UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F

 

Commission file number 0-21392

AMARIN CORPORATION PLC

(Exact Name of Registrant as Specified in Its Charter)

 

England and Wales
(Jurisdiction of Incorporation or Organization)
7 Curzon Street
London W1J 5HG
England
(Address of Principal Executive Offices)

 

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 

 

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

 

American Depositary Shares, each representing one Ordinary Share
Ordinary Shares, 5 pence par value per share
(Title of Class)

 

SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d) OF THE ACT:
None.

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

90,684,230 Ordinary Shares, 5 pence par value per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

YES o     NO þ

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

YES o     NO þ

 

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

YES þ     NO o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o     Accelerated filer þ     Non-accelerated filer o

 

Indicate by check mark which financial statement item the registrant has elected to follow.

 

ITEM 17 o     ITEM 18 þ

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o     NO þ

TABLE OF CONTENTS

 

 

This report comprises the annual report to shareholders of Amarin Corporation plc (NASDAQCM: AMRN) and its annual report on Form 20-F in accordance with the requirements of the United States Securities and Exchange Commission, or SEC, for the year ended December 31, 2006.

 

As used in this annual report, unless the context otherwise indicates, the terms “Group”, “Amarin”, “we”, “us” and “our” refer to Amarin Corporation plc and its wholly owned subsidiary companies. Additionally, Amarin Pharmaceuticals, Inc., our former U.S. subsidiary may be referred to in this annual report as “API”, and Amarin Development (Sweden) AB, our former Swedish subsidiary may be referred to in this annual report as “Amarin Development AB” or “ADAB”. Elan Corporation plc or its affiliates, a former related party, may be referred to in this annual report as “Elan”. Laxdale Limited, a company which we acquired in October 2004 and is now known as Amarin Neuroscience Limited, may be referred to herein as “Amarin Neuroscience” or “Laxdale.”

 

Also, as used in this annual report, unless the context otherwise indicates, the term “Ordinary Shares” refers to our Ordinary Shares, par value per share, and the term “Preference Shares” refers to our authorised preference shares, par value 5 pence per share. There are currently no Preference Shares outstanding. Unless otherwise specified, all shares and share related information (such as per share information and share price information) in this annual report have been adjusted to give effect, retroactively, to our ten-for-one Ordinary Share consolidation effective on July 17, 2002 whereby ten ordinary shares of 10p each became one Ordinary Share of £1.00 each and to the subsequent sub-division and conversion of each issued and outstanding Ordinary Share of £1.00 each on June 21, 2004 into one ordinary share of 5 pence and one deferred share of 95 pence (and the subsequent purchase by the Company and cancellation of all such deferred shares) and each of the authorized but unissued ordinary shares of £1 each in the capital of the Company into 20 ordinary shares of 5 pence each.

 

In this annual report, references to “pounds sterling,” “£” or “GBP£” are to U.K. currency, references to “U.S. Dollars”, “$” or “US$” are to U.S. currency and references to “euro” of “€” are to Euro currency.

 

This annual report contains trademarks, tradenames or registered marks owned by Amarin or by other entities, including:

 

 

This annual report contains forward-looking statements about our financial condition, results of operations, business prospects and products in research and involve substantial risks and uncertainties. You can identify these statements by the fact that they use words such as “will”, “anticipate”, “estimate”, “project”, “forecast”, “intend”, “plan”, “believe” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or events. Among the factors that could cause actual results to differ materially from those described or projected herein are the following;

 

 

Not applicable.

 

Not applicable.

 

 

General

 

The following table presents selected historical consolidated financial data. The selected historical consolidated financial data as of December 31, 2004, 2005 and 2006 and for each of the years ended December 31, 2004, 2005 and 2006 have been derived from our audited consolidated financial statements beginning on page F-1 of this annual report, which have been audited by PricewaterhouseCoopers an independent registered public accountant firm, for the years ended December 31, 2004, 2005 and 2006. The selected historical consolidated financial data as of December 31, 2003 and 2002 and for the years then ended has been derived from our audited historical financial statements which are not included in these financial statements.

 

Unless otherwise specified, all references in this annual report to “fiscal year” or “year” of Amarin refer to a twelve-month financial period ended December 31. We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.K., which we refer to as “U.K. GAAP” and which differ in certain significant aspects from generally accepted accounting principles in the U.S., which we refer to as “U.S. GAAP”. These differences have a material effect on net income/(loss) and the composition of shareholders’ equity. A detailed analysis of these differences can be found in Note 43 to the consolidated financial statements beginning on page F-1 of this annual report. Note 43 to our consolidated financial statements also provides a reconciliation of our consolidated financial statements to U.S. GAAP.

 

During 2002 our Ordinary Shares were consolidated on a ten-for-one basis. Concurrently, we amended the terms of our American Depositary Shares, or ADSs, to provide that each ADS would represent one Ordinary Share. Previously each ADS had represented ten ordinary shares of 10p each. The new conversion ratio has been reflected in all years in the weighted average share numbers shown in the consolidated statement of operations data below. In June 2004 we converted each of our £1 Ordinary Shares into one Ordinary Share of 5 pence and one deferred share of 95 pence (with such deferred shares having been subsequently cancelled). This share conversion in 2004 did not affect the ratio as between our Ordinary Shares and our ADSs but is recorded below in the year 2004.

 

Selected Consolidated Financial Data

 

 

 

Exchange Rates

 

We changed our functional currency on January 1, 2003 from pounds sterling to U.S. Dollars to reflect the fact that the majority of our transactions, assets and liabilities were denominated in that currency. Consequently, all data provided in this annual report is in U.S. Dollars from 2003 and comparative information for prior years has been restated in U.S. Dollars. Under U.K. GAAP, this restatement of all historical pound sterling amounts has been at an exchange rate of £1 to $1.6099, being the mid point rate on December 31, 2002. Under U.S. GAAP , these historical pound sterling amounts have been restated using the weighted average rate for the income statement and applicable closing rate for the balance sheet, including in the table above.

 

As some of our assets, liabilities and transactions are denominated in pounds sterling and euro, the rate of exchange between pounds sterling and the U.S. Dollar and between euro and U.S. Dollar, which is determined by supply and demand in the foreign exchange markets and affected by numerous factors, continues to impact our financial results. Fluctuations in the exchange rates between the U.S. Dollar and pounds sterling and between U.S. Dollar and euro may affect any earnings or losses reported by us and the book value of our shareholders’ equity as expressed in U.S. Dollars, and consequently may affect the market price for our ADSs.

 

The following table sets forth, for the periods indicated, the average of the noon buying rate on the last day of each month during the relevant period as announced by the Federal Reserve Bank of New York for pounds sterling expressed in U.S. Dollars per pound sterling:

 

 

The following table sets forth, for each of the last six months, the high and low noon buying rate during each month as announced by the Federal Reserve Bank of New York for pounds sterling expressed in U.S. Dollars per pound sterling:

 

 

The noon buying rate as of March 2, 2007 was 1.9458 U.S. Dollars per pound sterling.

 

 

Not applicable.

 

 

Not applicable.

 

RISK FACTORS

 

You should carefully consider the risks and the information about our business described below, together with all of the other information included in this annual report. You should not interpret the order in which these considerations are presented as an indication of their relative importance to you. The risks and uncertainties described below are not the only ones that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. If any of the following risks and uncertainties develops into actual events, our business, financial condition and results of operations could be materially and adversely affected, and the trading price of our ADSs and Ordinary Shares could decline.

 

We have a history of losses, and we may not be able to attain profitability in the foreseeable future.

 

We have not been profitable in four of the last five fiscal years. For the fiscal years ended December 31, 2002, 2003, 2004, 2005, and 2006 we reported (losses)/profits of approximately $(37.0) million, $(19.2) million, $3.9 million, ($20.5) million and ($26.9) million, respectively, under U.K. GAAP. Unless and until marketing approval is obtained from either the U.S. Food and Drug Administration, which we refer to as the FDA, or European Medicines Evaluation Agency, which we refer to as the EMEA, for our principal product, Miraxion^TM, or we are otherwise able to acquire rights to products that have received regulatory approval or are at an advanced stage of development and can be readily commercialized, we may not be able to generate sufficient revenues in future periods to enable us to attain profitability.

 

During 2003 and early 2004, we had divested a majority of our assets. Although we subsequently acquired Amarin Neuroscience (formerly Laxdale Limited) and its leased facility in Stirling, Scotland on October 8, 2004, we continue to have limited operations, assets and financial resources. As a result, we currently have no marketable products or other source of revenues other than the Multicell out-licensing contract described herein. All of our current products, including Miraxion, our principal product, are in the development stage. The development of pharmaceutical products is a capital intensive business. Therefore, we expect to incur expenses without corresponding revenues at least until we are able to obtain regulatory approval and sell our future products in significant quantities. This may result in net operating losses, which will increase continuously until we can generate an acceptable level of revenues, which we may not be able to attain. Further, even if we do achieve operating revenues, there can be no assurance that such revenues will be sufficient to fund continuing operations. Therefore, we cannot predict with certainty whether we will ever be able to achieve profitability.

 

In addition to advancing our existing development pipeline, we also intend to acquire rights to additional products. However, we may not be successful in doing so. We may need to raise additional capital before we can acquire any products. There is also a risk that Miraxion or any other development stage products we may acquire will not be approved by the FDA or regulatory authorities in other countries on a timely basis or at all. The inability to obtain such approvals would adversely affect our ability to generate revenues.

 

The likelihood of success of our business plan must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with developing and expanding early stage businesses and the regulatory and competitive environment in which we operate.

 

Our historical financial results do not form an accurate basis for assessing our current business.

 

As a consequence of the divestiture of a majority of our business and assets during 2003 and early 2004 and our acquisition of Amarin Neuroscience in October 2004, our historical financial results do not form an accurate basis upon which investors should base an assessment of our business and prospects. Prior to such divestiture, our business was primarily the sale of marketable products in the United States, the out-licensing of our proprietary technologies, and research and development activities. Following the acquisition of Amarin Neuroscience, we are now focused on the research, development and commercialization of novel drugs for the central nervous system, which we refer to as CNS. Accordingly, our historical financial results reflect a substantially different business from that currently being conducted.

 

We may have to issue additional equity leading to shareholder dilution.

 

We are committed to issue equity to the former shareholders of Amarin Neuroscience upon the successful achievement of specified milestones for the Miraxion development program (subject to such shareholders’ right to choose cash payment in lieu of equity). Pursuant to the Amarin Neuroscience share purchase agreement, further success-related milestones will be payable as follows:

 

Upon receipt of marketing approval in the United States and Europe for the first indication of any product containing Amarin Neuroscience intellectual property, we must make an aggregate stock or cash payment (at the sole option of each of the sellers) of GBP£7.5 million (approximately $14.7 million at 2006 year end exchange rates) for each of the two potential market approvals (i.e., GBP£15.0 million maximum (approximately $29.4 million at 2006 year end exchange rates)).

 

In addition, upon receipt of a marketing approval in the United States and Europe for any other product using Amarin Neuroscience intellectual property or for a different indication of a previously approved product, we must make an aggregate stock or cash payment (at the sole option of each of the sellers) of GBP£5.0 million (approximately $9.8 million at 2006 year end exchange rates) for each of the two potential market approvals (i.e., GBP£10.0 million maximum (approximately $19.6 million at 2006 year end exchange rates)).

 

At February 28, 2007, we had 9,990,480 warrants outstanding with a weighted average exercise price of $1.56. As at February 28, 2007, we also had outstanding employee options to purchase 9,039,850 Ordinary Shares at an average price of $2.72 per share.

 

Additionally, in pursuing our growth strategy we will either need to issue new equity as consideration for the acquisition of products, or to otherwise raise additional capital, in which case equity, convertible equity or debt instruments may be issued. The creation of new shares may lead to dilution of the value of the shares held by our current shareholder base.

 

If we cannot find additional capital resources, we will have difficulty in operating as a going concern and growing our business.

 

At December 31, 2006, Amarin had a cash balance of $36.8 million and, based upon current business activities, forecasts having sufficient cash to fund operations for at least the next 12 months and potentially beyond depending on the outcome of Miraxion Phase III trials in Huntington’s disease and/or the partnering activities ongoing with our development pipeline. There can be no assurance, however, that our efforts to obtain additional funding will be successful. If these efforts are unsuccessful, there is substantial uncertainty as to whether we will be able to fund our operations on an ongoing basis. We may also require further funds in the future to implement our long-term growth strategy of acquiring additional development stage and/or marketable products, recruiting clinical, regulatory and sales and marketing personnel, and growing our business. Our ability to execute our business strategy and sustain our infrastructure at our current level will be impacted by whether or not we have sufficient funds. Depending on market conditions and our ability to maintain financial stability, we may not have access to additional funds on reasonable terms or at all. Any inability to obtain additional funds when needed would have a material adverse effect on our business and on our ability to operate on an ongoing basis.

 

We may be dependent upon the success of a limited range of products.

 

At present, we are substantially reliant upon the success of our principal product, Miraxion. If development efforts for this product are not successful in either Huntington’s disease, which we refer to as HD, or depression, or any other indication or if approved by the FDA, if adequate demand for this product is not generated, our business will be materially and adversely affected. Although we intend to bring additional products forward from our research and development efforts, including our novel oral formulation of Apomorphine for the treatment of “off” episodes in patients with advanced Parkinson’s disease, and to acquire additional products, even if we are successful in doing so, the range of products we will be able to commercialize may be limited. This could restrict our ability to respond to adverse business conditions. If we are not successful in developing Miraxion for HD, depression, or any other indication, our formulation of Apomorphine for treatment of Parkinson’s disease, or any future product, or if there is not adequate demand for any such product or the market for such product develops less rapidly than we

anticipate, we may not have the ability to shift our resources to the development of alternative products. As a result, the limited range of products we intend to develop could constrain our ability to generate revenues and achieve profitability.

 

Our ability to generate revenues depends on obtaining regulatory approvals for Miraxion.

 

Miraxion, which is in Phase III clinical development for HD, Phase II clinical development for depressive disorders, and entering Phase IIa development for Parkinson’s disease is currently our only product in late-stage development. In order to successfully commercialize Miraxion, we will be required to conduct all tests and clinical trials needed in order to meet regulatory requirements, to obtain applicable regulatory approvals, and to prosecute patent applications. The costs of developing and obtaining regulatory approvals for pharmaceutical products can be substantial. We are conducting two Phase III clinical studies to support a possible new drug application, which we refer to as an NDA, for Miraxion for the treatment of HD. In our first Phase III study in 2002 statistical significance was not achieved in the entire study patient population; however, a trend to significance was observed in the group that adhered to the protocol and significant results were observed in the sub-group of patients that had a genetic CAG number of less than 45. Our ability to commercialize Miraxion for this indication is dependent upon the success of these development efforts in our current Phase III clinical study. If these clinical trials fail to produce satisfactory results, or if we are unable to maintain the financial and operational capability to complete these development efforts, we may be unable to generate revenues from Miraxion. Even if we obtain regulatory approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize Miraxion successfully. For example, if the approval process takes too long we may miss market opportunities and give other companies the ability to develop competing products. Additionally, the terms of any approvals may not have the scope or breadth needed for us to commercialize Miraxion successfully.

 

We may not be successful in developing or marketing future products if we cannot meet extensive regulatory requirements of the FDA and other regulatory agencies for quality, safety and efficacy.

 

Our long-term strategy involves the development of products we may acquire from third parties. The success of these efforts is dependent in part upon the ability of the Group, its contractors, and its products to meet and to continue to meet regulatory requirements in the jurisdictions where we ultimately intend to sell such products. The development, manufacture and marketing of pharmaceutical products are subject to extensive regulation by governmental authorities in the United States, the European Union, Japan and elsewhere. In the United States, the FDA generally requires pre-clinical testing and clinical trials of each drug to establish its safety and efficacy and extensive pharmaceutical development to ensure its quality before its introduction into the market. Regulatory authorities in other jurisdictions impose similar requirements. The process of obtaining regulatory approvals is lengthy and expensive and the issuance of such approvals is uncertain. The commencement and rate of completion of clinical trials may be delayed by many factors, including:

 

 

Even if we obtain positive results from early stage pre-clinical or clinical trials, we may not achieve the same success in future trials. Clinical trials that we conduct may not provide sufficient safety and effectiveness data to

obtain the requisite regulatory approvals for product candidates. The failure of clinical trials to demonstrate safety and effectiveness for our desired indications could harm the development of that product candidate as well as other product candidates, and our business and results of operations would suffer.

