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

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

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

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

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

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

----

|                                              |   |         |       |   |         |   |   |       |   |   |          |   |   |        |   |   | Accumulated   |   |   |    |   |   |   |   |
|---------------------------------------------------|--------|--------------|------------|--------|--------------|--------|--------|------------|--------|--------|---------------|--------|--------|-------------|--------|--------|---------------|--------|--------|---------|--------|--------|--------|--------|
|                                              |   | Class A      |       |   | Class B      |   |   | Additional |   |   | Other         |   |   |        |   |   | Total         |   |
|                                              |   | Common Stock |       |   | Common Stock |   |   | Paid-In    |   |   | Comprehensive |   |   | Accumulated |   |   | Stockholders' |   |
|                                              |   | Shares       |       |   | Amount       |   |   | Shares     |   |   | Amount        |   |   | Capital     |   |   | Income        |   |   | Deficit |   |   | Equity |   |
| Balance at December 31, 2010                      |   |         | 15,659,917 |   |         | $      | 156    |       |   |   | 26,191,050    |   |   | $           | 262    |   |          | $      | 58,468 |    |   | $      | 16,574 |   |   | $ | (21,630 | ) |   | $ | 53,830 |   |
| Employee stock option expense                     |   |         | -          |   |         |   | -      |       |   |   | -             |   |   |        | -      |   |          |   | 145    |    |   |   | -      |   |   |   | - |   |   |   | 145 |   |
| Stock issued under employee stock purchase plan   |   |         | 765        |   |         |   | -      |       |   |   | -             |   |   |        | -      |   |          |   | 3      |    |   |   | -      |   |   |   | - |   |   |   | 3 |   |
| Foreign currency translation                      |   |         | -          |   |         |   | -      |       |   |   | -             |   |   |        | -      |   |          |   | -      |    |   |   | 437    |   |   |   | - |   |   |   | 437 |   |
| Unrealized gain on investments, net of tax effect |   |         | -          |   |         |   | -      |       |   |   | -             |   |   |        | -      |   |          |   | -      |    |   |   | 11     |   |   |   | - |   |   |   | 11 |   |
| Net loss                                          |   |         | -          |   |         |   | -      |       |   |   | -             |   |   |        | -      |   |          |   | -      |    |   |   | -      |   |   |   | (6,909 | ) |   |   | (6,909 | ) |
| Balance at March 31, 2011                         |   |         | 15,660,682 |   |         | $      | 156    |       |   |   | 26,191,050    |   |   | $           | 262    |   |          | $      | 58,616 |    |   | $      | 17,022 |   |   | $ | (28,539 | ) |   | $ | 47,517 |   |

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

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| 1. | Business Organization and Basis of Presentation |
|----|-------------------------------------------------|

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

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

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

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| 4. | Current and Non-Current Investments |
|----|-------------------------------------|

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

|                          |   | December 31, 2010 |   |
|-------------------------------|--------|-----------------------------|--------|
|                          |   |                        |   |   | Unrealized |   |   | Unrealized |   |   |   |   |
| (In thousands)                |   | Cost                        |   |   | Gains |   |   | Losses |   |   | Fair Value |   |
| Current:                      |   |                        |   |   |   |   |   |   |   |   |   |   |
| U.S. Treasury bills and notes |   | $                           | 1,002  |   |   | $ | 1 |   |   | $ | - |   |   | $ | 1,003 |   |
| U.S. commercial paper         |   |                        | 999    |   |   |   | - |   |   |   | - |   |   |   | 999 |   |
| U.S. government securities    |   |                        | 16,525 |   |   |   | 7 |   |   |   | (4 | ) |   |   | 16,528 |   |
| Municipal securities          |   |                        | 17,582 |   |   |   | 6 |   |   |   | (12 | ) |   |   | 17,576 |   |
| Certificates of deposits      |   |                        | 750    |   |   |   | - |   |   |   | - |   |   |   | 750 |   |
| Corporate bonds               |   |                        | 6,665  |   |   |   | 5 |   |   |   | (2 | ) |   |   | 6,668 |   |
| Variable rate demand notes    |   |                        | 11,000 |   |   |   | - |   |   |   | - |   |   |   | 11,000 |   |
| Total                         |   | $                           | 54,523 |   |   | $ | 19 |   |   | $ | (18 | ) |   | $ | 54,524 |   |
|                          |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-current:                  |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Corporate bonds               |   | $                           | 5,019  |   |   | $ | 11 |   |   | $ | (2 | ) |   | $ | 5,028 |   |
| Total                         |   | $                           | 5,019  |   |   | $ | 11 |   |   | $ | (2 | ) |   | $ | 5,028 |   |

