
proprietary information
or expose us to
potential liability;
and
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Takeda,
Abbott and other
future collaborators
may change the
focus of their
development and
commercialization
efforts.
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The ability of our
products and product candidates to reach their potential could be limited if Takeda, Abbott or any other future collaborators
decrease or fail to increase spending relating to such products, fail to dedicate sufficient resources to developing or promoting
our products or change their business focus.
We rely on third parties to conduct
our clinical trials and those third parties may
not perform satisfactorily or may fail to meet established deadlines
for the
completion of these trials.
We generally do not
have the independent ability to conduct clinical trials for our product candidates. We rely on third parties, such as CRO, clinical
data management organizations, medical institutions, and clinical investigators, to perform this function. For example, approximately
130 separate clinical investigators participated in our trials for IBS-C. We use multiple contract research organizations to coordinate
the efforts of our clinical investigators and to accumulate the results of our trials. Our reliance on these third parties for
clinical development activities reduces our control over these activities. Furthermore, these third parties may also have relationships
with other entities, some of which may be our competitors. We have experienced a CRO not performing under its contract that resulted
in an unsuccessful outcome of a clinical trial, which delayed our obtaining regulatory approval for one of our indications for
AMITIZA and delayed our efforts to commercialize AMITIZA for that indication.
In addition, we are
responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and
protocols for the trial. The FDA requires us to comply with standards, commonly referred to as good clinical practices, for conducting
and recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate
and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third parties that we
do not control does not relieve us of these responsibilities and requirements.
Conflicts of interest may arise
between R-Tech and us, and these
conflicts might ultimately be resolved in a manner unfavorable to us.
Our founders, Dr.
Sachiko Kuno and Dr. Ryuji Ueno, together own a majority of the stock of R-Tech. Drs. Kuno and Ueno are married to each other.
Ownership interests of our founders in the stock of R-Tech, and Dr. Ueno’s service as a director and executive officer of
our Company and Dr. Kuno’s service as a director of our Company could give rise to conflicts of interest when faced with
a decision that could favor the interests of one of the affiliated companies over another. In addition, conflicts of interest
may arise with respect to existing or possible future commercial arrangements between us and R-Tech in which the terms and conditions
of the arrangements are subject to negotiation or dispute. For example, conflicts of interest could arise over matters such as:
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disputes
over the cost or
quality of the
manufacturing services
provided to us
by R-Tech with
respect to
AMITIZA
,
unoprostone isopropyl,
cobiprostone and
SPI-017;
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a
decision whether
to engage R-Tech
in the future to
manufacture and
supply compounds
other than
AMITIZA
,
unoprostone isopropyl,
cobiprostone and
SPI-017;
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a
decision whether
to renegotiate
the terms of our
existing agreements
with R-Tech; or
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business
opportunities unrelated
to prostones that
may be attractive
both to us and
to the other company.
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If tax authorities disagree with
our transfer pricing policies or other tax positions, we could become subject to significant tax liabilities.
We are a member of
an affiliated group of entities, including R-Tech, which is directly or indirectly controlled by Drs. Ueno and Kuno. We have had
and will continue to have significant commercial transactions with these entities. Furthermore, we operate four foreign subsidiaries,
SPL, SPE, SAG, and Ambrent Investments S.à r.l. We expect to operate through a consolidated organizational structure and
we expect to enter into commercial transactions with some of these entities or future subsidiaries on an ongoing basis. As a result
of these transactions, we will be subject to complex transfer pricing and other tax regulations in both the U.S. and the other
countries in which we and our affiliates operate. Transfer pricing regulations generally require that, for tax purposes, transactions
between our subsidiaries and affiliates and us be priced on a basis that would be comparable to an arm’s length transaction
and that contemporaneous documentation be maintained to support the related party agreements. To the extent that U.S. or any foreign
tax authorities disagree with our transfer pricing or other policies, we could become subject to significant tax liabilities and
penalties related to prior, existing and future related party agreements. As of December 31, 2011, we performed updated tax analyses
wherein liabilities for uncertain tax positions were recorded for certain state jurisdictions based on nexus related to the sourcing
of revenues. Should the tax authorities in one or more of these states have different interpretations than us, we may be subject
to additional tax liabilities.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain
proprietary protection for the intellectual
property relating to our technology and products, the value of our technology
and
products will be adversely affected and our ability to derive revenue from our
products would
be impaired.
Our success depends
in part on our ability, to obtain and maintain proprietary protection for the technology and know-how upon which our products
are based, to operate without infringing on the proprietary rights of others and to prevent others from infringing on our proprietary
rights. The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. Our
ability to maintain and solidify our proprietary position for our intellectual property will depend on our success, in obtaining
effective claims and enforcing those claims once granted. The scope of protection afforded by a set of patent claims is subject
to inherent uncertainty unless the patent has already been litigated and a court has ruled on the meaning of the claim language
and other issues affecting how broadly a patent claim can be enforced. In some cases, we license patent applications from R-Tech
instead of issued patents, and we do not know whether these patent applications will result in the issuance of any patents. Our
licensed patents may be challenged, invalidated or circumvented, which could limit the term of patent protection for our products
or diminish our ability to stop competitors from marketing related products. We have certain patents on our products that expire
in the near future. We may not be able to use other existing patents or patent applications to successfully protect our products
from generic competition. In addition, changes in either patent laws or in interpretations of patent laws in the U.S. and other
countries may diminish the value of R-Tech’s patents and our intellectual property or narrow the scope of the protection
provided by these patents. Accordingly, we cannot determine the degree of future protection for our proprietary rights in the
patents and patent applications. Furthermore, because of the extensive time required for development, testing and regulatory review
of a potential product, it is possible that, before any of our product candidates can be commercialized, a related patent may
expire or may remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.
Patents may not afford
us protection against competitors with similar technology. Because patent applications in the U.S. and many foreign jurisdictions
are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries
in the scientific literature often lag behind actual discoveries, neither we nor R-Tech can be certain whether a judicial court
will uphold the validity of a patent .
Risks Related to Regulatory Approval
and Oversight
If we are not able to obtain required
regulatory approvals, we will not be able to
commercialize our product candidates and our ability to generate revenue
will be
materially impaired.
Our product candidates
and the activities associated with their development and commercialization, including testing, manufacture, safety, efficacy,
recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation
by the FDA and other regulatory agencies in the U.S. and by authorities in other countries. We are currently seeking approval
of a sNDA from the FDA for RESCULA and failure to obtain approval of an enhanced label may prevent us from successfully re-launching
RESCULA in United States. We are also currently seeking approval for AMITIZA for CIC in Japan and the United Kingdom. Failure
to obtain regulatory approval or appropriate pricing for a product candidate will prevent us from commercializing the product
candidates.
As we increase our
foreign operations we are and will continue to seek approval in different territories. Different regulatory agencies may reach
different decisions in assessing the approval and pricing of our product candidates. Securing regulatory approval requires the
submission of extensive preclinical and clinical data, information about product manufacturing processes and inspection of facilities
and supporting information to the regulatory agencies for each therapeutic indication to establish the product candidate’s
safety and efficacy. Our future products may not be effective, may be only moderately effective or may prove to have undesirable
side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial
use.
The process of obtaining
regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon
the type, complexity and novelty of the product candidates involved. Changes in the regulatory approval policy during the development
period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted
product application, may cause delays in the approval or rejection of an application. The FDA has substantial discretion in the
approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require
additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical
and clinical testing could delay, limit or prevent regulatory approval of a product candidate. Any regulatory approval we ultimately
obtain may be limited in scope or subject to restrictions or post-approval commitments that render the product not commercially
viable. If any regulatory approval that we obtain is delayed or is limited, we may decide not to commercialize the product candidate
after receiving the approval.
We may not be able to obtain orphan
drug exclusivity for our product candidates. If our competitors are able to obtain orphan drug exclusivity for a product that
is competitive with one or more of our product candidates and we cannot show that our product candidate is clinically superior,
we may not be able to have competing products approved by the applicable regulatory authority for a significant period of time.
Regulatory authorities
in some jurisdictions, including Europe and the U.S., may designate drugs that target relatively small patient populations as
orphan drugs. We have received an orphan drug designation from the FDA for our product candidate cobiprostone for the treatment
of disorders associated with cystic fibrosis and orphan drug designation for RESCULA for the treatment of retinitis pigmentosa.
We may pursue orphan drug designation for additional product candidates. Generally, if a product with an orphan drug designation
subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled
to a period of marketing exclusivity. The exclusivity applies only to the indication for which the drug has been designated and
approved. The applicable exclusivity period is seven years in the U.S., but this period may be interrupted if a sponsor of a competitive
product that is otherwise the same drug for the same use can show that its drug is clinically superior to our orphan drug candidate.
The European exclusivity period is ten years, but may be reduced to six years if a drug no longer meets the criteria for orphan
drug designation, including where it is shown that the drug is sufficiently profitable so that market exclusivity is no longer
justified. In addition, European regulations establish that a competitor’s marketing authorization for a similar product
with the same indication may be granted if there is an insufficient supply of the product or if another applicant can establish
that its product is safer, more effective or otherwise clinically superior. If a competitor obtains orphan drug exclusivity for
a product competitive with cobiprostone or RESCULA before we do and if the competitor’s product is the same drug with the
same indication as ours, we would be excluded from the market, unless we can show that our drug is safer, more effective or otherwise
clinically superior. Even if we obtain orphan drug exclusivity for cobiprostone or RESCULA for these indications, we may not be
able to maintain it if a competitor with a product that is otherwise the same drug can establish that its product is clinically
superior.
We must comply with federal, state
and foreign laws, regulations, and other rules
relating to the health care business, and, if we are unable to fully
comply with such
laws, regulations and other rules, we could face substantial penalties.
We are or will be
directly or indirectly through our customers, subject to extensive regulation by the federal government, the states and foreign
countries in which we may conduct our business. The laws that directly or indirectly affect our ability to operate our business
include the following:
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the
federal Medicare
and Medicaid Anti-Kickback
law, which prohibits
persons from knowingly
and willfully soliciting,
offering, receiving
or providing remuneration,
directly or indirectly,
in cash or in kind,
to induce either
the referral of
an individual,
or furnishing or
arranging for a
good or service,
for which payment
may be made under
federal healthcare
programs such as
the Medicare and
Medicaid Programs;
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other
Medicare laws,
regulations, rules,
manual provisions
and policies that
prescribe the requirements
for coverage and
payment for services
performed by our
customers, including
the amount of such
payment;
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the
federal False Claims
Act, which imposes
civil and criminal
liability on individuals
and entities who
submit, or cause
to be submitted,
false or fraudulent
claims for payment
to the government;
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the
federal False Statements
Act, which prohibits
knowingly and willfully
falsifying, concealing
or covering up
a material fact
or making any materially
false statement
in connection with
the delivery of
or payment for
healthcare benefits,
items or services;
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the
Foreign Corrupt
Practices Act,
which prohibits
certain payments
made to foreign
government officials;
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state
and foreign law
equivalents of
the foregoing and
state laws regarding
pharmaceutical
company marketing
compliance, reporting
and disclosure
obligations; and
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the
Patient Protection
and Affordable
Care Act, which
changes access
to healthcare products;
services and creates
new fees for the
pharmaceutical
and medical device
industries; changes
rebates and prices
for health care
products and services;
and requires additional
reporting and disclosure.
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If our operations
are found to be in violation of any of the laws, regulations, rules or policies described above or any other law or governmental
regulation to which we or our customers are or will be subject, or if the interpretation of the foregoing changes, we may be subject
to civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring
of our operations. Similarly, if our customers are found non-compliant with applicable laws, they may be subject to sanctions,
which could also have a negative impact on us. Any penalties, damages, fines, curtailment or restructuring of our operations would
harm our ability to operate our business and our financial results. The risk of our being found in violation of these laws is
increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their
provisions may be open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully
defend against it, could cause us to incur significant legal expenses, divert management resources from the operation of our business
and damage our reputation.
Risks Related to Our Common Stock
Our founders, who are also members
of our Board of Directors, maintain the ability to control all matters submitted to stockholders
for approval, which
could result in actions of which you or other stockholders do not
approve.
Our founders, Dr.
Sachiko Kuno, one of our directors, and Dr. Ryuji Ueno, our chief executive officer, chief scientific officer and a chairman,
together beneficially own 1,923,885 shares of class A common stock and 26,191,050 shares of class B common stock, representing
approximately 95.1% of the combined voting power of our outstanding common stock. As a result, Drs. Ueno and Kuno, who are married,
acting by themselves, are able to control the outcome of all matters that our stockholders vote upon, including the election of
directors, amendments to our certificate of incorporation, and mergers or other business combinations. The concentration of ownership
and voting power also may have the effect of delaying or preventing a change in control of our company and could prevent stockholders
from receiving a premium over the market price if a change in control is proposed.
Provisions in our corporate charter
documents and under Delaware law may prevent or
frustrate attempts by our stockholders to change our management
and hinder efforts to
acquire a controlling interest in us, and the market price of our class A common
stock
may be lower as a result.
There are provisions
in our certificate of incorporation and by-laws that may make it difficult for a third party to acquire, or attempt to acquire,
control of our company, even if a change in control was considered favorable by you and other stockholders. For example, our Board
of Directors has the authority to issue up to 5,000,000 shares of preferred stock. The Board of Directors can fix the price, rights,
preferences, privileges, and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance
of shares of preferred stock may delay or prevent a change in control transaction. As a result, the market price of our class
A common stock and the voting and other rights of our stockholders may be adversely affected. An issuance of shares of preferred
stock may result in the loss of voting control to other stockholders.
Our charter documents
contain other provisions that could have an anti-takeover effect, including:
|
·
|
the
high-vote nature
of our class B
common stock;
|
|
·
|
following
the conversion
of all shares of
class B common
stock into class
A common stock,
only one of our
three classes of
directors will
be elected each
year;
|
|
·
|
following
the conversion
of all shares of
class B common
stock into class
A common stock,
stockholders will
not be entitled
to remove directors
other than by a
75.0% vote and
for cause;
|
|
·
|
following
the conversion
of all shares of
class B common
stock into class
A common stock,
stockholders will
not be permitted
to take actions
by written consent;
|
|
·
|
stockholders
cannot call a special
meeting of stockholders;
and
|
|
·
|
stockholders
must give advance
notice to nominate
directors or submit
proposals for consideration
at stockholder
meetings.
|
In addition, we are
subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions.
These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction.
They could also have the effect of discouraging others from making tender offers for ; common stock. These provisions may also
prevent changes in our management.
Our class A common stock is thinly
traded and our stock price is volatile; investors in our class A common stock could
incur substantial losses.
The public trading
market for our class A common stock is characterized by small trading volumes and a highly volatile stock price. The stock market
in general and the market for pharmaceutical and biotechnology companies in particular have experienced extreme volatility that
has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not
be able to sell their class A common stock at or above the price they paid, and may have difficulty selling their shares at any
price. The market price for our class A common stock may be influenced by many factors, including:
|
·
|
failure
of AMITIZA or other
approved products,
if any, to achieve
commercial success;
|
|
·
|
results
of clinical trials
of our product
candidates or those
of our competitors;
|
|
·
|
the
regulatory status
of our product
candidates;
|
|
·
|
the
success of competitive
products or technologies;
|
|
·
|
regulatory
developments in
the U.S. and foreign
countries;
|
|
·
|
developments
or disputes concerning
patents or other
proprietary rights;
|
|
·
|
the
outcome of the
arbitration in
our dispute with
Takeda;
|
|
·
|
the
ability of R-Tech
to manufacture
our products to
commercial standards
in sufficient quantities;
|
|
·
|
actual
or anticipated
fluctuations in
our quarterly financial
results;
|
|
·
|
variations
in the financial
results of companies
that are perceived
to be similar to
us;
|
|
·
|
changes
in the structure
of healthcare payment
systems;
|
|
·
|
market
conditions in the
pharmaceutical
and biotechnology
sectors and issuance
of new or changed
securities analysts’
reports or recommendations;
and
|
|
·
|
general
economic, industry
and market conditions.
|
ITEM 1B. UNRESOLVED
STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters,
including our principal executive office, and some of our commercial, administrative and research and development activities,
are located in Bethesda, Maryland. Our lease for this facility, which comprises approximately 25,000 square feet of office space,
expires in February 2017. In addition, we have a short-term lease in Fuquay-Varina, North Carolina to house our national sales
office.
We lease our Asian
offices located in Tokyo and Osaka, Japan and European offices, located in Zug, Switzerland and in Oxford, England, under short-term
leases, which comprise an aggregate of 5,950 square feet of space.
ITEM 3. LEGAL
PROCEEDINGS
As
previously reported, on March 12, 2010, we submitted for filing with the ICC, a demand for arbitration under the applicable provisions
of the Takeda Agreement, which specify that New York law will govern the procedural and substantive aspects of the arbitration.
We have asserted that Takeda has materially breached, without limitation, certain sections of the Takeda Agreement and Supplemental
Takeda Agreement and certain state laws through Takeda’s failure to, among other things, collaborate diligently and in good
faith with Sucampo; to use best efforts to develop and bring AMITIZA to market; to use best efforts to promote, market, and sell
AMITIZA, and to maximize AMITIZA net sales revenue; to market AMITIZA adequately to primary care physicians; to employ an appropriate
sales force for AMITIZA; to detail AMITIZA at the appropriate level of quality and quantity; to consider and conduct full-scale
direct-to-consumer advertising; to prepare for, launch and commercialize AMITIZA for the IBS-C indication; to obtain appropriate
formulary treatment for AMITIZA; and to initiate and fund Phase IV and outcome studies for the CIC and IBS-C indications. The
parties filed their submission and witness statements and the arbitration hearing on our claims concluded on December 20, 2011.
Under a recent order from the ICC, the final arbitration award is expected by the end of April 2012. After the final arbitration
award issues, one or both parties will file a court action seeking confirmation of the award. We have undertaken substantial planning
in the event there is a favorable arbitration award. We have filed a motion for interim relief with the arbitration panel to restrain
Takeda from making major unilateral decisions prior to the final arbitrational award. It is not known if the issuance of the ICC
arbitration award will remain on schedule or how long the court confirmation proceedings will take to conclude. We have spent
and expect to spend significant resources in the dispute with Takeda, and these arbitration matters may require the continuing
attention of our senior management.
As previously reported,
we filed an amended lawsuit under seal in the Circuit Court for Montgomery County, Maryland against Covance that performed the
clinical trials for the OBD indication. We alleged that Covance was carelessly and grossly negligent in its performance of the
clinical trials Covance contracted with us to perform. As a result of Covance's negligence, we had been forced to repair the deficiencies
caused by Covance, conduct a new trial and were delayed in filing for and obtaining approval for the new indication for AMITIZA.
Covance’s negligence resulted in additional costs for studies, re-monitoring and remediation, and lost profits from the
delay in filing and obtaining approval for the new indication. On October 26, 2011, we entered into a settlement agreement with
Covance, which provides that they have paid us $10.0 million and forgiven the payment by us of outstanding payables of $1.1 million.
As a result of the settlement agreement, the lawsuit was dismissed with prejudice.
On February 21, 2012,
Kimberly Young, a former employee, filed a lawsuit entitled, Kimberly Young vs. Sucampo Pharmaceuticals, in the 95
th
Judicial District Court of Dallas County, Texas alleging, among other things, employment discrimination based on gender in the
denial of a promotion and retaliation. She is seeking damages and other relief. We believe that these claims are without merit
but the ultimate outcome of these matters cannot be determined at this time.
ITEM 4. MINE
SAFETY DISCLOSURES
Not applicable
PART II
|
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our class A common
stock has been traded on The NASDAQ Global Market under the symbol “SCMP” since our initial public offering on August
2, 2007. The following table sets forth, for the periods indicated, the range of high and low sale prices of our class A common
stock as reported on The NASDAQ Global Market.
Quarters Ended
|
|
High
|
|
|
Low
|
|
March 31, 2010
|
|
$
|
4.33
|
|
|
$
|
3.39
|
|
June 30, 2010
|
|
$
|
4.11
|
|
|
$
|
3.46
|
|
September 30, 2010
|
|
$
|
3.84
|
|
|
$
|
3.28
|
|
December 31, 2010
|
|
$
|
3.84
|
|
|
$
|
3.26
|
|
March 31, 2011
|
|
$
|
4.69
|
|
|
$
|
3.86
|
|
June 30, 2011
|
|
$
|
4.48
|
|
|
$
|
4.08
|
|
September 30, 2011
|
|
$
|
4.15
|
|
|
$
|
2.89
|
|
December 31, 2011
|
|
$
|
4.64
|
|
|
$
|
3.40
|
|
As
of February 27, 2012, we had
15,704,314
shares of class A common stock outstanding held by 10
stockholders of record.
The number of holders of record of our class A common stock is not representative of the number
of beneficial holders because many shares are held by depositories, brokers or nominees. As of
February
27, 2012,
the closing price of our class A common stock was $7.08.
As of February 27, 2012 we
had 26,191,050 shares of class B common stock outstanding held by one stockholder of record.
We have never declared
or paid any cash dividends on our common stock. We currently intend to retain earnings, if any, to support our growth strategy
and do not anticipate paying cash dividends in the foreseeable future.
On December 11, 2008,
we announced a stock repurchase program to which we are authorized to purchase up to $10.0 million of our class A common stock
from time to time in open-market transactions. On September 8, 2011, our Board of Directors authorized the repurchase of up to
an aggregate of $2.0 million of our class A common stock out of the $10.0 million authorized by the Board of Directors on December
9, 2008. During the fourth quarter and twelve months ended December 31, 2011, we repurchased 144,713 and 186,987 shares, respectively,
of our class A common stock under this program at a cost of $550,982 and $700,042, respectively. We did not repurchase any of
our equity securities in 2010 or 2009.
|
|
Issuer Purchases of Equity Securities
|
|
Period
|
|
Total Number of Shares
(or Units) Purchased
|
|
|
Average Price Paid per
Share (or Unit)
|
|
|
Total Number of Shares
(or Units) Purchased as
Part of Publicly
Announced Plans or
Programs
|
|
|
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs
|
|
October 1 - 31, 2011
|
|
|
28,841
|
|
|
|
3.68
|
|
|
|
28,841
|
|
|
|
1,928,885
|
|
November 1 - 30, 2011
|
|
|
74,468
|
|
|
|
3.74
|
|
|
|
74,468
|
|
|
|
1,854,417
|
|
December 1 - 31, 2011
|
|
|
41,404
|
|
|
|
3.91
|
|
|
|
41,404
|
|
|
|
1,813,013
|
|
Total
|
|
|
144,713
|
|
|
|
3.78
|
|
|
|
144,713
|
|
|
|
5,596,315
|
|
Stock Performance Graph
The information included
under this heading “Stock Performance Graph” is “furnished” and not “filed” and shall not
be deemed to be “soliciting material” or subject to Regulation 14A, shall not be deemed “filed” for purposes
of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities
of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended,
or the Exchange Act.
The following
graph compares the cumulative total return, assuming the investment of $100 on March 1, 2010, in each of (1) our class A common
stock, (2) The NASDAQ Composite Index (U.S. and Foreign) and (3) the NASDAQ Pharmaceutical Index, assuming reinvestment of
any dividends. These comparisons are required by the SEC and are not intended to forecast or be indicative of possible future
performance of our class A common stock.
ITEM 6. SELECTED
FINANCIAL DATA
We have derived the
following consolidated financial data as of December 31, 2010 and 2011 and for the years ended December 31, 2009, 2010 and 2011
from our audited Consolidated Financial Statements appearing elsewhere in this Annual Report. We have derived the following consolidated
financial data as of December 31, 2007, 2008 and 2009 and for the years ended December 31, 2007 and 2008 from audited Consolidated
Financial Statements, which are not included in this Annual Report. The information set forth below is not necessarily indicative
of the results of future operations and should be read in conjunction with Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related footnotes appearing
elsewhere in this Annual Report on Form 10-K.
|
|
Year Ended December 31,
|
|
(In thousands, except per share data)
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Statement of operations data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
54,761
|
|
|
$
|
61,870
|
|
|
$
|
67,351
|
|
|
$
|
112,123
|
|
|
$
|
91,937
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
33,497
|
|
|
|
23,955
|
|
|
|
32,906
|
|
|
|
46,181
|
|
|
|
31,697
|
|
Settlement of legal dispute
|
|
|
(11,100
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
General and administrative
|
|
|
41,270
|
|
|
|
27,867
|
|
|
|
15,000
|
|
|
|
15,075
|
|
|
|
21,998
|
|
Selling and marketing
|
|
|
8,783
|
|
|
|
10,201
|
|
|
|
10,030
|
|
|
|
10,895
|
|
|
|
13,474
|
|
Total operating expenses
|
|
|
72,450
|
|
|
|
62,023
|
|
|
|
57,936
|
|
|
|
72,151
|
|
|
|
67,169
|
|
Income (loss) from operations
|
|
|
(17,689
|
)
|
|
|
(153
|
)
|
|
|
9,415
|
|
|
|
39,972
|
|
|
|
24,768
|
|
Total non-operating income (expense), net
|
|
|
(4,225
|
)
|
|
|
(3,167
|
)
|
|
|
446
|
|
|
|
466
|
|
|
|
2,969
|
|
Income (loss) before income taxes
|
|
|
(21,914
|
)
|
|
|
(3,320
|
)
|
|
|
9,861
|
|
|
|
40,438
|
|
|
|
27,737
|
|
Income tax benefit (provision)
|
|
|
4,608
|
|
|
|
565
|
|
|
|
(5,084
|
)
|
|
|
(8,925
|
)
|
|
|
(8,641
|
)
|
Net income (loss)
|
|
$
|
(17,306
|
)
|
|
$
|
(2,755
|
)
|
|
$
|
4,777
|
|
|
$
|
31,513
|
|
|
$
|
19,096
|
|
Basic net income (loss) per share
|
|
$
|
(0.41
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
0.11
|
|
|
$
|
0.75
|
|
|
$
|
0.51
|
|
Diluted net income (loss) per share
|
|
$
|
(0.41
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
0.11
|
|
|
$
|
0.75
|
|
|
$
|
0.51
|
|
Weighted average common shares outstanding - basic
|
|
|
41,839
|
|
|
|
41,848
|
|
|
|
41,844
|
|
|
|
41,787
|
|
|
|
37,778
|
|
Weighted average common shares outstanding - diluted
|
|
|
41,839
|
|
|
|
41,848
|
|
|
|
41,866
|
|
|
|
41,973
|
|
|
|
38,226
|
|
|
|
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
50,662
|
|
|
$
|
49,243
|
|
|
$
|
61,420
|
|
|
$
|
93,704
|
|
|
$
|
77,912
|
|
Investments, current
|
|
|
24,452
|
|
|
|
54,524
|
|
|
|
72,434
|
|
|
|
42,750
|
|
|
|
52,398
|
|
Working capital
|
|
|
67,835
|
|
|
|
94,541
|
|
|
|
127,313
|
|
|
|
128,901
|
|
|
|
139,664
|
|
Total assets
|
|
|
157,569
|
|
|
|
149,273
|
|
|
|
180,005
|
|
|
|
182,354
|
|
|
|
174,317
|
|
Notes payable, current
|
|
|
20,400
|
|
|
|
19,522
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Notes payable, non-current
|
|
|
39,227
|
|
|
|
44,439
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total liabilities
|
|
|
118,975
|
|
|
|
95,443
|
|
|
|
34,693
|
|
|
|
40,159
|
|
|
|
38,104
|
|
Retained earnings (deficit)
|
|
|
(38,936
|
)
|
|
|
(21,630
|
)
|
|
|
33,150
|
|
|
|
31,310
|
|
|
|
30,947
|
|
Total stockholders' equity
|
|
|
38,594
|
|
|
|
53,830
|
|
|
|
145,312
|
|
|
|
142,195
|
|
|
|
136,213
|
|
ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read
the following discussion and analysis together with our Consolidated Financial Statements and the related notes included elsewhere
in this Annual Report on Form 10-K. This discussion contains forward-looking statements that are based on our current expectations,
estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated
and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under Item 1A
- “Risk Factors” and elsewhere in this Annual Report.
Overview
We
are an international pharmaceutical company focused on the discovery, development and commercialization of proprietary drugs based
on prostones. Prostones are a class of fatty acid compounds that occur naturally in the human body as a result of the enzymatic
catalysis by 15-Prostaglandin Dehydrogenase (15-PGDH) of eicosanoids, like prostaglandins, and other docosanoid molecules specifically
synthesized with 15 position keto groups.
AMITIZA (lubiprostone) is approved for the treatment of CIC, in adults of both
genders, and for the treatment of IBS-C, in women aged 18 years and older. We are currently developing AMITIZA for the treatment
of OBD or OIC.
In the U.S. and Canada,
AMITIZA is being marketed and developed under a collaboration and license agreement with Takeda, for gastrointestinal indications.
Under the Takeda Agreement, we are primarily responsible for AMITIZA research and development efforts, while Takeda is primarily
responsible for the commercialization and marketing activities. Additionally, Takeda funds the majority of our research and development
activities in the U.S. and part of the co-promotion activities of our own sales force. Takeda records all product revenue and
we receive a royalty on such product sales.
In our opinion, AMITIZA
sales have been adversely affected by material breaches by Takeda of the collaboration and license agreement and related agreements
and unless we prevail in the arbitration described below, we could continue to be adversely affected.
We generate revenue
mainly from product royalties, development milestone payments, and research and development activities. We expect to continue
to incur significant expenses for the next several years as we continue our research and development activities, seek regulatory
approvals for additional indications for AMITIZA and for other compounds in the U.S. and other countries and expand our international
operations. We hold exclusive rights to develop and commercialize AMITIZA and all other prostone compounds covered by patents.
