UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 OR
 o
    
    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(State or other jurisdiction of 
incorporation or organization)
    
    13-3929237(I.R.S. employer
identification no.)
 4520 East-West Highway, Suite 300
Bethesda, MD 20814(Address of principal executive offices, 
including zip code)
    
    (301) 961-3400(Registrants telephone number,
including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



Sucampo Pharmaceuticals, Inc.
 Form 10-Q Index
 PagePart I. FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial Statements (unaudited)
    
    
    1Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007
    
    
    1Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three
Months Ended March 31, 2008 and 2007
    
    
    2Condensed Consolidated Statement of Changes in Stockholders Equity for the Three Months Ended
March 31, 2008
    
    
    3Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    25Part II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    25Item 1A.
    
    Risk Factors
    
    
    25Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    26Item 6.
    
    Exhibits
    
    
    27SIGNATURES
    
    
    28INDEX TO EXHIBITS
    
    
    29




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##### 



PART I  FINANCIAL INFORMATION
 Item 1. Condensed Consolidated Financial Statements (Unaudited)
 SUCAMPO PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets (Unaudited)
 March 31,
    
    
    December 31,2008
    
    
    2007ASSETS:Current assets:Cash and cash equivalents
    
    $
    32,733
    
    
    $
    25,559Investments, current
    
    
    25,912
    
    
    
    51,552Product royalties receivable
    
    
    6,080
    
    
    
    8,667Unbilled accounts receivable
    
    
    4,987
    
    
    
    5,883Accounts receivable
    
    
    1,886
    
    
    
    1,525Prepaid and income taxes receivable
    
    
    119
    
    
    
    1,922Deferred tax assets, net
    
    
    926
    
    
    
    88Prepaid expenses and other current assets
    
    
    2,332
    
    
    
    2,222Total current assets
    
    
    74,975
    
    
    
    97,418Investments, non-current
    
    
    26,301
    
    
    
    9,400Property and equipment, net
    
    
    2,334
    
    
    
    2,265Deferred tax assets  noncurrent, net
    
    
    5,887
    
    
    
    551Other assets
    
    
    412
    
    
    
    393Total assets
    
    $
    109,909
    
    
    $
    110,027LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    4,820
    
    
    $
    3,313Accrued expenses
    
    
    7,160
    
    
    
    8,730Deferred revenue  current
    
    
    885
    
    
    
    1,062Total current liabilities
    
    
    12,865
    
    
    
    13,105Deferred revenue, net of current portion
    
    
    8,485
    
    
    
    8,626Other liabilities
    
    
    1,735
    
    
    
    1,768Total liabilities
    
    
    23,085
    
    
    
    23,499Commitments (Note 6)Stockholders equity:Preferred stock, $0.01 par value;
$5,000,000 shares authorized at March 31,
2008 and December 31, 2007; no shares
issued and outstanding at March 31, 2008
and December 31, 2007
    
    
    
    
    
    
    Class A common stock, $0.01 par value;
270,000,000 shares authorized at March 31,
2008 and December 31, 2007; 15,542,768 and
15,538,518 shares issued and outstanding at
March 31, 2008 and December 31, 2007,
respectively
    
    
    155
    
    
    
    155Class B common stock, $0.01 par value;
75,000,000 shares authorized at March 31,
2008 and December 31, 2007; 26,191,050
shares issued and outstanding at March 31,
2008 and
December 31, 2007
    
    
    262
    
    
    
    262Additional paid-in capital
    
    
    96,981
    
    
    
    96,680Accumulated other comprehensive loss
    
    
    (903
    )
    
    
    (393
    )Accumulated deficit
    
    
    (9,671
    )
    
    
    (10,176
    )Total stockholders equity
    
    
    86,824
    
    
    
    86,528Total liabilities and stockholders equity
    
    $
    109,909
    
    
    $
    110,027
  1




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##### 



SUCAMPO PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited)
 Three Months Ended March 31,2008
    
    
    2007Revenues:Research and development revenue
    
    $
    6,110
    
    
    $
    9,366Product royalty revenue
    
    
    6,080
    
    
    
    2,309Co-promotion revenue
    
    
    1,222
    
    
    
