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Document and Entity Information - USD ($)	12 Months Ended
Document and Entity Information - USD ($)	Dec. 31, 2011	Feb. 27, 2012	Jun. 30, 2011
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY
Trading Symbol	SCMP
Entity Registrant Name	SUCAMPO PHARMACEUTICALS, INC.
Entity Central Index Key	0001365216
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 47,100,000
Class A common stock
Entity Common Stock, Shares Outstanding		15,704,314
Class B common stock
Entity Common Stock, Shares Outstanding		26,191,050

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 50,662	$ 49,243
Investments, current	24,452	54,524
Product royalties receivable	10,795	10,516
Unbilled accounts receivable	2,036	1,097
Accounts receivable, net	4,616	731
Prepaid and income taxes receivable	2,845	702
Deferred tax assets, current	163	243
Deferred charge, current	3,057
Restricted cash, current	15,113	15,113
Prepaid expenses and other current assets	1,177	2,374
Total current assets	114,916	134,543
Investments, non-current	998	5,028
Property and equipment, net	1,669	2,025
Intangibles assets, net	8,364	3,070
Deferred tax assets, non-current	2,089	4,178
Deferred charge, non-current	26,751
Restricted cash, non-current	2,129
Other assets	653	429
Total assets	157,569	149,273
Current liabilities:
Accounts payable	6,978	4,199
Accrued expenses	13,648	10,216
Deferred revenue, current	3,888	4,987
Deferred tax liability, current	2,167	1,078
Notes payable, current	20,400	19,522
Total current liabilities	47,081	40,002
Notes payable, non-current	39,227	44,439
Deferred revenue, non-current	7,045	8,321
Deferred tax liability, non-current	23,019
Other liabilities	2,603	2,681
Total liabilities	118,975	95,443
Commitments and contengencies (Notes 10 and 13)
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized at December 31, 2011 and 2010; no shares issued and outstanding at December 31, 2011 and 2010
Additional paid-in capital	59,957	58,468
Accumulated other comprehensive income	17,854	16,574
Treasury stock, at cost; 186,987 shares	(700)
Accumulated deficit	(38,936)	(21,630)
Total stockholders' equity	38,594	53,830
Total liabilities and stockholders' equity	157,569	149,273
Class A common stock
Stockholders' equity:
Common stock	157	156
Class B common stock
Stockholders' equity:
Common stock	$ 262	$ 262

Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2011	Dec. 31, 2010
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Treasury stock, shares	186,987
Class A common stock
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	270,000,000	270,000,000
Common stock, shares issued	15,690,780	15,659,917
Common stock, shares outstanding	15,690,780	15,659,917
Class B common stock
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	26,191,050	26,191,050
Common stock, shares outstanding	26,191,050	26,191,050

Consolidated Statements of Operations and Comprehensive Income - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Revenues:
Research and development revenue	$ 9,249	$ 16,540	$ 23,957
Product royalty revenue	41,517	40,300	38,250
Co-promotion revenue	3,378	4,417	4,541
Contract and collaboration revenue	617	613	603
Total revenues	54,761	61,870	67,351
Operating expenses:
Research and development	33,497	23,955	32,906
Settlement of legal dispute	(11,100)
General and administrative	41,270	27,867	15,000
Selling and marketing	8,783	10,201	10,030
Total operating expenses	72,450	62,023	57,936
Income (loss) from operations	(17,689)	(153)	9,415
Non-operating income (expense):
Interest income	249	608	965
Interest expense	(2,455)	(75)
Other expense, net	(2,019)	(3,700)	(519)
Total non-operating income (expense), net	(4,225)	(3,167)	446
Income (loss) before income taxes	(21,914)	(3,320)	9,861
Income tax benefit (provision)	4,608	565	(5,084)
Net income (loss)	$ (17,306)	$ (2,755)	$ 4,777
Net income (loss) per share:
Basic net income (loss) per share	$ (0.41)	$ (0.07)	$ 0.11
Diluted net income (loss) per share	$ (0.41)	$ (0.07)	$ 0.11
Weighted average common shares outstanding - basic	41,839	41,848	41,844
Weighted average common shares outstanding - diluted	41,839	41,848	41,866
Comprehensive income (loss):
Net income (loss)	$ (17,306)	$ (2,755)	$ 4,777
Other comprehensive income gain (loss):
Unrealized loss on investments, net of tax effect	(2)	(18)	(55)
Foreign currency translation	1,282	3,745	822
Comprehensive income (loss)	$ (16,026)	$ 972	$ 5,544

Consolidated Statements of Changes in Stockholders' Equity (Deficit) - USD ($) $ in Thousands	Total	Class A common stock	Class B common stock	Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss)	Treasury Stock	Retained Earnings (Accumulated Deficit)
Beginning Balance (in shares) at Dec. 31, 2008		15,651,849	26,191,050
Beginning Balance at Dec. 31, 2008	$ 142,240	$ 156	$ 262	$ 98,504	$ 12,080		$ 31,238
Employee stock option expense	374			374
Stock issued under employee stock purchase plan (in shares)		3,881
Stock issued under employee stock purchase plan	19			19
Foreign currency translation	822				822
Unrealized loss on investments, net of tax effect	(55)				(55)
Dividend payments	(2,865)						(2,865)
Net loss (income)	4,777						4,777
Ending Balance (in shares) at Dec. 31, 2009		15,655,730	26,191,050
Ending Balance at Dec. 31, 2009	145,312	$ 156	$ 262	98,897	12,847		33,150
Employee stock option expense	1,260			1,260
Stock issued under employee stock purchase plan (in shares)		4,187
Stock issued under employee stock purchase plan	14			14
Foreign currency translation	3,745				3,745
Unrealized loss on investments, net of tax effect	(18)				(18)
Deemed dividend for SAG acquisition	(80,000)			(41,703)			(38,297)
Dividend payments	(13,728)						(13,728)
Net loss (income)	(2,755)						(2,755)
Ending Balance (in shares) at Dec. 31, 2010		15,659,917	26,191,050
Ending Balance at Dec. 31, 2010	53,830	$ 156	$ 262	58,468	16,574		(21,630)
Employee stock option expense	1,370			1,370
Stock issued upon exercise of stock options (in shares)		27,500
Stock issued upon exercise of stock options	107	$ 1		106
Stock issued under employee stock purchase plan (in shares)		3,363
Stock issued under employee stock purchase plan	13			13
Foreign currency translation	1,282				1,282
Unrealized loss on investments, net of tax effect	(2)				(2)
Treasury stock, at cost (in shares)						186,987
Treasury stock, at cost	(700)					$ (700)
Net loss (income)	(17,306)						(17,306)
Ending Balance (in shares) at Dec. 31, 2011		15,690,780	26,191,050			186,987
Ending Balance at Dec. 31, 2011	$ 38,594	$ 157	$ 262	$ 59,957	$ 17,854	$ (700)	$ (38,936)

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Cash flows from operating activities:
Net income (loss)	$ (17,306)	$ (2,755)	$ 4,777
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	1,308	964	789
Loss on disposal of property and equipment	12	1
Deferred tax provision (benefit)	26,228	(99)	13
Deferred charge	(29,808)
Stock-based compensation	1,370	1,260	374
Amortization of premiums on investments	651	1,617	1,415
Notes payable paid-in-kind interest	2,288
Gain on trading securities		(1,086)	(2,092)
Loss on settlement rights on auction rate securities		1,086	1,732
Changes in operating assets and liabilities:
Accounts receivable	(3,885)	(218)	32
Unbilled accounts receivable	(939)	(453)	3,729
Product royalties receivable	(280)	507	(1,298)
Inventory	(127)
Prepaid and income taxes receivable and payable, net	(2,173)	(2,689)	1,586
Accounts payable	2,872	893	1,679
Accrued expenses	523	3,329	(3,269)
Deferred revenue	(1,940)	(6,525)	(4,564)
Other assets and liabilities, net	1,215	818	66
Net cash provided by (used in) operating activities	(19,991)	(3,350)	4,969
Cash flows from investing activities:
Purchases of investments	(20,598)	(84,857)	(150,712)
Proceeds from the sales of investments	7,380	25,855	9,504
Maturities of investments	46,665	90,492	109,163
Purchases of property and equipment	(284)	(333)	(495)
Proceeds from disposals of property and equipment	25	5
Issuance of notes receivable	(100)
Purchases of intangible assets	(3,000)		(2,915)
Acquisition of SAG		(28,118)
Restricted cash	(2,187)	(14,900)
Net cash provided by (used in) investing activities	27,901	(11,856)	(35,455)
Cash flows from financing activities:
Proceeds from notes payable		12,079
Repayment of notes payable	(7,500)
Proceeds from exercise of stock options	106
Purchase of treasury stock	(700)
Proceeds from employee stock purchase plan	13	14	19
Dividend payments		(13,728)	(2,865)
Net cash used in financing activities	(8,081)	(1,635)	(2,846)
Effect of exchange rates on cash and cash equivalents	1,590	4,664	1,048
Net increase (decrease) in cash and cash equivalents	1,419	(12,177)	(32,284)
Cash and cash equivalents at beginning of period	49,243	61,420	93,704
Cash and cash equivalents at end of period	50,662	49,243	61,420
Supplemental cash flow disclosures:
Cash paid for interest	171	2
Tax refunds received	245	126
Tax payments made	1,476	2,683	1,233
Supplemental disclosure of non-cash investing and financing activities:
Purchase of intangible assets included in accrued expenses	$ 3,000		$ 500
Loan notes issued for acquisition of SAG		$ 51,882

Business Organization and Basis of Presentation

12 Months Ended

Dec. 31, 2011

Business Organization and Basis of Presentation

Business Organization and Basis of Presentation

Description of the Business

Sucampo Pharmaceuticals, Inc., or the Company, is a global pharmaceutical company focused on the discovery, development and commercialization of proprietary drugs based on prostones and other novel drug technologies. Prostones are a class of fatty acid compounds that occur naturally in the human body as a result of the enzymatic catalysis by 15-Prostaglandin Dehydrogenase (15-PGDH) of eicosanoids, like prostaglandins, and other docosanoid molecules specifically synthesized with 15 position keto groups.

The Company generates revenue mainly from product royalties, development milestone payments, and clinical development activities. The Company expects to continue to incur significant expenses for the next several years as the Company continues its research and development activities and as the Company seeks regulatory approvals for additional indications for AMITIZA, RESCULA and other compounds on an international basis. The Company conducts business through subsidiaries based in Japan, the United States, Switzerland, the United Kingdom and Luxembourg.

In January 2006, the Company received marketing approval from the U.S. Food and Drug Administration, or FDA for AMITIZA (lubiprostone), to treat chronic idiopathic constipation, or CIC in adults of both genders. In April 2008, the Company received a second marketing approval from the FDA for AMITIZA to treat irritable bowel syndrome with constipation, or IBS-C in women aged 18 years and older.

AMITIZA is being marketed and developed in the U.S. for gastrointestinal indications under the October 2004 collaboration and license agreement with Takeda Pharmaceutical Company Limited, or Takeda Agreement. The Company is primarily responsible for clinical development activities under the Takeda Agreement while Takeda is responsible for commercialization of AMITIZA. The Company and Takeda initiated commercial sales of AMITIZA in the U.S. for the treatment of CIC in April 2006 and for the treatment of IBS-C in May 2008. AMITIZA is currently being developed for the treatment of opioid bowel dysfunction, or OBD or opioid-induced constipation, or OIC. Takeda also holds marketing rights to AMITIZA in Canada, but has not yet commercialized it there. The Company, in 2006, entered into a supplemental agreement with Takeda Pharmaceutical Company Limited, or the Supplemental Takeda Agreement, which consists of certain key funding streams, including reimbursements of co-promotion costs and reimbursements of the costs of miscellaneous marketing activities. The reimbursement of co-promotion costs under the Supplemental Takeda Agreement expired on May 31, 2011. Co-promotion costs after May 31, 2011 are reimbursed under the Takeda Agreement. The previous reimbursement terms of the Supplemental Takeda Agreement were based on a per diem amount by the number of sales representatives in the field promoting AMITIZA. The current terms are based on actual details presented to health care prescribers.

Wesubmitted for filing with the International Court of Arbitration, International Chamber of Commerce, or ICC a demand for arbitration under the applicable provisions of the Takeda Agreement, which specify that New York law will govern the procedural and substantive aspects of the arbitration. The parties filed submission and witness statements and the arbitration hearing on the Company’s claims concluded on December 20, 2011.

In Switzerland, we are currently in discussions with the Swiss Federal Office of Public Health, or Bundesamt für Gesundheit,or the BAG for pricing approval. In February 2012 the Company started to market AMITIZA, on a limited basis, in Switzerland..

