Operating Expenses

R&D expenses were $5.6 million for the third quarter of 2012, compared to $8.7 million for the third quarter of 2011. For the first nine months of 2012, R&D expenses were $14.2 million, compared to $25.8 million for the same period of 2011. For both periods, the decrease was primarily due to higher expenses in 2011 associated with the phase 3 trial of lubiprostone for OIC patients.

G&A expenses were $7.3 million for the third quarter of 2012, compared to $7.9 million for the third quarter of 2011. G&A expenses were $22.6 million for the first nine months of 2012, compared to $29.3 million for the prior year period. For both periods, the decrease in G&A expense was primarily due to lower legal, consulting and other professional expenses as a result of the conclusion of certain legal matters, partially offset by increases in corporate marketing and branding and staff organizations to support business growth.

Selling and marketing expenses were $4.3 million for third quarter of 2012, compared to $2.2 million for the third quarter of 2011. Selling and marketing expenses were $14.5 million for the first nine months of 2012 compared to $6.7 million for the prior year period. The increase in selling and marketing expenses relates primarily to some non-recurring pre-commercialization planning activities for AMITIZA and RESCULA.

Income from Operations

For the third quarter of 2012, income from operations was a loss of $1.6 million, a decrease of $2.9 million or 63%, compared to a loss from operations of $4.5 million for the third quarter of 2011. For the first nine months of 2012, income from operations was a loss of $4.6 million, a decrease of $16.7 million or 78%, compared to a loss from operations of $21.3 million in the same period last year.

Non-Operating Income (Expense)

Non-operating expenses were $0.5 million for the third quarter of 2012, compared to income of $0.6 million for the same period in 2011. The third quarter of 2012 includes a foreign exchange gain of $8,000 compared to a gain of $1.2 million in the same period in 2011. Non-operating expenses were $0.9 million for the nine months ended September 30, 2012, compared to $3.7 million for the same period in 2011. Non-operating expenses for the nine months ended September 30, 2012, included a foreign exchange gain of $0.7 million, compared to foreign exchange loss of $2.0 million for the same period 2011.

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