    1,132Contract revenue  related parties
    
    
    105
    
    
    
    116Collaboration revenue
    
    
    37
    
    
    
    37Total revenues
    
    
    13,554
    
    
    
    12,960Operating expenses:Research and development
    
    
    10,082
    
    
    
    5,946General and administrative
    
    
    4,381
    
    
    
    2,833Selling and marketing
    
    
    2,768
    
    
    
    3,231Milestone royalties  related parties
    
    
    1,031
    
    
    
    Product royalties  related parties
    
    
    1,081
    
    
    
    411Total operating expenses
    
    
    19,343
    
    
    
    12,421(Loss) income from operations
    
    
    (5,789
    )
    
    
    539Non-operating income (expense):Interest income
    
    
    642
    
    
    
    324Other income (expense), net
    
    
    12
    
    
    
    (6
    )Total non-operating income, net
    
    
    654
    
    
    
    318(Loss) income before income taxes
    
    
    (5,135
    )
    
    
    857Income tax benefit (provision)
    
    
    5,640
    
    
    
    (341
    )Net income
    
    $
    505
    
    
    $
    516Net income per share:Basic net income per share
    
    $
    0.01
    
    
    $
    0.01Diluted net income per share
    
    $
    0.01
    
    
    $
    0.01Weighted average common shares outstanding  basic
    
    
    41,733
    
    
    
    34,990Weighted average common shares outstanding  diluted
    
    
    42,061
    
    
    
    35,429Comprehensive (loss) income:Net income
    
    $
    505
    
    
    $
    516Other comprehensive (loss) income:Unrealized loss on investments, net of tax effect
    
    
    (840
    )
    
    
    Foreign currency translation
    
    
    330
    
    
    
    21Comprehensive (loss) income
    
    $
    (5
    )
    
    $
    537
  2




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##### 



SUCAMPO PHARMACEUTICALS, INC.
Condensed Consolidated Statement of Changes in Stockholders Equity (Unaudited)
 AccumulatedClass A
    
    
    Class B
    
    
    Additional
    
    
    Other
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Common Stock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Loss
    
    
    Deficit
    
    
    EquityBalance at December 31, 2007
    
    
    15,538,518
    
    
    $
    155
    
    
    
    26,191,050
    
    
    $
    262
    
    
    $
    96,680
    
    
    $
    (393
    )
    
    $
    (10,176
    )
    
    $
    86,528Stock issued upon exercise of stock options
    
    
    4,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    42Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    259
    
    
    
    
    
    
    
    
    
    
    
    259Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    330
    
    
    
    
    
    
    
    330Unrealized loss on investments, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (840
    )
    
    
    
    
    
    
    (840
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    505
    
    
    
    505Balance at March 31, 2008
    
    
    15,542,768
    
    
    $
    155
    
    
    
    26,191,050
    
    
    $
    262
    
    
    $
    96,981
    
    
    $
    (903
    )
    
    $
    (9,671
    )
    
    $
    86,824
  3




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##### 



SUCAMPO PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
 Three Months Ended March 31,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    505
    
    
    $
    516Adjustments to reconcile net income to net cash used in operating activities:Depreciation and amortization
    
    
    102
    
    
    
    24Deferred tax (benefit) provision
    
    
    (5,640
    )
    
    
    341Stock-based compensation
    
    
    259
    
    
    
    (155
    )Accretion of discounts on investments
    
    
    (52
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (309
    )
    
    
    (1,104
    )Unbilled accounts receivable
    
    
    896
    
    
    
    Product royalties receivable
    
    
    2,587
    
    
    
    (280
    )Prepaid and income taxes receivable and payable, net
    
    
    1,803
    
    
    
    (9
    )Accounts payable
    
    
    1,413
    
    
    
    1,178Accrued expenses
    
    
    (1,592
    )
    
    
    (464
    )Deferred revenue
    
    
    (318
    )
    
    
    (6,168
    )Other assets
and liabilities, net
    
    
    (34
    )
    
    
    (236
    )Net cash used in operating activities
    
    
    (380
    )
    