In Japan, lubiprostone is being developed under a license, commercialization and supply agreement with Abbott Japan Co. Ltd., or Abbott, for lubiprostone in Japan, or the Abbott Agreement. The Company has filed a new drug application, or a NDA, for AMITIZA for the treatment of CIC in Japan with the Pharmaceuticals and Medical Devices Agency, or PMDA. The Company anticipates a decision by the PMDA and the conclusion of pricing negotiations with the Ministry of Health, Labor and Welfare, or MHLW in 2012. The Company continues to negotiate with third parties for the OBD indication, and Abbott will have 45 days to meet the terms and conditions of any third party bona fide offer.

SPE submitted a filing for approval of AMITIZA to treat CIC on August 4, 2011 in the U. K., and the Company expects a decision by the Medicines and Healthcare products Regulatory Agency, or MHRA in the third quarter of 2012. The Company continues to evaluate the opportunities in the E. U.

Following the Company’s acquisition of Sucampo AG, or SAG, the Company began and has continued integrating SAG for future operational efficiencies through a simplified group structure and consolidation of intellectual property. On September 29, 2011 the Company’s subsidiaries Sucampo Pharma Americas Inc, or SPA, Sucampo Pharma Ltd, or SPL and Sucampo Pharma Europe Ltd, or SPE transferred certain intellectual property and licenses to SAG, and SAG entered into agreements with the subsidiaries to perform certain services related to the intellectual property, licenses and other business activities. As a result of these agreements SAG is now our principal operating company.

On September 29, 2011, SPA transferred its rights to unoprostone isopropyl to SAG. SAG entered into an agreement with SPA to perform certain activities related to those rights. On March 22, 2011, SAG entered into a license agreement with R-Tech for unoprostone isopropyl, expanding the Company’s development and commercialization rights as well as its territories beyond their previously agreed territory of the United States and Canada to the rest of the world, with the exception of Japan, Korea, Taiwan and the People’s Republic of China, or the R-Tech Territory, or the SAG Territories. SAG is now evaluating the opportunities to obtain an appropriate label in the E.U. and other European countries as well as obtaining reauthorization in those countries to commercialize unoprostone isopropyl.

Other prostone compounds in the Company’s development plan include cobiprostone for the treatment of oral mucositis in cancer patients and wound healing. Additionally, the Company is evaluating SPI-017 for use as a treatment of treatment for the management of pain caused by spinal stenosis.

In July 2011, the Company obtained the development and commercial rights to a peptide compound from CuroNZ, a New Zealand company, for a loan of $100,000 that will augment the Company’s ophthalmic development opportunities. Loan and accrued interest of approximately $101,000 is recorded as other assets in the Consolidated Balance Sheets at December 31, 2011.

In September 2011, the Company entered into a Loan Guarantee and Development Agreement, or Numab Agreement, with Numab AG, or Numab. Numab is considered a related party as a result of a ownership interest by one of the Company’s executive officers. It provides the Company with access to Numab’s proprietary technology for the discovery of high-affinity antibodies against certain selected targets. The Company will have exclusive commercial rights to any biologic products successfully developed and commercialized in the course of the collaboration. The Numab Agreement presents an opportunity to maximize the Company’s knowledge of a variety of targets that result in several large, underserved patient populations. By applying Numab’s antibody technology to these targets, the Company plans to develop biologic products with a different mechanism of action that will be complementary to the prostone-based compounds the Company now has in development. Under the terms of the Numab Agreement, the Company will provide Numab with up to CHF 5.0 million as collateral and will serve as guarantor for a loan to Numab from a third party. The Company may name up to four targets against which Numab will use their proprietary technology to discover high-affinity antibodies and to develop these to an investigation new drug, or IND, ready stage. Numab is eligible for full time equivalent based payments and discovery success dependent fees. Any success dependent fees will result in a corresponding reduction in the amount of the available guarantee. Should Numab default its loan obligations, the collateral may be called upon to meet Numab’s obligation under its loan agreement. As of December 31, 2011, the collateral of $2.1 million has been deposited by the Company and Numab has utilized CHF 1.5 million of its loan available. In reviewing the amount outstanding, the Company has recorded a liability of $495,000 in respect to the collateral being called upon to meet potential loan default by Numab. If a biologic is successfully developed, Numab and the Company may enter into a license arrangement in which Numab will be entitled to clinical development milestone payments and increasing tiered royalties on net sales. The Company will be responsible for clinical development and will retain all commercial rights to any resulting biologic product.

Basis of Presentation

The accompanying Consolidated Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the U.S. of America, or GAAP. The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries: SAG, based in Zug, Switzerland , in which the company conducts certain worldwide and European operations; SPL, based in Tokyo and Osaka, Japan, in which the Company conducts its Asian operations; SPA, based in Bethesda, Maryland, in which the Company conducts operations in North and South America; SPE, based in Oxford, U.K., and Ambrent Investments S.à r.l., based in Luxembourg which conduct operations in Europe;. All significant inter-company balances and transactions have been eliminated.

The acquisition of SAG and its subsidiary in 2010 was accounted for as a merger of companies under common control and accounted for at historical cost. The financial information of these acquired entities is included in these Consolidated Financial Statements for all periods presented.

The preparation of financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities at the date of the financial statements, disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

- Definition

The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Research Bulletin (ARB)
-Number 51
-Paragraph 2-6
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Name Statement of Position (SOP)
-Publisher AICPA
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-Paragraph 10
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
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+ Details

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Cash and Cash Equivalents

For the purpose of the Consolidated Balance Sheets and statements of cash flows, cash equivalents include all highly liquid investments with a maturity, at date of purchase, of 90 days or less at the time of purchase.

Restricted Cash

Restricted cash consists of approximately $17.2 million and $15.1 million at December 31, 2011 and December 31, 2010, respectively. Restricted cash represents cash required to be deposited with financial institutions in connection with the Sucampo Pharma, Ltd. and The Bank of Tokyo-Mitsubishi UFJ, Ltd. loan agreement (see Note 12 below), SAG’s Numab Agreement (see Note 13 below) and operating leases.

Current and Non-Current Investments

Current and non-current investments consist primarily of U.S. government agencies securities, corporate bonds, mutual funds, variable rate demand notes and auction rate securities, or ARS. The Company classifies its investments into current and non-current based on their maturities and management’s reasonable expectation to realize these investments in cash. The Company classifies all of its investments, except ARS, as available for sale securities and reports unrealized gains or losses, net of related tax effects, in other comprehensive income. The Company’s investment in ARS was redeemed in June 2010.

Certain Risks, Concentrations and Uncertainties

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents, restricted cash, investments and receivables. The Company places its cash, cash equivalents and restricted cash with highly rated financial institutions and invests its excess cash in highly rated investments. As of December 31, 2011 and 2010, approximately $15.6 million, or 16.7%, and $34.1 million, or 27.6%, respectively, of the Company’s cash, cash equivalents, restricted cash and investments were issued or insured by the federal government or government agencies. The Company has not experienced any losses on these accounts related to amounts in excess of insured limits.

The Company’s products and product candidates under development require approval from the FDA or other international regulatory agencies prior to commercial sales. For those product candidates or indications that have not yet been approved by the FDA or international regulatory agencies, there can be no assurance the products will receive the necessary approval. If the Company is denied approval or approval is delayed, it may have a material adverse impact on the Company.

The Company’s products, AMITIZA and RESCULA, compete in a rapidly changing, highly competitive market, which is characterized by advances in scientific discovery, changes in customer requirements, evolving regulatory requirements and developing industry standards. Any failure by the Company to anticipate or to respond adequately or timely to scientific developments in its industry, changes in customer requirements or changes in regulatory requirements or industry standards, or any significant delays in the development or introduction of products could have a material adverse effect on the Company’s business, operating results and future cash flows.

The Company’s expected activities may necessitate significant uses of working capital. The Company’s working capital requirements will depend on many factors, including the successful sales of AMITIZA and RESCULA, research and development efforts to develop new products or indications, payments received under contractual agreements with other parties, the status of competitive products and market acceptance of the Company’s new products by physicians and patients. The Company plans to continue financing operations with its existing cash and investments as well as with product royalty revenue and cash received from milestones and other revenue related to its joint collaboration, license and supply agreements.

Revenues from one unrelated party, Takeda, accounted for 96.9%, 81.4%, 85.3%, of the Company’s total revenues for the years ended December 31, 2011, 2010 and 2009, respectively. Accounts receivable, unbilled accounts receivable and product royalties receivable from Takeda accounted for 100.0% of the Company’s total accounts receivable, unbilled accounts receivable and product royalties receivable at December 31, 2011 and 2010. Revenues from another unrelated party, Abbott, accounted for 2.3%, 18.0% and 14.1% of the Company’s total revenues for the years ended December 31, 2011, 2010 and 2009. The Company depends significantly upon the collaborations with Takeda and Abbott and its activities may be impacted if these relationships are disrupted (Note 13).

The Company has an exclusive supply arrangement with R-Tech to provide it with commercial and clinical supplies of its product and product candidates. R-Tech also provides certain preclinical and other research and development services. Any difficulties or delays in performing the services under these arrangements may cause the Company to lose revenues, delay research and development activities or otherwise disrupt the Company’s operations (Note 11).

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, restricted cash, current and non-current investments, receivables, accounts payable and accrued expenses, approximate their fair values based on their short maturities, independent valuations or internal assessments. The carrying amount of the short and long-term debt at December 31, 2011 and 2010 approximated its fair value due to the fact that the interest rates are determined based by reference to interbank rates.

Accounts Receivable and Unbilled Accounts Receivable

Accounts receivable represent mainly amounts due under the Takeda Agreement and the Abbott Agreement (Note 13). Unbilled accounts receivable represent the research and development expenses that are reimbursable by Takeda but have not been billed to Takeda as of the balance sheet date. No allowance was recorded in 2011 or 2010.

Product Royalties Receivable

Product royalties receivable represent amounts due from Takeda for the Company’s royalties on sales of AMITIZA, which are based on reports obtained directly from Takeda.

Property and Equipment

Property and equipment are recorded at cost and consist of computer and office machines, furniture and fixtures and leasehold improvements. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Computer and office machines are depreciated over four years and furniture and fixtures are depreciated over seven years. Leasehold improvements are amortized over the shorter of ten years or the life of the lease. Significant additions and improvements are capitalized. Expenditures for maintenance and repairs are charged to earnings as incurred. When assets are sold or retired, the related cost and accumulated depreciation are removed from the respective accounts and any resulting gain or loss is included in earnings.

Impairment of Long-lived Assets

When necessary, the Company assesses the recoverability of its long-lived assets by determining whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If impairment is indicated, the Company measures the amount of such impairment by comparing the fair value to the carrying value. There have been no impairment charges recorded during the years ended December 31, 2011, 2010 or 2009 because there have been no indicators of impairment during those years.

Revenue Recognition

The Company’s revenues are derived primarily from collaboration and license agreements and include upfront payments, development milestone payments, reimbursements of development and co-promotion costs and product royalties.

The Company evaluated the multiple deliverables within the collaboration and license agreements in accordance with the guidance of multiple deliverables to determine whether the delivered elements that are the obligation of the Company have value to other parties to the agreement on a stand-alone basis and whether objective reliable evidence of fair value of the undelivered items exists. Deliverables that meet these criteria are considered a separate unit of accounting. Deliverables that do not meet these criteria are combined and accounted for as a single unit of accounting. The appropriate recognition of revenue is then applied to each separate unit of accounting. The Company’s deliverables under the Takeda Agreement and Abbott Agreement, including the related rights and obligations, contractual cash flows and performance periods, are more fully described in Note 13 below.

The Company applies a time-based model of revenue recognition for cash flows associated with research and development deliverables under the Takeda Agreement. Under this model, cash flow streams related to each unit of accounting are recognized as revenue over the estimated performance period. Upon receipt of cash payments, such as development milestones, revenue is recognized to the extent the accumulated service time has occurred. The remainder is deferred and recognized as revenue ratably over the remaining estimated performance period. A change in the period of time expected to complete the deliverable is accounted for as a change in estimate on a prospective basis. In cases where milestone payments are received after the completion of the associated development period, the Company recognizes revenue upon completion of the performance obligation. Revenue is limited to amounts that are nonrefundable and that the other party to the agreement is contractually obligated to pay to the Company. The Company recognizes reimbursable research and development costs under the Takeda Agreement as research and development revenue using a time-based model over the estimated performance period. The research and development revenue for these obligations is limited to the lesser of the actual reimbursable costs incurred or the straight-line amount of revenue recognized over the estimated performance period. Revenues are recognized for reimbursable costs only if those costs can be reasonably determined.

