Unassociated Document


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarterly period ended March 31, 2011
   
 
OR
   
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the transition period from          to

Commission File Number: 001-33609

SUCAMPO PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
30-0520478
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
     
4520 East-West Highway, 3rd Floor
 
(301) 961-3400
Bethesda, MD 20814
 
(Registrant’s telephone number,
(Address of principal executive offices,
 
including area code)
including zip code)
   

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 of 1934 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 þ     No ¨

Indicate by check mark 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes¨   No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. Please see definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨
Accelerated filer þ
Non accelerated filer ¨
Smaller reporting company ¨
   
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

As of May 4, 2011, there were 15,660,682 shares of the registrant’s class A common stock outstanding and 26,191,050 shares of the registrant’s class B common stock outstanding.
 


 
 

 
 
Sucampo Pharmaceuticals, Inc.

Form 10-Q Index

   
Page
Part I.  FINANCIAL INFORMATION
   
Item 1.
Financial Statements
  1
 
Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010 (Unaudited)
  1
 
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) for the Three Months Ended March 31, 2011 and 2010
    2
 
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2011
  3
 
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2011 and 2010
  4
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
  5
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  21
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
  30
Item 4.
Controls and Procedures
  30
Part II.  OTHER INFORMATION
   
Item 1.
Legal Proceedings
  32
Item 1A.
Risk Factors
  32
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
  32
Item 3.
Defaults Upon Senior Securities
  32
Item 4.
Reserved
  32
Item 5.
Other Information
  32
Item 6.
Exhibits
  33
SIGNATURES
  34
INDEX TO EXHIBITS
   

 
 

 
 
PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements

SUCAMPO PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)

   
March 31,
   
December 31,
 
   
2011
   
2010
 
ASSETS:
           
             
Current assets:
           
Cash and cash equivalents
  $ 48,358     $ 49,243  
Investments, current
    48,481       54,524  
Product royalties receivable
    9,118       10,516  
Unbilled accounts receivable
    2,579       1,097  
Accounts receivable, net
    623       731  
Prepaid and income taxes receivable
    3,587       702  
Deferred tax assets, net
    99       243  
Restricted cash
    15,113       15,113  
Prepaid expenses and other current assets
    1,954       2,374  
Total current assets
    129,912       134,543  
                 
Investments, non-current
    3,007       5,028  
Property and equipment, net
    1,993       2,025  
Deferred tax assets, non-current
    4,324       4,178  
Other assets
    9,467       3,499  
Total assets
  $ 148,703     $ 149,273  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY:
               
                 
Current liabilities:
               
Accounts payable
  $ 3,139     $ 4,199  
Accrued expenses
    17,180       10,216  
Deferred revenue, current
    4,763       4,987  
Notes payable, current
    19,522       19,522  
Total current liabilities
    44,604       38,924  
                 
Notes payable, non-current
    45,009       44,439  
Deferred revenue, non-current
    7,872       8,321  
Other liabilities
    3,701       3,759  
Total liabilities
    101,186       95,443  
                 
Commitments (Note 7)
               
                 
Stockholders' equity:
               
Preferred stock, $0.01 par value; 5,000,000 shares authorized at March 31, 2011 and December 31, 2010; no shares issued and outstanding at March 31, 2011 and December 31, 2010
    -       -  
Class A common stock, $0.01 par value; 270,000,000 shares authorized at March 31, 2011 and December 31, 2010; 15,660,682 and 15,659,917 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively
    156       156  
Class B common stock, $0.01 par value; 75,000,000 shares authorized at March 31, 2011 and December 31, 2010; 26,191,050 shares issued and outstanding at March 31, 2011 and December 31, 2010
    262       262  
Additional paid-in capital
    58,616       58,468  
Accumulated other comprehensive income
    17,022       16,574  
Accumulated deficit
    (28,539 )     (21,630 )
Total stockholders' equity
    47,517       53,830  
Total liabilities and stockholders' equity
  $ 148,703     $ 149,273  

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
1

 
 
SUCAMPO PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
(In thousands, except per share data)

   
Three Months Ended March 31,
 
   
2011
   
2010
 
             
Revenues:
           
Research and development revenue
  $ 1,964     $ 4,057  
Product royalty revenue
    9,118       9,773  
Co-promotion revenue
    938       855  
Contract and collaboration revenue
    154       151  
Total revenues
    12,174       14,836  
                 
Operating expenses:
               
Research and development
    9,220       5,366  
General and administrative
    9,697       5,894  
Selling and marketing
    2,418       2,187  
Total operating expenses
    21,335       13,447  
                 
Income (loss) from operations
    (9,161 )     1,389  
Non-operating income (expense):
               
Interest income
    70       213  
Interest expense
    (611 )     -  
Other income (expense), net
    (135 )     607  
Total non-operating income (expense), net
    (676 )     820  
                 
Income (loss) before income taxes
    (9,837 )     2,209  
Income tax benefit (provision)
    2,928       (409 )
Net income (loss)
  $ (6,909 )   $ 1,800  
                 
Net income (loss) per share:
               
Basic net income (loss) per share
  $ (0.17 )   $ 0.04  
Diluted net income (loss) per share
  $ (0.17 )   $ 0.04  
Weighted average common shares outstanding - basic
    41,851       41,847  
Weighted average common shares outstanding - diluted
    41,851       41,849  
                 
Comprehensive income (loss):
               
Net income (loss)
  $ (6,909 )   $ 1,800  
Other comprehensive income (loss):
               
Unrealized gain (loss) on investments, net of tax effect
    11       (17 )
Foreign currency translation
    437       (745 )
Comprehensive income (loss)
  $ (6,461 )   $ 1,038  

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
2

 
 
SUCAMPO PHARMACEUTICALS, INC.
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)
(In thousands, except share data)

                                 
Accumulated
             
   
Class A
   
Class B
   
Additional
   
Other
         
Total
 
   
Common Stock
   
Common Stock
   
Paid-In
   
Comprehensive
   
Accumulated
   
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Income
   
Deficit
   
Equity
 
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
    -       -       -       -       145       -       -       145  
Stock issued under employee stock purchase plan
    765       -       -       -       3       -       -       3  
Foreign currency translation
    -       -       -       -       -       437       -       437  
Unrealized gain on investments, net of tax effect
    -       -       -       -       -       11       -       11  
Net loss
    -       -       -       -       -       -       (6,909 )     (6,909 )
Balance at March 31, 2011
    15,660,682     $ 156       26,191,050     $ 262     $ 58,616     $ 17,022     $ (28,539 )   $ 47,517  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
3

 
 
SUCAMPO PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)

   
Three Months Ended March 31,
 
   
2011
   
2010
 
             
Cash flows from operating activities:
           
Net income (loss)
  $ (6,909 )   $ 1,800  
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
               
Depreciation and amortization
    249       230  
Loss on disposal of fixed assets
    -       1  
Deferred tax provision
    (12 )     138  
Stock-based compensation
    145       145  
Amortization of premiums on investments
    292       461  
Notes payable paid-in-kind interest
    570       -  
Changes in operating assets and liabilities:
               
Accounts receivable
    108       395  
Unbilled accounts receivable
    (1,482 )     217  
Product royalties receivable
    1,398       1,250  
Prepaid and income taxes receivable and payable, net
    (2,893 )     (453 )
Accounts payable
    (1,065 )     (1,152 )
Accrued expenses
    3,902       (318 )
Deferred revenue
    (640 )     (3,461 )
Other assets and liabilities, net
    290       568  
Net cash used in operating activities
    (6,047 )     (179 )
                 
Cash flows from investing activities:
               
Purchases of investments
    (8,790 )     (35,778 )
Proceeds from sales of investments
    1,248       1,500  
Maturities of investments
    15,335       24,917  
Purchases of property and equipment
    (133 )     (95 )
Proceeds from disposals of property and equipment
    -       3  
Purchases of intangible assets
    (3,000 )     -  
Net cash provided by (used in) investing activities
    4,660       (9,453 )
                 
Cash flows from financing activities:
               
Issuance of notes receivable
    -       (717 )
Proceeds from employee stock purchase plan
    3       5  
Net cash provided by (used in) financing activities
    3       (712 )
                 
Effect of exchange rates on cash and cash equivalents
    499       (792 )
                 
Net decrease in cash and cash equivalents
    (885 )     (11,136 )
Cash and cash equivalents at beginning of period
    49,243       61,420  
Cash and cash equivalents at end of period
  $ 48,358     $ 50,284  
                 
Supplemental disclosure of non-cash investing and financing activities:
               
Purchase of intangible assets included in accrued expenses
  $ 3,000     $ -  

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
4

 
 
SUCAMPO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.
Business Organization and Basis of Presentation

Description of the Business

Sucampo Pharmaceuticals, Inc., or the Company, is an international pharmaceutical company focused on the discovery, development and commercialization of proprietary drugs based on prostones. Prostones are a class of compounds that occur naturally in the human body as a result of enzymatic, 15-PGDH, transformation of certain fatty acids. The Company is focused on developing prostones for the treatment of gastrointestinal, ophthalmic, respiratory, vascular and central nervous system diseases and other disorders for which there are unmet or underserved medical needs and significant commercial potential.