 

Any approvals that are obtained may be limited in scope, or may be accompanied by burdensome post-approval study or other requirements. This could adversely affect our ability to earn revenues from the sale of such products. Even in circumstances where products are approved by a regulatory body for sale, the regulatory or legal requirements may change over time, or new safety or efficacy information may be identified concerning a product, which may lead to the withdrawal of a product from the market. Additionally, even after approval, a marketed drug and its manufacturer are subject to continual review. The discovery of previously unknown problems with a product or manufacturer may result in restrictions on that product or manufacturer, including withdrawal of the product from the market, which would have a negative impact on our potential revenue stream.

 

After approval, our products will be subject to extensive government regulation.

 

Once a product is approved, numerous post-approval requirements apply. Among other things, the holder of an approved NDA or other license is subject to periodic and other monitoring and reporting obligations enforced by the FDA and other regulatory bodies, including obligations to monitor and report adverse events and instances of the failure of a product to meet the specifications in the approved application. Application holders must also submit advertising and other promotional material to regulatory authorities and report on ongoing clinical trials.

 

Advertising and promotional materials must comply with FDA rules in addition to other potentially applicable federal and local laws in the United States and in other countries. In the United States, the distribution of product samples to physicians must comply with the requirements of the U.S. Prescription Drug Marketing Act. Manufacturing facilities remain subject to FDA inspection and must continue to adhere to the FDA’s current good manufacturing practice requirements. Application holders must obtain FDA approval for product and manufacturing changes, depending on the nature of the change. Sales, marketing, and scientific/educational grant programs must also comply with the U.S. Medicare-Medicaid Anti-Fraud and Abuse Act, as amended, the U.S. False Claims Act, as amended and similar state laws. Pricing and rebate programs must comply with the U.S. Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990, as amended. If products are made available to authorized users of the U.S. Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to U.S. federal and state consumer protection and unfair competition laws. Similar requirements exist in all of these areas in other countries.

 

Depending on the circumstances, failure to meet these post-approval requirements can result in criminal prosecution, fines or other penalties, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, or refusal to allow us to enter into supply contracts, including government contracts. In addition, even if we comply with FDA and other requirements, new information regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw a product approval. Adverse regulatory action, whether pre- or post-approval, can potentially lead to product liability claims and increase our product liability exposure. We must also compete against other products in qualifying for reimbursement under applicable third party payment and insurance programs.

 

Our future products may not be able to compete effectively against those of our competitors.

 

Competition in the pharmaceutical industry is intense and is expected to increase. If we are successful in completing the development of Miraxion, we may face competition to the extent other pharmaceutical companies are able to develop products for the treatment of HD, depression or Parkinson’s disease. Potential competitors in this market may include companies with greater resources and name recognition than us. Furthermore, to the extent we are able to acquire or develop additional marketable products in the future such products will compete with a variety of other products within the United States or elsewhere, possibly including established drugs and major brand names. Competitive factors, including generic competition, could force us to lower prices or could result in reduced sales. In addition, new products developed by others could emerge as competitors to our future products. Products based on new technologies or new drugs could render our products obsolete or uneconomical.

 

Our potential competitors both in the United States and Europe may include large, well-established pharmaceutical companies, specialty pharmaceutical sales and marketing companies, and specialized neurology companies. In addition, we may compete with universities and other institutions involved in the development of technologies and products that may be competitive with ours. Many of our competitors will likely have greater resources than us, including financial, product development, marketing, personnel and other resources. Should a competitive product obtain marketing approval prior to Miraxion, this would significantly erode the projected revenue streams for this product.

 

The success of our future products will also depend in large part on the willingness of physicians to prescribe these products to their patients. Our future products may compete against products that have achieved broad recognition and acceptance among medical professionals. In order to achieve an acceptable level of subscriptions for our future products, we must be able to meet the needs of both the medical community and end users with respect to cost, efficacy and other factors.

 

Our supply of future products could be dependent upon relationships with manufacturers and key suppliers.

 

We have no in-house manufacturing capacity and, to the extent we are successful in completing the development of Miraxion and/or acquiring or developing other marketable products in the future, we will be obliged to rely on contract manufacturers to produce our products. We may not be able to enter into manufacturing arrangements on terms that are favorable to us. Moreover, if any future manufacturers should cease doing business with us or experience delays, shortages of supply or excessive demands on their capacity, we may not be able to obtain adequate quantities of product in a timely manner, or at all. Manufacturers are required to comply with current NDA commitments and good manufacturing practices requirements enforced by the FDA, and similar requirements of other countries. The failure by a future manufacturer to comply with these requirements could affect its ability to provide us with product. Any manufacturing problem or the loss of a contract manufacturer could be disruptive to our operations and result in lost sales.

 

Additionally, we will be reliant on third parties to supply the raw materials needed to manufacture Miraxion and other potential products. Any reliance on suppliers may involve several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to future contract manufacture caused by problems at suppliers could delay shipment of products, increase our cost of goods sold and result in lost sales.

 

We may not be able to grow our business unless we can acquire and market or in-license new products.

 

We are pursuing a strategy of product acquisitions and in-licensing in order to supplement our own research and development activity. For example, in May 2006, we acquired the global rights to a novel formulation of Apomorphine for the treatment of “off” episodes in patients with advanced Parkinson’s disease. Our success in this regard will be dependent on our ability to identify other companies that are willing to sell or license product lines to us. We will be competing for these products with other parties, many of whom have substantially greater financial, marketing and sales resources than we do. Even if suitable products are available, depending on competitive conditions we may not be able to acquire rights to additional products on acceptable terms, or at all. Our inability to acquire additional products or successfully introduce new products could have a material adverse effect on our business.

 

In order to commercialize our future products, we will need to establish a sales and marketing capability.

 

At present, we do not have any sales or marketing capability since all of our products are currently in the development stage. However, if we are successful in obtaining regulatory approval for Miraxion, we intend to directly commercialize this product for HD in the U.S. market. Similarly, to the extent we execute our long-term strategy of expanding our portfolio by developing or acquiring additional marketable products, we intend to directly sell our neurology products in the United States. In order to market Miraxion and any other new products, we will

need to add marketing and sales personnel who have expertise in the pharmaceuticals business. We must also develop the necessary supporting distribution channels. Although we believe we can build the required infrastructure, we may not be successful in doing so if we cannot attract personnel or generate sufficient capital to fund these efforts. Failure to establish a sales force and distribution network in the U.S. would have a material adverse effect on our ability to grow our business.

 

The planned expansion of our business may strain our resources.

 

Our strategy for growth includes potential acquisitions of new products for development and the introduction of these products to the market. Since we currently operate with limited resources, the addition of such new products could require a significant expansion of our operations, including the recruitment, hiring and training of additional personnel, particularly those with a clinical or regulatory background. Any failure to recruit necessary personnel could have a material adverse effect on our business. Additionally, the expansion of our operations and work force could create a strain on our financial and management resources and it may require us to add management personnel.

 

We may incur potential liabilities relating to discontinued operations or products.

 

In October 2003, we sold Gacell Holdings AB, the Swedish holding company of Amarin Development AB, which we refer to as ADAB, our Swedish drug development subsidiary, to Watson Pharmaceuticals, Inc. In February 2004, we sold our U.S. subsidiary, Amarin Pharmaceuticals Inc., and certain assets, to Valeant. In connection with these transactions, we provided a number of representations and warranties to Watson and Valeant regarding the respective businesses sold to them, and other matters, and we undertook to indemnify Watson and Valeant under certain circumstances for breaches of such representations and warranties. We are not aware of any circumstances which could reasonably be expected to give rise to an indemnification obligation under our agreements with either Watson or Valeant. However, we cannot predict whether matters may arise in the future which were not known to us and which, under the terms of the relevant agreements, could give rise to a claim against us.

 

We will be dependent on patents, proprietary rights and confidentiality.

 

Because of the significant time and expense involved in developing new products and obtaining regulatory approvals, it is very important to obtain patent and trade secret protection for new technologies, products and processes. Our ability to successfully implement our business plan will depend in large part on our ability to:

 

 

Although we intend to make reasonable efforts to protect our current and future intellectual property rights and to ensure that any proprietary technology we acquire does not infringe the rights of other parties, we may not be able to ascertain the existence of all potentially conflicting claims. Therefore, there is a risk that third parties may make claims of infringement against our current or future products or technologies. In addition, third parties may be able to obtain patents that prevent the sale of our current or future products or require us to obtain a license and pay significant fees or royalties in order to continue selling such products.

 

We may in the future discover the existence of products that infringe upon patents that we own or that have been licensed to us. Although we intend to protect our trade secrets and proprietary know-how through confidentiality agreements with our manufacturers, employees and consultants, we may not be able to prevent our competitors from breaching these agreements or third parties from independently developing or learning of our trade secrets.

 

We anticipate that competitors may from time to time oppose our efforts to obtain patent protection for new technologies or to submit patented technologies for regulatory approvals. Competitors may seek to challenge patent

applications or existing patents to delay the approval process, even if the challenge has little or no merit. Patent challenges are generally highly technical, time consuming and expensive to pursue. Were we to be subject to one or more patent challenges, that effort could consume substantial time and resources, with no assurances of success, even when holding an issued patent.

 

The loss of any key management or qualified personnel could disrupt our business.

 

We are highly dependent upon the efforts of our senior management. The loss of the services of one or more members of senior management could have a material adverse effect on us. As a small company with a streamlined management structure, the departure of any key person could have a significant impact and would be potentially disruptive to our business until such time as a suitable replacement is hired. Furthermore, because of the specialized nature of our business, as our business plan progresses we will be highly dependent upon our ability to attract and retain qualified scientific, technical and key management personnel. There is intense competition for qualified personnel in the areas of our activities. In this environment, we may not be able to attract and retain the personnel necessary for the development of our business, particularly if we do not achieve profitability. The failure to recruit key scientific, technical and management personnel would be detrimental to our ability to implement our business plan.

 

None of our officers and key employees are employed for any specified period and none are restricted from seeking employment elsewhere, subject only to giving appropriate notice to us, as set out in their respective contracts.

 

We are subject to continuing potential product liability

 

Although we disposed of the majority of our former products during 2003 and 2004, we remain subject to the potential risk of product liability claims relating to the manufacturing and marketing of our former products during the period prior to their divestiture. Any person who is injured as a result of using one of our former products during our period of ownership may have a product liability claim against us without having to prove that we were at fault. The potential for liability exists despite the fact that our former subsidiary, Amarin Pharmaceuticals Inc. conducted all sales and marketing activities with respect to such product. Although we have not retained any liabilities of Amarin Pharmaceuticals Inc. in this regard, as the prior holder of ownership rights to such former products, third parties could seek to assert potential claims against us. Since we distributed and sold our products to a wide number of end users, the risk of such claims could be material.

 

We do not at present carry product liability insurance to cover any such risks. If we were to seek insurance coverage, we may not be able to maintain product liability coverage on acceptable terms if our claims experience results in high rates, or if product liability insurance otherwise becomes costlier or unavailable because of general economic, market or industry conditions. If we add significant products to our portfolio, we will require product liability coverage and may not be able to secure such coverage at reasonable rates or at all.

 

Product liability claims could also be brought by persons who took part in clinical trials involving our current or former development stage products. A successful claim brought against us could have a material adverse effect on our business. Amarin does not carry product liability insurance to cover clinical trials.

 

Amarin was responsible for the sales and marketing of Permax from May 2001 until February 2004. On May 17, 2001, Amarin acquired the U.S. sales and marketing rights to Permax from Elan. An affiliate of Elan had previously obtained the licensing rights to Permax from Eli Lilly and Company in 1993. Eli Lilly originally obtained approval for Permax on December 30, 1988 and has been responsible for the manufacture and supply of Permax since that date. On February 25, 2004, Amarin sold its U.S. subsidiary, Amarin Pharmaceuticals, Inc., including the rights to Permax, to Valeant Pharmaceuticals International.

 

In late 2002, Eli Lilly, as the holder of the NDA for Permax, received a recommendation from the FDA to consider making a change to the package insert for Permax based upon the very rare observation of cardiac valvulopathy in patients taking Permax. While Permax has not been definitely found to be the cause of this condition, similar reports have been notified in patients taking other ergot-derived pharmaceutical products, of which Permax is an example. In early 2003, Eli Lilly amended the package insert for Permax to reflect the risk of

cardiac valvulopathy in patients taking Permax and also sent a letter to a number of doctors in the United States describing this potential risk. Causation has not been established, but is thought to be consistent with other fibrotic side effects observed in Permax.

 

During 2006, one lawsuit alleging claims related to cardiac valvulopathy and Permax was pending in the United States. Eli Lilly, Elan, Valeant, and Amarin were defendants in this lawsuit. As of the present date, this case has settled. Most of the details of this settlement are confidential. In addition, a lawsuit alleging claims related to cardiac valvulopathy and Permax was filed in February 2007 and is currently pending in the United States. Eli Lilly, Elan, Valeant, Amarin Pharmaceuticals, Athena Neurosciences, Inc., and Amarin are named as defendants in this lawsuit. Amarin has not been formally served with the complaint from this lawsuit.

 

One other lawsuit, which alleged claims related to compulsive gambling and Permax, was pending in the United States during 2006. Amarin, Eli Lilly, Elan, and Valeant were defendants in this lawsuit. As of the present date, this case has also settled under terms that are confidential. A similar lawsuit related to compulsive gambling and Permax is being threatened against Eli Lilly, Elan, and/or Valeant, and could possibly implicate Amarin.

 

The Group has reviewed the position and having taken external legal advice considers the potential risk of significant liability arising for Amarin from these legal actions to be remote. No provision is booked in the accounts at December 2006.

 

The price of our ADSs and Ordinary Shares may be volatile.

 

The stock market has from time to time experienced significant price and volume fluctuations that may be unrelated to the operating performance of particular companies. In addition, the market prices of the securities of many pharmaceutical and medical technology companies have been especially volatile in the past, and this trend is expected to continue in the future. Our ADSs may also be subject to volatility as a result of their limited trading market. We currently have 90,147,534 ADSs representing Ordinary Shares outstanding and 536,696 Ordinary Shares outstanding (which are not held in the form of ADSs). There is a risk that there may not be sufficient liquidity in the market to accommodate significant increases in selling activity or the sale of a large block of oursecurities. Our ADSs have historically had limited trading volume, which may also result in volatility. During the twelve-month period ending February 28, 2007, the average daily trading volume for our ADSs was 196,469 ADSs. The average daily volume for our Ordinary Shares are immaterial as our Ordinary Shares were admitted to trading on the AIM market of the London Stock Exchange and the IEX market of the Irish Stock Exchange on July 17, 2006.

 

If our public float and the level of trading remain at limited levels over the long term, this could result in volatility and increase the risk that the market price of our ADSs and Ordinary Shares may be affected by factors such as:

 

 

The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.

 

We are incorporated under English law and our Ordinary Shares were admitted to trading on the AIM market of the London Stock Exchange and the IEX market of the Irish Stock Exchange on July 17, 2006. The rights of holders of Ordinary Shares and, therefore, certain of the rights of holders of ADSs, are governed by English law, including

the Companies Act 1985 (as amended), and by our memorandum and articles of association and the Group is subject to the rules of AIM and IEX. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations. The principal differences include the following:

 

 

U.S. shareholders may not be able to enforce civil liabilities against us.

 

A number of our directors and executive officers and those of each of our subsidiaries, including Amarin Finance Limited, are non-residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or to enforce against them judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States. We have been advised by our English solicitors that there is doubt as to the enforceability in England in original actions, or in actions for enforcement of judgments of U.S. courts, of civil liabilities to the extent predicated upon the federal securities laws of the United States. Amarin Finance Limited is an exempted company limited by shares organized under the laws of Bermuda. We have been advised by our Bermuda attorneys that uncertainty exists as to whether courts in Bermuda will enforce judgments obtained in other jurisdictions (including the United States) against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.

 

Foreign currency fluctuations may affect our future financial results or cause us to incur losses.