----

|                                |   | Fair Value Measurements at Reporting Date Using                       |   |
|-------------------------------------|--------|-----------------------------------------------------------------------|--------|
| March 31, 2011                      |   | Quoted Prices inActive Marketsfor identicalAssets |   |   | SignificantOtherObservableInputs |   |   | SignificantUnobservableInputs |   |   |   |   |
| (In thousands)                      |   | (Level 1)                                                             |   |   | (Level 2) |   |   | (Level 3) |   |   | Total |   |
| U.S. Treasury bills and notes       |   | $                                                                     | 1,001  |   |   | $ | - |   |   | $ | - |   |   | $ | 1,001 |   |
| U.S. government securities          |   |                                                                  | 12,201 |   |   |   | - |   |   |   | - |   |   |   | 12,201 |   |
| U.S. commercial paper               |   |                                                                  | -      |   |   |   | 4,248 |   |   |   | - |   |   |   | 4,248 |   |
| Corporate bonds                     |   |                                                                  | 9,821  |   |   |   | - |   |   |   | - |   |   |   | 9,821 |   |
| Municipal securities                |   |                                                                  | 11,262 |   |   |   | - |   |   |   | - |   |   |   | 11,262 |   |
| Certificates of deposits            |   |                                                                  | -      |   |   |   | 500 |   |   |   | - |   |   |   | 500 |   |
| Money market funds                  |   |                                                                  | 4,993  |   |   |   | - |   |   |   | - |   |   |   | 4,993 |   |
| Variable rate demand notes          |   |                                                                  | 12,455 |   |   |   | - |   |   |   | - |   |   |   | 12,455 |   |
| Total assets measured at fair value |   | $                                                                     | 51,733 |   |   | $ | 4,748 |   |   | $ | - |   |   | $ | 56,481 |   |
|                                |   |                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                           |   | Fair Value Measurements at Reporting Date Using                       |   |
| December 31, 2010                   |   | Quoted Prices inActive Marketsfor identicalAssets |   |   | SignificantOtherObservableInputs |   |   | SignificantUnobservableInputs |   |   |   |   |   |
| (In thousands)                      |   | (Level 1)                                                             |   |   | (Level 2) |   |   | (Level 3) |   |   | Total |   |
| U.S. Treasury bills and notes       |   | $                                                                     | 1,003  |   |   | $ | - |   |   | $ | - |   |   | $ | 1,003 |   |
| U.S. government securities          |   |                                                                  | 16,528 |   |   |   | - |   |   |   | - |   |   |   | 16,528 |   |
| U.S. commercial paper               |   |                                                                  | -      |   |   |   | 999 |   |   |   | - |   |   |   | 999 |   |
| Corporate bonds                     |   |                                                                  | 11,696 |   |   |   | - |   |   |   | - |   |   |   | 11,696 |   |
| Municipal securities                |   |                                                                  | 17,576 |   |   |   | - |   |   |   | - |   |   |   | 17,576 |   |
| Certificates of deposits            |   |                                                                  | -      |   |   |   | 750 |   |   |   | - |   |   |   | 750 |   |
| Money market funds                  |   |                                                                  | 780    |   |   |   | - |   |   |   | - |   |   |   | 780 |   |
| Variable rate demand notes          |   |                                                                  | 11,000 |   |   |   | - |   |   |   | - |   |   |   | 11,000 |   |
| Total assets measured at fair value |   | $                                                                     | 58,583 |   |   | $ | 1,749 |   |   | $ | - |   |   | $ | 60,332 |   |

| 5. | Intangible Assets |
|----|-------------------|

----

| 6.  | Accrued Expenses |
|----------|------------------|

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

| 7.  | Commitments |
|----------|-------------|

----

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

| 8.  | Related Party Transactions |
|----------|----------------------------|

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

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

----

| 9.  | Notes Payable |
|----------|---------------|

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

----

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

| 10.  | Collaboration and License Agreements |
|-----------|--------------------------------------|