The therapeutic potential of prostones was first identified by one of our founders, Dr. Ryuji Ueno. To date, two prostone products have received marketing approval. AMITIZA® (lubiprostone) is a treatment approved by the U.S. Food and Drug Administration, or FDA, for chronic idiopathic constipation, or CIC, in adults of both genders and for irritable bowel syndrome with constipation, or IBS-C, in women aged 18 years and older. RESCULA® (unoprostone isopropyl) is FDA approved for the 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.

AMITIZA is being marketed and developed in the U.S. for gastrointestinal indications under a collaboration and license agreement, dated October 29, 2004, or the Takeda Agreement, with Takeda Pharmaceutical Company Limited, or Takeda. The Company is primarily responsible for 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-induced bowel dysfunction, or OBD. Takeda also holds marketing rights to AMITIZA in Canada, but has not yet commercialized it there. The Company has also entered into a supplemental agreement with Takeda on February 1, 2006, 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.

In Japan, lubiprostone is being developed under a license, commercialization and supply agreement, or the Abbott Agreement, with Abbott Japan Co. Ltd., or Abbott. The Company plans to file for approval in the United Kingdom for CIC and continues to evaluate the opportunities to obtain an appropriate label in the European Union based on the fact that lubiprostone is the only product approved by the FDA in the U.S. for chronic therapy for either CIC or IBS-C and received marketing authorization from Swissmedic, the Swiss Agency for Therapeutic Products, in November 2009 for CIC. The Company holds all development and commercialization rights to lubiprostone except in the U.S., Canada and Japan.

In April 2009, the Company acquired the rights from a related party under common control, R-Tech Ueno, Ltd. or R-Tech, a pharmaceutical research, development and manufacturing company in Japan, that is majority owned by our founders, to unoprostone isopropyl which allow the Company to commercialize RESCULA in the U.S. and Canada for its approved indication and all indications for the use of unoprostone isopropyl developed by the Company and R-Tech. On March 22, 2011, Sucampo Manufacturing & Research AG, or SMR, a wholly-owned subsidiary of the Company, entered into a license agreement with R-Tech for unoprostone isopropyl, expanding the rights of the Company’s subsidiaries beyond their previously agreed territory of the United States and Canada (those rights are held by Sucampo Pharma Americas, Inc.) to all countries in Europe and the rest of the world except Japan, Korea, Taiwan and the People’s Republic of China, or SMR Territories. The Company is evaluating the opportunities to obtain an appropriate label in the European Union 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 prevention of gastric ulcers and other gastrointestinal injuries in patients treated with non-steroidal anti-inflammatory drugs, or NSAIDs, for use as a treatment for chronic obstructive pulmonary disease, or COPD, and as a potential treatment for oral mucositis. Additionally, the Company is developing SPI-017 for peripheral arterial disease, or PAD, and SPI-3608 as a potential for the management of pain caused by spinal stenosis.
 
 
5

 
 
SUCAMPO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, and the rules and regulations of the Securities and Exchange Commission, or SEC, for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements as of and for the year ended December 31, 2010 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on March 8, 2011. The financial information as of March 31, 2011 and for the three months ended March 31, 2011 and 2010 is unaudited. In the opinion of the Company’s management, all adjustments, consisting only of normal recurring adjustments or accruals, considered necessary for a fair statement of the results of these interim periods have been included. The results of the Company’s operations for any interim period are not necessarily indicative of the results that may be expected for any other interim period or for a full fiscal year.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: Sucampo Pharma Ltd., based in Tokyo and Osaka, Japan, through which the Company conducts its Asian and Oceania operations; Sucampo Pharma Americas, Inc., based in Bethesda, Maryland, through which the Company conducts its operations in North and South America; Sucampo Pharma Europe Ltd., based in Oxford, U.K., in which we conduct certain operations in Europe; Sucampo AG, or SAG, and Sucampo Manufacturing & Research AG, based in Switzerland (through which the Company conducts certain operations in Europe and the rest of the world); Sucampo AG Japan, based in Osaka, Japan; and Ambrent Investments S.à r.l., based in Luxembourg. All significant inter-company balances and transactions have been eliminated.

In December 2010, the Company acquired Sucampo AG, or SAG, a Swiss-based patent-holding company, and its wholly-owned subsidiary SAG-J, a patent maintenance company. The acquisition of SAG and its subsidiary 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 condensed 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 condensed consolidated balance sheets and statements of cash flows, cash equivalents include all highly liquid investments with a maturity of 90 days or less at the time of purchase.

Restricted Cash

Restricted cash amounted to approximately $15.1 million at March 31, 2011 and December 31, 2010. 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 and operating leases.

Current and Non-current Investments

Current and non-current investments consist primarily of U.S. Treasury bills and notes, U.S. government agencies securities, U.S. commercial paper, municipal and corporate bonds, mutual funds, variable rate demand notes, or VRDNs, and certificates of deposits. 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, as available for sale securities and reports unrealized gains or losses, net of related tax effects, in other comprehensive income.

Fair Value

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.

 
6

 
 
SUCAMPO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)

Revenue Recognition

The Company’s revenues are derived primarily from collaboration and license agreements and include up-front 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 the Abbott Agreement, including the related rights and obligations, contractual cash flows and performance periods, are more fully described in Note 10 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 of such product when earned.

The Company has also entered into the Supplemental Takeda Agreement, which consists 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 recognizes as revenue as the related costs are incurred and Takeda becomes contractually obligated to pay the amounts.

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 the Takeda Agreements and the Abbott Agreement and, as such, records revenue on a gross basis in the condensed consolidated statements of operations and comprehensive income (loss).

 
7

 
 
SUCAMPO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)

Contract Revenue

Contract revenue relates to development and consulting activities with R-Tech and is accounted for under the time-based model.

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 March 31, 2011 and December 31, 2010, approximately $33.0 million, or 28.7%, and $34.1 million, or 27.6%, respectively, of the Company’s cash, cash equivalents, restricted cash and investments was 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, does and will, respectively, 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 94.8% and 80.7%, of the Company’s total revenues for the three months ended March 31, 2011 and 2010, respectively. Accounts receivable, unbilled accounts receivable and product royalties receivable from Takeda accounted for 99.9% of the Company’s total accounts receivable, unbilled accounts receivable and product royalties receivable at March 31, 2011 and December 31, 2010. Revenues from another unrelated party, Abbott, accounted for 4.3% and 18.6% of the Company’s total revenues for the three months ended March 31, 2011 and 2010, respectively. The Company depends significantly upon the collaborations with Takeda and Abbott and its activities may be impacted if these relationships are disrupted (see Note 10 below for additional details).

The Company has an exclusive supply arrangement with R-Tech to provide it with commercial and clinical supplies of its product and product candidates. 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 (see Note 8 below for additional details).

Error in Previously Issued Financial Statements

The Company incorrectly classified certain VRDNs as cash equivalents rather than short-term investments in its previously filed financial statements for the quarter ended March 31, 2010. The misclassification resulted in an immaterial error to the Company's quarterly balance sheet and statement of cash flows, whereby cash balances and net cash provided by investing activities were overstated by $14.8 million for the first quarter of 2010. The March 31, 2010 quarterly cash flow statement has been revised.
 
 
8

 
 
SUCAMPO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)

Recent Accounting Pronouncements

In September 2009, the Financial Accounting Standards Board, or FASB, issued an amendment to the authoritative guidance which addresses how revenues should be allocated among products and services in a singular sales arrangement. The guidance establishes a hierarchy for determining the selling price of each product or service, with vendor-specific objective evidence, or VSOE, at the highest level, third-party evidence of VSOE at the intermediate level, and management's best estimate at the lowest level. It replaces "fair value" with "selling price" in revenue allocation guidance. It also significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. This guidance will be effective prospectively for agreements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company adopted the guidance effective January 1, 2011, and such adoption did not have an impact on the Company’s condensed consolidated financial statements.