 

We prepare our financial statements in U.S. dollars. Since our strategy involves the development of products for the U.S. market, a significant part of our clinical trial expenditures are denominated in U.S. dollars and we anticipate that the majority of our future revenues will be denominated in U.S. dollars. However, a significant portion of our costs are denominated in pounds sterling and euro as a result of our being engaged in activities in the

United Kingdom and the European Union. As a consequence, the results reported in our financial statements are potentially subject to the impact of currency fluctuations between the U.S. dollar on the one hand, and pounds sterling or euro on the other hand. We are focused on development activities and do not anticipate generating on-going revenues in the short-term. Accordingly, we do not engage in significant currency hedging activities in order to limit the risk of exchange rate fluctuations. However, if we should commence commercializing any products in the United States, changes in the relation of the U.S. dollar to the pound sterling and/or the euro may affect our revenues and operating margins. In general, we could incur losses if the U.S. dollar should become devalued relative to pounds sterling and/or the euro.

 

U.S. Holders of our Ordinary Shares or ADSs could be subject to material adverse tax consequences if we are considered a PFIC for U.S. federal income tax purposes.

 

There is a risk that we will be classified as a passive foreign investment company, or “PFIC”, for U.S. federal income tax purposes. Our status as a PFIC could result in a reduction in the after-tax return to U.S. Holders of our Ordinary Shares or ADSs and may cause a reduction in the value of such shares. We will be classified as a PFIC for any taxable year in which (i) 75% or more of our gross income is passive income or (ii) at least 50% of the average value of all our assets produce or are held for the production of passive income. For this purpose, passive income includes interest, gains from the sale of stock, and royalties that are not derived in the active conduct of a trade or business. Because we receive interest and may recognize gains from the sale of appreciated stock, there is a risk that we will be considered a PFIC under the income test described above. In addition, because of our cash position, there is a risk that we will be considered a PFIC under the asset test described above. While we believe that the PFIC rules were not intended to apply to companies such as us that focus on research, development and commercialization of drugs, no assurance can be given that the U.S. Internal Revenue Service or a U.S. court would determine that, based on the composition of our income and assets, we are not a PFIC currently or in the future. If we were classified as a PFIC, U.S. Holders of our Ordinary Shares or ADSs could be subject to greater U.S. income tax liability than might otherwise apply, imposition of U.S. income tax in advance of when tax would otherwise apply, and detailed tax filing requirements that would not otherwise apply. The PFIC rules are complex and you are urged to consult your own tax advisors regarding the possible application of the PFIC rules to you in your particular circumstances.

 

If we fail to comply with the terms of our licensing agreement with Scarista Limited, our licensor may terminate certain licenses to patent rights, causing us to lose valuable intellectual property assets with respect to Miraxion.

 

Under the terms of a licensing agreement between Scarista Limited and Amarin Neuroscience, our exclusive license to certain valuable patent rights with respect to Miraxion covering certain of our technologies may be terminated if we fail to meet various obligations to Scarista. Under the terms of this agreement we are obligated to meet certain performance obligations in respect of the clinical development and commercialization of Miraxion, payment of royalties, and filing, maintenance and prosecution of the covered patent rights. In particular, we are obligated to use our reasonable commercial efforts to pursue the completion of the Miraxion trials with a view to applying for an FDA approval for the indication of Huntington’s disease in the U.S. Under the terms of this agreement Scarista is entitled to terminate this agreement forthwith by notice in writing if we commit a material breach of this Agreement and fail to remedy the same within 90 days after receipt of such written notice of the breach. The performance of our obligations to Scarista will require increasing expenditures as the development of Miraxion continues. We cannot guarantee that we will continue to have the funds necessary to meet our obligations under this agreement to fulfill these licensing obligations.

 

We do not currently have the capability to undertake manufacturing of any potential products.

 

We have not invested in manufacturing and have no manufacturing experience. We cannot assure you that we will successfully manufacture any product we may develop, either independently or under manufacturing arrangements, if any, with third party manufacturers. To the extent that we enter into contractual relationships with other companies to manufacture our products, if any, the success of those products may depend on the success of securing and maintaining contractual relationships with third party manufacturers (and any sub-contractors they engage).

 

We have secured supply of Miraxion through the expected launch period of the product. Our ability to meet commercial demand for Miraxion beyond this quantity would depend on our successfully obtaining a commitment for such supplies. We are currently in discussion with the existing and other manufacturers to meet this requirement. We cannot guarantee that we will be able to obtain a commitment from the existing contract manufacturer and/or to negotiate a second supply agreement with an alternate contract manufacturer to manufacture additional commercial supplies of Miraxion. If we were unable to do so, we would be unable to successfully commercialize Miraxion and our results of operations and prospects would be materially adversely affected.

 

We do not currently have the capability to undertake marketing, or sales of any potential products.

 

We have not invested in marketing or product sales resources. We cannot assure you that we will be able to acquire such resources. We cannot assure you that we will successfully market any product we may develop, either independently or under marketing arrangements, if any, with other companies. To the extent that we enter into contractual relationships with other companies to market our products, if any, the success of such products may depend on the success of securing and maintaining such contractual relationships the efforts of those other companies (and any sub-contractors they engage).

 

We have limited personnel to oversee out-sourced clinical testing and the regulatory approval process.

 

It is likely that we will also need to hire additional personnel skilled in the clinical testing and regulatory compliance process if we develop additional product candidates with commercial potential. We do not currently have the capability to conduct clinical testing in-house and do not currently have plans to develop such a capability. We out-source our clinical testing to contract research organizations. We currently have a limited number of employees and certain other outside consultants who oversee the contract research organizations involved in clinical testing of our compounds.

 

We cannot assure you that our limited oversight of the contract research organizations will suffice to avoid significant problems with the protocols and conduct of the clinical trials.

 

We depend on contract research organizations to conduct our pre-clinical and our clinical testing. We have engaged and intend to continue to engage third party contract research organizations and other third parties to help us develop our drug candidates. Although we have designed the clinical trials for drug candidates, the contract research organizations will be conducting all of our clinical trials. As a result, many important aspects of our drug development programs have been and will continue to be outside of our direct control. In addition, the contract research organizations may not perform all of their obligations under arrangements with us. If the contract research organizations do not perform clinical trials in a satisfactory manner or breach their obligations to us, the development and commercialization of any drug candidate may be delayed or precluded. We cannot control the amount and timing of resources these contract research organizations devote to our programs or product candidates. The failure of any of these contract research organizations to comply with any governmental regulations would substantially harm our development and marketing efforts and delay or prevent regulatory approval of our drug candidates. If we are unable to rely on clinical data collected by others, we could be required to repeat, extend the duration of, or increase the size of our clinical trials and this could significantly delay commercialization and require significantly greater expenditures.

 

Despite the use of confidentiality agreements and/or proprietary rights agreements, which themselves may be of limited effectiveness, it may be difficult for us to protect our trade secrets.

 

We rely on trade secrets to protect technology in cases when we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. While we require certain of our academic collaborators, contractors and consultants to enter into confidentiality agreements, we may not be able to adequately protect our trade secrets or other proprietary information.

 

Potential technological changes in our field of business create considerable uncertainty.

 

We are engaged in the biopharmaceutical field, which is characterized by extensive research efforts and rapid technological progress. New developments in research are expected to continue at a rapid pace in both industry and academia. We cannot assure you that research and discoveries by others will not render some or all of our programs or product candidates uncompetitive or obsolete.

 

Our business strategy is based in part upon new and unproven technologies to the development of biopharmaceutical products for the treatment of Huntington’s disease and other neurological disorders. We cannot assure you that unforeseen problems will not develop with these technologies or applications or that commercially feasible products will ultimately be developed by us.

 

Third-party reimbursement and health care cost containment initiatives and treatment guidelines may constrain our future revenues.

 

Our ability to market successfully our existing and future new products will depend in part on the level of reimbursement that government health administration authorities, private health coverage insurers and other organizations provide for the cost of our products and related treatments. Countries in which our products are sold through reimbursement schemes under national health insurance programs frequently require that manufacturers and sellers of pharmaceutical products obtain governmental approval of initial prices and any subsequent price increases. In certain countries, including the United States, government-funded and private medical care plans can exert significant indirect pressure on prices. We may not be able to sell our products profitably if adequate prices are not approved or reimbursement is unavailable or limited in scope. Increasingly, third-party payers attempt to contain health care costs in ways that are likely to impact our development of products including:

 

 

We are undergoing significant organizational change. Failure to manage disruption to the business or the loss of key personnel could have an adverse effect on our business.

 

We are making significant changes to both our management structure and the locations from which we operate. As a result of this, in the short term, morale may be lowered and key employees may decide to leave, or may be distracted from their usual role. This could result in delays in development projects, failure to achieve managerial targets or other disruption to the business. The benefits of these changes are expected to be a significant improvement in operating effectiveness and substantial cost savings. Management does not expect this organizational change will impact internal control over financial reporting.

 

 

Amarin Corporation plc (formerly Ethical Holdings plc) is a public limited company with its primary stock market listing in the U.S. on the NASDAQ Capital Market and secondary listings in the U.K. and Ireland on AIM and IEX respectively. Amarin was originally incorporated in England as a private limited company on March 1, 1989 under the Companies Act 1985, a statute governing companies in Great Britain, (the “Companies Act”) and re-registered in England as a public limited company on March 19, 1993.

 

Our registered office is located at 110 Cannon Street, London, EC4N 6AR, England. Our principal executive offices are located at 7 Curzon Street, London W1J 5HG, England and our telephone number is +44-20-7499-9009. Our principal research and development facilities are located in Oxford, England.

 

In the period from late 2003 through 2004 we executed a comprehensive restructuring of our operations. In 2003, we disposed of our drug delivery business to Watson. In 2004, we sold our U.S. sales and marketing subsidiary and the majority of our U.S. operations to Valeant and acquired the entire issued share capital of Laxdale, a research and development based neuroscience company. In the period from late 2004 to late 2006, Amarin completed a series of financings raising aggregate gross proceeds of approximately $84.9 million, including $16.2 million from our directors and officers. Amarin is now a neuroscience company focused on the research, development and commercialization of novel drugs for the treatment of central nervous system disorders.

 

 

Our Business

 

Amarin is committed to improving the lives of patients suffering from diseases of the central nervous system. Our goal is to be a leader in the research, development and commercialization of novel drugs that address unmet patient needs in this area.

 

Amarin has a late-stage drug development pipeline. Miraxion, Amarin’s lead development compound, is in Phase III development for Huntington’s disease (“HD”), Phase II development for depressive disorders and entering Phase IIa development for Parkinson’s disease. Amarin’s core development pipeline also includes the global rights to a novel oral formulation of Apomorphine for treating patients with advanced Parkinson’s disease.

 

Miraxion for HD is being developed under a Special Protocol Assessment (“SPA”) agreed with the U.S. Food and Drug Administration (“FDA”), has been granted fast track designation by the FDA and has received orphan drug designation in the U.S. and Europe.

 

We intend to directly commercialize our neurology products in the U.S. via our own commercial infrastructure (to be established in the future) and out-license or partner our product rights outside the U.S. We also intend to out-license or partner our pipeline globally for indications outside neurology, including depressive disorders. We also intend to leverage our development capabilities by supplementing our internal development pipeline through acquiring and/or in-licensing products that we can develop or market directly in the U.S.

 

We anticipate that future revenues will comprise (i) direct product sales in the U.S. from self-marketed neurology products; and (ii) milestones and royalty income from its development and marketing partners for markets outside the U.S. and for indications other than in the field of neurology.

 

Therapeutic Focus

 

CNS

 

The central nervous system (CNS) consists of the brain and spinal cord. Disorders of this system affect a large portion of the population, often with severe consequences. These debilitating disorders include degenerative conditions such as Parkinson’s disease, Huntington’s disease, amyotrophic lateral sclerosis (ALS), Alzheimer’s disease, impaired cognition dementia, epilepsy, multiple sclerosis, migraine and psychiatric disorders such as depression and schizophrenia. While treatments exist for many CNS disorders, with varying degrees of effectiveness, there still remain major unmet patient needs for such conditions.

 

In the US, it is estimated that over 20% of healthcare expenditure is directed towards CNS related disorders. The population diagnosed with CNS disorders is rising, driven mainly by an aging population and improving diagnostic techniques. It has been estimated that more than $50 billion is spent annually on prescription CNS drug treatments in the U.S. alone.

 

Our development programs address a number of these disorders, including Parkinson’s disease, Huntington’s disease and depression. With approximately 10,000 neurologists treating adults across the U.S., approximately 1,500 of whom are movement disorder specialists, effective marketing can be conducted with a sales force of modest size. We have been focused in neurology for over five years and, having previously operated a neurology sales and marketing infrastructure in the U.S., we believe have an established presence and reputation in this field.

 

Huntington’s Disease

 

Huntington disease (HD) is inherited as an autosomal dominant disease that gives rise to progressive, selective (localized) neural cell death associated with choreic movements and dementia. The disease is associated with increases in the length of a CAG triplet repeat present in a gene called ’Huntington’ located on chromosome 4p16.3. Early symptoms might affect cognitive ability or movement and include depression, mood swings, forgetfulness, clumsiness, involuntary twitching and lack of coordination. Later, concentration and short-term memory diminishes, and involuntary movements of the head, trunk and limbs increase. Eventually, the person becomes unable to care for himself or herself. Death follows from complications including choking, infection or heart failure.

 

HD is believed to be caused by a genetic mutation of cytosine, adenosine and guanine (“CAG”) polymorphic trinucleotide repeat located on chromosome 4p16.3. It is believed that there is a direct link between CAG repeat length and age of onset, disease progression and clinical symptoms of HD disease. CAG repeat length can be measured via a genetic blood test.

 

HD has been diagnosed in approximately 30,000 patients in the U.S. and approximately 40,000 in Europe. Additionally, there are over 200,000 persons in each of the U.S. and E.U. that are genetically “at risk” of developing the disease due to the genetic nature of the disease. Onset of symptoms is typically between 30-50 years of age with a typical life expectancy from diagnosis of 10-25 years depending on the CAG score. Patients with later stage disease require continuous nursing care, often in nursing homes, with an estimated annual cost to the U.S. economy of up to $2.5 billion. Other than tetrabenazine which is approved in the E.U., there is no approved treatment or cure for HD. We believe the potential HD market for a therapeutic treatment in North America and Europe is estimated to be greater than $500 million per year.

 

Parkinson’s Disease

 

Parkinson’s disease (“PD”), a neurodegenerative disorder, was originally described by James Parkinson in 1817. In his original “essay on the shaking palsy”, Parkinson stated that “until we are better informed respecting the nature of this disease the employment of internal medicines is scarcely warrantable”. Nearly two centuries later and despite major advancements, the aetiology/epidemiology of PD remains undetermined.

 

PD is a progressive, degenerative disease, and is the most common movement disorder in middle or late life. There are approximately 1 million affected individuals in the U.S. alone, representing 1% of the population at 65 years, increasing to 4-5% of 85 year-olds with roughly 50,000 new cases arising each year producing an annual estimated cost of $5.6 billion.

 

The main clinical phenotype of PD is “parkinsonism”, a movement disorder that is characterized by bradykinesia, tremor, rigidity and postural instability. Together with a clear response to dopaminergic therapy, these symptoms represent the idiopathic (i.e. unknown cause) disease. Secondary features of Parkinson’s disease which may be attributed to degeneration of the nervous system include cardiovascular, gastrointestinal, and genitourinary systems dysfunction, orthostatic hypotension, arrhythmia, constipation, hyper-salivation, urinary frequency, impotence, hallucinations, depression and psychosis. Therefore, PD is defined as a multiple system movement disorder.

Depression

 

Depression is among the most disabling conditions in the world. In the U.S. alone, approximately 19 million people suffer from a depressive illness. In 2005, U.S. sales of antidepressants were approximately $14 billion. More than half of Americans affected by a depressive disorder suffer from major depression, with the remainder suffering from dysthymic disorder (chronic mild depression), and bipolar depression. Despite its significant prevalence, major depression remains a largely under-diagnosed and under-treated disease. About one third of patients with depression still fail to respond to standard drugs and another third show only partial response.

 

Melancholic depression, a severe form of depression, represents one of two subtypes of major depression recognized by the Diagnostic and Statistical Manual of Mental Disorders (DSM-IV), the main diagnostic reference of mental health professionals in the U.S. (published by the American Psychiatric Association, Washington D.C.). While considered one of the most severe forms of the disease, it is by no means uncommon. Almost one-quarter of patients with major depression exhibit melancholic features. In addition to its defining clinical features, melancholic depression is associated with unique physiological characteristics.

 

Development Pipeline

 

During 2006, Amarin made significant progress with its development pipeline:

 

 

The following table summarizes the status of our development pipeline:

 

 

Additionally, we have a marketing partner in Japan to develop, use, offer to sell, sell and distribute products in Japan utilizing certain of our intellectual property in the pharmaceutical fields of Huntington’s disease, depression, schizophrenia, dementia and other CNS indications.