Drs. Ryuji Ueno and
Sachiko Kuno, our founders, are married to each other and directly or indirectly own the majority of our common stock and a majority
of the stock of R-Tech. Dr. Ueno serves as the chairman of our Board of Directors and is our chief executive officer and chief
scientific officer. Dr. Kuno is a member of our Board of Directors and executive advisor of international business development.
We
conduct our business through our subsidiaries based in the U.S., Switzerland, Japan, Luxembourg and the U.K.
Our reportable
geographic segments are comprised of the Americas, Europe and Asia and we evaluate the performance of these segments based primarily
on income (loss) from operations, as well as other factors that depend on the development status of these geographies. Such measures
include the progress of research and development activities, collaboration and licensing efforts, commercialization activities
and other factors.
Our Clinical Development Programs
We are developing
prostone compounds for the treatment of a broad range of diseases. The most advanced of these programs are:
AMITIZA (lubiprostone)
in the U.S.
We currently are pursuing development of a third gastrointestinal indication of AMITIZA for the treatment of OBD
or OIC in patients treated chronically with opiates other than methadone. We will be filing a sNDA with the FDA in mid-2012 for
approval of the indication of OBD or OIC.
AMITIZA (lubiprostone)
in Japan.
We are awaiting approval of our marketing application to PMDA for AMITIZA at a dosage
strength of 24 micrograms for the indication of CIC. Once we receive approval, we will engage in pricing negotiations with MHLW
and hope to conclude those negotiations in 2012. Abbott will commercialize AMITIZA after we conclude the pricing negotiations.
We are continuing
to negotiate with third parties for the OBD indication after Abbott failed to conclude its exclusive negotiation right to the
OBD indication.
AMITIZA (lubiprostone)
in other countries.
We have retained full rights to develop and commercialize AMITIZA for the rest
of the world’s markets outside of the U.S., Canada and Japan. Though we are currently in discussions with the BAG, for pricing
approval, we have commenced marketing AMITIZA, on a limited basis, in Switzerland. We continue to evaluate the opportunities to
obtain an appropriate label in the E.U. for chronic therapy of CIC and OBD.
RESCULA (unoprostone
isopropyl).
We plan to re-launch RESCULA in the U.S. for its approved indication in the event of the approval of an enhanced
label from the FDA. We have placed an order with R-Tech for a supply of RESCULA in anticipation of the launch for RESCULA, to
mitigate the risk from the 18 month cessation of manufacturing by R-Tech and to provide an appropriate supply for regulatory requirements
in the E.U. and Switzerland. Additionally, we plan to initiate clinical trials of RESCULA for the indication of dry AMD, in 2012.
Under
the terms of the R-Tech agreements, we made an upfront payment of $3.0 million and will make another $3.0 million milestone payment
in the first quarter of 2012. We may be required to pay up to $2.5 million in additional milestone payments to R-Tech based on
the achievement of specified development and commercialization goals. The first milestone payment of $500,000 is payable upon
the re-launch of RESCULA for its approved indication
.
On
March 22, 2011,
we entered into a license agreement with R-Tech for unoprostone isopropyl, expanding our development and
commercialization rights as well as our territories beyond our previously agreed territory of the United States and Canada to
the rest of the world, with the exception of the R-Tech Territory. We are now evaluating the opportunities to obtain an appropriate
label in the E. U. and other European countries as well as obtaining reauthorization in those countries to commercialize unoprostone
isopropyl.
Cobiprostone.
We are developing cobiprostone as a potential treatment for various gastrointestinal and liver disorders, including the oral
mucositis. We also are evaluating it as a potential treatment for chronic obstructive pulmonary disease and a topical formulation
for the potential treatment for wound healing.
Our near-term focus
is on the development of cobiprostone for oral mucositis.
Financial Terms of our License, Commercialization
and Supply Agreement with Abbott
Upfront Payment
Upon signing the
Abbott Agreement, we received a non-refundable upfront payment of $10.0 million.
Product Development
Milestone Payments
We have received
the following non-refundable payments from Abbott reflecting our achievement of specific product development milestones:
|
·
|
$7.5
million upon the
initiation of the
phase 3 clinical
trial for lubiprostone
for the treatment
of CIC in Japanese
patients in May
2009;
|
|
·
|
$5.0
million as a result
of submission of
a marketing application
to PMDA for AMITIZA
at a dosage strength
of 24 micrograms
for the indication
of CIC in October
2010.
|
Though we anticipate
approval by and successful conclusion of pricing negotiations with MHLW in 2012, Abbott must commercialize AMITIZA in 2012 –
a commercial sale of AMITIZA – for us to receive the milestone payment of $15.0 million. There can be no assurances that
we will receive additional development or commercial milestone payments under our agreement with Abbott.
Product Revenue
Once AMITIZA is commercialized
in Japan, we will purchase and assume title to inventories of AMITIZA and recognize revenues from the sales, to Abbott, of such
product when earned.
Abbott Cash Flows and Revenue
The following table
summarizes the cash streams and related revenue recognized or deferred under the license, commercialization and supply agreement
with Abbott:
|
|
Cash
Received
Through
December 31,
|
|
|
Revenue Recognized for the Year Ended
December 31,
|
|
|
Foreign
Currency
|
|
|
Amount
Deferred at
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Effects
|
|
|
2011
|
|
Collaboration revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front payment associated with the Company's obligation to participate in joint committees
|
|
$
|
846
|
|
|
$
|
38
|
|
|
$
|
47
|
|
|
$
|
52
|
|
|
$
|
(151
|
)
|
|
$
|
860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front payment - remainder
|
|
$
|
9,154
|
|
|
$
|
5,112
|
|
|
$
|
3,471
|
|
|
$
|
520
|
|
|
$
|
(152
|
)
|
|
$
|
203
|
|
Development milestone payment
|
|
|
12,500
|
|
|
|
4,314
|
|
|
|
7,587
|
|
|
|
697
|
|
|
|
(371
|
)
|
|
$
|
273
|
|
Total
|
|
$
|
21,654
|
|
|
$
|
9,426
|
|
|
$
|
11,058
|
|
|
$
|
1,217
|
|
|
$
|
(523
|
)
|
|
$
|
476
|
|
Financial Terms of our License and
Collaboration Agreement with Takeda
Upfront Payment
Upon signing the
Takeda Agreement, we received a non-refundable upfront payment of $20.0 million.
Product Development
Milestone Payments
We have received
the following non-refundable payments from Takeda reflecting our achievement of specific product development milestones:
|
·
|
$10.0
million upon the
filing of the NDA
for AMITIZA to
treat CIC in March
2005;
|
|
·
|
$20.0
million upon the
initiation of our
phase 3 clinical
trial related to
AMITIZA for the
treatment of IBS-C
in May 2005;
|
|
·
|
$20.0
million upon the
receipt of approval
from the FDA for
AMITIZA for the
treatment of CIC
in adults of both
genders and all
ages in January
2006;
|
|
·
|
$30.0
million as a result
of submission of
supplement to our
existing NDA for
AMITIZA to the
FDA seeking marketing
approval for AMITIZA
for the treatment
of IBS-C in June
2007; and
|
|
·
|
$50.0
million upon the
receipt of approval
from the FDA for
AMITIZA for the
treatment of IBS-C
in women aged 18
years and older
in May 2008.
|
We may receive $10.0
million from Takeda upon the commercial launch of AMITIZA for OBD or other additional indication.
Research and Development
Cost-Sharing for AMITIZA
Our collaboration
agreement and related supplemental agreement with Takeda provides for the sharing with Takeda the costs of our research and development
activities for AMITIZA in the U.S. and Canada as follows:
Research and development expense related
to AMITIZA for the treatment of CIC and IBS-C:
|
·
|
Any
additional research
and development
expense in excess
of $50.0 million
shall be shared
equally between
Takeda and us.
As of December
31, 2011, the related
aggregate research
and development
expense incurred
was $44.5 million.
|
|
·
|
For
research and development
expenses relating
to changing or
expanding the labeling
of AMITIZA to treat
CIC and IBS-C,
Takeda is responsible
for 70.0% of these
expenses and we
are responsible
for 30.0%. Through
December 31, 2011,
we had incurred
$2.4 million of
these expenses,
of which we were
reimbursed approximately
$1.6 million by
Takeda.
|
|
·
|
The
expense of clinical
development of
AMITIZA for the
treatment of CIC
in pediatric patients
that we initiated
in January 2007
will be borne by
Takeda in full.
As of December
31, 2011, we had
incurred $8.1 million
of these expenses,
all of which have
been or are to
be reimbursed by
Takeda.
|
|
·
|
For
expenses in connection
with additional
clinical trials
required by regulatory
authorities relating
to AMITIZA to treat
CIC or IBS-C, Takeda
and we are responsible
to share these
expenses equally.
We have not incurred
any expenses of
this nature to
date.
|
Research and development expense related
to AMITIZA for the treatment of gastrointestinal indications other than CIC and IBS-C:
|
·
|
Takeda
is responsible
for the first $50.0
million in expenses
we incur related
to the development
of AMITIZA for
each gastrointestinal
indication other
than CIC and IBS-C
and any expenses
in excess of $50.0
million are shared
equally between
Takeda and us.
We conducted clinical
trials of AMITIZA
for the treatment
of OBD or OIC.
Through December
31, 2011, we had
incurred $70.4
million of reimbursable
expenses.
|
|
·
|
Takeda is responsible for the first $20.0 million in expenses we incur related to the development
of each new formulation of AMITIZA, and any expenses in excess of $20.0 million are shared equally between Takeda and us. We have
not incurred any expenses of this nature to date.
|
Co-Promotion Expense Reimbursements
In connection with
the Supplemental Takeda Agreement (which co-promotion expense reimbursement provision expired in May 2011) and the Takeda Agreement,
Takeda agreed to reimburse a portion of our expenses related to our specialty sales force. We recognized $3.4 million, $4.4 million
and $4.5 million of co-promotion revenue reflecting these reimbursements for the years ended December 31, 2011, 2010 and 2009,
respectively.
Takeda also agreed
to reimburse us for all of the costs we incur in connection with specified miscellaneous marketing activities related to the promotion
of AMITIZA. We have not been reimbursed for any of these expenses.
Product Royalty Revenue
Takeda is obligated
to pay us a sliding royalty rate based on a percentage of the net sales revenue from the sale of AMITIZA in the U.S. and Canada.
The actual percentage depends on the level of net sales revenue attained each calendar year. All sales of AMITIZA in the U.S. and
Canada, including those arranged by our specialty sales force, are made through Takeda. AMITIZA is currently marketed only in the
U.S. and during the years ended December 31, 2011, 2010 and 2009 we recognized a total of $41.5 million, $40.3 million and $38.3
million, respectively, as product royalty revenue.
Commercialization Milestone Payments
Our agreements also
require Takeda to pay us up to an additional aggregate of $50.0 million upon the achievement of specified targets for annual net
sales revenue from AMITIZA in the U.S. and Canada. Sales of AMITIZA have not met these targets as of December 31, 2011.
Takeda Cash Flows and Revenue
The following table
summarizes the cash streams and related collaboration and research and development revenue recognized under the Takeda Agreements:
|
|
Cash
Received
Through
December 31,
|
|
|
Revenue Recognized for the Year Ended
December 31,
|
|
|
Accounts
Receivable
for the Year
Ended
December 31,
|
|
|
Amount
Deferred at
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
Through 2009
|
|
|
2010
|
|
|
2011
|
|
|
2011 (1)
|
|
|
2011
|
|
Collaboration revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front payment associated with our obligation to participate in joint committees
|
|
$
|
2,375
|
|
|
$
|
758
|
|
|
$
|
147
|
|
|
$
|
147
|
|
|
$
|
-
|
|
|
$
|
1,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front payment - remainder
|
|
$
|
17,624
|
|
|
$
|
17,624
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Development milestones
|
|
|
130,000
|
|
|
|
130,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Reimbursement of research and development expenses
|
|
|
97,122
|
|
|
|
86,757
|
|
|
|
5,473
|
|
|
|
8,032
|
|
|
|
5,918
|
|
|
|
2,778
|
|
Total
|
|
$
|
244,746
|
|
|
$
|
234,381
|
|
|
$
|
5,473
|
|
|
$
|
8,032
|
|
|
$
|
5,918
|
|
|
$
|
2,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product royalty revenue
|
|
$
|
177,836
|
|
|
$
|
106,814
|
|
|
$
|
40,300
|
|
|
$
|
41,517
|
|
|
$
|
10,795
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Co-promotion revenue
|
|
$
|
25,206
|
|
|
$
|
18,021
|
|
|
$
|
4,417
|
|
|
$
|
3,378
|
|
|
$
|
610
|
|
|
$
|
-
|
|
|
(1)
|
Includes billed and unbilled accounts receivable.
|
Financial Terms of our Supply Agreement
with R-Tech
Under the exclusive
supply agreement with R-Tech, R-Tech has the exclusive right to manufacture and supply lubiprostone in the U.S. and Canada, and
in consideration for such rights R-Tech agreed to pay us as follows: $1.0 million upon execution of the agreement and $2.0 million
upon commencement of a first phase 2 lubiprostone trial. Upon execution of the agreement, we had already commenced phase 2 clinical
trials for lubiprostone, which resulted in an immediate payment of $3.0 million – $1.0 million for the agreement execution
and $2.0 million for the commencement of the first phase 2 lubiprostone trial. We evaluated the cash receipts from R-Tech and determined
the payments were made for the exclusive right to supply inventory to us and determined that the amounts should be deferred until
commercialization of the drug begins since this is the point at which the underlying services would commence. Management determined
that the full deferred amount would be amortized over the contractual life of the relationship which was equivalent to the estimated
commercialization period of lubiprostone (estimated to be through December 2020).
As previously reported,
we ceased development of another prostone, RUG-015, in 2005. This changed the amortization period of the $6.0 million deferred
revenue to the commercialization period of AMITIZA, which began in April 2006. We recognized revenue of $419,000 for the years
ended December 31, 2011 and 2010, respectively, which is recorded as contract revenue. During the years ended December 31, 2011,
2010 and 2009, we purchased clinical supplies from R-Tech of approximately $72,000, $344,000 and $205,000, respectively, under
the terms of this agreement.
Under the exclusive
manufacturing and supply agreement with R-Tech to manufacture and supply lubiprostone for clinical and commercial supplies within
Europe, there have been no clinical supply purchases in 2011, 2010 or 2009. During the years ended December 31, 2011, 2010 and
2009, we purchased approximately $125,000, $110,000 and $692,000, respectively, of commercial supplies of lubiprostone from R-Tech
in anticipation of a commercial launch in Europe. Subsequent to the 2009 purchase, we withdrew our European MAA, and recorded a
write down of inventory in 2009 of $658,000 to reflect the fair value of this inventory.
Under the two-year
exclusive clinical manufacturing and supply agreement with R-Tech for cobiprostone and SPI-017 and during the years ended December
31, 2010 and 2009, we purchased from R-Tech approximately $48,000 and $1.1 million, respectively, of clinical supplies under the
terms of this agreement. There were no such clinical supplies purchases in 2011.
We entered into an
Exclusive Manufacturing and Supply Agreement with R-Tech under which we granted R-Tech the exclusive right to manufacture and supply
lubiprostone to meet its commercial and clinical requirements in Asia, Australia and New Zealand. During the years ended December
31, 2011, 2010 and 2009, we purchased approximately $166,000, $267,000 and $381,000, respectively, of commercial supplies of lubiprostone
from R-Tech under this agreement. During the year ended December 31, 2009, we purchased approximately $262,000 of clinical supplies
from R-Tech under this agreement. There were no such clinical supplies purchases in 2011 and 2010 from R-Tech under this agreement.
In April 2009, we
entered into two agreements with R-Tech to acquire rights to RESCULA in the U.S. and Canada. Under the terms of the agreements,
we hold the exclusive rights to commercialize RESCULA in the U.S. and Canada for its approved ophthalmic indication and any new
ophthalmic indication developed by us. Under the terms of those agreements, we made an upfront payment of $3.0 million and may
be required to pay up to $5.5 million in additional milestone payments to R-Tech based on the achievement of specified development
and commercialization goals. The first milestone payment of $500,000 is payable upon the U.S. re-launch of RESCULA for the treatment
of glaucoma, which we are planning to do in 2012.
Under
the terms of the 2011 agreement, we
may be required to pay up to $103.0 million in additional milestone payments to R-Tech
based on the achievement of specified development and commercialization goals. The first milestone payment of $3.0 million is payable
upon the earlier of product approval within the SAG Territories or by March 15, 2012, SAG will be responsible for all development,
regulatory, and commercialization activities.
R-Tech has informed
us that it is relocating its manufacturing facility for unoprostone isopropyl beginning April 2012 and will not be able to manufacture
and supply unoprostone isopropyl for up to 18 months. In order to mitigate this risk, in February 2012 we placed an order for approximately
$6.0 million to supply sufficient quantities of unoprostone isopropyl to meet our anticipated commercial and clinical requirements.
We recorded the following
expenses under all of our agreements with R-Tech:
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Clinical supplies
|
|
$
|
72
|
|
|
$
|
392
|
|
|
$
|
1,556
|
|
Other research and development services
|
|
|
104
|
|
|
|
69
|
|
|
|
100
|
|
Commercial supplies
|
|
|
155
|
|
|
|
376
|
|
|
|
1,039
|
|
|
|
$
|
331
|
|
|
$
|
837
|
|
|
$
|
2,695
|
|
Critical Accounting Policies and Estimates
This discussion and
analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been
prepared in accordance with generally accepted accounting principles in the U.S. The preparation of our Consolidated Financial
Statements requires us to make estimates and judgments that affect our reported assets, liabilities, revenues and expenses. Actual
results may differ significantly from those estimates under different assumptions and conditions.
We regard an accounting
estimate or assumption underlying our financial statements as a critical accounting estimate if:
|
·
|
the nature of the estimate or assumption is material due to the level
of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change;
and
|
|
·
|
the impact of the estimates and assumptions on financial condition or
operating performance is material.
|
Our significant accounting
policies are described in more detail in Note 2 of our Consolidated Financial Statements included elsewhere in this Annual Report
on Form 10-K.
Revenue Recognition
Collaboration
and License Agreements
Our revenues are derived
primarily from collaboration and license agreements and include upfront payments, development milestone payments, reimbursements
of development and co-promotion costs and product royalties.
We evaluated the multiple
deliverables within our joint collaboration and license agreements to determine whether the delivered elements that are our obligation
have value to other parties to the agreement on a stand-alone basis and whether objective reliable evidence of fair value of the
undelivered items exists. Deliverables that meet these criteria are considered a separate unit of accounting. Deliverables that
do not meet these criteria are combined and accounted for as a single unit of accounting. The appropriate recognition of revenue
is then applied to each separate unit of accounting.
We apply a time-based
model of revenue recognition for cash flows associated with research and development deliverables under the Takeda Agreement. Under
this model, cash flow streams related to each unit of accounting are recognized as revenue over the estimated performance period.
Upon receipt of cash payments, such as development milestones, revenue is recognized to the extent the accumulated service time
has occurred. The remainder is deferred and recognized as revenue ratably over the remaining estimated performance period. A change
in the period of time expected to complete the deliverable is accounted for as a change in estimate on a prospective basis. In
cases where milestone payments are received after the completion of the associated development period, we recognize revenue upon
completion of the performance obligation. Revenue is limited to amounts that are nonrefundable and that the other party to the
agreement is contractually obligated to pay to us. We recognize reimbursable research and development costs under the Takeda Agreement
as research and development revenue using a time-based model over the estimated performance period. The research and development
revenue for these obligations is limited to the lesser of the actual reimbursable costs incurred or the straight-line amount of
revenue recognized over the estimated performance period. Revenues are recognized for reimbursable costs only if those costs can
be reasonably determined.
We apply a proportional-performance
model using the percentage-of-completion method of revenue recognition for cash flows associated with research and development
deliverables under the Abbott Agreement. Since we have previous research and development experience and the expected cost to complete
the development can be reasonably estimated, we believe a proportional-performance methodology of revenue recognition is appropriate.
Under this method, revenue in any period is recognized as a percentage of the total actual cost expended relative to the total
estimated costs required to satisfy the performance obligations under the arrangement. Revenue recognized is limited to the amounts
that are non-refundable and that the other party to the agreement is contractually obligated to pay us. A change in the period
of time expected to complete the deliverable is accounted for as a change in estimate on a prospective basis. Research and development
costs are not reimbursable under the Abbott Agreement.
Under the Takeda Agreement,
royalties are based on net sales of licensed products and are recorded on the accrual basis when earned in accordance with contractual
terms when third-party results are reliably measurable, collectability is reasonably assured and all other revenue recognition
criteria are met. Under the Abbott Agreement, when AMITIZA is commercialized in Japan, we will purchase and assume title to inventories
of AMITIZA and recognize revenues from the sales to Abbott of such product when earned.
Takeda reimbursements
of co-promotion costs under the Supplemental Takeda Agreement (which co-promotion expense reimbursement provision expired in May
2011) and the Takeda Agreement, including costs associated with our specialty sales force and miscellaneous marketing activities,
are recognized as co-promotion revenue as the related costs are incurred and Takeda becomes contractually obligated to pay the
amounts. We have determined that we are acting as a principal under the Supplemental Takeda Agreement and, as such, we record reimbursements
of these amounts on a gross basis as co-promotion revenue.
We recognize contract
revenue related to development and commercialization activities under the time-based method over the applicable period.
We consider our participation
in the joint committees under the Takeda and Abbott Agreements as separate deliverables under the contracts and recognize the fair
value of such participation as revenue over the period of the participation per the terms of the contracts.
We have determined
that we are acting as a principal under both the Takeda Agreement and Abbott Agreement and, as such, record revenue on a gross
basis in the Consolidated Statements of Operations and Comprehensive Income (Loss), except in regards to selling product under
the Takeda agreement where we recorded product royalty revenue.
Accrued Research and Development
Expenses
As part of our process
of preparing our Consolidated Financial Statements, we are required to estimate an accrual for research and development expenses.
This process involves reviewing and identifying services which have been performed by third parties on our behalf and determining
the value of these services. Examples of these services are payments to clinical investigators and CRO’s. In addition, we
make estimates of costs incurred to date but not yet invoiced to us in relation to external CRO’s and clinical site costs.
We analyze the progress of clinical trials, including levels of patient enrollment, invoices received and contracted costs, when
evaluating the adequacy of the accrued liabilities for research and development. We must make significant judgments and estimates
in determining the accrued balance in any accounting period.
Stock-Based Compensation
We
estimate the fair value of share-based payment awards on the date of the grant using an option-pricing model and recognize the
expense over the required service periods
.
For recording our
stock-based compensation expense, for service based and market condition options we have chosen to use:
|
·
|
the straight-line method of allocating compensation cost for service
based options and graded vesting for market condition options;
|
|
·
|
the Black-Scholes-Merton option pricing formula for time based options
and the Monte Carlo simulation model for the market condition options as our chosen option-pricing models.
|
|
·
|
the simplified method to calculate the expected term for options as
discussed under the SEC’s guidance for share-based payments for service based options; and
|
|
·
|
an estimate of expected volatility based on the historical volatility
of similar entities whose share prices are publicly available.
|
The three factors
which most affect stock-based compensation are the fair value of the common stock underlying stock options for which stock-based
compensation is recorded, the vesting term of the options and the volatility of such fair value of common stock. Accounting for
these equity instruments requires us to determine the fair value of the equity instrument granted or sold. If our estimates of
the fair value of these equity instruments are too high or too low, it would have the effect of overstating or understating stock-based
compensation expenses.
Income Taxes
As part of the process
of preparing our Consolidated Financial Statements, we are required to estimate our income taxes in each of the jurisdictions in
which we operate. We follow the Financial Accounting Standards Board or, FASB’s, guidance for accounting for income taxes
which requires us to estimate our actual current tax exposure while assessing our temporary differences resulting from the differing
treatment of items, such as deferred revenue, stock compensation, and the transfer of intellectual property for tax and accounting
purposes. These differences have resulted in deferred tax assets and liabilities, which are included in our Consolidated Balance
Sheets. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.
We consider forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, and prudent
and feasible tax planning strategies in determining the need for a valuation allowance. Considerable judgment is involved in developing
such estimates. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets
in the future, we would charge an adjustment to earnings for the deferred tax assets in the period in which we make that determination.
Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse
the applicable portion of the previously provided valuation allowance. In order for us to realize our deferred tax assets we must
be able to generate sufficient taxable income in the tax jurisdictions in which our deferred tax assets are located.
Significant
judgment is required in determining the provision for income taxes and, in particular, any valuation allowance
recorded against our net deferred tax assets in certain jurisdictions. We recorded a valuation allowance of $4.5 million and
$9.6 million as of December 31, 2011 and 2010, respectively, against the net deferred tax assets in certain jurisdictions
which resulted in a net deferred tax liability of $22.9 million and a net deferred asset of $3.3
million as of
December 31, 2011 and 2010, respectively. Significant future events, not under our control, including continued success in
commercialization of products in U.S. markets or regulatory approvals for products in international markets, could affect our
future earnings potential and consequently the amount of deferred tax assets that will be utilized.
During 2011, SPA,
SPL and SPE transferred certain intellectual property and licenses to SAG. Since the transfer of these assets was to a subsidiary,
the recognition of a deferred tax asset by SAG is prohibited and the net tax effect of the transaction is deferred in consolidation.
The deferred tax liability generated from this transaction is offset by a deferred charge that will be amortized over ten years.
The total deferred charge is $29.8 million after $764,000 of current year amortization expense.
As of December 31,
2011 and 2010, we had foreign net operating loss carry forwards of $16.4 million and $24.2 million, respectively. Approximately
$9.2 million of the foreign net operating losses, or NOLs, begin to expire in December 2015, and $7.2 million of the foreign NOLs
do not expire.
We followed the FASB’s
guidance for uncertainty in income taxes that
requires the application of a “more likely than
not” threshold to the recognition and derecognition of uncertain tax positions. If the recognition threshold is met, this
guidance permits us to recognize a tax benefit measured at the largest amount of the tax benefit that, in our judgment, is more
than 50.0% percent likely to be realized upon settlement.
We have recorded
a non-current income tax liability of approximately $1.5 million including interest for uncertain tax positions as of December
31, 2011. The amount represents the aggregate tax effect of differences between tax return positions and the amounts otherwise
recognized in our Consolidated Financial Statements, and are reflected in other liabilities in the accompanying Consolidated Balance
Sheets. The liability for uncertain tax positions as of December 31, 2011 mainly pertains to our interpretation of nexus in certain
states related to certain revenue sources for state income tax purposes.
We recognize interest
and penalties accrued related to uncertain tax positions as a component of the income tax provision. There was approximately $69,000,
$75,000 and $60,000 of interest recorded in 2011, 2010 and 2009, respectively, related to uncertain tax positions. We have identified
no uncertain tax positions for which it is reasonably possible that the total amount of liability for unrecognized tax benefits
will significantly increase or decrease within 12 months, except for recurring accruals on existing uncertain tax positions.
Related Party Transactions
As part of our operations,
we may enter into transactions with our affiliates or other parties we determine as related, such transactions may include sales
and purchases of product, borrowing and lending. At the time of each transaction, we estimate the fair market value of the transaction
based upon estimates of net present value or comparable third party information. For material transactions with our affiliates,
we have evaluated the terms of transactions to be similar to those that would have prevailed had the entities not been affiliated.
Results of Operations
Comparison of years ended December
31, 2011 and December 31, 2010
Revenues
The following table
summarizes our revenues for the years ended December 31, 2011 and 2010:
|
|
Year Ended
|
|
|
|
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
Research and development revenue
|
|
$
|
9,249
|
|
|
$
|
16,540
|
|
Product royalty revenue
|
|
|
41,517
|
|
|
|
40,300
|
|
Co-promotion revenue
|
|
|
3,378
|
|
|
|
4,417
|
|
Contract and collaboration revenue
|
|
|
617
|
|
|
|
613
|
|
Total
|
|
$
|
54,761
|
|
|
$
|
61,870
|
|
Total revenues were
$54.8 million in 2011 compared to $61.9 million in 2010, a decrease of $7.1 million or 11.5%.
Research and development
revenue
Research
and development revenue was $9.2 million in 2011 compared to $16.5 million in 2010, a decrease of $7.3 million or 44.1%.
The decrease was primarily due to the completion of clinical activity in 2010 on our Japanese development program for
lubiprostone under the Abbott Agreement, while we await a response to the NDA filing. The revenue recognized under the
Abbott Agreement decreased to $1.2 million for the year ended December 31, 2011 from $11.0 million for the year ended
December 31, 2010. We are recognizing the revenue from the payments from Abbott using a percentage-of-completion model over
the estimated term of the CIC development program. The revenue recognized under the Takeda Agreement increased to $8.0
million for the year ended December 31, 2011 from $5.5 million for the year ended December 31, 2010. We are recognizing the
revenue from the payments from Takeda using a time-based model over the estimated performance period.
Product
royalty revenue
Product
royalty revenue represents royalty revenue earned on net sales of AMITIZA in the United States.
In 2011, we recognized $41.5
million of product royalty revenue compared to $40.3 million in 2010, an increase of $1.2 million or 3.0%.
Co-promotion revenue
Co-promotion
revenues represent reimbursement by Takeda of co-promotion costs for our specialty sales force.
In 2011, we recognized $3.4
million of co-promotion revenues compared to $4.4 million in 2010, a decrease of $1.0 million as a result of a change in the method
of reimbursement following the ending of the applicable provision in the Supplemental Takeda Agreement.
