##### 



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-Q
   (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    September 30, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number:
    001-33609
  SUCAMPO PHARMACEUTICALS,
    INC.
 (Exact name of registrant as
    specified in its charter)
   Delaware

13-3929237(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. employer
    identification no.)4520 East-West Highway, Suite 300
    Bethesda, MD 20814

(301) 961-3400(Address of principal executive
    offices, including zip code)

(Registrants telephone
    number, including area code)    þ o
  Rule 12b-2 o o þ
  Rule 12b-2 o þ




---



##### 



Sucampo
    Pharmaceuticals, Inc.
  Form 10-Q
    Index
  
  PagePart I.  FINANCIAL
    INFORMATIONItem 1.


Condensed Consolidated Financial Statements
    (unaudited)


1Condensed Consolidated Balance Sheets as of
    September 30, 2007(unaudited) and
      December 31, 2006


1Condensed Consolidated Statements of Operations
    and Comprehensive (Loss) Income for the
      Three and Nine Months Ended September 30, 2007
    and 2006 (unaudited)


2Condensed Consolidated Statement of Changes in
    Stockholders Equity for the Nine Months
      Ended September 30, 2007 (unaudited)


3Condensed Consolidated Statements of Cash Flows
    for the Nine Months Ended
      September 30, 2007 and 2006 (unaudited)


4Notes to Condensed Consolidated Financial
    Statements (unaudited)


5Item 2.


Managements Discussion and Analysis of Financial
    Condition and Results of Operations


22Item 3.


Quantitative and Qualitative Disclosures About
    Market Risk


34Item 4T.


Controls and Procedures


35Part II.  OTHER INFORMATIONItem 1.


Legal Proceedings


36Item 1A.


Risk Factors


36Item 2.


Unregistered Sales of Equity Securities and Use
    of Proceeds


36Item 4.


Submission of Matters to a Vote of Security
    Holders


36Item 6.


Exhibits


37SIGNATURES


38INDEX TO EXHIBITS


39




---



##### 



PART I 
    FINANCIAL INFORMATION
  Item 1.
    Condensed
    Consolidated Financial Statements (Unaudited)  SUCAMPO
    PHARMACEUTICALS, INC.
  Condensed Consolidated Balance Sheets
 (In
    thousands, except share data)
  September 30,


December 31,2007


2006(Unaudited)ASSETS:Current assets:Cash and cash equivalents

$
29,228


$
22,481Short-term investments


60,451



29,399Accounts receivable


4,394



1,537Product royalties receivable


6,998



2,029Income taxes receivable


2,180



2,355Deferred tax assets, net


15



1,612Prepaid income taxes


933



Prepaid expenses and other current assets


1,672



536Total current assets


105,871



59,949Restricted cash


220



213Property and equipment, net


2,258



343Deferred tax assets  noncurrent, net


473



3,289Deposits and other assets


177



3,290Total assets

$
108,999


$
67,084LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable

$
4,347


$
2,391Accrued expenses


6,563



5,410Deferred revenue  current


580



11,517Other current liabilities






8Total current liabilities


11,490



19,326Deferred revenue, net of current portion


8,768



9,192Other liabilities


1,712



33Total liabilities


21,970



28,551Commitments (Note 8)Stockholders equity:Series A convertible preferred stock, $0.01 par value;
    no shares authorized at September 30, 2007 and
    10,000 shares authorized at December 31, 2006; no
    shares issued and outstanding at September 30, 2007
    (unaudited) and 3,780 shares issued and outstanding at
    December 31, 2006






20,288Class A common stock, $0.01 par value;
    75,000,000 shares authorized; 15,538,518 shares issued
    and outstanding at September 30, 2007 (unaudited) and
    8,799,385 shares issued and outstanding at
    December 31, 2006


155



88Class B common stock, $0.01 par value;
    75,000,000 shares authorized; 26,191,050 shares issued
    and outstanding at September 30, 2007 (unaudited) and
    December 31, 2006


262



262Additional paid-in capital


96,142



41,555Accumulated other comprehensive loss


(89
)


(294
)Accumulated deficit


(9,441
)


(23,366
)Total stockholders equity


87,029



38,533Total liabilities and stockholders equity

$
108,999


$
67,084    1




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Condensed Consolidated Statements of Operations and
    Comprehensive (Loss) Income (Unaudited)
 (In
    thousands, except per share data)
  Three Months Ended September 30,


Nine Months Ended September 30,2007


2006


2007


2006(Restated)Revenues:Research and development revenue

$
4,652


$
6,759


$
52,105


$
38,900Contract revenue














1,500Collaboration revenue


37



37



110



110Contract revenue  related parties


114



129



344



263Product royalty revenue


6,998



79



18,869



4,563Co-promotion revenue


1,051



1,290



3,318



2,558Total revenues


12,852



8,294



74,746



47,894Operating expenses:Research and development


6,760



2,810



20,054



12,355General and administrative


3,028



2,778



19,664



10,978Selling and marketing


2,695



3,068



9,652



7,073Milestone royalties  related parties










1,500



1,250Product royalties  related parties


1,244



14



3,354



981Total operating expenses


13,727



8,670



54,224



32,637(Loss) income from operations


(875
)


(376
)