The Company applies a proportional-performance model using the percentage-of-completion method of revenue recognition for cash flows associated with research and development deliverables under the Abbott Agreement. Since the Company has previous research and development experience and the expected cost to complete the development can be reasonably estimated, the Company believes a proportional-performance methodology of revenue recognition is appropriate. Under this method, revenue in any period is recognized as a percentage of the total actual cost expended relative to the total estimated costs required to satisfy the performance obligations under the arrangement related to the development. Revenue recognized is limited to the amounts that are non-refundable and that the other party to the agreement is contractually obligated to pay to the Company. A change in the period of time expected to complete the deliverable is accounted for as a change in estimate on a prospective basis. Research and development costs are not reimbursable under the Abbott Agreement.

Under the Takeda Agreement, royalties are based on net sales of licensed products and are recorded on the accrual basis when earned in accordance with contractual terms when third-party results are reliably measurable, collectability is reasonably assured and all other revenue recognition criteria are met. Under the Abbott Agreement, should AMITIZA be commercialized in Japan, the Company will purchase and assume title to inventories of AMITIZA and recognize revenues from the sales, to Abbott, of such product when earned.

The Company also entered into the Supplemental Takeda Agreement consisting of the following key funding streams: reimbursements of co-promotion costs based upon a per-day rate and reimbursements of the costs of miscellaneous marketing activities, which the Company recognized as revenue as the related costs are incurred and Takeda becomes contractually obligated to pay the amounts. Co-promotion costs after May 31, 2011 are reimbursed under the Takeda Agreement and the amounts recognized are based on amounts billed for actual details presented to health care prescribers.

The Company considers its participation in the joint committees under the collaboration and license agreements as separate deliverables under the contracts and recognizes the fair value of such participation as collaboration revenue over the period of the participation per the terms of the contracts.

The Company has determined that it is acting as a principal under both the Takeda Agreement and Abbott Agreement and, as such, records revenue on a gross basis in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Contract Revenue

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

Deferred Revenue

Deferred revenue represents payments received for licensing fees, option fees, consulting, research and development contracts and related cost sharing and supply agreements, mainly with Takeda, Abbott and R-Tech, which are deferred until revenue can be recognized under the Company’s revenue recognition policy. Deferred revenue is classified as current if management believes the Company will be able to recognize the deferred amount as revenue within 12 months of the balance sheet date. At December 31, 2011 and 2010, total deferred revenue was approximately $10.9 million and $13.3 million, respectively.

Total deferred revenue consists of the following as of:

	December 31,
(In thousands)	2011		2010
Deferred revenue, current	$	3,888	$	4,987
Deferred revenue, non-current		7,045		8,321
	$	10,933	$	13,308
Deferred revenue to related parties, included in total deferred revenue:
Deferred revenue to related parties, current	$	433		433
Deferred revenue to related parties, non-current		5,063		5,839
Total	$	5,496	$	6,272

Research and Development Expenses

Research and development costs are expensed in the period in which they are incurred and include the expenses from third parties who conduct research and development activities pursuant to development and consulting agreements on behalf of the Company. Costs related to the acquisition of intellectual property are expensed as incurred in research and development expenses since the underlying technology associated with such acquisitions is unproven, has not received regulatory approval at its early stage of development and does not have alternative future uses. Milestone payments due under agreements with third party contract research organizations, or CROs, are accrued when it is considered probable that the milestone event will be achieved.

General and Administrative Expenses

General and administrative costs are expensed as incurred and consist primarily of salaries and other related costs for personnel serving executive, finance, accounting, information technology and human resource functions. Other costs include facility costs and professional fees for legal and accounting services.

Selling and Marketing Expenses

Selling and marketing expenses represent costs the Company incurs to co-promote AMITIZA, including salaries, benefits and related costs of the Company’s sales force and other sales and marketing personnel, costs of market research and analysis and other selling and marketing expenses.

Interest Income

Interest income consists of interest earned on the Company’s cash and cash equivalents and current and non-current investments.

Accrued Research and Development Expenses

As part of the process of preparing Consolidated Financial Statements, the Company is required to estimate accruals for research and development expenses. This process involves reviewing and identifying services which have been performed by third parties on the Company’s behalf and determining the value of these services. Examples of these services are payments to clinical investigators and contract service organizations. In addition, the Company makes estimates of costs incurred to date but not yet invoiced, in relation to external CROs and clinical site costs. The Company analyzes the progress of clinical trials, including levels of patient enrollment, invoices received and contracted costs, when evaluating the adequacy of the accrued liabilities for research and development. The Company makes significant judgments and estimates in determining the accrued balance in any accounting period.

Employee Stock-Based Compensation

The Company applied accounting guidance for share-based awards that requires the measurement and recognition of expense for all share-based compensation of employees and directors to be based on estimated fair values of the share-based awards. This guidance requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Company’s consolidated statement of operations.

The Company’s determination of fair value of share-based awards on the date of grant using an option-pricing model is affected by the Company’s stock price and assumptions regarding a number of highly complex and subjective variables.

The assumptions used to estimate the fair value of the service condition stock options granted for the three years ended December 31, 2011 were as follows:

	Year Ended December 31,
	2011			2010			2009
Expected volatility		55% - 64	%		51% - 63	%		47% - 55	%
Risk-free interest rate		1.30% - 3.30	%		1.89% - 3.24	%		2.67% - 3.11	%
Expected term (in years)		2.10 - 6.25			5.00 - 6.25			6.00 - 7.00
Expected dividend yield		0	%		0	%		0	%

Expected Volatility: The Company evaluated the assumptions used to estimate expected volatility, including whether implied volatility of its options appropriately reflects the market’s expectations of future volatility. The Company determined that it would calculate the expected volatility rate using historical stock prices obtained from comparable publicly-traded companies due to the limited history of the Company’s common stock activity.

Risk-Free Interest Rate: The risk-free interest rate is based on the market yield currently available on U.S. Treasury securities with a maturity that approximates the expected term of the share-based awards.

Expected Term: The Company elected to use the “simplified” method to calculate its expected term of share-based awards. Under this method, the expected term is the weighted average of the vesting term and the contractual term. The Company has used a lattice based model to determine the expected term for its market condition share-based awards.

Expected Dividend Yield: The Company has not paid, and does not anticipate paying, any dividends in the foreseeable future.

Employee stock-based compensation expense for the three years ended December 2011 has been reduced for estimated forfeitures as such expense is based upon awards expected to ultimately vest. Accounting guidance on share-based payments requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.During the years ended December 31, 2011, 2010 and 2009, the estimated forfeiture rate ranged from 8.0% to 17.0%.

Employee stock-based compensation expense recorded in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) for the three years ended December 31, 2011 was as follows:

	Year Ended December 31,
(In thousands)	2011		2010		2009
Research and development expense	$	234	$	252	$	96
General and administrative expense		964		729		193
Selling and marketing expense		172		279		85
Total		1,370		1,260		374

Employee stock-based compensation expense per basic and diluted share of common stock	$	0.03	$	0.03	$	0.01

Income Taxes

The Company accounts for income taxes under the asset and liability method in accordance with the relevant accounting guidance for income taxes. Under the asset and liability method, the current income tax provision or benefit is the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax rate changes are reflected in the income tax provision during the period such changes are enacted. Changes in ownership may limit the amount of net operating loss carryforwards that can be utilized in the future to offset taxable income.

Significant judgment is required in determining the provision for income taxes and, in particular, any valuation allowance recorded against the Company’s net deferred tax assets. The Company has recorded a valuation allowance against deferred tax assets in certain foreign tax jurisdictions, which resulted in a net deferred tax liability of $22.9 million and a deferred tax asset of $3.3 million as of December 31, 2011 and December 31, 2010, respectively. The amount of the valuation allowance has been determined based on management’s estimates of income by jurisdiction in which the Company operates, over the periods in which the related deferred tax assets are recoverable.

During 2011, SPA, SPL and SPE transferred certain intellectual property and licenses to SAG. Since the transfer of these assets was to a related party, the recognition of a deferred tax asset by SAG is prohibited and the net tax effect of the transaction is deferred in consolidation. The tax liability generated from this transaction is offset by a deferred charge that will be amortized over ten years. The total deferred charge is $29.8 million after $764,000 of current year amortization expense.

For all significant intercompany transactions, the Company’s management has evaluated the terms of the transactions using significant estimates and judgments to ensure that each significant transaction would be on similar terms if the Company completed the transaction with an unrelated party. Although the Company believes there will be no material tax liabilities to the Company as a result of multi-jurisdictional transactions, there can be no assurance that taxing authorities will not assert that transactions were entered into at monetary values other than fair values. If such assertions were made, the Company’s intention would be to vigorously defend its positions; however, there can be no assurance that additional liabilities may not occur as a result of any such assertions.

Uncertain Tax Positions

The Company applies the accounting guidance for uncertain tax positions that requires the application of a more likely than not threshold to the recognition and derecognition of uncertain tax positions. If the recognition threshold is met, the Company recognizes a tax benefit measured at the largest amount of the tax benefit that, in its judgment, is more than 50.0% likely to be realized upon settlement.

The Company has recorded a non-current income tax liability of approximately $1.5 million and $1.4 million, including interest for uncertain tax positions, as of December 31, 2011 and 2010, respectively. The amount represents the aggregate tax effect of differences between tax return positions, and the amounts otherwise recognized in the Company’s Consolidated Financial Statements, and is reflected in other liabilities in the accompanying Consolidated Balance Sheets. The liability for uncertain tax positions as of December 31, 2011 and 2010 mainly pertained to the Company’s interpretation of nexus in certain states related to revenue sourcing for state income tax purposes, as well as uncertain tax positions related to related party interest in foreign jurisdictions.

The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision. The Company has identified no uncertain tax position for which it is reasonably possible that the total amount of liability for unrecognized tax benefits will significantly increase or decrease within 12 months, except for recurring accruals on existing uncertain tax positions. All of the unrecognized tax benefits could affect the effective tax rate if recognized in the future.

Deferred Charge

Certain intellectual property was transferred within the group resulting in a gain in the sellers’ tax jurisdiction and a difference in the buyer’s tax jurisdiction between the new tax basis and the carrying amount of those assets. The FASB guidance on income taxes precludes the Company from including the effects of any intercompany transfers in the financial statements, and so the net tax effect of an intercompany transaction is deferred in consolidation.

These deferred tax effects include the reversal of any existing deferred tax asset (and its related valuation allowance, if any) or liability and any taxes currently payable resulting from the intercompany transaction when the asset remains in the consolidated group for financial reporting purposes. This deferred effect is not the result of a temporary difference and is therefore classified as a deferred charge on the Consolidated Balance Sheet separate from the Company's deferred tax assets.

Since the deferred charge is not part of the deferred tax assets, it is not subject to revaluation for tax rate changes and realizability as prescribed by the FASB’s guidance on income taxes. Thus, the deferred charge will remain fixed and will be amortized over the determined life of 10 years and be included as part of the provision for income taxes as a permanent difference.

Foreign Currency

The Company translates the assets and liabilities of its foreign subsidiaries into U.S. dollars at the current exchange rate in effect at the end of the year and maintains the capital accounts of these subsidiaries at the historical exchange rates. The revenue, income and expense accounts of the foreign subsidiaries are translated into U.S. dollars at the average rates that prevailed during the relevant period. The gains and losses that result from this process are included in accumulated other comprehensive income in the stockholders’ equity section of the balance sheet.

Realized and unrealized foreign currency gains or losses on assets and liabilities denominated in a currency other than the functional currency are included in net income.

Following the transfer of certain intellectual property to SAG, the company has reviewed the functional currency of SAG and determined that it is appropriate to change its functional currency to U.S. dollars from Swiss francs effective October 1, 2011.

Other Comprehensive Income

Comprehensive income consists of net income plus certain other items that are recorded directly to stockholders’ equity. The Company has reported comprehensive income in the Consolidated Statements of Operations and Comprehensive Income (Loss).

The Company has outstanding intercompany loans and investments between its subsidiaries which are eliminated for purposes of the Consolidated Financial Statements. These intercompany loans are not expected to be repaid or settled in the foreseeable future. Accordingly, the currency transaction gains or losses on these intercompany loans are recorded as part of other comprehensive income in the Consolidated Financial Statements.

The functional currency of Sucampo AG was changed to the U.S. Dollar from the Swiss Franc on October 2011 on a prospective basis. The historical cumulative translation adjustment from Sucampo AG at the time of the change will not change in future periods.

Segment Information

Management has determined that the Company has three reportable segments, which are based on its method of internal reporting by geographical location. The Company’s reportable segments are the U.S., Europe and Asia.