    
    (6,357
    )Cash flows from investing activities:Purchases of investments
    
    
    (45,909
    )
    
    
    Proceeds from the sales of investments
    
    
    38,325
    
    
    
    Maturities of investments
    
    
    15,000
    
    
    
    Purchases of property and equipment
    
    
    (171
    )
    
    
    (96
    )Net cash provided by (used in) investing activities
    
    
    7,245
    
    
    
    (96
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    42
    
    
    
    Payments of initial public offering costs
    
    
    
    
    
    
    (360
    )Net cash provided by (used in) financing activities
    
    
    42
    
    
    
    (360
    )Effect of exchange rates on cash and cash equivalents
    
    
    267
    
    
    
    24Net increase (decrease) in cash and cash equivalents
    
    
    7,174
    
    
    
    (6,789
    )Cash and cash equivalents at beginning of period
    
    
    25,559
    
    
    
    22,481Cash and cash equivalents at end of period
    
    $
    32,733
    
    
    $
    15,692
  4




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##### 



SUCAMPO PHARMACEUTICALS, INC.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 1. Business Organization and Basis of Presentation
 Description of the Business
   ®
 Basis of Presentation
   2. Summary of Significant Accounting Policies
 Current and Non-current Investments
 Accounting for
Certain Investments in Debt and Equity Securities
 5




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##### 



SUCAMPO PHARMACEUTICALS, INC.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
 Fair Value Measurements
   The Fair Value Option for Financial Assets and
Financial Liabilities, Including an Amendment of FASB Statement No. 115
 Certain Risks, Concentrations and Uncertainties
    6




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##### 



SUCAMPO PHARMACEUTICALS, INC.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
      Recent Accounting Pronouncements
 Accounting
for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and
Development Activities
 Business Combinations Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51
 Accounting for Collaborative
Arrangements The Equity Method of
Accounting for Investments in Common Stock"
 7




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##### 



SUCAMPO PHARMACEUTICALS, INC.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
  3. Earnings per Share
   Three Months Ended March 31,(In thousands, except per share data)
    
    2008
    
    
    2007Basic net income per share:Net income
    
    $
    505
    
    
    $
    516Weighted average class A and B common shares outstanding
    
    
    41,733
    
    
    
    34,990Basic net income per share
    
    $
    0.01
    
    
    $
    0.01Diluted net income per share:Net income
    
    $
    505
    
    
    $
    516Weighted average class A and B common shares outstanding for diluted net
income per share
    
    
    41,733
    
    
    
    34,990Assumed exercise of dilutive stock options under the treasury stock method
    
    
    328
    
    
    
    43942,061
    
    
    
    35,429Diluted net income per share
    
    $
    0.01
    
    
    $
    0.01For the periods listed above, the potentially dilutive securities used in the calculations of
diluted historical net income per share as of March 31, 2008 and 2007 are as follows:Three Months Ended March 31,(In thousands)
    
    2008
    
    2007Employee stock options
    
    
    608
    
    
    
    655Non-employee stock options
    
    
    510
    
    
    
    510For the periods listed above, the following securities were excluded from the computation of
diluted net income per share as their effect would be anti-dilutive as of March 31, 2008 and 2007:Three Months Ended March 31,(In thousands)
    
    2008
    
    2007Employee stock options
    
    
    268
    
    
    
    
 8




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##### 



SUCAMPO PHARMACEUTICALS, INC.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
 4. Current and Non-Current Investments
  March 31, 2008Unrealized
    
    
    Unrealized(In thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCurrent:U.S. Treasury bills
    
    $
    25,860
    
    
    $
    24
    
    
    $
    (24
    )
    
    $
    25,860Money market funds
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    52Total
    
    $
    25,912
    
    
    $
    24
    
    
    $
    (24
    )
    
    $
    25,912Non-current:Auction rate securities
    
    $
    27,675
    
    
    $
    
    
    
    $
    (1,374
    )
    
    $
    26,301
 December 31, 2007Unrealized
    
    
    Unrealized(In thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCurrent:Auction rate securities
    
    $
    51,500
    
    
    $
    
    
    
    $
    
    
    
    $
    51,500Money market funds
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    52Total
    