3.      Earnings 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 months ended March 31, 2011 and 2010 is shown below:

   
Three Months Ended March 31,
 
(in thousands, except per share data)
 
2011
   
2010
 
Basic net income (loss) per share:
           
Net income (loss)
  $ (6,909 )   $ 1,800  
                 
Weighted average class A and B common shares outstanding
    41,851       41,847  
                 
Basic net income (loss) per share
  $ (0.17 )   $ 0.04  
                 
Diluted net income (loss) per share:
               
Net income (loss)
  $ (6,909 )   $ 1,800  
                 
Weighted average class A and B common shares outstanding for diluted net income per share
    41,851       41,849  
                 
Diluted net income (loss) per share
  $ (0.17 )   $ 0.04  

For the periods listed above, the potentially dilutive securities used in the calculations of diluted historical net loss per share as of March 31, 2011 and 2010 are shown below:

   
March 31,
 
(In thousands)
 
2011
   
2010
 
Employee stock options
    -       52  
Non-employee stock options
    -       -  

For the periods listed above, the following securities were excluded from the computation of diluted net loss per share as their effect would be anti-dilutive as of March 31, 2011 and 2010 are shown below:

   
March 31,
 
(In thousands)
 
2011
   
2010
 
Employee stock options
    1,528       1,092  
Non-employee stock options
    450       450  

 
9

 
 
SUCAMPO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)

4.
Current and Non-Current Investments

At March 31, 2011 and December 31, 2010, current and non-current available-for-sale investments consisted of the following securities:

   
March 31, 2011
 
         
Unrealized
   
Unrealized
       
(In thousands)
 
Cost
   
Gains
   
Losses
   
Fair Value
 
Current:
                       
U.S. Treasury bills and notes
  $ 1,001     $ -     $ -     $ 1,001  
U.S. commercial paper
    4,244       4       -       4,248  
U.S. government securities
    12,192       9       -       12,201  
Municipal securities
    11,265       2       (5 )     11,262  
Certificates of deposits
    500       -       -       500  
Corporate bonds
    6,800       14       -       6,814  
Variable rate demand notes
    12,455       -       -       12,455  
Total
  $ 48,457     $ 29     $ (5 )   $ 48,481  
                                 
Non-current:
                               
Corporate bonds
  $ 3,001     $ 6     $ -     $ 3,007  
Total
  $ 3,001     $ 6     $ -     $ 3,007  

   
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.
 
 
10

 

SUCAMPO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)

The Company’s assets measured at fair value on a recurring basis, which are subject to the fair value disclosure requirements, as of March 31, 2011 and December 31, 2010 are as follows:

   
Fair Value Measurements at Reporting Date Using
 
March 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. Treasury bills and notes
  $ 1,001     $ -     $ -     $ 1,001  
U.S. government securities
    12,201       -       -       12,201  
U.S. commercial paper
    -       4,248       -       4,248  
Corporate bonds
    9,821       -       -       9,821  
Municipal securities
    11,262       -       -       11,262  
Certificates of deposits
    -       500       -       500  
Money market funds
    4,993       -       -       4,993  
Variable rate demand notes
    12,455       -       -       12,455  
Total assets measured at fair value
  $ 51,733     $ 4,748     $ -     $ 56,481  
                                 
    
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
  $ 58,583     $ 1,749     $ -     $ 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.

5.
Intangible Assets

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. The Company plans to re-launch RESCULA in the U.S. for its approved indication after approval of a commercially viable label from the FDA.

 
11

 

SUCAMPO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)

Under the terms of the 2009 R-Tech agreements, 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. The Company allocated the acquisition cost between an intangible asset of $3.4 million and a non-current prepaid inventory of $85,000 as of March 31, 2011, both of which are reflected in other non-current assets in the accompanying condensed consolidated balance sheet. The Company is amortizing the $3.4 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 $85,000 for the three months ended March 31, 2011 and 2010. The annual amortization expense will be approximately $342,000 through April 2019.

On March 22, 2011, SMR entered into a license agreement with R-Tech for unoprostone isopropyl, expanding the rights of the Company’s subsidiaries beyond their previously agreed territory of the United States and Canada (those rights are held by Sucampo Pharma Americas, Inc.) to all countries in Europe and the rest of the world except the SMR Territories. This alliance ensures state of the art global development and commercialization between the Company, and all its subsidiaries, and R-Tech for all current and potential indications.

Under the terms of the 2011 SMR and R-Tech license agreement, SMR holds exclusive rights to develop, use, make, have made, export, commercialize, promote, offer for sale and sell unoprostone isopropyl in the SMR Territories. R-Tech will retain rights to unoprostone isopropyl in Japan, Korea, Taiwan and the People’s Republic of China. Additionally, SMR has the exclusive right to develop unoprostone isopropyl for certain additional ophthalmic indications in the SMR Territories beyond its approved glaucoma and ocular hypertension indication as well as rights to all associated patents and other intellectual property associated with unoprostone isopropyl in these territories. R-Tech retains all other commercial and development rights.

SMR made an upfront payment to R-Tech of $3.0 million, which is reflected in other non-current assets in the accompanying condensed consolidated balance sheet, 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 SMR Territories or by March 15, 2012, which is reflected in accrued expenses in the accompanying condensed consolidated balance sheet. SMR 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. No amortization was expensed for the three months ended March 31, 2011. The annual amortization expense will be approximately $600,000 through March 2021.

6. 
Accrued Expenses

Accrued expenses consisted of the following as of March 31, 2011 and December 31, 2010:

   
March 31,
   
December 31,
 
(In thousands)
 
2011
   
2010
 
Research and development costs
  $ 7,592     $ 4,146  
Employee compensation
    1,005       1,795  
Selling and marketing costs
    102       305  
Legal service fees
    4,155       2,620  
Rescula milestone
    3,500       500  
Other accrued expenses
    826       850  
Total
  $ 17,180     $ 10,216  

7. 
Commitments

Operating Leases

The Company leases office space in the United States, the United Kingdom and Japan under operating leases ranging through 2017. Total future minimum, non-cancelable lease payments under operating leases were as follows as of March 31, 2011:

 
12

 

SUCAMPO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)

(In thousands)
     
2011 (April - December)
  $ 1,086  
2012
    1,283  
2013
    997  
2014
    1,024  
2015
    1,052  
2016 and thereafter
    1,223  
Total minimum lease payments
  $ 6,665  

Rent expense for all operating leases was approximately $366,000 and $340,000 for the three months ended March 31, 2011 and 2010, respectively.

Research and Development Costs

The Company routinely enters into agreements with third-party clinical research organizations, or CROs, to oversee clinical research and development studies provided on an outsourced basis. The Company is not generally contractually obligated to pay the CRO if the service or reports are not provided. Total future estimated costs through 2013 under these agreements as of March 31, 2011 were approximately $15.4 million.

8. 
Related Party Transactions

R-Tech Ueno, Ltd.

In addition to the unoprostone isopropyl agreements described in Note 5 above, the Company is a party to other development and exclusive supply agreements with R-Tech covering various compounds and territories. The Company’s founders, Drs. Ueno and Kuno, directly or indirectly, own a majority of the stock of R-Tech.

The Company recorded the following expenses under its agreements with R-Tech for the three months ended March 31, 2011 and 2010:

   
Three Months Ended March 31,
 
(In thousands)
 
2011
   
2010
 
Clinical supplies
  $ -     $ 17  
Other research and development services
    3       -  
Commercial supplies
    123       69  
    $ 126     $ 86  

The following table summarizes the amounts included in deferred revenue resulting from the deferral of upfront payments relating to the exclusive supply agreements with R-Tech as of March 31, 2011 and December 31, 2010:

   
March 31,
   
December 31,
 
(In thousands)
 
2011
   
2010
 
Deferred revenue, current
  $ 433     $ 433  
Deferred revenue, non-current
    5,727       5,839  
    $ 6,160     $ 6,272  

The Company recognized approximately $105,000 of revenue relating to its agreements with R-Tech for each of the three months ended March 31, 2011 and 2010, which was recorded as contract and collaboration revenue in the accompanying condensed consolidated statements of operations and comprehensive income (loss).

 
13

 

SUCAMPO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)

9. 
Notes Payable

In November 2010, Sucampo Pharma, Ltd., 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, which can be renewed annually upon the agreement of the Company, Sucampo Pharma, Ltd and the Bank. Borrowings may be used to finance research and development activities, for working capital needs and for the general corporate purposes of Sucampo Pharma, Ltd. 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 of 2011 is 1.34%. 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 Sucampo Pharma, Ltd’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 in the accompanying condensed consolidated balance sheet as of March 31, 2011 and December 31, 2010.

Subordinated Unsecured Promissory Notes

In connection with the December 2010 acquisition of SAG and SAG-J, Ambrent issued a subordinated unsecured promissory note, or notes, to each of the Ueno Trust and Kuno Trust, a related party. Each of the notes was issued with an initial principal balance of approximately $25.9 million, or approximately $51.9 million in the aggregate. The interest rate for the notes is 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, with the first reset on June 1, 2011.

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. For the three months ended March 31, 2011, approximately $570,000 of interest expense was added to the principal balance of the notes as paid-in-kind.