|                                                                                         |   | AmountDeferred atDecember 31, |   |   | Cash Receivedfor the ThreeMonths EndedMarch 31, |   |   | RevenueRecognized forthe ThreeMonths EndedMarch 31, |   |   | Foreign CurrencyEffects for theThree MonthsEnded March 31, |   |   | AmountDeferred atMarch 31, |   |
|----------------------------------------------------------------------------------------------|--------|------------------------------------|--------|--------|----------------------------------------------------------------|--------|--------|---------------------------------------------------------------|--------|--------|----------------------------------------------------------------------|--------|--------|--------------------------------------|--------|
| (In thousands)                                                                               |   | 2010                               |   |   | 2011                                                           |   |   | 2011                                                          |   |   | 2011                                                                 |   |   | 2011                                 |   |
| Collaboration revenue:                                                                       |   |                               |   |   |                                                           |   |   |                                                          |   |   |                                                                 |   |   |                                 |   |
| Up-front payment associated with the Company's obligation to participate in joint committees |   | $                                  | 868    |   |                                                           | $      | -      |                                                          |   | $      | 13                                                                   |   |   | $                                    | (11    | ) |   | $ | 844 |   |
|                                                                                         |   |                               |   |   |                                                           |   |   |                                                          |   |   |                                                                 |   |   |                                 |   |   |   |   |   |   |
| Research and development revenue:                                                            |   |                               |   |   |                                                           |   |   |                                                          |   |   |                                                                 |   |   |                                 |   |   |   |   |   |   |
| Up-front payment                                                                             |   | $                                  | 707    |   |                                                           | $      | -      |                                                          |   | $      | 220                                                                  |   |   | $                                    | (8     | ) |   | $ | 479 |   |
| Development milestone payment                                                                |   | $                                  | 948    |   |                                                           |   | -      |                                                          |   |   | 296                                                                  |   |   |                                 | (10    | ) |   | $ | 642 |   |
| Total                                                                                        |   | $                                  | 1,655  |   |                                                           | $      | -      |                                                          |   | $      | 516                                                                  |   |   | $                                    | (18    | ) |   | $ | 1,121 |   |

----

|                                                                                         |   | AmountDeferred atDecember 31, |   |   | Cash Receivedfor the ThreeMonths EndedMarch 31, |   |   | RevenueRecognized forthe ThreeMonths EndedMarch 31, |   |   | Change in AccountsReceivable for theThree MonthsEnded March 31, |   |   | AmountDeferred atMarch 31, |   |
|----------------------------------------------------------------------------------------------|--------|-------------------------------|--------|--------|-------------------------------------------------|--------|--------|-----------------------------------------------------|--------|--------|-----------------------------------------------------------------|--------|--------|----------------------------|--------|
| (In thousands)                                                                               |   | 2010                          |   |   | 2011                                            |   |   | 2011                                                |   |   | 2011*                                                           |   |   | 2011                       |   |
| Collaboration revenue:                                                                       |   |                          |   |   |                                            |   |   |                                                |   |   |                                                            |   |   |                       |   |   |   |
| Up-front payment associated with the Company's obligation to participate in joint committees |   | $                             | 1,470  |   |                                            | $      | -      |                                                |   | $      | 37                                                              |   |   | $                          | -      |   |   | $ | 1,433 |   |
|                                                                                         |   |                          |   |   |                                            |   |   |                                                |   |   |                                                            |   |   |                       |   |   |   |   |   |   |
| Research and development revenue:                                                            |   |                          |   |   |                                            |   |   |                                                |   |   |                                                            |   |   |                       |   |   |   |   |   |   |
| Reimbursement of research and development expenses                                           |   | $                             | 3,042  |   |                                            | $      | -      |                                                |   | $      | 1,448                                                           |   |   | $                          | 1,483  |   |   | $ | 3,077 |   |
|                                                                                         |   |                          |   |   |                                            |   |   |                                                |   |   |                                                            |   |   |                       |   |   |   |   |   |   |
| Product royalty revenue                                                                      |   | $                             | -      |   |                                            | $      | 10,516 |                                                |   | $      | 9,118                                                           |   |   | $                          | (1,398 | ) |   | $ | - |   |
|                                                                                         |   |                          |   |   |                                            |   |   |                                                |   |   |                                                            |   |   |                       |   |   |   |   |   |   |
| Co-promotion revenue                                                                         |   | $                             | -      |   |                                            | $      | 1,037  |                                                |   | $      | 938                                                             |   |   | $                          | (99    | ) |   | $ | - |   |