Recent Accounting Pronouncements

In June 2011, the FASB issued an accounting update on Comprehensive Income-Topic 220: Presentation of Comprehensive Income, which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. This update will be effective for public companies during the interim and annual periods beginning after December 15, 2011 with early adoption permitted. The Company’s adoption of this guidance did not impact the Company’s results of operations, financial statement presentation or disclosures.

In May 2011, the FASB issued authoritative guidance on amendments to achieve common fair value measurement and disclosure requirements in U.S.GAAP and International Financial Reporting Standards, or IFRSs. The guidance amends fair value measurement, to ensure that fair value has the same meaning in U.S. GAAP and IFRS. IFRS improves the comparability of the fair value measurement and disclosure requirements in GAAP and IFRS. This guidance applies to all entities that measure assets, liabilities or instruments classified in shareholder's equity at fair value, or provide fair value disclosures for items not recorded at fair value. This guidance results in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, this guidance changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, this guidance will not result in a change in the application of the requirements in the existing fair value measurement guidance, however clarifies the FASB's intent about the application of existing fair value measurement requirements. Other requirements change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. This guidance is effective for public companies for interim and annual periods beginning after December 15, 2011 and should be applied prospectively. Early application is not permitted. The Company is continuing to evaluate the impact that this amendment would have on its financial condition and results of operation upon adoption.

Acquisition of Sucampo AG and Sucampo AG Japan

12 Months Ended

Dec. 31, 2011

Acquisition of Sucampo AG and Sucampo AG Japan

Acquisition of Sucampo AG and Sucampo AG Japan

On December 23, 2010, the Company’s subsidiary, Ambrent Investments S.à r.l., or Ambrent, a company organized under the laws of Luxembourg, entered into a stock purchase agreement, or the Purchase Agreement, with Dr. Ryuji Ueno, as trustee of the Ryuji Ueno Revocable Trust under Trust Agreement dated December 20, 2002, or the Ueno Trust, Dr. Sachiko Kuno as trustee of the Sachiko Kuno Revocable Trust under Trust Agreement dated December 20, 2002, or the Kuno Trust, and together with Drs. Ueno and Kuno and Ambrent, to acquire SAG, a Swiss-based patent-holding company, and its wholly-owned subsidiary SAG-J, a patent maintenance company.

The Sellers, Drs. Ueno and Kuno, are related parties of the Company. Dr. Ueno is the Company’s Chief Executive Officer, Chief Scientific Officer and Chairman of the Board of Directors. Dr. Kuno is the Company’s international business advisor and a member of its Board of Directors, and is also Dr. Ueno’s spouse. Drs. Ueno and Kuno are co-founders and majority stockholders of the Company and are also majority stockholders of R-Tech, a significant supplier to the Company. Pursuant to the Company’s related person transactions policy, the Company’s Audit Committee, which consists solely of independent directors, reviewed and approved the acquisition. The purchase price for the acquisition was negotiated based on a discounted cash flow analysis of expected future payments on the licensed intellectual property rights and the estimated fair value of the acquired net assets.

The total purchase price under the Purchase Agreement is $80.0 million, consisting of a cash payment made in December 2010 of approximately $28.1 million and the issuance of two subordinated unsecured promissory notes in the aggregate amount of approximately $51.9 million. In addition, the purchase price includes a contingent payment equal to 15.0%, up to a maximum of $40.0 million, of any cash that may be received by the Company in connection with the ultimate resolution of the current arbitration proceedings against Takeda. This contingent payment has not been recorded as a liability within these financial statements given the common control nature of the transaction.

The purchase agreement contains customary representations, warranties and covenants, and agreements as to indemnification among the parties, subject to certain exclusions and limitations.

The acquisition of SAG and SAG-J was accounted for as a merger of companies under common control, and accounted for at historical costs as of the earliest period presented. The financial information of these additional entities is presented in both the current and historical periods. Prior to the acquisition, SAG paid dividends of $13.7 million and $2.9 million during the years ended December 31, 2010 and 2009, respectively. These dividends are included within the Consolidated Statements of Changes in Stockholders’ Equity together as a reduction of retained earnings. The $80.0 million purchase consideration has been treated as a deemed distribution due to the accounting for the common control acquisition of SAG and has been included in stockholders’ equity as a reduction of $38.3 million in retained earnings and a $41.7 million reduction in additional paid in capital.

- Definition

The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Emerging Issues Task Force (EITF)
-Number 88-16
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 141
-Paragraph 51, 52
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 141R
-Appendix F
-Paragraph F4
-Subparagraph e

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 141R
-Paragraph 67-73
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
-SubTopic 30
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6911361&loc=d3e6927-128479

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
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-Section 50
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Reference 7: http://www.xbrl.org/2003/role/presentationRef
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Reference 8: http://www.xbrl.org/2003/role/presentationRef
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Reference 9: http://www.xbrl.org/2003/role/presentationRef
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Reference 10: http://www.xbrl.org/2003/role/presentationRef
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Reference 11: http://www.xbrl.org/2003/role/presentationRef
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Reference 13: http://www.xbrl.org/2003/role/presentationRef
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-SubTopic 10
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-Paragraph 2
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Reference 14: http://www.xbrl.org/2003/role/presentationRef
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-Publisher FASB
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+ Details

Net Income (Loss) per Share

12 Months Ended

Dec. 31, 2011

Net Income (Loss) per Share

Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the sum of the weighted average class A and B common shares outstanding. Diluted net income per share is computed by dividing net income by the weighted average common shares and potential dilutive common shares outstanding. Diluted net loss per share, when applicable, is computed by dividing net loss by the weighted average common shares outstanding without the impact of potential dilutive common shares outstanding because they would have an anti-dilutive impact on diluted net loss per share.

The computation of net income (loss) per share for the three years ended December 31, 2011, is shown below:

	December 31,
(in thousands, except per share data)	2011			2010			2009
Basic net income (loss) per share:
Net income (loss)	$	(17,306	)	$	(2,755	)	$	4,777

Weighted average class A and B common shares outstanding		41,839			41,848			41,844

Basic net income (loss) per share	$	(0.41	)	$	(0.07	)	$	0.11

Diluted net income (loss) per share:
Net income (loss)	$	(17,306	)	$	(2,755	)	$	4,777

Weighted average class A and B common shares outstanding for diluted net income per share		41,839			41,848			41,844

Assumed exercise of stock options under the treasury stock method		-			-			22
		41,839			41,848			41,866

Diluted net income (loss) per share	$	(0.41	)	$	(0.07	)	$	0.11

For the years listed above, the potentially dilutive securities used in the calculations of diluted net income per share as of December 31, 2011, 2010 and 2009 are as follows:

	December 31,
(In thousands)	2011		2010		2009
Employee stock options		-		-		227
Non-employee stock options		-		-		-

For the years listed above, the following securities were excluded from the computation of diluted net income (loss) per share as their effect would be anti-dilutive as of December 31, 2011, 2010 and 2009:

	December 31,
(In thousands)	2011		2010		2009
Employee stock options		3,595		1,554		685
Non-employee stock options		450		450		450

Current and Non-Current Investments

12 Months Ended

Dec. 31, 2011

Current and Non-Current Investments

Current and Non-Current Investments

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

	December 31, 2011
			Unrealized		Unrealized
(In thousands)	Cost		Gains		Losses			Fair Value
Current:
U.S. commercial paper	$	1,997	$	3	$	-		$	2,000
U.S. government securities		3,250		-		-			3,250
Corporate bonds		7,002		8		(3	)		7,007
Variable rate demand notes		12,195		-		-			12,195
Total	$	24,444	$	11	$	(3	)	$	24,452

Non-current:
U.S. government securities	$	1,000	$	-	$	(2	)	$	998
Total	$	1,000	$	-	$	(2	)	$	998

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

Non-current:
Corporate bonds	$	5,019	$	11	$	(2	)	$	5,028
Total	$	5,019	$	11	$	(2	)	$	5,028

The Company performs fair value measurements in accordance with the FASB’s guidance for fair value measurements and disclosures, which defines fair value as the exchange price that would be received for selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company classifies its investments into the following categories based on the three levels of inputs used to measure fair value:

Level 1: quoted prices in active markets for identical assets or liabilities;

Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s assets measured at fair value on a recurring basis, including cash equivalents, which are subject to the fair value disclosure requirements, are as follows:

	Fair Value Measurements at Reporting Date Using
December 31, 2011	Quoted Prices in Active Markets for identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Total
U.S. government securities	$	-	$	4,248	$	-	$	4,248
U.S. commercial paper		-		2,000		-		2,000
Corporate bonds		-		7,007		-		7,007
Money market funds		12,885		-		-		12,885
Variable rate demand notes		-		12,195		-		12,195
Total assets measured at fair value	$	12,885	$	25,450	$	-	$	38,335

	Fair Value Measurements at Reporting Date Using
December 31, 2010	Quoted Prices in Active Markets for identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Total
U.S. Treasury bills and notes	$	1,003	$	-	$	-	$	1,003
U.S. government securities		-		16,528		-		16,528
U.S. commercial paper		-		999		-		999
Corporate bonds		-		11,696		-		11,696
Municipal securities		-		17,576		-		17,576
Certificates of deposits		-		750		-		750
Money market funds		780		-		-		780
Variable rate demand notes		-		11,000		-		11,000
Total assets measured at fair value	$	1,783	$	58,549	$	-	$	60,332

If quoted prices in active markets for identical assets and liabilities are not available to determine fair value, then the Company uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable, either directly or indirectly. This pricing methodology applies to the Company’s Level 2 investments.

Property and Equipment

12 Months Ended

Dec. 31, 2011

Property and Equipment

Property and Equipment

Property and equipment consists of the following as of:

	December 31,
(In thousands)	2011			2010
Computer and office machines	$	2,181		$	2,206
Furniture and fixtures		438			364
Leasehold improvements		1,495			1,414
Other		-			46
Total cost		4,114			4,030
Less: accumulated depreciation		(2,445	)		(2,005	)
Total	$	1,669		$	2,025

Depreciation expense for the years ended December 31, 2011, 2010 and 2009 was approximately $591,000, $604,000 and $543,000, respectively.

The leasehold improvements as of December 31, 2011 are related to tenant improvements to the Company’s headquarters in Bethesda, Maryland.

- Definition

The entire disclosure for long-lived, physical assets that are used in the normal conduct of business to produce goods and services and not intended for resale. Examples include land, buildings, machinery and equipment, and other types of furniture and equipment including, but not limited to, office equipment, furniture and fixtures, and computer equipment and software. This disclosure may include property plant and equipment accounting policies and methodology, a schedule of property, plant and equipment gross, additions, deletions, transfers and other changes, depreciation, depletion and amortization expense, net, accumulated depreciation, depletion and amortization expense and useful lives, income statement disclosures, assets held for sale and public utility disclosures.

+ References + Details

Intangible Assets

12 Months Ended

Dec. 31, 2011

Intangible Assets

Intangible Assets

In April 2009, the Company entered into two agreements with R-Tech to acquire all patents and other intellectual property rights related to RESCULA for its FDA approved indication and any new indications for unoprostone isopropyl in the U.S. and Canada. Although RESCULA eye drops have been approved by the FDA since 2000, RESCULA is not currently marketed in the U.S. or Canada. In September 2011, SPA transferred those rights to SAG, and SAG entered into an agreement with SPA to perform certain activities relate to those rights. The Company plans to re-launch RESCULA in the U.S. for its approved indication after approval of an enhanced label from the FDA.

Under the terms of the 2009 R-Tech agreement, the Company made an upfront payment of $3.0 million and may be required to pay up to $5.5 million in additional milestone payments to R-Tech based on the achievement of specified development and commercialization goals. The first milestone payment of $500,000 is payable upon the re-launch of RESCULA for the treatment of glaucoma which is considered as being probable; therefore, this amount is recorded as part of the initial cost of the acquired assets. We allocated the acquisition cost between an intangible asset of $3.4 million and a non-current prepaid inventory of $85,000 as of December 31, 2011, both of which are reflected in other non-current assets in the accompanying Consolidated Balance Sheets. We are amortizing the $3.4 million over the 10-year life of the license agreement, which we believe approximates the useful life of the underlying rights and data. Amortization expense was $341,000 and $341,000, respectively, for the years ended December 31, 2011 and 2010. The annual amortization expense will be approximately $341,000 through April 2019.

On March 22, 2011, SAG entered into a license agreement with R-Tech for unoprostone isopropyl, expanding the Company’s development and commercialization rights as well as its territories beyond their previously agreed territory of the United States and Canada to the rest of the world, with the exception of Japan, Korea, Taiwan and the People’s Republic of China, or the R-Tech Territory, or the SAG Territories.