20,522



15,257Non-operating income (expense):Interest income


780



436



1,575



1,403Interest expense


(4
)


(4
)


(8
)


(84
)Other (expense) income, net


(224
)


26



(184
)


288Total non-operating income, net


552



458



1,383



1,607(Loss) income before income taxes


(323
)


82



21,905



16,864Income tax provision


(151
)






(7,980
)


Net (loss) income

$
(474
)

$
82


$
13,925


$
16,864Net (loss) income per share (Note 4):Basic net (loss) income per share

$
(0.01
)

$
0.00


$
0.38


$
0.49Diluted net (loss) income per share

$
(0.01
)

$
0.00


$
0.38


$
0.49Weighted average common shares outstanding  basic


39,312



34,986



36,447



34,172Weighted average common shares outstanding  diluted


39,312



35,303



36,835



34,489Comprehensive (loss) income:Net (loss) income

$
(474
)

$
82


$
13,925


$
16,864Other comprehensive income (loss):Foreign currency translation


281



(13
)


205



(200
)Comprehensive (loss) income

$
(193
)

$
69


$
14,130


$
16,664    2




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Condensed Consolidated Statement of Changes in
    Stockholders Equity
 (In
    thousands, except share data)
  AccumulatedSeries A Convertible


Class A


Class B


Additional


OtherPreferred Stock


Common Stock


Common Stock


Paid-In


Comprehensive


Accumulated


StockholdersShares


Amount


Shares


Amount


Shares


Amount


Capital


Loss


Deficit


EquityBalance at December 31, 2006


3,780


$
20,288



8,799,385


$
88



26,191,050


$
262


$
41,555


$
(294
)

$
(23,366
)

$
38,533Stock-based compensation (unaudited)










401,133



4











6,140











6,144Issuance of 3,125,000 shares of class A common stock
    at $11.50 per share, net of offering costs incurred in 2007
    (unaudited)










3,125,000



31











31,310











31,341Reclassification of offering costs incurred and capitalized in
    2006 (unaudited)


























(3,119
)










(3,119
)Conversion of series A preferred stock to class A
    common stock (unaudited)


(3,780
)


(20,288
)


3,213,000



32











20,256











Foreign currency translation (unaudited)






























205







205Net income (unaudited)


































13,925



13,925Balance at September 30, 2007 (unaudited)





$




15,538,518


$
155



26,191,050


$
262


$
96,142


$
(89
)

$
(9,441
)

$
87,029    3




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Condensed Consolidated Statements of Cash Flows (Unaudited)
 (In
    thousands)
  Nine Months Ended September 30,2007


2006(Restated)Cash flows from operating activities:Net income

$
13,925


$
16,864Adjustments to reconcile net income to net cash provided by
    (used in) operating activities:Depreciation and amortization


153



50Loss on disposal of property and equipment


63



Deferred tax provision


4,413



Stock-based compensation


6,144



2,983Changes in operating assets and liabilities:Accounts receivable


(2,831
)


(1,303
)Product royalties receivable


(4,969
)


(61
)Prepaid income taxes


(933
)


Prepaid expenses and other current assets


(1,136
)


(499
)Deposits and other assets






(84
)Accounts payable


1,951



515Accrued expenses


1,145



2,204Income taxes payable and receivable, net


174



(3,146
)Deferred revenue


(11,376
)


(19,169
)Other liabilities


1,685



(1,440
)Net cash provided by (used in) operating activities


8,408



(3,086
)Cash flows from investing activities:Investments in restricted cash


(8
)


Purchases of short-term investments


(86,847
)


(656
)Proceeds from the sales and maturities of short-term investments


55,795



25Purchases of property and equipment


(2,128
)


(106
)Net cash used in investing activities


(33,188
)


(737
)Cash flows from financing activities:Issuance of common stock, net of offering costs


31,341



23,898Payments of IPO costs






(2,376
)Issuance of notes payable  related parties






1,200Payments on notes payable  related parties






(4,754
)Net cash provided by financing activities


31,341



17,968Effect of exchange rates on cash and cash equivalents


186



(82
)Net increase in cash and cash equivalents


6,747



14,063Cash and cash equivalents at beginning of period


22,481



17,436Cash and cash equivalents at end of period

$
29,228


$
31,499    4




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to Condensed Consolidated Financial Statements
    (Unaudited)
  1.
    Business
    Organization and Basis of Presentation  Description
    of the Business
      ®
  Basis
    of Presentation
  Form S-1, No. 333-135133),
      Initial
    Public Offering
   5




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##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
    Capital
    Resources
    2.
    Restatement
    of Previously Issued Condensed Consolidated Financial
    Statements    Description
    of Error
  No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21),
  16-year
 6




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##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
    Impact on
    Condensed Consolidated Statement of Operations and Comprehensive
    Income Items
  Nine Months Ended September 30, 2006As Reported


Adjustment


Restatement(In thousands, except per share data)Milestone revenue

$
20,000


$
(20,000
)

$
Research and development revenue


9,057



29,843



38,900Contract revenue


2,428



(928
)


1,500Collaboration revenue






110



110Co-promotion revenue


2,267



291



2,558Total revenues


38,578



9,316



47,894General and administrative expenses


11,061



(83
)