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 consist of the following as of March 31, 2011 and December 30, 2010:

   
March 31,
   
December 31,
 
(In thousands)
 
2011
   
2010
 
Loan agreement, The Bank of Tokyo-Mitsubishi UFJ, Ltd
  $ 12,022     $ 12,022  
Promissory notes, Sellers of SAG
    52,509       51,939  
    $ 64,531     $ 63,961  
                 
Notes payable, current
  $ 19,522     $ 19,522  
Notes payable, non-current
    45,009       44,439  
    $ 64,531     $ 63,961  

 
14

 

SUCAMPO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)

The aggregated scheduled maturities of notes payable were as follows as of March 31, 2011:

   
March 31,
 
(In thousands)
 
2011
 
Due in one year
  $ 19,522  
Due in two years
    7,500  
Due in three years
    7,728  
Due in four years
    8,025  
Due in five years
    8,337  
Thereafter
    13,419  
    $ 64,531  

10. 
Collaboration and License Agreements

Abbott Agreement

In February 2009, the Company entered into the Abbott Agreement, an exclusive 19-year license, commercialization and supply agreement with Abbott to develop and commercialize lubiprostone for the treatment of CIC in Japan. Additionally, the agreement grants Abbott the right of first refusal to any additional indications for which lubiprostone is developed in Japan under all relevant patents, know-how and trademarks. Payments to the Company under the terms of the Abbott Agreement include a non-refundable upfront payment and non-refundable development and commercial milestone payments based on achieving specified development, regulatory and sales goals.

The Company has received a total of $22.5 million in up-front and development milestone payments through March 31, 2011 under the Abbott Agreement. Subject to future development and commercial milestones, the Company will receive additional development milestone and commercial milestone payments under the Abbott 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 Abbott Agreement for the three months ended March 31, 2011:

   
Amount
Deferred at
December 31,
   
Cash Received
for the Three
Months Ended
March 31,
   
Revenue
Recognized for
the Three
Months Ended
March 31,
   
Foreign Currency
Effects for the
Three Months
Ended March 31,
   
Amount
Deferred at
March 31,
 
(In thousands)
 
2010
   
2011
   
2011
   
2011
   
2011
 
Collaboration revenue:
                             
Up-front payment associated with the Company's obligation to participate in joint committees
  $ 868     $ -     $ 13     $ (11 )   $ 844  
                                         
Research and development revenue:
                                       
Up-front payment
  $ 707     $ -     $ 220     $ (8 )   $ 479  
Development milestone payment
  $ 948       -       296       (10 )   $ 642  
Total
  $ 1,655     $ -     $ 516     $ (18 )   $ 1,121  

Takeda commercialization and license agreement

In October 2004, the Company entered into the Takeda Agreement, a 16-year collaboration and license agreement with Takeda 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 funding arrangements for other marketing services to be performed by both parties. Payments to the Company under the Takeda Agreements, include a non-refundable up-front payment, non-refundable development and commercial milestone payments, reimbursement of certain development and co-promotion costs and product royalties.

 
15

 

SUCAMPO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)

The Company has received a total of $150.0 million in up-front and development milestone payments through March 31, 2011 under the Takeda Agreement. Subject to future development and commercial milestones, the Company will 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.

On March 12, 2010, the Company submitted for filing with the International Court of Arbitration, International Chamber of Commerce a demand for arbitration under the applicable provisions of the Takeda Agreement, which specifies that New York law will govern the procedural and substantive aspects of the arbitration. The Company believes that Takeda’s failure to generate an appropriate level of U.S. sales of AMITIZA is the result of its material breach of the Takeda Agreement, including, without limitation, its continuing failure to exercise its best efforts to promote, market and sell AMITIZA and to maximize its net sales revenue, and its ongoing refusal to collaborate and provide the Company with information to which the Company is entitled under the Takeda Agreement. The Company also claims that Takeda’s conduct, including, without limitation, its dealings with pharmacy benefit managers/managed care organizations, has injured not only the Company and the AMITIZA brand, but also consumers. The Company sent Takeda another notice of material breach in December 2010, which specifically set forth all of the claims asserted in the arbitration submission. The Company is seeking all appropriate relief, including production by Takeda of all information to which the Company is entitled, a declaration of termination of applicable agreements, and all available monetary relief, equitable relief, attorneys’ fees and costs. All the arbitrators have been confirmed and the arbitration proceedings have commenced. The arbitrators have reset the hearing on the Company’s claims to conclude by mid-December 2011; it is not known if the arbitration will remain on schedule or how long thereafter the arbitration proceedings will conclude. The Company has spent and expects to spend significant resources in the dispute with Takeda, and these arbitration proceedings may require the continuing attention of the Company’s senior management.

The following table summarizes the cash streams and related revenue recognized or deferred under the Takeda Agreements for the three months ended March 31, 2011:

   
Amount
Deferred at
December 31,
   
Cash Received
for the Three
Months Ended
March 31,
   
Revenue
Recognized for
the Three
Months Ended
March 31,
   
Change in Accounts
Receivable for the
Three Months
Ended March 31,
   
Amount
Deferred at
March 31,
 
(In thousands)
 
2010
   
2011
   
2011
    2011*     2011  
Collaboration revenue:
                                 
Up-front payment associated with the Company's obligation to participate in joint committees
  $ 1,470     $ -     $ 37     $ -     $ 1,433  
                                         
Research and development revenue:
                                       
Reimbursement of research and development expenses
  $ 3,042     $ -     $ 1,448     $ 1,483     $ 3,077  
                                         
Product royalty revenue
  $ -     $ 10,516     $ 9,118     $ (1,398 )   $ -  
                                         
Co-promotion revenue
  $ -     $ 1,037     $ 938     $ (99 )   $ -  
 

*     Includes billed and unbilled accounts receivable.

11.
Stock Option Plans

The following table summarizes the employee stock option activity for the three months ended March 31, 2011 under the Company’s 2001 Incentive Plan:

 
16

 

SUCAMPO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)

   
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 outstanding, March 31, 2011
    345,100       10.44       2.87     $ -  
Options exercisable, March 31, 2011
    345,100       10.44       2.87     $ -  

The following table summarizes the employee stock option activity for the three months ended March 31, 2011 under the Company’s Amended and Restated 2006 Stock Incentive Plan or 2006 Incentive Plan:

   
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 forfeited
    (13,650 )     3.85              
Options expired
    (5,050 )     3.86              
Options outstanding, March 31, 2011
    1,182,950       5.72       8.34     $ -  
Options exercisable, March 31, 2011
    616,317       6.84       7.83     $ -  

No options were granted during the three months ended March 31, 2011. The weighted average grant date fair value of options granted during the year ended December 31, 2010 was $2.05. As of March 31, 2011, approximately $1.1 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 3.0 years.

The Company granted 510,000 stock options with an exercise price of $5.85 per share to non-employees in August 2005 under the Company’s 2001 Incentive Plan. As of March 31, 2011 and December 31, 2010, 450,000 of these 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, respectively, and remaining contractual life of 4.09 and 5.33 years, respectively, as of March 31, 2011 and December 31, 2010.

Employee Stock Purchase Plan

Under the Company’s 2006 Employee Stock Purchase Plan, or ESPP, a total of 765 and 1,329 shares of class A common stock were purchased during the three months ended March 31, 2011 and 2010, respectively. 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, as amended, and in accordance with GAAP guidance that requires estimates in the fair value of share-based payment awards on the date of the grant using an option-pricing model and recognizing the expense over the required service periods in the accompanying condensed consolidated statement of operations and comprehensive income (loss). The Company received $3,052 and $4,507 upon purchase of shares under the ESPP for the three months ended March 31, 2011 and 2010, respectively.

12. 
Income Taxes

For the three months ended March 31, 2011 and 2010, the Company recorded a tax benefit of $2.9 million and a tax provision of $409,000, respectively. The tax benefit for the three months ended March 31, 2011 primarily pertained to the taxable loss generated by the Company's U.S. subsidiary for which a tax benefit is being recognized, offset by the tax provision by its Swiss subsidiary. The tax provision for the three months ended March 31, 2010 primarily pertained to taxable income generated by the Company’s U.S. and Swiss subsidiaries. The Company’s other subsidiaries based in Europe and Japan incurred pre-tax losses for the three months ended March 31, 2011 and 2010, for which no tax benefit was recognized.

 
17

 

SUCAMPO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)

The Company has estimated its annual effective tax rate for the full fiscal year 2011 and 2010 and applied that rate to its income before income taxes in determining its income tax provision for the interim periods. There is no tax benefit recognized on the net operating losses incurred in the foreign jurisdictions due to the lack of evidence supporting the Company’s ability to use these losses in the future.

Uncertain Tax Positions

The Company applies 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.