 

Miraxion

 

Miraxion is a semi-synthetic, highly purified (greater than 96%) derivative of (all-cis)-5,8,11,14,17-eicosapentaenoic acid (ethyl-EPA). It is a long chain highly unsaturated fatty acid (often written in short as 20:5n-3 or 20:53).

 

Miraxion, Amarin’s prescription-only late-stage development compound, is in Phase III clinical development for Huntington’s disease, Phase II clinical development for depressive disorders and about to enter Phase IIa development for Parkinson’s disease. Miraxion for Huntington’s disease is being developed under a SPA agreed with the FDA, has been granted Fast Track designation by the FDA and has received Orphan Drug designation in the U.S. and Europe.

 

The SPA is a process under which the FDA evaluates and provides specific guidance on pivotal clinical trial protocols for Phase III trials. Fast track status generally sets the FDA’s review-time goal for the filed NDA at six months, which is faster than the typical review period for most non-fast track drugs. Fast track status does not however guarantee a specific review time or a pre-determined outcome. Orphan drugs are those that treat rare diseases or conditions, and if approved receive marketing exclusivity of seven years in the U.S. and up to ten years in Europe. However, orphan drug exclusivity does not bar competitors from developing products containing the same active molecule for different applications or other active molecules for the same indication. In addition, the same molecule can be separately developed and approved within such special exclusivity period for the same indication if it is offered in a form that is shown to be clinically superior to Miraxion or if the Group is unable to supply sufficient quantities of Miraxion. Orphan drug status does not confer patent rights upon the holder, nor does it provide an exemption from claims of infringement of patents which may be held by third parties.

 

Miraxion has shown efficacy and safety in double blind, placebo controlled clinical trials in significant sub-sets of patients with Huntington’s disease and depressive disorders and is currently undergoing one of the largest therapeutic Phase III clinical programs ever conducted in Huntington’s disease. Miraxion has also

undergone a program of research illustrating its potential mechanisms of action in Huntington’s disease, depressive disorders and Parkinson’s disease.

 

Miraxion is produced in a Good Manufacturing Practice (‘GMP’) compliant facility through a unique, complex, patented and proprietary process that reliably and consistently creates the highly purified prescription-grade medicine. The purity level of Miraxion and the absence of other fatty acids and impurities confer a number of important benefits such as:

 

 

We have a comprehensive portfolio of patents covering the use of highly purified EPA in a range of central nervous system disorders as described in the intellectual property section below — see “Miraxion’s Intellectual Property” below.

 

Miraxion’s Mechanism of Action in HD

 

In progressive neurodegenerative diseases, it is thought that the functionality and effectiveness of affected neurons decline over time functionally, and these neurons ultimately die. Neurons that are experiencing such neuronal dysfunction are often described as “suffering neurons”. The mechanism of action of Miraxion is believed to involve (1) replenishment of the lipid bi-layer potentially restoring the functions of suffering neurons, (2) reducing the over production of enzymes (PLA₂) associated with apoptosis and (3) stabilizing mitochondrial integrity of suffering neurons by acting on specific signal transduction pathways and changing cellular energy metabolism. This may prevent or slow progression from neuronal dysfunction to apoptosis. Preclinical studies have shown that in aging brains, Miraxion demonstrates neuro anti-inflammatory effects, potentially protecting the brain from inflammation, which is often associated with a number of neurodegenerative diseases such as Alzheimer’s, Parkinson’s, and HD. Age-related learning and memory decline in the brain has also been shown to be accompanied by inflammatory changes, typified by microglial activation.

 

Miraxion’s Mechanism of Action in Depression

 

Miraxion in melancholic depression is believed to act by targeting the underlying causes, in contrast to current drug therapies which ‘mask’ depressive symptoms via neurotransmitter modification. While the exact mechanism of action requires further elucidation, research studies and data suggest that Miraxion has activity in a number of key relevant functions:

 

 

Miraxion’s Intellectual Property

 

Two key patent families cover the use of Miraxion for HD until 2021 and 2023. The application relating to the patent expiring in 2021 was filed in 2000 and has been granted and covers the use of highly purified ethyl eicosapentaenoic acid (EPA) (at least 90%, preferably 95%) and other EPA derivatives for the treatment of HD. The application relating to the patent expiring in 2023 was filed in 2003 and has yet to be granted and covers the method of identifying patients with HD based on their number of CAG repeats who we believe respond to Miraxion.

 

Three patent families cover the use of Miraxion for depression until 2017, 2021 and 2024. The application relating to the patent expiring in 2017 was filed in 1997 has been granted and covers the use of a product containing greater than 20% EPA in treating depression. The applications relating to the patents expiring in 2021 and 2024

were filed in 2000 and 2004 respectively and have yet to be granted and cover the use of highly purified ethyl eicosapentaenoic acid (EPA) (at least 90%, preferably 95%) and other EPA derivatives for the treatment of depression and the use of pure EPA or its metabolites in the treatment of melancholic depression respectively.

 

Miraxion has also received Orphan Drug designation by the FDA and EMEA for Huntington’s disease.

 

Miraxion for Huntington’s disease

 

Amarin is currently running one of the largest therapeutic Phase III programs ever conducted in HD. The two Phase III trials (one in U.S. and one in Europe) are being conducted under a SPA with the FDA. Both Phase III trials were fully enrolled in the summer of 2006. The U.S. trial is being run by the Huntington’s Study Group (“HSG”) and the European trial by Icon, plc (“Icon”) in collaboration with the European HD Network. The initial headline data from the two Phase III trials is expected to be available during the second quarter of 2007.

 

The HSG, based at the University of Rochester, is a non-profit group of physicians and other health care providers from medical centers in the U.S., Canada, Europe and Australia, experienced in the care of HD patients and dedicated to clinical research of HD.

 

The European HD Network (previously known as EURO-HD) is a non-profit group of physicians and other healthcare professionals dedicated to the research and care of Huntington’s disease patients. Icon is a leading international contract research organization (“CRO”).

 

Miraxion has a strong safety profile. Over the course of the initial one year Phase III trial in HD, one patient in the 135 patient trial dropped out because of a treatment related side effect (gastrointestinal upset) and all but one of the 121 patients that completed the 12 month study opted to continue in an open label study for a further 12 months.

 

Initial Phase III Trial in HD – Results

 

Following positive results with Miraxion for HD in Phase II studies, a 135-patient Phase III double-blind placebo controlled study was conducted. Patients were randomized to receive two 500mg capsules twice daily of Miraxion or placebo for one year. The main assessment scale was the Unified Huntington’s Disease Rating Scale (“UHDRS”) and the primary end point was outcome at 12 months on the Total Motor Score-4 subscale of the UHDRS (“TMS-4”). An increase (plus) in TMS-4 score signifies a deterioration in the motor component of the disease, and a decrease (minus) in TMS-4 score signifies an improvement.

 

Key Results:

 

 

 

Initial Phase III Trial in HD – CAG Group Analysis

 

It was pre-specified in the protocol for the trial that the relationship between CAG repeat length and Miraxion efficacy should be examined. Additional analysis of the clinical data from the initial Phase III study identified a sub-group of Huntington’s patients that responded to Miraxion with statistical significance.

 

The additional analysis of the clinical data from the initial Phase III study found that the group of patients with a CAG repeat length of less than or equal to 44 receiving Miraxion showed a significant improvement over those patients receiving placebo. In total, 67 of the 135 patients in the initial Phase III study had this specific gene variant. Figure 1 shows the reduction in the average TMS-4 scores at 6 months and 12 months experienced by patients taking Miraxion in the trial over the 12-month period. The data were statistically significant at 6 months and 12 months. Significance was also achieved with Miraxion in the per protocol group (PP) with CAG < 44 as demonstrated in Figure 2.

 

It is estimated that patients with a CAG repeat length of less than or equal to 44 represent 65% to 70% of all HD patients.

 

Figure 1:  Time course of TMS-4 ITT (LOCF), CAG<44

 

Figure 2:  Time course of TMS-4 PP (LOCF), CAG<44

 

 

In the PP group, a 22.7% reduction or improvement in average TMS-4 scores of patients given Miraxion compared to patients on placebo which experienced a 5.7% increase or worsening. Therefore a 28.4% difference in TMS-4 response occurred between the Miraxion and placebo groups during the 12-month trial. A reduction in TMS-4 of this magnitude typically translates into an improvement in patient quality of life and independence and reduction in reliance on nursing care.

 

Initial Phase III Trial in HD – Centre by Centre Analysis

 

The initial Phase III trial was conducted in six centers, Johns Hopkins University, Harvard University and Emory University in the U.S., the University of British Columbia in Canada, Hammersmith Hospital in the U.K. and Monash University in Melbourne in Australia. An analysis of the data on a centre by centre basis illustrated that Miraxion’s effectiveness in the CAG less than or equal to 44 group was consistent across each centre, i.e. on average Miraxion had greater effectiveness in patients with a CAG less than or equal to 44 than in patients with a CAG greater than 44 and that, on average Miraxion worked better than placebo in patients with CAG less than or equal to 44.

 

Trial Design Considerations for Ongoing Phase III Trials in HD

 

We have utilized the valuable information obtained from the initial Phase III trial and from discussions with the FDA and the EMEA in designing the protocols for the final Phase III studies with Miraxion. The important lessons learned from the initial Phase III trial all have been incorporated into the design and conduct of the two Phase III trials currently underway, including the following:

 

 

 

 

 

Design of Ongoing Phase III Trials in HD

 

Key details of the ongoing Phase III trials are summarized as follows:

 

 

Miraxion for Depressive Disorders

 

Miraxion has been studied both as an adjunctive therapy and a monotherapy to treat those who do not respond to current anti-depressant drug treatments. Two published Phase IIa placebo controlled clinical trials have been conducted with Miraxion in treatment-unresponsive depression that concluded that Miraxion was effective in treating depression in patients who remained depressed despite receiving standard therapy. The results of these trials were published in the Archives of General Psychiatry in October 2002 (volume 59, Peet & Horrobin) and the American Journal of Psychiatry in March 2002 (volume 159, Belmaker).

 

Additionally, data analysis from a recently conducted exploratory Phase IIa monotherapy study identified that Miraxion had a significant clinical benefit for a sub-group of patients with melancholic depression. Using identical symptom specific methodology, statistically significant results were also obtained by reanalyzing the dataset from the published Peet & Horrobin Phase IIa study in treatment-unresponsive depression, where Miraxion was used as an adjunct therapy with standard depression treatments.

 

As a result of these encouraging clinical trial results, Amarin intends to further evaluate the clinical benefits of Miraxion in melancholic depression and will seek a development and marketing partner to accelerate this program.

We intend to conduct an optimally designed Phase II trial specifically in melancholic depression patients taking into account advice obtained from key opinion leaders. The trial design, which is planned to involve biomarker and efficacy endpoints, is near completion and we expect its commencement in the first half of 2007.

 

There is currently no approved treatment specifically indicated for melancholic depression and no treatment in development as far advanced in clinical studies as Miraxion, as far as the Group is aware. Thus, should Miraxion receive approval, it could potentially become the first and only treatment specifically for melancholic depression. Given its favorable safety profile and potential efficacy in the most severe patient population, Miraxion may also be appropriate for study outside the melancholic subset of the broader major depression population.

 

Miraxion for Parkinson’s Disease

 

Miraxion is currently being studied in a range of preclinical models of neurodegeneration and neuroprotection, including Parkinson’s disease. Professor Cai Song, M.D., Ph.D., Associate Professor in the Department of Biomedical Science, University of Prince Edward Island, Canada demonstrated that Miraxion improved learning and memory, had multiple neuroprotective effects and improved cell viability thereby slowing neuronal apoptosis (cell death) which is often associated with a number of neurodegenerative disorders such as Alzheimer’s, Parkinson’s and Huntington’s diseases. In particular, Professor Song demonstrated that:

 

 

Professor Song’s results complement those of other previously presented pre-clinical research conducted at the Institute of Neuroscience at Trinity College, Dublin by Professor Marina Lynch, which showed Miraxion to have neuroprotective effects on models of neurodegenerative disorders.

 

Amarin is planning to commence a Phase II neuro-imaging study with Miraxion in Parkinson’s disease patients. The study will use functional magnetic resonance imaging techniques to identify both function and activity in the nigrostriatal pathway of Parkinson’s patients taking Miraxion. We are preparing to request regulatory approvals for trial commencement which is expected for the second quarter of this year.

 

AMR-101 for Parkinson’s Disease

 

Apomorphine is one of the most potent medications for treating Parkinson’s disease, in particular for the treatment of “off” episodes of semi-paralysis in patients with advanced symptoms. Apomorphine is classified as a dopamine agonist and has been available in sub-cutaneous injectable form in Europe for a number of years and more recently in the U.S. Dopamine agonists imitate the action of dopamine rather than replace it in the way other trademarks do. Dopamine is known as a neurotransmitter (chemical messenger). It enables the brain to transmit signals from one area to another, which allows the brain to control and co-ordinate body movements.

 

In the later stages of Parkinson’s disease, many patients develop severe “off” episodes where, despite continuing to take their medication, they experience periods when they lose the ability to move. This is termed bradykinesia (slowed movement) or akinesia (inability to move). These “off” episodes, which typically occur 3 to 4 times per day, can also be associated with other symptoms such as muscle pain, anxiety and panic. This condition is

estimated to affect approximately 100,000 patients in the U.S. with late stage Parkinson’s disease, with a similar number in Europe. Preliminary market research conducted by Amarin suggests that the current use of Apomorphine as a rescue therapy to treat “off” episodes is limited by the current sub-cutaneous injectable form of delivery.

 

Prior efforts to deliver Apomorphine orally have been unsuccessful as the drug is extensively broken down during its passage through the liver resulting in very low blood concentrations.

 

Amarin’s AMR-101 is a novel oral formulation of Apomorphine which aims to achieve rapid absorption directly into the bloodstream after sublingual (under the tongue) administration. This novel formulation would offer patients a more user friendly alternative to the currently available injectable formulation of Apomorphine and we believe, could result in higher rates of utilization for treatment of “off” episodes.

 

AMR-101 has already completed a proof of concept study which demonstrated oral bioavailability of Apomorphine in human volunteers, while also being well tolerated. Amarin is conducting additional formulation and pharmacokinetic development work with the objective of commencing Phase II efficacy study in Parkinson’s patients in 2007.

 

MCT-125 for ‘Fatigue’ in Multiple Sclerosis (“MS”)

 

MCT-125 (formerly LAX-202) is in development for the treatment of fatigue in patients suffering from MS. Amarin licensed exclusive world wide rights to this program to Multicell Technologies Inc. in 2005.

 

In a 138 patient, multi-center, double-blind placebo controlled Phase IIb clinical trial conducted in the U.K. by Amarin, MCT-125 demonstrated efficacy in significantly reducing the levels of fatigue in MS patients enrolled in the study. MCT-125 proved to be effective within 4 weeks of the first daily oral dosing, and showed efficacy in MS patients who were moderately as well as severely affected. MCT-125 demonstrated efficacy in all MS patient sub-populations including relapse-remitting, secondary progressive and primary progressive. Multicell intends to commence a Phase IIb trial of MCT-125 in 2007.

 

Multiple sclerosis is an autoimmune disease in which immune cells attack and destroy the myelin sheath protecting neurons in the brain and spinal cord. About two million people worldwide are afflicted with MS, and an estimated 10,000 new MS cases are diagnosed annually in the U.S. Overall, greater than 75% of people with MS report having fatigue, and 50% to 60% report fatigue as the worst symptom of their disease. Fatigue can severely affect an individual’s quality of life and functioning, even if the level of disability appears to be insignificant to the outside observer. Moreover, fatigue in MS has a severe effect on a person’s ability to feel as if they have control over their illness. For approximately 30% of MS patients, fatigue predates other symptoms of MS.

 

LAX-201

 

Our pipeline includes LAX-201, a patent-protected combination of folic acid and either of two leading classes of anti-depressant drugs (i.e. Selective Serotonin Re-uptake Inhibitors ‘SSRIs’ and Serotonin Norepinephrine Re-update Inhibitors ’SNRIs’). A Phase II study showed LAX-201 increased the response rate in depressed women from 50%-60% to approximately 90%. We are currently seeking a development and marketing partner to accelerate this program.