SAG made an upfront payment to R-Tech of $3.0 million, which is reflected in other non-current assets in the accompanying Consolidated Balance Sheets, and may be required to pay up to $103.0 million in additional milestone payments to R-Tech based on the achievement of specified development and commercialization goals. The first milestone payment of $3.0 million is payable upon the earlier of product approval within the SAG Territories or by March 15, 2012. The liability is reflected in accrued expenses in the accompanying Consolidated Balance Sheets. SAG will be responsible for all development, regulatory, and commercialization activities. The Company is amortizing the $6.0 million over the 10-year life of the license agreement, which management believes approximates the useful life of the underlying rights and data. Amortization expense was $453,000 for the year ended December 31, 2011. The annual amortization expense will be approximately $613,000 through March 2021.

Accrued Expenses

12 Months Ended

Dec. 31, 2011

Accrued Expenses

Accrued Expenses

Accrued expenses consist of the following as of:

	December 31,
(In thousands)	2011		2010
Research and development costs	$	5,622	$	4,146
Employee compensation		1,607		1,795
Selling and marketing costs		76		305
Legal service fees		1,955		2,620
RESCULA milestones		3,500		500
Other accrued expenses		888		850
Total	$	13,648	$	10,216

Other Liabilities

12 Months Ended

Dec. 31, 2011

Other Liabilities

Other Liabilities

Other liabilities consist of the following as of:

	December 31,
(In thousands)	2011		2010
Deferred leasehold incentive	$	609	$	727
Deferred rent expense		514		525
Other liabilities		1,480		1,429
Total	$	2,603	$	2,681

Commitments and Contingencies

12 Months Ended

Dec. 31, 2011

Commitments and Contingencies

10.

Commitments and Contingencies

Operating Leases

The Company leases office space in the U.S., Switzerland, Japan and U.K., under operating leases through 2017. Total future minimum, non-cancelable lease payments under operating leases, are as follows as of December 31, 2011:

			Operating
	Notes		Lease
(In thousands)	Payable		Obligations		Total
Due in one year	$	20,400	$	1,457	$	21,857
Due in two years		8,281		1,036		9,317
Due in three years		8,490		1,024		9,514
Due in four years		8,708		1,052		9,760
Due in five years		8,937		1,084		10,021
Thereafter		4,811		139		4,950
Total	$	59,627	$	5,792	$	65,419

Rent expense for all operating leases was $1.6 million, $1.3 million and $1.3 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Research and Development Costs

The Company routinely enters into agreements with third-party CROs to oversee clinical research and development studies provided on an outsourced basis and assist in other research and development activities. The Company generally is not contractually obligated to pay the third party if the service or reports are not provided. Total future estimated costs through 2013 under these agreements as of December 31, 2011 were approximately $7.4 million.

- Definition

The entire disclosure for commitments and contingencies.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name FASB Interpretation (FIN)
-Number 14
-Paragraph 3
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 5
-Paragraph 9, 10, 11, 12
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 210
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02.25)
-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 450
-SubTopic 20
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=6952336&loc=d3e14435-108349

Reference 5: http://www.xbrl.org/2003/role/presentationRef
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-URI http://asc.fasb.org/extlink&oid=6398077&loc=d3e12565-110249

Reference 6: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=6394976&loc=d3e25287-109308

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
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-SubTopic 20
-Section 50
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-URI http://asc.fasb.org/extlink&oid=6449706&loc=d3e16207-108621

+ Details

Related Party Transactions

12 Months Ended

Dec. 31, 2011

Related Party Transactions

11.

Related Party Transactions

R-Tech Ueno, Ltd.

On March 7, 2003, the Company entered into an exclusive supply agreement with R-Tech. This agreement grants R-Tech the exclusive right to manufacture and supply RUG-015, a prostone compound, and lubiprostone in the U.S. and Canada, and in consideration for such right R-Tech agreed to pay the Company as follows: $1.0 million upon execution of the agreement, $2.0 million upon commencement of a first phase 2 lubiprostone trial, $3.0 million upon commencement of a first phase 2 RUG-015 trial and $2.0 million upon commencement of the earlier of a second phase 2 or a first phase 3 RUG-015 trial. Upon execution of the agreement, the Company had already commenced phase 2 clinical trials for RUG-015 and lubiprostone, which resulted in an immediate payment of $6.0 million – $1.0 million for the agreement execution, $2.0 million for the commencement of the first phase 2 lubiprostone trial, and $3.0 million for the commencement of the first phase 2 RUG-015 trial. The Company evaluated the $6.0 million in cash receipts from R-Tech and determined the payments were made for the exclusive right to supply inventory to the Company and determined that the amounts should be deferred until commercialization of the drugs begins since this is the point at which the underlying services would commence. Management also was unable to adequately assign value between the two compounds based on the information available to the Company and determined that the full $6.0 million deferred amount would be amortized over the contractual life of the relationship which was equivalent to the estimated commercialization periods of both RUG-015 and lubiprostone (estimated to be through December 2020).

During the year ended December 31, 2005, the Company ceased the development of RUG-015 due to less than satisfactory phase 2 results and the Company’s Board of Directors approved the Company’s decision to discontinue the development of RUG-015. In addition to the Company’s Board of Directors, R-Tech also formally approved the abandonment of RUG-015, which was a requirement in the supply agreement terms. Because the Company was unable to assign value to the compounds at the time the agreement was executed and the $6.0 million was received from R-Tech, the full $6.0 million remained deferred at the abandonment of RUG-015.

The abandonment of RUG-015 changed the amortization period of the $6.0 million deferred revenue to the commercialization period of AMITIZA, which began in April 2006. The Company has recognized revenue of $419,000 for the years ended December 31, 2011, 2010 and 2009, which is recorded as contract revenue. During the years ended December 31, 2011, 2010 and 2009, the Company purchased from R-Tech of approximately $72,000, $344,000, and $205,000, respectively, of clinical supplies under the terms of this agreement. Commercial supplies of AMITIZA in the U.S. are subject to a three-party agreement among the Company, R-Tech and Takeda and are not reflected in the Company’s financial statements (see Note 13).

On June 24, 2005, the Company entered into a 20-year exclusive manufacturing and supply agreement with R-Tech to manufacture and supply lubiprostone for clinical and commercial supplies within Europe. In consideration of the exclusive rights, R-Tech paid the Company $2.0 million prior to the execution of the agreement on March 31, 2005. Management has determined that the amount should be deferred until such time as the commercial benefit to R-Tech can be realized. As lubiprostone has not yet been approved within Europe, the $2.0 million has been recorded as non-current deferred revenue as of December 31, 2011 and 2010. During the years ended December 31, 2011, 2010 and 2009, the Company purchased approximately $125,000, $110,000 and $692,000, respectively, of commercial supplies of lubiprostone from R-Tech in anticipation of a commercial launch in Europe. Subsequent to the 2009 purchase, we withdrew our European MAA and recorded a write down of inventory in 2009 of $658,000 to reflect the fair value of this inventory.

On September 7, 2006, the Company’s Board of Directors approved an agreement which amends the exclusive manufacturing agreement with R-Tech. This agreement allows the Company to elect a back-up supplier for the supply of drug substance and drug product. In addition, the agreement provides that R-Tech shall maintain at least a six-month inventory of drug substance and at least a six-month inventory of intermediate drug product. The Company had no clinical supply purchases from a back-up supplier in 2011, 2010 or 2009.

On October 4, 2006, the Company entered into a two-year exclusive clinical manufacturing and supply agreement with R-Tech for two of its drug compounds, cobiprostone and SPI-017. Under the terms of this agreement, R-Tech agreed to manufacture and supply the necessary drug substance and drug product for the purpose of clinical development. Pricing for clinical supplies will be determined on a batch-by-batch basis and shall not exceed a certain mark-up percentage. Unless this agreement is terminated by mutual written consent within 90 days of expiration, it will automatically be renewed for additional two year terms. During the years ended December 31, 2010 and 2009, the Company purchased from R-Tech $48,000 and $1.1 million, respectively, of clinical supplies under the terms of this agreement. There were no clinical supplies purchased in 2011.

In February 2009, the Company entered into an exclusive manufacturing and supply agreement with R-Tech under which the Company granted R-Tech the exclusive right to manufacture and supply lubiprostone to meet its commercial and clinical requirements in Asia, Australia and New Zealand. In consideration, R-Tech made an upfront payment of $250,000 and is obligated to make milestone payments of $500,000 upon regulatory approval of lubiprostone in Japan and $250,000 upon the commercial launch in Japan. In addition, R-Tech is required to maintain at least a six-month supply of lubiprostone and a three-month supply of the active ingredient used in manufacturing lubiprostone as a backup inventory. During the years ended December 31, 2011, 2010 and 2009 the Company purchased approximately $166,000, $267,000 and $381,000, respectively, of commercial supplies of lubiprostone from R-Tech under this agreement. During the year ended December 31, 2009, we purchased approximately $262,000 of clinical supplies from R-Tech under this agreement. There were no such clinical supplies purchases in 2011 and 2010 from R-Tech under this agreement.

In April 2009, the Company entered into two agreements with R-Tech to acquire rights to RESCULA in the U.S. and Canada. Under the terms of the agreements, the Company holds the exclusive rights to commercialize RESCULA in the U.S. and Canada for its approved indication and any new indication developed by the Company, and has the right of first refusal to commercialize in the U.S. and Canada any additional indications for which unoprostone isopropyl is developed by R-Tech. The Company is solely responsible for the development, as well as regulatory and commercialization activities and expenses, for RESCULA in the U.S. and Canada and R-Tech is exclusively responsible for the supply of RESCULA to the Company within the U.S. and Canada. The terms of these agreements are described in Note 7 above.

The Company recorded the following expenses under all of its agreements with R-Tech:

	Year Ended December 31,
(In thousands)	2011		2010		2009
Clinical supplies	$	72	$	392	$	1,556
Other research and development services		104		69		100
Commercial supplies		155		376		1,039
	$	331	$	837	$	2,695

	Year Ended December 31,
(In thousands)	2011		2010
Deferred revenue, current	$	433	$	433
Deferred revenue, non-current		5,063		5,839
	$	5,496	$	6,272

Drs. Ryuji Ueno and Sachiko Kuno, are married to each other and, directly or indirectly, own the majority of the stock of R-Tech Drs. Ueno and Kuno also are controlling stockholders of the Company. Dr. Ueno is the Company’s chief executive officer and chairman of the Board of Directors. Dr. Kuno is a member of the Company’s Board of Directors, as an advisor on international business development.

Numab AG

In September 2011, the Company entered into a Loan Guarantee and Development Agreement, or Numab Agreement, with Numab AG, or Numab. Numab is considered a related party as a result of a ownership interest by one of the Company’s executive officers. Under the terms of the Numab Agreement, the Company will provide Numab with up to CHF 5.0 million as collateral and will serve as guarantor for a loan to Numab from a third party. The Company may name up to four targets against which Numab will use their proprietary technology to discover high-affinity antibodies and to develop these to an investigation new drug, or IND, ready stage. Numab is eligible for full time equivalent based payments and discovery success dependent fees. Any success dependent fees will result in a corresponding reduction in the amount of the available guarantee. Should Numab default its loan obligations, the collateral may be called upon to meet Numab’s obligation under its loan agreement. If a biologic is successfully developed, Numab and the Company may enter into a license arrangement in which Numab will be entitled to clinical development milestone payments and increasing tiered royalties on net sales. The Company will be responsible for clinical development and will retain all commercial rights to any resulting biologic product.

- Definition

The entire disclosure for related party transactions, including the nature of the relationship(s), a description of the transactions, the amount of the transactions, the effects of any change in the method of establishing the terms of the transaction from the previous period, stated interest rate, expiration date, terms and manner of settlement per the agreement with the related party, and amounts due to or from related parties. If the entity and one or more other entities are under common ownership or management control and this control affects the operating results or financial position, disclosure includes the nature of the control relationship even if there are no transactions between the entities. Disclosure may also include the aggregate amount of current and deferred tax expense for each statement of earnings presented where the entity is a member of a group that files a consolidated tax return, the amount of any tax related balances due to or from affiliates as of the date of each statement of financial position presented, the principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to the members of the group and the nature and effect of any changes in that method. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Article 4
-Section 08
-Paragraph k

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Article 3A
-Section 04
-Paragraph b

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 57
-Paragraph 1-4
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 850
-SubTopic 10
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39622-107864

Reference 5: http://www.xbrl.org/2003/role/presentationRef
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-Section 50
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-URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 850
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39603-107864

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08.(k))
-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 850
-SubTopic 10
-Section 50
-Paragraph 5
-URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39678-107864

+ Details

Notes Payable

12 Months Ended

Dec. 31, 2011

Notes Payable

12.