The Company had an outstanding non-current income tax liability of approximately $1.4 million, including interest, for uncertain tax positions as of March 31, 2011. The amount represented the aggregate tax effect of differences between tax return positions and the amounts otherwise recognized in the Company’s condensed consolidated financial statements, and is reflected in other liabilities in the accompanying condensed consolidated balance sheets. The liability for uncertain tax positions as of March 31, 2011 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 accrued 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.

13. 
Segment Reporting

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, including the progress of its research and development activities. 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 for the three months ended March 31, 2011 and 2010.

 
18

 

SUCAMPO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)

(In thousands)
 
Americas
   
Europe
   
Asia
   
Consolidated
 
Three Months Ended March 31, 2011
                       
Research and development revenue
  $ 1,448     $ -     $ 516     $ 1,964  
Product royalty revenue
    9,118       -       -       9,118  
Co-promotion revenue
    938       -       -       938  
Contract and collaboration revenue
    141       -       13       154  
Total revenues
    11,645       -       529       12,174  
Research and development expenses
    7,326       527       1,367       9,220  
Depreciation and amortization
    227       5       17       249  
Other operating expenses
    11,275       304       287       11,866  
Loss from operations
    (7,183 )     (836 )     (1,142 )     (9,161 )
Interest income
    69       1       -       70  
Interest expense
    -       (570 )     (41 )     (611 )
Other non-operating income (expense), net
    (4 )     (199 )     68       (135 )
Loss before income taxes
  $ (7,118 )   $ (1,604 )   $ (1,115 )   $ (9,837 )
Capital expenditures
  $ 42     $ 6,000     $ 91     $ 6,133  
                                 
Three Months Ended March 31, 2010
                               
Research and development revenue
  $ 1,304     $ -     $ 2,753     $ 4,057  
Product royalty revenue
    9,773       -       -       9,773  
Co-promotion revenue
    855       -       -       855  
Contract and collaboration revenue
    141       -       10       151  
Total revenues
    12,073       -       2,763       14,836  
Research and development expenses
    2,140       176       3,050       5,366  
Depreciation and amortization
    218       3       9       230  
Other operating expenses
    7,268       310       273       7,851  
Income (loss) from operations
    2,447       (489 )     (569 )     1,389  
Interest income
    210       1       2       213  
Other non-operating income (expense), net
    (35 )     628       14       607  
Income (loss) before income taxes
  $ 2,622     $ 140     $ (553 )   $ 2,209  
Capital expenditures
  $ 91     $ -     $ 4     $ 95  
                                 
As of March 31, 2011
                               
Property and equipment, net
  $ 1,649     $ 21     $ 323     $ 1,993  
Identifiable assets, net of intercompany loans and investments
  $ 100,298     $ 33,579     $ 14,826     $ 148,703  
                                 
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  

14. 
Supplemental Information

The following is additional information for three months ended March 31, 2010 on SAG and the Company prior to the December 2010 SAG acquisition which results are now incorporated in the Company’s results.

 
19

 

SUCAMPO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)

               
Consolidating Information
 
   
Three Months Ended March 31,
   
Three Months Ended March 31,
 
   
2011
   
2010
   
2010
   
2010
 
Income Statement
 
Consolidated Including SAG
   
SAG
   
Consolidated
Excluding SAG
 
Revenues
  $ 12,174     $ 14,836     $ -     $ 14,836  
Operating expenses
    (21,335 )     (13,447 )     1,602       (15,049 )
Non-operating income (expense)
    (676 )     820       701       119  
Income (loss) before income taxes
    (9,837 )     2,209       2,303       (94 )
Income tax benefit (provision)
    2,928       (409 )     (204 )     (205 )
Net income (loss)
    (6,909 )     1,800       2,099       (299 )
                                 
Cash Flows
                               
Operating activities
    (6,047 )     (179 )     676       (855 )
Investing activities
    4,660       (9,453 )     2       (9,455 )
Financing activities
    3       (712 )     (716 )     4  
Effect of exchange rates on cash and cash equivalents
    499       (792 )     (819 )     27  
Net decrease in cash and cash equivalents
    (885 )     (11,136 )     (857 )     (10,279 )
Cash and cash equivalents at beginning of period
    49,243       61,420       34,706       26,714  
Cash and cash equivalents at end of period
    48,358       50,284       33,849       16,435  

15. 
Subsequent Events

On May 2, 2011 the Company granted in the aggregate options to purchase 2,084,550 shares of its Class A common stock, consisting of 700,388 shares of time-based options and 1,384,162 shares of performance stock options to its independent directors and all eligible employees. 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 1/4 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 (subject to certain exceptions), (b) have an exercise price equal to the closing price of the Company's common stock on the Nasdaq Global Market on the date of grant, and (c) have a term of 10 years from such date. The performance-based 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 (subject to certain exceptions), (b) have an exercise price equal to the closing price of the Company's common stock on the Nasdaq Global Market on the date of grant, and (c) must vest within a term of 4 years from such date but otherwise have a term of 10 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. All options were issued with an exercise price equal to the fair market value of the stock price, or $4.41 per share of common stock, on the date of the grant.

 
20

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q contains forward-looking statements regarding Sucampo Pharmaceuticals, Inc. (the “Company,” “we,” “us,” or “our”) and our business, financial condition, results of operations and prospects within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Quarterly Report Form 10-Q and in our other Securities and Exchange Commission, or SEC, filings, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which we filed with the SEC on March 8, 2011.  You should also  read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements as of and for the year ended December 31, 2010 included in our Annual Report on Form 10-K.

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 compounds that occur naturally in the human body as a result of enzymatic, 15-PGDH, transformation of certain fatty acids.

We believe that most prostones function as activators of cellular ion channels. As a result, prostones promote fluid secretion and enhance cell protection, including the recovery of cellular barrier function. This activity gives prostones wide-ranging therapeutic potential, particularly for age-related diseases. We are focused on developing prostone-based compounds for the treatment of gastrointestinal, retinal, vascular, and respiratory diseases as well as other disorders for which there are significant unmet medical needs, underserved patients and significant commercial potential.

The therapeutic potential of prostones was first identified by one of our founders, Dr. Ryuji Ueno. To date, two prostone products have received marketing approval. AMITIZA® (lubiprostone) is a treatment approved by the FDA for chronic idiopathic constipation, or CIC, in adults of both genders and for irritable bowel syndrome with constipation, or IBS-C, in women aged 18 years and older. RESCULA® (unoprostone isopropyl) is FDA-approved for the 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.

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 both in the U.S. and other countries. Additionally, we expect to expand our international operations.

In the United States, AMITIZA is being marketed and developed under a collaboration and license agreement, dated October 29, 2004, or the Takeda Agreement, with Takeda Pharmaceutical Company Limited, or Takeda, for gastrointestinal indications. Takeda holds the same rights to AMITIZA in Canada, but it has not yet marketed AMITIZA there. Under the Takeda Agreement, Takeda is responsible for the commercialization of AMITIZA in the U.S. and Canada. Takeda currently sells AMITIZA mainly to U.S. office-based specialty and primary care physicians and reimburses us a part of our co-promotion expenses. Under a supplemental agreement with Takeda entered into on February 1, 2006, or the Supplemental Takeda Agreement, we currently co-promote AMITIZA in the U.S. through a specialty sales force which focuses on the institutional marketplace, including long-term care and veteran’s affairs facilities. Takeda records all sales of AMITIZA and we receive a tiered royalty based on net sales. We are primarily responsible for AMITIZA research and development efforts and hold the new drug application, or NDA. Takeda reimburses us for a significant portion of our research and development activities.

On March 12, 2010, we submitted for filing with the International Court of Arbitration, International Chamber of Commerce a demand for arbitration under the applicable provisions of the Takeda Agreement, which specifies that New York law will govern the procedural and substantive aspects of the arbitration. We believe that Takeda’s failure to generate an appropriate level of U.S. sales of AMITIZA is the result of its material breach of the Takeda Agreement, including, without limitation, its continuing failure to exercise its best efforts to promote, market and sell AMITIZA and to maximize its net sales revenue, and its ongoing refusal to collaborate and provide us with information to which we are entitled under the Takeda Agreement. We also claim that Takeda’s conduct, including, without limitation, its dealings with pharmacy benefit managers/managed care organizations, has injured not only us and the AMITIZA brand, but also consumers. We sent Takeda another notice of material breach in December 2010, which specifically set forth all of the claims asserted in the arbitration submission. We are 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. All the arbitrators have been confirmed and the arbitration proceedings have commenced. The arbitrators have reset the hearing on our claims to conclude by mid-December 2011; it is not known if the arbitration will remain on schedule or how long thereafter the arbitration proceedings will conclude. We have spent and expect to spend significant resources in the dispute with Takeda, and these arbitration proceedings may require the continuing attention of our senior management.