 

Lipophilic Technology Platform

 

We are using a novel, proprietary technology platform based on an understanding of the chemical nature of the brain. Unlike most organs, the brain is 60% fat (phospholipid) and only 30% protein. In general, just as oil and water do not mix, most drugs which easily dissolve in water do not readily penetrate the brain. Amarin’s lipophilic conjugated drugs are predominantly fat-soluble and may therefore more easily cross the blood brain barrier.

 

Most current drugs for treating neurological and psychiatric disorders have mechanisms of action targeting receptors (surface proteins embedded in the phospholipid membranes) or neurotransmitters in the brain. Our novel proprietary technology targets the bio-chemical imbalances in the phospholipids themselves and also influences other fatty acid and eicosanoid pathways. Miraxion is a lipophilic product.

 

Combinatorial Lipids

 

Combinatorial lipid chemistry offers a novel approach to improving the therapeutic effects and delivery characteristics of both known and new compounds. We have researched and patented how to use different types of chemical linkages to attach a range of bioactive lipids either to other lipids or other drugs. The results are novel single chemical entities with predictable properties, potentially offering substantial and clinically relevant advantages over either compound alone. Amarin is currently evaluating a range of new candidates for CNS disorders using this technology and has two compounds in pre-clinical development for Parkinson’s disease.

 

Amarin’s Marketing Partners

 

Miraxion for Huntington’s disease has been partnered in the major E.U. markets. Our marketing partners are identified in the development pipeline table above. Our E.U. partnering agreements take the form of a license and distribution agreement. This provides for the grant of a license to market, distribute and sell products in the partner’s territory in the pharmaceutical field of Huntington’s disease and certain smaller CNS indications utilizing certain of our intellectual property for a period of 10 years from signing or, if later, until the expiration of patent or orphan drug protection for the product. The grant of such license is in exchange for the commercial partner paying to Amarin Neuroscience (i) fixed milestone payments; and/or (ii) an exclusive supply arrangement; and/or (iii) a royalty on net sales made by the commercial partner.

 

Additionally, we are party to a license agreement dated July 21, 2003 with a marketing partner in Japan to develop, use, offer to sell, sell and distribute products in Japan utilizing certain of our intellectual property in the pharmaceutical fields of Huntington’s disease, depression, schizophrenia, dementia and certain less significant indications (by patient population) including the ataxias, for a period of 10 years from the date of first commercial sale or, if later, until patent protection expires.

 

In December 2005, Amarin Neuroscience entered into a worldwide exclusive license with Multicell Technologies, Inc. (“Multicell”) pursuant to which Amarin Neuroscience licensed the worldwide rights for MCT-125 to Multicell in return for a series of development based milestones and a royalty on net sales. Multicell is obliged to use good faith reasonable efforts to develop and commercialize MCT-125.

 

The Financial Year

 

Our consolidated revenues in 2006 and 2005 comprise milestone payments received from Multicell and were derived from the licensing of exclusive, worldwide rights to Multicell for MCT-125 (formerly LAX-202). Multicell is currently planning a Phase IIb trial with MCT-125 in the treatment of fatigue in patients suffering from MS.

 

For the years ended December 31, 2006 and 2005 all revenues originated in the United Kingdom. Our consolidated revenues in 2004 were derived from two principal sources relating to discontinued activities. For the year ended December 31, 2004, sales of our products through our former sales and marketing operations accounted for approximately 91% of total revenues and royalties on third party product sales accounted for approximately 9% of total revenues. No revenues were generated from licensing, development or contract manufacturing fees.

 

During 2004, all of our remaining revenue-producing products and services were divested. At present all of our products are in the development stage and we therefore have no products that can be marketed.

 

Competition

 

In pursuing our strategy of acquiring marketable and/or development stage neurology products, we expect to compete with other pharmaceutical companies for product and product line acquisitions, and more broadly for the distribution and marketing of pharmaceutical and consumer products. These anticipated competitors include companies which may also seek to acquire branded or development stage pharmaceutical products and product lines from other pharmaceutical companies. Most of our potential competitors will likely possess substantially greater financial, technical, marketing and other resources. In addition, we will compete for supplier manufacturing capacity with other companies, including those whose products are competitive with ours. Additionally, our future products may be subject to competition from products with similar qualities. See Item 3 “Key Information — Risk Factors — our future products may not be able to compete effectively against those of our competitors.”

 

Government Regulation

 

Any product development activities relative to Miraxion or products that we may develop or acquire in the future will be subject to extensive regulation by various government authorities, including the FDA and comparable regulatory authorities in other countries, which regulate the design, research, clinical and non-clinical development, testing, manufacturing, storage, distribution, import, export, labeling, advertising and marketing of pharmaceutical products and devices. Generally, before a new drug can be sold, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific to each regulatory authority, submitted for review and approved by the regulatory authority. The data are generated in two distinct development stages: pre-clinical and clinical. For new chemical entities, the pre-clinical development stage generally involves synthesizing the active component, developing the formulation and determining the manufacturing process, as well as carrying out non-human toxicology, pharmacology and drug metabolism studies which support subsequent clinical testing. Good laboratory practice requirements must be followed in order for the resulting data to be considered valid and reliable. For established molecules this stage can be limited to formulation and manufacturing process development and in vitro studies to support subsequent clinical evaluation.

 

The clinical stage of development can generally be divided into Phase I, Phase II and Phase III clinical trials. In Phase I, generally, a small number of healthy volunteers are initially exposed to a single dose and then multiple doses of the product candidate. The primary purpose of these studies is to assess the metabolism, pharmacologic action, side effect tolerability and safety of the drug. Studies in volunteers are also undertaken to begin assessing the pharmacokinetics of the drug (e.g. the way in which the body deals with the compound from absorption, to distribution in tissues, to elimination).

 

Phase II trials typically involve studies in disease-affected patients to determine the dose required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected. Phase III trials generally involve large numbers of patients from a number of different sites, which may be in one country or in several different countries or continents. Such trials are designed to provide the pivotal data necessary to establish the effectiveness of the product for its intended use, and its safety in use, and typically include comparisons with placebo and/or other comparator treatments. The duration of treatment is often extended to mimic the actual use of a product during marketing.

 

Prior to the start of human clinical studies of a new drug in the United States or, generally, for submission in support of a U.S. marketing application, an investigational new drug application, or IND, is filed with the FDA. Similar notifications are required in other countries. The amount of data that must be supplied in the IND application depends on the phase of the study. Earlier investigations, such as Phase I studies, typically require less data than the larger and longer-term studies in Phase III. A clinical plan must be submitted to the FDA prior to commencement of a clinical trial. In general, studies may begin in the U.S. without specific approval by the FDA 30-days after submission of the IND. However, the FDA may prevent studies from moving forward, and may suspend or terminate studies once initiated. Regular reporting of study progress and adverse experiences is required. During the testing phases, meetings can be held with the FDA to discuss progress and future requirements for the NDA. Studies are also subject to review by independent institutional review boards responsible for overseeing studies at particular sites and protecting human research study subjects. An independent institutional review board may prevent a study from beginning or suspend or terminate a study once initiated. Studies must also be conducted and monitored in accordance with good clinical practice and other requirements.

 

Following the completion of clinical trials, the data must be thoroughly analyzed to determine if the clinical trials successfully demonstrate safety and efficacy. If they do the data can be filed with the FDA in an NDA along with proposed labeling for the product and information about the manufacturing and testing processes and facilities that will be used to ensure product quality. In the US, FDA approval of an NDA must be obtained before marketing a developed product. The NDA must contain proof of safety, purity, potency and efficacy, which entails extensive pre-clinical and clinical testing.

 

Although the type of testing and studies required by the FDA do not differ significantly from those of other countries, the amount of detail required by the FDA can be more extensive. In addition, it is likely that the FDA will re-analyze the clinical data, which could result in extensive discussions between us and the licensing authority during the review process. The processing of applications by the FDA is extensive and time consuming and may

take several years to complete. The FDA’s goal generally is to review and make a recommendation for approval of a new drug within ten months, and of a new “priority” drug within six months, although final FDA action on the NDA can take substantially longer, may entail requests for new data and/or data analysis, and may involve review and recommendations by an independent FDA advisory committee. The FDA may conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether they comply with current good manufacturing practice requirements, and may also audit data from clinical and pre-clinical trials.

 

There is no assurance that the FDA will act favorably or quickly in making such reviews and significant difficulties or costs may be encountered by a Group in its efforts to obtain FDA approvals. The FDA may also require post-marketing testing and surveillance to monitor the effects of approved products or it may place conditions on approvals including potential requirements or risk management plans that could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing.

 

In the European Union, our future products may also be subject to extensive regulatory requirements. As in the U.S., the marketing of medicinal products has for many years been subject to the granting of marketing authorizations by regulatory agencies. Particular emphasis is also being placed on more sophisticated and faster procedures for reporting of adverse events to the competent authorities.

 

In common with the U.S., the various phases of pre-clinical and clinical research are subject to significant regulatory controls. Although the regulatory controls on clinical research are currently undergoing a harmonization process following the adoption of the Clinical Trials Directive 2001/20/EC, there are currently significant variations in the member state regimes. However, all member states currently require independent institutional review board approval of interventional clinical trials. With the exception of U.K. Phase 1 studies in healthy volunteers, all clinical trials require either prior governmental notification or approval. Most regulators also require the submission of adverse event reports during a study and a copy of the final study report.

 

In the European Union, approval of new medicinal products can be obtained through one of three processes. The first such process is known as the mutual recognition procedure. An applicant submits an application in one European Union member state, known as the reference member state. Once the reference member state has granted the marketing authorization, the applicant may choose to submit applications in other concerned member states, requesting them to mutually recognize the marketing authorizations already granted. Under this mutual recognition process, authorities in other concerned member states have 55 days to raise objections, which must then be resolved by discussions among the concerned member states, the reference member state and the applicant within 90 days of the commencement of the mutual recognition procedure. If any disagreement remains, all considerations by authorities in the concerned member states are suspended and the disagreement is resolved through an arbitration process. The mutual recognition procedure results in separate national marketing authorizations in the reference member state and each concerned member state.

 

The second procedure in the European Union for obtaining approval of new medicinal products is known as the centralized procedure. This procedure is currently mandatory for products developed by means of a biotechnological process and optional for new active substances and other “innovative medicinal products with novel characteristics.” Under this procedure, an application is submitted to the European Agency for the Evaluation of Medical Products. Two European Union member states are appointed to conduct an initial evaluation of each application. These countries each prepare an assessment report, which reports are then used as the basis of a scientific opinion of the Committee on Proprietary Medical Products. If this opinion is favorable, it is sent to the European Commission which drafts a decision. After consulting with the member states, the European Commission adopts a decision and grants a marketing authorization, which is valid throughout the European Union and confers the same rights and obligations in each of the member states as a marketing authorization granted by that member state.

 

The third, and most recently introduced procedure in the European Union, is known as the decentralized procedure. This is similar to the mutual recognition procedure described above, but with some differences: notably in the time key documents are provided to concerned member states by the reference member state, the overall timing of the procedure and the possibility of “clock stops” during the procedure.

 

The European Union is currently expanding, with a number of Eastern European countries joining recently and expected to join over the coming years. Several other European countries outside the European Union, particularly those intending to accede to the Union, accept European Union review and approval as a basis for their own national approval.

 

Following approval of a new product, a pharmaceutical company generally must engage in various monitoring activities and continue to submit periodic and other reports to the applicable regulatory agencies, including any cases of adverse events and appropriate quality control records. Modifications or enhancements to the products or labeling, or changes of site of manufacture are often subject to the approval of the FDA and other regulators, which may or may not be received or may result in a lengthy review process.

 

Prescription drug advertising and promotion is subject to federal, state and foreign regulations. In the U.S., the FDA regulates all company and prescription drug product promotion, including direct-to-consumer advertising. Promotional materials for prescription drug products must be submitted to the FDA in conjunction with their first use. Use of volatile materials may lead to FDA enforcement actions. Any distribution of prescription drug products and pharmaceutical samples must comply with the U.S. Prescription Drug Marketing Act, or the PDMA, a part of the U.S. Federal Food, Drug, and Cosmetic Act.

 

In the U.S., once a product is approved its manufacture is subject to comprehensive and continuing regulation by the FDA. The FDA regulations require that products be manufactured in specific approved facilities and in accordance with current good manufacturing practices, and NDA holders must list their products and register their manufacturing establishments with the FDA. These regulations also impose certain organizational, procedural and documentation requirements with respect to manufacturing and quality assurance activities. NDA holders using contract manufacturers, laboratories or packagers are responsible for the selection and monitoring of qualified firms. These firms are subject to inspections by the FDA at any time, and the discovery of violative conditions could result in enforcement actions that interrupt the operation if any such facilities or the ability to distribute products manufactured, processed or tested by them.

 

The distribution of pharmaceutical products is subject to additional requirements under the PDMA and equivalent laws and regulations in other jurisdictions. For instance, states are permitted to require registration of distributors who provide products within their state despite having no place of business within the state. The PDMA also imposes extensive record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.

 

Manufacturing, sales, promotion, and other activities following product approval are also subject to regulation by numerous regulatory authorities in addition to the FDA, including, in the U.S., the Centers for Medicare & Medicaid Services, other divisions of the Department of Health and Human Services, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, and state and local governments. Sales, marketing and scientific/educational programs must also comply with the U.S. Medicare-Medicaid Anti-Fraud and Abuse Act and similar state laws. Pricing and rebate programs must comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. The handling of any controlled substances must comply with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities are also potentially subject to federal and state consumer protection and unfair competition laws.

 

The failure to comply with regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to allow a firm to enter into supply contracts, including government contracts. In addition, even if a firm complies with FDA and other requirements, new information regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw a product approval. Prohibitions or restrictions on sales or withdrawal of future products marketed by us could materially affect our business in an adverse way.

 

Changes in regulations or statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example:

 

 

If any such changes were to be imposed, they could adversely affect the operation of our business.

 

Manufacturing and Supply

 

Amarin Neuroscience Limited is currently responsible for the supply of the clinical supplies of Miraxion, through its sub-contractors, and will be responsible for the commercial manufacturing and supply of Miraxion should the FDA approve this compound. All supplies of the bulk compound (ethyl-eicosapentaenoate (“ethyl-EPA”)) which constitutes the only pharmaceutically active ingredient of Miraxion are currently purchased from Nisshin Pharma, Inc., a currently qualified manufacturer, pursuant to a supply agreement whereby the supply is at a fixed price. The main raw material that constitutes ethyl- EPA is a naturally occurring substance which is sourced from marine life. The manufacturing processes that are applied by Nisshin to such raw material are proprietary to Nisshin and produce a pharmaceutical grade compound at a level of purity of at least 95%. We are aware that certain other manufacturers have the ability to produce ethyl-EPA to a similar pharmaceutical standard and level of purity. Once approved, use of bulk compound produced by a different manufacturer than that specified and qualified in the NDA may require extensive additional testing and supplemental approval by the FDA.

 

Patents and Proprietary Technology

 

We firmly believe that patent protection of our technologies, processes and products is important to our future operations. The success of our products may depend, in part, upon our ability to obtain strong patent protection. There can however be no assurance that:

 

 

When deemed appropriate, we intend to vigorously enforce our patent protection and intellectual property rights.

 

Our strategy is to file patent applications where we think it is appropriate to protect and preserve the proprietary technology and inventions considered significant to our business. Currently, Amarin has applied for 381 patents worldwide and has 282 issued patents covering various of our compounds and their uses. These include use patents issued for the method of treating a number of CNS and cardiovascular disorders with highly pure forms of EPA and composition of matter patents relating to potential second generation technology platforms. We will also rely upon trade secrets and know-how to retain our competitive position. We will file patent applications either on a country-by-country basis or by using the European or international patent cooperation treaty systems. The existence of a patent in a country may provide competitive advantages to us when seeking licensees in that country. In general, patents granted in most European countries have a twenty-year term, although in certain circumstances the term can be extended by supplementary protection certificates. We may be dependent in some cases upon third party licensors to pursue filing, prosecution and maintenance of patent rights or applications owned or controlled by those parties.

 

It is possible that third parties will obtain patents or other proprietary rights that might be necessary or useful to us. In cases where third parties are first to invent a particular product or technology, it is possible that those parties will obtain patents that will be sufficiently broad so as to prevent us from utilizing such technology. In addition, we

may use unpatented proprietary technology, in which case there would be no assurance that others would not develop similar technology. See Item 3 “Key Information — Risk Factors — we will be dependent on patents, proprietary rights and confidentiality.”