Research and Development
Expenses
The following summarizes
our research and development expenses for the years ended December 31, 2011 and 2010:
|
|
Year Ended
|
|
|
|
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
Direct costs:
|
|
|
|
|
|
|
|
|
Lubiprostone
|
|
$
|
23,998
|
|
|
$
|
17,248
|
|
Cobiprostone
|
|
|
520
|
|
|
|
598
|
|
SPI-017
|
|
|
611
|
|
|
|
2,230
|
|
Unoprostone isoproypl
|
|
|
2,961
|
|
|
|
1,231
|
|
Other
|
|
|
3,694
|
|
|
|
342
|
|
Total
|
|
|
31,784
|
|
|
|
21,649
|
|
|
|
|
|
|
|
|
|
|
Indirect costs
|
|
|
1,713
|
|
|
|
2,306
|
|
Total
|
|
$
|
33,497
|
|
|
$
|
23,955
|
|
Total research and
development expenses in 2011 were $33.5 million compared to $24.0 million in 2010, an increase of $9.5 million or 39.8%.
The increase was primarily due to expenses associated with the third phase 3 trial of lubiprostone for OBD patients and remonitoring
costs of which 50.0% are reimbursed by Takeda, as well as increases in other development activities. Due to the method adopted
for revenue recognition, certain expense are reimbursed and included as revenue, as described in the accounting policies, there
may be timing differences between the costs incurred and the recognition of cost reimbursement.
General and Administrative
Expenses
The following summarizes
our general and administrative expenses for years ended December 31, 2011 and 2010:
|
|
Year Ended
|
|
|
|
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
Salaries, benefits and related costs
|
|
$
|
6,670
|
|
|
$
|
5,567
|
|
Legal, consulting and other professional expenses
|
|
|
27,225
|
|
|
|
15,337
|
|
Other expenses
|
|
|
7,375
|
|
|
|
6,963
|
|
Total
|
|
$
|
41,270
|
|
|
$
|
27,867
|
|
General and administrative
expenses were $41.3 million in 2011 compared to $27.9 million in 2010, an increase of $13.4 million or 48.1%. The increase was
primarily attributable to an increase in legal, consulting and other professional expenses, which relate primarily to costs incurred
in connection with on-going legal matters, including our dispute with Takeda, a separate dispute with Covance that was settled
in October 2011 and SAG integration activities.
Selling and Marketing
Expenses
Selling and marketing
expenses represent costs we incur to co-promote
AMITIZA
, including salaries, benefits and related
costs of our sales force and other sales and marketing personnel, costs of market research and analysis and other selling and marketing
expenses. Selling and marketing expenses were $8.8 million in 2011 compared to $10.2 million in 2010, a decrease of $1.4 million
or 13.9%. The decrease in selling and marketing expenses relates primarily to the timing of pre-commercialization activities for
RESCULA in the U.S. and lower co-promotion activities as a result of the end of the Supplemental Takeda Agreement for reimbursement
of those activities. Part of the AMITIZA co-promotion expenses are funded by Takeda and recorded as co-promotion revenue.
Non-Operating Income
and Expense
The following table
summarizes our non-operating income and expense for the years ended December 31, 2011 and 2010:
|
|
Year Ended
|
|
|
|
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
Interest income
|
|
$
|
249
|
|
|
$
|
608
|
|
Interest expense
|
|
|
(2,455
|
)
|
|
|
(75
|
)
|
Other expense, net
|
|
|
(2,019
|
)
|
|
|
(3,700
|
)
|
Total
|
|
$
|
(4,225
|
)
|
|
$
|
(3,167
|
)
|
Interest
income was $249,000 in 2011 compared to $608,000 in 2010, a decrease of $359,000, or 59.0%. The decrease was primarily due to
lower
interest rates earned by our investments and a shift in the composition of our portfolio from Auction Rate Securities or ARS, which
bear higher interest rates, to other types of investments. Our investment in ARS was redeemed in June 2010.
Interest expense was
$2.5 million in 2011 compared to $75,000 in 2010, an increase of $2.4 million, including $2.3 million on the notes payable issued
for the December 2010 SAG acquisition and $168,000 on the notes payable issued on SPL’s borrowings.
Other expense, net
was $2.0 million in 2011 compared to $3.7 million in 2010, a decrease of $1.7 million, or 45.4%. The majority of the decrease is
from non-cash foreign exchange losses that are unrealized and relate to amounts held within subsidiaries.
Income Taxes
For the years ended
December 31, 2011 and 2010, our consolidated effective income tax rate was 21.0% and 17.0%, respectively. For the years ended December
31, 2011 and 2010, we recorded a tax benefit of $4.6 million and $565,000, respectively. The change in our effective tax rate in
2011 from 2010 was attributable primarily to the change in the mix of earnings by jurisdiction and the continuation of foreign
losses that are not benefited due to full valuation allowances. As of December 31, 2011, our remaining valuation allowance against
our deferred tax assets was $4.5 million solely relating to foreign jurisdictions, where it is not more likely than not that these
deferred tax assets would be realized.
Comparison of years ended December
31, 2010 and December 31, 2009
Revenues
The following table
summarizes our revenues for the years ended December 31, 2010 and 2009:
|
|
Year Ended
|
|
|
|
December 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
Research and development revenue
|
|
$
|
16,540
|
|
|
$
|
23,957
|
|
Product royalty revenue
|
|
|
40,300
|
|
|
|
38,250
|
|
Co-promotion revenue
|
|
|
4,417
|
|
|
|
4,541
|
|
Contract and collaboration revenue
|
|
|
613
|
|
|
|
603
|
|
Total
|
|
$
|
61,870
|
|
|
$
|
67,351
|
|
Total revenues were
$61.9 million in 2010 compared to $67.4 million in 2009, a decrease of $5.5 million or 8.2%.
Research and development
revenue
Research and development
revenue was $16.5 million in 2010 compared to $24.0 million in 2009, a decrease of $7.5 million or 31.0%. The decrease was primarily
due to reduced revenue recognized in respect to the OBD program for AMITIZA in the U.S., partially offset by $11.0 million in revenue
recognized under the Abbott Agreement. The research and development revenue recognized under the Takeda Agreement decreased to
$5.5 million for the year ended December 31, 2010 from $14.5 million for the year ended December 31, 2009, generally reflecting
the July 2009 completion of the two phase 3 efficacy trials funded by Takeda and the change in estimated costs and timeline to
complete the OBD program, including an additional phase 3 efficacy trial. Since Takeda funds the first $50.0 million of the development
expenses for the OBD program and we and Takeda share equally development costs that exceed that amount, we expect to fund about
50.0% of the upcoming phase 3 trial.
The research and development
revenue recognized under the Abbott Agreement increased to $11.0 million for the year ended December 31, 2010 from $9.4 million
for the year ended December 31, 2009, reflecting the revenue recognized from the $5.0 million milestone payment earned in September
2010 upon filing the Japanese marketing application. We recognize the revenue from the payments from Abbott using a percentage-of-completion
model over the estimated term of the CIC development program.
Product
royalty revenue
Product
royalty revenue represents royalty revenue earned on net sales of AMITIZA in the United States.
In 2010, we recognized $40.3
million of product royalty revenue compared to $38.2 million in 2009, an increase of $2.1 million or 5.4%.
Co-promotion revenue
Co-promotion
revenues represent reimbursement by Takeda of co-promotion costs for our specialty sales force.
In 2010, we recognized $4.4
million of co-promotion revenues compared to $4.5 million in 2009.
Research and Development
Expenses
The following summarizes
our research and development expenses for the years ended December 31, 2010 and 2009:
|
|
Year Ended
|
|
|
|
December 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
Direct costs:
|
|
|
|
|
|
|
|
|
Amitiza
|
|
$
|
17,248
|
|
|
$
|
25,017
|
|
Cobiprostone
|
|
|
598
|
|
|
|
2,294
|
|
SPI-017
|
|
|
2,230
|
|
|
|
2,752
|
|
Unoprostone isoproypl
|
|
|
1,231
|
|
|
|
235
|
|
Other
|
|
|
342
|
|
|
|
530
|
|
Total
|
|
|
21,649
|
|
|
|
30,828
|
|
|
|
|
|
|
|
|
|
|
Indirect costs
|
|
|
2,306
|
|
|
|
2,078
|
|
Total
|
|
$
|
23,955
|
|
|
$
|
32,906
|
|
Total research and
development expenses in 2010 were $24.0 million compared to $32.9 million in 2009, a decrease of $8.9 million or 27.2%. The decrease
was primarily due to the July 2009 completion of the initial two phase 3 pivotal clinical trials of AMITIZA for the treatment of
OBD and the July 2009 completion of the phase 2 clinical trial of cobiprostone for the prevention of NSAID-induced ulcers, partially
offset by expenses associated with initiating the additional phase 3 trial of lubiprostone for the OBD indication
.
General and Administrative
Expenses
The following summarizes
our general and administrative expenses for years ended December 31, 2010 and 2009:
|
|
Year Ended
|
|
|
|
December 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
Salaries, benefits and related costs
|
|
$
|
5,567
|
|
|
$
|
4,036
|
|
Legal, consulting and other professional expenses
|
|
|
15,337
|
|
|
|
5,800
|
|
Other expenses
|
|
|
6,963
|
|
|
|
5,164
|
|
Total
|
|
$
|
27,867
|
|
|
$
|
15,000
|
|
General and administrative
expenses were $27.9 million in 2010 compared to $15.0 million in 2009, an increase of $12.9 million or 85.8%. The increase in salaries,
benefits and related costs was primarily attributable to an increase in the number of key personnel and a change in the incentive
compensation plans for 2010. The increase in legal, consulting and other professional expenses relates primarily to costs incurred
in connection with on-going legal matters, including our dispute with Takeda, as well as our acquisition of SAG.
Selling and Marketing
Expenses
Selling and marketing
expenses represent costs we incur to co-promote
AMITIZA
, including salaries, benefits and related
costs of our sales force and other sales and marketing personnel, costs of market research and analysis and other selling and marketing
expenses. Selling and marketing expenses were $10.2 million in 2010 compared to $10.0 million in 2009, an increase of $200,000
or 1.7%. Part of the AMITIZA co-promotion expenses are funded by Takeda and recorded as co-promotion revenue.
Non-Operating Income
and Expense
The following table
summarizes our non-operating income and expense for the years ended December 31, 2010 and 2009:
|
|
Year Ended
|
|
|
|
December 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
Interest income
|
|
$
|
608
|
|
|
$
|
965
|
|
Interest expense
|
|
|
(75
|
)
|
|
|
-
|
|
Other expense, net
|
|
|
(3,700
|
)
|
|
|
(519
|
)
|
Total
|
|
$
|
(3,167
|
)
|
|
$
|
446
|
|
Interest
income was $608,000 in 2010 compared to $965,000 in 2009, a decrease of $357,000, or 37.0%. The decrease was primarily due to
lower
interest rates earned by our investments and a shift in the composition of our portfolio from ARS, which bear higher interest rates,
to other types of investments. Our investment in ARS was redeemed in June 2010.
Other expense, net
was $3.7 million in 2010 compared to $519,000 in 2009, an increase of $3.2 million, or 612.9%. The majority of these unrealized
foreign exchange losses are, non-cash and relate to amounts held within subsidiaries.
Income Taxes
For the years ended
December 31, 2010 and 2009, our consolidated effective income tax rate was 17.0% and 51.6%, respectively. For the years ended December
31, 2010 and 2009, we recorded a tax benefit of $565,000 and a tax provision of $5.1 million respectively. The change in our effective
tax rate in 2010 from 2009 was attributable primarily to the change in the mix of earnings by jurisdiction and the continuation
of foreign losses that are not benefited due to full valuation allowances. As of December 31, 2010, our remaining valuation allowance
against our deferred tax assets was $9.7 million solely relating to foreign jurisdictions, where it is not more likely than not
that these deferred tax assets would be realized.
Reportable Geographic Segments
We have determined
that we have three reportable segments based on our method of internal reporting, which disaggregates the business by geographic
location. These segments are the Americas, Europe and Asia. We evaluate the performance of these segments based primarily on income
(loss) from operations, as well as other factors that depend on the development status of these geographies. Such measures include
the progress of research and development activities, collaboration and licensing efforts, commercialization activities and other
factors.
The financial results
of our segments reflect their varying stages of development. Our Americas segment recorded a loss before taxes of $6.1 million
in 2011, compared to income before taxes of $3.8 million in 2010. These results primarily reflect the expenses associated with
initiating the additional phase 3 trial of lubiprostone for OBD in chronic non-cancer pain patients, these costs have not been
allocated across all segments, a separate dispute with Covance that was settled in October 2011, and the increased expenses in
legal matters, including our dispute with Takeda.
Our segment in Europe
recorded a loss before taxes of $10.3 million in 2011, compared to a loss before taxes of $6.2 million in 2010
.
These results primarily reflect
the on-going regulatory submission for AMITIZA, the interest accruing on the loan notes
issued for the December 2010 SAG acquisition and non-cash foreign exchange gains and losses.
Our segment in Asia
recorded a loss before taxes of $5.4 million in 2011, compared to a loss before taxes of $935,000 in 2010. These results primarily
reflect the reduction of revenue recognized during the year ended December 31, 2011 from the payments received from Abbott in 2009
and 2010.
(In thousands)
|
|
Americas
|
|
|
Europe
|
|
|
Asia
|
|
|
Consolidated
|
|
Year Ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
53,493
|
|
|
$
|
-
|
|
|
$
|
1,268
|
|
|
$
|
54,761
|
|
Income (loss) before taxes
|
|
|
(6,384
|
)
|
|
|
(10,086
|
)
|
|
|
(5,444
|
)
|
|
|
(21,914
|
)
|
Identifiable assets
|
|
|
96,490
|
|
|
|
47,925
|
|
|
|
13,154
|
|
|
|
157,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
50,756
|
|
|
$
|
-
|
|
|
$
|
11,114
|
|
|
$
|
61,870
|
|
Income (loss) before taxes
|
|
|
3,820
|
|
|
|
(6,205
|
)
|
|
|
(935
|
)
|
|
|
(3,320
|
)
|
Identifiable assets
|
|
|
102,096
|
|
|
|
30,789
|
|
|
|
16,388
|
|
|
|
149,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
57,887
|
|
|
$
|
-
|
|
|
$
|
9,464
|
|
|
$
|
67,351
|
|
Income (loss) before taxes
|
|
|
18,886
|
|
|
|
(4,298
|
)
|
|
|
(4,727
|
)
|
|
|
9,861
|
|
Identifiable assets
|
|
|
132,903
|
|
|
|
34,140
|
|
|
|
12,962
|
|
|
|
180,005
|
|
Liquidity and Capital Resources
Sources of Liquidity
We require cash principally
to meet our operating expenses. We finance our operations principally from cash generated from revenues, cash and cash equivalents
on hand and to a lesser extend from the sale of securities through the exercise of stock options. Revenues generated from operations
principally consist of a combination of upfront payments, milestone and royalty payments and research and development expense reimbursements
received from Takeda, Abbott and other parties.
Our cash,
cash equivalents, restricted cash and investments consist of the following:
|
|
Year Ended
|
|
|
|
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
Cash and cash equivalents
|
|
$
|
50,662
|
|
|
$
|
49,243
|
|
Restricted cash, current
|
|
|
15,113
|
|
|
|
15,113
|
|
Restricted cash, non-current
|
|
|
2,129
|
|
|
|
-
|
|
Investments, current
|
|
|
24,452
|
|
|
|
54,524
|
|
Investments, non-current
|
|
|
998
|
|
|
|
5,028
|
|
Total
|
|
$
|
93,354
|
|
|
$
|
123,908
|
|
Our cash and cash
equivalents are deposits in operating accounts and highly liquid investments with an original maturity at time of purchase of 90
days or less.
As of December 31,
2011 and 2010, our restricted cash consisted primarily of the collateral to SPL’s loan with
The
Bank of Tokyo-Mitsubishi UFJ, Ltd. and with Numab’s loan with Zurcher Kantonalbank.
As of December 31,
2011, our short-term investments consisted of corporate bonds, U.S. government securities, U.S. corporate commercial paper, corporate
bonds and variable rate demand notes which have short-term maturities of one year or less. Our non-current investments consisted
of U.S. government securities.
Cash Flows
The following table
summarizes our cash flows for the years ended December 31, 2011, 2010 and 2009:
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(19,655
|
)
|
|
$
|
(3,350
|
)
|
|
$
|
4,969
|
|
Investing activities
|
|
|
27,901
|
|
|
|
(11,856
|
)
|
|
|
(35,455
|
)
|
Financing activities
|
|
|
(8,081
|
)
|
|
|
(1,635
|
)
|
|
|
(2,846
|
)
|
Effect of exchange rates
|
|
|
1,254
|
|
|
|
4,664
|
|
|
|
1,048
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
1,419
|
|
|
$
|
(12,177
|
)
|
|
$
|
(32,284
|
)
|
Year ended December
31, 2011
Net cash used in operating
activities was $20.0 million for the year ended December 31, 2011. This reflected a net loss of $17.3 million, a decrease in deferred
revenue of $1.9 million and changes in other operating assets and liabilities.
Net cash provided
by investing activities of $27.9 million for the year ended December 31, 2011 primarily reflected our proceeds from the sales and
maturities of investments, offset in part by purchases of investments, intangible assets and an increase in restricted cash.
Net cash used in financing
activities of $8.1 million for the year ended December 31, 2011 primarily reflected a payment of $7.5 million on our notes payable
and purchases under the stock repurchase program.
The effect of exchange
rates on the cash balances of currencies held in foreign denominations for year ended December 31, 2011 was an increase of $1.6
million.
Year ended December
31, 2010
Net cash used in
operating activities was $3.4 million for the year ended December 31, 2010. This reflected a net loss of $2.8 million, a decrease
in deferred revenue of $6.5 million relating to the previously received funds under the Takeda Agreement and Abbott Agreement
that were recognized as revenue during the period, offset in part by an increase in accrued expenses of $3.3 million and changes
in other operating assets and liabilities.
Net cash used in
investing activities of $11.9 million for the year ended December 31, 2010 primarily reflected our proceeds from the sales and
maturities of investments, more than offset by purchases of investments, an increase in restricted cash and our acquisition of
SAG.
Net cash used in
financing activities of $1.6 million for the year ended December 31, 2010 resulted from the dividends paid by SAG prior to the
acquisition but included under accounting for common control, offset in part by proceeds of our notes and the proceeds we received
under our employee stock purchase plan.
Year ended December
31, 2009
Net cash provided
by operating activities was $5.0 million for the year ended December 31, 2009. This reflected a net income of $4.8 million, which
included a non-cash unrealized loss on settlement rights on auction rate securities of $1.7 million offset by a decrease of $4.6
million in deferred revenue and other changes in other operating assets and liabilities.
Net cash used in
investing activities of $35.5 million for the year ended December 31, 2009 primarily reflected purchases of investments and the
RESCULA license, offset in part by proceeds from the sales and maturities of investments.
Net cash used in
financing activities of $2.8 million for the year ended December 31, 2009 resulted from the dividends paid by SAG prior to the
acquisition but included under accounting for common control, offset in part by the proceeds we received under our employee stock
purchase plan.
Commitments and Contingencies
As of December 31,
2011, our principal outstanding contractual obligations related to our office leases in the U.S., Switzerland, Japan and the U.K.
The following table summarizes these significant contractual obligations at December 31 for the indicated year:
|
|
|
|
|
Operating
|
|
|
|
|
|
|
Notes
|
|
|
Lease
|
|
|
|
|
|
|
Payable
|
|
|
Obligations
|
|
|
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
Total
|
|
Due in one year
|
|
$
|
20,400
|
|
|
$
|
1,457
|
|
|
$
|
21,857
|
|
Due in two years
|
|
|
8,281
|
|
|
|
1,036
|
|
|
|
9,317
|
|
Due in three years
|
|
|
8,490
|
|
|
|
1,024
|
|
|
|
9,514
|
|
Due in four years
|
|
|
8,708
|
|
|
|
1,052
|
|
|
|
9,760
|
|
Due in five years
|
|
|
8,937
|
|
|
|
1,084
|
|
|
|
10,021
|
|
Thereafter
|
|
|
4,811
|
|
|
|
139
|
|
|
|
4,950
|
|
Total
|
|
$
|
59,627
|
|
|
$
|
5,792
|
|
|
$
|
65,419
|
|
The above table does
not include:
|
·
|
Our share of research and development costs for AMITIZA for the treatment
of OBD, which will not be reimbursed by Takeda. We share equally with Takeda research and development expenses in excess of $50.0
million.
|
|
·
|
Expenses under agreements with CROs for clinical trials of our product
candidates. The timing and amount of these disbursements are based on a variety of factors, such as the achievement of specified
milestones, patient enrollment, services rendered or the incurrence of expenses by the contract research organization. As a result,
we estimate that as of December 31, 2011, our current commitments to CROs will be $7.4 million through 2013.
|
|
·
|
Any contingent liability under the agreement with Numab in the event
that Numab defaults under its loan with Zurcher Kantonalbank up to a maximum potential amount of $4.8 million. As of December 31,
2011 the potential amount of payments in the event of Numab’s default was $1.6 million.
|
Off-Balance Sheet Arrangements
As of December 31,
2011, 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
We may need substantial
amounts of capital to continue growing our business. We may require this capital, among other things, to fund:
|
·
|
Staff, development and commercialization activities in the event of a favorable arbitration award
in our dispute with Takeda;
|
|
·
|
our share of the on-going development program of
AMITIZA
in the
U.S.;
|
|
·
|
development, regulatory and marketing efforts in Europe and Asia for
lubiprostone
;
|
|
·
|
development and regulatory activities for unoprostone isopropyl in the U.S. and Canada and other
countries except Japan, Korea, Taiwan and The People’s Republic of China;
|
|
·
|
development, marketing and manufacturing activities at SAG;
|
|
·
|
activities to resolve our on-going legal matters;
|
|
·
|
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;
|
|
·
|
research and development activities for other prostone compounds, including cobiprostone and SPI-017;
|
|
·
|
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;
|
|
·
|
continuing purchase of shares of our class A common stock up to $2.0 million pursuant to the recently
implemented repurchase program, and if we elect to do so, increasing the repurchase program up to $10.0 million previously approved
by our Board;
|
|
·
|
the satisfaction of the conditions of our loan note obligations; and
|
|
·
|
the growth from AMITIZA and RESCULA.
|
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 future expenditures we may incur to increase revenue from
AMITIZA
or in our dispute with Takeda
;
|
|
·
|
if we prevail in our arbitration with Takeda we may need to assume the responsibility for the commercialization
of AMITIZA in the U.S. and Canada;
|
|
·
|
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 public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. At December
31, 2011, we have sufficient liquidity for the next 12 months.
Additional equity
or debt financing, grants or corporate collaboration and licensing arrangements may not be available on acceptable terms, if at
all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our research and development
programs, reduce our planned commercialization efforts or obtain funds through arrangements with collaborators or others that may
require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize independently.
In addition, any future equity funding would dilute the ownership of our stockholders.
Effects of Foreign Currency
We currently incur
a portion of our operating expenses in the Switzerland, Japan and U.K. The reporting currency for our Consolidated Financial Statements
is U.S. dollars. 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.
Accounting Pronouncements
In June 2011, the
FASB issued an accounting update on Comprehensive Income-Topic 220: Presentation of Comprehensive Income, which amends current
comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income
as part of the statement of shareholders’ equity. Instead, we must report comprehensive income in either a single continuous
statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but
consecutive statements. This update will be effective for public companies during the interim and annual periods beginning after
December 15, 2011 with early adoption permitted. The Company’s adoption of this guidance did not impact the Company’s
results of operations, financial statement presentation or disclosures.
In May 2011, the FASB
issued authoritative guidance on amendments to achieve common fair value measurement and disclosure requirements in U.S.GAAP and
International Financial Reporting Standards, or IFRSs. The guidance amends fair value measurement, to ensure that fair value has
the same meaning in U.S. GAAP and IFRS. IFRS improves the comparability of the fair value measurement and disclosure requirements
in GAAP and IFRS. This guidance applies to all entities that measure assets, liabilities or instruments classified in shareholder's
equity at fair value, or provide fair value disclosures for items not recorded at fair value. This guidance results in common fair
value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, this guidance changes the wording used to describe
many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For
many of the requirements, this guidance will not result in a change in the application of the requirements in the existing fair
value measurement guidance, however clarifies the FASB's intent about the application of existing fair value measurement requirements.
Other requirements change a particular principle or requirement for measuring fair value or for disclosing information about fair
value measurements. This guidance is effective for public companies for interim and annual periods beginning after December 15,
2011 and should be applied prospectively. Early application is not permitted. We are continuing to evaluate the impact that this
amendment would have on its financial condition and results of operation upon adoption.
ITEM 7A. Quantitative and Qualitative
Disclosures about Market Risk
Foreign Exchange Risk
We are subject to
foreign exchange risk for revenues and expenses denominated in foreign currencies. Foreign currency risk arises from the fluctuation
of foreign exchange rates and the degree of volatility of these rates relative to the United States dollar. We do not believe that
we have any material risk due to foreign currency exchange. We do not currently hedge our foreign currency transactions.
Interest Rate Risk
Our exposure to market
risks associated with changes in interest rates relates primarily to the increase or decrease in the amount of interest income
earned on our investment portfolio. We ensure the safety and preservation of invested funds by attempting to limit default risk,
market risk and reinvestment risk. We attempt to mitigate default risk by investing in investment grade securities. A hypothetical
one percentage point decline in interest rates would not have materially affected the fair value of our interest-sensitive financial
instruments as of December 31, 2011.
We do not use derivative
financial instruments for trading or speculative purposes. However, we regularly invest excess cash in overnight repurchase agreements
that are subject to changes in short-term interest rates. We believe that the market risk arising from holding these financial
instruments is minimal.
Credit Risk
Our exposure to credit
risk consists of cash and cash equivalents, restricted cash, investments and receivables. We place our cash, cash equivalents and
restricted cash with what we believe to be highly rated financial institutions and invest the excess cash in highly rated investments.
As of December 31, 2011 and December 31, 2010, approximately 16.7% and 27.6%, respectively, of our cash, cash equivalents, restricted
cash and investments is issued or insured by the federal government or government agencies.
We have
not experienced any losses on these accounts related to amounts in excess of insured limits.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
The Consolidated Financial
Statements and related financial statement schedules required by this item are included beginning on page F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND
PROCEDURES
Evaluation of Disclosure Controls
and Procedures
Our management, under
the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation
of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934, as amended) as of December 31, 2011. In designing and evaluating such controls, m
anagement
recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in evaluating the benefits of possible controls and
procedures relative to their costs.
Based upon the evaluation we carried out, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of December 31, 2011, our disclosure controls and procedures were effective to provide reasonable
assurance that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified under the applicable
rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures.
Changes in Internal Controls
There were no changes
in our internal control over financial reporting during the quarter ended December 31, 2011 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
Management’s report on internal
control over financial reporting
Our management is
responsible for establishing and maintaining adequate internal control over financial reporting (defined in Rule 13a-15(f) or 15d-15(f)
promulgated under the Securities Exchange Act of 1934, as amended) for the Company. Our management assessed the effectiveness of
the Company’s internal control over financial reporting as of December 31, 2011. In making this assessment, our management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in
Internal Control-Integrated
Framework
. Based on this evaluation, management concluded that our internal control over financial reporting was effective
as of December 31, 2011.
The effectiveness
of the Company’s internal control over financial reporting as of December 31, 2011 has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Ryuji Ueno, M.D., Ph.D., Ph.D.
|
|
Cary J. Claiborne
|
Chief Executive Officer, Chief Scientific Officer and Chairman of the Board of Directors
|
|
Chief Financial Officer
|
(Principal Executive Officer)
|
|
(Principal Financial Officer)
|
ITEM 9B. OTHER INFORMATION
None.
PART III
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The
following information will be included in our proxy statement or Proxy Statement for our 2012 Annual Meeting to be filed within
120 days after the fiscal year end of December 31, 2011, and is incorporated herein by reference:
|
·
|
Information regarding our directors required by this item will be set
forth under the heading “Election of Directors”;
|
|
·
|
Information regarding our executive officers required by this item will
be set forth under the heading “Executive Officers”;
|
|
·
|
Information regarding our Audit Committee and designated “audit
committee financial expert” will be set forth under the heading “Corporate Governance Principles and Board Matters,
Board Structure and Committee Composition — Audit Committee;” and
|
|
·
|
Information regarding Section 16(a) beneficial ownership reporting compliance
will be set forth under the heading “Section 16(a) Beneficial Ownership Reporting Compliance.”
|
Code of Ethics
We
have adopted codes of ethics and business conduct that applies to our employees, including our principal executive officer, principal
financial and accounting officer and persons performing similar functions. Our codes of ethics and business conduct can be found
posted in the investor relations section on our website at http://www.sucampo.com.
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
The
information required by this item is incorporated by reference to the information provided under the heading “Executive Compensation”
of our Proxy Statement.
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The information regarding
security ownership of our beneficial owners, management and related stockholder matters is incorporated into this section by reference
from the section captioned “Stock Ownership Information” in our Proxy Statement. The information regarding the securities
authorized for issuance under our equity compensation plan is incorporated into this section by reference from the section captioned
“Equity Compensation Plan Information” of our Proxy Statement.
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE
|
The information required
by this item is incorporated by reference to the information provided under the heading “Related Party Transactions”
of the Proxy Statement.
|
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
The
information required by this item is incorporated by reference to the information provided under the heading “Independent
Registered Public Accounting Firm’s Fees” and “Pre-Approval Policy and Procedures” of the Proxy Statement.