 
21

 

In Japan, lubiprostone is developed under a license, commercialization and supply agreement, or the Abbott Agreement, with Abbott Japan Co. Ltd., or Abbott. We hold all other development and commercialization rights to lubiprostone in all other territories worldwide, including in Switzerland, where lubiprostone has received marketing approval from the Swiss authorities.

In Japan, lubiprostone is developed under a license, commercialization and supply agreement, or the Abbott Agreement, with Abbott Japan Co. Ltd., or Abbott. We hold all other development and commercialization rights to lubiprostone in all other territories worldwide, including in Switzerland, where lubiprostone has received marketing approval from the Swiss authorities.

In April 2009, we acquired the rights to unoprostone isopropyl, which allow us to commercialize the product, RESCULA, in the U.S. and Canada for its approved indication and unoprostone isopropyl for any indications developed by us or R-Tech. On March 22, 2011, Sucampo Manufacturing & Research AG, or SMR, a wholly-owned subsidiary, entered into a license agreement, a copy of which is filed as an exhibit to this Quarterly Report on Form 10-Q, with R-Tech for unoprostone isopropyl, expanding the rights of the Company’s subsidiaries beyond their previously agreed territory of the United States and Canada (those rights are held by Sucampo Pharma Americas, Inc.) to all countries in Europe and the rest of the world except Japan, Korea, Taiwan and the People’s Republic of China, or the SMR Territories. We are evaluating the opportunities to obtain an appropriate label in the European Union and other European countries as well as obtaining reauthorization in those countries to commercialize unoprostone isopropyl.

Our operations are conducted through subsidiaries based in Japan, the United States, Switzerland the United Kingdom and Luxembourg. Our reportable geographic segments are Asia, the United States and Europe 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 subsidiaries. Such measures include the progress of research and development activities, collaboration and licensing efforts, commercialization activities and other factors.

Drs. Ryuji Ueno and Sachiko Kuno, together, directly or indirectly, own a majority of the stock of R-Tech. Drs. Ueno and Kuno also are our controlling stockholders and are married to each other. Dr. Ueno is our Chief Executive Officer and Chairman of the Board of Directors. Dr. Kuno is a member of our Board of Directors, our advisor on international business development and is a member of the Board of Directors of R-Tech.

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 United States and Canada

We currently are pursuing development of a third gastrointestinal indication of AMITIZA for the treatment of opioid-induced bowel dysfunction, or OBD, in patients with chronic non-cancer pain, a constipation-related gastrointestinal indication. In July 2009, we reported top-line results for the two identically-designed efficacy studies, one of which met the primary endpoint by demonstrating a statistically significant change from baseline in the frequency of spontaneous bowel movements at week 8 of treatment when compared to placebo. Based on a subsequent meeting with the FDA, we decided to conduct one additional phase 3 efficacy study in order to submit a supplemental new drug application, or 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 enrollment is expected to be completed during the third quarter of 2011. If successful, the data from the trials will enable a filing of a sNDA with the FDA and the regulatory authorities in Europe.

AMITIZA (lubiprostone) in Japan

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 payment. We could receive additional milestone payments based on achieving other specified development and commercialization goals. We have retained the right to co-promote lubiprostone in Japan as well as its development and commercialization rights to all other therapeutic areas subject to Abbott’s right of first refusal.

 
22

 

In September 2010, we submitted a marketing authorization application to the Japanese Pharmaceuticals and Medical Devices Agency for lubiprostone at a dosage strength of 24 micrograms for the indication of CIC. 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. These top-line pivotal phase 3 efficacy results were reported in June 2010. The September 2010 submission was updated in December 2010 with the complete results of the phase 3 long-term, open-label multicenter safety trial in 209 Japanese CIC patients. Top-line results from that safety trial, which were reported by us in November 2010, demonstrated that lubiprostone was safe and well-tolerated. 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, constipation patients in Japan are treated with laxatives, which generate annual sales of approximately $326.0 million. Magnesium oxide is a leading laxative treatment for constipation in Japan and, in 2009, generated annual sales of approximately $129.0 million. The constipation market grew by approximately 6.0% from 2008 to 2009. Future market growth is expected to continue and is fueled by an increasingly older population and changes in eating and lifestyle habits.

On December 22, 2010, Sucampo Pharma, Ltd. provided Abbott notice to initiate Abbott’s 120-day negotiation rights to exercise its right of first refusal to the OBD indication for Japan, which indication in Japan will include patients with cancer treated chronically with opiates other than methadone, but may not include other OBD patients. The 120-day negotiation period expired without an agreement with Abbott on the terms and conditions for a license for the OBD indication. Sucampo Pharma, Ltd. will now negotiate with third parties, and Abbott will have 45 days to meet the terms and conditions of any third party bona fide offer.

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. To file a marketing application authorization, or MAA, in Europe, an approved Pediatric Investigation Plan, or PIP, for lubiprostone in CIC, is required. We have received notice of a positive opinion from the Pediatric Committee of the European Medicines Agency, or EMA, of our PIP. As a result, we intend to file an MAA later this year.

In November 2009, we announced that Swissmedic, the Swiss Agency for Therapeutic Products, has granted Sucampo Pharma Europe, Ltd. a marketing authorization for lubiprostone for the long-term treatment of adult patients with CIC. This is the first European regulatory approval and is the first prescription medicine to be approved in Switzerland for the long-term treatment of CIC. We are currently pursuing approval of a pricing and reimbursement with the Swiss authorities and expect a decision in mid 2011. In the event of a favorable pricing decision from the Swiss authorities, Sucampo Pharma Europe, Ltd. intends to launch AMITIZA.

We continue to evaluate the opportunities to obtain approvals in the other countries of Europe for chronic therapy of CIC.

RESCULA (unoprostone isopropyl)

Under our 2009 and 2011 agreements with R-Tech, we hold the exclusive rights to commercialize and develop RESCULA worldwide except for Japan, Korea, Taiwan and the People’s Republic of China for its approved indication and any new indication. We also have the right of first refusal to commercialize RESCULA in the U.S. and Canada for any additional indications for which unoprostone is developed by R-Tech. Currently, we are evaluating the requirements to reactivate RESCULA’s licenses in the European countries in which it has been registered, but those registrations have lapsed. In addition, we may develop RESCULA as a treatment for an array of ophthalmic diseases including dry age-related macular degeneration, or dry AMD, and diabetic retinopathy. We have initiated a phase 2a proof of concept study for the ophthalmic indication of dry AMD in the second quarter of 2011.

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 the Takeda Agreements and the Abbott Agreement, and for RESCULA, for which we hold the U.S. and Canadian rights. Commercialization may take several years after successful completion of studies.
 
 
23

 
 
Product/Product
Candidate
 
Target Indication
 
Development Phase
 
Next Milestone
AMITIZA ® (lubiprostone)
 
Chronic idiopathic constipation (CIC) (adults of all ages)
 
Marketed in the U.S.
 
_____
             
       
Approved in Switzerland
 
Pricing negotiations with Swiss government health agency
             
       
Phase 3 efficacy and safety trials in Japanese patients results reported
 
Approval of marketing authorization in Japan
             
   
Irritable bowel syndrome with constipation (adult women) (IBS-C)
 
Marketed in the U.S.
 
_____
             
   
Chronic idiopathic constipation (CIC) (pediatric, patients with renal impairment and patients with hepatic impairment)
 
Phase 4 pediatric, renal impairment and hepatic impairment trials completed and submitted to the FDA
 
_____
             
   
Opioid-induced bowel dysfunction (OBD) in patients with chronic non-cancer pain
 
Two phase 3 efficacy trials results reported
 
Phase 3 safety trial and the third efficacy trial to complete in 2011
             
   
Opioid-induced bowel dysfunction (OBD) in cancer patients
 
Phase 2/3 clinical trial design underway
 
Initiation of phase 2/3 clinical trial
             
RESCULA ® (unoprostone isopropyl)
 
Dry age-related macular degeneration (dry AMD)
 
Phase 2a proof-of-concept study
 
Phase 2a study completion
             
   
Glaucoma and ocular hypertension
 
Approved in the U.S.
 
Limited commercialization
             
Cobiprostone
 
Gastrointestinal
       
   
Oral mucositis
 
Preclinical
 
Phase 1 trial
             
   
Prevention of non-steroidal anti-inflammatory drug (NSAID)-induced ulcers
 
Phase 2a trial results reported
 
_____
             
   
Pulmonary
       
   
Chronic obstructive pulmonary disease (COPD)
 
Preclinical
 
Finalize inhaled formulation
             
SPI-3608
 
Spinal stenosis
 
Preclinical
 
Phase 1 trial
 
Results of Operations

Comparison of three months ended March 31, 2011 and March 31, 2010

Revenues

The following table summarizes our revenues for the three months ended March 31, 2011 and 2010:
 
 
24

 
 
   
Three Months Ended
 
   
March 31,
 
(In thousands)
 
2011
   
2010
 
Research and development revenue
  $ 1,964     $ 4,057  
Product royalty revenue
    9,118       9,773  
Co-promotion revenue
    938       855  
Contract and collaboration revenue
    154       151  
Total
  $ 12,174     $ 14,836  
 
Total revenues were $12.2 million for the three months ended March 31, 2011 compared to $14.8 million for the three months ended March 31, 2010, a decrease of $2.6 million or 17.9%.
 