10,978Selling and marketing expenses


6,746



327



7,073Income from operations


6,186



9,071



15,257Income before income taxes


7,793



9,071



16,864Net income


7,793



9,071



16,864Basic net income per share


0.23



0.26



0.49Diluted net income per share


0.23



0.26



0.49Comprehensive income


7,593



9,071



16,664   3.
    Summary
    of Significant Accounting Policies  Short-term
    Investments
  Accounting
    for Certain Investments in Debt and Equity Securities
  Product
    Royalties Receivable
   7




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
  Prepaid
    Expenses and Other Current Assets
    Deposits
    and Other Assets
    Revenue
    Recognition
  Collaboration
    and License Agreements
  Revenue
    Recognition No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an
    Agent (EITF 99-19), No. 00-21. EITF 00-21
  EITF 99-19,
  EITF 99-19,
    Milestone
    Royalties  Related Parties
   8




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
  Product
    Royalties  Related Parties
    Employee
    Stock-Based Compensation
  Share-Based
    Payment
          Three Months


Nine MonthsEnded September 30,


Ended September 30,2007


2006


2007


2006(In thousands)










(Restated)Selling and marketing expense

$
54


$
104


$
154


$
489General and administrative expense


19



225



236



2,494Founders stock-based awards (Note 9)










6,112



Cumulative out-of-period adjustment










(358
)


Employee stock-based compensation expense included in operating
    expenses

$
73


$
329


$
6,144


$
2,983   Income
    Taxes
  Accounting for Income Taxes
 9




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
    Interim Financial Reporting
  Accounting
    for the Uncertainty of Income Taxes
  Accounting for Uncertainty in Income
    Taxes
      Certain
    Risks, Concentrations and Uncertainties
       10




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##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
    Segment
    Information
    Use of
    Estimates
    Recent
    Accounting Pronouncements
  Fair Value Measurements
  The Fair Value Option for Financial
    Assets and Financial Liabilities
  No. 07-3, Accounting for Nonrefundable Advance Payments for Goods
    or Services to Be Used in Future Research and Development
    Activities (EITF 07-3), EITF 07-3 EITF 07-3
  4.
    (Loss)
    Earnings per Share  Historical
   11




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
  Computation
    of (Loss) Earnings per Share
    Three Months Ended September 30,


Nine Months Ended September 30,2007


2006


2007


2006(In thousands, except per share data)










(Restated)Basic net (loss) income per share:Net (loss) income

$
(474
)

$
82


$
13,925


$
16,864Weighted average class A and B common shares outstanding


37,252



34,986



35,753



34,172Conversion of series A preferred stock to class A
    common shares outstanding


2,060







694



39,312



34,986



36,447



34,172Basic net (loss) income per share

$
(0.01
)

$
0.00


$
0.38


$
0.49Diluted net (loss) income per share:Net (loss) income

$
(474
)

$
82


$
13,925


$
16,864Weighted average class A and B common shares outstanding
    for diluted net (loss) income per share


39,312



34,986



36,447



34,172Assumed exercise of stock options under the treasury stock method






317



388



31739,312



35,303



36,835



34,489Diluted net (loss) income per share

$
(0.01
)

$
0.00


$
0.38


$
0.49     September 30,2007


2006Series A preferred stock






3,780Employee stock options


640,900



863,600Non-employee stock options


510,000



510,000    12




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
  5.
    Property
    and Equipment    September 30,


December 31,2007


2006(In thousands)Computer and office machines

$
946


$
587Furniture and fixtures


333



290Leasehold improvements


1,270



69Total cost


2,549



946Less: accumulated depreciation and amortization


(291
)


(603
)$
2,258


$
343       6.
    Accrued
    Expenses    September 30,


December 31,2007


2006(In thousands)Research and development costs

$
2,689


$
2,460Selling and marketing costs


632



986Employee compensation


1,454



1,238Legal service fees


92



213Royalty liability  related party


1,244



361Other expenses


452



152$
6,563


$
5,410   7.
    Other
    Liabilities    September 30,


December 31,2007


2006(In thousands)Deferred leasehold incentive

$
1,109


$
Lease liability


347



33Lease loss liability (Note 8)


251



Other liabilities


5



$
1,712


$
33  13




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
    8.
    Commitments  Operating
    Leases
      Accounting for Costs Associated
    with Exit or Disposal Activities
  Research
    and Development Costs
    9.
    Other
    Liabilities  Related Parties       14




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
        10.
    Collaboration
    and License Agreements    RevenueCash Received


Recognizedfor the


for theAmount


Nine Months


Nine Months


AmountDeferred at


Ended


Ended


Deferred atDecember 31,


September 30,


September 30,


September 30,2006


2007


2007


2007(In thousands)Collaboration revenue:Up-front payment associated with our obligation to participate
    in joint committees with Takeda