 

 

Following the sale of Gacell Holdings AB and its wholly owned subsidiary Amarin Development AB on October 28, 2003, the sale of API on February 25, 2004 and the acquisition of Laxdale Limited on October 8, 2004, all of our commercial activities are carried out through Amarin Corporation plc and our subsidiaries Amarin Neuroscience Limited (formerly known as Laxdale Limited), and Amarin Pharmaceuticals Ireland Limited.

 

Details of all of our significant subsidiaries are summarized below:

 

 

 

The following table lists the location, use and ownership interest of our principal properties as of March 5, 2007:

 

 

We vacated the premises in Ely, Cambridgeshire in July 2001 and have sub-let the lease for this space. We have sub-let the lease in Godmanchester to Phytopharm plc who occupy the premises on a “held over” basis under the terms of a lease, the term of which expired in January 2002.

 

On April 27, 2001, we signed a lease covering approximately 2,830 square feet of office space located at 7 Curzon Street, London, Mayfair, W1J 5HG, England, to serve as our corporate head office. This lease expires in March 2010.

 

On July 4, 2006, we signed a lease covering approximately 3,000 square feet of office space located at 1st Floor, Magdalen Centre North, Oxford Science Park, Oxford, OX4 4GA, England. This lease expires in July 2009.

 

On January 1, 2006, we signed a lease covering approximately 1,130 square feet of office space located at 50 Pembroke Road, Ballsbridge, Dublin 4, Ireland. This lease expires in June 2007.

 

On January 22, 2007, we signed a lease covering approximately 3,251 square feet of office space located at The Oval, Block 3, 1st Floor, Shelbourne Road, Dublin 4. This lease expires December 2026 and can be terminated in 2012.

 

We believe that our facilities are sufficient to meet our current and immediate future requirements. We have no manufacturing capacity at any of the above properties.

 

None

 

 

The following discussion of operating results should be read in conjunction with our selected financial information set forth in Item 3 “Key Information — Selected Financial Data” and our consolidated financial statements and notes thereto beginning on page F-1 of this annual report.

 

Comparison of Fiscal Years Ended December 31, 2006 and December 31, 2005

 

Overview

 

We are committed to improving the lives of patients suffering from diseases of the central nervous system. Our goal is to be a leader in the research, development and commercialization of novel drugs that address unmet patient needs. We have undergone major change over the last three years, including divestiture of our drug delivery business and the majority of our U.S. assets, settlement of our obligations to Elan, the acquisition of Amarin Neuroscience Limited (formerly Laxdale) and financing activity (excluding the exercise of warrants and options) that raised approximately gross proceeds of $84.9 million. The Group is now focused on advancing and expanding its research and development pipeline. During 2006, we progressed our Phase III clinical trials for Miraxion in Huntington’s disease which were initiated in 2005. These trials have now completed and we remain on schedule to report headline data from these trials in the second quarter of 2007. During 2006, we also acquired the global rights to a novel oral formulation of Apomorphine for the treatment of “off” episodes in patients with advanced Parkinson’s disease.

 

Revenue

 

During 2006, we earned milestone revenue of $0.5 million under a license agreement signed with Multicell. In 2005, pursuant to which we granted the exclusive, worldwide rights to LAX-202 (renamed MCT-125) for the treatment of fatigue in patients suffering from multiple sclerosis. Multicell intends to commence a Phase IIb trial of MCT-125 in 2007.

 

Research and Development

 

The U.S. and E.U. Miraxion trials into Huntington’s disease achieved full Phase III enrollment in June and July respectively. This activity was the primary driver for the almost doubling of R&D spend over 2005 to $17.2 million, an increase of 93%. In addition we also incurred costs in acquiring and developing a novel oral formulation of Apomorphine.

 

General and Administrative

 

General and administrative expenses were $14.5 million in 2006 compared with $12.3 million in 2005, an increase of 18%. This increase in spend was primarily due to professional fees of $3.2 million associated with activities during the year, AIM/IEX listing, Sarbanes-Oxley preparation and fees associated with potential business opportunities. There was also an increase in personnel costs during the year.

 

Restructuring Charge

 

During 2006, we completed the restructuring commenced in 2005. In 2006 we had a restructuring charge of $0.5 million compared to $0.7 million in 2005. The Stirling facility in Scotland has now been vacated and employees relocated to Oxford, England.

 

Net Interest Income

 

Net interest income for 2006 was $3.4 million compared to net interest expense of $0.5 million for 2005. The 2006 net income comprises interest and similar income of $1.3 million compared to $0.4 million in 2005, an

increase of 225% which was earned from cash balances held on deposit, and interest expense and similar charges of $nil compared to $0.1 million in 2005. We hold cash denominated in pounds sterling, U.S. Dollars and euro. In 2006, a gain of $2.1 million was recorded from holding pounds sterling and euro as the U.S. Dollar weakened. We manage foreign exchange risk by holding our cash in the currencies in which we expect to incur future cash outflows.

 

Taxation

 

A research and development tax credit of $0.8 million is recognized in the year ended December 31, 2006 compared to $0.7 million in 2005, an increase of 14%. Under U.K. tax law, qualifying companies can surrender part of their tax losses in return for a cash refund.

 

Comparison of Fiscal Years Ended December 31, 2005 and December 31, 2004

 

Overview

 

While 2004 was a year of transformation for Amarin — with the sale of our U.S. business, the settlement of all outstanding obligations to Elan and the acquisition of Laxdale — 2005 was a year of consolidation. We achieved our critical objectives of advancing its development pipeline and securing adequate funding to bring Miraxion through its two Phase III trials in Huntington’s disease. In 2004, we saw significant change to the business with the sale of our U.S. sales and marketing operations, the settlement of outstanding debt obligations and the acquisition of Laxdale, our former research partner.

 

Continuing Operations

 

Revenue

 

We had no marketable products during 2005, all of the Group’s marketable products having divested all of our revenue producing assets been divested as part of the sale of our U.S. business in February 2004. In 2005, we licensed the exclusive, worldwide rights to MCT-125(formerly LAX-202) for the treatment of fatigue in patients suffering from multiple sclerosis and received an initial access fee of $0.5 million. Revenues in 2004 entirely relate to our two divested businesses, API and ADAB, and have been classified as discontinued activities.

 

Operating Expenses

 

Total operating expenses for the continuing business were $21.2 million in 2005 compared to $10.6 million in 2004, an increase of 100%. These expenses include amounts for share-based compensation of $1.8 million and $0.7 million for 2005 and 2004 respectively. This increase was as a result of the inclusion of Laxdale’s expenses for the full year December 31, 2005 compared only for the post acquisition period from October 9, 2004 to December 31, 2004. In addition we commenced two Phase III trials with Miraxion in Huntington’s disease. Other increases were due to increased intellectual property, additional staff costs and facility costs of vacant property.

 

Research and Development.

 

Research and development expenses consist primarily of external clinical trial costs and salaries and benefits of research and development personnel. Research and development expenses for continuing operations were $8.9 million compared to $1.2 million in 2004. These expenses include amounts for share-based compensation of $0.6 million and $0.2 million for 2005 and 2004 respectively. The increase was primarily due to the inclusion of Laxdale’s expenses for the full year to December 31, 2005 compared to only for the post-acquisition period from October 9, 2004 to December 31, 2004 in the comparative period. In addition, we commenced two Phase III trials with Miraxion in Huntington’s disease, the U.S. trial in September 2005 and the E.U. trial in December 2005.

 

Selling, General and Administrative.

 

Selling, general and administrative expenses consist primarily of salaries and benefits earned by selling, general and administrative personnel, personnel-related overhead allocation, professional fees and facility costs. Selling, general and administrative expenses were $12.3 million in 2005 compared to $9.4 million in 2004. These

expenses include amounts for share-based compensation of $1.2 million and $0.5 million for 2005 and 2004 respectively. The 2005 SG&A charge also includes a restructuring charge of $0.6 million outlined in the following note below. The increase was primarily due to increased intellectual property, additional staff costs and facility costs of vacant property.

 

Restructuring Charge

 

During 2005, we recorded restructuring charges of $0.6 million in SG&A to align our business for maximum efficiency. Our restructuring plan resulted in a reduction in headcount and the relocation of research and development function to Oxford in England. In determining the charges to record, we made certain estimates and judgments surrounding the amounts ultimately to be paid for the actions we have taken or are committed to take. At December 31, 2005, there were various accruals recorded for the costs to terminate employees’ contracts and exit certain facilities and lease obligations, which may be adjusted periodically for either resolution of certain contractual commitments or changes in estimates. We did not incur any restructuring charge in 2004.

 

Amortization

 

Amortization attributable to continuing operations relates to Miraxion and is included in selling, general and administrative expenses. Amortization expense was $0.7 million in 2005, a 13% increase compared to $0.6 in 2004. This increase was primarily as a result of revaluing our intangible fixed assets in connection with our acquisition of Laxdale which did not recur in 2005. During November 2000, we acquired limited rights to Miraxion as a licensee. On the date of acquiring Laxdale, the intangible fixed asset had a net book value of approximately $3.6 million. The Laxdale acquisition gave rise to the recognition of a further intangible fixed asset, representing intellectual property rights, relating to Miraxion (formerly known as Lax-101) and other intellectual property valued at $6.9 million. At the time of the Laxdale acquisition the useful economic life remaining for the November 2000 intangible fixed asset and the intangible acquired on purchase of Laxdale was determined as 15.5 years, representing the time to patent expiry.

 

Foreign exchange

 

We hold cash in pounds sterling, U.S. Dollars and euro. In 2005, continuing operations incurred a loss of $0.8 million arising from holding pounds sterling as the U.S. Dollar strengthened. Offsetting this loss was a $0.9 million gain arising on the translation into U.S. Dollars of the operating results of our research and development subsidiary, Laxdale, whose functional currency was pounds sterling.

 

Interest Income and Interest Expense

 

Net interest expense for 2005 was $0.5 million compared to net interest income of $0.2 million for 2004. The 2005 net income comprises interest and similar income of $0.4 million compared to $0.5 million in 2004 which was earned from cash balances held on deposit and on the loan made to Laxdale prior to its acquisition, and interest expense and similar charges of $0.9 million compared to $0.3 million in 2004. The interest expense arises on the loan from Elan (which was subsequently assigned to Mr. Thomas Lynch), as explained in more detail below in “— Liquidity and Capital Resources.” Net interest expense is a loss in 2005 of $0.5 million primarily due to holding cash balances in sterling. A portion of our existing expenditure is denominated in sterling and we thus hold some cash in sterling to meet the cash flow requirements. However the dollar strengthened against sterling in 2005, leaving a book loss of $0.8 million for the year.

 

Discontinued Operations

 

There were no discontinued operations in 2005. For the year ended December 31, 2004, we earned an operating loss of $1.3 million on discontinued activities. The operating loss from discontinued activities for 2004 reflects:

 

 

 

In addition, three exceptional items relating to discontinued activities arose in 2004 as follows:

 

 

Revenue

 

Revenues from discontinued operations in 2004 were $1.0 million reflecting revenue attributable to API being included from January 1 to February 25, 2004, being the date of its disposal. In 2004, all of our revenue was attributable to discontinued operations.

 

Gross Margin

 

The gross margin for 2004 from discontinued operations was a profit of $0.9 million from attributale to API for the period January 1 to February 25 2004, its disposal date. We are now focused on research and development and has divested itself of all its revenue generating products.

 

Operating Expenses

 

In 2004, operating expenses for discontinued operations included selling, general and administrative expenses of $1.6 million which were costs that originated at API prior to its divesture, research and development expenses of $2.5 million representing our obligations to fund Zelapar safety studies as part of the disposal of API to Valeant, and $2.0 million of other income associated with the settlement of our dispute with Valeant. The $2.5 million in 2004 reflects the costs incurred by us on Zelapar as explained above. Included in operating expenses is $0.1 million in respect of share based payments arising on the adoption of FRS 20, “Share based payments”.

 

Amortization

 

Amortization of Permax and the Primary Care Portfolio is included in selling, general and administrative expenses. Amortization expense was $nil in 2004, as both Permax and the Primary Care Portfolio were impaired down to their net realized values, at December 31, 2003, using the disposal proceeds values arising from the February 25, 2004 disposal to Valeant.

 

Taxation

 

A non-cash deferred tax accounting charge of $7.5 million on the exceptional gain on the settlement of debt obligations to Elan is included in the tax charge for the year ended December 31, 2004.

 

Preference Share Dividend

 

During 2003, the last remaining 2,000,000 3% convertible preference shares held by Elan were converted into 2,000,000 ordinary shares and non-equity dividends of $24,000 were accrued. On conversion, Elan gave up their

preferential rights, including rights to an accrued dividend, in exchange for the new ordinary shares allocated. In February 2004, Amarin settled its debt obligations with Elan by the payment of cash and the issue of a $5.0 million loan note. As a result, with there being no longer a need to maintain an accrual for a preference dividend in 2004, Amarin released the accrued preference share dividends of $643,000.

 

Critical Accounting Policies

 

Our significant accounting policies are described in Note 2 to the consolidated financial statements beginning on page F-1 of this annual report. Our consolidated financial statements are presented in accordance with accounting principles that are generally accepted in the U.K. All professional accounting standards effective as of December 31, 2006 have been taken into consideration in preparing the consolidated financial statements. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of our Consolidated Financial Statements, as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following;

 

 

Intangible Assets

 

Under U.K. GAAP, intangible fixed assets are recognized when they meet the definitions set out in accounting standards. FRS 7 “Fair values in acquisition accounting” refers to separability (where items can be disposed of separately from the company as a whole) and control (e.g. via custody or legal/contractual rights). FRS 10 “Goodwill and intangible assets” refers to reliable measurement. We have applied these standards to the acquisition of Amarin Neuroscience Limited (see note 3 to this Form 20-F annual report) such that the value of the intangible fixed asset recognized, as supported by risk adjusted discounted cashflow analysis, is capped to ensure negative goodwill does not arise.

 

U.K. GAAP requires that we periodically evaluate acquired assets for potential impairment indicators. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions, and operational performance and expected cash flows from the assets. Since indications of impairments can result from events outside of our control, it can be difficult to predict when an impairment loss may occur. However, should an impairment occur, we would be required to write down the carrying value of the affected asset to its recoverable amount and to recognize a corresponding charge to the income statement. Any such impairment may have a material adverse impact on our financial condition and results of operations.

 

When we acquire a development product, as required under U.K. GAAP, amounts paid are capitalized and amortized over the estimated life of that asset. If the intangible asset is a marketed product, the amount capitalized is reviewed for impairment by comparing the net present value of future cash flows to the carrying value of the asset.

 

Under U.S GAAP, long-lived assets chiefly relate to amounts capitalized in connection with acquired intangible assets. These assets are amortized over their estimated useful lives, which generally range from ten to fifteen years. Management periodically reviews the appropriateness of the remaining useful lives of its long-lived assets in the context of current and expected future market conditions. In the event that we are required to reduce our estimate of the useful lives of any of our long-lived assets, it would shorten the period over which we amortize the affected asset and may result in a material increase of amortization expense prospectively from the date of the change in estimate.

 

Overview of U.K. GAAP and U.S. GAAP difference

 

Under U.K. GAAP, pharmaceutical products which are in the clinical trials phase of development can be capitalized and amortized where there is a sufficient likelihood of future economic benefit. Under U.S. GAAP, specific guidance relating to pharmaceutical products in the development phase requires such amounts to be expensed unless they have attained certain regulatory milestones.

 

Revenue Recognition

 

Prior to the sale of our U.S. business in February 2004 we derived the majority of our revenues from the sale of pharmaceutical products. Under U.K. GAAP, we recognized revenue for the invoiced value of products delivered to the customer, less applicable discounts. Under U.S. GAAP, revenue for the sale of pharmaceutical products was similar to U.K. GAAP. Our normal sales terms allowed for product returns under certain conditions. We accrued for estimated sales returns and allowances and offset these amounts against revenue. We regularly reviewed our estimates against actual returns and also factored in other variables such as planned product discontinuances and market and regulatory considerations. Actual returns and deductions were processed against returns and deductions reserves and such reserves were updated to reflect differences between estimates and actual experience.

 

Under U.K. GAAP, income under license agreements is recognized when amounts have been earned through the achievement of specific milestones set forth in those agreements and/or the costs to attain those milestones have been incurred by us. We assess whether collection is probable at the time of the transaction. If we determine that collection is not probable, we defer the revenue and recognize at the time collection becomes probable, which is generally on receipt of cash.