Notes Payable

In November 2010, SPL entered into a ¥1,000,000,000, approximating $12.0 million as of the closing date, secured term loan agreement with The Bank of Tokyo-Mitsubishi UFJ, Ltd, or the Bank. The loan agreement provides for the extension of credit for the period of one year that can be renewed annually upon the agreement of the Company, SPL and the Bank. Borrowings may be used to finance research and development activities, for working capital needs and for the general corporate purposes of SPL. The loan bears annual interest based on the three-month Tokyo Interbank Offer Rate, or TIBOR, plus 1% and is reset quarterly. The interest rate for the first three months was 1.33%. The outstanding loan balances included in the accompanying Consolidated Balance Sheets were $12.9 million and $12.0 million as of December 31, 2011 and 2010. In connection with the loan agreement, the Company and the Bank executed a guarantee agreement which provides full guarantee by the Company on behalf of SPL’s obligation to the Bank. The loan agreement includes representations, covenants, and events of default customary for financing transactions of this type. Additionally, the Company agreed to maintain an amount of collateral that would not fall below 90.0% of the initial balance throughout the term of the loan. The Company deposited $14.9 million with the Bank and the deposit bears annual interest of 0.4%, which is recorded as restricted cash, current in the accompanying Consolidated Balance Sheets as of December 31, 2011 and 2010.

Subordinated Unsecured Promissory Notes

In connection with the acquisition, referred to in Note 3, of SAG and SAG-J, Ambrent issued a subordinated unsecured promissory note, or notes, to the Ueno Trust and Kuno Trust. Each of the notes was issued with an initial principal balance of approximately $25.94 million, or approximately $51.9 million in the aggregate. The interest rate for the notes is equal to the per annum rate of interest determined on the basis of the sum of London Interbank Offered Rate, or LIBOR, plus 4.0%, and will be reset every six months on December 1st and June 1st of each year. The interest rate beginning December 1, 2011 is 4.7%.

The notes provide for a semi-annual repayment schedule of interest and principal over a seven-year period on each June 1st and December 1st, provided that, until December 1, 2012, all accrued and unpaid interest will not be paid in cash and will instead be added to the principal balance of the notes, and Ambrent will make only two scheduled principal payments on December 1, 2011 and December 1, 2012. In November 2011, Ambrent made the first principal payment of $7.5 million. Interest paid-in kind was $2.3 million for the year ended December 31, 2011.

The notes can be prepaid at any time without penalty. In addition, the notes provide for a mandatory prepayment (i) in full in the event of an acquisition by an unaffiliated third party in an all-cash acquisition of all of the issued and outstanding shares of capital stock of the Company or (ii) either in full or in part in certain change of control transactions involving the Company where an unaffiliated third party acquires a majority of the Company’s voting stock.

Notes payable at their carrying amount consist of the following:

	Year Ended December 31,
(In thousands)	2011		2010
Loan agreement, The Bank of Tokyo-Mitsubishi UFJ, Ltd	$	12,900	$	12,022
Promissory notes, Sellers of SAG		46,727		51,939
	$	59,627	$	63,961

Notes payable, current	$	20,400	$	19,522
Notes payable, non-current		39,227		44,439
	$	59,627	$	63,961

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References + Details

Collaboration and License Agreements

12 Months Ended

Dec. 31, 2011

Collaboration and License Agreements

13.

Collaboration and License Agreements

Abbott license and commercialization and supply agreement

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

The collaboration efforts under the agreement are governed by two committees consisting of an equal number of representatives from both parties. The joint commercialization and steering committee oversees commercialization-related activities and resolves any conflicts arising from a joint development committee, which oversee the development-related activities in Japan.

The Company is required to fund and complete all the development work including additional clinical studies required to obtain regulatory approval for the treatment of CIC in Japan. The Company owns all the rights covered under the regulatory filings.

Abbott is required to fund and undertake all commercialization efforts including pre-launch and post-launch marketing, promotion and distribution. Abbott is required to maintain the number of sales staff and the estimated level of annual net sales based on the commercialization plan to be developed and approved by the joint commercialization and steering committee described above.

To date, the Company has received a total of $22.5 million in up-front and development milestone payments under this agreement, including a $5.0 million development milestone payment, received in October 2010, for the submission of a marketing application to the PMDAfor lubiprostone at a dosage strength of 24 micrograms for the indication of CIC in Japanese adults, as well as $10.0 million and $7.5 million in up-front and development milestone payments, respectively, in 2009. Under the Abbott Agreement we could receive additional milestone payments based on achieving other specified development and commercialization goals, including $15.0 million due on the first commercial sale in Japan, although there can be no assurance that the Company will receive any such payments.

The Company applies a proportional-performance model using the percentage-of-completion method of revenue recognition for cash flows associated with research and development deliverables under the Abbott Agreement. The following table summarizes the cash streams and related revenue recognized or deferred for this agreement:

	Cash Received Through December 31,		Revenue Recognized for the Year Ended December 31,						Foreign Currency			Amount Deferred at December 31,
(In thousands)	2011		2009		2010		2011		Effects			2011
Collaboration revenue:
Up-front payment associated with the Company's obligation to participate in joint committees	$	846	$	38	$	47	$	52	$	(151	)	$	860

Research and development revenue:
Up-front payment - remainder	$	9,154	$	5,112	$	3,471	$	520	$	(152	)	$	203
Development milestone payment		12,500		4,314		7,587		697		(371	)	$	273
Total	$	21,654	$	9,426	$	11,058	$	1,217	$	(523	)	$	476

Takeda collaboration and license agreement

In October 2004, the Company entered into Takeda Agreement to exclusively co-develop, commercialize and sell products that contain lubiprostone for gastroenterology indications in the United States and Canada. On February 1, 2006, the Company entered into the Supplemental Takeda Agreement, which supplemented the responsibilities of both the Company and Takeda for the co-promotion of AMITIZA and clarified the responsibilities and funding arrangements for other marketing services to be performed by both parties. Payments to the Company under these agreements include a non-refundable upfront payment, non-refundable development and commercial milestone payments, reimbursement of certain development and co-promotion costs and product royalties. The provision in the Supplemental Takeda Agreement concerning the co-promotion reimbursement for the Company’s sales force expired in May 2011 and the reimbursement terms of the Takeda Agreement apply.

The Company has received a total of $150.0 million in upfront and development milestone payments through December 31, 2011 under these agreements. Subject to future development and commercial milestones, the Company is potentially entitled to receive additional development milestone and commercial milestone payments under the Takeda Agreement, although there can be no assurance that the Company will receive any such payments.

The following table summarizes the cash streams and related revenue recognized or deferred under the Takeda Agreement, which are described in more detail below:

	Cash Received Through December 31,		Revenue Recognized for the Year Ended December 31,						Accounts Receivable for the Year Ended December 31,		Amount Deferred at December 31,
(In thousands)	2011		Through 2009		2010		2011		2011 (1)		2011
Collaboration revenue:
Up-front payment associated with the Company's obligation to participate in joint committees	$	2,375	$	758	$	147	$	147	$	-	$	1,323

Research and development revenue:
Up-front payment - remainder	$	17,624	$	17,624	$	-	$	-	$	-	$	-
Development milestones		130,000		130,000		-		-		-		-
Reimbursement of research and development expenses		97,122		86,757		5,473		8,032		5,918		2,778
Total	$	244,746	$	234,381	$	5,473	$	8,032	$	5,918	$	2,778

Product royalty revenue	$	177,836	$	106,814	$	40,300	$	41,517	$	10,795	$	-

Co-promotion revenue	$	25,206	$	18,021	$	4,417	$	3,378	$	610	$	-

(1) Includes billed and unbilled accounts receivable.

Upon execution of the Takeda Agreement, the Company was required to complete several deliverables, which Takeda was responsible to fund. The following are the required deliverables of the Company, along with the related contractual cash flows from Takeda and the associated obligations and performance period of the Company relating to research and development revenue:

Upon receipt of the $20.0 million upfront payment, the Company deferred approximately $2.4 million to be recognized using the time-based model over the performance period of the participation in various joint committee meetings. The Company expects its participation on all committees to continue throughout the term of the Takeda Agreement. During each of the years ended December 31, 2011, 2010 and 2009, the Company recognized approximately $147,000 of this deferred amount as collaboration revenue on the Consolidated Statements of Operations and Comprehensive Income (Loss). The related deferred revenue as of December 31, 2011 and 2010 was approximately $1.3 million and $1.5 million, respectively.

The Company granted Takeda an exclusive license of lubiprostone to co-develop, commercialize, and sell products for gastroenterology indications in the U.S. and Canada. There are no defined contractual cash flows within the Takeda Agreement for the grant of this license, but the Company did receive a non-refundable upfront payment of $20.0 million upon executing the Takeda Agreement. The license was granted to Takeda on October 29, 2004 and will expire when the Takeda Agreement expires or is terminated. After the commercial launch in 2006, Takeda has paid the Company pre-determined royalties on net revenues on a quarterly basis for the products sold by Takeda during the term of the Takeda Agreement. The level of royalties is tiered based on the net sales recognized by Takeda. The Company has recorded product royalty revenue of approximately $41.5 million, $40.3 million and $38.3 million for the years ended December 31, 2011, 2010 and 2009, respectively. This revenue is recorded as product royalty revenue in the Consolidated Statements of Operations and Comprehensive Income (Loss).

The Company has provided development work necessary for an NDA submission to the FDA for the treatment of CIC and IBS-C indications. Takeda funded the initial $30.0 million of development costs, the Company was obligated to fund the first $20.0 million in excess of the initial $30.0 million funded by Takeda and the two parties are to equally share any required development costs in excess of $50.0 million. Although there was no defined performance period for this development work, the period to perform the work would not exceed the term of the Takeda Agreement. In January 2006, the Company received approval for its NDA for AMITIZA to treat CIC and completed and submitted the supplemental NDA for IBS-C to the FDA in June 2007.

The Company initially deferred the residual amount of the $20.0 million upfront payment totaling approximately $17.6 million, development milestone payments received totaling $50.0 million, and reimbursement of the initial $30.0 million of research and development costs for the development of AMITIZA for CIC and IBS-C indications. These deferred amounts were applied towards the unit of accounting that combines the participation in the joint development committee and the development of CIC and IBS-C and was recognized over the performance period of developing the CIC and IBS-C NDA submissions. The Company completed the development of the CIC and IBS-C in June 2007 and filed a sNDA for IBS-C. This was the culmination of the performance period. In June 2007, the Company also recognized as revenue, in full, $30.0 million from Takeda upon the filing of the sNDA for AMITIZA to treat IBS-C. The Company received a $50.0 million development milestone from Takeda as a result of the FDA’s approval on April 29, 2008 of the sNDA for IBS-C in women aged 18 years and older and recognized the payment as research and development revenue during the year ended December 31, 2008.

During 2006, the joint commercialization committee granted approval for the Company and Takeda to begin three new studies related to funding arrangements discussed in both the Takeda Agreement and the Supplemental Takeda Agreement. The following are the three additional deliverables of the Company, along with the related contractual cash flows from Takeda and the associated obligations and performance period of the Company, when the three studies were agreed upon:

The Company is obligated to perform studies in connection with changes to labeling for CIC. Takeda is obligated to fund 70.0% of the labeling studies and the Company is obligated to fund the remaining 30.0%. There is no defined performance period, but the performance period will not exceed the term of the Takeda Agreement.

The Company is obligated to perform studies for the development of an additional indication for OBD. Takeda is obligated to fund all development work up to a maximum aggregate of $50.0 million for each additional indication and $20.0 million for each new formulation. If development costs exceed these amounts, Takeda and the Company shall equally share such excess costs. There is no defined performance period, but the performance period will not exceed the term of the Takeda Agreement. The Company decided to conduct one additional phase 3 efficacy study in order to submit a sNDA for the OBD indication. In February 2012, the Company announced that lubiprostone met the primary endpoint in a phase 3 clinical trial for the treatment of OBD in patients with chronic, non-cancer pain, excluding those taking methadone.

The Company is obligated to perform all development work necessary for phase 4 studies, for which Takeda is obligated to fund all development work. There is no defined performance period, but the performance period will not exceed the term of the Supplemental Agreement.