    $
    51,552
    
    
    $
    
    
    
    $
    
    
    
    $
    51,552Non-current:Auction rate securities
    
    $
    9,400
    
    
    $
    
    
    
    $
    
    
    
    $
    9,400
    9




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##### 



SUCAMPO PHARMACEUTICALS, INC.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
  Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    Inputs
    
    
    March 31,(In thousands)
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    2008U.S. Treasury bills
    
    $
    25,860
    
    
    $
    
    
    
    $
    
    
    
    $
    25,860Auction rate securities
    
    
    
    
    
    
    
    
    
    
    26,301
    
    
    
    26,301Other available-for-sale securities
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    52Total assets measured at fair value
    
    $
    25,912
    
    
    $
    
    
    
    $
    26,301
    
    
    $
    52,213
   Auction Rate(In thousands)
    
    SecuritiesBalance at January 1, 2008
    
    $
    9,400Transfers to Level 3
    
    
    51,500Total gains (losses) (realized or unrealized):Included in earnings
    
    
    Included in other comprehensive loss
    
    
    (1,374
    )Purchases
    
    
    5,100Settlements
    
    
    (38,325
    )Balance at March 31, 2008
    
    $
    26,301
 5. Accrued Expenses
  March 31,
    
    
    December 31,(In thousands)
    
    2008
    
    
    2007Research and development costs
    
    $
    4,053
    
    
    $
    4,422Selling and marketing costs
    
    
    242
    
    
    
    384Employee compensation
    
    
    1,133
    
    
    
    1,867Legal service fees
    
    
    179
    
    
    
    226Product royalty liability  related party
    
    
    1,082
    
    
    
    1,536Other expenses
    
    
    471
    
    
    
    295$
    7,160
    
    
    $
    8,730
 6. Commitments
 Operating Leases
  (In thousands)2008
    
    $
    1,0992009
    
    
    1,3352010
    
    
    9692011
    
    
    9382012
    
    
    9632013 and thereafter
    
    
    4,242Total minimum lease payments
    
    $
    9,546
  10




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##### 



SUCAMPO PHARMACEUTICALS, INC.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
 Research and Development Costs
  7. Related Party Transactions
 R-Tech Ueno, Ltd.
   March 31,
    
    
    December 31,2008
    
    
    2007(In thousands)Deferred revenue  current
    
    $
    105
    
    
    $
    419Deferred revenue, net of current portion
    
    
    7,072
    
    
    
    6,862$
    7,177
    
    
    $
    7,281
  Sucampo AG License Agreements
   8. Collaboration and License Agreements with Takeda
   11




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##### 



SUCAMPO PHARMACEUTICALS, INC.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
    RevenueCash Received
    
    
    Recognizedfor the
    
    
    for theAmount
    
    
    Three Months
    
    
    Three Months
    
    
    AmountDeferred at
    
    
    Ended
    
    
    Ended
    
    
    Deferred atDecember 31,
    
    
    March 31,
    
    
    March 31,
    
    
    March 31,(In thousands)
    
    2007
    
    
    2008
    
    
    2008
    
    
    2008Collaboration revenue:Up-front payment
associated with the
Companys obligation
to participate in
joint committees with
Takeda
    
    $
    1,911
    
    
    $
    
    
    
    $
    37
    
    
    $
    1,874Accounts
    
    
    
    
    
    
    
    
    
    
    AccountsReceivable at
    
    
    
    
    
    
    
    
    
    
    Receivable atDecember 31,
    
    
    
    
    
    
    
    
    
    
    March 31,2007*
    
    
    
    
    
    
    
    
    
    
    2008*Research and development revenue
    
    $
    6,887
    
    
    $
    6,655
    
    
    $
    6,110
    
    
    $
    6,342Product royalty revenue
    
    $
    8,667
    
    
    $
    8,667
    
    
    $
    6,080
    
    
    $
    6,080Co-promotion revenue
    
    $
    360
    
    
    $
    1,167
    
    
    $
    1,222
    
    
    $
    415
 
 *
    
    Includes billed and unbilled accounts receivable.   12




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##### 



SUCAMPO PHARMACEUTICALS, INC.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
 9. Stock Option Plan
  Weighted
    
