Sucampo Pharmaceuticals: Energising Opportunity

FDA approval for Amitiza (SCMP) to treat opioid-induced constipation (OIC) in adults with chronic, non-cancer pain has sparked a 40% share price rally. OIC affects ~2.5m patients in the US, and with Amitiza the only available therapy and safety concerns over potential competitors, OIC is a significant new market opportunity. We model $215m peak US sales in OIC and have increased our total US peak sales estimate to $665m (vs $590m), on the back of strong Q412 sales in other constipation disorders. We therefore raise our overall valuation of Sucampo to $420m, or $10.00 per share (vs $335m, $8/share). Sucampo is now trading close to its fair value, although upside exists in Amitiza’s commercial potential in Europe.

Energising opportunity
Expansion of Amitiza’s label to OIC provides US partner Takeda with a great opportunity to energise its promotion of the drug, which had been criticised by Sucampo and was the subject of legal disputes between the companies. With the FDA’s safety concerns over mu opioid antagonists potentially stalling a number of competitors (Relistor, naloxegol, bevenopran and TD-1211), Amitiza may have a free run at OIC, an easier market to target (than chronic/irritable bowel-related constipation). OIC patients are actively managed by physicians more aware of treatment options for constipation and more likely to prescribe a drug like Amitiza (vs OTC laxatives), especially if it is approved for multiple constipation types. FDA approval for OIC triggers a $10m milestone payment from Takeda.

Amitiza absorbing Linzess challenge
Our analysis of prescription trend data suggests that, so far, Amitiza has largely been unaffected by the US launch of Linzess (Ironwood/Forest) in December 2012, Amitiza’s first direct competitive threat since Zelnorm was withdrawn in 2007. Indeed, with Ironwood reporting that 60% of Linzess prescriptions are for new patients switching from OTC laxatives, the entrance of Linzess would appear to be expanding the market for the use of Rx drugs in constipation (currently <10%).

Valuation: OIC and Amitiza Rx boost to $10.00/share
Removing Amitiza’s risk-adjustment for OIC, increasing peak US sales, applying an estimated tiered-royalty rate on increased sales, and a better-than-expected margin on Amitiza transfer revenues to AbbVie for sale in Japan, boosts our overall valuation of Sucampo to $420m ($335m), or $10.00 ($8.00) per share. Sucampo’s >40% share price gain to $9.51 on the back of Amitiza’s OIC approval brings the stock close to our fair valuation. However, we acknowledge upside potential as our valuation does not currently include Amitiza’s commercial opportunity in Europe (peak sales $100-150m), and further line extensions for Amitiza and Rescula.

To Read the Entire Report Please Click on the pdf File Below.