The Company has assessed these required deliverables to determine which deliverables are considered separate units of accounting. As a result of the Company and Takeda agreeing to perform and fund these studies simultaneously, the Company determined that there is no objective and reliable evidence to determine the fair value for each of the studies. Accordingly, the Company has combined these three required deliverables as a single unit of accounting. All cash payments from Takeda related to these three deliverables are deferred upon receipt and recognized over the estimated performance period to complete the three studies using the time-based model. During the years ended December 31, 2011, 2010 and 2009, the Company recognized approximately $8.0 million, $5.5 million and $14.5 million related to these three deliverables as research and development revenue in the Consolidated Statements of Operations and Comprehensive Income (Loss), respectively.

On February 1, 2006, the Company entered into the Supplemental Takeda Agreement, which amended the responsibilities of both the Company and Takeda for the co-promotion of AMITIZA and clarified the responsibilities and funding arrangements for other marketing services to be performed by both parties.

Upon execution of the Supplemental Takeda Agreement, the Company was required to complete several deliverables, which Takeda was responsible to fund. The following are the required deliverables of the Company, along with the related contractual cash flows from Takeda and the associated obligations and performance period of the Company, under the Supplemental Takeda Agreement:

The Company is obligated to co-promote AMITIZA with Takeda by employing a sales force to supplement Takeda’s sales activities. Takeda is obligated to reimburse the Company a specified amount per day per sales force representative. In May 2011, the term of this reimbursement arrangement under the Supplemental Takeda Agreement ceased five years following the first date that the Company deployed sales representatives. The Company has recognized approximately $3.4 million, $4.4 million and $4.5 million of revenues for the years ended December 31, 2011, 2010 and 2009, respectively, reflecting these co-promotion reimbursements, which is recorded as co-promotion revenue in the Consolidated Statements of Operations and Comprehensive Income (Loss).

The Company views the deliverables under the Supplemental Takeda Agreement as economically independent of those in the Takeda Agreement.

The Company has assessed these required deliverables to determine which deliverables are considered separate units of accounting. The Company determined that its sales force and miscellaneous marketing activities are treated as separate units of accounting. The Company is recognizing the cost reimbursements received for these deliverables as co-promotion revenues when services are performed and the reimbursement payments are due under the Supplemental Takeda Agreement.

On September 8, 2011, we entered into a research and development collaboration with Numab AG, or Numab, of Wadenswil, Switzerland. Under the Loan Guarantee and Development Agreement with Numab, we will have access to Numab’s proprietary technology for the discovery of high-affinity antibodies against certain selected targets. We will have exclusive commercial rights to any biologic products successfully developed and commercialized in the course of the collaboration. We have agreed to provide Numab with up to CHF 5 million as collateral for a loan to Numab from a third party. We may name up to four targets against which Numab will use their technology to discover high-affinity antibodies and will develop these to an investigational new drug, or IND, -ready stage. Numab is eligible for payments based on an agreed rate for the number of full time employees assigned to the development project and discovery success-dependent fees. If a biologic is successfully developed, we may enter into a license arrangement with Numab in which they will be entitled to clinical development milestone payments and increasing tiered royalties on net sales. We will be responsible for clinical development and will retain all commercial rights to any resulting biologic product. Numab has commenced work on the Company’s first target.

Stockholders' Equity

12 Months Ended

Dec. 31, 2011

Stockholders' Equity

14.

Stockholders’ Equity

Capital Structure

The class A common stock is entitled to one vote per share and, with respect to the election of directors, votes as a separate class and is entitled to elect that number of directors which constitutes ten percent of the total membership of the Board of Directors. The class B common stock is entitled to 10 votes per share and votes as a separate class on the remaining percentage of Board of Directors not voted on by the class A common stockholders. Each holder of record of class B common stock may, in such holder’s sole discretion and at such holder’s option, convert any whole number or all of such holder’s shares of class B common stock into fully paid and non-assessable shares of class A common stock for each share of class B common stock surrendered for conversion. The class B common stock is not transferable, except upon conversion. All of the shares of class B common stock are indirectly owned by the Company’s founders.

Treasury Stock

On December 11, 2008, the Company announced a stock repurchase program under which we are authorized to purchase up to $10.0 million of our class A common stock from time to time in open-market transactions. On September 8, 2011, the Company’s Board of Directors authorized the repurchase of up to an aggregate of $2.0 million of the Company’s class A common stock out of the $10.0 million authorized by the Board of Directors on December 9, 2008. In 2011, the Company repurchased 186,987 shares of its class A common stock under this program at a cost of $700,042, these shares are not retired and are recorded at cost. The Company did not repurchase any of our equity securities in 2010 or 2009.

Stock Option Plan

On February 15, 2001, the Company adopted the 2001 Stock Incentive Plan, or the 2001 Incentive Plan, in order to provide common stock incentives to certain eligible employees, officers and directors, consultants and advisors of the Company. The Board of Directors administers the 2001 Incentive Plan and has sole discretion to grant options. On September 1, 2003, the Board of Directors amended the 2001 Incentive Plan to allow for a maximum of 8,500,000 shares of class A common stock to be issued under all awards, including incentive stock options under the 2001 Incentive Plan. In 2006, the Board of Directors determined no further options would be granted under this plan.

On June 5, 2006, the Company’s Board of Directors approved a 2006 Stock Incentive Plan, which has been amended and restated, or the 2006 Incentive Plan, and reserved 8,500,000 shares of class A common stock for issuance under that plan. At December 31, 2011, a total of 5,094,620 shares were available for future grants under the 2006 Incentive Plan. Option awards under the 2006 Incentive Plan are generally granted with an exercise price equal to the closing market price of the Company’s stock at the date of grant and they generally vest over four years and have ten-year contractual terms.

On October 18, 2007, the Company’s Board of Directors approved an amendment to the 2006 Incentive Plan. The 2006 Incentive Plan includes an “evergreen” provision by which the number of shares of the Company’s class A common stock available for issuance under the 2006 Incentive Plan increases automatically on the first day of each calendar year by a number equal to 5.0% of the aggregate number of shares of the Company’s class A common stock and class B common stock outstanding on such date, or such lesser number as the Board of Directors may determine. The 2006 Incentive Plan will provide that the number of shares of class A common stock included in each annual increase will be 500,000, or such lesser number as the Board of Directors may determine. The Board of Directors determined that the amount of the increase in the shares available for issuance under the 2006 Incentive Plan as of January 1, 2009, 2010, 2011 and 2012 pursuant to the “evergreen” provision, would be zero.

On October 7, 2009, the Board of Directors of the Company adopted a new compensation program, under the 2006 Incentive Plan, for its non-employee directors and approved a new form of stock option agreement to be used for future stock option awards to non-employee directors. According to the plan, the independent directors will receive an annual grant of 20,000 stock options on the date of each annual meeting of stockholders. Additionally, the directors received an initial grant of 30,000 stock options upon the adoption of the plan.

On May 2, 2011, the Board of Directors of the Company amended the previously approved annual stock option grants for its non-employee directors to an annual grant of 30,000 stock options on the date of each annual meeting of stockholders. Such grants would consist of 60.0% service based options and 40.0% market condition based options

A summary of the employee stock option activity for the year ended December 31, 2011 under the Company’s 2001 Incentive Plan is presented below.

	Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Options outstanding, December 31, 2010		345,100		$	10.44
Options expired		(154,700	)		10.99
Options outstanding, December 31, 2011		190,400			10.00		4.33	$	-
Options exercisable, December 31, 2011		190,400			10.00		4.33	$	-

A summary of the employee stock option activity for the year ended December 31, 2011 under the Company’s 2006 Incentive Plan is presented below:

	Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Options outstanding, December 31, 2010		1,201,650		$	5.69
Options granted		2,572,860			4.32
Options exercised		(27,500	)		3.85
Options forfeited		(229,481	)		4.21
Options expired		(112,149	)		5.60
Options outstanding, December 31, 2011		3,405,380			4.75		8.87	$	-
Options exercisable, December 31, 2011		543,147			7.02		6.98	$	-

During the year ended December 31, 2011, the Company made a grant of time-based and market condition options to all eligible employees and independent directors. The aggregate options totaled 2,572,860 shares of the Company’s class A common stock, consisting of 873,352 shares of time-based options and 1,699,508 shares of market condition options. The market condition options (a) vest in certain percentages based on the attainment of specific stock price targets over a 30-day trading period so long as the individual is in continuous service with the Company on each such date, (b) have an exercise price equal to the closing price of the Company's class A common stock on the Nasdaq Global Market on the date of grant, and (c) must vest within a term of four years from such date. These options must be exercised within a term of ten years from the date of grant. The percentages and target prices are: 40.0% at $8.00 per share, 40.0% at $12.00 per share and 20.0% at $16.00 per share. The Company determined that the market condition options should be classified as equity instruments, and selected, in accordance with GAAP, a lattice option-pricing model to estimate the fair value of those options. A lattice option-pricing model produces an estimated fair value of the option based on the assumed changes in the price of the underlying share over successive periods of time.

The time-based stock options (a) vest in equal annual installments over the four-year period commencing on the first anniversary of the date of grant (i.e., the first 25.0% of the stock option grant would vest on the first anniversary of the date of grant) so long as the individual is in continuous service with the Company on each such date and (b) have an exercise price equal to the closing price of the Company's class A common stock on the Nasdaq Global Market on the date of grant. These options must be exercised within a term of ten years from such date. All options that were granted on May 2, 2011 have an exercise price equal to the fair market value of the stock price, or $4.41 per share of class A common stock, on the date of the grant.

The weighted average grant date fair value of options granted during the years ended December 31, 2011, 2010 and 2009 were $1.81, $2.05 and $2.73, respectively. The total intrinsic value of options exercised during the year ended December 31, 2011 was approximately $12,000. No options were exercised during the years ended December 31, 2010 and 2009. As of December 31, 2011, approximately $4.0 million of total unrecognized compensation costs, net of estimated forfeitures, related to non-vested awards are expected to be recognized over a weighted average period of 3.14 years. When an option is exercised, the Company issues a new share of class A common stock.

The Company granted 510,000 stock options with an exercise price of $5.85 per share to non-employees in August 2005 under the 2001 Incentive Plan. As of December 31, 2011 and 2010, 450,000 options were outstanding and exercisable. These non-employee stock options vested immediately and have a weighted average exercise price per share of $5.85 and $5.85 and remaining contractual life of 3.33 and 4.33 years, respectively, as of both December 31, 2011 and 2010.

Employee Stock Purchase Plan

On June 5, 2006, the Company’s Board of Directors approved a 2006 Employee Stock Purchase Plan, or ESPP, and reserved 4,250,000 shares of class A common stock for issuance under the ESPP. As of December 31, 2011, the Board has approved 500,000 shares of class A common stock for the ESPP. The ESPP is non-compensatory and is intended to qualify as an Employee Stock Purchase Plan as defined in Section 423 of the Internal Revenue Code of 1986. Under this plan, eligible employees may purchase common stock through payroll deductions of up to 10.0% of compensation during the plan period. The purchase price per share is 95.0% of market price at the end of each plan period, which is generally three months. A total of 3,363 and 4,187 shares of common stock were purchased under the ESPP during the years ended December 31, 2011 and 2010, respectively. The Company received approximately $13,000, $14,000 and $19,000 upon purchase of shares under the ESPP for the years ended December 31, 2011, 2010 and 2009, respectively.

Dividends

Amounts paid as dividends by SAG, prior to being acquired by the Company, together with the purchase consideration for acquiring SAG are recorded as dividends within the Consolidated Statement of Changes in Stockholders’ Equity.

- Definition

The entire disclosure for shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, if any, including other comprehensive income (as applicable). Including, but not limited to: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms, and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables, effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Principles Board Opinion (APB)
-Number 12
-Paragraph 10
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 04
-Article 3

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Article 4
-Section 08
-Paragraph d

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Research Bulletin (ARB)
-Number 43
-Chapter 1
-Section B
-Paragraph 7, 11A
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 129
-Paragraph 2, 3, 4, 5, 6, 7, 8
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 08
-Article 4

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 5
-Paragraph 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 02
-Paragraph 29, 30, 31
-Article 5

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 4
-Section E

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-SubTopic 10
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-Paragraph 1
-Subparagraph (SX 210.3-04)
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-Publisher FASB
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-URI http://asc.fasb.org/extlink&oid=6521494

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+ Details

Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

15.