    
    WeightedAverage
    
    
    Average Remaining
    
    
    AggregateExercise Price
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Per Share
    
    
    Term (Years)
    
    
    ValueOptions outstanding, December 31, 2007
    
    
    640,900
    
    
    $
    10.24Options exercised
    
    
    (4,250
    )
    
    
    10.00Options forfeited
    
    
    (22,100
    )
    
    
    10.00Options expired
    
    
    (21,250
    )
    
    
    10.00Options outstanding, March 31, 2008
    
    
    593,300
    
    
    
    10.26
    
    
    
    6.81
    
    
    $
    Options exercisable, March 31, 2008
    
    
    513,400
    
    
    
    10.30
    
    
    
    6.60
    
    
    $
    
  Weighted
    
    
    WeightedAverage
    
    
    Average Remaining
    
    
    AggregateExercise Price
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Per Share
    
    
    Term (Years)
    
    
    ValueOptions outstanding, December 31, 2007
    
    
    267,500
    
    
    $
    14.44Options granted
    
    
    15,000
    
    
    
    9.74Options outstanding, March 31, 2008
    
    
    282,500
    
    
    
    14.19
    
    
    
    8.65
    
    
    $
    Options exercisable, March 31, 2008
    
    
    72,500
    
    
    
    14.41
    
    
    
    8.67
    
    
    $
    
   10. Income Taxes
 Accounting for
Uncertainty in Income Taxes
  Interim Financial Reporting"
 13




---



##### 



SUCAMPO PHARMACEUTICALS, INC.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
 11. Line of Credit
  12. Segment Reporting
  Intercompany(In thousands)
    
    United States
    
    
    Europe
    
    
    Japan
    
    
    Eliminations
    
    
    ConsolidatedThree Months Ended March 31, 2008Research and development revenue
    
    $
    6,110
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,110Product royalty revenue
    
    
    6,080
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,080Co-promotion revenue
    
    
    1,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,222Contract revenue  related parties
    
    
    105
    
    
    
    
    
    
    
    207
    
    
    
    (207
    )
    
    
    105Collaboration revenue
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Total revenues
    
    
    13,554
    
    
    
    
    
    
    
    207
    
    
    
    (207
    )
    
    
    13,554Depreciation and amortization
    
    
    100
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    102Other operating expenses
    
    
    16,944
    
    
    
    1,838
    
    
    
    669
    
    
    
    (210
    )
    
    
    19,241Loss from operations
    
    
    (3,490
    )
    
    
    (1,838
    )
    
    
    (464
    )
    
    
    3
    
    
    
    (5,789
    )Interest income
    
    
    656
    
    
    
    4
    
    
    
    3
    
    
    
    (21
    )
    
    
    642Other non-operating (expense) income, net
    
    
    (27
    )
    
    
    19
    
    
    
    2
    
    
    
    18
    
    
    
    12Loss before income taxes
    
    $
    (2,861
    )
    
    $
    (1,815
    )
    
    $
    (459
    )
    
    $
    
    
    
    $
    (5,135
    )Capital expenditures
    
    $
    171
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    171Three Months Ended March 31, 2007Research and development revenue
    
    $
    9,366
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,366Product royalty revenue
    
    
    2,309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,309Co-promotion revenue
    
    
    1,132
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,132Contract revenue  related parties
    
    
    105
    
    
    
    
    
    
    
    221
    
    
    
    (210
    )
    
    
    116Collaboration revenue
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Total revenues
    
    
    12,949
    
    
    
    
    
    
    
    221
    
    
    
    (210
    )
    
    
    12,960Depreciation and amortization
    
    
    21
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    24Other operating expenses
    
    
    12,204
    
    
    
    165
    
    
    
    238
    
    
    
    (210
    )
    
    
    12,397Income (loss) from operations
    
    
    724
    
    
    
    (165
    )
    
    
    (20
    )
    
    
    
    
    
    
    539Interest income
    
    
    320
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    324Other non-operating expense, net
    
    
    (3
    )
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (6
    )Income (loss) before income taxes
    
    $
    1,041
    
    
    $
    (168
    )
    
