UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
Commission file number 0-21392
AMARIN CORPORATION PLC(Exact name of Registrant as Specified in its Charter)
ENGLAND(Jurisdiction of Incorporation or organization of Issuer)
7 CURZON STREETLONDON W1J 5HGENGLAND(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 Representing Ordinary SharesOrdinary Shares (10p par value per Share)
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 issuer’s classes of capital or common stock as of the period covered by the annual report.
76,743,893 Ordinary Shares (10p par value per Share)4,129,819 Preference Shares (£1 par value Share)
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.
Indicate by check mark which financial statement item the registrant has elected to follow.
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
TABLE OF CONTENTS
2. Offer Statistics and Expected
4. Information on the Company
5. Operating and Financial Review
6. Directors, Senior Management
Directors and Senior Management of the Company (p.28)Compensation (p.33) Corporate Governance — Board of Directors (p.35);Directors and Senior Management of the Company (p.28) Employees (p.16) Shares Owned by Officers and Directors (p.26); Directors’ and Officers’ Options (p.27)
7. Major Shareholders and Related
8. Financial information
9. The Offer and Listing
10. Additional Information
11. Quantitative and Qualitative
12. Description of Securities Other than
13. Defaults, Dividend Arrearages
14. Material Modifications to the Rights of
19. Exhibits
INTRODUCTION
PRODUCT
TECHNOLOGY
DEVELOPMENT/ APPROVAL STATUS
LICENSING STATUS
Location
Use
Ownership
Size (sq.ft.)
Fiscal year endedAugust 31
Fiscal yearendedAugust 31
4 monthsendedDecember 31
Fiscal years ended December 31
1997£'000
1998£'000
1999£'000
2000£'000
2001£'000
Amounts in accordance with UK GAAP
Amounts in accordance with US GAAP
Consolidated Balance Sheet Data
26
27
Name
Age
Position
28
29
30
31
32
33
34
35
36
37
Ordinary Share/ADR Ratio
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
AMARIN CORPORATION PLC AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders ofAMARIN CORPORATION PLC
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows present fairly, after the restatement described in Notes 1 and 27, in all material respects, the financial position of Amarin Corporation plc and its subsidiaries at December 31, 2001, December 31, 2000 and December 31, 1999, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles which, as described in Note 1, are generally accepted in the United Kingdom. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America and in the United Kingdom, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The consolidated financial statements were prepared in accordance with the accounting policies set out on pages F-7 to F-11 and comply with generally accepted accounting principles in the United Kingdom, which differ in certain significant respects from generally accepted accounting principles in the United States of America as set out in Note 27, as restated, of the notes to the consolidated financial statements.
PRICEWATERHOUSECOOPERSChartered Accountants and Registered AuditorsCambridge, England
March 28, 2002
AMARIN CORPORATION PLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
The accompanying Notes are an integral part of these Consolidated Financial Statements.
AMARIN CORPORATION PLC AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (Note 1)
The accompanying notes are an integral part of these Consolidated Financial Statements.
AMARIN CORPORATION PLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
AMARIN CORPORATION PLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
AMARIN CORPORATION PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The operations of Amarin Corporation plc and its subsidiaries (the “Company”) are conducted within one business segment and consist principally of the marketing and distribution of pharmaceutical products and the research and development of new drug delivery systems.
1. Principal accounting policies
The financial statements have been prepared in accordance with applicable Accounting Standards in the United Kingdom (“UK GAAP”). A summary of the more important accounting policies, which have been reviewed by the Board of Directors in accordance with Financial Reporting Standard (“FRS”) 18 “Accounting Policies” and have been applied consistently, is set out below. These accounting policies differ in certain significant respects from United States generally accepted accounting principles as set out in Note (27) of these consolidated financial statements. Net income for the year ended December 31, 2000 has been restated to reclassify accrued cumulative preferred dividends below net income.
Basis of preparation
The Directors have reviewed budgets and cashflow forecasts for the forthcoming year, which include the requirement to settle the short term liability of US$45,000,000 (see Note (20)) which falls due at the end of September 2002. The Directors currently plan to secure additional funds, by raising further finance or by entering into commercial agreements, which together with operating cashflows would enable the Company to meet its financial obligations over the twelve month period from the date of approval of the financial statements. Accordingly, these financial statements have been prepared on the going concern basis.
Basis of accounting
The consolidated financial statements have been prepared in accordance with the historical cost convention, as modified by the impairment of certain intangible fixed assets in accordance with applicable accounting standards and our stated accounting policy.
Basis of consolidation
The consolidated financial statements include Amarin Corporation plc and all its subsidiary undertakings (as set out in Note (12)). The results of subsidiaries acquired or disposed of during the year are included in consolidated statement of operations from the date of their acquisition or up to the date of disposal. All intercompany accounts and transactions are eliminated fully on consolidation.
Associated undertakings
The Company’s share of profits less losses of associated undertakings is included in the consolidated profit and loss account and the Company’s share of their net assets is included in the consolidated balance sheet.
Fixed and current asset investments
Fixed and current asset investments are accounted for at the lower of cost or estimated fair value.