Income Taxes

Income (loss) before income taxes is as follows:

	Year Ending December 31,
	2011			2010			2009
U.S.	$	(9,670	)	$	(3,819	)	$	11,514
Foreign		(12,244	)		499			(1,653	)
	$	(21,914	)	$	(3,320	)	$	9,861

The provision (benefit) for income taxes consists of the following for the three years ended December 31:

	Year Ended December 31,
(In thousands)	2011			2010			2009
Current tax provision (benefit):
U.S. Federal	$	(597	)	$	(1,063	)	$	2,765
U.S. State		(194	)		128			785
Foreign		550			469			1,521
Total current tax provision (benefit)		(241	)		(466	)		5,071

Deferred provision (benefit):
U.S. Federal		(1,369	)		(44	)		644
U.S. State		385			(56	)		71
Foreign		(3,383	)		1			(702	)
Total deferred provision (benefit)		(4,367	)		(99	)		13

Total income tax provision (benefit)	$	(4,608	)	$	(565	)	$	5,084

Deferred tax assets, net, consist of the following as of December 31:

	December 31,
	2011			2010
(In thousands)
Deferred tax assets:
Foreign net operating loss carryforwards	$	5,638		$	8,419
U.S. net operating loss carryforards		903			-
Deferred revenue		2,547			3,316
Accrued expenses		1,043			800
Tax benefits on stock options		1,960			1,883
Other		869			284
Gross deferred tax assets		12,960			14,702

Deferred tax liabilities:
Property and equipment		(339	)		(518	)
Intangibles		(30,918	)		(144	)
Accrued expenses		(3	)		(1,013	)
Other		(167	)		(26	)
Gross deferred tax liabilities		(31,427	)		(1,701	)
Less: valuation allowance		(4,467	)		(9,658	)
Net deferred tax assets	$	(22,934	)	$	3,343

The net deferred tax asset as of December 31, 2011 and 2010 represents the amount the Company believes is more likely than not to be utilized.

The provision (benefit) for income taxes vary from the income taxes provided based on the federal statutory rate as follows for the three years ended December 31:

	Year Ended December 31,
(In thousands)	2011			2010			2009
Federal tax provision (benefit)		34.0	%		34.0	%		34.0	%
State taxes, net of federal tax benefit		0.4	%		3.7	%		6.3	%
General business credits		1.6	%		18.5	%		-1.4	%
Changes in valuation allowance		-3.7	%		-11.8	%		27.7	%
Nondeductible expenses		-6.4	%		-13.7	%		-3.3	%
Changes in other tax matters		-4.9	%		-13.6	%		-11.7	%
		21.0	%		17.1	%		51.6	%

At December 31, 2011 and 2010, the Company had foreign net operating loss carry forwards, or NOLs, of $16.4 million and $24.0 million, respectively. Approximately $9.2 million of the foreign NOLs begin to expire in December 2015, and $7.2 million of the foreign NOLs do not expire. As of December 31, 2011 and 2010, the Company had U.S. net operating losses of $1.8 million and $0, respectively. These losses begin to expire in 2031. The U.S. had research and development credits of approximately $472,000 and $0, as of December 31, 2011 and 2010, respectively.

As of December 31, 2011 and 2010, the Company had a valuation allowance on its deferred tax assets of $4.5 million and $9.6 million, respectively. The net decrease in the valuation allowance of $5.1 million was due primarily to the recognition of gain in local tax jurisdictions on the transfer of certain intellectual property to SAG as well as the release of the valuation allowance in certain jurisdictions that management believes the deferred tax assets are more likely than not to be utilized. Please refer to the income tax and deferred charge policy for further description of this intercompany transaction.

Should the Company determine that it would be able to realize its deferred tax assets in the foreseeable future, an adjustment to the remaining deferred tax assets could cause a material increase to income in the period such determination is made. Significant management judgment is required in determining the period in which the reversal of a valuation allowance should occur. The Company considers all available evidence, both positive and negative, such as historical levels of income and future forecasts of taxable income amongst other items in determining whether a full or partial release of a valuation allowance is warranted. The valuation allowance at December 31, 2011 and 2010 relates to deferred tax assets in the foreign jurisdictions. The Company will continue to evaluate its valuation allowance position in each jurisdiction on a regular basis. To the extent the Company determines that all or a portion of its valuation allowance is no longer necessary, the Company will recognize an income tax benefit in the period such determination is made for the reversal of the valuation allowance. Once the valuation allowance is eliminated in whole or in part, it will not be available to offset the Company’s future tax provision.

The Company has recorded a non-current income tax liability of approximately $1.5 million and $1.4 million, including interest for uncertain tax positions as of December 31, 2011 and 2010, respectively. The amount represents the aggregate tax effect of differences between tax return positions and the amounts otherwise recognized in the Company’s Consolidated Financial Statements. The liability for uncertain tax positions as of December 31, 2011 and 2010 mainly pertains to the Company’s interpretation of nexus in certain states related to revenue sourcing for state income tax purposes, as well as uncertain tax positions related to related party interest in foreign jurisdictions.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:

	Year Ended December 31,
	2011			2010		2009
Balance at January 1	$	1,245		$	1,200	$	913
Increases for tax positions taken during prior periods		22			3		83
Decreases in unrecognized tax benefits related to settlements with taxing authorities		(71	)		-		-
Increases for tax positions taken during current period		30			42		204
Balance at December 31	$	1,226		$	1,245	$	1,200

The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision. During 2011, 2010 and 2009, the Company recorded approximately $69,000 $75,000 and $60,000, respectively, of interest related to uncertain tax positions. The Company has identified no uncertain tax position for which it is reasonably possible that the total amount of liability for unrecognized tax benefits will significantly increase or decrease within the next 12 months, except for recurring accruals on existing uncertain tax positions. In addition, future changes in the unrecognized tax benefits described above would not have a significant impact on the effective tax rate. Certain uncertain tax position may be subject to indemnification from the sellers of SAG should the Company ultimately be required to pay these amounts. To the extent that any such indemnifications are received in the future, such amount will be recorded as a capital contribution.

In 2009, the Company was under examination by the United States tax authorities for the years ended December 31, 2005, 2006 and 2007. In January 2010, the Company received official notice indicating that the examination of tax returns for 2005, 2006 and 2007 has closed and resulted in no change to the reported tax. Currently, tax years 2008, 2009, 2010 and 2011 remain open and subject to examination in the major tax jurisdictions in which tax returns are filed.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 08
-Paragraph h
-Article 4

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 109
-Paragraph 136, 172
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 109
-Paragraph 43, 44, 45, 46, 47, 48, 49
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
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-Subparagraph (SX 210.4-08.(h))
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+ Details

Segment Reporting

12 Months Ended

Dec. 31, 2011

Segment Reporting

16.

Segment Reporting

The Company has determined that it has three reportable segments based on the Company’s method of internal reporting, which disaggregates business by geographic location. These segments are the Americas, Europe and Asia. The Company evaluates the performance of these segments based on income (loss) from operations, as well as other factors, that depend on the development status of these geographies. Such measures include the progress of its research and development activities, collaboration and licensing efforts, commercialization activities and other factors. The reportable segments have historically derived their revenue from joint collaboration and strategic alliance agreements. Transactions between the segments consist primarily of loans and the provision of research and development services. Following is a summary of financial information by reportable geographic segment:

(In thousands)	Americas			Europe			Asia			Consolidated
Year Ended December 31, 2011
Research and development revenue	$	8,033		$	-		$	1,216		$	9,249
Product royalty revenue		41,517			-			-			41,517
Co-promotion revenue		3,378			-			-			3,378
Contract and collaboration revenue		565			-			52			617
Total revenues		53,493			-			1,268			54,761
Research and development expenses		24,058			4,354			5,085			33,497
Settlement for legal dispute		(11,100	)		-			-			(11,100	)
Depreciation and amortization		535			730			43			1,308
Other operating expenses		46,326			1,092			1,327			48,745
Income (loss) from operations		(6,582	)		(5,920	)		(5,187	)		(17,689	)
Interest income		240			6			3			249
Interest expense		-			(2,288	)		(167	)		(2,455	)
Other non-operating expense, net		(42	)		(1,884	)		(93	)		(2,019	)
Income (loss) before income taxes	$	(6,384	)	$	(10,086	)	$	(5,444	)	$	(21,914	)
Capital expenditures	$	145		$	6,006		$	133		$	6,284

Year Ended December 31, 2010
Research and development revenue	$	5,473		$	-		$	11,067		$	16,540
Product royalty revenue		40,300			-			-			40,300
Co-promotion revenue		4,417			-			-			4,417
Contract and collaboration revenue		566			-			47			613
Total revenues		50,756			-			11,114			61,870
Research and development expenses		12,769			944			10,242			23,955
Depreciation and amortization		895			12			57			964
Other operating expenses		33,822			1,979			1,303			37,104
Income (loss) from operations		3,270			(2,935	)		(488	)		(153	)
Interest income		596			3			9			608
Interest expense		-			(57	)		(18	)		(75	)
Other non-operating expense, net		(46	)		(3,216	)		(438	)		(3,700	)
Income (loss) before income taxes	$	3,820		$	(6,205	)	$	(935	)	$	(3,320	)
Capital expenditures	$	298		$	3		$	32		$	333

Year Ended December 31, 2009
Research and development revenue	$	14,531	$	-		$	9,426		$	23,957
Product royalty revenue		38,250		-			-			38,250
Co-promotion revenue		4,541		-			-			4,541
Contract and collaboration revenue		565		-			38			603
Total revenues		57,887		-			9,464			67,351
Research and development expenses		18,863		1,090			12,953			32,906
Depreciation and amortization		729		11			49			789
Other operating expenses		20,697		2,165			1,379			24,241
Income (loss) from operations		17,598		(3,266	)		(4,917	)		9,415
Interest income		953		4			8			965
Other non-operating expense, net		335		(1,036	)		182			(519	)
Income (loss) before income taxes	$	18,886	$	(4,298	)	$	(4,727	)	$	9,861
Capital expenditures	$	3,291	$	3		$	116		$	3,410

As of December 31, 2011
Property and equipment, net	$	1,359	$	16		$	294		$	1,669
Identifiable assets, net of intercompany loans and investments	$	96,490	$	47,925		$	13,154		$	157,569

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

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 131
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
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+ Details

Quarterly Financial Data (unaudited)

12 Months Ended

Dec. 31, 2011

Quarterly Financial Data (unaudited)

17.

Quarterly Financial Data (unaudited)

	2011 Quarters Ended
(In thousands, except per share data)	December 31		September 30			June 30			March 31
Total revenues	$	14,215	$	14,372		$	14,000		$	12,174
Income (loss) from operations	$	3,609	$	(4,522	)	$	(7,615	)	$	(9,161	)
Net income (loss)	$	2,700	$	(4,078	)	$	(9,019	)	$	(6,909	)
Net income (loss) per share:
Basic	$	0.06	$	(0.10	)	$	(0.22	)	$	(0.17	)
Diluted	$	0.06	$	(0.10	)	$	(0.22	)	$	(0.17	)

	2010 Quarters Ended
(In thousands, except per share data)	December 31			September 30		June 30			March 31
Total revenues	$	12,351		$	20,908	$	13,775		$	14,836
Income (loss) from operations	$	(7,068	)	$	5,635	$	(109	)	$	1,389
Net income (loss)	$	(6,314	)	$	1,584	$	(29	)	$	2,004
Net income (loss) per share:
Basic	$	(0.15	)	$	0.04	$	-		$	0.05
Diluted	$	(0.15	)	$	0.04	$	-		$	0.05

Net income (loss) per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly net income (loss) per share information may not equal annual net income (loss) per share.

- Definition

The entire disclosure for the quarterly financial data in the annual financial statements. The disclosure may include a tabular presentation of financial information for each fiscal quarter for the current and previous year, including revenues, gross profit, income or loss before extraordinary items and earnings per share data. It also includes an indication if the information in the note is unaudited, comments on the aggregate effect of year-end adjustments, and an explanation of matters or transactions that affect comparability or are pertinent to an understanding of the information furnished.

+ References + Details

Schedule II - Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2011

Schedule II - Valuation and Qualifying Accounts

Schedule II – Valuation and Qualifying Accounts

			Additions
	Balance at		Charged to
	Beginning		Costs and						Balance at
(In thousands)	of Year		Expenses			Deductions			End of Year
Valuation allowance for deferred tax assets:
2009	$	6,782	$	1,802	(a)	$	-		$	8,584
2010	$	8,584	$	1,074	(a)	$	-		$	9,658
2011	$	9,658	$	932	(b)	$	(6,123	)(b)	$	4,467

(a)

In 2010 and 2009, the increase in valuation allowance is primarily associated with certain foreign net operating losses. This increase in the valuation allowance was based on management’s assessment that, due to changing business conditions and the limitation of tax planning strategies, the Company was not likely to fully realize these deferred tax assets.

(b)

In 2011 the net decrease in the valuation allowance of $5.2 million was due primarily to the recognition of gains in local tax jurisdictions on the transfer of certain intellectual property to SAG as well as the partial release of valuation allowances in certain jurisdictions that management believes the deferred tax assets are more likely than not to be utilized.