$
2,058


$



$
110


$
1,948Research and development revenue:Up-front payment  remainder

$
1,977


$



$
1,977


$
Development milestones


5,609



30,000



35,609



Reimbursement of research and development expenses


3,365



7,379



14,519



Total

$
10,951


$
37,379


$
52,105


$
   Accounts








AccountsReceivable at








Receivable atDecember 31,








September 30,2006








2007Product royalty revenue

$
2,029


$
13,900


$
18,869


$
6,998Co-promotion revenue

$
708


$
3,648


$
3,318


$
378Research and development revenue:Development milestone

$



$
30,000


$
30,000


$
Reimbursement of research and development expenses

$



$
7,379


$
11,154


$
3,775  15




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
    
    The Company granted Takeda an exclusive license of lubiprostone
    to co-develop, commercialize, and sell products for
    gastroenterology indications in the United States and Canada.
    There are no defined contractual cash flows within the Takeda
    Agreement for the grant of this license, but the Company did
    receive a non-refundable up-front payment of $20.0 million
    upon executing the Takeda Agreement. The license was granted to
    Takeda on October 29, 2004 and will expire when the Takeda
    Agreement expires or is terminated. After commercial launch,
    Takeda has paid and will pay the Company pre-determined
    royalties on net revenues on a quarterly basis for the products
    sold by Takeda during the term of the Takeda Agreement. The
    level of royalties is tiered based on the net sales recognized
    by Takeda. Royalty payments, which the Company began to earn in
    April 2006 and receive in July 2006, will cease when the Takeda
    Agreement is terminated and all cash payments due to the Company
    are paid. The Company has recorded product royalty revenue of
    approximately $7.0 million and $79,000 for the three months
    ended September 30, 2007 and 2006, respectively, and
    $18.9 million and $4.6 million for the nine months
    ended September 30, 2007 and 2006, respectively. This
    revenue is recorded as product royalty revenue in the condensed
    consolidated statements of operations and comprehensive (loss)
    income.
    The Company participates in the following committees, along with
    Takeda: Joint Steering Committee, Joint Development Committee,
    Joint Commercialization Committee and Joint Manufacturing
    Committee. There are no separate cash flows identified within
    the Takeda Agreement associated with the participation by the
    Company in these committees. There is no defined performance
    period for this obligation, but the performance period will not
    exceed the term of the Takeda Agreement. The Company expects its
    participation on all committees to continue throughout the term
    of the Takeda Agreement, except for the Joint Development
    Committee, which will continue until development work is
    complete.
    The Company has provided development work necessary for an NDA
    submission to the FDA for the treatment of chronic idiopathic
    constipation and irritable bowel syndrome with constipation, or
    IBS-C, indications. Takeda funded the initial $30.0 million
    of development costs, the Company was obligated to fund the
    first $20.0 million in excess of the initial
    $30.0 million funded by Takeda and the two parties were to
    equally share any required development costs in excess of
    $50.0 million. Although there was no defined performance
    period for this development work, the period to perform the work
    would not exceed the term of the Takeda Agreement. In January
    2006, the Company received approval for its NDA for AMITIZA to
    treat chronic idiopathic constipation and completed and
    submitted the supplemental NDA for IBS-C to the FDA in June 2007.  EITF 00-21
     16




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
            
    The Company is obligated to co-promote AMITIZA with Takeda by
    employing a sales force of approximately 38 representatives to
    supplement Takedas sales activities. Takeda is obligated
    to reimburse the Company a specified amount per day per sales
    force representative, but such reimbursements shall not exceed
    certain pre-defined amounts. The term of this reimbursement
    arrangement ceases five years following the first date that the
    Company deployed sales representatives, which was in April 2006.
    The Company has recognized approximately $1.1 million and
    $1.3 million of revenues for the three months ended
    September 30, 2007 and 2006, respectively, and
    approximately $3.3 million and $2.6 million of
    revenues for the nine months ended September 30, 2007 and
    2006, respectively, reflecting these co-promotion
    reimbursements, which is recorded as co-promotion revenue in the
    condensed consolidated statements of operations and
    comprehensive income.
    The Company is obligated to perform miscellaneous marketing
    activities for AMITIZA, the majority of which would be
    reimbursed by Takeda. There is no defined performance period,
    but the performance period would not extend beyond
    January 31, 2007. The Company has recorded no
    reimbursements of miscellaneous costs for the three months ended
    September 30, 2007 but has recorded $130,000, $158,000 and
    $291,000, of reimbursements of miscellaneous costs for the three
    months ended September 30, 2006 and for the nine months
    ended September 30, 2007 and 2006, respectively. These
    amounts are recorded as co-promotion revenue in the condensed
    consolidated statements of operations and comprehensive income   17




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
  EITF 00-21
    
    The Company is obligated to perform studies in connection with
    changes to labeling for chronic idiopathic constipation. Takeda
    is obligated to fund 70% of the labeling studies and the
    Company is obligated to fund the remaining 30%. There is no
    defined performance period, but the performance period will not
    exceed the term of the Takeda Agreement. The Company initiated
    the first labeling study for chronic idiopathic constipation in
    August 2006, which is expected to be completed in January 2008.
    The Company is obligated to perform studies in work for the
    development of an additional indication for opioid-induced bowel
    dysfunction. Takeda is obligated to fund all development work up
    to a maximum aggregate of $50.0 million for each additional
    indication and $20.0 million for each new formulation. If
    development costs exceed these amounts, Takeda and the Company
    shall equally share such excess costs. There is no defined
    performance period, but the performance period will not exceed
    the term of the Takeda Agreement. The Company initiated work on
    the first additional indication for AMITIZA in July 2006, which
    is estimated to be completed in June 2009 and is expected to
    exceed $50.0 million in development costs.
    The Company is obligated to perform all development work
    necessary for Phase IV studies, for which Takeda is
    obligated to fund all development work. There is no defined
    performance period, but the performance period will not exceed
    the term of the Supplemental Agreement. The Company began work
    on a Phase IV study for chronic idiopathic constipation in
    August 2006, which is estimated to be completed in June 2008.  EITF 00-21
 18