 

Under U.S. GAAP and in accordance with Staff Accounting Bulletin 101 “Revenue Recognition in Financial Statements”, as updated by Staff Accounting Bulletin 104 “Revenue Recognition” and Emerging Issues Task Force or EITF00-21 “Revenue Arrangements with Multiple Deliverables”, revenue from licensing agreements would be recognized based upon the performance requirements of the agreement. Non-refundable fees where the Group has an ongoing involvement or performance obligation would be recorded as deferred revenue in the balance sheet and amortized into license fees in the profit and loss account over the estimated term of the performance obligation.

 

Overview of U.K. GAAP and U.S. GAAP difference

 

Under U.K. GAAP milestone payments have been recognized when achieved. Under U.S. GAAP, the Group’s adoption of SAB 101 (which has now been updated by SAB 104) resulted in the deferral of revenue associated with certain up-front payments and refundable milestone payments. This deferred revenue is then released to the income statement systematically over time.

 

Research and Development Expenditure

 

The Group undertakes research and development, including clinical trials to establish and provide evidence of product efficacy. We enter into contracts with CRO’s to conduct these trials on our behalf. These contracts will run for the life of the trial which, invariably will exceed twelve months. It is Amarin’s policy to expense clinical trial costs as incurred rather than capitalizing these costs. Costs are expensed to the income statement on a systematic basis over the estimated life of the trials to ensure the costs charged reflect the research and development activity performed.

 

Overview of U.K. GAAP and U.S. GAAP difference

 

The accounting treatment is consistent in both U.K. and U.S. GAAP.

 

Foreign Currency

 

The U.S. Dollar is our functional currency. A percentage of our expenses, assets and liabilities are denominated in currencies other than our functional currency. Fluctuations in exchange rates may have a material adverse effect on our results of operations. We cannot accurately predict the impact of future exchange rate fluctuations on our consolidated results of operations. Under U.K. GAAP, foreign currency subsidiaries are consolidated into consolidated financial statements using the translation method most appropriate for their circumstances. Under

SSAP 20, foreign currency subsidiaries that are interlinked and dependant on the Group for funding and decision making are translated and consolidated using the temporal method. Foreign currency movements are allocated to selling, general and administrative expenses, research and development expenses and interest during the year. Foreign currency subsidiaries do not have access to a separate source of finance and are dependant on the Group for funding.

 

Overview of U.K. and U.S. GAAP difference

 

Under U.K. GAAP, under SSAP 20, both Amarin Neuroscience Limited and Amarin Pharmaceuticals Ireland Limited meet the criteria to use the temporal method and accordingly losses on translation for consolidation are reported within the income statement. Under U.S. GAAP, under FAS 52, all gains and losses arising on translation for consolidation are reported as part of shareholder’s equity within other comprehensive income, similar to U.K. GAAP closing rate method.

 

Impact of Inflation

 

Although our operations are influenced by general economic trends, we do not believe that inflation had a material impact on our operations for the periods presented.

 

Foreign Currency

 

The U.S. dollar is the functional currency for the Company. A percentage of our expenses, assets and liabilities are denominated in currencies other than our functional currency. Fluctuations in exchange rates may have a material adverse effect on our consolidated results of operations and could also result in exchange gains and losses. We cannot accurately predict the impact of future exchange rate fluctuations on our consolidated results of operations. We aim to minimize our foreign currency risk by holding cash balances in the currencies in which we expect to incur future cash outflows. We had no derivative or hedging transactions in 2006, 2005 or 2004.

 

Governmental Policies

 

We are not aware of any governmental, economic, fiscal, monetary or political policies that have materially affected or could materially affect, directly or indirectly, our operations or investments by U.S. shareholders.

 

 

Our capital requirements relate primarily to clinical trials, employee infrastructure and working capital requirements. Historically, we have funded our cash requirements primarily through the public and private sales of equity securities. As of December 31, 2006 we had approximately $36.8 million in cash representing an increase of $2.9 million compared to December 31, 2005. Amarin, based upon current business activities, forecast having sufficient cash to fund operations for at least the next 12 months and potentially beyond depending on the outcome of Miraxion’s Phase III trials in Huntington’s disease and/or partnering activities ongoing with our development pipeline.

 

Over the three years ended December 31, 2006, we have received $79.4 million in cash from the issuance of shares (net of expenses) and $11.9 million in loans, the loans having been provided by Elan, a related party until October 2004. We have made loan repayments of $18.2 million during this three-year period. These repayments related to loans received during the three years ended December 31, 2004 and in earlier periods. During 2004, we settled and re-financed the Group’s remaining debt.

 

Cash

 

As of December 31, 2006, we had approximately $36.8 million in cash compared with $33.9 million as of December 31, 2005. Our cash has been invested primarily in U.S. Dollar, sterling pound and euro denominated money market and checking accounts with financial institutions in the U.K. having a high credit standing.

 

Cash flows expended on continuing operations were $24.8 million for the year ended December 31, 2006 as compared with $15.5 million for the year ended December 31, 2005 and $11.1 million for the year ended

December 31, 2004. Cash flows generated on discontinued operations were $1.0 million for the year ended December 31, 2004.

 

The operating cash flows expended on continuing operations reflect funding of the operating loss of $31.2 million adjusted for non-cash depreciation and amortization ($0.8 million), a non-cash fixed asset impairment and disposal of $0.3 million, a non-cash inflow in respect of share based compensation of $2.2 million, and a net inflow on working capital of $3.0 million. In 2005, the operating cash flows expended on continuing and discontinued operations reflect funding of the operating loss of $20.7 million adjusted for non-cash depreciation and amortization ($0.8 million), a non-cash inflow in respect of share based compensation of $1.8 million, and a net inflow on working capital of $3.3 million.

 

Cash flows expended on investing activities were $0.2 million in 2006 as compared to $0.1 million generated in 2005. Our investing activities related to the purchase of fixed assets.

 

In 2006, cash of $2.5 million was expended on the professional fees and other costs associated with the financings. In 2005, cash of $3.9 million was expended on the professional fees and other costs associated with the financings.

 

Cash inflows from financing activity in 2006, net of related expenses, were $24.0 million, compared to cash inflows from financing activities in 2005 and 2004, net of related expenses, of $38.6 million and $5.5 million respectively. Net cash provided by financing activities in 2006 comprised two financings yielding $20.8 million, shares issued pursuant to certain pre-existing contractual commitments yielding $4.2 million and other warrant and option exercises of $1.4 million, offset by issuance costs of $2.5 million. Net cash provided by financings in 2005 comprised two financings yielding $42.2 million and other option exercises of $0.3 million offset by issuance costs of $3.9 million.

 

Net cash provided by financings in 2004 comprised a private placement of ordinary shares ($12.8 million) offset by issuance costs of $1.0 million.

 

On October 23, 2006, we accepted subscriptions of $18.7 million from institutional and other accredited investors for approximately 9.0 million ADSs in a registered direct offering at a purchase price of $2.09 per share. The net proceeds of our October registered offering (taking into account professional advisers’ fees associated with filing the related registration agreement, cash fees of our placement agent and government stamp duty but not our travel, printing or other expenses) were approximately $17.3 million.

 

On March 31,2006, we issued approximately 2.4 million ordinary shares in consideration for $4.2 million raised in a registered direct financing which was completed pursuant to pre-existing contractual commitments arising from a previously completed financing in May 2005.

 

On January 23, 2006, we issued a total of approximately 0.9 million ordinary shares and issued warrants to purchase approximately 0.3 million ordinary shares at an exercise price of $3.06 in consideration for $2.1 million raised in the January 23, 2006, private equity placement.

 

On December 22, 2005, we entered into definitive purchase agreements for a private equity placement, consisting of ordinary shares and warrants, resulting in gross proceeds of $26.4 million. In accordance with the terms of the financing, Amarin sold approximately 26.1 million ordinary shares at $1.01 per share and issued warrants to purchase approximately 9.1 million ADSs at an exercise price of $1.43 per share. The net proceeds of this private placement (taking into account professional advisers’ fees associated with filing the related registration agreement, cash fees of our placement agent and government stamp duty but not our travel, printing or other expenses) were approximately $23.9 million.

 

On May 24, 2005, we accepted subscriptions of $17.8 million from institutional and other accredited investors, including certain of our directors and executive officers of Amarin, for 13.7 million American Depository Shares in a registered direct offering at a purchase price of $1.30 per share. The net proceeds of this registered offering (taking into account professional advisers’ fees associated with filing the related registration agreement, cash fees of our placement agent and government stamp duty but not our travel, printing or other expenses) were approximately $16.5 million. On closing of this transaction, AIHL redeemed the remaining $2 million in principal amount of its

8% loan notes issued by Amarin and used the proceeds of the redemption together with a further $250,000 to subscribe for shares in this offering.

 

On October 7, 2004, we completed a private placement of 13,474,945 Ordinary Shares, raising gross proceeds of approximately $12.8 million. The net proceeds of this private placement (taking into account professional advisors’ fees associated with filing the related registration agreement with the SEC, cash fees of our placement agent and government stamp duty but not our travel, printing or other expenses) were approximately $11.8 million.

 

In 2004, cash of $0.8 million was expended on the professional fees and other costs associated with the acquisition of Amarin Neuroscience Limited, together with the assumption of $2.7 million in overdrafts and loans $1.8 million of cash was eliminated from the Group upon the disposal of API. Cash of $1.6 million was received for the disposal of shares in API offset by cash outflows of $11.8 million associated with the API disposal. Such outflows included $9.3 million in inventory management fees, legal and transaction fees of $2.3 million and $0.2 million in rental payments in respect of the premises formerly occupied by API in Mill Valley, California. In 2004, cash of $0.8 million was received relating to the remaining escrow proceeds of the 2003 disposal of ADAB.

 

At December 31, 2006 and 2005 we had no debt. At December 31, 2004, we had total debt of $2.0 million with a cash maturity in 2009. This was reduced from debt of $35.4 million due on demand at December 31, 2003. The $35.4 million of debt was settled in the first quarter of 2004, following the sale of our U.S. operations in the first quarter of 2004. On September 29, 2004, Amarin Investment Holding Limited (“AIHL”) an entity controlled by our chairman, Mr. Thomas Lynch, signed an agreement with Elan to acquire its remaining debt and equity interests in Amarin, including the remaining $5 million of loan notes owed by us to Elan. On October 7, AIHL agreed to redeem $3 million of the $5 million of loan notes for 2,717,391 ordinary shares with an option to redeem the remaining $2 million at the offering price of any future equity financing. In May 2005, AIHL exercised this option in full.

 

All treasury activity is managed by the corporate finance group. Cash balances are invested in short-term money market deposits, either dollar, sterling or euro. No formal hedging activities are undertaken although cash balances are maintained in currencies that match our financial obligations and forecast cashflows.

 

At December 31, 2006 and 2005 we had cash balances of $36.8 million and $33.9 million, respectively. We intend to fund our operating expenses from existing cash balances. Based upon current business activities, we forecast having sufficient cash to fund operations for at least the next 12 months and potentially beyond depending on the outcome of Miraxion’s Phase III trials in Huntington’s disease and/or the partnering activities ongoing with our development pipeline. These forward-looking statements involve risks and uncertainties, and actual results could vary.

 

 

Following the acquisition of Laxdale Limited on October 8, 2004, Amarin has an in-house research and development capability and expertise, supplemented by retained external consultants. Prior to their disposals, Amarin undertook research and development activities through ADAB and API. Costs classified as research and development are written off as incurred, as are patent costs. Such costs include external trial costs, clinical research organization costs, staff costs, professional and contractor fees, materials and external services. Details of amounts charged in the three years ended December 31, 2006, are disclosed above. Specifically, we incurred $17.2 million in 2006. In 2005, we incurred costs of $8.9 million (2004: $3.7 million). Following the acquisition of Laxdale our expenditure will be increasingly focused on proprietary research and development, as we pursue our goal of becoming a leader in the research, development and commercialization of novel drugs for CNS disorders. In addition, the two Phase III trials with Miraxion in Huntington’s disease continued in 2006 and we engaged external clinical research organizations and consultants to assist us, as detailed below in part F. This resulted in our research and development expenditure increased significantly in 2006 when compared to the levels incurred in prior years.

 

Under U.S. GAAP, in 2004, Amarin incurred an in process research and development charge of $48.2 million representing the write off of the Miraxion intangible asset that arose on the acquisition of Laxdale (see our financial pages beginning on page F-1, Note 43, E).

 

The acquisition of Laxdale provided Amarin with three significant in-process R&D projects:

 

 

Miraxion, at the time of the acquisition, had completed a Phase II trial and an initial Phase III trial for HD. The post hoc data analysis from the initial Phase III trial had illustrated a statistically significant benefit in a significant subset of HD patients. This subset of HD patients represents 65-70% of all HD sufferers. No product has ever been approved for HD in the United States. Final, large Phase III trials need to be designed and completed prior to submitting a New Drug Application (an “NDA”) to the FDA for review and they were commenced in 2005. There is no certainty that the current Phase III trials ongoing will be successful in showing a statistically significant benefit in treating HD. Without successful trials, Miraxion will not be approved in the United States or the European Union.

 

Miraxion had also completed several Phase IIa trials in depressive disorders. Approximately one-third of patients treated with standard depression therapy see no benefit and a further one-third see an initial benefit that dissipates over time. In a number of Phase IIa trials, Miraxion provided benefit to these “treatment-unresponsive” patients. Before Miraxion can be approved for treating depression, further Phase II studies and final Phase III studies must be completed. There is no certainty that such studies will be successfully completed.

 

 

In 2004, we changed our business model and have had no other sources of revenue since then other than revenue pursuant to our outlicensing contract with Multicell and cash inflows from equity offerings. Until we are able to market a product or secure revenue from licensing sources, this trend is expected to continue. We refer users to Items 4B “Business Overview”, 5A “Operating Results” and 5B Liquidity and Capital Resources.

 

 

Although there are no disclosable off balance sheet transactions, there have been transactions involving contingent milestones — see “Note 42 — Related Party Transactions” in the financial statements.

 

 

The following table summarizes our payment obligations as of December 31, 2006. The operating lease obligations primarily represent rent payable on properties leased by the Group. Some of the properties leased by the Group have been sub-let and generate rental income. Purchase obligations relate to manufacturing contracts with a third party for the production of our products.

 

 

There are no capital commitments relating to the Miraxion development project. However, under the purchase agreement for Laxdale, upon the attainment of specified development milestones we will be required to issue

additional Ordinary Shares to the selling shareholders or make cash payments (at the sole option of each of the selling shareholders) and we will be required to make royalty payments of 6% on future sales of Miraxion (consisting of 5% payable to Scarista Limited and 0.5% payable to each of Dr. Malcolm Peet and Dr. Krishna Vaddadi). The final purchase price will be a function of the number of Ordinary Shares of Amarin issued at closing and actual direct acquisition costs, together with contingent consideration which may become payable, in the future, on the achievement of certain approval milestones. Such contingent consideration may become payable upon marketing approval being obtained for approval of products (covered by Laxdale’s intellectual property) by the FDA and EMEA. The first approval obtained in the U.S. and Europe would result in additional consideration of £7,500,000 payable (approximately $14,700,000 at 2006 year end exchange rates), for each territory, to the selling shareholders of Laxdale Limited in either cash or stock (at the sole option of each of the selling shareholders). The second approval obtained in the U.S. and Europe would result in additional consideration of £5,000,000 payable (approximately $9,800,000 at 2006 year end exchange rates), for each approval, to the vendors of Laxdale Limited (see note 35 to our financial statements beginning on page F-1 of this annual report).

 

During 2006, we engaged various clinical research organizations and consultants to assist in the design, project management and roll-out of the ongoing two Phase III trials with Miraxion in Huntington’s disease. We entered into a clinical trial agreement with the University of Rochester on March 18, 2005. Pursuant to this agreement the University is obliged to carry out or to facilitate the carrying out of a clinical trial research study set forth in a research protocol on Miraxion in patients with Huntington’s disease in the U.S. Additionally, we appointed Icon plc, a clinical research organization to carry out a similar study in the European Union. The cost associated with the clinical trial agreements with the University of Rochester and Icon are estimated as follows:

 

 

 

The following table sets forth certain information regarding our officers and directors. A summary of the background and experience of each of these individuals follows the table.