Goodwill and intangible fixed assets
Goodwill arising on consolidation represents the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired. Intangible fixed assets and goodwill arising are capitalised and amortised on a straight line basis over the shorter of their estimated useful economic lives or associated contract life not exceeding 20 years.
Intangible fixed assets are stated at cost, being their purchase cost, together with any incidental expenses of acquisition.
AMARIN CORPORATION PLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Evaluation of assets for impairment
The Company reviews its long-lived assets for possible impairment by comparing their discounted expected future cash flows to their carrying amount. An impairment loss is recognised if the discounted expected future cash flows are less than the carrying amount of the asset and the impaired asset is written down to its recoverable amount.
Provision is made against the carrying value of tangible or intangible fixed assets where an impairment in value is deemed to have occurred.
Tangible fixed assets, depreciation and amortisation
Tangible fixed assets are stated at cost, being their purchase cost, together with any incidental expenses of acquisition.
Depreciation is calculated so as to write off the cost of tangible fixed assets less their estimated residual values, on a straight line basis over the expected useful economic lives of the assets concerned. The useful economic lives for this purpose are:
Leasehold buildings are amortised over the period of the lease.
Foreign currencies
Differences on exchange arising from the translation of the opening net investment in subsidiary companies are taken to reserves and reported as Other Comprehensive Income.
Assets and liabilities expressed in foreign currencies are translated into pounds sterling at rates of exchange existing at the end of the fiscal year. Transactions settled during the year are translated into pounds sterling at the exchange rate in effect at the date of the transaction. These foreign exchange differences are taken to operating expenses within net income in the year in which they arise.
Financial instruments
Current asset investments are stated at the lower of cost or market value. Gains or losses on sale of such items will be recognised in the period in which the transaction takes place.
All borrowings are initially stated at the amount of consideration received. Finance costs are charged to the profit and loss account over the term of the borrowing and represent a constant proportion of capital repayment outstanding.
Research and development expenditure
Research and development costs are expensed as incurred.
For a number of products under development, revenue is triggered under license agreements by the submission of registration dossiers once trials have been completed, or simply by evidence of trials’ results alone. In these circumstances it is the Company’s policy that the direct external costs of specific trials required to fulfill these criteria will be carried forward as work in progress in inventories up to the value of the revenue to be generated, where that income is expected to be received within twelve months of the balance sheet date.
Advertising costs
The Company has adopted an accounting policy for advertising costs whereby they are expensed as incurred. For the year ended December 31, 2001 costs incurred were £589,000 (US$857,000); December 31, 2000, £126,000 (US$188,000); December 31, 1999 £54,000 (US$87,000)).
Inventories
Inventories and work in progress are stated at the lower of cost or net realisable value. In general, cost is determined on a “first in, first out” basis and includes transport and handling costs. In the case of manufactured products, cost includes all direct expenditure and production overheads based on the normal level of activity. Where necessary, provision is made for obsolete, slow moving and defective inventories.
Finance and operating leases
Costs in respect of operating leases are charged on a straight line basis over the lease term. Where fixed assets are financed by leasing arrangements, which transfer to the Company substantially all the benefits and risks of ownership, the assets are treated as if they had been purchased outright and are included in tangible fixed assets. The capital element of the leasing commitments is shown as obligations under finance leases. The lease rentals are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is charged against income in proportion to the reducing capital element outstanding. Assets held under finance leases are amortised over the shorter of the lease terms or useful lives of equivalent owned assets.
Revenues
Revenues exclude value added tax, sales between companies and trade discounts. Revenues from pharmaceutical product sales now comprise the main element of the Company’s revenue. This revenue represents the invoice value of products delivered to the customer, less discounts. The Company makes provisions for product returns based on the specific product by product sales history and the value of product returns is taken as a deduction from revenue. Revenues are broken down into four categories: licensing and development fees, royalties, product sales, and services.
Income under license and development agreements is recognised using the lesser of non-refundable cash received or the result achieved using percentage-of-completion accounting. This method is based upon the cost of efforts since the contract’s commencement up to the reporting date, divided by the total expected research and development costs from the contract’s commencement to the end of the development arrangements, multiplied by the total expected contractual payments under the arrangement. In many of the Company’s contracts a portion of the revenues due consist of contingent milestone payments which become payable upon the achievement of specified contractual milestones. The Company defers all revenues associated with these milestones until the related performance conditions are met. The Company’s license arrangements may also contain up-front non-refundable payments. These payments are deferred and recognised over the longer of the expected performance perio d or the contract term. Subsequent to the disposal of the transdermal patch business assets and liabilities, licensing and development fees have become a less significant portion of revenues in 2000 and 2001.
Royalty income is recognised when earned, based on related sales of products under agreements providing for royalties and is included under the heading “royalties and product sales”. Income recorded under the heading “services” represents fees for analytical and microbiological testing services.
Revenues from services are recognised when the Company has obtained persuasive evidence of an arrangement, the price of the service is fixed and determinable, delivery has occurred and collectability is reasonably assured.
Deferred taxation
Tax deferred or accelerated is accounted for in respect of all material timing differences to the extent that it is probable that a liability or asset will crystallise.