Research and development revenue was $2.0 million for the three months ended March 31, 2011 compared to $4.1 million for the three months ended March 31, 2010, a decrease of $2.1 million or 51.6%. The decrease was primarily due to lower activity of our Japanese development program for lubiprostone under our agreement with Abbott. The revenue recognized under the agreement with Abbott decreased to $516,000 for the three months ended March 31, 2011 from $2.8 million for the three months ended March 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 $1.4 million for the three months ended March 31, 2011 from $1.3 million for the three months ended March 31, 2010.

Product royalty revenue represents royalty revenue earned on net sales of AMITIZA in the United States. For the three months ended March 31, 2011 and 2010, we recognized $9.1 million and $9.8 million, respectively, of product royalty revenue, a decrease of $655,000 or 6.7%, reflecting a continued increase in Medicare & Medicaid rebates combined with a reduction in gross sales as reported by Takeda.

Co-promotion revenues represent reimbursement by Takeda of co-promotion costs for our specialty sales force. For each of the three months ended March 31, 2011 and 2010, we recognized $938,000 and $855,000, respectively, of co-promotion revenues for reimbursement of sales force costs.

Research and Development Expenses

The following summarizes our research and development expenses for the three months ended March 31, 2011 and 2010:

   
Three Months Ended
 
   
March 31,
 
(In thousands)
 
2011
   
2010
 
Direct costs:
           
AMITIZA
  $ 6,980     $ 3,774  
Cobiprostone
    176       145  
SPI-017
    80       810  
RESCULA
    683       117  
Other
    819       61  
Total
    8,738       4,907  
                 
Indirect costs
    482       459  
Total
  $ 9,220     $ 5,366  

Total research and development expenses for the three months ended March 31, 2011 were $9.2 million compared to $5.4 million for the three months ended March 31, 2010, an increase of $3.9 million or 71.8%. The increase was primarily due to expenses associated with initiating the additional phase 3 trial of lubiprostone for OBD patients.
 
 
25

 
 
General and Administrative Expenses

The following summarizes our general and administrative expenses for the three months ended March 31, 2011 and 2010:

   
Three Months Ended
 
   
March 31,
 
(In thousands)
 
2011
   
2010
 
Salaries, benefits and related costs
  $ 1,761     $ 1,387  
Legal, consulting and other professional expenses
    6,604       3,379  
Stock-based compensation
    124       97  
Other expenses
    1,208       1,031  
Total
  $ 9,697     $ 5,894  
 
General and administrative expenses were $9.7 million for the three months ended March 31, 2011, compared to $5.9 million for the three months ended March 31, 2010, an increase of $3.8 million or 64.5%. The increase in legal, consulting and other professional expenses relates primarily to costs incurred in connection with the on-going legal matters, including our dispute with Takeda and a CRO, as discussed in Item 1 of Part II of this Quarterly Report on Form 10-Q.

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, and represent costs of market research and analysis and other selling and marketing expenses. Selling and marketing expenses were $2.4 million for the three months ended March 31, 2011, compared to $2.2 million for the three months ended March 31, 2010, an increase of $231,000 or 10.6%. The increase in selling and marketing expenses relates primarily to some pre-commercialization activities for RESCULA. 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 three months ended March 31, 2011 and 2010:

   
Three Months Ended
 
   
March 31,
 
(In thousands)
 
2011
   
2010
 
Interest income
  $ 70     $ 213  
Interest expense
    (611 )     -  
Other income (expense), net
    (135 )     607  
Total
  $ (676 )   $ 820  

Interest income was $70,000 for the three months ended March 31, 2011, compared to $213,000 for the three months ended March 31, 2010, a decrease of $143,000, or 67.1%. The decrease was primarily due to lower prevailing 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 $611,000 for the three months ended March 31, 2011, including $570,000 on the notes payable issued for the December 2010 SAG acquisition and $41,000 on the notes payable issued on Sucampo Pharma, Ltd.’s borrowings.

Other expense was $135,000 for the three months ended March 31, 2011, compared to other income of $607,000 for the three months ended March 31, 2010, a decrease of $742,000, or 122.2%. The majority of the decrease belongs to foreign exchange losses that are unrealized and non-cash and that relate to amounts held within subsidiaries.
 
 
26

 
 
Income Taxes

We recorded a tax benefit of $2.9 million and a provision of $409,000 for the three months ended March 31, 2011 and 2010, respectively. The tax benefit for the three months ended March 31, 2011 mainly pertained to the taxable loss generated by our U.S. subsidiary for which a tax benefit is being recognized. This benefit was partially offset by the tax expense recorded for the taxable income generated by our Swiss subsidiary. Our other subsidiaries, based in Europe and Japan, incurred a pre-tax loss for the three months ended March 31, 2011, for which no tax benefit was recognized. As of March 31, 2011, we had an outstanding non-current income tax liability of approximately $1.4 million, including interest, for uncertain tax positions which represented the aggregate tax effect of differences between tax return positions and the amounts otherwise recognized in our condensed consolidated financial statements. The liability for uncertain tax positions as of March 31, 2011 was mainly a result of our 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.

Reportable Geographic Segments

We have determined that we have three reportable segments based on our method of internal reporting, which disaggregates 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, including the progress of research and development activities.  The financial results in these three segments based on geographic locations for the three months ended March 31, 2011 are summarized in the table below.

The financial results of our segments reflect their varying stages of development. Our Americas segment recorded a loss before taxes of $7.1 million for the three months ended March 31, 2011 compared to income before taxes of $2.6 million for the three months ended March 31, 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, a reduction in royalty revenues receivable from Takeda and the increase expenses in legal matters, including our dispute with Takeda.

Our segment in Europe recorded a loss before taxes of $1.6 million for the three months ended March 31, 2010 compared to income before taxes of $140,000 for the three months ended March 31, 2010. These results primarily reflect the on-going regulatory submission for AMITIZA and the interest accruing on the loan notes issued for the December 2010 SAG acquisition.

Our segment in Asia recorded a loss before taxes of $1.1 million for the three months ended March 31, 2011 compared to a loss before taxes of $553,000 during the three months ended March 31, 2010. These results primarily reflect the reduction of revenue recognized during the three months ended March 31, 2011 from the payments received from Abbott in 2009 and 2010.

(In thousands)
 
Americas
   
Europe
   
Asia
   
Consolidated
 
Three Months Ended March 31, 2011
                       
Total revenues
  $ 11,645     $ -     $ 529     $ 12,174  
Income (loss) before taxes
    (7,118 )     (1,604 )     (1,115 )     (9,837 )
                                 
Three Months Ended March 31, 2010
                               
Total revenues
  $ 12,073     $ -     $ 2,763     $ 14,836  
Income (loss) before taxes
    2,622       140       (553 )     2,209  
                                 
Identifiable assets
                               
As of March 31, 2011
  $ 100,298     $ 33,579     $ 14,826     $ 148,703  
As of December 31, 2010
    102,096       30,789       16,388       149,273  

Liquidity and Capital Resources

Sources of Liquidity

We require cash principally to meet our operating expenses. Historically, we have financed our operations with a combination of upfront payments, milestone and royalty payments and research and development expense reimbursements received from Takeda, Abbott and other parties, private placements of equity securities and our initial public offering.
 
 
27

 
 
Our cash, cash equivalents, restricted cash and investments consisted of the following as of March 31, 2011 and December 31, 2010:

   
March 31,
   
December 31,
 
(In thousands)
 
2011
   
2010
 
Cash and cash equivalents
  $ 48,358     $ 49,243  
Restricted cash
    15,113       15,113  
Investments, current
    48,481       54,524  
Investments, non-current
    3,007       5,028  
Total
  $ 114,959     $ 123,908  
 
Our cash and cash equivalents are deposits in operating accounts and highly liquid investments with a maturity at time of purchase of 90 days or less.

As of March 31, 2011 and December 31, 2010, our restricted cash primarily was the collateral to Sucampo Pharma, Ltd.’s loan with The Bank of Tokyo-Mitsubishi UFJ, Ltd.

As of March 31, 2011, our short-term investments consisted of U.S. Treasury bills and notes, U.S. government agencies securities, U.S. commercial paper, municipal and corporate bonds, mutual funds, variable rate demand notes and certificates of deposits that have short-term maturities of one year or less. Our non-current investments consisted of corporate bonds.