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
  11.
    Stock
    Option Plan    WeightedAverage


AggregateExercise Price


IntrinsicShares


per Share


Value(In thousands, except share and per-share data)Options outstanding, December 31, 2006


826,200


$
9.02


$
958Options forfeited


(25,925
)


10.00Options expired


(159,375
)


3.98Options outstanding, September 30, 2007


640,900



10.24


$
328Options exercisable at December 31, 2006


518,075



8.37


$
958Options exercisable at September 30, 2007


538,900



10.28


$
251         12.
    Income
    Taxes    Interim Financial Reporting
 19




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
  13.
    Segment
    Reporting    IntercompanyUnited States


Europe


Japan


Eliminations


Consolidated(In thousands)Three Months Ended September 30, 2007Research and development revenue

$
4,652


$



$



$



$
4,652Contract revenue  related parties


105







219



(210
)


114Collaboration revenue


37















37Product royalty revenue


6,998















6,998Co-promotion revenue


1,051















1,051Total revenues


12,843







219



(210
)


12,852Depreciation and amortization


85



1



7







93Other operating expenses


12,587



520



737



(210
)


13,634Income (loss) from operations


171



(521
)


(525
)






(875
)Interest income


782







3



(5
)


780Interest expense


(4
)






(5
)


5



(4
)Other non-operating expense, net


(65
)


(16
)


(143
)






(224
)Income (loss) before income taxes

$
884


$
(537
)

$
(670
)

$



$
(323
)Capital expenditures

$
788


$



$



$



$
788Three Months Ended September 30, 2006Research and development revenue

$
6,759


$



$



$



$
6,759Contract revenue  related parties


104







25







129Collaboration revenue


37















37Product royalty revenue


79















79Co-promotion revenue


1,290















1,290Total revenues


8,269







25







8,294Depreciation and amortization


12



2



1







15Other operating expenses


8,527



83



45







8,655Loss from operations


(270
)


(85
)


(21
)






(376
)Interest income


432



1



3







436Interest expense


(4
)














(4
)Other non-operating (expense) income, net


(3
)


20



9







26Income (loss) before income taxes

$
155


$
(64
)

$
(9
)

$



$
82Capital expenditures

$
106


$



$



$



$
106 20




---



##### 



SUCAMPO
    PHARMACEUTICALS, INC.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
  IntercompanyUnited States


Europe


Japan


Eliminations


Consolidated(In thousands)Nine Months Ended September 30, 2007Research and development revenue

$
52,105


$



$



$



$
52,105Contract revenue  related parties


314







660



(630
)


344Collaboration revenue


110















110Product royalty revenue


18,869















18,869Co-promotion revenue


3,318















3,318Total revenues


74,716







660



(630
)


74,746Depreciation and amortization


143



1



9







153Other operating expenses


52,201



829



1,671



(630
)


54,071Income (loss) from operations


22,372



(830
)


(1,020
)






20,522Interest income


1,573







7



(5
)


1,575Interest expense


(8
)






(5
)


5



(8
)Other non-operating expense, net


(56
)


(25
)


(103
)






(184
)Income (loss) before income taxes

$
23,881


$
(855
)

$
(1,121
)

$



$
21,905Capital expenditures

$
2,128


$



$



$



$
2,128Nine Months Ended September 30, 2006Research and development revenue (restated)

$
38,900


$



$



$



$
38,900Contract revenue (restated)






1,500











1,500Contract revenue  related parties


209







54







263Collaboration revenue (restated)


110















110Product royalty revenue


4,563















4,563Co-promotion revenue (restated)


2,558















2,558Total revenues (restated)


46,340



1,500



54







47,894Depreciation and amortization


42



1



7







50Other operating expenses (restated)


32,105



342



140







32,587Income (loss) from operations (restated)


14,193



1,157



(93
)






15,257Interest income


1,398



1



4







1,403Interest expense


(12
)


(43
)


(29
)






(84
)Other non-operating income, net


31



71



186







288Income before income taxes

$
15,610


$
1,186


$
68


$



$
16,864Capital expenditures

$
106


$



$



$



$
106As of September 30, 2007Property and equipment, net

$
2,174


$



$
84


$



$
2,258Identifiable assets

$
112,149


$
541


$
2,499


$
(6,190
)

$
108,999As of December 31, 2006Property and equipment, net

$
253


$
2


$
88


$



$
343Identifiable assets

$
68,943


$
496


$
2,544


$
(4,899
)

$
67,084  21




---



##### 



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-Q and/or Form S-1, No. 333-135133),
  Restatement
    of Previously Issued Condensed Consolidated Financial
    Statements
    No. 00-21, Revenue Arrangements with Multiple
    Deliverables EITF 00-21,
      Overview
     22