Pension costs
The Company contributes a fixed percentage of certain employees’ gross salary to defined contribution money purchase pension schemes. The pension costs charged against profit represent the amount of contributions payable to the pension scheme in respect of the accounting period. The Company provides no other post retirement benefits to its employees.
Short term investments
Bank deposits which are not repayable on demand are treated as short term investments in accordance with Financial Reporting Standard 1. Movements in such investments are included under “Management of liquid resources” in the Company’s cash flow statement.
Stock schemes
In accordance with the provisions of UK Urgent Issues Task Force Abstract 17 (“Employee share schemes”), the Company makes charges to the profit and loss account when options are granted, the charge being the estimated market value of the stock at the date of grant less the exercise price of the options. The charge is then credited back to reserves. Employer’s National Insurance and similar taxes arise on the exercise of certain share options. In accordance with UK Urgent Issues Task Force Abstract 25 (“National Insurance contributions on share option gains”) a provision is made, calculated using the market price at the balance sheet date, pro-rated over the vesting period of the options.
Use of estimates
The preparation of financial statements in conformity with UK GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Risks and Uncertainties
The value of the Company’s patent and proprietary rights will be affected by its ability to obtain and preserve patent protection for its products and trade secrets, and by the emergence of competing technologies over time. In particular, the value of the Intangible Assets described in Note (9) could be severely affected by changes in the status of the Company’s patent and proprietary rights.
In addition, as the Company’s products are highly regulated, any withdrawal of approval could impact the carrying value of the inventory.
Nature of Operations
The principal activities of the Company comprise the marketing and distribution of pharmaceutical products and the research and development of new drug delivery systems. Currently the Company’s principal products consist of a portfolio of products which were acquired on September 29, 1999 from Elan Pharmaceuticals Inc, a related party, (see Note (25)). During 2001 the Company entered the neurology market with the acquisition of the exclusive US marketing and distribution rights to Permax®, a product approved by the US Food and Drug Administration (“FDA”) as a treatment for Parkinson’s disease. The Company has an option to acquire continuing marketing and distribution rights to Permax® subject to making specified option payments (see Note (25)).
An analysis of performance by geographical segment is given in Note (3).
Restatement of comparatives
During the period ended December 31, 2001 the Company sold its 99.16% share in its South American transdermal patch business. Consequently, this business has been shown in the statement of operations as a discontinued operation and the comparatives have been restated to be consistent with this.
Recent accounting policies
UK pronouncements
Financial Reporting Standard (“FRS”) No 17 “Retirement benefit” has been adopted with no resulting change in presentation, because the Company does not have any defined benefit schemes.
FRS No 18 “Accounting policies” has been adopted in the preparation of the financial statements, with no resulting change in presentation.
FRS No 19 “Deferred tax” was not adopted in 2001 and will be adopted in the next accounting period in line with the effective date of this standard.
2. Discontinued operations
On December 30, 1999 the Company and its subsidiary Ethical Pharmaceuticals (UK) Ltd concluded an asset sale and purchase agreement with two wholly owned subsidiaries of Elan Corporation plc (“Elan”), a related party, for the disposal of the Company’s UK transdermal patch business. The UK transdermal patch business was discontinued with effect from that date.
An additional profit of £759,000 for the year ended December 31, 2000 was realised and this relates to the reversal of a payable balance which was paid on behalf of the Company by Elan. The Company is not obliged to repay Elan any of this amount.
On November 30, 2001 the Company and its subsidiary, Amarin Pharmaceuticals Company Limited, concluded the sale of its 99.16% share of its South American transdermal patch product development business comprising the Company’s entire interest in the business. The South American transdermal patch business was discontinued from that date.
The consolidated statement of operations contains a combined profit/(loss) on discontinued operations calculated as follows:
* £1,560 of these costs is a result of the renegotiation of contracts following the disposal of the transdermal patch business assets and liabilities. ** See Note (6).
The disposal of 99.16% the South American transdermal business resulted in a loss of £893,000 calculated as follows:
The consideration on the sale of Amarin Technologies SA comprises cash and waiving an intercompany debt. £7,000 cash has been received in the year in respect of the sale and £177,000 is due to be received in 2002.
The disposal of the UK transdermal business on December 29, 1999 realised a profit of £16,105,000 calculated as follows:
No tax was charged on the gain made in 1999 as the Company utilised current year tax losses totalling £5,413,000 to effectively offset the taxable gain.
There was a tax charge for the year ended December 31, 2000 of £55,000 arising on the disposal of investments against which trading losses brought forward could not be utilised.
3. Revenues and segmental information
The Company operates in, and is managed as, a single segment. The majority of European sales are made to companies based in France and the majority of sales elsewhere are made to companies based in the United States. The following analysis is of revenue by geographical segment and origin and of net (loss)/income and net assets/(liabilities) by companies in each territory:
(a) Revenues (continuing operations) by geographical destination
(b) Revenues (continuing operations) by geographical origin
(c) Net income/(loss) for the year before allowing for the effect of income taxes
(d) Net assets/(liabilities) by geographical location
(e) Long lived assets by geographical location
(f) Significant customers
Approximately 10% of the Company’s revenues in the year ended December 31, 2001 were from one major customer and the next four largest customers accounted for a further 26% of revenues. Approximately 13% of the Company’s revenues in the year ended December 31, 2000 were from one major customer and the next four largest customers accounted for a further 37% of revenues. For each of these three periods, the significant customers are located in the United States of America. Approximately 44% of the Company’s revenues in the year ended December 31, 1999 were from one major customer and the next four largest customers accounted for a further 37% of revenues.