    $
    (16
    )
    
    $
    
    
    
    $
    857Capital expenditures
    
    $
    96
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    96As of March 31, 2008Property and equipment, net
    
    $
    2,242
    
    
    $
    
    
    
    $
    92
    
    
    $
    
    
    
    $
    2,334Identifiable assets
    
    $
    115,883
    
    
    $
    977
    
    
    $
    4,977
    
    
    $
    (11,928
    )
    
    $
    109,909As of December 31, 2007Property and equipment, net
    
    $
    2,182
    
    
    $
    
    
    
    $
    83
    
    
    $
    
    
    
    $
    2,265Identifiable assets
    
    $
    114,490
    
    
    $
    2,381
    
    
    $
    1,987
    
    
    $
    (8,831
    )
    
    $
    110,027
 14




---



##### 



SUCAMPO PHARMACEUTICALS, INC.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
 13. Subsequent Events
 Ò
 15




---



##### 



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. (Sucampo, 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. You should 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, 2007 included in our Annual Report on Form
10-K.
 Overview
      16




---



##### 



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, which were
initiated in January 2007. In connection with our marketing approval for AMITIZA for the
treatment of irritable bowel syndrome with constipation in adult women, we committed to the
FDA to conduct a post-marketing study to evaluate the safety and efficacy for the treatment
of irritable bowel syndrome in pediatric patients ages 6 to 17 and we plan to initiate this
study in the first quarter of 2009. In addition, we committed to conduct a post-marketing
study in male and female patients with irritable bowel syndrome with constipation utilizing
a higher dose than currently recommended for this indication and we plan to initiate this
study in the second quarter of 2009. We are also developing AMITIZA to treat
opioid-induced bowel dysfunction. We commenced Phase III pivotal clinical trials of AMITIZA
for the treatment of opioid-induced bowel dysfunction in September 2007 and we expect to
complete these trials by the end of 2009. Our collaboration and co-promotion arrangement
with Takeda also covers these additional indications for AMITIZA.In February 2008, we submitted a Marketing Approval Application, or MAA, for lubiprostone, 24
micrograms, for the indication of chronic idiopathic constipation in adults in the United
Kingdom. The MAA has been submitted using the decentralized procedure with the United
Kingdom, through its Medicines and Healthcare Products Regulatory Agency, serving as the
reference member state, with additional applications subsequently submitted with the member
states of Belgium, Denmark, France, Germany, Ireland, the Netherlands, Spain and Sweden.In November 2007, we initiated a multi-center Phase IIb dose-ranging study in Japan to
evaluate the safety and efficacy of lubiprostone for treating chronic idiopathic constipation
in adults.
    
    Cobiprostone.We are developing orally administered cobiprostone to treat various
gastrointestinal and liver disorders, including non-steroidal anti-inflammatory
drug-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 non-steroidal anti-inflammatory drug-induced
ulcers. We 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
non-steroidal anti-inflammatory drug-induced ulcers in the third quarter of 2007. We also
submitted an investigational new drug, or IND, application to the FDA in December 2007 for
a Phase II proof-of-concept study of cobiprostone in patients with portal hypertension.
    
    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 by the end of
2008.
 Results of Operations
 Comparison of three months ended March 31, 2008 and March 31, 2007
 Revenues
  Three Months EndedMarch 31,(In thousands)
    
    2008
    
    
    2007Research and development revenue
    
    $
    6,110
    
    
    $
    9,366Product royalty revenue
    
    
    6,080
    
    
    
    2,309Co-promotion revenue
    
    
    1,222
    
    
    
    1,132Contract revenue  related parties
    
    
    105
    
    
    
    116Collaboration revenue
    
    
    37
    
    
    
    37Total
    
    $
    13,554
    
    
    $
    12,960
 17




---



##### 



RevenueCash Received
    
    
    Recognizedfor the
    
    
    for theAmount
    
    
    Three Months
    
    
    Three Months
    
    
    AmountDeferred at
    
    
    Ended
    
    
    Ended
    
    
    Deferred atDecember 31,
    
    
    March 31,
    
    
    March 31,
    
    
    March 31,2007
    
    
    2008
    
    
    2008
    
    
    2008(In thousands)Collaboration revenue:Up-front payment
associated with our
obligation to
participate in joint
committees with
Takeda
    
