AMRN

Business Context and Reporting Period

Company: Amarin Corporation plc (Amarin)
Reporting Period: Fiscal year ended December 31, 2006
Business Model: Amarin is a neuroscience-focused biopharmaceutical company engaged in the research, development, and commercialization of novel drugs for central nervous system (CNS) disorders. Following the divestiture of its U.S. sales and marketing operations in 2004 and the acquisition of Amarin Neuroscience Limited (formerly Laxdale) in October 2004, the company has no marketed products and relies on licensing milestones and equity financing. Its primary asset is Miraxion, a highly purified ethyl-eicosapentaenoic acid (EPA) derivative.

Key Financial Metrics (Year Ended Dec 31, 2006)

Note: Significant differences between U.K. and U.S. GAAP figures arise primarily from the treatment of intangible assets (capitalized under U.K. GAAP vs. expensed as in-process R&D under U.S. GAAP) and revenue recognition for licensing milestones.

Material Changes vs. Prior Period

• Revenue: Revenue remained flat at $0.5 million (U.K. GAAP) compared to 2005, derived entirely from a milestone payment received from Multicell Technologies for the licensing of MCT-125 (formerly LAX-202). Under U.S. GAAP, revenue was significantly lower ($0.1 million) due to the deferral of milestone payments.
• Operating Expenses: Total operating expenses increased to $31.7 million in 2006 from $21.2 million in 2005.
  • R&D Expenses: Increased 93% to $17.2 million, driven by the full enrollment and execution of two Phase III clinical trials for Miraxion in Huntington's disease.
  • SG&A Expenses: Increased 18% to $14.5 million, primarily due to professional fees ($3.2 million) related to AIM/IEX listings, Sarbanes-Oxley compliance, and potential business opportunities.
• Net Interest Income: Shifted from a net interest expense of $0.5 million in 2005 to net interest income of $3.4 million in 2006. This was driven by a $2.1 million foreign exchange gain on holding pounds sterling and euros as the U.S. Dollar weakened.
• Shareholder Equity: Under U.K. GAAP, equity remained stable at $37.8 million. Under U.S. GAAP, the company reported a deficit of $(13.2) million due to the write-off of intangible assets.

Guidance, Outlook, and Risks

Outlook and Guidance:

• Liquidity: Management forecasts sufficient cash ($36.8 million) to fund operations for at least the next 12 months, potentially longer depending on the outcome of Miraxion Phase III trials.
• Clinical Milestones: The treatment phase of the two Phase III trials for Miraxion in Huntington's disease (HD) was completed in early 2007. Top-line data was expected in the second quarter of 2007.
• Pipeline Expansion: The company acquired global rights to a novel oral formulation of Apomorphine (AMR-101) for Parkinson's disease and plans to commence Phase II trials for Miraxion in melancholic depression and Parkinson's disease in 2007.

Key Risks and Contingencies:

• Regulatory Approval: The company's future is heavily dependent on FDA and EMEA approval of Miraxion. Previous Phase III data showed statistical significance only in a specific sub-group of patients (CAG repeat length < 45), creating uncertainty regarding the success of the current larger trials.
• Capital Requirements: The company has no marketable products and expects to incur net operating losses until regulatory approval is obtained. It may need to raise additional capital, potentially through equity issuance, which could cause dilution.
• Contingent Consideration: The acquisition of Amarin Neuroscience includes contingent milestone payments totaling up to GBP 25 million (approx. $49 million at 2006 rates) payable upon marketing approval in the U.S. and Europe.
• Legal Proceedings: Amarin is a defendant in lawsuits related to Permax (sold in 2004) alleging cardiac valvulopathy and compulsive gambling. The company considers the risk of significant liability remote, and no provision was booked.

Important Facts for Investor Verification

• Clinical Trial Results: Verify the top-line data release for the Miraxion Phase III trials in Huntington's disease, specifically focusing on efficacy in the CAG < 45 sub-population versus the total population.
• U.S. GAAP vs. U.K. GAAP Reconciliation: Note the significant difference in reported equity and net loss due to the treatment of the Miraxion intangible asset (capitalized under U.K. GAAP, expensed under U.S. GAAP).
• Contingent Milestones: Confirm the specific terms and potential dilution impact of the contingent consideration payable to former Laxdale shareholders upon regulatory approval.
• Related Party Transactions: Review transactions with Icon Clinical Research (controlled by a director) and Dalriada Limited (controlled by the Chairman's family trust) for terms and approval processes.
• Permax Litigation Status: Monitor the status of pending lawsuits regarding Permax, despite management's assessment of remote liability.