----

| 11. | Stock Option Plans |
|-----|--------------------|

----

|                                   |   | Shares |    |   | Weighted AverageExercise Price PerShare |   |   | Weighted AverageRemainingContractual Term(Years) |   |   | AggregateIntrinsic Value |   |
|----------------------------------------|--------|--------|---------|--------|--------------------------------------------------------|--------|--------|------------------------------------------------------------|--------|--------|-------------------------------|--------|
| Options outstanding, December 31, 2010 |   |   | 345,100 |   |                                                   | $      | 10.44  |                                                       |   |   |                          |   |   |   |
| Options outstanding, March 31, 2011    |   |   | 345,100 |   |                                                   |   | 10.44  |                                                       |   |   | 2.87                          |   |   | $ | - |   |
| Options exercisable, March 31, 2011    |   |   | 345,100 |   |                                                   |   | 10.44  |                                                       |   |   | 2.87                          |   |   | $ | - |   |

|                                   |   | Shares |      |   | Weighted AverageExercise Price PerShare |   |   | Weighted AverageRemainingContractual Term(Years) |   |   | AggregateIntrinsic Value |   |
|----------------------------------------|--------|--------|-----------|--------|--------------------------------------------------------|--------|--------|------------------------------------------------------------|--------|--------|-------------------------------|--------|
| Options outstanding, December 31, 2010 |   |   | 1,201,650 |   |                                                   | $      | 5.69   |                                                       |   |   |                          |   |   |   |
| Options forfeited                      |   |   | (13,650   | )      |                                                   |   | 3.85   |                                                       |   |   |                          |   |   |   |
| Options expired                        |   |   | (5,050    | )      |                                                   |   | 3.86   |                                                       |   |   |                          |   |   |   |
| Options outstanding, March 31, 2011    |   |   | 1,182,950 |   |                                                   |   | 5.72   |                                                       |   |   | 8.34                          |   |   | $ | - |   |
| Options exercisable, March 31, 2011    |   |   | 616,317   |   |                                                   |   | 6.84   |                                                       |   |   | 7.83                          |   |   | $ | - |   |