PART IV
ITEM 15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULE
|
(a)
|
The following financial statements, financial statement schedule and exhibits are filed as part
of this report or incorporated herein by reference:
|
|
(1)
|
Consolidated Financial Statements. See index to Consolidated Financial Statements on page F-1.
|
|
(2)
|
Financial Statement Schedule: Schedule II – Valuation and Qualifying Accounts on page F-36.
All other schedules are omitted because they are not applicable, not required or the information required is shown in the financial
statements or notes thereto.
|
|
(3)
|
Exhibits. See subsection (b) below.
|
|
(b)
|
Exhibits. The following exhibits are filed or incorporated by reference as part of this report.
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Reference
|
|
|
|
|
|
2.1
|
|
Agreement and Plan of Reorganization
|
|
Exhibit 3.1 to the Company's Current Report on Form 8-K (filed December 29, 2008)
|
|
|
|
|
|
2.2
|
|
Stock Purchase Agreement, dated December 23, 2010, by and among Dr. Ryuji Ueno, as trustee of the Ryuji Ueno Revocable Trust under Trust Agreement dated December 20, 2002, Dr. Sachiko Kuno as trustee of the Sachiko Kuno Revocable Trust under Trust Agreement dated December 20, 2002, Dr. Ryuji Ueno, Dr. Sachiko Kuno, Ambrent Investments S.à.r.l., and Sucampo Pharmaceuticals, Inc
|
|
Exhibit 2.1 to the Company’s Current Report on Form 8-K (filed December 29, 2010)
|
|
|
|
|
|
3.1
|
|
Certificate of Incorporation
|
|
Exhibit 3.1 to the Company’s Current Report on Form 8-K (filed December 29, 2008)
|
|
|
|
|
|
3.2
|
|
Certificate of Amendment
|
|
Exhibit 3.2 to the Company’s Current Report on Form 8-K (filed December 29, 2008)
|
|
|
|
|
|
3.3
|
|
Restated Bylaws
|
|
Exhibit 3.3 to the Company’s Current Report on Form 8-K (filed December 29, 2008)
|
|
|
|
|
|
4.1
|
|
Specimen Stock Certificate evidencing the shares of class A common stock
|
|
Exhibit 4.1 to Registration Statement No. 333-135133, Amendment No. 5 (filed February 1, 2007)
|
|
|
|
|
|
10.1^
|
|
Amended and Restated 2001 Stock Incentive Plan
|
|
Exhibit 10.1 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.2^
|
|
Amended and Restated 2006 Stock Incentive Plan
|
|
Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (filed November 14, 2007)
|
|
|
|
|
|
10.3^
|
|
2006 Employee Stock Purchase Plan
|
|
Exhibit 10.3 to Registration Statement No. 333-135133, Amendment No. 2 (filed October 20, 2006)
|
|
|
|
|
|
10.4^
|
|
Form of Incentive Stock Option Agreement for 2006 Stock Incentive Plan
|
|
Exhibit 10.4 to Registration Statement No. 333-135133, Amendment No. 2 (filed October 20, 2006)
|
|
|
|
|
|
10.5^
|
|
Form of Nonstatutory Stock Option Agreement for 2006 Stock Incentive Plan
|
|
Exhibit 10.5 to Registration Statement No. 333-135133, Amendment No. 2 (filed October 20, 2006)
|
|
|
|
|
|
10.6^
|
|
Form of Restricted Stock Agreement for 2006 Stock Incentive Plan
|
|
Exhibit 10.6 to Registration Statement No. 333-135133, Amendment No. 2 (filed October 20, 2006)
|
|
|
|
|
|
10.7^
|
|
Non-employee Director Compensation Summary
|
|
Exhibit 10.7 to Registration Statement No. 333-135133, Amendment No. 1 (filed August 11, 2006)
|
10.8^
|
|
Employment Agreement, dated June 16, 2006, between the Company and Ryuji Ueno
|
|
Exhibit 10.9 to Registration Statement No. 333-135133, Amendment No. 1 (filed August 11, 2006)
|
|
|
|
|
|
10.9^
|
|
Form of Executive Employment Agreement
|
|
Exhibit 10.10 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.1
|
|
Indemnification Agreement, dated May 26, 2004, between the Company and Sachiko Kuno
|
|
Exhibit 10.11 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.11
|
|
Indemnification Agreement, dated May 26, 2004, between the Company and Ryuji Ueno
|
|
Exhibit 10.12 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.12
|
|
Indemnification Agreement, dated May 26, 2004, between the Company and Michael Jeffries
|
|
Exhibit 10.13 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.13
|
|
Indemnification Agreement, dated May 26, 2004, between the Company and Hidetoshi Mine
|
|
Exhibit 10.14 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.14
|
|
Form of Investor Rights Agreement
|
|
Exhibit 10.16 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.15
|
|
Lease Agreement, dated September 16, 1998, between the Company and Plaza West Limited Partnership, successor in interest to Trizechahn Plaza West Limited Partnership, as amended
|
|
Exhibit 10.17 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.16
|
|
Sublease Agreement, dated October 26, 2005, between the Company and First Potomac Realty Investment L.P.
|
|
Exhibit 10.18 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.17
|
|
Amended and Restated Patent Access Agreement, dated June 30, 2006, among the Company, Sucampo Pharma Europe Ltd., Sucampo Pharma, Ltd. and Sucampo AG
|
|
Exhibit 10.19 to Registration Statement No. 333-135133, Amendment No. 1 (filed August 11, 2006)
|
|
|
|
|
|
10.18*
|
|
Exclusive Manufacturing and Supply Agreement, dated June 23, 2004, between the Company and R-Tech Ueno, Ltd., as amended on October 2, 2006
|
|
Exhibit 10.20 to Registration Statement No. 333-135133, Amendment No. 3 (filed October 25, 2006)
|
|
|
|
|
|
10.19*
|
|
Collaboration and License Agreement, dated October 29, 2004, between the Company and Takeda Pharmaceutical Company Limited
|
|
Exhibit 10.21 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.20*
|
|
Agreement, dated October 29, 2004, among the Company, Takeda Pharmaceutical Company Limited and Sucampo AG
|
|
Exhibit 10.22 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.21*
|
|
Supply Agreement, dated October 29, 2004, among the Company, Takeda Pharmaceutical Company Limited and R-Tech Ueno, Ltd.
|
|
Exhibit 10.23 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.22*
|
|
Supply and Purchase Agreement, dated January 25, 2006, among the Company, Takeda Pharmaceutical Company Limited and R-Tech Ueno, Ltd.
|
|
Exhibit 10.24 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
10.23*
|
|
Supplemental Agreement, dated February 1, 2006, between the Company and Takeda Pharmaceutical Company Limited
|
|
Exhibit 10.25 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.24*
|
|
Services Agreement, dated February 9, 2006, between the Company and Ventiv Commercial Services, LLC
|
|
Exhibit 10.26 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.25
|
|
Indemnification Agreement, dated September 7, 2006, between the Company and Timothy Maudlin
|
|
Exhibit 10.27 to Registration Statement No. 333-135133, Amendment No. 2 (filed October 20, 2006)
|
|
|
|
|
|
10.26
|
|
Indemnification Agreement, dated September 7, 2006, between the Company and Sue Molina
|
|
Exhibit 10.28 to Registration Statement No. 333-135133, Amendment No. 2 (filed October 20, 2006)
|
|
|
|
|
|
10.27*
|
|
Exclusive Manufacturing and Supply Agreement, dated June 24, 2005, between Sucampo Pharma Europe Ltd. and R-Tech Ueno, Ltd., as amended on October 2, 2006
|
|
Exhibit 10.29 to Registration Statement No. 333-135133, Amendment No. 3 (filed October 25, 2006)
|
|
|
|
|
|
10.28*
|
|
SPI-8811 and SPI-017 Exclusive Clinical Manufacturing and Supply Agreement, dated October 4, 2006, between the Company and R-Tech Ueno, Ltd.
|
|
Exhibit 10.31 to Registration Statement No. 333-135133, Amendment No. 3 (filed October 25, 2006)
|
|
|
|
|
|
10.29
|
|
Lease Agreement, dated December 18, 2006, between the Company and EW Bethesda Office Investors, LLC
|
|
Exhibit 10.29 to the Company’s Annual Report on Form 10-K (filed March 27, 2008)
|
|
|
|
|
|
10.30^
|
|
Amendment to Employment Agreement, dated November 20, 2006, between the Company and Ryuji Ueno
|
|
Exhibit 10.35 to Registration Statement No. 333-135133, Amendment No. 5 (filed February 1, 2007)
|
|
|
|
|
|
10.31
|
|
Letter agreement, dated January 29, 2007, between the Company and Takeda Pharmaceutical Company Limited
|
|
Exhibit 10.36 to Registration Statement No. 333-135133, Amendment No. 6 (filed May 14, 2007)
|
|
|
|
|
|
10.32^
|
|
Employment Agreement, effective June 1, 2007, between the Company and Sachiko Kuno
|
|
Exhibit 10.37 to Registration Statement No. 333-135133, Amendment No. 8 (filed July 17, 2007)
|
|
|
|
|
|
10.34
|
|
Indemnification Agreement, dated October 18, 2007, between the Company and Anthony C. Celeste
|
|
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (filed November 14, 2007)
|
|
|
|
|
|
10.38^
|
|
Amendment, dated December 6, 2007, to Employment Agreement between the Company and Gayle Dolecek
|
|
Exhibit 10.4 to the Company’s Current Report on Form 8-K (filed December 14, 2007)
|
|
|
|
|
|
10.40^
|
|
Amendment, dated November 26, 2007, to Employment Agreement between the Company and Ryuji Ueno
|
|
Exhibit 10.6 to the Company’s Current Report on Form 8-K (filed December 14, 2007)
|
|
|
|
|
|
10.41
|
|
Credit Line Agreement, dated March 5, 2008, between the Company and UBS Bank USA
|
|
Exhibit 10.41 to the Company’s Current Report on Form 10-K (filed March 27, 2008)
|
10.42
|
|
Amended and Restated Patent Access Agreement, dated February 18, 2009, among the Company, Sucampo Pharma Europe, Ltd., Sucampo Pharma, Ltd. and Sucampo AG
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed February 19, 2009)
|
|
|
|
|
|
10.43*
|
|
Supply Agreement, dated February 19, 2009, between Sucampo Pharma Ltd and Abbott Japan Co. Ltd.
|
|
Exhibit 10.43 to the Company’s Current Report on Form 10-K (filed March 16, 2009)
|
|
|
|
|
|
10.44*
|
|
Exclusive Manufacturing and Supply Agreement, dated February 23, 2009, between Sucampo Pharma, Ltd and R-Tech Ueno, Ltd.
|
|
Exhibit 10.44 to the Company’s Current Report on Form 10-K (filed March 16, 2009)
|
|
|
|
|
|
10.45
|
|
Indemnification Agreement by and between the Company and Andrew J. Ferrara
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed July 22, 2008)
|
|
|
|
|
|
10.46
|
|
Separation Agreement and General Release by and between the Company and Mariam E. Morris
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed July 28, 2008)
|
|
|
|
|
|
10.47
|
|
Consulting Agreement by and between the Company and Mariam E. Morris
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed July 28, 2008)
|
|
|
|
|
|
10.48*
|
|
Form of Nonstatutory Stock Option Agreement for Non-Employee Directors
|
|
Exhibit 10.1 to the Company’s Current Report on Form 10-Q (filed November 6, 2009)
|
|
|
|
|
|
10.49
|
|
Special Agreement, dated November 22, 2010, between Sucampo Pharma, Ltd., Osaka, Japan, a wholly-owned subsidiary of the Company, and The Bank of Tokyo-Mitsubishi UFJ, Ltd
|
|
Exhibit 10.49 to the Company’s Current Report on Form 10-K (filed March 8, 2011)
|
|
|
|
|
|
10.50
|
|
Agreement on Bank Overdrafts, dated November 18, 2010, between Sucampo Pharma, Ltd., Osaka, Japan, a wholly-owned subsidiary of the Company, and The Bank of Tokyo-Mitsubishi UFJ, Ltd.
|
|
Exhibit 10.50 to the Company’s Current Report on Form 10-K (filed March 8, 2011)
|
|
|
|
|
|
10.51
|
|
Subordinated Unsecured Promissory Note, dated December 23, 2010, between Ambrent Investments S.à r.l., as borrower, and Ryuji Ueno Revocable Trust Under Trust Agreement dated December 20, 2002, as lender
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed December 29, 2010)
|
10.52
|
|
Subordinated Unsecured Promissory Note, dated December 23, 2010, between Ambrent Investments S.à.r.l., as borrower, and Sachiko Kuno Revocable Trust Under Trust Agreement dated December 20, 2002, as lender
|
|
Exhibit 10.2 to the Company’s Current Report on Form 8-K (filed December 29, 2010)
|
|
|
|
|
|
10.53
|
|
Non-Competition Agreement, dated as of December 23, 2010 by and among Dr. Ryuji Ueno, as trustee of the Ryuji Ueno Revocable Trust under Trust Agreement dated December 20, 2002, Dr. Sachiko Kuno as trustee of the Sachiko Kuno Revocable Trust under Trust Agreement dated December 20, 2002, Dr. Ryuji Ueno, Dr. Sachiko Kuno, Ambrent Investments S.à r.l., and Sucampo Pharmaceuticals, Inc
|
|
Exhibit 10.3 to the Company’s Current Report on Form 8-K (filed December 29, 2010)
|
|
|
|
|
|
10.54^
|
|
Separation Agreement and General Release, dated January 28, 2011, between the Company and Jan Smilek
|
|
Exhibit 99.1 to the Company’s Current Report on Form 8-K (filed February 2, 2011)
|
|
|
|
|
|
10.55^
|
|
Consulting Agreement, dated January 13, 2011, between the Company and Jan Smilek
|
|
Exhibit 99.2 to the Company’s Current Report on Form 8-K (filed February 2, 2011)
|
|
|
|
|
|
10.56
|
|
Form of Sucampo Pharmaceuticals, Inc. Duration and Performance-Based Stock Option Incentive Award
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed May 6, 2011)
|
|
|
|
|
|
10.57
|
|
Exclusive License for Development and Commercialization of Unoprostone dated March 22, 2011, between Sucampo Manufacturing & Research AG and R-Tech Ueno, Ltd.
|
|
Exhibit 10.3 to the Company's Current Report on Form 10-Q (filed May 10, 2011)
|
|
|
|
|
|
10.58*
|
|
Loan Guarantee and Development Agreement, dated September 8, 2011, between Numab AG and Sucampo AG
|
|
Included herewith
|
|
|
|
|
|
10.59
|
|
Form of Settlement and Mutual Release Agreement, dated October 26, 2011, between Sucampo Pharmaceuticals, Inc. and Covance Inc.
|
|
Exhibit 10.2 to the Company’s Current Report on Form 10-Q (filed November 9, 2011)
|
|
|
|
|
|
10.60
|
|
Employment Agreement, effective as of October 17, 2011, between the Company and Cary J. Claiborne
|
|
Included herewith
|
|
|
|
|
|
101.[INS]†
|
|
XBRL Instance Document
|
|
Included herewith
|
|
|
|
|
|
101.[SCH]†
|
|
XBRL Taxonomy Extension Schema Document
|
|
Included herewith
|
|
|
|
|
|
101.[CAL]†
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
Included herewith
|
|
|
|
|
|
101.[LAB]†
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
Included herewith
|
|
|
|
|
|
101.[PRE]†
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
Included herewith
|
21
|
|
Subsidiaries of the Company
|
|
Exhibit 21 to the Company’s Current Report on Form 10-K (filed March 16, 2009)
|
|
|
|
|
|
23.1
|
|
Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
|
|
Included herewith
|
|
|
|
|
|
31.1
|
|
Certification of the Principal Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002
|
|
Included herewith
|
|
|
|
|
|
31.2
|
|
Certification of the Principal Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002
|
|
Included herewith
|
|
|
|
|
|
32.1
|
|
Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
Included herewith
|
|
|
|
|
|
32.2
|
|
Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
Included herewith
|
^ Compensatory plan, contract or arrangement.
*
Confidential
treatment has been granted for portions of this exhibit.
† Attached as Exhibit 101 to this report
are documents formatted in XBRL (Extensible Business Reporting Language). Users of this data are advised that, pursuant to Rule
406T of Regulation S-T, the interactive data file is deemed not filed or part of a registration statement or prospectus for purposes
of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, and is otherwise not subject to liability under these sections.
Signatures
Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
|
|
|
Sucampo Pharmaceuticals, Inc.
|
|
|
|
|
March 15, 2012
|
By:
|
|
/s/ RYUJI UENO
|
|
|
|
Ryuji Ueno, M.D., Ph.D., Ph.D.
|
|
|
|
Chief Executive Officer, Chief Scientific Officer and Chairman of the Board of Directors
|
|
|
|
(Principal Executive Officer)
|
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ RYUJI UENO
|
|
Chief Executive Officer
|
|
March 15, 2012
|
Ryuji Ueno, M.D., Ph.D., Ph.D.
|
|
(Principal Executive Officer),
|
|
|
|
|
Chief Scientific Officer and Chairman
|
|
|
|
|
|
|
|
/s/ CARY J. CLAIBORNE
|
|
Chief Financial Officer
|
|
March 15, 2012
|
Cary J. Claiborne
|
|
(Principal Financial Officer)
|
|
|
|
|
|
|
|
/s/ WILLIAM L. ASHTON
|
|
Director
|
|
March 15, 2012
|
William L. Ashton
|
|
|
|
|
|
|
|
|
|
/s/ ANTHONY C. CELESTE
|
|
Director
|
|
March 15, 2012
|
Anthony C. Celeste
|
|
|
|
|
|
|
|
|
|
/s/ GAYLE R. DOLECEK
|
|
Director
|
|
March 15, 2012
|
Gayle R. Dolecek, P.D.
|
|
|
|
|
|
|
|
|
|
/s/ DANIEL P. GETMAN
|
|
Director
|
|
March 15, 2012
|
Daniel P. Getman
|
|
|
|
|
|
|
|
|
|
/s/ SACHIKO KUNO
|
|
Director
|
|
March 15, 2012
|
Sachiko Kuno, Ph.D.
|
|
|
|
|
|
|
|
|
|
/s/ TIMOTHY I. MAUDLIN
|
|
Director
|
|
March 15, 2012
|
Timothy I. Maudlin
|
|
|
|
|
SUCAMPO PHARMACEUTICALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated Balance Sheets as of December 31, 2011 and 2010
|
F-3
|
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2011, 2010 and 2009
|
F-4
|
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2011, 2010 and 2009
|
F-5
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009
|
F-6
|
Notes to Consolidated Financial Statements
|
F-7
|
Report of Independent Registered Public
Accounting Firm
To the Board of Directors and Stockholders
of
Sucampo Pharmaceuticals, Inc.
In
our opinion, the accompanying
consolidated
financial
statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position
of
Sucampo Pharmaceuticals, Inc. and its subsidiaries (collectively, the "Company")
at
December
31, 2011
and
December 31, 2010
,
and the results of
their
operations and
their
cash flows
for each of the three years in the period ended
December 31, 2011
in
conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item (15)(a)(2) presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related consolidated financial statements.
Also in
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2011, based on criteria established in
Internal Control - Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
The Company's management is
responsible for these financial statements and financial statement schedule, for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting
,
included in Management's Report on Internal Control over Financial Reporting
appearing
under Item 9A
. Our responsibility is to express opinions on these financial statements, on
the financial statement schedule and on the Company's internal control over financial reporting based on our
integrated audits.
We conducted our
audits i
n accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement
and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the
financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis
for our opinions.
A company’s
internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
March 15, 2012
SUCAMPO PHARMACEUTICALS, INC.
Consolidated Balance Sheets
(In thousands, except share data)
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
50,662
|
|
|
$
|
49,243
|
|
Investments, current
|
|
|
24,452
|
|
|
|
54,524
|
|
Product royalties receivable
|
|
|
10,795
|
|
|
|
10,516
|
|
Unbilled accounts receivable
|
|
|
2,036
|
|
|
|
1,097
|
|
Accounts receivable, net
|
|
|
4,616
|
|
|
|
731
|
|
Prepaid and income taxes receivable
|
|
|
2,845
|
|
|
|
702
|
|
Deferred tax assets, current
|
|
|
163
|
|
|
|
243
|
|
Deferred charge, current
|
|
|
3,057
|
|
|
|
-
|
|
Restricted cash, current
|
|
|
15,113
|
|
|
|
15,113
|
|
Prepaid expenses and other current assets
|
|
|
1,177
|
|
|
|
2,374
|
|
Total current assets
|
|
|
114,916
|
|
|
|
134,543
|
|
|
|
|
|
|
|
|
|
|
Investments, non-current
|
|
|
998
|
|
|
|
5,028
|
|
Property and equipment, net
|
|
|
1,669
|
|
|
|
2,025
|
|
Intangibles assets, net
|
|
|
8,364
|
|
|
|
3,070
|
|
Deferred tax assets, non-current
|
|
|
2,089
|
|
|
|
4,178
|
|
Deferred charge, non-current
|
|
|
26,751
|
|
|
|
-
|
|
Restricted cash, non-current
|
|
|
2,129
|
|
|
|
-
|
|
Other assets
|
|
|
653
|
|
|
|
429
|
|
Total assets
|
|
$
|
157,569
|
|
|
$
|
149,273
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
6,978
|
|
|
$
|
4,199
|
|
Accrued expenses
|
|
|
13,648
|
|
|
|
10,216
|
|
Deferred revenue, current
|
|
|
3,888
|
|
|
|
4,987
|
|
Deferred tax liability, current
|
|
|
2,167
|
|
|
|
1,078
|
|
Notes payable, current
|
|
|
20,400
|
|
|
|
19,522
|
|
Total current liabilities
|
|
|
47,081
|
|
|
|
40,002
|
|
|
|
|
|
|
|
|
|
|
Notes payable, non-current
|
|
|
39,227
|
|
|
|
44,439
|
|
Deferred revenue, non-current
|
|
|
7,045
|
|
|
|
8,321
|
|
Deferred tax liability, non-current
|
|
|
23,019
|
|
|
|
-
|
|
Other liabilities
|
|
|
2,603
|
|
|
|
2,681
|
|
Total liabilities
|
|
|
118,975
|
|
|
|
95,443
|
|
|
|
|
|
|
|
|
|
|
Commitments and contengencies (Notes 10 and 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 5,000,000 shares authorized at December 31, 2011 and 2010; no shares issued and outstanding at December 31, 2011 and 2010
|
|
|
-
|
|
|
|
-
|
|
Class A common stock, $0.01 par value; 270,000,000 shares authorized at December 31, 2011 and 2010; 15,690,780 and 15,659,917 shares issued and outstanding at December 31, 2011 and 2010, respectively
|
|
|
157
|
|
|
|
156
|
|
Class B common stock, $0.01 par value; 75,000,000 shares authorized at December 31, 2011 and 2010; 26,191,050 shares issued and outstanding at December 31, 2011 and 2010
|
|
|
262
|
|
|
|
262
|
|
Additional paid-in capital
|
|
|
59,957
|
|
|
|
58,468
|
|
Accumulated other comprehensive income
|
|
|
17,854
|
|
|
|
16,574
|
|
Treasury stock, at cost; 186,987 shares
|
|
|
(700
|
)
|
|
|
-
|
|
Accumulated deficit
|
|
|
(38,936
|
)
|
|
|
(21,630
|
)
|
Total stockholders' equity
|
|
|
38,594
|
|
|
|
53,830
|
|
Total liabilities and stockholders' equity
|
|
$
|
157,569
|
|
|
$
|
149,273
|
|
The accompanying notes are an integral part
of these Consolidated Financial Statements.
SUCAMPO PHARMACEUTICALS, INC.
Consolidated Statements of Operations
and Comprehensive Income
(In thousands, except per share data)
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue
|
|
$
|
9,249
|
|
|
$
|
16,540
|
|
|
$
|
23,957
|
|
Product royalty revenue
|
|
|
41,517
|
|
|
|
40,300
|
|
|
|
38,250
|
|
Co-promotion revenue
|
|
|
3,378
|
|
|
|
4,417
|
|
|
|
4,541
|
|
Contract and collaboration revenue
|
|
|
617
|
|
|
|
613
|
|
|
|
603
|
|
Total revenues
|
|
|
54,761
|
|
|
|
61,870
|
|
|
|
67,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
33,497
|
|
|
|
23,955
|
|
|
|
32,906
|
|
Settlement of legal dispute
|
|
|
(11,100
|
)
|
|
|
-
|
|
|
|
-
|
|
General and administrative
|
|
|
41,270
|
|
|
|
27,867
|
|
|
|
15,000
|
|
Selling and marketing
|
|
|
8,783
|
|
|
|
10,201
|
|
|
|
10,030
|
|
Total operating expenses
|
|
|
72,450
|
|
|
|
62,023
|
|
|
|
57,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(17,689
|
)
|
|
|
(153
|
)
|
|
|
9,415
|
|
Non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
249
|
|
|
|
608
|
|
|
|
965
|
|
Interest expense
|
|
|
(2,455
|
)
|
|
|
(75
|
)
|
|
|
-
|
|
Other expense, net
|
|
|
(2,019
|
)
|
|
|
(3,700
|
)
|
|
|
(519
|
)
|
Total non-operating income (expense), net
|
|
|
(4,225
|
)
|
|
|
(3,167
|
)
|
|
|
446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(21,914
|
)
|
|
|
(3,320
|
)
|
|
|
9,861
|
|
Income tax benefit (provision)
|
|
|
4,608
|
|
|
|
565
|
|
|
|
(5,084
|
)
|
Net income (loss)
|
|
$
|
(17,306
|
)
|
|
$
|
(2,755
|
)
|
|
$
|
4,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
(0.41
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
0.11
|
|
Diluted net income (loss) per share
|
|
$
|
(0.41
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
0.11
|
|
Weighted average common shares outstanding - basic
|
|
|
41,839
|
|
|
|
41,848
|
|
|
|
41,844
|
|
Weighted average common shares outstanding - diluted
|
|
|
41,839
|
|
|
|
41,848
|
|
|
|
41,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(17,306
|
)
|
|
$
|
(2,755
|
)
|
|
$
|
4,777
|
|
Other comprehensive income gain (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investments, net of tax effect
|
|
|
(2
|
)
|
|
|
(18
|
)
|
|
|
(55
|
)
|
Foreign currency translation
|
|
|
1,282
|
|
|
|
3,745
|
|
|
|
822
|
|
Comprehensive income (loss)
|
|
$
|
(16,026
|
)
|
|
$
|
972
|
|
|
$
|
5,544
|
|
The accompanying notes are an integral part
of these Consolidated Financial Statements.
SUCAMPO PHARMACEUTICALS, INC.
Consolidated Statements of Changes in
Stockholders’ Equity (Deficit)
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
(Accumulated
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit)
|
|
|
Equity
|
|
Balance at December 31, 2008
|
|
|
15,651,849
|
|
|
|
156
|
|
|
|
26,191,050
|
|
|
|
262
|
|
|
|
98,504
|
|
|
|
12,080
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,238
|
|
|
|
142,240
|
|
Employee stock option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
374
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
374
|
|
Stock issued under employee stock purchase plan
|
|
|
3,881
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
822
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
822
|
|
Unrealized loss on investments, net of tax effect
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(55
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(55
|
)
|
Dividend payments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,865
|
)
|
|
|
(2,865
|
)
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,777
|
|
|
|
4,777
|
|
Balance at December 31, 2009
|
|
|
15,655,730
|
|
|
|
156
|
|
|
|
26,191,050
|
|
|
|
262
|
|
|
|
98,897
|
|
|
|
12,847
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,150
|
|
|
|
145,312
|
|
Employee stock option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,260
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,260
|
|
Stock issued under employee stock purchase plan
|
|
|
4,187
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,745
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,745
|
|
Unrealized loss on investments, net of tax effect
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(18
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(18
|
)
|
Deemed dividend for SAG acquisition
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(41,703
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(38,297
|
)
|
|
|
(80,000
|
)
|
Dividend payments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13,728
|
)
|
|
|
(13,728
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,755
|
)
|
|
|
(2,755
|
)
|
Balance at December 31, 2010
|
|
|
15,659,917
|
|
|
|
156
|
|
|
|
26,191,050
|
|
|
|
262
|
|
|
|
58,468
|
|
|
|
16,574
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(21,630
|
)
|
|
|
53,830
|
|
Employee stock option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,370
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,370
|
|
Stock issued upon exercise of stock options
|
|
|
27,500
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
106
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
107
|
|
Stock issued under employee stock purchase plan
|
|
|
3,363
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,282
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,282
|
|
Unrealized loss on investments, net of tax effect
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
Treasury stock, at cost
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
186,987
|
|
|
|
(700
|
)
|
|
|
-
|
|
|
|
(700
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17,306
|
)
|
|
|
(17,306
|
)
|
Balance at December 31, 2011
|
|
|
15,690,780
|
|
|
$
|
157
|
|
|
|
26,191,050
|
|
|
$
|
262
|
|
|
$
|
59,957
|
|
|
$
|
17,854
|
|
|
|
186,987
|
|
|
$
|
(700
|
)
|
|
$
|
(38,936
|
)
|
|
$
|
38,594
|
|
The accompanying notes are an integral part
of these Consolidated Financial Statements.
SUCAMPO PHARMACEUTICALS, INC.