    $
    1,911
    
    
    $
    
    
    
    $
    37
    
    
    $
    1,874Accounts
    
    
    
    
    
    
    
    
    
    
    AccountsReceivable at
    
    
    
    
    
    
    
    
    
    
    Receivable atDecember 31,
    
    
    
    
    
    
    
    
    
    
    March 31,2007*
    
    
    
    
    
    
    
    
    
    
    2008*Research and development revenue
    
    $
    6,887
    
    
    $
    6,655
    
    
    $
    6,110
    
    
    $
    6,342Product royalty revenue
    
    $
    8,667
    
    
    $
    8,667
    
    
    $
    6,080
    
    
    $
    6,080Co-promotion revenue
    
    $
    360
    
    
    $
    1,167
    
    
    $
    1,222
    
    
    $
    415
 
 *
    
    Includes billed and unbilled accounts receivable.   Research and Development Expenses
  18




---



##### 



General and Administrative Expenses
  Three Months EndedMarch 31,(In thousands)
    
    2008
    
    
    2007Salaries, benefits and related costs
    
    $
    1,727
    
    
    $
    1,547Legal and consulting expenses
    
    
    661
    
    
    
    719Stock-based compensation
    
    
    162
    
    
    
    (205
    )Other operating expenses
    
    
    1,831
    
    
    
    772Total
    
    $
    4,381
    
    
    $
    2,833
   Selling and Marketing Expenses
  Product Royalties  Related Parties
  Milestone Royalties  Related Parties
   19




---



##### 



Non-Operating Income and Expense
  Three Months EndedMarch 31,(In thousands)
    
    2008
    
    
    2007Interest income
    
    $
    642
    
    
    $
    324Other income (expense), net
    
    
    12
    
    
    
    (6
    )Total non-operating income, net
    
    $
    654
    
    
    $
    318
  Income Taxes
  Reportable Geographic Segments
  Intercompany(In thousands)
    
    United States
    
    Europe
    
    Japan
    
    Eliminations
    
    ConsolidatedThree Months Ended March 31, 2008Total revenues
    
    $
    13,554
    
    
    $
    
    
    
    $
    207
    
    
    $
    (207
    )
    
    $
    13,554Loss from operations
    
    
    (3,490
    )
    
    
    (1,838
    )
    
    
    (464
    )
    
    
    3
    
    
    
    (5,789
    )Three Months Ended March 31, 2007Total revenues
    
    $
    12,949
    
    
    $
    
    
    
    $
    221
    
    
    $
    (210
    )
    
    $
    12,960Income (loss) from operations
    
    
    724
    
    
    
    (165
    )
    
    
    (20
    )
    
    
    
    
    
    
    539Identifiable AssetsAt March 31, 2008
    
    $
    115,883
    
    
    $
    977
    
    
    $
    4,977
    
    
    $
    (11,928
    )
    
    $
    109,909At December 31, 2007
    
    
    114,490
    
    
    
    2,381
    
    
    
    1,987
    
    
    
    (8,831
    )
    
    
    110,027
 Liquidity and Capital Resources
 Sources of Liquidity
  20




---



##### 



21




---



##### 



Cash Flows
  Three Months EndedMarch 31,(In thousands)
    
    2008
    
    
    2007Cash provided by (used in):Operating activities
    
    $
    (380
    )
    
    $
    (6,357
    )Investing activities
    
    
    7,245
    
    
    
    (96
    )Financing activities
    
    
    42
    
    
    
    (360
    )Effect of exchange rates
    
    
    267
    
    
    
    24Net increase (decrease) in cash and cash equivalents
    
    $
    7,174
    
    
    $
    (6,789
    )
 Three Months Ended March 31, 2008
    Three Months Ended March 31, 2007
    Funding Requirements
  
    
    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 in Europe and 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.
 22




---



##### 




    
    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.
   Fair Value of Financial Instruments
 Fair Value Measurements, The Fair Value Option for Financial
Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115,
   Recent Accounting Pronouncements
 Accounting
for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and
Development Activities"
 23