---



##### 



15-month
  Our
    Clinical Development Programs
    
    AMITIZA (lubiprostone).  In connection with our
    marketing approval for AMITIZA for the treatment of chronic
    idiopathic constipation in adults, we committed to the FDA to
    conduct post-marketing studies to evaluate the safety of the
    product in pediatric patients, in patients with renal impairment
    and in patients with hepatic impairment. We initiated these
    studies in January 2007. In addition, we are developing AMITIZA
    to treat IBS-C and OBD. We recently completed two pivotal
    Phase III clinical trials of AMITIZA for the treatment of
    IBS-C and a follow-on safety study to assess the long-term use
    of AMITIZA as a treatment for this indication. Based on the
    results of these trials, we are seeking marketing approval for
    AMITIZA for the treatment of this indication and submitted a
    supplement to our existing new drug application, or sNDA, for
    AMITIZA in June 2007. In addition, we commenced Phase III
    pivotal clinical trials of AMITIZA for the treatment of OBD in
    the third quarter of 2007. Our collaboration and co-promotion
    arrangement with Takeda also covers these additional indications
    for AMITIZA.
    SPI-8811 (cobiprostone).  We are developing
    orally administered cobiprostone to treat various
    gastrointestinal and liver disorders, including non-steroidal
    anti-inflammatory drug, or NSAID, induced ulcers, portal
    hypertension, non-alcoholic fatty liver disease and
    gastrointestinal disorders associated with cystic fibrosis. We
    also are planning to develop an inhaled formulation of
    cobiprostone for the treatment of respiratory symptoms of cystic
    fibrosis and chronic obstructive pulmonary disease. Our near
    term focus is on the development of cobiprostone as a treatment
    for NSAID-induced ulcers. We have completed Phase I clinical
    trials of cobiprostone in healthy volunteers and commenced a
    Phase II clinical trial of this product candidate for the
    treatment of NSAID-induced ulcers in the third quarter of 2007.
    We also plan to commence a Phase II proof-of-concept study
    of cobiprostone in patients with portal hypertension in the
    fourth quarter of 2007. 23




---



##### 




    SPI-017.  We are developing SPI-017 to treat
    vascular disease and central nervous system disorders. We are
    initially focused on developing an intravenous formulation of
    this product candidate for the treatment of peripheral arterial
    disease. We also are developing an oral formulation of SPI-017
    for the treatment of Alzheimers disease. We plan to
    commence Phase I clinical trials of the intravenous formulation
    of SPI-017 in 2008.  Founders
    Awards
        Share-Based Payment
   24




---



##### 



Results
    of Operations
  Comparison
    of three months ended September 30, 2007 and
    September 30, 2006
  Revenues
    Three Months EndedSeptember 30,2007


2006(In thousands)Research and development revenue

$
4,652


$
6,759Collaboration revenue


37



37Contract revenue  related parties


114



129Product royalty revenue


6,998



79Co-promotion revenue


1,051



1,290Total

$
12,852


$
8,294         
    We began to perform services and receive payments from Takeda
    during the third quarter of 2006 for the following three
    deliverables: post-marketing studies to evaluate the safety of
    AMITIZA in patients with renal impairment and patients with
    hepatic impairment, Phase IV clinical trials of AMITIZA for
    the treatment of chronic idiopathic constipation in pediatric
    patients and clinical trials of AMITIZA for the treatment of
    OBD. Total research and development revenue associated with
    these three deliverables for the three months ended
    September 30, 2007 was $4.7 million. During the three
    months ended September 30, 2007, we enrolled our first
    patient in a Phase III study of lubiprostone for the
    treatment of OBD.    
    In March and May 2005, we received development milestone
    payments from Takeda totaling $30.0 million related to our
    efforts to develop AMITIZA. We recognized these payments as
    research and development revenue ratably over the performance
    period, which was completed in June 2007, resulting in
    $2.0 million of research and development revenue for the
    three months ended September 30, 2006 and no research and
    development revenue for the three months ended
    September 30, 2007 after the performance period was
    completed.
    In January 2006, we received a $20.0 million development
    milestone payment from Takeda related to our efforts to develop
    AMITIZA, which we recognized as research and development revenue
    ratably over the performance period, resulting in
    $1.3 million of research and development revenue for the
    three months ended September 30, 2006. 25




---



##### 




    We have received a total of $30.0 million of reimbursement
    payments for research and development costs from Takeda related
    to our efforts to develop AMITIZA, which we recognized as
    research and development revenue ratably over the performance
    period, resulting in $2.0 million for the three months
    ended September 30, 2006.
    In October 2004, we received an up-front payment of
    $20.0 million from Takeda, of which $17.6 million was
    associated with the development of AMITIZA. This amount was
    recognized ratably over the estimated performance period,
    resulting in $1.2 million for the three months ended
    September 30, 2006.      Research
    and Development Expenses
        General
    and Administrative Expenses
   26




---



##### 



Three Months EndedSeptember 30,2007


2006(In thousands)Salaries, benefits and related costs

$
1,513


$
1,187Legal and consulting expenses


638



576Stock-based compensation


20



226Founders stock-based award


(1,000
)


Lease loss


310



Other operating expenses


1,547



789Total

$
3,028


$
2,778     Selling
    and Marketing Expenses
      Milestone
    Royalties to Related Parties
    Product
    Royalties to Related Parties
    Income
    Taxes
  Interim Financial Reporting
 27