Consolidated Statements of Cash Flows
(In thousands)
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(17,306
|
)
|
|
$
|
(2,755
|
)
|
|
$
|
4,777
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,308
|
|
|
|
964
|
|
|
|
789
|
|
Loss on disposal of property and equipment
|
|
|
12
|
|
|
|
1
|
|
|
|
-
|
|
Deferred tax provision (benefit)
|
|
|
26,228
|
|
|
|
(99
|
)
|
|
|
13
|
|
Deferred charge
|
|
|
(29,808
|
)
|
|
|
-
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
1,370
|
|
|
|
1,260
|
|
|
|
374
|
|
Amortization of premiums on investments
|
|
|
651
|
|
|
|
1,617
|
|
|
|
1,415
|
|
Notes payable paid-in-kind interest
|
|
|
2,288
|
|
|
|
-
|
|
|
|
-
|
|
Gain on trading securities
|
|
|
-
|
|
|
|
(1,086
|
)
|
|
|
(2,092
|
)
|
Loss on settlement rights on auction rate securities
|
|
|
-
|
|
|
|
1,086
|
|
|
|
1,732
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,885
|
)
|
|
|
(218
|
)
|
|
|
32
|
|
Unbilled accounts receivable
|
|
|
(939
|
)
|
|
|
(453
|
)
|
|
|
3,729
|
|
Product royalties receivable
|
|
|
(280
|
)
|
|
|
507
|
|
|
|
(1,298
|
)
|
Inventory
|
|
|
(127
|
)
|
|
|
-
|
|
|
|
-
|
|
Prepaid and income taxes receivable and payable, net
|
|
|
(2,173
|
)
|
|
|
(2,689
|
)
|
|
|
1,586
|
|
Accounts payable
|
|
|
2,872
|
|
|
|
893
|
|
|
|
1,679
|
|
Accrued expenses
|
|
|
523
|
|
|
|
3,329
|
|
|
|
(3,269
|
)
|
Deferred revenue
|
|
|
(1,940
|
)
|
|
|
(6,525
|
)
|
|
|
(4,564
|
)
|
Other assets and liabilities, net
|
|
|
1,215
|
|
|
|
818
|
|
|
|
66
|
|
Net cash provided by (used in) operating activities
|
|
|
(19,991
|
)
|
|
|
(3,350
|
)
|
|
|
4,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments
|
|
|
(20,598
|
)
|
|
|
(84,857
|
)
|
|
|
(150,712
|
)
|
Proceeds from the sales of investments
|
|
|
7,380
|
|
|
|
25,855
|
|
|
|
9,504
|
|
Maturities of investments
|
|
|
46,665
|
|
|
|
90,492
|
|
|
|
109,163
|
|
Purchases of property and equipment
|
|
|
(284
|
)
|
|
|
(333
|
)
|
|
|
(495
|
)
|
Proceeds from disposals of property and equipment
|
|
|
25
|
|
|
|
5
|
|
|
|
-
|
|
Issuance of notes receivable
|
|
|
(100
|
)
|
|
|
-
|
|
|
|
-
|
|
Purchases of intangible assets
|
|
|
(3,000
|
)
|
|
|
-
|
|
|
|
(2,915
|
)
|
Acquisition of SAG
|
|
|
-
|
|
|
|
(28,118
|
)
|
|
|
-
|
|
Restricted cash
|
|
|
(2,187
|
)
|
|
|
(14,900
|
)
|
|
|
-
|
|
Net cash provided by (used in) investing activities
|
|
|
27,901
|
|
|
|
(11,856
|
)
|
|
|
(35,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
-
|
|
|
|
12,079
|
|
|
|
-
|
|
Repayment of notes payable
|
|
|
(7,500
|
)
|
|
|
-
|
|
|
|
-
|
|
Proceeds from exercise of stock options
|
|
|
106
|
|
|
|
-
|
|
|
|
-
|
|
Purchase of treasury stock
|
|
|
(700
|
)
|
|
|
-
|
|
|
|
-
|
|
Proceeds from employee stock purchase plan
|
|
|
13
|
|
|
|
14
|
|
|
|
19
|
|
Dividend payments
|
|
|
-
|
|
|
|
(13,728
|
)
|
|
|
(2,865
|
)
|
Net cash used in financing activities
|
|
|
(8,081
|
)
|
|
|
(1,635
|
)
|
|
|
(2,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
1,590
|
|
|
|
4,664
|
|
|
|
1,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,419
|
|
|
|
(12,177
|
)
|
|
|
(32,284
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
49,243
|
|
|
|
61,420
|
|
|
|
93,704
|
|
Cash and cash equivalents at end of period
|
|
$
|
50,662
|
|
|
$
|
49,243
|
|
|
$
|
61,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
171
|
|
|
$
|
2
|
|
|
$
|
-
|
|
Tax refunds received
|
|
$
|
245
|
|
|
$
|
126
|
|
|
$
|
-
|
|
Tax payments made
|
|
$
|
1,476
|
|
|
$
|
2,683
|
|
|
$
|
1,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of intangible assets included in accrued expenses
|
|
$
|
3,000
|
|
|
$
|
-
|
|
|
$
|
500
|
|
Loan notes issued for acquisition of SAG
|
|
$
|
-
|
|
|
$
|
51,882
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these Consolidated Financial Statements.
|
1.
|
Business Organization and Basis of Presentation
|
Description of the Business
Sucampo Pharmaceuticals,
Inc., or the Company, is
a global pharmaceutical company focused on the discovery, development and commercialization
of proprietary drugs based on prostones and other novel drug technologies. Prostones are a class of fatty acid compounds that occur
naturally in the human body as a result of the enzymatic catalysis by 15-Prostaglandin Dehydrogenase (15-PGDH) of eicosanoids,
like prostaglandins, and other docosanoid molecules specifically synthesized with 15 position keto groups.
The Company generates
revenue mainly from product royalties, development milestone payments, and clinical 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
and as the Company seeks regulatory approvals for additional indications for AMITIZA, RESCULA and other compounds on an international
basis. The Company conducts business through subsidiaries based in Japan, the United States, Switzerland, the United Kingdom and
Luxembourg.
In January 2006, the
Company received marketing approval from the U.S. Food and Drug Administration, or FDA for AMITIZA (lubiprostone), to treat
chronic
idiopathic constipation, or CIC
in adults
of both genders
. In April 2008, the Company
received a second marketing approval from the FDA for AMITIZA to treat
irritable bowel syndrome with
constipation, or IBS-C
in women aged 18 years and older.
AMITIZA is being marketed
and developed in the U.S. for gastrointestinal indications under the
October 2004 collaboration and
license agreement with Takeda Pharmaceutical Company Limited, or
Takeda Agreement. The Company is primarily responsible
for clinical development activities under the Takeda Agreement while Takeda is responsible for commercialization of AMITIZA. The
Company and Takeda initiated commercial sales of AMITIZA in the U.S. for the treatment of CIC in April 2006 and for the treatment
of IBS-C in May 2008. AMITIZA is currently being developed for the treatment of
opioid bowel dysfunction,
or OBD or opioid-induced constipation, or OIC
. Takeda also holds marketing rights to AMITIZA in Canada, but has not yet
commercialized it there.
The Company, in 2006, entered into a supplemental agreement with Takeda Pharmaceutical
Company Limited, or the Supplemental Takeda Agreement, which consists of certain key funding streams, including reimbursements
of co-promotion costs and reimbursements of the costs of miscellaneous marketing activities. The reimbursement of co-promotion
costs under the Supplemental Takeda Agreement expired on May 31, 2011. Co-promotion costs after May 31, 2011 are reimbursed under
the Takeda Agreement.
The previous reimbursement terms of the Supplemental Takeda Agreement were based on a per diem amount
by the number of sales representatives in the field promoting AMITIZA. The current terms are based on actual details presented
to health care prescribers.
We
submitted for filing with the International Court of Arbitration, International Chamber of Commerce, or ICC a demand for arbitration
under the applicable provisions of the Takeda Agreement, which specify that New York law will govern the procedural and substantive
aspects of the arbitration. The parties filed submission and witness statements and the arbitration hearing on the Company’s
claims concluded on December 20, 2011.
In
Switzerland, we are currently in discussions with the Swiss Federal Office of Public Health,
or Bundesamt für Gesundheit,
or the BAG for pricing approval. In February 2012 the Company started to market AMITIZA, on a limited basis, in Switzerland..
In Japan, lubiprostone
is being developed under a license, commercialization and supply agreement with Abbott Japan Co. Ltd., or Abbott, for lubiprostone
in Japan, or the Abbott Agreement. The Company has filed a new drug application, or a NDA, for AMITIZA for the treatment of CIC
in Japan with the Pharmaceuticals and Medical Devices Agency, or PMDA. The Company anticipates a decision by the PMDA and the conclusion
of pricing negotiations with the Ministry of Health, Labor and Welfare, or MHLW in 2012. The Company continues to negotiate with
third parties for the OBD indication, and Abbott will have 45 days to meet the terms and conditions of any third party bona fide
offer.
SPE submitted a filing
for approval of AMITIZA to treat CIC on August 4, 2011 in the U. K., and the Company expects a decision by the Medicines and Healthcare
products Regulatory Agency, or MHRA in the third quarter of 2012. The Company continues to evaluate the opportunities in the E.
U.
Following
the Company’s acquisition of Sucampo AG, or SAG, the Company began and has continued integrating SAG for future operational
efficiencies through a simplified group structure and consolidation of intellectual property.
On September 29, 2011 the
Company’s subsidiaries Sucampo Pharma Americas Inc, or SPA, Sucampo Pharma Ltd, or SPL and Sucampo Pharma Europe Ltd, or
SPE transferred certain intellectual property and licenses to SAG, and SAG entered into agreements with the subsidiaries to perform
certain services related to the intellectual property, licenses and other business activities. As a result of these agreements
SAG is now our principal operating company.
On
September 29, 2011, SPA transferred its rights to
unoprostone isopropyl
to SAG. SAG entered into
an agreement with SPA to perform certain activities related to those rights. On March 22, 2011,
SAG entered into a license
agreement with R-Tech for unoprostone isopropyl, expanding the Company’s development and commercialization rights as well
as its territories beyond their previously agreed territory of the United States and Canada to the rest of the world, with the
exception of Japan, Korea, Taiwan and the People’s Republic of China, or the R-Tech Territory, or the SAG Territories. SAG
is now evaluating the opportunities to obtain an appropriate label in the E.U. and other European countries as well as obtaining
reauthorization in those countries to commercialize unoprostone isopropyl.
Other prostone compounds
in the Company’s development plan include cobiprostone for the treatment of oral mucositis in cancer patients and wound healing.
Additionally, the Company is evaluating SPI-017 for use as a treatment of treatment for the management of pain caused by spinal
stenosis.
In July 2011, the
Company obtained the development and commercial rights to a peptide compound from CuroNZ, a New Zealand company, for a loan of
$100,000 that will augment the Company’s ophthalmic development opportunities. Loan and accrued interest of approximately
$101,000 is recorded as other assets in the Consolidated Balance Sheets at December 31, 2011.
In September 2011,
the Company entered into a Loan Guarantee and Development Agreement, or Numab Agreement, with Numab AG, or Numab. Numab is considered
a related party as a result of a ownership interest by one of the Company’s executive officers. It provides the Company with
access to Numab’s proprietary technology for the discovery of high-affinity antibodies against certain selected targets.
The Company will have exclusive commercial rights to any biologic products successfully developed and commercialized in the course
of the collaboration. The Numab Agreement presents an opportunity to maximize the Company’s knowledge of a variety of targets
that result in several large, underserved patient populations. By applying Numab’s antibody technology to these targets,
the Company plans to develop biologic products with a different mechanism of action that will be complementary to the prostone-based
compounds the Company now has in development. Under the terms of the Numab Agreement, the Company will provide Numab with up to
CHF 5.0 million as collateral and will serve as guarantor for a loan to Numab from a third party. The Company may name up to four
targets against which Numab will use their proprietary technology to discover high-affinity antibodies and to develop these to
an investigation new drug, or IND, ready stage. Numab is eligible for full time equivalent based payments and discovery success
dependent fees. Any success dependent fees will result in a corresponding reduction in the amount of the available guarantee. Should
Numab default its loan obligations, the collateral may be called upon to meet Numab’s obligation under its loan agreement.
As of December 31, 2011, the collateral of $2.1 million has been deposited by the Company and Numab has utilized CHF 1.5 million
of its loan available. In reviewing the amount outstanding, the Company has recorded a liability of $495,000 in respect to the
collateral being called upon to meet potential loan default by Numab. If a biologic is successfully developed, Numab and the Company
may enter into a license arrangement in which Numab will be entitled to clinical development milestone payments and increasing
tiered royalties on net sales. The Company will be responsible for clinical development and will retain all commercial rights to
any resulting biologic product.
Basis of Presentation
The accompanying Consolidated
Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the U.S.
of America, or GAAP. The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries:
SAG, based in Zug, Switzerland , in which the company conducts certain worldwide and European operations; SPL, based in Tokyo and
Osaka, Japan, in which the Company conducts its Asian operations; SPA, based in Bethesda, Maryland, in which the Company conducts
operations in North and South America; SPE, based in Oxford, U.K., and Ambrent Investments S.à r.l., based in Luxembourg
which conduct operations in Europe;. All significant inter-company balances and transactions have been eliminated.
The acquisition of
SAG and its subsidiary in 2010 was accounted for as a merger of companies under common control and accounted for at historical
cost.
The financial information of these acquired entities is included
in these Consolidated
Financial Statements for all periods presented.
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
|
Cash and Cash Equivalents
For the purpose of
the Consolidated Balance Sheets and statements of cash flows, cash equivalents include all highly liquid investments with a maturity,
at date of purchase, of 90 days or less at the time of purchase.
Restricted Cash
Restricted
cash consists of approximately $17.2 million and $15.1 million at December 31, 2011 and December 31, 2010, respectively.
Restricted
cash represents cash required to be deposited with financial institutions in connection with the Sucampo Pharma, Ltd. and The Bank
of Tokyo-Mitsubishi UFJ, Ltd. loan agreement (see Note 12 below), SAG’s Numab Agreement (see Note 13 below) and operating
leases.
Current and Non-Current Investments
Current and non-current
investments consist primarily of U.S. government agencies securities, corporate bonds, mutual funds, variable rate demand notes
and auction rate securities, or ARS. The Company classifies its investments into current and non-current based on their maturities
and management’s reasonable expectation to realize these investments in cash. The Company classifies all of its investments,
except ARS, as available for sale securities and reports unrealized gains or losses, net of related tax effects, in other comprehensive
income. The Company’s investment in ARS was redeemed in June 2010.
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, investments and receivables. The Company places its cash, cash equivalents and restricted cash with highly rated
financial institutions and invests its excess cash in highly rated investments.
As of December 31, 2011 and 2010, approximately
$15.6 million, or 16.7%, and $34.1 million, or 27.6%, respectively, of the Company’s cash, cash equivalents, restricted cash
and investments were issued or insured by the federal government or government agencies.
The Company
has not experienced any losses on these accounts related to amounts in excess of insured limits.
The Company’s
products and product candidates under development require approval from the FDA or other international regulatory agencies prior
to commercial sales. For those product candidates or indications that have not yet been approved by the FDA or international regulatory
agencies, there can be no assurance the products will receive the necessary approval. If the Company is denied approval or approval
is delayed, it may have a material adverse impact on the Company.
The Company’s
products, AMITIZA and RESCULA, compete in a rapidly changing, highly competitive market, which is characterized by advances in
scientific discovery, changes in customer requirements, evolving regulatory requirements and developing industry standards. Any
failure by the Company to anticipate or to respond adequately or timely to scientific developments in its industry, changes in
customer requirements or changes in regulatory requirements or industry standards, or any significant delays in the development
or introduction of products could have a material adverse effect on the Company’s business, operating results and future
cash flows.
The Company’s
expected activities may necessitate significant uses of working capital. The Company’s working capital requirements will
depend on many factors, including the successful sales of AMITIZA and RESCULA, research and development efforts to develop new
products or indications, payments received under contractual agreements with other parties, the status of competitive products
and market acceptance of the Company’s new products by physicians and patients. The Company plans to continue financing operations
with its existing cash and investments as well as with product royalty revenue and cash received from milestones and other revenue
related to its joint collaboration, license and supply agreements.
Revenues from one
unrelated party, Takeda, accounted for 96.9%, 81.4%, 85.3%, of the Company’s total revenues for the years ended December
31, 2011, 2010 and 2009, respectively. Accounts receivable, unbilled accounts receivable and product royalties receivable from
Takeda accounted for 100.0% of the Company’s total accounts receivable, unbilled accounts receivable and product royalties
receivable at December 31, 2011 and 2010. Revenues from another unrelated party,
Abbott
, accounted
for 2.3%, 18.0% and 14.1% of the Company’s total revenues for the years ended December 31, 2011, 2010 and 2009. The Company
depends significantly upon the collaborations with Takeda and Abbott and its activities may be impacted if these relationships
are disrupted (Note 13).
The Company has an
exclusive supply arrangement with R-Tech to provide it with commercial and clinical supplies of its product and product candidates.
R-Tech also provides certain preclinical and other research and development services. Any difficulties or delays in performing
the services under these arrangements may cause the Company to lose revenues, delay research and development activities or otherwise
disrupt the Company’s operations (Note 11).
Fair Value of Financial Instruments
The carrying amounts
of the Company’s financial instruments, which include cash and cash equivalents, restricted cash, current and non-current
investments, receivables, accounts payable and accrued expenses, approximate their fair values based on their short maturities,
independent valuations or internal assessments. The carrying amount of the short and long-term debt at December 31, 2011 and 2010
approximated its fair value due to the fact that the interest rates are determined based by reference to interbank rates.
Accounts Receivable and Unbilled
Accounts Receivable
Accounts receivable
represent mainly amounts due under the Takeda Agreement and the Abbott Agreement (Note 13). Unbilled accounts receivable represent
the research and development expenses that are reimbursable by Takeda but have not been billed to Takeda as of the balance sheet
date. No allowance was recorded in 2011 or 2010.
Product Royalties Receivable
Product royalties
receivable represent amounts due from Takeda for the Company’s royalties on sales of AMITIZA, which are based on reports
obtained directly from Takeda.
Property and Equipment
Property and equipment
are recorded at cost and consist of computer and office machines, furniture and fixtures and leasehold improvements. Depreciation
is computed using the straight-line method over the estimated useful lives of the respective assets. Computer and office machines
are depreciated over four years and furniture and fixtures are depreciated over seven years. Leasehold improvements are amortized
over the shorter of ten years or the life of the lease. Significant additions and improvements are capitalized. Expenditures for
maintenance and repairs are charged to earnings as incurred. When assets are sold or retired, the related cost and accumulated
depreciation are removed from the respective accounts and any resulting gain or loss is included in earnings.
Impairment of Long-lived Assets
When necessary, the
Company assesses the recoverability of its long-lived assets by determining whether the carrying value of such assets can be recovered
through undiscounted future operating cash flows. If impairment is indicated, the Company measures the amount of such impairment
by comparing the fair value to the carrying value. There have been no impairment charges recorded during the years ended December
31, 2011, 2010 or 2009 because there have been no indicators of impairment during those years.
Revenue Recognition
The Company’s
revenues are derived primarily from collaboration and license agreements and include upfront payments, development milestone payments,
reimbursements of development and co-promotion costs and product royalties.
The Company evaluated
the multiple deliverables within the collaboration and license agreements in accordance with the guidance of multiple deliverables
to determine whether the delivered elements that are the obligation of the Company have value to other parties to the agreement
on a stand-alone basis and whether objective reliable evidence of fair value of the undelivered items exists. Deliverables that
meet these criteria are considered a separate unit of accounting. Deliverables that do not meet these criteria are combined and
accounted for as a single unit of accounting. The appropriate recognition of revenue is then applied to each separate unit of accounting.
The Company’s deliverables under the Takeda Agreement and Abbott Agreement, including the related rights and obligations,
contractual cash flows and performance periods, are more fully described in Note 13 below.
The Company applies
a time-based model of revenue recognition for cash flows associated with research and development deliverables under the Takeda
Agreement. Under this model, cash flow streams related to each unit of accounting are recognized as revenue over the estimated
performance period. Upon receipt of cash payments, such as development milestones, revenue is recognized to the extent the accumulated
service time has occurred. The remainder is deferred and recognized as revenue ratably over the remaining estimated performance
period. A change in the period of time expected to complete the deliverable is accounted for as a change in estimate on a prospective
basis. In cases where milestone payments are received after the completion of the associated development period, the Company recognizes
revenue upon completion of the performance obligation. Revenue is limited to amounts that are nonrefundable and that the other
party to the agreement is contractually obligated to pay to the Company. The Company recognizes reimbursable research and development
costs under the Takeda Agreement as research and development revenue using a time-based model over the estimated performance period.
The research and development revenue for these obligations is limited to the lesser of the actual reimbursable costs incurred or
the straight-line amount of revenue recognized over the estimated performance period. Revenues are recognized for reimbursable
costs only if those costs can be reasonably determined.
The Company applies
a proportional-performance model using the percentage-of-completion method of revenue recognition for cash flows associated with
research and development deliverables under the Abbott Agreement. Since the Company has previous research and development experience
and the expected cost to complete the development can be reasonably estimated, the Company believes a proportional-performance
methodology of revenue recognition is appropriate. Under this method, revenue in any period is recognized as a percentage of the
total actual cost expended relative to the total estimated costs required to satisfy the performance obligations under the arrangement
related to the development. Revenue recognized is limited to the amounts that are non-refundable and that the other party to the
agreement is contractually obligated to pay to the Company. A change in the period of time expected to complete the deliverable
is accounted for as a change in estimate on a prospective basis. Research and development costs are not reimbursable under the
Abbott Agreement.
Under the Takeda
Agreement, royalties are based on net sales of licensed products and are recorded on the accrual basis when earned in accordance
with contractual terms when third-party results are reliably measurable, collectability is reasonably assured and all other revenue
recognition criteria are met. Under the Abbott Agreement, should AMITIZA be commercialized in Japan, the Company will purchase
and assume title to inventories of AMITIZA and recognize revenues from the sales, to Abbott, of such product when earned.
The Company also
entered into the Supplemental Takeda Agreement consisting of the following key funding streams: reimbursements of co-promotion
costs based upon a per-day rate and reimbursements of the costs of miscellaneous marketing activities, which the Company recognized
as revenue as the related costs are incurred and Takeda becomes contractually obligated to pay the amounts. Co-promotion costs
after May 31, 2011 are reimbursed under the Takeda Agreement and the amounts recognized are based on amounts billed for actual
details presented to health care prescribers.
The Company considers
its participation in the joint committees under the collaboration and license agreements as separate deliverables under the contracts
and recognizes the fair value of such participation as collaboration revenue over the period of the participation per the terms
of the contracts.
The Company has determined
that it is acting as a principal under both the Takeda Agreement and Abbott Agreement and, as such, records revenue on a gross
basis in the Consolidated Statements of Operations and Comprehensive Income (Loss).
Contract Revenue
Contract revenue relates
to development and consulting activities with R-Tech and is accounted for under the time-based model.
Deferred Revenue
Deferred revenue represents
payments received for licensing fees, option fees, consulting, research and development contracts and related cost sharing and
supply agreements, mainly with Takeda, Abbott and R-Tech, which are deferred until revenue can be recognized under the Company’s
revenue recognition policy. Deferred revenue is classified as current if management believes the Company will be able to recognize
the deferred amount as revenue within 12 months of the balance sheet date. At December 31, 2011 and 2010, total deferred revenue
was approximately $10.9 million and $13.3 million, respectively.
Total deferred revenue
consists of the following as of:
|
|
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
Deferred revenue, current
|
|
$
|
3,888
|
|
|
$
|
4,987
|
|
Deferred revenue, non-current
|
|
|
7,045
|
|
|
|
8,321
|
|
|
|
$
|
10,933
|
|
|
$
|
13,308
|
|
Deferred revenue to related parties, included in total deferred revenue:
|
|
|
|
|
|
|
|
|
Deferred revenue to related parties, current
|
|
$
|
433
|
|
|
|
433
|
|
Deferred revenue to related parties, non-current
|
|
|
5,063
|
|
|
|
5,839
|
|
Total
|
|
$
|
5,496
|
|
|
$
|
6,272
|
|
Research and Development Expenses
Research and development
costs are expensed in the period in which they are incurred and include the expenses from third parties who conduct research and
development activities pursuant to development and consulting agreements on behalf of the Company. Costs related to the acquisition
of intellectual property are expensed as incurred in research and development expenses since the underlying technology associated
with such acquisitions is unproven, has not received regulatory approval at its early stage of development and does not have alternative
future uses. Milestone payments due under agreements with third party contract research organizations, or CROs, are accrued when
it is considered probable that the milestone event will be achieved.
General and Administrative Expenses
General and administrative
costs are expensed as incurred and consist primarily of salaries and other related costs for personnel serving executive, finance,
accounting, information technology and human resource functions. Other costs include facility costs and professional fees for legal
and accounting services.
Selling and Marketing Expenses
Selling and marketing
expenses represent costs the Company incurs to co-promote AMITIZA, including salaries, benefits and related costs of the Company’s
sales force and other sales and marketing personnel, costs of market research and analysis and other selling and marketing expenses.
Interest Income
Interest income consists
of interest earned on the Company’s cash and cash equivalents and current and non-current investments.
Accrued
Research and Development Expenses
As part of the process
of preparing Consolidated Financial Statements, the Company is required to estimate accruals for research and development expenses.
This process involves reviewing and identifying services which have been performed by third parties on the Company’s behalf
and determining the value of these services. Examples of these services are payments to clinical investigators and contract service
organizations. In addition, the Company makes estimates of costs incurred to date but not yet invoiced, in relation to external
CROs and clinical site costs. The Company analyzes the progress of clinical trials, including levels of patient enrollment, invoices
received and contracted costs, when evaluating the adequacy of the accrued liabilities for research and development. The Company
makes significant judgments and estimates in determining the accrued balance in any accounting period.
Employee Stock-Based Compensation
The Company applied
accounting guidance for share-based awards that requires the measurement and recognition of expense for all share-based compensation
of employees and directors to be based on estimated fair values of the share-based awards. This guidance requires companies to
estimate the fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the
award that is ultimately expected to vest is recognized as expense over the requisite service period in the Company’s consolidated
statement of operations.
The Company’s
determination of fair value of share-based awards on the date of grant using an option-pricing model is affected by the Company’s
stock price and assumptions regarding a number of highly complex and subjective variables.
The assumptions used
to estimate the fair value of the service condition stock options granted for the three years ended December 31, 2011 were as follows:
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Expected volatility
|
|
|
55% - 64
|
%
|
|
|
51% - 63
|
%
|
|
|
47% - 55
|
%
|
Risk-free interest rate
|
|
|
1.30% - 3.30
|
%
|
|
|
1.89% - 3.24
|
%
|
|
|
2.67% - 3.11
|
%
|
Expected term (in years)
|
|
|
2.10 - 6.25
|
|
|
|
5.00 - 6.25
|
|
|
|
6.00 - 7.00
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected Volatility:
The Company evaluated the assumptions used to estimate expected volatility, including whether implied volatility of its
options appropriately reflects the market’s expectations of future volatility. The Company determined that it would calculate
the expected volatility rate using historical stock prices obtained from comparable publicly-traded companies due to the limited
history of the Company’s common stock activity.
Risk-Free Interest
Rate:
The risk-free interest rate is based on the market yield currently available on U.S. Treasury securities with a maturity
that approximates the expected term of the share-based awards.
Expected Term:
The Company elected to use the “simplified” method to calculate its expected term of share-based awards. Under this
method, the expected term is the weighted average of the vesting term and the contractual term. The Company has used a lattice
based model to determine the expected term for its market condition share-based awards.
Expected Dividend
Yield:
The Company has not paid, and does not anticipate paying, any dividends in the foreseeable future.
Employee stock-based
compensation expense for the three years ended December 2011 has been reduced for estimated forfeitures as such expense is based
upon awards expected to ultimately vest. Accounting guidance on share-based payments requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
During the years ended December 31, 2011, 2010 and 2009, the estimated forfeiture rate ranged from 8.0% to 17.0%.
Employee stock-based
compensation expense recorded in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) for
the three years ended December 31, 2011 was as follows:
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Research and development expense
|
|
$
|
234
|
|
|
$
|
252
|
|
|
$
|
96
|
|
General and administrative expense
|
|
|
964
|
|
|
|
729
|
|
|
|
193
|
|
Selling and marketing expense
|
|
|
172
|
|
|
|
279
|
|
|
|
85
|
|
Total
|
|
|
1,370
|
|
|
|
1,260
|
|
|
|
374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock-based compensation expense per basic and diluted share of common stock
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
Income Taxes
The Company accounts
for income taxes under the asset and liability method in accordance with the relevant accounting guidance for income taxes. Under
the asset and liability method, the current income tax provision or benefit is the amount of income taxes expected to be payable
or refundable for the current year. A deferred income tax asset or liability is recognized for future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and tax credits and loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax rate changes are reflected
in the income tax provision during the period such changes are enacted. Changes in ownership may limit the amount of net operating
loss carryforwards that can be utilized in the future to offset taxable income.
Significant judgment
is required in determining the provision for income taxes and, in particular, any valuation allowance recorded against the Company’s
net deferred tax assets. The Company has recorded a valuation allowance against deferred tax assets in certain foreign tax jurisdictions,
which resulted in a net deferred tax liability of $22.9 million and a deferred tax asset of $3.3 million as of December 31, 2011
and December 31, 2010, respectively. The amount of the valuation allowance has been determined based on management’s estimates
of income by jurisdiction in which the Company operates, over the periods in which the related deferred tax assets are recoverable.
During 2011, SPA,
SPL and SPE transferred certain intellectual property and licenses to SAG. Since the transfer of these assets was to a related
party, the recognition of a deferred tax asset by SAG is prohibited and the net tax effect of the transaction is deferred in consolidation.