4. Selling, general and administrative expenses
Selling, general and administrative expenses consist of the following:
5. Interest (expense)/income, net
Interest (expense)/income, net, consists of the following:
6. Exceptional costs
7. Supplemental information
The following items are included in operating expenses:
The losses on foreign exchange included in operating expenses arose primarily on the retranslation of receivables denominated in foreign currencies.
Non cash investing and financing activities
During the year ended December 31, 1999 the Company entered into an agreement whereby £12,812,000 of convertible loan notes and working capital notes, together with £1,241,000 of interest, was converted into 4,129,819 3% cumulative convertible preference shares of £1 each and 4,000,000 ordinary shares of 10p each (see Note (21)).
Also during the year ended December 31, 1999, as part of the purchase of the product portfolio from Carnrick Laboratories Inc., a wholly owned subsidiary of Elan, the Company acquired £2,069,000 (US$3,335,000) of stock, £124,000 (US$200,000) of intangible fixed assets, and a receivable of £1,840,000 (US$2,965,000) for a loan of £4,033,000 (US$6,500,000) which was repayable on September 30, 2000. During the year ended December 31, 2000 this loan was renegotiated and is now repayable by September 29, 2004. At December 31, 2001 the carrying value of this loan which is denominated in US dollars has been retranslated to £4,466,000 (December 31, 2000 £4,354,000).
As at December 31, 2000 the Company was carrying certain other loans as follows:
Fair values of financial instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value.
Cash and cash equivalents, accounts receivable, accounts payable and short term debt
Cash and cash equivalents consists of cash on deposit with the Company’s bank and money market funds with a maturity from the date of purchase of 90 days or less. The carrying amount approximates fair value because of the short maturity of those instruments. The carrying amount and therefore the fair value is shown on the face of the balance sheet.
Finance leases
The carrying amount approximates fair value because all finance leases held at December 31, 2001 bear interest at a rate based on national LIBID equivalents. The carrying amount and therefore the fair value is shown in Note (18).
Long-term debt
The fair value of the US$6,500,000 non-interest bearing loan currently carried at £4,466,000 and repayable by September 24, 2004 is £3,221,000 (US$4,319,000) based on discounting at the current market interest rate.
Preference shares
The preference shares described in Note (21) are not traded on an organised market. It is therefore not practicable to estimate their fair value with sufficient reliability, as the future cashflows associated with them depend on when they are converted into Ordinary Shares.
8. Income taxes
The following items represent the principal reasons for the differences between corporate income taxes computed at the statutory tax rate and the Company’s provision for income taxes.
In the UK, the applicable statutory rate for Corporate income tax was 30.25% for the year ended December 31, 1999, 30% for the year ended December 31, 2000 and 30% for the year ended December 31, 2001.
The current mainstream UK corporation tax rate is 30%. This is reduced to 20% for a company with taxable profits of not more than £300,000 in an accounting period. Where there is more than one associated company worldwide this limit is reduced proportionately so that the mainstream corporation tax rate is applied to lower profits.
Marginal relief is available for companies where profits lie between £300,000 and £1,500,000 (reduced as above to take account of worldwide associated companies). Corporation tax at 30% is charged on profits in excess of these bands.
The corporate tax rate in Sweden is 28%. A loss sustained in any income year may be carried forward and deducted from taxable income during the next and subsequent years. No carryback is permitted.
The corporate tax rate in North America (US only) is 34%. For tax years beginning after August 5, 1997 companies may generally carry back net operating losses two years and forwards twenty years.
Losses carried forward in the continuing UK Company at December 31, 2001 are £28,845,000, at December 31, 2000 were £20,718,000, at December 31, 1999 were £32,080,000 subject to confirmation by UK tax authorities. Under UK tax law, these losses can be carried forward indefinitely for set off against future profits of the same trade.
The Company has recognised a full valuation allowance against deferred tax assets as the likelihood of realising these assets is uncertain.
The ‘Permanent differences’ in the year ended December 31, 1999 principally relate to the disposal of the UK transdermal patch business assets and liabilities, and to the further diminution in value of intangible fixed assets. In the year ended December 31, 2000 they principally relate to the diminution in value of intangible fixed assets and the charge for share options granted at under market value, offset by non-taxable dividend income.
9. Intangible fixed assets
Additions to intangible fixed assets comprise £19,943,000 in respect of sales and marketing product rights, £12,405,000 purchase of product rights option and £37,000 in respect of purchase of patents. The sales and marketing product rights entitle the Company to generate revenues from the sale of Permax® over the period to June 30, 2002. These rights are being amortised over this period. £12,452,000 of the amortisation charge in the year ended December 31, 2001 shown above relates to Permax®.
The product rights option gives the Company the right to acquire the US sales rights to Permax® outright.