---



##### 



Comparison
    of nine months ended September 30, 2007 and
    September 30, 2006
  Revenues
    Nine Months EndedSeptember 30,2007


2006(In thousands)




(restated)Research and development revenue

$
52,105


$
38,900Contract revenue






1,500Collaboration revenue


110



110Contract revenue  related parties


344



263Product royalty revenue


18,869



4,563Co-promotion revenue


3,318



2,558Total

$
74,746


$
47,894      28




---



##### 



RevenueCash Received


RecognizedAmount


for the Nine


for the Nine


AmountDeferred at


Months Ended


Months Ended


Deferred atDecember 31,


September 30,


September 30,


September 30,2006


2007


2007


2007(In thousands)Collaboration revenue:Up-front payment associated with our obligation to participate
    in joint committees with Takeda

$
2,058


$



$
110


$
1,948Research and development revenue:Up-front payment  remainder

$
1,977


$



$
1,977


$
Development milestones


5,609



30,000



35,609



Reimbursement of research and development expenses


3,365



7,379



14,519



Total

$
10,951


$
37,379


$
52,105


$
 Accounts








AccountsReceivable at








Receivable atDecember 31,








September 30,2006








2007Product royalty revenue

$
2,029


$
13,900


$
18,869


$
6,998Co-promotion revenue

$
708


$
3,648


$
3,318


$
378Research and development revenue:Development milestone

$



$
30,000


$
30,000


$
Reimbursement of research and development expenses

$



$
7,379


$
11,154


$
3,775     
    In October 2004, we received an up-front payment of
    $20.0 million from Takeda, of which $17.6 million was
    associated with the development of AMITIZA. This amount was
    recognized ratably over the estimated performance period,
    resulting in $2.0 million and $5.0 million of research
    and development revenue for the nine months ended
    September 30, 2007 and 2006, respectively. The smaller
    amount of revenue recognized for the nine months ended
    September 30, 2007 is a result of our determination in June
    2006 to extend the estimated completion of the development
    period to June 2007.
    In March and May 2005, we received development milestone
    payments from Takeda totaling $30.0 million related to our
    efforts to develop AMITIZA. We recognized these payments as
    research and development revenue ratably over the performance
    period, resulting in $3.4 million of research and
    development revenue for the nine months ended September 30,
    2007 and $8.5 million for the nine months ended
    September 30, 2006. The smaller amount of revenue
    recognized for the nine months ended September 30, 2007 is
    a result of our determinations in June 2006 to extend the
    estimated completion of the development period to June 2007.
    In January 2006, we received a $20.0 million development
    milestone payment from Takeda related to our efforts to develop
    AMITIZA, which we recognized as research and development revenue
    ratably over the performance period, resulting in
    $2.2 million of research and development revenue for the
    nine months ended September 30, 2007 and $16.4 million
    for the nine months ended September 30, 2006. We recognized
    a significant portion of this milestone payment in the three
    months ended March 31, 2006, the quarter in which it was
    received, reflecting the fact that we were then well into the
    estimated development period. The smaller amount of revenue for
    the nine months ended September 30, 2007 also reflects our
    determinations, subsequent to our receipt of this payment, to
    extend the estimated completion in June 2006 of the development
    period to June 2007. 29




---



##### 




    Since inception of our agreement with Takeda, we have received a
    total of $30.0 million of reimbursement payments for
    research and development costs from Takeda related to our
    efforts to develop AMITIZA, which we recognized as research and
    development revenue ratably over the performance period,
    resulting in $3.4 million of research and development
    revenue for the nine months ended September 30, 2007 and
    $8.5 million for the nine months ended September 30,
    2006. The smaller amount of revenue recognized for the nine
    months ended September 30, 2007 is a result of our
    determination in June 2006 to extend the estimated completion of
    the development period to June 2007.
    We also began to perform services and receive payments from
    Takeda during the third quarter of 2006 for the following three
    deliverables: post-marketing studies to evaluate the safety of
    AMITIZA in patients with renal impairment and patients with
    hepatic impairment, Phase IV clinical trials of AMITIZA for
    the treatment of chronic idiopathic constipation in pediatric
    patients and clinical trials of AMITIZA for the treatment of
    OBD. Total research and development revenue associated with
    these three deliverables for the nine months ended
    September 30, 2007 and 2006 was $11.0 million and
    $1.1 million, respectively.        Research
    and Development Expenses
   30




---



##### 



General
    and Administrative Expenses
    Nine Months EndedSeptember 30,2007


2006(In thousands)




(restated)Salaries, benefits and related costs

$
4,756


$
3,986Legal and consulting expenses


2,005



2,407Stock-based compensation


(122
)


2,494Founders stock-based awards


9,187



Lease loss


310



Other operating expenses


3,528



2,091Total

$
19,664


$
10,978       Selling
    and Marketing Expenses
    Milestone
    Royalties to Related Parties
    Product
    Royalties to Related Parties
   31




---



##### 



Income
    Taxes
    Reportable
    Geographic Segments
    Intercompany(In thousands)

United States


Europe


Japan


Eliminations


ConsolidatedThree Months Ended September 30, 2007Total revenues

$
12,843


$



$
219


$
(210
)

$
12,852Income (loss) from operations


171



(521
)