| 12.  | Income Taxes |
|-----------|--------------|

----

| 13.  | Segment Reporting |
|-----------|-------------------|

----

| (In thousands)                                                 |   | Americas |    |   | Europe |   |   | Asia   |   |   | Consolidated |   |
|----------------------------------------------------------------|--------|----------|---------|--------|--------|--------|--------|--------|--------|--------|--------------|--------|
| Three Months Ended March 31, 2011                              |   |     |    |   |   |   |   |   |   |   |         |   |
| Research and development revenue                               |   | $        | 1,448   |   |   | $      | -      |   |   | $      | 516          |   |   | $ | 1,964 |   |
| Product royalty revenue                                        |   |     | 9,118   |   |   |   | -      |   |   |   | -            |   |   |   | 9,118 |   |
| Co-promotion revenue                                           |   |     | 938     |   |   |   | -      |   |   |   | -            |   |   |   | 938 |   |
| Contract and collaboration revenue                             |   |     | 141     |   |   |   | -      |   |   |   | 13           |   |   |   | 154 |   |
| Total revenues                                                 |   |     | 11,645  |   |   |   | -      |   |   |   | 529          |   |   |   | 12,174 |   |
| Research and development expenses                              |   |     | 7,326   |   |   |   | 527    |   |   |   | 1,367        |   |   |   | 9,220 |   |
| Depreciation and amortization                                  |   |     | 227     |   |   |   | 5      |   |   |   | 17           |   |   |   | 249 |   |
| Other operating expenses                                       |   |     | 11,275  |   |   |   | 304    |   |   |   | 287          |   |   |   | 11,866 |   |
| Loss from operations                                           |   |     | (7,183  | )      |   |   | (836   | )      |   |   | (1,142       | )      |   |   | (9,161 | ) |
| Interest income                                                |   |     | 69      |   |   |   | 1      |   |   |   | -            |   |   |   | 70 |   |
| Interest expense                                               |   |     | -       |   |   |   | (570   | )      |   |   | (41          | )      |   |   | (611 | ) |
| Other non-operating income (expense), net                      |   |     | (4      | )      |   |   | (199   | )      |   |   | 68           |   |   |   | (135 | ) |
| Loss before income taxes                                       |   | $        | (7,118  | )      |   | $      | (1,604 | )      |   | $      | (1,115       | )      |   | $ | (9,837 | ) |
| Capital expenditures                                           |   | $        | 42      |   |   | $      | 6,000  |   |   | $      | 91           |   |   | $ | 6,133 |   |
|                                                           |   |     |    |   |   |   |   |   |   |   |         |   |   |   |   |   |
| Three Months Ended March 31, 2010                              |   |     |    |   |   |   |   |   |   |   |         |   |   |   |   |   |
| Research and development revenue                               |   | $        | 1,304   |   |   | $      | -      |   |   | $      | 2,753        |   |   | $ | 4,057 |   |
| Product royalty revenue                                        |   |     | 9,773   |   |   |   | -      |   |   |   | -            |   |   |   | 9,773 |   |
| Co-promotion revenue                                           |   |     | 855     |   |   |   | -      |   |   |   | -            |   |   |   | 855 |   |
| Contract and collaboration revenue                             |   |     | 141     |   |   |   | -      |   |   |   | 10           |   |   |   | 151 |   |
| Total revenues                                                 |   |     | 12,073  |   |   |   | -      |   |   |   | 2,763        |   |   |   | 14,836 |   |
| Research and development expenses                              |   |     | 2,140   |   |   |   | 176    |   |   |   | 3,050        |   |   |   | 5,366 |   |
| Depreciation and amortization                                  |   |     | 218     |   |   |   | 3      |   |   |   | 9            |   |   |   | 230 |   |
| Other operating expenses                                       |   |     | 7,268   |   |   |   | 310    |   |   |   | 273          |   |   |   | 7,851 |   |
| Income (loss) from operations                                  |   |     | 2,447   |   |   |   | (489   | )      |   |   | (569         | )      |   |   | 1,389 |   |
| Interest income                                                |   |     | 210     |   |   |   | 1      |   |   |   | 2            |   |   |   | 213 |   |
| Other non-operating income (expense), net                      |   |     | (35     | )      |   |   | 628    |   |   |   | 14           |   |   |   | 607 |   |
| Income (loss) before income taxes                              |   | $        | 2,622   |   |   | $      | 140    |   |   | $      | (553         | )      |   | $ | 2,209 |   |
| Capital expenditures                                           |   | $        | 91      |   |   | $      | -      |   |   | $      | 4            |   |   | $ | 95 |   |
|                                                           |   |     |    |   |   |   |   |   |   |   |         |   |   |   |   |   |
| As of March 31, 2011                                           |   |     |    |   |   |   |   |   |   |   |         |   |   |   |   |   |
| Property and equipment, net                                    |   | $        | 1,649   |   |   | $      | 21     |   |   | $      | 323          |   |   | $ | 1,993 |   |
| Identifiable assets, net of intercompany loans and investments |   | $        | 100,298 |   |   | $      | 33,579 |   |   | $      | 14,826       |   |   | $ | 148,703 |   |
|                                                           |   |     |    |   |   |   |   |   |   |   |         |   |   |   |   |   |
| As of December 31, 2010                                        |   |     |    |   |   |   |   |   |   |   |         |   |   |   |   |   |
| Property and equipment, net                                    |   | $        | 1,750   |   |   | $      | 24     |   |   | $      | 251          |   |   | $ | 2,025 |   |
| Identifiable assets, net of intercompany loans and investments |   | $        | 102,096 |   |   | $      | 30,789 |   |   | $      | 16,388       |   |   | $ | 149,273 |   |