The Directors have made an assessment of the expected useful lives of the additions and have decided to amortise the product rights option over 15 years and the patents over a period of 10 years.
Further consideration may become payable, such as royalties, in relation to product rights purchased in 2000 should this product be successfully launched. Any such consideration will also include the issuance of equity of the Company, dependent on the product successfully reaching regulatory milestones. These milestones are not expected to be reached until 2003.
The disposal of intangible fixed assets relate to the sale of its 99.16% share of its South American transdermal business (see Note (2)).
10. Property, plant and equipment
Certain information regarding the Company’s property, plant and equipment by category is set forth below.
Plant and equipment includes assets held under finance leases and purchase contracts as follows:
11. Fixed asset investments
The Company had no fixed asset investments at December 31, 2001, December 31, 2000 or December 31, 1999.
12. Interests in associated undertakings
The wholly owned trading subsidiaries included in the consolidated financial statements are Ethical Pharmaceuticals (U.K.) Limited, Amarin Development AB, Amarin Pharmaceuticals Inc. and Amarin Pharmaceutical Company Limited. The Company disposed of its entire shareholding, comprising 99.16% of the share capital, in Beta Pharmaceuticals Corporation, Amarin Technologies SA and Dofistone Company SA during the period.
13. Inventories
14. Current asset investments
The current asset investments are represented by holdings in Antares Pharma Inc. (“Antares”) (formerly Medi-Ject Corporation). Antares is listed on the New York Stock Exchange in the United States.
The investment in Antares is carried at £44,000. The market value of the investment at the year end is £39,000. The Directors did not consider it necessary to reduce the year end carrying value to the market value of the investment, as they consider the reduction in carrying value to be a temporary diminution.
At December 31, 2000, £10,020,000 of current asset investments is represented by cash held on short term deposit.
15. Accounts receivable
No charge for bad and doubtful debts was incurred during the year to December 31, 2001 (year to December 31, 2000 and year to December 31, 1999 £Nil).
16. Other current liabilities
17. Short-term debt
Current portion of loans from related parties comprised an unsecured loan with a principal amount of £30,919,000 (US$45,000,000) and is repayable in September 2002 (see Note (25)).
There is a right of set off between all of the Company’s United Kingdom bank accounts and each company cross guarantees every other company within the UK group. In Sweden, the average outstanding line of credit in year to December 31, 1999, the year to December 31, 2000 and the year to December 31, 2001 was £239,000, £118,000 and £54,000 respectively. The available line of credit in each of these years was £267,000. The average bank interest rate in Sweden for the year ended December 31, 2001 was 5.3% (December 31, 2000 5%, December 31, 1999 5.3%).
18. Finance leases and purchase contracts
The future minimum lease payments to which the Company is committed under finance leases and purchase contracts are as follows:
19. Long-term debt
Long-term debt is made up of loans which are repayable as shown below;
Analysis of repayments
Bank and other loans are repayable as follows:
20. Provision for deferred tax
Deferred tax provided in the financial statements is as follows:
20A. Other long-term creditors
At December 31, 2001 a provision for National Insurance contributions of £77,000 has been made in respect of exercise of certain share options held by employees in accordance with Accounting Standards Board’s UITF25 abstract (year ended December 31, 2000 £53,000).
At December 31, 2000 a provision of £98,000 in respect of replacement goods had been accrued. This charge has been eliminated at December 31, 2001 as part of the Company’s disposal of 99.16% of its South American transdermal business.
21. Shareholders’ equity
Issue of share capital
During the year ended December 31, 2001, 8,598,133 10 pence ordinary shares (nominal value: £860,000) were issued as follows:
1,000,000 (£100,000) were issued to Lehman Brothers International (Europe) upon conversion of an unsecured loan note of US$500,000, valued at £419,000.
The remaining 7,598,133 were issued in respect of share options (2000: 290,000), being £760,000 nominal value in aggregate (2000: £29,000) for a total consideration of £2,746,000 (2000: £62,000).
During the year ended December 31, 2000 38,333,327 shares (£3,833,000) were issued via a private placement, 6,507,971 (£651,000) were issued to Laxdale Limited as part consideration for acquisition of product rights. Further stock issuances and royalty payments on future sales of the product are contingent on the achievement of specified milestones in accordance with the license agreement. 4,000,000 (£400,000) were issued to Schein Pharmaceuticals
Inc. in part consideration of the termination of the multiproduct agreement. The remaining obligation to Schein was settled by a cash payment of US$2,200,000.
On December 30, 1999, the Company converted £12,812,000 of loans into 4,129,819 £1 preference shares, being £4,129,819 nominal value in aggregate (see Note (26)), and £1,241,000 of loans into 4,000,000 ordinary 10 pence shares, being £400,000 nominal value in aggregate.
On a return of capital on a winding up or otherwise, the preference shareholders will be repaid the amounts paid up on their preference shares, together with any arrears and accruals of the fixed cumulative preferential dividend.
The preference shares do not entitle the holders to vote at general meetings except on any specific resolution directly and adversely affecting their rights, when they are entitled to such number of votes as they would have had had their preference shares been converted into ordinary shares. Each £1 preference share is convertible into ten ordinary shares of ten pence each, on or after the second anniversary of the date of issue, or earlier on the occurrence of certain trigger events.