The tax liability generated from this transaction is offset by a deferred charge that will be amortized over ten years. The total
deferred charge is $29.8 million after $764,000 of current year amortization expense.
For all significant
intercompany transactions, the Company’s management has evaluated the terms of the transactions using significant estimates
and judgments to ensure that each significant transaction would be on similar terms if the Company completed the transaction with
an unrelated party. Although the Company believes there will be no material tax liabilities to the Company as a result of multi-jurisdictional
transactions, there can be no assurance that taxing authorities will not assert that transactions were entered into at monetary
values other than fair values. If such assertions were made, the Company’s intention would be to vigorously defend its positions;
however, there can be no assurance that additional liabilities may not occur as a result of any such assertions.
Uncertain Tax Positions
The Company applies
the accounting guidance for uncertain tax positions that
requires the application of a more likely than
not threshold to the recognition and derecognition of uncertain tax positions. If the recognition threshold is met,
the
Company
recognizes a tax benefit measured at the largest amount of the tax benefit that, in its judgment,
is more than 50.0% likely to be realized upon settlement.
The Company has recorded
a non-current income tax liability of approximately $1.5 million and $1.4 million, including interest for uncertain tax positions,
as of December 31, 2011 and 2010, respectively. The amount represents the aggregate tax effect of differences between tax return
positions, and the amounts otherwise recognized in the Company’s Consolidated Financial Statements, and is reflected in other
liabilities in the accompanying Consolidated Balance Sheets. The liability for uncertain tax positions as of December 31, 2011
and 2010 mainly pertained to the Company’s interpretation of nexus in certain states related to revenue sourcing for state
income tax purposes, as well as uncertain tax positions related to related party interest in foreign jurisdictions.
The Company recognizes
interest and penalties related to uncertain tax positions as a component of the income tax provision.
The
Company has identified no uncertain tax position for which it is reasonably possible that the total amount of liability for unrecognized
tax benefits will significantly increase or decrease within 12 months, except for recurring accruals on existing uncertain tax
positions. All of the unrecognized tax benefits could affect the effective tax rate if recognized in the future.
Deferred Charge
Certain
intellectual property was transferred within the group resulting in a gain in the sellers’ tax jurisdiction and a
difference in the buyer’s tax jurisdiction between the new tax basis and the carrying amount of those assets. The FASB
guidance on income taxes precludes the Company from including the effects of any intercompany transfers in the financial
statements, and so the net tax effect of an intercompany transaction is deferred in consolidation.
These deferred tax
effects include the reversal of any existing deferred tax asset (and its related valuation allowance, if any) or liability and
any taxes currently payable resulting from the intercompany transaction when the asset remains in the consolidated group for financial
reporting purposes. This deferred effect is not the result of a temporary difference and is therefore classified as a deferred
charge on the Consolidated Balance Sheet separate from the Company's deferred tax assets.
Since the deferred
charge is not part of the deferred tax assets, it is not subject to revaluation for tax rate changes and realizability as prescribed
by the FASB’s guidance on income taxes. Thus, the deferred charge will remain fixed and will be amortized over the determined
life of 10 years and be included as part of the provision for income taxes as a permanent difference.
Foreign Currency
The Company translates
the assets and liabilities of its foreign subsidiaries into U.S. dollars at the current exchange rate in effect at the end of the
year and maintains the capital accounts of these subsidiaries at the historical exchange rates. The revenue, income and expense
accounts of the foreign subsidiaries are translated into U.S. dollars at the average rates that prevailed during the relevant period.
The gains and losses that result from this process are included in accumulated other comprehensive income in the stockholders’
equity section of the balance sheet.
Realized and unrealized
foreign currency gains or losses on assets and liabilities denominated in a currency other than the functional currency are included
in net income.
Following the transfer
of certain intellectual property to SAG, the company has reviewed the functional currency of SAG and determined that it is appropriate
to change its functional currency to U.S. dollars from Swiss francs effective October 1, 2011.
Other Comprehensive Income
Comprehensive income
consists of net income plus certain other items that are recorded directly to stockholders’ equity. The Company has reported
comprehensive income in the Consolidated Statements of Operations and Comprehensive Income (Loss).
The Company has outstanding
intercompany loans and investments between its subsidiaries which are eliminated for purposes of the Consolidated Financial Statements.
These intercompany loans are not expected to be repaid or settled in the foreseeable future. Accordingly, the currency transaction
gains or losses on these intercompany loans are recorded as part of other comprehensive income in the Consolidated Financial Statements.
The functional currency
of Sucampo AG was changed to the U.S. Dollar from the Swiss Franc on October 2011 on a prospective basis. The historical cumulative
translation adjustment from Sucampo AG at the time of the change will not change in future periods.
Segment Information
Management has determined
that the Company has three reportable segments, which are based on its method of internal reporting by geographical location. The
Company’s reportable segments are the U.S., Europe and Asia.
Recent Accounting Pronouncements
In June 2011, the
FASB issued an accounting update on Comprehensive Income-Topic 220: Presentation of Comprehensive Income, which amends current
comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income
as part of the statement of shareholders’ equity. Instead, the Company must report comprehensive income in either a single
continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two
separate but consecutive statements. This update will be effective for public companies during the interim and annual periods beginning
after December 15, 2011 with early adoption permitted. The Company’s adoption of this guidance did not impact the Company’s
results of operations, financial statement presentation or disclosures.
In May 2011, the FASB
issued authoritative guidance on amendments to achieve common fair value measurement and disclosure requirements in U.S.GAAP and
International Financial Reporting Standards, or IFRSs. The guidance amends fair value measurement, to ensure that fair value has
the same meaning in U.S. GAAP and IFRS. IFRS improves the comparability of the fair value measurement and disclosure requirements
in GAAP and IFRS. This guidance applies to all entities that measure assets, liabilities or instruments classified in shareholder's
equity at fair value, or provide fair value disclosures for items not recorded at fair value. This guidance results in common fair
value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, this guidance changes the wording used to describe
many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For
many of the requirements, this guidance will not result in a change in the application of the requirements in the existing fair
value measurement guidance, however clarifies the FASB's intent about the application of existing fair value measurement requirements.
Other requirements change a particular principle or requirement for measuring fair value or for disclosing information about fair
value measurements. This guidance is effective for public companies for interim and annual periods beginning after December 15,
2011 and should be applied prospectively. Early application is not permitted. The Company is continuing to evaluate the impact
that this amendment would have on its financial condition and results of operation upon adoption.
|
3.
|
Acquisition of Sucampo AG and Sucampo AG Japan
|
On December 23, 2010,
the Company’s subsidiary, Ambrent Investments S.à r.l., or Ambrent, a company organized under the laws of Luxembourg,
entered into a stock purchase agreement, or the Purchase Agreement, with Dr. Ryuji Ueno, as trustee of the Ryuji Ueno Revocable
Trust under Trust Agreement dated December 20, 2002, or the Ueno Trust, Dr. Sachiko Kuno as trustee of the Sachiko Kuno Revocable
Trust under Trust Agreement dated December 20, 2002, or the Kuno Trust, and together with Drs. Ueno and Kuno and Ambrent, to acquire
SAG, a Swiss-based patent-holding company, and its wholly-owned subsidiary SAG-J, a patent maintenance
company.
The
Sellers, Drs. Ueno and Kuno, are related parties of the Company. Dr. Ueno is the Company’s Chief Executive Officer, Chief
Scientific Officer and Chairman of the Board of Directors. Dr. Kuno is the Company’s international business advisor and a
member of its Board of Directors, and is also Dr. Ueno’s spouse. Drs. Ueno and Kuno are co-founders and majority stockholders
of the Company and are also majority stockholders of R-Tech, a significant supplier to the Company. Pursuant to the Company’s
related person transactions policy, the Company’s Audit Committee, which consists solely of independent directors, reviewed
and approved the acquisition. The purchase price for the acquisition was negotiated based on a discounted cash flow analysis of
expected future payments on the licensed intellectual property rights and the estimated fair value of the acquired net assets.
The total purchase
price under the Purchase Agreement is $80.0 million, consisting of a cash payment made in December 2010 of approximately $28.1
million and the issuance of two subordinated unsecured promissory notes in the aggregate amount of approximately $51.9 million.
In addition, the purchase price includes a contingent payment equal to 15.0%, up to a maximum of $40.0 million, of any cash that
may be received by the Company in connection with the ultimate resolution of the current arbitration proceedings against Takeda.
This contingent payment has not been recorded as a liability within these financial statements given the common control nature
of the transaction.
The purchase agreement
contains customary representations, warranties and covenants, and agreements as to indemnification among the parties, subject to
certain exclusions and limitations
.
The acquisition of
SAG and SAG-J was accounted for as a merger of companies under common control, and accounted for at historical costs as of the
earliest period presented.
The financial information of these additional entities is presented
in both the current and historical periods. Prior to the acquisition, SAG paid dividends of $13.7 million and $2.9 million during
the years ended December 31, 2010 and 2009, respectively. These dividends are included
within the Consolidated
Statements of Changes in Stockholders’ Equity
together as a reduction of retained earnings. The $80.0 million purchase
consideration has been treated as a deemed distribution due to the accounting for the common control acquisition of SAG and has
been included in stockholders’ equity as a reduction of $38.3 million in retained earnings and a $41.7 million reduction
in additional paid in capital.
|
4.
|
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 and B 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, when applicable, 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 years ended December 31, 2011, is shown below:
|
|
December 31,
|
|
(in thousands, except per share data)
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Basic net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(17,306
|
)
|
|
$
|
(2,755
|
)
|
|
$
|
4,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average class A and B common shares outstanding
|
|
|
41,839
|
|
|
|
41,848
|
|
|
|
41,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
(0.41
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(17,306
|
)
|
|
$
|
(2,755
|
)
|
|
$
|
4,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average class A and B common shares outstanding for diluted net income per share
|
|
|
41,839
|
|
|
|
41,848
|
|
|
|
41,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed exercise of stock options under the treasury stock method
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
|
|
|
41,839
|
|
|
|
41,848
|
|
|
|
41,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
(0.41
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
0.11
|
|
For the years listed
above, the potentially dilutive securities used in the calculations of diluted net income per share as of December 31, 2011, 2010
and 2009 are as follows:
|
|
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Employee stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
227
|
|
Non-employee stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
For the years listed
above, the following securities were excluded from the computation of diluted net income (loss) per share as their effect would
be anti-dilutive as of December 31, 2011, 2010 and 2009:
|
|
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Employee stock options
|
|
|
3,595
|
|
|
|
1,554
|
|
|
|
685
|
|
Non-employee stock options
|
|
|
450
|
|
|
|
450
|
|
|
|
450
|
|
|
5.
|
Current and Non-Current Investments
|
At December 31, 2011
and 2010, current and non-current investments consisted of the following securities:
|
|
December 31, 2011
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
(In thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. commercial paper
|
|
$
|
1,997
|
|
|
$
|
3
|
|
|
$
|
-
|
|
|
$
|
2,000
|
|
U.S. government securities
|
|
|
3,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,250
|
|
Corporate bonds
|
|
|
7,002
|
|
|
|
8
|
|
|
|
(3
|
)
|
|
|
7,007
|
|
Variable rate demand notes
|
|
|
12,195
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,195
|
|
Total
|
|
$
|
24,444
|
|
|
$
|
11
|
|
|
$
|
(3
|
)
|
|
$
|
24,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities
|
|
$
|
1,000
|
|
|
$
|
-
|
|
|
$
|
(2
|
)
|
|
$
|
998
|
|
Total
|
|
$
|
1,000
|
|
|
$
|
-
|
|
|
$
|
(2
|
)
|
|
$
|
998
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
(In thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bills and notes
|
|
$
|
1,002
|
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
1,003
|
|
U.S. commercial paper
|
|
|
999
|
|
|
|
-
|
|
|
|
-
|
|
|
|
999
|
|
U.S. government securities
|
|
|
16,525
|
|
|
|
7
|
|
|
|
(4
|
)
|
|
|
16,528
|
|
Municipal securities
|
|
|
17,582
|
|
|
|
6
|
|
|
|
(12
|
)
|
|
|
17,576
|
|
Certificates of deposits
|
|
|
750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
750
|
|
Corporate bonds
|
|
|
6,665
|
|
|
|
5
|
|
|
|
(2
|
)
|
|
|
6,668
|
|
Variable rate demand notes
|
|
|
11,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,000
|
|
Total
|
|
$
|
54,523
|
|
|
$
|
19
|
|
|
$
|
(18
|
)
|
|
$
|
54,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
5,019
|
|
|
$
|
11
|
|
|
$
|
(2
|
)
|
|
$
|
5,028
|
|
Total
|
|
$
|
5,019
|
|
|
$
|
11
|
|
|
$
|
(2
|
)
|
|
$
|
5,028
|
|
The Company performs
fair value measurements in accordance with the FASB’s 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 an entity 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’s
assets measured at fair value on a recurring basis, including cash equivalents, which are subject to the fair value disclosure
requirements, are as follows:
|
|
Fair Value Measurements at Reporting Date Using
|
|
December 31, 2011
|
|
Quoted Prices
in Active
Markets for
identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
(In thousands)
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
U.S. government securities
|
|
$
|
-
|
|
|
$
|
4,248
|
|
|
$
|
-
|
|
|
$
|
4,248
|
|
U.S. commercial paper
|
|
|
-
|
|
|
|
2,000
|
|
|
|
-
|
|
|
|
2,000
|
|
Corporate bonds
|
|
|
-
|
|
|
|
7,007
|
|
|
|
-
|
|
|
|
7,007
|
|
Money market funds
|
|
|
12,885
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,885
|
|
Variable rate demand notes
|
|
|
-
|
|
|
|
12,195
|
|
|
|
-
|
|
|
|
12,195
|
|
Total assets measured at fair value
|
|
$
|
12,885
|
|
|
$
|
25,450
|
|
|
$
|
-
|
|
|
$
|
38,335
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
December 31, 2010
|
|
Quoted Prices
in Active
Markets for
identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
(In thousands)
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
U.S. Treasury bills and notes
|
|
$
|
1,003
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,003
|
|
U.S. government securities
|
|
|
-
|
|
|
|
16,528
|
|
|
|
-
|
|
|
|
16,528
|
|
U.S. commercial paper
|
|
|
-
|
|
|
|
999
|
|
|
|
-
|
|
|
|
999
|
|
Corporate bonds
|
|
|
-
|
|
|
|
11,696
|
|
|
|
-
|
|
|
|
11,696
|
|
Municipal securities
|
|
|
-
|
|
|
|
17,576
|
|
|
|
-
|
|
|
|
17,576
|
|
Certificates of deposits
|
|
|
-
|
|
|
|
750
|
|
|
|
-
|
|
|
|
750
|
|
Money market funds
|
|
|
780
|
|
|
|
-
|
|
|
|
-
|
|
|
|
780
|
|
Variable rate demand notes
|
|
|
-
|
|
|
|
11,000
|
|
|
|
-
|
|
|
|
11,000
|
|
Total assets measured at fair value
|
|
$
|
1,783
|
|
|
$
|
58,549
|
|
|
$
|
-
|
|
|
$
|
60,332
|
|
If quoted prices in
active markets for identical assets and liabilities are not available to determine fair value, then the Company uses quoted prices
for similar assets and liabilities or inputs other than the quoted prices that are observable, either directly or indirectly. This
pricing methodology applies to the Company’s Level 2 investments.
|
6.
|
Property and Equipment
|
Property and equipment
consists of the following as of:
|
|
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
Computer and office machines
|
|
$
|
2,181
|
|
|
$
|
2,206
|
|
Furniture and fixtures
|
|
|
438
|
|
|
|
364
|
|
Leasehold improvements
|
|
|
1,495
|
|
|
|
1,414
|
|
Other
|
|
|
-
|
|
|
|
46
|
|
Total cost
|
|
|
4,114
|
|
|
|
4,030
|
|
Less: accumulated depreciation
|
|
|
(2,445
|
)
|
|
|
(2,005
|
)
|
Total
|
|
$
|
1,669
|
|
|
$
|
2,025
|
|
Depreciation expense
for the years ended December 31, 2011, 2010 and 2009 was approximately $591,000, $604,000 and $543,000, respectively.
The leasehold improvements
as of December 31, 2011 are related to tenant improvements to the Company’s headquarters in Bethesda, Maryland.
In April 2009, the
Company entered into two agreements with R-Tech to acquire all patents and other intellectual property rights related to RESCULA
for its FDA approved indication and any new indications for unoprostone isopropyl in the U.S. and Canada. Although RESCULA eye
drops have been approved by the FDA since 2000, RESCULA is not currently marketed in the U.S. or Canada. In September 2011, SPA
transferred those rights to SAG, and SAG entered into an agreement with SPA to perform certain activities relate to those rights.
The Company plans to re-launch RESCULA in the U.S. for its approved indication after approval of an
enhanced label from the FDA.
Under the terms of
the 2009 R-Tech agreement, the Company made an upfront payment of $3.0 million and may be required to pay up to $5.5 million in
additional milestone payments to R-Tech based on the achievement of specified development and commercialization goals. The first
milestone payment of $500,000 is payable upon the re-launch of RESCULA for the treatment of glaucoma which is considered as being
probable; therefore, this amount is recorded as part of the initial cost of the acquired assets. We allocated the acquisition cost
between an intangible asset of $3.4 million and a non-current prepaid inventory of $85,000 as of December 31, 2011, both of which
are reflected in other non-current assets in the accompanying Consolidated Balance Sheets. We are amortizing the $3.4 million over
the 10-year life of the license agreement, which we believe approximates the useful life of the underlying rights and data. Amortization
expense was $341,000 and $341,000, respectively, for the years ended December 31, 2011 and 2010. The annual amortization expense
will be approximately $341,000 through April 2019.
On
March 22, 2011,
SAG entered into a license agreement with R-Tech for unoprostone isopropyl, expanding the Company’s
development and commercialization rights as well as its territories beyond their previously agreed territory of the United States
and Canada to the rest of the world, with the exception of Japan, Korea, Taiwan and the People’s Republic of China, or the
R-Tech Territory, or the SAG Territories.
SAG made an upfront
payment to R-Tech of $3.0 million, which is reflected in other non-current assets in the accompanying Consolidated Balance Sheets,
and may be required to pay up to $103.0 million in additional milestone payments to R-Tech based on the achievement of specified
development and commercialization goals. The first milestone payment of $3.0 million is payable upon the earlier of product approval
within the SAG Territories or by March 15, 2012. The liability is reflected in accrued expenses in the accompanying Consolidated
Balance Sheets. SAG will be responsible for all development, regulatory, and commercialization activities. The Company is amortizing
the $6.0 million over the 10-year life of the license agreement, which management believes approximates the useful life of the
underlying rights and data. Amortization expense was $453,000 for the year ended December 31, 2011. The annual amortization expense
will be approximately $613,000 through March 2021.
Accrued expenses consist
of the following as of:
|
|
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
Research and development costs
|
|
$
|
5,622
|
|
|
$
|
4,146
|
|
Employee compensation
|
|
|
1,607
|
|
|
|
1,795
|
|
Selling and marketing costs
|
|
|
76
|
|
|
|
305
|
|
Legal service fees
|
|
|
1,955
|
|
|
|
2,620
|
|
RESCULA milestones
|
|
|
3,500
|
|
|
|
500
|
|
Other accrued expenses
|
|
|
888
|
|
|
|
850
|
|
Total
|
|
$
|
13,648
|
|
|
$
|
10,216
|
|
Other liabilities
consist of the following as of:
|
|
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
Deferred leasehold incentive
|
|
$
|
609
|
|
|
$
|
727
|
|
Deferred rent expense
|
|
|
514
|
|
|
|
525
|
|
Other liabilities
|
|
|
1,480
|
|
|
|
1,429
|
|
Total
|
|
$
|
2,603
|
|
|
$
|
2,681
|
|
|
10.
|
Commitments and Contingencies
|
Operating Leases
The Company leases
office space in the U.S., Switzerland, Japan and U.K., under operating leases through 2017. Total future minimum, non-cancelable
lease payments under operating leases, are as follows as of December 31, 2011:
|
|
|
|
|
Operating
|
|
|
|
|
|
|
Notes
|
|
|
Lease
|
|
|
|
|
(In thousands)
|
|
Payable
|
|
|
Obligations
|
|
|
Total
|
|
Due in one year
|
|
$
|
20,400
|
|
|
$
|
1,457
|
|
|
$
|
21,857
|
|
Due in two years
|
|
|
8,281
|
|
|
|
1,036
|
|
|
|
9,317
|
|
Due in three years
|
|
|
8,490
|
|
|
|
1,024
|
|
|
|
9,514
|
|
Due in four years
|
|
|
8,708
|
|
|
|
1,052
|
|
|
|
9,760
|
|
Due in five years
|
|
|
8,937
|
|
|
|
1,084
|
|
|
|
10,021
|
|
Thereafter
|
|
|
4,811
|
|
|
|
139
|
|
|
|
4,950
|
|
Total
|
|
$
|
59,627
|
|
|
$
|
5,792
|
|
|
$
|
65,419
|
|
Rent expense for all
operating leases was $1.6 million, $1.3 million and $1.3 million for the years ended December 31, 2011, 2010 and 2009, respectively.
Research and Development Costs
The Company routinely
enters into agreements with third-party CROs to oversee clinical research and development studies provided on an outsourced basis
and assist in other research and development activities. The Company generally is not contractually obligated to pay the third
party if the service or reports are not provided. Total future estimated costs through 2013 under these agreements as of December
31, 2011 were approximately $7.4 million.
|
11.
|
Related Party Transactions
|
R-Tech Ueno, Ltd.
On March 7, 2003,
the Company entered into an exclusive supply agreement with R-Tech. This agreement grants R-Tech the exclusive right to manufacture
and supply RUG-015, a prostone compound, and lubiprostone in the U.S. and Canada, and in consideration for such right R-Tech agreed
to pay the Company as follows: $1.0 million upon execution of the agreement, $2.0 million upon commencement of a first phase 2
lubiprostone trial, $3.0 million upon commencement of a first phase 2 RUG-015 trial and $2.0 million upon commencement of the earlier
of a second phase 2 or a first phase 3 RUG-015 trial. Upon execution of the agreement, the Company had already commenced phase
2 clinical trials for RUG-015 and lubiprostone, which resulted in an immediate payment of $6.0 million – $1.0 million for
the agreement execution, $2.0 million for the commencement of the first phase 2 lubiprostone trial, and $3.0 million for the commencement
of the first phase 2 RUG-015 trial. The Company evaluated the $6.0 million in cash receipts from R-Tech and determined the payments
were made for the exclusive right to supply inventory to the Company and determined that the amounts should be deferred until commercialization
of the drugs begins since this is the point at which the underlying services would commence. Management also was unable to adequately
assign value between the two compounds based on the information available to the Company and determined that the full $6.0 million
deferred amount would be amortized over the contractual life of the relationship which was equivalent to the estimated commercialization
periods of both RUG-015 and lubiprostone (estimated to be through December 2020).
During the year ended
December 31, 2005, the Company ceased the development of RUG-015 due to less than satisfactory phase 2 results and the Company’s
Board of Directors approved the Company’s decision to discontinue the development of RUG-015. In addition to the Company’s
Board of Directors, R-Tech also formally approved the abandonment of RUG-015, which was a requirement in the supply agreement terms.
Because the Company was unable to assign value to the compounds at the time the agreement was executed and the $6.0 million was
received from R-Tech, the full $6.0 million remained deferred at the abandonment of RUG-015.
The
abandonment of RUG-015 changed the amortization period of the $6.0 million deferred revenue to the commercialization period of
AMITIZA, which began in April 2006. The Company has recognized revenue of $419,000 for the years ended December 31, 2011, 2010
and 2009, which is recorded as contract revenue. During the years ended December 31, 2011, 2010 and 2009, the Company purchased
from R-Tech of approximately $72,000, $344,000, and $205,000, respectively, of clinical supplies under the terms of this agreement.
Commercial supplies of AMITIZA in the U.S. are subject to a three-party agreement among the Company, R-Tech and Takeda and
are not reflected in the Company’s financial statements (see Note 13).
On June 24, 2005,
the Company entered into a 20-year exclusive manufacturing and supply agreement with R-Tech to manufacture and supply lubiprostone
for clinical and commercial supplies within Europe. In consideration of the exclusive rights, R-Tech paid the Company $2.0 million
prior to the execution of the agreement on March 31, 2005. Management has determined that the amount should be deferred until such
time as the commercial benefit to R-Tech can be realized. As lubiprostone has not yet been approved within Europe, the $2.0 million
has been recorded as non-current deferred revenue as of December 31, 2011 and 2010. During the years ended December 31, 2011, 2010
and 2009, the Company purchased approximately $125,000, $110,000 and $692,000, respectively, of commercial supplies of lubiprostone
from R-Tech in anticipation of a commercial launch in Europe. Subsequent to the 2009 purchase, we withdrew our European MAA and
recorded a write down of inventory in 2009 of $658,000 to reflect the fair value of this inventory.
On September 7, 2006,
the Company’s Board of Directors approved an agreement which amends the exclusive manufacturing agreement with R-Tech. This
agreement allows the Company to elect a back-up supplier for the supply of drug substance and drug product. In addition, the agreement
provides that R-Tech shall maintain at least a six-month inventory of drug substance and at least a six-month inventory of intermediate
drug product. The Company had no clinical supply purchases from a back-up supplier in 2011, 2010 or 2009.
On October 4, 2006,
the Company entered into a two-year exclusive clinical manufacturing and supply agreement with R-Tech for two of its drug compounds,
cobiprostone and SPI-017. Under the terms of this agreement, R-Tech agreed to manufacture and supply the necessary drug substance
and drug product for the purpose of clinical development. Pricing for clinical supplies will be determined on a batch-by-batch
basis and shall not exceed a certain mark-up percentage. Unless this agreement is terminated by mutual written consent within 90
days of expiration, it will automatically be renewed for additional two year terms. During the years ended December 31, 2010 and
2009, the Company purchased from R-Tech $48,000 and $1.1 million, respectively, of clinical supplies under the terms of this agreement.
There were no clinical supplies purchased in 2011.
In February 2009,
the Company entered into an exclusive manufacturing and supply agreement with R-Tech under which the Company granted R-Tech the
exclusive right to manufacture and supply lubiprostone to meet its commercial and clinical requirements in Asia, Australia and
New Zealand. In consideration, R-Tech made an upfront payment of $250,000 and is obligated to make milestone payments of $500,000
upon regulatory approval of lubiprostone in Japan and $250,000 upon the commercial launch in Japan. In addition, R-Tech is required
to maintain at least a six-month supply of lubiprostone and a three-month supply of the active ingredient used in manufacturing
lubiprostone as a backup inventory. During the years ended December 31, 2011, 2010 and 2009 the Company purchased approximately
$166,000, $267,000 and $381,000, respectively, of commercial supplies of lubiprostone from R-Tech under this agreement. During
the year ended December 31, 2009, we purchased approximately $262,000 of clinical supplies from R-Tech under this agreement. There
were no such clinical supplies purchases in 2011 and 2010 from R-Tech under this agreement.
In
April 2009, the Company entered into two agreements with R-Tech to acquire rights to RESCULA in the U.S. and Canada. Under the
terms of the agreements, the Company holds the exclusive rights to commercialize RESCULA in the U.S. and Canada for its approved
indication and any new indication developed by the Company, and has the right of first refusal to commercialize in the U.S. and
Canada any additional indications for which unoprostone isopropyl is developed by R-Tech. The Company is solely responsible for
the development, as well as regulatory and commercialization activities and expenses, for RESCULA in the U.S. and Canada and R-Tech
is exclusively responsible for the supply of RESCULA to the Company within the U.S. and Canada.
The terms of these agreements
are described in Note 7 above.
The Company recorded
the following expenses under all of its agreements with R-Tech:
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Clinical supplies
|
|
$
|
72
|
|
|
$
|
392
|
|
|
$
|
1,556
|
|
Other research and development services
|
|
|
104
|
|
|
|
69
|
|
|
|
100
|
|
Commercial supplies
|
|
|
155
|
|
|
|
376
|
|
|
|
1,039
|
|
|
|
$
|
331
|
|
|
$
|
837
|
|
|
$
|
2,695
|
|
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
Deferred revenue, current
|
|
$
|
433
|
|
|
$
|
433
|
|
Deferred revenue, non-current
|
|
|
5,063
|
|
|
|
5,839
|
|
|
|
$
|
5,496
|
|
|
$
|
6,272
|
|
Drs.
Ryuji Ueno and Sachiko Kuno, are married to each other and, directly or indirectly, own the majority of the stock of
R-Tech
Drs. Ueno and Kuno also are controlling stockholders of the Company. Dr. Ueno is the Company’s
chief executive officer and chairman of the Board of Directors. Dr. Kuno is a member of the Company’s Board of Directors,
as an advisor on international business development.
Numab AG
In September 2011,
the Company entered into a Loan Guarantee and Development Agreement, or Numab Agreement, with Numab AG, or Numab. Numab is considered
a related party as a result of a ownership interest by one of the Company’s executive officers. Under the terms of the Numab
Agreement, the Company will provide Numab with up to CHF 5.0 million as collateral and will serve as guarantor for a loan to Numab
from a third party. The Company may name up to four targets against which Numab will use their proprietary technology to discover
high-affinity antibodies and to develop these to an investigation new drug, or IND, ready stage. Numab is eligible for full time
equivalent based payments and discovery success dependent fees. Any success dependent fees will result in a corresponding reduction
in the amount of the available guarantee. Should Numab default its loan obligations, the collateral may be called upon to meet
Numab’s obligation under its loan agreement. If a biologic is successfully developed, Numab and the Company may enter into
a license arrangement in which Numab will be entitled to clinical development milestone payments and increasing tiered royalties
on net sales. The Company will be responsible for clinical development and will retain all commercial rights to any resulting biologic
product.