| 14.  | Supplemental Information |
|-----------|--------------------------|

----

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

| 15.  | Subsequent Events |
|-----------|-------------------|

----

----

----

----

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

----

|                               |   | Three Months Ended |   |
|------------------------------------|--------|--------------------|--------|
|                               |   | March 31,          |   |
| (In thousands)                     |   | 2011               |   |   | 2010 |   |
| Research and development revenue   |   | $                  | 1,964  |   |   | $ | 4,057 |   |
| Product royalty revenue            |   |               | 9,118  |   |   |   | 9,773 |   |
| Co-promotion revenue               |   |               | 938    |   |   |   | 855 |   |
| Contract and collaboration revenue |   |               | 154    |   |   |   | 151 |   |
| Total                              |   | $                  | 12,174 |   |   | $ | 14,836 |   |

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

----

|                                              |   | Three Months Ended |   |
|---------------------------------------------------|--------|--------------------|--------|
|                                              |   | March 31,          |   |
| (In thousands)                                    |   | 2011               |   |   | 2010 |   |
| Salaries, benefits and related costs              |   | $                  | 1,761  |   |   | $ | 1,387 |   |
| Legal, consulting and other professional expenses |   |               | 6,604  |   |   |   | 3,379 |   |
| Stock-based compensation                          |   |               | 124    |   |   |   | 97 |   |
| Other expenses                                    |   |               | 1,208  |   |   |   | 1,031 |   |
| Total                                             |   | $                  | 9,697  |   |   | $ | 5,894 |   |

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

----

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

----

|                      |   | March 31, |    |   | December 31, |   |
|---------------------------|--------|-----------|---------|--------|--------------|--------|
| (In thousands)            |   | 2011      |    |   | 2010         |   |
| Cash and cash equivalents |   | $         | 48,358  |   |         | $      | 49,243 |   |
| Restricted cash           |   |      | 15,113  |   |         |   | 15,113 |   |
| Investments, current      |   |      | 48,481  |   |         |   | 54,524 |   |
| Investments, non-current  |   |      | 3,007   |   |         |   | 5,028 |   |
| Total                     |   | $         | 114,959 |   |         | $      | 123,908 |   |

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

----

|   | · | our share of the ongoing development program of AMITIZA in the U.S.; |
|--------|--------|----------------------------------------------------------------------|

|   | · | development and regulatory efforts in Europe and Asia for lubiprostone; |
|--------|--------|-------------------------------------------------------------------------|

|   | · | development and regulatory activities for RESCULA in the U.S., Canada and the rest of the world except Japan, Korea, Taiwan and The People’s Republic of China; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | activities to resolve our ongoing legal matters; |
|--------|--------|--------------------------------------------------|

|   | · | research and development activities for other prostone compounds, including cobiprostone and SPI-017; |
|--------|--------|-------------------------------------------------------------------------------------------------------|

|   | · | other business development activities, including investments in or acquisitions of other businesses, products and technologies; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|

|   | · | the initiation of commercialization efforts in non-U.S. markets; |
|--------|--------|------------------------------------------------------------------|

|   | · | the expansion of our commercialization activities in the U.S. and the initiation of commercialization efforts in non-U.S. markets; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the purchase of shares of our class A common stock up to $10.0 million, if we elect to do so, pursuant to our board-approved stock repurchase program; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the satisfaction of the conditions of our loan note obligations. |
|--------|--------|------------------------------------------------------------------|

|   | · | the revenue from AMITIZA and RESCULA; |
|--------|--------|---------------------------------------|

|   | · | the future expenditures we may incur to increase revenue from AMITIZA or in our dispute with Takeda; |
|--------|--------|------------------------------------------------------------------------------------------------------|

|   | · | the cost and time involved to pursue our research and development programs; |
|--------|--------|-----------------------------------------------------------------------------|

|   | · | our ability to establish collaborative arrangements and to enter into licensing agreements and contractual arrangements with others; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | any future change in our business strategy. |
|--------|--------|---------------------------------------------|