Cash Flows

The following table summarizes our cash flows for the three months ended March 31, 2011 and 2010:

   
Three Months Ended March 31,
 
(In thousands)
 
2011
   
2010
 
Cash provided by (used in):
           
Operating activities
  $ (6,047 )   $ (179 )
Investing activities
    4,660       (9,453 )
Financing activities
    3       (712 )
Effect of exchange rates
    499       (792 )
Net decrease in cash and cash equivalents
  $ (885 )   $ (11,136 )

Three Months Ended March 31, 2011

Net cash used in operating activities was $6.0 million for the three months ended March 31, 2011. This reflected a net loss of $6.9 as well as changes in other operating assets and liabilities.

Net cash provided by investing activities of $4.7 million for the three months ended March 31, 2011 primarily reflected our proceeds from the sales and maturities of investments, offset in part by purchases of investments and intangible assets.

Net cash provided by financing activities of $3,000 for the three months ended March 31, 2011 resulted from the proceeds we received under our employee stock purchase plan.

Three Months Ended March 31, 2010

Net cash used in operating activities was $179,000 for the three months ended March 31, 2010. This reflected a net income of $1.8 million, a decrease in deferred revenue of $3.5 million and a decrease in accounts payable of $1.2 million, offset in part by an increase in product royalty receivable of $1.3 million and changes in other operating assets and liabilities.

Net cash used in investing activities of $9.5 million for the three months ended March 31, 2010 primarily reflected our purchase of investments and property and equipment, offset in part by proceeds from the sales and maturities of investments.
 
 
28

 
 
Net cash used in financing activities of $712,000 for the three months ended March 31, 2010 resulted from the issuance of notes receivable, offset in part by the proceeds we received under our employee stock purchase plan.

Off-Balance Sheet Arrangements

As of March 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:

 
·
our share of the ongoing development program of AMITIZA in the U.S.;
 
·
development and regulatory efforts in Europe and Asia for lubiprostone;
 
·
development and regulatory activities for RESCULA in the U.S., Canada and the rest of the world except Japan, Korea, Taiwan and The People’s Republic of China;
 
·
activities to resolve our ongoing legal matters;
 
·
research and development activities for other prostone compounds, including cobiprostone and SPI-017;
 
·
other business development activities, including investments in or acquisitions of other businesses, products and technologies;
 
·
the initiation of commercialization efforts in non-U.S. markets;
 
·
the expansion of our commercialization activities in the U.S. and the initiation of commercialization efforts in non-U.S. markets;
 
·
the purchase of shares of our class A common stock up to $10.0 million, if we elect to do so, pursuant to our board-approved stock repurchase program; and
 
·
the satisfaction of the conditions of our loan note obligations.

The timing of these funding requirements is difficult to predict due to many factors, including the outcomes of our preclinical and clinical research and development programs and when those outcomes are determined, the timing of obtaining regulatory approvals and the presence and status of competing products. Our capital needs may exceed the capital available from our future operations, collaborative and licensing arrangements and existing liquid assets. Our future capital requirements and liquidity will depend on many factors, including, but not limited to:

 
·
the revenue from AMITIZA and RESCULA;
 
·
the future expenditures we may incur to increase revenue from AMITIZA or in our dispute with Takeda;
 
·
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 March 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.
 
 
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Effects of Foreign Currency

We currently incur a portion of our operating expenses in the United Kingdom, Switzerland and Japan. 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 through the use of derivative instruments.

Recent Accounting Pronouncements

Recent accounting pronouncements applicable to our financial statements are described in Note 2 to the accompanying condensed consolidated financial statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Item 3.  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 a hypothetical one percentage point fluctuation in the U.S. dollar exchange rate would materially affect the fair value of our foreign currency sensitive assets and investments as of March 31, 2011. We do not currently hedge our foreign currency transactions.

Interest Rate Risk

We are subject to interest rate risks associated with fluctuations in interest rates. Our interest income is more sensitive to fluctuations in the interest rates in the U.S. than to changes in interest rates in other markets. Our interest expense is more sensitive to fluctuations in LIBOR and TIBOR than to changes in other interest rates. 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 March 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 March 31, 2011 and December 31, 2010, approximately 28.7% 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 4.  Controls and Procedures

a) Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Principal Financial and Accounting 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 March 31, 2011. In designing and evaluating such controls, management 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 Principal Financial and Accounting Officer have concluded that, as of March 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 Principal Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosures.
 
 
30

 
 
b) Changes in Internal Controls

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
31

 

Part II — OTHER INFORMATION

Item 1.  Legal Proceedings

As previously reported in our Quarterly Reports on Forms 10-Q, on March 12, 2010, we submitted for filing with the International Court of Arbitration, International Chamber of Commerce a demand for arbitration under the applicable provisions of the Takeda Agreements between us and Takeda, which specify that New York law will govern the procedural and substantive aspects of the arbitration. We believe that Takeda’s failure to generate an appropriate level of U.S. sales of AMITIZA is the result of its material breach of the Takeda Agreements, including, without limitation, its continuing failure to exercise its best efforts to promote, market and sell AMITIZA and to maximize its net sales revenue, and its ongoing refusal to collaborate and provide us with information to which we are entitled under the Takeda Agreements. We also claim that Takeda’s conduct, including, without limitation, its dealings with pharmacy benefit managers/managed care organizations, has injured not only us and the AMITIZA brand, but also consumers. We sent Takeda another notice of material breach in December 2010, which specifically set forth all of the claims asserted in the arbitration submission. We are 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. All the arbitrators have been confirmed, and the arbitration proceedings have commenced. The arbitrators have reset the hearing on our claims to conclude by mid-December 2011; it is not known if the arbitration will remain on schedule or how long thereafter the arbitration proceedings will conclude. We have spent and expect to spend significant resources in the dispute with Takeda, and these arbitration proceedings may require the continuing attention of our senior management.

On December 9, 2010, we filed an amended lawsuit under seal in Circuit Court for Montgomery County, Maryland against the CRO that performed the clinical trials for the OBD indication. We have alleged that the CRO materially breached its contract with us by failing to use its best efforts to perform the services and performed the clinical trials in a careless and grossly negligent manner. We are seeking damages for, among other things, the expenses relating to the additional clinical trial that we are conducting and all available monetary relief, attorneys’ fees and costs. After filing the lawsuit, we have engaged in mediation to resolve our dispute. The mediation has not been successful, so we are pursuing our claims in the lawsuit. We have spent and expect to spend significant resources in the dispute with the CRO, and these court proceedings may require the continuing attention of our senior management.

Item 1A.  Risk Factors.

Our business is subject to certain risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our common stock. For a discussion of these risks, please refer to the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed by us with the SEC on March 8, 2011.  There have not been any material changes from the risk factors as previously disclosed in our Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On December 11, 2008, we announced a stock repurchase program pursuant 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. During the quarter ended March 31, 2011, we did not purchase any shares of our class A common stock under this program.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. (Removed and Reserved).

Item 5. Other Information

None.
 
 
32

 

Item 6.  Exhibits

(a)      Exhibits

Exhibit
       
Number
 
Description
 
Reference
         
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)
         
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
         
10.1
 
Separation Agreement and Release, dated January 12, 2011, between the Company and Jan Smilek
 
Exhibit 99.1 to the Company’s Current Report on Form 8-K (filed February 2, 2011)
         
10.2
 
Consulting Agreement, dated January 21, 2011, between the Company and Jan Smilek
 
Exhibit 99.2 to the Company’s Current Report on Form 8-K (filed February 2, 2011)
         
10.3
 
License Agreement, dated March 22, 2011, between Sucampo Manufacturing & Research AG and R-Tech Ueno, Ltd.
 
Included herewith
 
 
33

 

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  Sucampo Pharmaceuticals, Inc.
       
May 10, 2011
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)
       
May 10, 2011
By:
 
/s/  ANDREW P. SMITH
     
Andrew P. Smith
     
Principal Accounting Officer

 
34

 

Sucampo Pharmaceuticals, Inc.
Exhibit Index

Exhibit
       
Number
 
Description
 
Reference
         
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)
         
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
         
10.1
 
Separation Agreement and Release, dated January 12, 2011, between the Company and Jan Smilek
 
Exhibit 99.1 to the Company’s Current Report on Form 8-K (filed February 2, 2011)
         
10.2
 
Consulting Agreement, dated January 21, 2011, between the Company and Jan Smilek
 
Exhibit 99.2 to the Company’s Current Report on Form 8-K (filed February 2, 2011)
         
10.3
 
License Agreement, dated March 22, 2011, between Sucampo Manufacturing & Research AG and R-Tech Ueno, Ltd.
 
Included herewith