In November 2010,
SPL entered into a ¥1,000,000,000, approximating $12.0 million as of the closing date, secured term loan agreement with The
Bank of Tokyo-Mitsubishi UFJ, Ltd, or the Bank. The loan agreement provides for the extension of credit for the period of one year
that can be renewed annually upon the agreement of the Company, SPL and the Bank. Borrowings may be used to finance research and
development activities, for working capital needs and for the general corporate purposes of SPL. The loan bears annual interest
based on the three-month Tokyo Interbank Offer Rate, or TIBOR, plus 1% and is reset quarterly. The interest rate for the first
three months was 1.33%. The outstanding loan balances included in the accompanying Consolidated Balance Sheets were $12.9 million
and $12.0 million as of December 31, 2011 and 2010. In connection with the loan agreement, the Company and the Bank executed a
guarantee agreement which provides full guarantee by the Company on behalf of SPL’s obligation to the Bank. The loan agreement
includes representations, covenants, and events of default customary for financing transactions of this type. Additionally, the
Company agreed to maintain an amount of collateral that would not fall below 90.0% of the initial balance throughout the term of
the loan. The Company deposited $14.9 million with the Bank and the deposit bears annual interest of 0.4%, which is recorded as
restricted cash, current in the accompanying Consolidated Balance Sheets as of December 31, 2011 and 2010.
Subordinated Unsecured Promissory Notes
In connection with
the acquisition, referred to in Note 3, of SAG and SAG-J, Ambrent issued a subordinated unsecured promissory note, or notes, to
the Ueno Trust and Kuno Trust. Each of the notes was issued with an initial principal balance of approximately $25.94 million,
or approximately $51.9 million in the aggregate. The interest rate for the notes is equal to the per annum rate of interest determined
on the basis of the sum of London Interbank Offered Rate, or LIBOR, plus 4.0%, and will be reset every six months on December 1st
and June 1st of each year. The interest rate beginning December 1, 2011 is 4.7%.
The notes provide
for a semi-annual repayment schedule of interest and principal over a seven-year period on each June 1st and December 1st, provided
that, until December 1, 2012, all accrued and unpaid interest will not be paid in cash and will instead be added to the principal
balance of the notes, and Ambrent will make only two scheduled principal payments on December 1, 2011 and December 1, 2012. In
November 2011, Ambrent made the first principal payment of $7.5 million. Interest paid-in kind was $2.3 million for the year ended
December 31, 2011.
The notes can be prepaid
at any time without penalty. In addition, the notes provide for a mandatory prepayment (i) in full in the event of an acquisition
by an unaffiliated third party in an all-cash acquisition of all of the issued and outstanding shares of capital stock of the Company
or (ii) either in full or in part in certain change of control transactions involving the Company where an unaffiliated third party
acquires a majority of the Company’s voting stock.
Notes payable at their
carrying amount consist of the following:
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
Loan agreement, The Bank of Tokyo-Mitsubishi UFJ, Ltd
|
|
$
|
12,900
|
|
|
$
|
12,022
|
|
Promissory notes, Sellers of SAG
|
|
|
46,727
|
|
|
|
51,939
|
|
|
|
$
|
59,627
|
|
|
$
|
63,961
|
|
|
|
|
|
|
|
|
|
|
Notes payable, current
|
|
$
|
20,400
|
|
|
$
|
19,522
|
|
Notes payable, non-current
|
|
|
39,227
|
|
|
|
44,439
|
|
|
|
$
|
59,627
|
|
|
$
|
63,961
|
|
|
13.
|
Collaboration and License Agreements
|
Abbott license and commercialization
and supply agreement
In February 2009,
the Company entered into the Abbott Agreement to develop and commercialize lubiprostone for the treatment of CIC in Japan. Additionally,
the agreement grants Abbott the right of exclusive negotiation to any additional indications for which lubiprostone is developed
in Japan under all relevant patents, know-how and trademarks. Under the terms of the Abbott Agreement, payments to the Company
include a non-refundable upfront payment and non-refundable development and commercial milestone payments based on achieving specified
development, regulatory and sales goals.
The collaboration
efforts under the agreement are governed by two committees consisting of an equal number of representatives from both parties.
The joint commercialization and steering committee oversees commercialization-related activities and resolves any conflicts arising
from a joint development committee, which oversee the development-related activities in Japan.
The Company is required
to fund and complete all the development work including additional clinical studies required to obtain regulatory approval for
the treatment of CIC in Japan. The Company owns all the rights covered under the regulatory filings.
Abbott is required
to fund and undertake all commercialization efforts including pre-launch and post-launch marketing, promotion and distribution.
Abbott is required to maintain the number of sales staff and the estimated level of annual net sales based on the commercialization
plan to be developed and approved by the joint commercialization and steering committee described above.
To date, the Company
has received a total of $22.5 million in up-front and development milestone payments under this agreement, including a $5.0 million
development milestone payment, received in October 2010, for the submission of a marketing application to the PMDA
for lubiprostone at a dosage strength of 24 micrograms for the indication of CIC in Japanese adults, as well as $10.0 million
and $7.5 million in up-front and development milestone payments, respectively, in 2009.
Under the Abbott
Agreement we could receive additional milestone payments based on achieving other specified development and commercialization goals,
including $15.0 million due on the first commercial sale in Japan,
although there can be no assurance that the Company
will receive any such payments.
The Company applies
a proportional-performance model using the percentage-of-completion method of revenue recognition for cash flows associated with
research and development deliverables under the Abbott Agreement. The following table summarizes the cash streams and related revenue
recognized or deferred for this agreement:
|
|
Cash
Received
Through
December 31,
|
|
|
Revenue Recognized for the Year
Ended
December 31,
|
|
|
Foreign
Currency
|
|
|
Amount
Deferred at
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Effects
|
|
|
2011
|
|
Collaboration
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front
payment associated with the Company's obligation to participate in joint committees
|
|
$
|
846
|
|
|
$
|
38
|
|
|
$
|
47
|
|
|
$
|
52
|
|
|
$
|
(151
|
)
|
|
$
|
860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front payment - remainder
|
|
$
|
9,154
|
|
|
$
|
5,112
|
|
|
$
|
3,471
|
|
|
$
|
520
|
|
|
$
|
(152
|
)
|
|
$
|
203
|
|
Development
milestone payment
|
|
|
12,500
|
|
|
|
4,314
|
|
|
|
7,587
|
|
|
|
697
|
|
|
|
(371
|
)
|
|
$
|
273
|
|
Total
|
|
$
|
21,654
|
|
|
$
|
9,426
|
|
|
$
|
11,058
|
|
|
$
|
1,217
|
|
|
$
|
(523
|
)
|
|
$
|
476
|
|
Takeda collaboration and
license agreement
In October 2004, the
Company entered into Takeda Agreement to exclusively co-develop, commercialize and sell products that contain lubiprostone for
gastroenterology indications in the United States and Canada. On February 1, 2006, the Company entered into the Supplemental Takeda
Agreement, which supplemented the responsibilities of both the Company and Takeda for the co-promotion of AMITIZA and clarified
the responsibilities and funding arrangements for other marketing services to be performed by both parties. Payments to the Company
under these agreements include a non-refundable upfront payment, non-refundable development and commercial milestone payments,
reimbursement of certain development and co-promotion costs and product royalties. The provision in the Supplemental Takeda Agreement
concerning the co-promotion reimbursement for the Company’s sales force expired in May 2011 and the reimbursement terms of
the Takeda Agreement apply.
The Company has received
a total of $150.0 million in upfront and development milestone payments through December 31, 2011 under these agreements. Subject
to future development and commercial milestones, the Company is potentially entitled to receive additional development milestone
and commercial milestone payments under the Takeda Agreement, although there can be no assurance that the Company will receive
any such payments.
The following table
summarizes the cash streams and related revenue recognized or deferred under the Takeda Agreement, which are described in more
detail below:
|
|
Cash
Received
Through
December 31,
|
|
|
Revenue
Recognized for the Year Ended
December 31,
|
|
|
Accounts
Receivable
for the Year
Ended
December 31,
|
|
|
Amount
Deferred at
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
Through
2009
|
|
|
2010
|
|
|
2011
|
|
|
2011
(1)
|
|
|
2011
|
|
Collaboration
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front
payment associated with the Company's obligation to participate in joint committees
|
|
$
|
2,375
|
|
|
$
|
758
|
|
|
$
|
147
|
|
|
$
|
147
|
|
|
$
|
-
|
|
|
$
|
1,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front payment - remainder
|
|
$
|
17,624
|
|
|
$
|
17,624
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Development milestones
|
|
|
130,000
|
|
|
|
130,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Reimbursement
of research and development expenses
|
|
|
97,122
|
|
|
|
86,757
|
|
|
|
5,473
|
|
|
|
8,032
|
|
|
|
5,918
|
|
|
|
2,778
|
|
Total
|
|
$
|
244,746
|
|
|
$
|
234,381
|
|
|
$
|
5,473
|
|
|
$
|
8,032
|
|
|
$
|
5,918
|
|
|
$
|
2,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
royalty revenue
|
|
$
|
177,836
|
|
|
$
|
106,814
|
|
|
$
|
40,300
|
|
|
$
|
41,517
|
|
|
$
|
10,795
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Co-promotion
revenue
|
|
$
|
25,206
|
|
|
$
|
18,021
|
|
|
$
|
4,417
|
|
|
$
|
3,378
|
|
|
$
|
610
|
|
|
$
|
-
|
|
(1) Includes billed and unbilled accounts
receivable.
Upon execution of
the Takeda Agreement, the Company was required to complete several deliverables, which Takeda was responsible to fund. The following
are the required deliverables of the Company, along with the related contractual cash flows from Takeda and the associated obligations
and performance period of the Company relating to research and development revenue:
|
·
|
Upon receipt of the $20.0 million upfront payment, the Company deferred approximately $2.4 million
to be recognized using the time-based model over the performance period of the participation in various joint committee meetings.
The Company expects its participation on all committees to continue throughout the term of the Takeda Agreement. During each of
the years ended December 31, 2011, 2010 and 2009, the Company recognized approximately $147,000 of this deferred amount as collaboration
revenue on the Consolidated Statements of Operations and Comprehensive Income (Loss). The related deferred revenue as of December
31, 2011 and 2010 was approximately $1.3 million and $1.5 million, respectively.
|
|
·
|
The Company granted Takeda an exclusive license of lubiprostone to co-develop, commercialize, and
sell products for gastroenterology indications in the U.S. and Canada. There are no defined contractual cash flows within the Takeda
Agreement for the grant of this license, but the Company did receive a non-refundable upfront payment of $20.0 million upon executing
the Takeda Agreement. The license was granted to Takeda on October 29, 2004 and will expire when the Takeda Agreement expires or
is terminated. After the commercial launch in 2006, Takeda has paid the Company pre-determined royalties on net revenues on a quarterly
basis for the products sold by Takeda during the term of the Takeda Agreement. The level of royalties is tiered based on the net
sales recognized by Takeda. The Company has recorded product royalty revenue of approximately $41.5 million, $40.3 million and
$38.3 million for the years ended December 31, 2011, 2010 and 2009, respectively. This revenue is recorded as product royalty revenue
in the Consolidated Statements of Operations and Comprehensive Income (Loss).
|
|
·
|
The Company has provided development work necessary for an NDA submission to the FDA for the treatment
of CIC and IBS-C indications. Takeda funded the initial $30.0 million of development costs, the Company was obligated to fund the
first $20.0 million in excess of the initial $30.0 million funded by Takeda and the two parties are to equally share any required
development costs in excess of $50.0 million. Although there was no defined performance period for this development work, the period
to perform the work would not exceed the term of the Takeda Agreement. In January 2006, the Company received approval for its NDA
for AMITIZA to treat CIC and completed and submitted the supplemental NDA for IBS-C to the FDA in June 2007.
|
The Company initially
deferred the residual amount of the $20.0 million upfront payment totaling approximately $17.6 million, development milestone payments
received totaling $50.0 million, and reimbursement of the initial $30.0 million of research and development costs for the development
of
AMITIZA
for CIC and IBS-C indications. These deferred amounts were applied towards the unit
of accounting that combines the participation in the joint development committee and the development of CIC and IBS-C and was recognized
over the performance period of developing the CIC and IBS-C NDA submissions.
The Company completed the
development of the CIC and
IBS-C
in June 2007 and filed a sNDA for IBS-C. This was the culmination
of the performance period.
In June 2007, the Company also recognized as revenue, in full, $30.0 million from Takeda upon
the filing of the sNDA for
AMITIZA
to treat IBS-C. The Company received a $50.0 million development
milestone from Takeda as a result of the FDA’s approval on April 29, 2008 of the sNDA for IBS-C in women aged 18 years and
older and recognized the payment as research and development revenue during the year ended December 31, 2008.
During 2006, the joint
commercialization committee granted approval for the Company and Takeda to begin three new studies related to funding arrangements
discussed in both the Takeda Agreement and the Supplemental Takeda Agreement. The following are the three additional deliverables
of the Company, along with the related contractual cash flows from Takeda and the associated obligations and performance period
of the Company, when the three studies were agreed upon:
|
·
|
The Company is obligated to perform studies in connection with changes to labeling for CIC. Takeda
is obligated to fund 70.0% of the labeling studies and the Company is obligated to fund the remaining 30.0%. There is no defined
performance period, but the performance period will not exceed the term of the Takeda Agreement.
|
|
·
|
The Company is obligated to perform studies for the development of an additional indication for
OBD. Takeda is obligated to fund all development work up to a maximum aggregate of $50.0 million for each additional indication
and $20.0 million for each new formulation. If development costs exceed these amounts, Takeda and the Company shall equally share
such excess costs. There is no defined performance period, but the performance period will not exceed the term of the Takeda Agreement.
The Company decided to conduct one additional phase 3 efficacy study in order to submit a sNDA for the OBD indication. In February
2012, the Company announced that lubiprostone met the primary endpoint in a phase 3 clinical trial for the treatment of OBD in
patients with chronic, non-cancer pain, excluding those taking methadone.
|
|
·
|
The Company is obligated to perform all development work necessary for phase 4 studies, for which
Takeda is obligated to fund all development work. There is no defined performance period, but the performance period will not exceed
the term of the Supplemental Agreement.
|
The Company has assessed
these required deliverables to determine which deliverables are considered separate units of accounting. As a result of the Company
and Takeda agreeing to perform and fund these studies simultaneously, the Company determined that there is no objective and reliable
evidence to determine the fair value for each of the studies. Accordingly, the Company has combined these three required deliverables
as a single unit of accounting. All cash payments from Takeda related to these three deliverables are deferred upon receipt and
recognized over the estimated performance period to complete the three studies using the time-based model. During the years ended
December 31, 2011, 2010 and 2009, the Company recognized approximately $8.0 million, $5.5 million and $14.5 million related to
these three deliverables as research and development revenue in the Consolidated Statements of Operations and Comprehensive Income
(Loss), respectively.
On February 1, 2006,
the Company entered into the Supplemental Takeda Agreement, which amended the responsibilities of both the Company and Takeda for
the co-promotion of
AMITIZA
and clarified the responsibilities and funding arrangements for other
marketing services to be performed by both parties.
Upon execution of
the Supplemental Takeda Agreement, the Company was required to complete several deliverables, which Takeda was responsible to fund.
The following are the required deliverables of the Company, along with the related contractual cash flows from Takeda and the associated
obligations and performance period of the Company, under the Supplemental Takeda Agreement:
|
·
|
The Company is obligated to co-promote
AMITIZA
with Takeda by
employing a sales force to supplement Takeda’s sales activities. Takeda is obligated to reimburse the Company a specified
amount per day per sales force representative. In May 2011, the term of this reimbursement arrangement under the Supplemental Takeda
Agreement ceased five years following the first date that the Company deployed sales representatives. The Company has recognized
approximately $3.4 million, $4.4 million and $4.5 million of revenues for the years ended December 31, 2011, 2010 and 2009, respectively,
reflecting these co-promotion reimbursements, which is recorded as co-promotion revenue in the Consolidated Statements of Operations
and Comprehensive Income (Loss).
|
The Company views
the deliverables under the Supplemental Takeda Agreement as economically independent of those in the Takeda Agreement.
The Company has assessed
these required deliverables to determine which deliverables are considered separate units of accounting. The Company determined
that its sales force and miscellaneous marketing activities are treated as separate units of accounting. The Company is recognizing
the cost reimbursements received for these deliverables as co-promotion revenues when services are performed and the reimbursement
payments are due under the Supplemental Takeda Agreement.
On September 8, 2011,
we entered into a research and development collaboration with Numab AG, or Numab, of Wadenswil, Switzerland. Under the Loan Guarantee
and Development Agreement with Numab, we will have access to Numab’s proprietary technology for the discovery of high-affinity
antibodies against certain selected targets. We will have exclusive commercial rights to any biologic products successfully developed
and commercialized in the course of the collaboration. We have agreed to provide Numab with up to CHF 5 million as collateral for
a loan to Numab from a third party. We may name up to four targets against which Numab will use their technology to discover high-affinity
antibodies and will develop these to an investigational new drug, or IND, -ready stage. Numab is eligible for payments based on
an agreed rate for the number of full time employees assigned to the development project and discovery success-dependent fees.
If a biologic is successfully developed, we may enter into a license arrangement with Numab in which they will be entitled to clinical
development milestone payments and increasing tiered royalties on net sales. We will be responsible for clinical development and
will retain all commercial rights to any resulting biologic product. Numab has commenced work on the Company’s first target.
Capital Structure
The class A common
stock is entitled to one vote per share and, with respect to the election of directors, votes as a separate class and is entitled
to elect that number of directors which constitutes ten percent of the total membership of the Board of Directors. The class B
common stock is entitled to 10 votes per share and votes as a separate class on the remaining percentage of Board of Directors
not voted on by the class A common stockholders. Each holder of record of class B common stock may, in such holder’s sole
discretion and at such holder’s option, convert any whole number or all of such holder’s shares of class B common stock
into fully paid and non-assessable shares of class A common stock for each share of class B common stock surrendered for conversion.
The class B common stock is not transferable, except upon conversion. All of the shares of class B common stock are indirectly
owned by the Company’s founders.
Treasury Stock
On December 11, 2008,
the Company announced a stock repurchase program under which we are authorized to purchase up to $10.0 million of our class A common
stock from time to time in open-market transactions. On September 8, 2011, the Company’s Board of Directors authorized the
repurchase of up to an aggregate of $2.0 million of the Company’s class A common stock out of the $10.0 million authorized
by the Board of Directors on December 9, 2008. In 2011, the Company repurchased 186,987 shares of its class A common stock under
this program at a cost of $700,042, these shares are not retired and are recorded at cost. The Company did not repurchase any of
our equity securities in 2010 or 2009.
Stock Option Plan
On February 15, 2001,
the Company adopted the 2001 Stock Incentive Plan, or the 2001 Incentive Plan, in order to provide common stock incentives to certain
eligible employees, officers and directors, consultants and advisors of the Company. The Board of Directors administers the 2001
Incentive Plan and has sole discretion to grant options. On September 1, 2003, the Board of Directors amended the 2001 Incentive
Plan to allow for a maximum of 8,500,000 shares of class A common stock to be issued under all awards, including incentive stock
options under the 2001 Incentive Plan. In 2006, the Board of Directors determined no further options would be granted under this
plan.
On June 5, 2006, the
Company’s Board of Directors approved a 2006 Stock Incentive Plan, which has been amended and restated, or the 2006 Incentive
Plan, and reserved 8,500,000 shares of class A common stock for issuance under that plan. At December 31, 2011, a total of 5,094,620
shares were available for future grants under the 2006 Incentive Plan. Option awards under the 2006 Incentive Plan are generally
granted with an exercise price equal to the closing market price of the Company’s stock at the date of grant and they generally
vest over four years and have ten-year contractual terms.
On October 18, 2007,
the Company’s Board of Directors approved an amendment to the 2006 Incentive Plan. The 2006 Incentive Plan includes an “evergreen”
provision by which the number of shares of the Company’s class A common stock available for issuance under the 2006 Incentive
Plan increases automatically on the first day of each calendar year by a number equal to 5.0% of the aggregate number of shares
of the Company’s class A common stock and class B common stock outstanding on such date, or such lesser number as the Board
of Directors may determine. The 2006 Incentive Plan will provide that the number of shares of class A common stock included in
each annual increase will be 500,000, or such lesser number as the Board of Directors may determine. The Board of Directors determined
that the amount of the increase in the shares available for issuance under the 2006 Incentive Plan as of January 1, 2009, 2010,
2011 and 2012 pursuant to the “evergreen” provision, would be zero.
On October 7, 2009,
the Board of Directors of the Company adopted a new compensation program, under the 2006 Incentive Plan, for its non-employee directors
and approved a new form of stock option agreement to be used for future stock option awards to non-employee directors. According
to the plan, the independent directors will receive an annual grant of 20,000 stock options on the date of each annual meeting
of stockholders. Additionally, the directors received an initial grant of 30,000 stock options upon the adoption of the plan.
On May 2, 2011, the
Board of Directors of the Company amended the previously approved annual stock option grants for its non-employee directors to
an annual grant of 30,000 stock options on the date of each annual meeting of stockholders. Such grants would consist of 60.0%
service based options and 40.0% market condition based options
A summary of the employee
stock option activity for the year ended December 31, 2011 under the Company’s 2001 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, 2010
|
|
|
345,100
|
|
|
$
|
10.44
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(154,700
|
)
|
|
|
10.99
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2011
|
|
|
190,400
|
|
|
|
10.00
|
|
|
|
4.33
|
|
|
$
|
-
|
|
Options exercisable, December 31, 2011
|
|
|
190,400
|
|
|
|
10.00
|
|
|
|
4.33
|
|
|
$
|
-
|
|
A summary of the employee
stock option activity for the year ended December 31, 2011 under the Company’s 2006 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, 2010
|
|
|
1,201,650
|
|
|
$
|
5.69
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
2,572,860
|
|
|
|
4.32
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(27,500
|
)
|
|
|
3.85
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(229,481
|
)
|
|
|
4.21
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(112,149
|
)
|
|
|
5.60
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2011
|
|
|
3,405,380
|
|
|
|
4.75
|
|
|
|
8.87
|
|
|
$
|
-
|
|
Options exercisable, December 31, 2011
|
|
|
543,147
|
|
|
|
7.02
|
|
|
|
6.98
|
|
|
$
|
-
|
|
During the year ended
December 31, 2011, the Company made a grant of time-based and market condition options to all eligible employees and independent
directors. The aggregate options totaled 2,572,860 shares of the Company’s class A common stock, consisting of 873,352 shares
of time-based options and 1,699,508 shares of market condition options.
The
market condition
options (a) vest in certain percentages based on the
attainment of specific stock price targets over a 30-day trading period so long as the individual is in continuous service with
the Company on each such date, (b) have an exercise price equal to the closing price of the Company's class A common stock on the
Nasdaq Global Market on the date of grant, and (c) must vest within a term of four years from such date. These options must be
exercised within a term of ten years from the date of grant.
The percentages and target prices are: 40.0% at $8.00 per share,
40.0% at $12.00 per share and 20.0% at $16.00 per share. The Company determined that the market condition options should be classified
as equity instruments, and selected, in accordance with GAAP, a lattice option-pricing model to estimate the fair value of those
options. A lattice option-pricing model produces an estimated fair value of the option based on the assumed changes in the price
of the underlying share over successive periods of time.
The
time-based
stock options (a) vest in equal annual installments over
the four-year period commencing on the first anniversary of the date of grant (
i.e
., the first 25.0% of the stock option
grant would vest on the first anniversary of the date of grant) so long as the individual is in continuous service with the Company
on each such date and (b) have an exercise price equal to the closing price of the Company's class A common stock on the Nasdaq
Global Market on the date of grant. These options must be exercised within a term of ten years from such date.
All options
that were granted on May 2, 2011 have an exercise price equal to the fair market value of the stock price, or $4.41 per share of
class A common stock, on the date of the grant.
The weighted average
grant date fair value of options granted during the years ended December 31, 2011, 2010 and 2009 were $1.81, $2.05 and $2.73, respectively.
The total intrinsic value of options exercised during the year ended December 31, 2011 was approximately $12,000. No options were
exercised during the years ended December 31, 2010 and 2009. As of December 31, 2011, approximately $4.0 million of total unrecognized
compensation costs, net of estimated forfeitures, related to non-vested awards are expected to be recognized over a weighted average
period of 3.14 years.
When an option is exercised, the Company issues a new share of class A common
stock.
The Company granted
510,000 stock options with an exercise price of $5.85 per share to non-employees in August 2005 under the 2001 Incentive Plan.
As of December 31, 2011 and 2010, 450,000 options were outstanding and exercisable. These non-employee stock options vested immediately
and have a weighted average exercise price per share of $5.85 and $5.85 and remaining contractual life of 3.33 and 4.33 years,
respectively, as of both December 31, 2011 and 2010.
Employee Stock Purchase Plan
On
June 5, 2006, the Company’s Board of Directors approved a 2006 Employee Stock Purchase Plan, or ESPP, and reserved 4,250,000
shares of class A common stock for issuance under the ESPP. As of December 31, 2011, the Board has approved 500,000 shares of class
A common stock for the ESPP. The ESPP is non-compensatory and is intended to qualify as an Employee Stock Purchase Plan as defined
in Section 423 of the Internal Revenue Code of 1986
.
Under this plan, eligible employees may
purchase common stock through payroll deductions of up to 10.0% of compensation during the plan period. The purchase price per
share is 95.0% of market price at the end of each plan period, which is generally three months. A total of 3,363 and 4,187 shares
of common stock were purchased under the ESPP during the years ended December 31, 2011 and 2010, respectively. The Company received
approximately $13,000, $14,000 and $19,000 upon purchase of shares under the ESPP for the years ended December 31, 2011, 2010 and
2009, respectively.
Dividends
Amounts paid as dividends
by SAG, prior to being acquired by the Company, together with the purchase consideration for acquiring SAG are recorded as dividends
within the Consolidated Statement of Changes in Stockholders’ Equity.
Income (loss) before
income taxes is as follows:
|
|
Year Ending December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
U.S.
|
|
$
|
(9,670
|
)
|
|
$
|
(3,819
|
)
|
|
$
|
11,514
|
|
Foreign
|
|
|
(12,244
|
)
|
|
|
499
|
|
|
|
(1,653
|
)
|
|
|
$
|
(21,914
|
)
|
|
$
|
(3,320
|
)
|
|
$
|
9,861
|
|
The provision (benefit)
for income taxes consists of the following for the three years ended December 31:
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Current tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
(597
|
)
|
|
$
|
(1,063
|
)
|
|
$
|
2,765
|
|
U.S. State
|
|
|
(194
|
)
|
|
|
128
|
|
|
|
785
|
|
Foreign
|
|
|
550
|
|
|
|
469
|
|
|
|
1,521
|
|
Total current tax provision (benefit)
|
|
|
(241
|
)
|
|
|
(466
|
)
|
|
|
5,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
(1,369
|
)
|
|
|
(44
|
)
|
|
|
644
|
|
U.S. State
|
|
|
385
|
|
|
|
(56
|
)
|
|
|
71
|
|
Foreign
|
|
|
(3,383
|
)
|
|
|
1
|
|
|
|
(702
|
)
|
Total deferred provision (benefit)
|
|
|
(4,367
|
)
|
|
|
(99
|
)
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision (benefit)
|
|
$
|
(4,608
|
)
|
|
$
|
(565
|
)
|
|
$
|
5,084
|
|
Deferred tax assets,
net, consist of the following as of December 31:
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
(In thousands)
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Foreign net operating loss carryforwards
|
|
$
|
5,638
|
|
|
$
|
8,419
|
|
U.S. net operating loss carryforards
|
|
|
903
|
|
|
|
-
|
|
Deferred revenue
|
|
|
2,547
|
|
|
|
3,316
|
|
Accrued expenses
|
|
|
1,043
|
|
|
|
800
|
|
Tax benefits on stock options
|
|
|
1,960
|
|
|
|
1,883
|
|
Other
|
|
|
869
|
|
|
|
284
|
|
Gross deferred tax assets
|
|
|
12,960
|
|
|
|
14,702
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(339
|
)
|
|
|
(518
|
)
|
Intangibles
|
|
|
(30,918
|
)
|
|
|
(144
|
)
|
Accrued expenses
|
|
|
(3
|
)
|
|
|
(1,013
|
)
|
Other
|
|
|
(167
|
)
|
|
|
(26
|
)
|
Gross deferred tax liabilities
|
|
|
(31,427
|
)
|
|
|
(1,701
|
)
|
Less: valuation allowance
|
|
|
(4,467
|
)
|
|
|
(9,658
|
)
|
Net deferred tax assets
|
|
$
|
(22,934
|
)
|
|
$
|
3,343
|
|
The net deferred tax
asset as of December 31, 2011 and 2010 represents the amount the Company believes is more likely than not to be utilized.