(525
)






(875
)Income (loss) before income taxes


884



(537
)


(670
)






(323
)Identifiable assets (end of period)


112,149



541



2,499



(6,190
)


108,999Three Months Ended September 30, 2006Total revenues

$
8,269


$



$
25


$



$
8,294Loss from operations


(270
)


(85
)


(21
)






(376
)Income (loss) before income taxes


154



(64
)


(8
)






82Nine Months Ended September 30, 2007Total revenues

$
74,716


$



$
660


$
(630
)

$
74,746Income (loss) from operations


22,372



(830
)


(1,020
)






20,522Income (loss) before income taxes


23,881



(855
)


(1,121
)






21,905Identifiable assets (end of period)


112,149



541



2,499



(6,190
)


108,999Nine Months Ended September 30, 2006Total revenues (restated)

$
46,340


$
1,500


$
54


$



$
47,894Income (loss) from operations (restated)


14,193



1,157



(93
)






15,257Income before income taxes (restated)


15,609



1,186



69







16,864   Liquidity
    and Capital Resources
  Sources
    of Liquidity
   32




---



##### 



Cash
    Flows
    Nine Months EndedSeptember 30,(In thousands)

2007


2006Cash provided by (used in):Operating activities

$
8,408


$
(3,086
)Investing activities


(33,188
)


(737
)Financing activities


31,341



17,968Effect of exchange rates


186



(82
)Net increase in cash and cash equivalents

$
6,747


$
14,063   Nine
    months ended September 30, 2007
        Nine
    months ended September 30, 2006
        Funding
    Requirements
   33




---



##### 




    fund our 30% share of the two post-marketing studies of AMITIZA
    to evaluate its safety in patients with renal impairment and
    patients with hepatic impairment;
    fund regulatory efforts by Sucampo Europe and Sucampo Japan for
    AMITIZA and cobiprostone;
    fund development and regulatory activities for cobiprostone and
    SPI-017;
    fund research and development activities for prostone compounds
    other than AMITIZA, cobiprostone and SPI-017;
    fund the expansion of our commercialization activities in the
    United States and the initiation of commercialization efforts in
    non-U.S. markets; and
    fund costs for capital expenditures to support the growth of our
    business.    
    the revenue from AMITIZA;
    the future expenditures we may incur to increase revenue from
    AMITIZA;
    the cost and time involved to progress 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.      Off
    Balance Sheet Arrangements
    Item 3.
    Quantitative
    and Qualitative Disclosures about Market Risk     34




---



##### 



Item 4T.
    Controls
    and Procedures  a)
    Evaluation
    of Disclosure Controls and Procedures  Rules 13a-15(e) 15d-15(e)
  b)
    Remediation
    of Previous Material Weakness    
    implemented a formal review of monthly reporting packages that
    requires each subsidiary to provide detailed financial data,
    including identification of significant transactions;
    implemented formal written processes to facilitate the
    consolidation activities; and
    implemented formal procedures for foreign currency translation
    and US generally accepted accounting principals reporting.    c)
    Changes
    in Internal Controls Over Financial Reporting   35




---



##### 



Part II 
    OTHER INFORMATION
  Item 1.
    Legal
    Proceedings    Item 1A.
    Risk
    Factors  Form 10-Q Form S-1, No. 333-135133).
  Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds  Use of
    Proceeds from Initial Public Offering of Class A Common
    Stock
  Form S-1 No. 333-135133)
        Item 4.
    Submission
    of Matters to a Vote of Security Holders   36




---



##### 



Item 6.
    Exhibits  (a)
    Exhibits  Exhibits

Description10
.1

Indemnification Agreement, dated as of October 18, 2007,
    between the Registrant and Anthony C. Celeste10
.2

Amended and Restated 2006 Stock Incentive Plan31
.1

Certification of the Principal Executive Officer, as required by
    Section 302 of the Sarbanes-Oxley Act of 200231
.2

Certification of the Principal Financial Officer, as required by
    Section 302 of the Sarbanes-Oxley Act of 200232
.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 200232
.1

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  37




---



##### 



SIGNATURES
    Sucampo Pharmaceuticals, Inc.November 14, 2007

By: /s/ Ryuji UenoRyuji
    Ueno, M.D., Ph.D., Ph.D. 
    Chief Executive Officer, Chief Scientific Officer and
    Chair of the Board of Directors
    (Principal Executive Officer)November 14, 2007

By: /s/ Ronald W. KaiserRonald
    W. Kaiser
    Chief Financial Officer
    (Principal Financial Officer)November 14, 2007

By: /s/ Mariam E. MorrisMariam
    E. Morris
    Chief Accounting Officer
    (Principal Accounting Officer)  38




---



##### 



Sucampo
    Pharmaceuticals, Inc.
    Exhibit Index
  ExhibitNumber

Description10
.1

Indemnification Agreement, dated as of October 18, 2007,
    between the Registrant and Anthony C. Celeste10
.2

Amended and Restated 2006 Stock Incentive Plan31
.1

Certification of the Principal Executive Officer, as required by
    Section 302 of the Sarbanes-Oxley Act of 200231
.2

Certification of the Principal Financial Officer, as required by
    Section 302 of the Sarbanes-Oxley Act of 200232
.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 200232
.1

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  39