---



##### 



Business Combinations" Noncontrolling Interests
in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51"
 Accounting for Collaborative
Arrangements" The Equity Method of
Accounting for Investments in Common Stock"
  Item 3. Quantitative and Qualitative Disclosures about Market Risk
       24




---



##### 



Item 4. Controls and Procedures
 a) Evaluation of Disclosure Controls and Procedures
  b) Changes in Internal Controls
  Part II  OTHER INFORMATION
 Item 1. Legal Proceedings
  Item 1A. Risk Factors
  We depend significantly upon Takedas sales force to market AMITIZA. In addition to its own sales
force, Takeda has been utilizing a sales force within an affiliated joint venture for this purpose,
and the joint venture was recently terminated. Any disruptions in the marketing of AMITIZA by the
Takeda sales force as a result of this development could cause a decline in our revenues.
  25




---



##### 



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Use of Proceeds from Initial Public Offering of Class A Common Stock
    
    
    approximately $112,000 to fund our share of two post-marketing studies of AMITIZA to
evaluate its safety in patients with renal impairment and patients with hepatic impairment;
    
    approximately $4.0 million to fund development and regulatory activities for SPI-8811
and SPI-017;
    
    approximately $5.2 million to fund regulatory efforts by Sucampo Europe and Sucampo
Japan for AMITIZA and cobiprostone;
    
    approximately $447,000 for research and development activities for prostone compounds
other than AMITIZA, cobiprostone and SPI-017; and
    
    approximately $261,000 to fund costs in connections with computers, software and
information technology to support growth in our business.
  Item 4. Submission of Matters to a Vote of Security Holders
  26




---



##### 



Item 6. Exhibits
 (a) Exhibits
 ExhibitNumber
    
    Description
    
    Reference3.1
    
    Restated Certificate of Incorporation
    
    Exhibit 3.1 to the
Companys Current
Report on Form 8-K
(filed August 8,
2007)3.2
    
    Form of Restated Bylaws
    
    Exhibit 3.4 to
Registration
Statement No.
333-135133, Amendment
No. 2 (filed October
20, 2006)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)10.1
    
    Indemnification Agreement, dated May
12, 2008, between the Company and John
C. Wright
    
    Included herewith31.1
    
    Certification of the Principal
Executive Officer, as required by
Section 302 of the Sarbanes-Oxley Act
of 2002
    
    Included herewith31.2
    
    Certification of the Principal
Financial Officer, as required by
Section 302 of the Sarbanes-Oxley Act
of 2002
    
    Included herewith32.1
    
    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 herewith32.2
    
    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
 27




---



##### 



SIGNATURES
  Sucampo Pharmaceuticals, Inc.May 14, 2008
    By:
    /s/ RYUJI UENORyuji Ueno, M.D., Ph.D., Ph.D.Chief Executive Officer, Chief Scientific Officer 
and Chairman of the Board of Directors
(Principal Executive Officer)May 14, 2008
    By:
    /s/ MARIAM E. MORRISMariam E. MorrisChief Financial Officer
(Principal Financial Officer) 28




---



##### 



Sucampo Pharmaceuticals, Inc.
Exhibit Index
 ExhibitNumber
    
    Description
    
    Reference3.1
    
    Restated Certificate of Incorporation
    
    Exhibit 3.1 to the
Companys Current
Report on Form 8-K
(filed August 8,
2007)3.2
    
    Form of Restated Bylaws
    
    Exhibit 3.4 to
Registration
Statement No.
333-135133, Amendment
No. 2 (filed October
20, 2006)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)10.1
    
    Indemnification Agreement, dated May
12, 2008, between the Company and John
C. Wright
    
    Included herewith31.1
    
    Certification of the Principal
Executive Officer, as required by
Section 302 of the Sarbanes-Oxley Act
of 2002
    
    Included herewith31.2
    
    Certification of the Principal
Financial Officer, as required by
Section 302 of the Sarbanes-Oxley Act
of 2002
    
    Included herewith32.1
    
    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 herewith32.2
    
    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
 29