The provision (benefit)
for income taxes vary from the income taxes provided based on the federal statutory rate as follows for the three years ended December
31:
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Federal tax provision (benefit)
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State taxes, net of federal tax benefit
|
|
|
0.4
|
%
|
|
|
3.7
|
%
|
|
|
6.3
|
%
|
General business credits
|
|
|
1.6
|
%
|
|
|
18.5
|
%
|
|
|
-1.4
|
%
|
Changes in valuation allowance
|
|
|
-3.7
|
%
|
|
|
-11.8
|
%
|
|
|
27.7
|
%
|
Nondeductible expenses
|
|
|
-6.4
|
%
|
|
|
-13.7
|
%
|
|
|
-3.3
|
%
|
Changes in other tax matters
|
|
|
-4.9
|
%
|
|
|
-13.6
|
%
|
|
|
-11.7
|
%
|
|
|
|
21.0
|
%
|
|
|
17.1
|
%
|
|
|
51.6
|
%
|
At December
31, 2011 and 2010, the Company had foreign net operating loss carry forwards, or NOLs, of $16.4 million and $24.0
million, respectively. Approximately $9.2 million of the foreign NOLs begin to expire in December 2015, and $7.2 million of
the foreign NOLs do not expire. As of December 31, 2011 and 2010, the Company had U.S. net operating losses of $1.8 million
and $0, respectively. These losses begin to expire in 2031. The U.S. had research and development credits of approximately
$472,000 and $0, as of December 31, 2011 and 2010, respectively.
As of December 31,
2011 and 2010, the Company had a valuation allowance on its deferred tax assets of $4.5 million and $9.6 million, respectively.
The net decrease in the valuation allowance of $5.1 million was due primarily to the recognition of gain in local tax jurisdictions
on the transfer of certain intellectual property to SAG as well as the release of the valuation allowance in certain jurisdictions
that management believes the deferred tax assets are more likely than not to be utilized. Please refer to the income tax and deferred
charge policy for further description of this intercompany transaction.
Should the Company
determine that it would be able to realize its deferred tax assets in the foreseeable future, an adjustment to the remaining deferred
tax assets could cause a material increase to income in the period such determination is made. Significant management judgment
is required in determining the period in which the reversal of a valuation allowance should occur. The Company considers all available
evidence, both positive and negative, such as historical levels of income and future forecasts of taxable income amongst other
items in determining whether a full or partial release of a valuation allowance is warranted. The valuation allowance at December
31, 2011 and 2010 relates to deferred tax assets in the foreign jurisdictions. The Company will continue to evaluate its valuation
allowance position in each jurisdiction on a regular basis. To the extent the Company determines that all or a portion of its valuation
allowance is no longer necessary, the Company will recognize an income tax benefit in the period such determination is made for
the reversal of the valuation allowance. Once the valuation allowance is eliminated in whole or in part, it will not be available
to offset the Company’s future tax provision.
The Company has recorded
a non-current income tax liability of approximately $1.5 million and $1.4 million, including interest for uncertain tax positions
as of December 31, 2011 and 2010, respectively. The amount represents the aggregate tax effect of differences between tax return
positions and the amounts otherwise recognized in the Company’s Consolidated Financial Statements. The liability for uncertain
tax positions as of December 31, 2011 and 2010 mainly pertains to the Company’s interpretation of nexus in certain states
related to revenue sourcing for state income tax purposes, as well as uncertain tax positions related to related party interest
in foreign jurisdictions.
A reconciliation of
the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Balance at January 1
|
|
$
|
1,245
|
|
|
$
|
1,200
|
|
|
$
|
913
|
|
Increases for tax positions taken during prior periods
|
|
|
22
|
|
|
|
3
|
|
|
|
83
|
|
Decreases in unrecognized tax benefits related to settlements with taxing authorities
|
|
|
(71
|
)
|
|
|
-
|
|
|
|
-
|
|
Increases for tax positions taken during current period
|
|
|
30
|
|
|
|
42
|
|
|
|
204
|
|
Balance at December 31
|
|
$
|
1,226
|
|
|
$
|
1,245
|
|
|
$
|
1,200
|
|
The Company recognizes
interest and penalties related to uncertain tax positions as a component of the income tax provision. During 2011, 2010 and 2009,
the Company recorded approximately $69,000 $75,000 and $60,000, respectively, of interest related to uncertain tax positions.
The
Company has identified no uncertain tax position for which it is reasonably possible that the total amount of liability for unrecognized
tax benefits will significantly increase or decrease within the next 12 months, except for recurring accruals on existing uncertain
tax positions. In addition, future changes in the unrecognized tax benefits described above would not have a significant impact
on the effective tax rate. Certain uncertain tax position may be subject to indemnification from the sellers of SAG should the
Company ultimately be required to pay these amounts. To the extent that any such indemnifications are received in the future, such
amount will be recorded as a capital contribution.
In 2009, the Company
was under examination by the United States tax authorities for the years ended December 31, 2005, 2006 and 2007. In January 2010,
the Company received official notice indicating that the examination of tax returns for 2005, 2006 and 2007 has closed and resulted
in no change to the reported tax. Currently, tax years 2008, 2009, 2010 and 2011 remain open and subject to examination in the
major tax jurisdictions in which tax returns are filed.
The Company has determined
that it has three reportable segments based on the Company’s method of internal reporting, which disaggregates business by
geographic location. These segments are the Americas, Europe and Asia. The Company evaluates the performance of these segments
based on income (loss) from operations, as well as other factors, that depend on the development status of these geographies. Such
measures include the progress of its research and development activities, collaboration and licensing efforts, commercialization
activities and other factors. The reportable segments have historically derived their revenue from joint collaboration and strategic
alliance agreements. Transactions between the segments consist primarily of loans and the provision of research and development
services. Following is a summary of financial information by reportable geographic segment:
(In thousands)
|
|
Americas
|
|
|
Europe
|
|
|
Asia
|
|
|
Consolidated
|
|
Year Ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue
|
|
$
|
8,033
|
|
|
$
|
-
|
|
|
$
|
1,216
|
|
|
$
|
9,249
|
|
Product royalty revenue
|
|
|
41,517
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41,517
|
|
Co-promotion revenue
|
|
|
3,378
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,378
|
|
Contract and collaboration revenue
|
|
|
565
|
|
|
|
-
|
|
|
|
52
|
|
|
|
617
|
|
Total revenues
|
|
|
53,493
|
|
|
|
-
|
|
|
|
1,268
|
|
|
|
54,761
|
|
Research and development expenses
|
|
|
24,058
|
|
|
|
4,354
|
|
|
|
5,085
|
|
|
|
33,497
|
|
Settlement for legal dispute
|
|
|
(11,100
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,100
|
)
|
Depreciation and amortization
|
|
|
535
|
|
|
|
730
|
|
|
|
43
|
|
|
|
1,308
|
|
Other operating expenses
|
|
|
46,326
|
|
|
|
1,092
|
|
|
|
1,327
|
|
|
|
48,745
|
|
Income (loss) from operations
|
|
|
(6,582
|
)
|
|
|
(5,920
|
)
|
|
|
(5,187
|
)
|
|
|
(17,689
|
)
|
Interest income
|
|
|
240
|
|
|
|
6
|
|
|
|
3
|
|
|
|
249
|
|
Interest expense
|
|
|
-
|
|
|
|
(2,288
|
)
|
|
|
(167
|
)
|
|
|
(2,455
|
)
|
Other non-operating expense, net
|
|
|
(42
|
)
|
|
|
(1,884
|
)
|
|
|
(93
|
)
|
|
|
(2,019
|
)
|
Income (loss) before income taxes
|
|
$
|
(6,384
|
)
|
|
$
|
(10,086
|
)
|
|
$
|
(5,444
|
)
|
|
$
|
(21,914
|
)
|
Capital expenditures
|
|
$
|
145
|
|
|
$
|
6,006
|
|
|
$
|
133
|
|
|
$
|
6,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue
|
|
$
|
5,473
|
|
|
$
|
-
|
|
|
$
|
11,067
|
|
|
$
|
16,540
|
|
Product royalty revenue
|
|
|
40,300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,300
|
|
Co-promotion revenue
|
|
|
4,417
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,417
|
|
Contract and collaboration revenue
|
|
|
566
|
|
|
|
-
|
|
|
|
47
|
|
|
|
613
|
|
Total revenues
|
|
|
50,756
|
|
|
|
-
|
|
|
|
11,114
|
|
|
|
61,870
|
|
Research and development expenses
|
|
|
12,769
|
|
|
|
944
|
|
|
|
10,242
|
|
|
|
23,955
|
|
Depreciation and amortization
|
|
|
895
|
|
|
|
12
|
|
|
|
57
|
|
|
|
964
|
|
Other operating expenses
|
|
|
33,822
|
|
|
|
1,979
|
|
|
|
1,303
|
|
|
|
37,104
|
|
Income (loss) from operations
|
|
|
3,270
|
|
|
|
(2,935
|
)
|
|
|
(488
|
)
|
|
|
(153
|
)
|
Interest income
|
|
|
596
|
|
|
|
3
|
|
|
|
9
|
|
|
|
608
|
|
Interest expense
|
|
|
-
|
|
|
|
(57
|
)
|
|
|
(18
|
)
|
|
|
(75
|
)
|
Other non-operating expense, net
|
|
|
(46
|
)
|
|
|
(3,216
|
)
|
|
|
(438
|
)
|
|
|
(3,700
|
)
|
Income (loss) before income taxes
|
|
$
|
3,820
|
|
|
$
|
(6,205
|
)
|
|
$
|
(935
|
)
|
|
$
|
(3,320
|
)
|
Capital expenditures
|
|
$
|
298
|
|
|
$
|
3
|
|
|
$
|
32
|
|
|
$
|
333
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue
|
|
$
|
14,531
|
|
|
$
|
-
|
|
|
$
|
9,426
|
|
|
$
|
23,957
|
|
Product royalty revenue
|
|
|
38,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,250
|
|
Co-promotion revenue
|
|
|
4,541
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,541
|
|
Contract and collaboration revenue
|
|
|
565
|
|
|
|
-
|
|
|
|
38
|
|
|
|
603
|
|
Total revenues
|
|
|
57,887
|
|
|
|
-
|
|
|
|
9,464
|
|
|
|
67,351
|
|
Research and development expenses
|
|
|
18,863
|
|
|
|
1,090
|
|
|
|
12,953
|
|
|
|
32,906
|
|
Depreciation and amortization
|
|
|
729
|
|
|
|
11
|
|
|
|
49
|
|
|
|
789
|
|
Other operating expenses
|
|
|
20,697
|
|
|
|
2,165
|
|
|
|
1,379
|
|
|
|
24,241
|
|
Income (loss) from operations
|
|
|
17,598
|
|
|
|
(3,266
|
)
|
|
|
(4,917
|
)
|
|
|
9,415
|
|
Interest income
|
|
|
953
|
|
|
|
4
|
|
|
|
8
|
|
|
|
965
|
|
Other non-operating expense, net
|
|
|
335
|
|
|
|
(1,036
|
)
|
|
|
182
|
|
|
|
(519
|
)
|
Income (loss) before income taxes
|
|
$
|
18,886
|
|
|
$
|
(4,298
|
)
|
|
$
|
(4,727
|
)
|
|
$
|
9,861
|
|
Capital expenditures
|
|
$
|
3,291
|
|
|
$
|
3
|
|
|
$
|
116
|
|
|
$
|
3,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
1,359
|
|
|
$
|
16
|
|
|
$
|
294
|
|
|
$
|
1,669
|
|
Identifiable assets, net of intercompany loans and investments
|
|
$
|
96,490
|
|
|
$
|
47,925
|
|
|
$
|
13,154
|
|
|
$
|
157,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
1,750
|
|
|
$
|
24
|
|
|
$
|
251
|
|
|
$
|
2,025
|
|
Identifiable assets, net of intercompany loans and investments
|
|
$
|
102,096
|
|
|
$
|
30,789
|
|
|
$
|
16,388
|
|
|
$
|
149,273
|
|
|
17.
|
Quarterly Financial Data (unaudited)
|
|
|
2011 Quarters Ended
|
|
(In thousands, except per share data)
|
|
December 31
|
|
|
September 30
|
|
|
June 30
|
|
|
March 31
|
|
Total revenues
|
|
$
|
14,215
|
|
|
$
|
14,372
|
|
|
$
|
14,000
|
|
|
$
|
12,174
|
|
Income (loss) from operations
|
|
$
|
3,609
|
|
|
$
|
(4,522
|
)
|
|
$
|
(7,615
|
)
|
|
$
|
(9,161
|
)
|
Net income (loss)
|
|
$
|
2,700
|
|
|
$
|
(4,078
|
)
|
|
$
|
(9,019
|
)
|
|
$
|
(6,909
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.17
|
)
|
Diluted
|
|
$
|
0.06
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.17
|
)
|
|
|
2010 Quarters Ended
|
|
(In thousands, except per share data)
|
|
December 31
|
|
|
September 30
|
|
|
June 30
|
|
|
March 31
|
|
Total revenues
|
|
$
|
12,351
|
|
|
$
|
20,908
|
|
|
$
|
13,775
|
|
|
$
|
14,836
|
|
Income (loss) from operations
|
|
$
|
(7,068
|
)
|
|
$
|
5,635
|
|
|
$
|
(109
|
)
|
|
$
|
1,389
|
|
Net income (loss)
|
|
$
|
(6,314
|
)
|
|
$
|
1,584
|
|
|
$
|
(29
|
)
|
|
$
|
2,004
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.15
|
)
|
|
$
|
0.04
|
|
|
$
|
-
|
|
|
$
|
0.05
|
|
Diluted
|
|
$
|
(0.15
|
)
|
|
$
|
0.04
|
|
|
$
|
-
|
|
|
$
|
0.05
|
|
Net income (loss)
per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly net income (loss) per
share information may not equal annual net income (loss) per share.
Schedule II – Valuation and Qualifying
Accounts
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
|
|
|
Balance at
|
|
(In thousands)
|
|
of Year
|
|
|
Expenses
|
|
|
Deductions
|
|
|
End of Year
|
|
Valuation allowance for deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
6,782
|
|
|
$
|
1,802
|
(a)
|
|
$
|
-
|
|
|
$
|
8,584
|
|
2010
|
|
$
|
8,584
|
|
|
$
|
1,074
|
(a)
|
|
$
|
-
|
|
|
$
|
9,658
|
|
2011
|
|
$
|
9,658
|
|
|
$
|
932
|
(b)
|
|
$
|
(6,123
|
)(b)
|
|
$
|
4,467
|
|
|
(a)
|
In 2010 and 2009, the increase in valuation allowance is primarily associated with certain foreign
net operating losses. This increase in the valuation allowance was based on management’s assessment that, due to changing
business conditions and the limitation of tax planning strategies, the Company was not likely to fully realize these deferred tax
assets.
|
|
(b)
|
In 2011 the net decrease in the valuation allowance of $5.2 million was due primarily to the recognition
of gains in local tax jurisdictions on the transfer of certain intellectual property to SAG as well as the partial release of valuation
allowances in certain jurisdictions that management believes the deferred tax assets are more likely than not to be utilized.
|
Sucampo Pharmaceuticals, Inc.
Exhibit Index
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Reference
|
|
|
|
|
|
2.1
|
|
Agreement and Plan of Reorganization
|
|
Exhibit 3.1 to the Company's Current Report on Form 8-K (filed December 29, 2008)
|
|
|
|
|
|
2.2
|
|
Stock Purchase Agreement, dated December 23, 2010, by and among Dr. Ryuji Ueno, as trustee of the Ryuji Ueno Revocable Trust under Trust Agreement dated December 20, 2002, Dr. Sachiko Kuno as trustee of the Sachiko Kuno Revocable Trust under Trust Agreement dated December 20, 2002, Dr. Ryuji Ueno, Dr. Sachiko Kuno, Ambrent Investments S.à.r.l., and Sucampo Pharmaceuticals, Inc
|
|
Exhibit 2.1 to the Company’s Current Report on Form 8-K (filed December 29, 2010)
|
|
|
|
|
|
3.1
|
|
Certificate of Incorporation
|
|
Exhibit 3.1 to the Company’s Current Report on Form 8-K (filed December 29, 2008)
|
|
|
|
|
|
3.2
|
|
Certificate of Amendment
|
|
Exhibit 3.2 to the Company’s Current Report on Form 8-K (filed December 29, 2008)
|
|
|
|
|
|
3.3
|
|
Restated Bylaws
|
|
Exhibit 3.3 to the Company’s Current Report on Form 8-K (filed December 29, 2008)
|
|
|
|
|
|
4.1
|
|
Specimen Stock Certificate evidencing the shares of class A common stock
|
|
Exhibit 4.1 to Registration Statement No. 333-135133, Amendment No. 5 (filed February 1, 2007)
|
|
|
|
|
|
10.1^
|
|
Amended and Restated 2001 Stock Incentive Plan
|
|
Exhibit 10.1 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.2^
|
|
Amended and Restated 2006 Stock Incentive Plan
|
|
Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (filed November 14, 2007)
|
|
|
|
|
|
10.3^
|
|
2006 Employee Stock Purchase Plan
|
|
Exhibit 10.3 to Registration Statement No. 333-135133, Amendment No. 2 (filed October 20, 2006)
|
|
|
|
|
|
10.4^
|
|
Form of Incentive Stock Option Agreement for 2006 Stock Incentive Plan
|
|
Exhibit 10.4 to Registration Statement No. 333-135133, Amendment No. 2 (filed October 20, 2006)
|
|
|
|
|
|
10.5^
|
|
Form of Nonstatutory Stock Option Agreement for 2006 Stock Incentive Plan
|
|
Exhibit 10.5 to Registration Statement No. 333-135133, Amendment No. 2 (filed October 20, 2006)
|
|
|
|
|
|
10.6^
|
|
Form of Restricted Stock Agreement for 2006 Stock Incentive Plan
|
|
Exhibit 10.6 to Registration Statement No. 333-135133, Amendment No. 2 (filed October 20, 2006)
|
|
|
|
|
|
10.7^
|
|
Non-employee Director Compensation Summary
|
|
Exhibit 10.7 to Registration Statement No. 333-135133, Amendment No. 1 (filed August 11, 2006)
|
|
|
|
|
|
10.8^
|
|
Employment Agreement, dated June 16, 2006, between the Company and Ryuji Ueno
|
|
Exhibit 10.9 to Registration Statement No. 333-135133, Amendment No. 1 (filed August 11, 2006)
|
|
|
|
|
|
10.9^
|
|
Form of Executive Employment Agreement
|
|
Exhibit 10.10 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.1
|
|
Indemnification Agreement, dated May 26, 2004, between the Company and Sachiko Kuno
|
|
Exhibit 10.11 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
10.11
|
|
Indemnification Agreement, dated May 26, 2004, between the Company and Ryuji Ueno
|
|
Exhibit 10.12 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.12
|
|
Indemnification Agreement, dated May 26, 2004, between the Company and Michael Jeffries
|
|
Exhibit 10.13 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.13
|
|
Indemnification Agreement, dated May 26, 2004, between the Company and Hidetoshi Mine
|
|
Exhibit 10.14 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.14
|
|
Form of Investor Rights Agreement
|
|
Exhibit 10.16 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.15
|
|
Lease Agreement, dated September 16, 1998, between the Company and Plaza West Limited Partnership, successor in interest to Trizechahn Plaza West Limited Partnership, as amended
|
|
Exhibit 10.17 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.16
|
|
Sublease Agreement, dated October 26, 2005, between the Company and First Potomac Realty Investment L.P.
|
|
Exhibit 10.18 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.17
|
|
Amended and Restated Patent Access Agreement, dated June 30, 2006, among the Company, Sucampo Pharma Europe Ltd., Sucampo Pharma, Ltd. and Sucampo AG
|
|
Exhibit 10.19 to Registration Statement No. 333-135133, Amendment No. 1 (filed August 11, 2006)
|
|
|
|
|
|
10.18*
|
|
Exclusive Manufacturing and Supply Agreement, dated June 23, 2004, between the Company and R-Tech Ueno, Ltd., as amended on October 2, 2006
|
|
Exhibit 10.20 to Registration Statement No. 333-135133, Amendment No. 3 (filed October 25, 2006)
|
|
|
|
|
|
10.19*
|
|
Collaboration and License Agreement, dated October 29, 2004, between the Company and Takeda Pharmaceutical Company Limited
|
|
Exhibit 10.21 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.20*
|
|
Agreement, dated October 29, 2004, among the Company, Takeda Pharmaceutical Company Limited and Sucampo AG
|
|
Exhibit 10.22 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.21*
|
|
Supply Agreement, dated October 29, 2004, among the Company, Takeda Pharmaceutical Company Limited and R-Tech Ueno, Ltd.
|
|
Exhibit 10.23 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.22*
|
|
Supply and Purchase Agreement, dated January 25, 2006, among the Company, Takeda Pharmaceutical Company Limited and R-Tech Ueno, Ltd.
|
|
Exhibit 10.24 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.23*
|
|
Supplemental Agreement, dated February 1, 2006, between the Company and Takeda Pharmaceutical Company Limited
|
|
Exhibit 10.25 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
|
|
|
|
|
10.24*
|
|
Services Agreement, dated February 9, 2006, between the Company and Ventiv Commercial Services, LLC
|
|
Exhibit 10.26 to Registration Statement No. 333-135133, (filed June 19, 2006)
|
10.25
|
|
Indemnification Agreement, dated September 7, 2006, between the Company and Timothy Maudlin
|
|
Exhibit 10.27 to Registration Statement No. 333-135133, Amendment No. 2 (filed October 20, 2006)
|
|
|
|
|
|
10.26
|
|
Indemnification Agreement, dated September 7, 2006, between the Company and Sue Molina
|
|
Exhibit 10.28 to Registration Statement No. 333-135133, Amendment No. 2 (filed October 20, 2006)
|
|
|
|
|
|
10.27*
|
|
Exclusive Manufacturing and Supply Agreement, dated June 24, 2005, between Sucampo Pharma Europe Ltd. and R-Tech Ueno, Ltd., as amended on October 2, 2006
|
|
Exhibit 10.29 to Registration Statement No. 333-135133, Amendment No. 3 (filed October 25, 2006)
|
|
|
|
|
|
10.28*
|
|
SPI-8811 and SPI-017 Exclusive Clinical Manufacturing and Supply Agreement, dated October 4, 2006, between the Company and R-Tech Ueno, Ltd.
|
|
Exhibit 10.31 to Registration Statement No. 333-135133, Amendment No. 3 (filed October 25, 2006)
|
|
|
|
|
|
10.29
|
|
Lease Agreement, dated December 18, 2006, between the Company and EW Bethesda Office Investors, LLC
|
|
Exhibit 10.29 to the Company’s Annual Report on Form 10-K (filed March 27, 2008)
|
|
|
|
|
|
10.30^
|
|
Amendment to Employment Agreement, dated November 20, 2006, between the Company and Ryuji Ueno
|
|
Exhibit 10.35 to Registration Statement No. 333-135133, Amendment No. 5 (filed February 1, 2007)
|
|
|
|
|
|
10.31
|
|
Letter agreement, dated January 29, 2007, between the Company and Takeda Pharmaceutical Company Limited
|
|
Exhibit 10.36 to Registration Statement No. 333-135133, Amendment No. 6 (filed May 14, 2007)
|
|
|
|
|
|
10.32^
|
|
Employment Agreement, effective June 1, 2007, between the Company and Sachiko Kuno
|
|
Exhibit 10.37 to Registration Statement No. 333-135133, Amendment No. 8 (filed July 17, 2007)
|
|
|
|
|
|
10.34
|
|
Indemnification Agreement, dated October 18, 2007, between the Company and Anthony C. Celeste
|
|
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (filed November 14, 2007)
|
|
|
|
|
|
10.38^
|
|
Amendment, dated December 6, 2007, to Employment Agreement between the Company and Gayle Dolecek
|
|
Exhibit 10.4 to the Company’s Current Report on Form 8-K (filed December 14, 2007)
|
|
|
|
|
|
10.40^
|
|
Amendment, dated November 26, 2007, to Employment Agreement between the Company and Ryuji Ueno
|
|
Exhibit 10.6 to the Company’s Current Report on Form 8-K (filed December 14, 2007)
|
|
|
|
|
|
10.41
|
|
Credit Line Agreement, dated March 5, 2008, between the Company and UBS Bank USA
|
|
Exhibit 10.41 to the Company’s Current Report on Form 10-K (filed March 27, 2008)
|
|
|
|
|
|
10.42
|
|
Amended and Restated Patent Access Agreement, dated February 18, 2009, among the Company, Sucampo Pharma Europe, Ltd., Sucampo Pharma, Ltd. and Sucampo AG
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed February 19, 2009)
|
|
|
|
|
|
10.43*
|
|
Supply Agreement, dated February 19, 2009, between Sucampo Pharma Ltd and Abbott Japan Co. Ltd.
|
|
Exhibit 10.43 to the Company’s Current Report on Form 10-K (filed March 16, 2009)
|
10.44*
|
|
Exclusive Manufacturing and Supply Agreement, dated February 23, 2009, between Sucampo Pharma, Ltd and R-Tech Ueno, Ltd.
|
|
Exhibit 10.44 to the Company’s Current Report on Form 10-K (filed March 16, 2009)
|
|
|
|
|
|
10.45
|
|
Indemnification Agreement by and between the Company and Andrew J. Ferrara
|
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Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed July 22, 2008)
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10.46
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Separation Agreement and General Release by and between the Company and Mariam E. Morris
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Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed July 28, 2008)
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10.47
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Consulting Agreement by and between the Company and Mariam E. Morris
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Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed July 28, 2008)
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10.48*
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Form of Nonstatutory Stock Option Agreement for Non-Employee Directors
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Exhibit 10.1 to the Company’s Current Report on Form 10-Q (filed November 6, 2009)
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10.49
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Special Agreement, dated November 22, 2010, between Sucampo Pharma, Ltd., Osaka, Japan, a wholly-owned subsidiary of the Company, and The Bank of Tokyo-Mitsubishi UFJ, Ltd
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Exhibit 10.49 to the Company’s Current Report on Form 10-K (filed March 8, 2011)
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10.50
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Agreement on Bank Overdrafts, dated November 18, 2010, between Sucampo Pharma, Ltd., Osaka, Japan, a wholly-owned subsidiary of the Company, and The Bank of Tokyo-Mitsubishi UFJ, Ltd.
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Exhibit 10.50 to the Company’s Current Report on Form 10-K (filed March 8, 2011)
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10.51
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Subordinated Unsecured Promissory Note, dated December 23, 2010, between Ambrent Investments S.à r.l., as borrower, and Ryuji Ueno Revocable Trust Under Trust Agreement dated December 20, 2002, as lender
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Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed December 29, 2010)
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10.52
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Subordinated Unsecured Promissory Note, dated December 23, 2010, between Ambrent Investments S.à.r.l., as borrower, and Sachiko Kuno Revocable Trust Under Trust Agreement dated December 20, 2002, as lender
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Exhibit 10.2 to the Company’s Current Report on Form 8-K (filed December 29, 2010)
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10.53
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Non-Competition Agreement, dated as of December 23, 2010 by and among Dr. Ryuji Ueno, as trustee of the Ryuji Ueno Revocable Trust under Trust Agreement dated December 20, 2002, Dr. Sachiko Kuno as trustee of the Sachiko Kuno Revocable Trust under Trust Agreement dated December 20, 2002, Dr. Ryuji Ueno, Dr. Sachiko Kuno, Ambrent Investments S.à r.l., and Sucampo Pharmaceuticals, Inc
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Exhibit 10.3 to the Company’s Current Report on Form 8-K (filed December 29, 2010)
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10.54^
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Separation Agreement and General Release, dated January 28, 2011, between the Company and Jan Smilek
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Exhibit 99.1 to the Company’s Current Report on Form 8-K (filed February 2, 2011)
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10.55^
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Consulting Agreement, dated January 13, 2011, between the Company and Jan Smilek
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Exhibit 99.2 to the Company’s Current Report on Form 8-K (filed February 2, 2011)
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10.56
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Form of Sucampo Pharmaceuticals, Inc. Duration and Performance-Based Stock Option Incentive Award
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Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed May 6, 2011)
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10.57
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Exclusive License for Development and Commercialization of Unoprostone dated March 22, 2011, between Sucampo Manufacturing & Research AG and R-Tech Ueno, Ltd.
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Exhibit 10.3 to the Company's Current Report on Form 10-Q (filed May 10, 2011)
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10.58*
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Loan Guarantee and Development Agreement, dated September 8, 2011, between Numab AG and Sucampo AG
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Included herewith
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10.59
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Form of Settlement and Mutual Release Agreement, dated October 26, 2011, between Sucampo Pharmaceuticals, Inc. and Covance Inc.
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Exhibit 10.2 to the Company’s Current Report on Form 10-Q (filed November 9, 2011)
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10.60
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Employment Agreement, effective as of October 17, 2011, between the Company and Cary J. Claiborne
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Included herewith
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101.[INS]†
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XBRL Instance Document
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Included herewith
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101.[SCH]†
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XBRL Taxonomy Extension Schema Document
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Included herewith
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101.[CAL]†
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XBRL Taxonomy Extension Calculation Linkbase Document
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Included herewith
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101.[LAB]†
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XBRL Taxonomy Extension Label Linkbase Document
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Included herewith
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101.[PRE]†
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XBRL Taxonomy Extension Presentation Linkbase Document
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Included herewith
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21
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Subsidiaries of the Company
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Exhibit 21 to the Company’s Current Report on Form 10-K (filed March 16, 2009)
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23.1
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Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
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Included herewith
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31.1
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Certification of the Principal Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002
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Included herewith
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31.2
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Certification of the Principal Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002
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Included herewith
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32.1
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Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
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Included herewith
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32.2
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Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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Included herewith
|
^ Compensatory plan, contract or arrangement.
*
Confidential
treatment has been granted for portions of this exhibit.
† Attached as Exhibit 101 to this report
are documents formatted in XBRL (Extensible Business Reporting Language). Users of this data are advised that, pursuant to Rule
406T of Regulation S-T, the interactive data file is deemed not filed or part of a registration statement or prospectus for purposes
of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, and is otherwise not subject to liability under these sections.
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