----

----

----

----

| Exhibit |   |                                                                                                                                                      |   |                                                                                           |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------|
| Number  |   | Description                                                                                                                                               |   | Reference                                                                                      |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 3.1     |   | Certificate of Incorporation                                                                                                                              |   | Exhibit 3.1 to the Company's Current Report on Form 8-K (filed December 29, 2008)              |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 3.2     |   | Certificate of Amendment                                                                                                                                  |   | Exhibit 3.2 to the Company's Current Report on Form 8-K (filed December 29, 2008)              |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 3.3     |   | Restated Bylaws                                                                                                                                           |   | Exhibit 3.3 to the Company's Current Report on Form 8-K (filed December 29, 2008)              |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 4.1     |   | Specimen Stock Certificate evidencing the shares of class A common stock                                                                                  |   | Exhibit 4.1 to Registration Statement No. 333-135133, Amendment No. 5 (filed February 1, 2007) |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 31.1    |   | Certification of the Principal Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002                                            |   | Included herewith                                                                              |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 31.2    |   | Certification of the Principal Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002                                            |   | Included herewith                                                                              |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 32.1    |   | Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |   | Included herewith                                                                              |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 32.2    |   | Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |   | Included herewith                                                                              |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 10.1    |   | Separation Agreement and Release, dated January 12, 2011, between the Company and Jan Smilek                                                              |   | Exhibit 99.1 to the Company’s Current Report on Form 8-K (filed February 2, 2011)        |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 10.2    |   | Consulting Agreement, dated January 21, 2011, between the Company and Jan Smilek                                                                          |   | Exhibit 99.2 to the Company’s Current Report on Form 8-K (filed February 2, 2011)        |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 10.3    |   | License Agreement, dated March 22, 2011, between Sucampo Manufacturing & Research AG and R-Tech Ueno, Ltd.                                            |   | Included herewith                                                                              |

----

|         | Sucampo Pharmaceuticals, Inc. |
|--------------|-------------------------------|
|         |                          |   |   |
| May 10, 2011 | By:                           |   | /s/  RYUJI UENO |
|         |                          |   | Ryuji Ueno, M.D., Ph.D., Ph.D. |
|         |                          |   | Chief Executive Officer, Chief Scientific Officer and Chairman of the Board of Directors |
|         |                          |   | (Principal Executive Officer) |
|         |                          |   |   |
| May 10, 2011 | By:                           |   | /s/  ANDREW P. SMITH |
|         |                          |   | Andrew P. Smith |
|         |                          |   | Principal Accounting Officer |

----

| Exhibit |   |                                                                                                                                                      |   |                                                                                           |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------|
| Number  |   | Description                                                                                                                                               |   | Reference                                                                                      |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 3.1     |   | Certificate of Incorporation                                                                                                                              |   | Exhibit 3.1 to the Company's Current Report on Form 8-K (filed December 29, 2008)              |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 3.2     |   | Certificate of Amendment                                                                                                                                  |   | Exhibit 3.2 to the Company's Current Report on Form 8-K (filed December 29, 2008)              |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 3.3     |   | Restated Bylaws                                                                                                                                           |   | Exhibit 3.3 to the Company's Current Report on Form 8-K (filed December 29, 2008)              |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 4.1     |   | Specimen Stock Certificate evidencing the shares of class A common stock                                                                                  |   | Exhibit 4.1 to Registration Statement No. 333-135133, Amendment No. 5 (filed February 1, 2007) |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 31.1    |   | Certification of the Principal Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002                                            |   | Included herewith                                                                              |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 31.2    |   | Certification of the Principal Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002                                            |   | Included herewith                                                                              |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 32.1    |   | Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |   | Included herewith                                                                              |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 32.2    |   | Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |   | Included herewith                                                                              |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 10.1    |   | Separation Agreement and Release, dated January 12, 2011, between the Company and Jan Smilek                                                              |   | Exhibit 99.1 to the Company’s Current Report on Form 8-K (filed February 2, 2011)        |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 10.2    |   | Consulting Agreement, dated January 21, 2011, between the Company and Jan Smilek                                                                          |   | Exhibit 99.2 to the Company’s Current Report on Form 8-K (filed February 2, 2011)        |
|    |   |                                                                                                                                                      |   |                                                                                           |
| 10.3    |   | License Agreement, dated March 22, 2011, between Sucampo Manufacturing & Research AG and R-Tech Ueno, Ltd.                                            |   | Included herewith                                                                              |

----