A further 28,770 ordinary 10 pence shares were issued in the year to December 31, 1999 being £3,000 nominal value in aggregate, for a total consideration of £14,000.
The cumulative foreign exchange consolidation adjustment at December 31, 2001 is a loss of £317,000 (December 31, 2000: loss of £294,000, December 31, 1999: loss of £308,000).
Merger and other reserves
The merger reserve arising on consolidation is the difference between the investment by the Company in Gacell (being the nominal value of the shares issued and professional expenses incurred to effect the merger) and the nominal value of the share capital of Gacell.
Other reserves comprised a reserve arising on the sale of warrants which were transferred to retained earnings on the expiry of the related warrants during year ended December 31, 2000.
22. Share options and warrants
Under the Company’s share option plans, options were granted at the then current market price of the Company’s shares. With the exception of those options granted under Notes (5), (6), (7), (10), (13) and (14) as set out below, the market price of the Company’s shares at the date of grant or the date of repricing is based on the latest transaction involving the Company’s shares or such other basis which in the opinion of management reasonably approximates the fair value of the shares at the date of grant or the date of repricing.
A summary of the options outstanding and granted during 1989 to 2001 is given in the table below. The figures in the table below are as at December 31, 2001. Subscription prices have been stated after giving effect to the repricing described in Notes (9), (13) and (14) below.
Options have become exercisable as follows:
At December 31, 2001, unexercised options have been granted over Ordinary Shares as follows:
The weighted average exercise price of options outstanding at December 31, 2001 was £0.57 (US$0.84).
Share options granted up to and including January 2, 1991 were denominated in sterling. Options granted after this date were denominated in US dollars. For disclosure purposes they have been retranslated into sterling at the period end rate of US$1.4554/£1.
Notes:
Warrants in the shares of Amarin Corporation plc
At December 31, 2001, warrants have been granted over Ordinary Shares as follows:
23. Commitments and contingencies
Minimum payments under non-cancellable operating leases for the next five years are as set forth below:
Minimum payments under non-cancellable operating leases for the years 2007 and beyond are £961,000 which are for land and buildings.
24. Pensions
The Company contributes to a number of defined contribution money purchase pension schemes for certain eligible employees. The assets of the schemes are held separately from those of the Company in independently administered funds. The pension cost charge represents contributions paid and payable by the Company to the schemes and amounted to £155,000 for the year ended December 31, 2001 (£153,000 year ended December 31, 2000 and £162,000 year ended December 31, 1999).
25. Transactions with related parties
On December 10, 1999, S A Ziegler became a director of the Company. Mr Ziegler is a partner of Ziegler, Ziegler and Altman LLC, Counsellors at Law in the United States who provided professional services to the Company in the
sum of £252,000 (US$366,000) during the year ended December 31, 2001 (year ended December 31, 2000: £202,000 (US$302,000), year ended December 31, 1999: £77,000 (US$124,000)).
At December 31, 2001 a balance of £90,000 (US$131,000) (December 31, 2000: £Nil; December 31, 1999: £55,000 (US$89,000)) was outstanding. Mr Ziegler resigned as a director of the Company on May 29, 2001.
During the year ended December 31, 2001 the Company made sales to Elan companies amounting to £687,000 (US$1,000,000) (December 31, 2000: £514,000 (US$768,000); December 31, 1999: £Nil) for goods, services, and research. The Company purchased no goods and services during the year ended December 31, 2001 (December 31, 2000 £50,000 (US$75,000) December 31, 1999 £Nil)). At December 31, 2001 there was £Nil year end receivable balance (December 31, 2000 £50,000 (US$75,000). At December 31, 2001 there was £Nil year end payable balance (December 31, 2000 £13,000 (US$19,000)).
During the year ended December 31, 1999 the Company entered into certain contracts with Elan, which is also a significant shareholder. The Directors consider that transactions with Elan have been entered into on an arms length basis. Details of transactions involving Elan are given below.
During the year ended December 31, 1999 Elan provided £4,343,000 (US$7,000,000) in unsecured loans. Also during 1999, £3,102,000 (US$5,000,000) of this unsecured loan, together with £8,686,000 (US$14,000,000) of the $16,000,000 convertible loan note issued in September 1998 by Elan, and £1,023,000 (US$1,649,000) of accrued interest, was converted into 4,129,819 3% cumulative convertible preference shares of £1 each.
Following this conversion, in 1999, the remaining £1,241,000 (US$2,000,000) outstanding from the convertible loan note was converted into 4,000,000 ordinary shares of 10 pence each. A further unsecured loan of £1,241,000 (US$2,000,000) was provided by Elan in 1999 and remained outstanding at December 31, 1999. No interest was paid to Elan on outstanding loan balances for the year ended December 31, 1999. On April 6, 2000 the outstanding loan was renegotiated to bear interest at 2% above base rate from that date and the interest up to that date was deemed to be £62,000 (US$101,000). The loan became repayable on April 6, 2003, however during the year ended December 31, 2001 this loan was repaid in full.