 

Mr. Thomas Lynch joined us on January 21, 2000 as Chairman. Mr. Lynch previously worked at Elan Corporation plc. While there, he had a number of roles including Vice Chairman, Executive Vice President, Chief Financial Officer and Director. Prior thereto, Mr. Lynch was a partner in the international accounting firm of KPMG, where he specialized in the provision of international corporate financial services. In 1994, Mr. Lynch founded a company which became Warner Chilcott, plc and was a Director of that Company from 1994 to 1999 and from then until 2002 as a Director of Galen, plc which acquired Warner Chilcott in 1999. Mr. Lynch is also a director of IDA Ireland (an Irish governmental agency), Icon plc, Profectus BioSciences Inc, the Royal Opera House, Covent Garden, London, and is Chairman of Tripep AB. Mr. Lynch is a graduate of Economics from Queens University Belfast and is a fellow of the Institute of Chartered Accountants in Ireland.

 

Mr. Richard Stewart joined us in November 1998 as our President and Chief Operating Officer and became Chief Executive Officer in 2000. Prior to joining us, Mr. Stewart was responsible for corporate strategy as Corporate Development Director of SkyePharma plc, having previously been their Finance Director. He holds a B.Sc. in business administration from the University of Bath, School of Management. Mr. Stewart joined our board of directors on November 23, 1998.

 

Mr. Alan Cooke was appointed as Chief Financial Officer and executive director in May 2004. Prior to joining Amarin, Mr. Cooke spent approximately eight years at Elan Corporation plc, most recently as Vice President, Global Strategic Planning. Prior to Elan, Mr. Cooke worked at KPMG, Dublin for 4 years. He holds a Bachelor of Commerce degree and a Diploma in Professional Accounting from University College, Dublin. Mr. Cooke is a fellow of the Institute of Chartered Accountants (Ireland).

 

Mr. John Groom joined us as a Non-Executive Director on May 29, 2001. Mr. Groom served as President and Chief Operating Officer of Elan Corporation plc from July 1996 until his retirement in January 2001. Mr. Groom was President, Chief Executive Officer and Director of Athena Neurosciences, Inc. prior to its acquisition by Elan in 1996. Mr. Groom serves on the board of directors of Ligand Pharmaceuticals, Neuronyx Inc. and CV Therapeutics Europe Ltd.

 

Mr. Anthony Russell-Roberts joined us as a Non-Executive Director on April 7, 2000. He has held the position of Administrative Director of The Royal Ballet at the Royal Opera House since 1983. Prior to that, he was Artistic Administrator of the Paris Opera from 1981 after five years of work in the lyric arts in various theatres. Mr. Russell-Roberts’ earlier business career started as a general management trainee with Watney Mann, which was followed by eight years with Lane Fox and Partners, as a partner specializing in commercial property development. He holds an M.A. degree in Politics, Philosophy, and Economics from Oxford University and was awarded a CBE in 2004.

 

Dr. William Mason was appointed as a Non-Executive Director on July 19, 2002. Dr. Mason is an entrepreneur with a strong scientific background in healthcare and life sciences. He received his doctorate in physiology from Trinity College, Cambridge in 1977. For twenty years Dr. Mason led a public and industry-funded program of neuroscience-focused medical research using cellular and molecular genetics, advanced computing and engineering technology for the visualization of chemical events in biological cells and high throughput drug discovery. During this time, Dr. Mason also played an active part as a member of the Advisory Council on Science and Technology in the U.K. Cabinet Office of HM Government focused on changes to the educational system to effect the development of a more highly qualified scientific and technical manpower base in the U.K. He also founded several successful high technology companies. Currently, Dr. Mason is Chairman of OrthoMimetics Ltd., Camlab Ltd., Ranier Technology Ltd., and Team Consulting Ltd., a board director of Sage Healthcare Ltd., Sphere Medical Holdings plc, In Vivo Capital Ltd. and Zygem Ltd. and an Advisory Board Member of Cambridge Gateway Fund. He is also a member of the 3i Independent Directors’ Program.

 

Dr. Simon Kukes was appointed a director on January 1, 2005. Dr. Kukes is an American citizen. Dr. Kukes is the CEO at Samara-Nafta, a Russian oil company, partnering with Hess Corporation; a U.S. based international oil company. He was President and Chief Executive of Tyumen Oil Company (TNK) from 1998 until its merger with British Petroleum (BP) in 2003. He then joined Yukos Oil as chairman. He also served as chief executive of Yukos from 2003 until June 2004. In 1999, he was voted one of the Top 10 Central European Executives by the Wall Street Journal Europe and in 2003 he was named by The Financial Times and PricewaterhouseCoopers as one of the 64 most respected business leaders in the world. Dr. Kukes has a primary degree in Chemical Engineering from the

Institute for Chemical Technology, Moscow and a PhD in Physical Chemistry from the Academy of Sciences, Moscow and was a Post-Doctoral Fellow of Rice University, Houston, Texas. He is the holder of more than 130 patents and has published more than 60 scientific papers.

 

Dr. Michael Walsh was appointed a director on January 1, 2005. Dr. Walsh is an executive director of International Investment and Underwriting (“IIU”), a private equity firm based in Dublin. Dr. Walsh is Chairman of Irish Nationwide Building Society, one of Ireland’s main mortgage providers. He is a non-executive director of a number of companies including Daon, a company involved in biometric authentication and Atlantic Bridge Ventures technology oriented venture capital company. Dr. Walsh has Bachelor of Commerce and Master of Business Studies degrees from University College Dublin and MBA and PhD degrees from the Wharton School, University of Pennsylvania. Prior to IIU, he was an executive director of NCB Group Ltd, one of Ireland’s leading stockbrokers. He was previously Professor of Banking and Finance at University College Dublin.

 

Dr. Prem Lachman was appointed a director on August 4, 2005. Dr. Lachman is a founder and general partner of Maximus Capital, $100 million healthcare investment management company focused on investments in the biotechnology and pharmaceutical industries. Dr. Lachman was formerly a general partner at the Galleon Group from 1998 until 2001 and prior to that was a managing director in the Investment Research Department at Goldman Sachs & Co. Dr. Lachman received his M.D. degree from the Mount Sinai School of Medicine in May 1986.

 

Dr. John Climax was appointed a non-executive director of Amarin on March 20, 2006. Dr. Climax was a founder of Icon Clinical Research plc, serving as a Director and Chief Executive Officer of Icon and its subsidiaries since June 1990. In November 2002, he was appointed Executive Chairman. Dr. Climax received his primary degree in pharmacy in 1977 from the University of Singapore, his masters in applied pharmacology in 1979 from the University of Wales and his PhD in clinical pharmacology from the National University of Ireland in 1982. Dr. Climax is an adjunct Professor at the Royal College of Surgeons, Dublin and Chairman of the Human Dignity Foundation, a Swiss based charity.

 

Professor William Hall was appointed as a Non-Executive Director on February 23, 2007. Professor Hall is Professor of Medicine, School of Medicine and Medical Sciences and Director of the National Virus Reference Library at University College Dublin. Professor Hall completed his PhD at Queen’s University of Belfast in 1974 and his M.D. at Cornell University Medical College, New York in 1984. Professor Hall held various Faculty positions at the Rockefeller University in New York before returning to Ireland. Present positions held by Professor Hall include Consultant Microbiologist, St Vincent’s University Hospital, Dublin, Professor, and Professor of Medicine, School of Medicine and Medical Sciences and Director of the Centre for Research in Infectious Diseases and the National Virus Reference Laboratory. Professor Hall is a Fellow of the American Academy of Microbiology, the Infectious Diseases Society of America, the Royal College of Physicians (Ireland) and the Royal College of Pathologists (U.K.).

 

Mr. Tom Maher was appointed General Counsel and Company Secretary in February 2006, having commenced working with the Group on a part-time basis in July 2005. Mr. Maher was previously a partner at Matheson Ormsby Prentice Solicitors, Dublin. Prior to Matheson Ormsby Prentice, Mr. Maher worked at Elan Corporation plc where he held the position of Vice President of Legal Affairs. Mr. Maher commenced his legal career at A&L Goodbody Solicitors, Dublin. He holds a law degree from Trinity College Dublin and is an Irish qualified solicitor.

 

Mr. Darren Cunningham was appointed as our Executive Vice President Strategic Development in September 2002. Prior to joining Amarin, Mr. Cunningham worked for Elan Corporation plc as manager and then Associate Director of Strategic Planning. Mr. Cunningham is a member of the Institute of Chartered Accountants (Ireland) and trained at Price Waterhouse in Dublin.

 

Dr. Mehar Manku joined us in October 2004 on the acquisition of Laxdale Limited. He joined Laxdale Limited in May 2001. Prior to this, Dr. Manku was the first Director of Scotia Research Institute in Kentville, Nova Scotia, a research facility focusing on the research of fatty acids in health and disease. Recently, Dr. Manku was appointed Honorary Professor at the University of Hull, U.K. Dr. Manku is Editor-in-Chief and one of the founding Executive Editors of “Prostaglandin, Leukotrienes and Essential Fatty Acids” a well respected, peer review journal in the field of EFA research. He is author of nearly 250 scientific and technical papers.

 

Dr. Anthony Clarke joined us in August 2005 as Vice President, Clinical Development. Prior to joining Amarin Dr. Clarke held senior international positions in Clinical Research and Regulatory Affairs with SmithKline Beecham, Cardinal Health, Anesta and Cephalon. He holds a PhD in psychopharmacology, has published extensively in the fields of neuroscience, neurology and psychiatry and is also named as an inventor on several international patents.

 

There is no family relationship between any director or executive officer and any other director or executive officer.

 

 

General

 

Our directors who serve as officers or employees receive no compensation for their service as members of our board of directors. Directors who are not officers or employees receive £25,000 ($46,000) per annum save for the Chairman of the Board and Chariman of the Audit and Remuneration Committees who each receive £40,000 ($72,000) and such options to acquire Ordinary Shares for their service as non-executive members of the board of directors as the Remuneration Committee of the board of directors may from time to time determine. Mr. Thomas Lynch has to date waived all of his rights with respect to option grants to directors that were proposed during his tenure as a director.

 

For the year ended December 31, 2006, all of our directors and senior management as a group received total compensation of U.S $3,361,000 and in addition, directors and senior management were issued options to purchase a total of 3,600,000 Ordinary Shares during such period. See “— Share Ownership” below for the specific terms of the options held by each director and officer.

 

With the exception of Mr. Stewart and Mr. Cooke, there are no sums set aside or accrued by us for pension, retirement or similar benefits although we do make contributions to certain of our employees’ and officers’ pensions during the term of their employment with us.

 

Compensation paid and benefits granted to our directors during the year ended December 31, 2006 are detailed below:

 

Directors’ detailed emoluments

 

 

 

Benefits in kind include medical and life insurance for each executive director. No expense allowances were provided to the directors during the year.

 

 

 

The Amarin Corporation plc 2002 Stock Option Plan

 

The Amarin Corporation plc 2002 Stock Option Plan came into effect on January 1, 2002. The term of the plan is ten years, and no award shall be granted under the plan after January 1, 2012.

 

The plan is administered by the remuneration committee of our board of directors. A maximum of 8,000,000 Ordinary Shares may be issued under the original plan. This limit was increased to 8,986,439 Ordinary Shares by the remuneration committee of the Group on December 6, 2006, pursuant to section 4(c) of the Plan to prevent dilution of the potential benefits available under the Plan as a result of certain discounted share issues. This limit was further increased to 12,000,000 Ordinary Shares at an Extraordinary General Meeting held on January 25, 2007. Employees, officers, consultants and independent contractors are eligible persons under the plan. The remuneration committee may grant options to eligible persons. In determining which eligible persons may receive an award of options and become participants in the plan, as well as the terms of any option award, the remuneration committee may take into account the nature of the services rendered to us by the eligible persons, their present and potential contributions to our success or such other factors as the remuneration committee, at its discretion, shall deem relevant.

 

Two forms of options may be granted under the plan: incentive stock options and non-qualified stock options. Incentive stock options are options intended to meet the requirements of Section 422 of the U.S. Internal Revenue Code of 1986, as amended. Non-qualified stock options are options which are not intended to be incentive stock options.

 

As a condition to the grant of an option award, we and the recipient shall execute an award agreement containing such restrictions, terms and conditions, if any, as the remuneration committee may require. Option awards are to be granted under the plan for no cash consideration or for such minimal cash consideration as may be required by law. The exercise price of options granted under the plan shall be determined by the remuneration committee; however the plan provides that the exercise price shall not be less than 100% of the fair market value, as defined under the plan, of an Ordinary Share on the date that the option is granted. The consideration to be paid for the shares under option shall be paid at the time that the shares are issued. The term of each option shall end ten years following the date on which it was granted. The remuneration committee may decide from time to time whether options granted under the plan may be exercised in whole or in part.

 

No option granted under the plan may be exercised until it has vested. The remuneration committee will specify the vesting schedule for each option when it is granted. If no vesting schedule is specified with respect to a particular option, then the vesting schedule set out in the plan will apply so that 33% of the total number of Ordinary Shares granted under the option shall vest on the first anniversary of the date that the option was granted, a further 33% shall vest on the second anniversary and the remaining 34% shall vest on the third anniversary.

 

The plan provides that the vesting of options shall be accelerated if we undergo a change of control and at the discretion of the remuneration committee. In the event of an offer to acquire all of our issued share capital or the acquisition of all of our issued share capital in other specified circumstances, the option holder may release its option in return for the grant of a new option over shares in the acquiring company.

 

If a participant’s continuous status as an employee or consultant, as defined under the plan, is terminated for cause then his or her options shall expire immediately. If such status is terminated due to death or permanent disability and if options held by the participant have vested and are exercisable, they shall remain exercisable for twelve months following the date of the participant’s death or disability.

 

No option award, nor any right under an option award, may be transferred by a participant other than by will or by the laws of descent as specifically set out in the plan. Participants do not have any rights as a shareholder of

record in us with respect to the Ordinary Shares issuable on the exercise of their options until a certificate representing such Ordinary Shares registered in the participant’s name has been delivered to the participant.

 

The plan is governed by the laws of England.

 

 

General

 

No director has a service contract providing for benefits upon the termination of service or employment.

 

Our articles of association stipulate that the minimum number of directors shall be two and the maximum number shall be fifteen. We presently have eleven directors. Directors may be elected by the shareholders at a general meeting or appointed by the board of directors. If a director is appointed by the board of directors, that director must stand for election at our subsequent annual general meeting. At each annual general meeting, one-third of our directors must retire and either stand, or not stand, for re-election. In determining which directors shall retire and stand, or not stand, for re-election, first, we include any director who chooses to retire and not face re-election and second, we choose the directors who have served as directors for the longest period of time since their last election.

 

At the annual general meeting for 2006, Drs. Lachman, Climax and Mason and Messrs. Russell-Roberts and Lynch, retired by rotation, and were re-elected. Assuming no further directors choose to retire and not stand for re-election at the annual general meetings in 2007 and 2008, we would expect Messrs. Cooke, Groom, Stewart and Prof. Hall to retire and stand for re-election at the 2007 annual general meeting and Drs. Lachman, Kukes and Walsh to retire and stand for re-election at the 2008 annual general meeting. See — “Directors and Senior Management” above for details of when each of our directors joined our board of directors.

 

Audit Committee

 

The audit committee of the board of directors comprises three of our non-executive directors and meets, as required, to review the scope of the audit and audit procedures, the format and content of the audited financial statements and the accounting principles applied in preparing the financial statements. The audit committee also reviews proposed changes in accounting policies, recommendations from the auditors regarding improving internal controls and the adequacy of resources within the accounting function.

 

The audit committee currently comprises the following directors:

 

 

Remuneration Committee

 

The remuneration committee of the board of directors comprises three of our non-executive directors. The remuneration committee’s primary responsibility is to approve the level of remuneration for executive directors and key employees. It may also grant options under our share option schemes to employees and executive directors and must approve any service contracts for executive directors and key employees. Non-executive directors’ remuneration is determined by the full board of directors.

 

The remuneration committee currently comprises the following directors:

 

 

 

The average numbers of employees employed by us during each of the past three financial years are detailed below:

 

 

The average numbers of employees employed by us by geographical region for each of the last three financial years are set forth below:

 

 

 

The beneficial ownership of Ordinary Shares by, and options granted to, our directors or officers, including their spouses and children under eighteen years of age, as of December 31 2006 are presented in the table below. See also “— Compensation — the Amarin Corporation plc 2002 Stock Option Plan”.