Sucampo Pharmaceuticals Inc. Reports Operating Results (10-Q)
Sucampo Pharmaceuticals Inc. is an emerging pharmaceutical company focused on the discovery development and commercialization of proprietary drugs based on prostones a class of compounds derived from functional fatty acids that occur naturally in the human body. Sucampo is focused on developing prostones for the treatment of gastrointestinal respiratory vascular and central nervous system diseases and disorders. Sucampo Pharmaceuticals Inc. has a market cap of $168.2 million; its shares were traded at around $4.02 with and P/S ratio of 1.4. Highlight of Business Operations:Under the terms of the 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 re-launch of Rescula for the treatment of glaucoma and is considered probable of occurring; 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 September 30, 2009, both of which are reflected in other non-current assets in the accompanying condensed consolidated balance sheet. 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. The annual amortization expense is estimated at approximately $342,000 through April 2019.
Product royalty revenue represents royalty revenue earned on net sales of Amitiza in the United States. For the three months ended September 30, 2009 and 2008, we recognized $9.4 million and $7.7 million, respectively, of product royalty revenue, an increase of $1.7 million or 21.4%. This increase is to a large extent attributable to the method of revenue recognition used for the royalty revenue recorded from the initial stocking of inventory of Amitiza 8 mcg for IBS-C during 2008. Based on the terms of our agreement with Takeda, we recognized approximately $1.9 million of product royalty immediately upon the initial stocking that was completed in May 2008, rather than as those stocks were drawn down during the subsequent two quarters. The increase also reflects the growth in net sales of Amitiza, which for the three months ended September 30, 2009 and 2008 were approximately $52.0 million and $50.8 million, respectively.
Research and development revenue was $20.0 million for the nine months ended September 30, 2009, compared to $67.0 million for the nine months ended September 30, 2008, a decrease of $47.0 million or 70.2%. This decrease was primarily due to the $50.0 million development milestone received from Takeda in May 2008 upon FDA approval of Amitiza for the treatment of the IBS-C in adult women that was immediately recognized as research and development revenue. The decrease also reflects reduced revenue recognized in respect to the pediatric, renal, hepatic and OBD trials for Amitiza funded by Takeda. The research and development revenue in 2009 also reflects the $7.4 million in revenue recognized from the initial $10.0 million upfront payment and the $7.5 million development milestone payment received under the agreement with Abbott.
For the nine months ended September 30, 2009 and 2008, we recognized $27.2 million and $24.7 million, respectively, of product royalty revenue, an increase of $2.5 million or 10.2%. The increase reflects primarily the growth in net sales of Amitiza to approximately $151.2 million for the nine months ended September 30, 2009 from $134.7 million in the same period in 2008.
General and administrative expenses were $10.7 million for the nine months ended September 30, 2009, compared to $10.6 million for the nine months ended September 30, 2008, an increase of $105,000 or 1.0%. The decrease in salaries, benefits and related costs was primarily attributable to a reduction in force in January 2009 and an overall reduction in incentive compensation for 2009. The increase in legal, consulting and other professional expenses was primarily a result of $1.8 million in costs incurred in the preparation and the on-going conduct of a performance audit under our contract with Takeda and in a certain one-time business development effort that we elected not to pursue.
Milestone royalties related parties expense was $875,000 for the nine months ended September 30, 2009, compared to $3.5 million for the nine months ended September 30, 2008. The milestone royalties of $875,000 reflect the 5% royalty payments to SAG as a result of the $10.0 million upfront payment and the $7.5 million development milestone payment we received from Abbott in 2009. The milestone royalties of $3.5 million for the nine months ended September 30, 2008 consist of $1.0 million paid to SAG upon the filing of the European MAAs, and of $2.5 million paid to SAG, reflecting 5% of the $50.0 million development milestone payment that we received from Takeda in 2008.
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