Sale of transdermal business
In November 2001 the Company sold its 99.16% share of its South American transdermal business for a consideration of £214,000 (US$311,000) of which £177,000 (US$258,000) was outstanding at December 31, 2001. The 99.16% share was sold to a company formed and owned by the executive management of Amarin Technologies S.A.
On December 30, 1999 the Company concluded an agreement with Elan for the sale of certain of its transdermal patch business assets and liabilities. £1,461,000 (US$2,355,000) of fixed assets, £811,000 (US$1,307,000) of current assets, £4,536,000 (US$7,310,000) of current liabilities and £1,277,000 (US$2,058,000) of long term liabilities were disposed of for a total cash consideration of £12,564,000 (US$20,250,000), realising a profit of £16,105,000 (US$25,956,000). As part of this transaction, EPIL, a wholly owned subsidiary of Elan, was given the right to assume all or any of the licensing and development agreements relating to its transdermal patch business.
As of December 31, 2000 EPIL elected not to assume any of these licensing and development agreements. Therefore, the Company remained obligated to perform these contracts. Since the Company no longer intended to operate a transdermal patch business, EPIL had agreed to assist the Company in seeking to terminate such agreements or transfer them to licensees. However, even with EPIL’s assistance, the Company may not be able to terminate or transfer all contracts successfully as it will require the consent of each counterparty to do so. The Company took an exceptional charge to cover the estimated cost to terminate its obligations under these contracts. For additional information please refer to Note 6(b).
Following the decision taken by EPIL not to assume the licensing and development contracts, the Company became entitled to certain licensing and development revenues in connection with the discontinued transdermal business. As indicated in Note (2), £3,743,000 of license and development revenues were recognised during 2000. All direct and operating costs incurred in connection with this revenue totalling £1,160,000 were charged by Elan to the Company during the year and this was reflected in the results of the discontinued operation in Note (2). In light of the sale of the transdermal business the Company no longer had the facilities and staff to service its obligations under transdermal contracts. With the exception of one contract, the Company negotiated the termination of its obligations under these arrangements. An accrual of £2,108,000, as discussed in Note 6(b) was made in the period to cover the expected costs to be incurred. To the extent the Company provi des future services on the one remaining contract the Company is dependent upon EPIL or, in their place, the Company would be required to find another party willing to undertake this commitment to provide such services.
Acquisition of product portfolio
During the year ended December 31, 1999 the Company concluded an agreement with Elan for the purchase of certain product rights, with effect from September 29, 1999. The consideration was satisfied by a cash payment of £11,634,000 (US$18,750,000) and a non-interest bearing loan of £4,033,000 (US$6,500,000) repayable on September 30, 2000. At December 31, 1999 the receivable and the loan were still outstanding. On April 16, 2000 the Company entered into an agreement to convert this loan into equity. On conversion the Company would have made a cash payment of US$150,000, issue 870,000 preference shares and 4,000,000 ordinary shares to a subsidiary of Elan. At December 31, 2001 the loan of US$6,500,000 was still outstanding (see Note (19)). With the modification, made to extend this non-interest bearing loan, as discussed in Notes (7) and (19), the conversion rights were removed.
On May 29, 2001 the Board of Directors approved purchase option agreements for the Parkinson’s disease products, Permax® (pergolide mesylate).
Permax®
The agreement for Permax®, as amended and restated on September 28, 2001, gives the Company the exclusive US marketing, distribution and purchase option rights to this product. These rights were obtained from Elan, which holds an exclusive license from Eli Lilly and Company, the owner of the patent for Permax®, to market and distribute this product in the US.
Under this agreement, the Company has been appointed exclusive US distributor for Permax® until May 16, 2002, with an option to acquire outright from Elan other rights in the product. As a part of the modified distribution arrangement, the Company has made payments of US$47.5 million to Elan in consideration for the purchase option. The Company has also agreed to pay Elan royalties on sales.
The Company has retained the option to acquire Elan’s full rights to Permax® before May 16, 2002, subject to running royalties and an additional fixed payment of US$37.5 million. The fixed payment would be made in an initial installment of US$7.5 million upon exercise of the option, followed by twelve successive quarterly payments of US$2.5 million. Management believes all such payments could be funded internally.
As part of the Permax® transaction, the Company received a loan from an affiliate of Elan for the amount of US$45 million, which matures in September 2002. This loan is interest-bearing at US$ LIBOR + 2%. The Company has also agreed to pay Elan royalties on sales.
The Company’s ability to exercise the purchase option remains subject to the approval of Eli Lilly, which is the current holder of the New Drug Application for Permax® in the US. The Company’s exercise of the purchase option may also be subject to approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Zelapar
The Company entered into an option agreement on May 29, 2001 with an affiliate of Elan relating to Zelapar (Zydis fast-dissolving formulation of selegiline). The agreement gives the Company an option to acquire exclusive rights to promote, sell and distribute Zelapar in the US. The US rights to Zelapar are currently licensed to Elan by R P
Scherer, Inc. The agreement provides that the Company will have the option to purchase Elan’s rights to Zelapar in the US by paying a non-refundable option fee of US$100,000 upon the submission of the New Drug Application for Zelapar. The exercise of the option would require the Company to make four milestone payments plus running royalties based on a percentage of net sales of Zelapar in the US for the first eight years following the New Drug Application approval. The first milestone of US$10 million is payable upon the approval of the New Drug Application. The second and third milestones would be in the maximum aggregate amount of US$30 million, and each is contingent on certain revenue levels being achieved. The final milestone of US$15 million would be payable eight years from approval of the New Drug Application for Zelapar, subject to certain extension rights. This final payment will be reduced by the amount of all royalty payments made by the Company to Elan in the inte rvening period. Elan will pay all research and development costs including filing costs for a New Drug Application, up to and including approval of the application by the FDA.
