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Key Risks Facing Sucampo Pharmaceuticals in 2017

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High level of debt

In addition to industry-specific risks, Sucampo Pharmaceuticals (SCMP) faces some key company-specific risks.

Sucampo has taken on a significant level of debt. Its outstanding debt is ~$300 million. Its interest expense has increased from $1.5 million in 2014 and $6.8 million in 2015 to $23.7 million in 2016. The company’s long-term debt-to-equity ratio stands at 7.37. Its peers Allergan (AGN), AstraZeneca (AZN), and Valeant Pharmaceuticals International (VRX) have ratios of 0.40, 1.23, and 4.92, respectively.

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Reliance on Amitiza

Sucampo Pharmaceuticals relies heavily on Amitiza sales. It’s aiming to extend the life cycle of the product with its clinical trial for children ages six to 17 years old. The PDUFA (Prescription Drug User Fee Act) date set by the FDA (U.S. Food & Drug Administration) is January 28, 2017. With Synergy Pharmaceuticals’ (SGYP) Trulance already on the market, the competitive landscape has become tougher for Amitiza. Amitiza has been on the market for 12 years, and with the patent expiration closing in, Sucampo is banking on its drug pipeline. Its competition still in development stages include tenapanor by Ardelyx targeted for IBS-C (irritable bowel syndrome with constipation), which is currently in a Phase 3 trial. Other competition includes elobixibat by Albireo Pharma (ALBO) being developed for CIC (chronic idiopathic constipation) and currently in a Phase 3 trial in Japan and a Phase 2 trial in the United States.

Reliance on Mylan and Takeda

Sucampo Pharmaceuticals receives 65% of its revenues from Takeda Pharmaceuticals (TKPYY) and 35% from Mylan. This is a significant concentration of revenue. Takeda has the global commercialization rights for Amitiza except for Japan and China. Mylan has the commercialization rights for Amitiza in Japan. A decrease of royalties from either of these companies could significantly affect Sucampo’s top line.

Sucampo makes up 0.11% of the SPDR S&P 600 Small Cap Growth’s (SLYG) total portfolio holdings.

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