Although the Company and Elan have agreed to use diligent efforts to negotiate a definitive agreement, there is no guarantee that any agreement will be successfully consummated. Even if a mutually acceptable agreement is entered into, it will be subject to the approval of R P Scherer, Inc., the holder of the New Drug Application for Zelapar. The Company’s exercise of any purchase option could also be subject to approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Approval of transactions with Elan
The agreements for Permax® and Zelapar were approved in accordance with the Company policy for related party transactions. The Company requires audit committee review of all transactions involving a potential conflict of interest, followed by the approval of a majority of the directors who do not have a material interest in the transaction. Since three of the Company’s directors currently serve as directors and/or employees of Elan, the Permax® and Zelapar agreements were reviewed by the audit committee and approved by all of the directors who are unaffiliated with Elan.
26. Subsequent events
On March 28, 2002 Elan International Services Limited, a subsidiary of Elan, converted 2,129,819 shares of its Amarin convertible £1 shares into 21,298,190 Amarin ordinary shares (equivalent to 2,129,819 American depository shares).
Upon conversion, Elan International Services Limited, waived their entitlement to receive the accrued cumulative 3% dividend in respect of all cumulative preference shares in the capital of the Company held by members of the Elan Corporation plc group for the period commencing the date of allotment of the preference shares and expiring March 31, 2002.
Following this conversion Elan now holds approximately 27% of Amarin’s undiluted shares outstanding.
27. Differences between UK GAAP and US GAAP
The financial statements of the Company have been prepared in conformity with UK GAAP which differs in certain significant respects from generally accepted accounting principles in the US (“US GAAP”). These differences have a significant effect on net income and the composition of shareholders’ equity and are described below.
Summary of material adjustments to net income/(loss) and shareholders’ equity
A) Treatment of goodwill
Under UK GAAP it was acceptable to charge goodwill arising on acquisition directly to retained earnings in the year of acquisition. Under US GAAP goodwill must be capitalised and amortised to income over the period of expected benefit, not to exceed forty years unless there is an impairment in value which must be recognised immediately. The summary of material differences above reinstates goodwill charged to accumulated deficit and amortises such amounts over 12 years. The directors review the value of goodwill on a regular basis and have provided for impairment in value where the acquisitions on which it arose have either been sold or have ceased or significantly decreased trading.
Under UK GAAP the Company now capitalises purchased goodwill and amortises it over its useful life. Until January 1, 2002 US GAAP was consistent with UK GAAP but following the adoption of Statement of Financial Accounting Standards (“SFAS”) No 142, goodwill will be subject to impairment reviews rather than amortisation under US GAAP.
B) Disclosures related to deferred taxes
Management of the Company evaluated the positive and negative evidence impacting the realisability of the Company’s net operating loss carryforwards. Due to the Company’s history of generating operating losses, significant changes in its underlying products offering and limited periods of profitability, management concluded that a full valuation allowance is required with respect to its net operating loss carryforwards.
C) Treatment of marketable equity securities
Under UK GAAP investments (including listed investments) held on current and long-term basis are stated at the lower of cost or estimated fair value. To the extent that estimated fair value represents a permanent diminution in the value of the investment, then a write down is effected through the income statement. No adjustment is made in the event of a temporary decline in fair value below cost if it can be demonstrated that the value will recover over a reasonable period of time.
Under US GAAP the Company has applied Financial Accounting Standards Board Statement of Financial Accounting Standards No 115 - Accounting for Certain Investments in Debt and Equity Securities (SFAS 115). The Company’s investment in Antares has been classified as investments available-for-sale under SFAS 115. Changes in the values of these investments are recorded as a component of comprehensive income for the purposes of the US GAAP reconciliation.
D) Consolidated statement of cash flows
The consolidated statement of cash flows prepared in accordance with Financial Reporting Standard No 1 presents substantially the same information as that required under US GAAP. Under US GAAP, however, there are certain differences from UK GAAP with regard to classification of items within the cash flow statement.
Under UK GAAP, cash flows are presented separately for operating activities, returns on investments and servicing of finance, taxation, capital expenditure and financial investment, and financing activities. Under US GAAP, however, only three categories of cash flow activity are reported, being operating activities, investing activities and financing activities. Cash flows from taxation and payments for interest would be included as operating activities under US GAAP. The financing proceeds and debt repayments would be included under financing activities under US GAAP. Additionally the cashflow represents only the change in cash and cash equivalents which would exclude overdrafts under US GAAP.
Set out below, for illustrative purposes, is a summary consolidated statement of cash flows under US GAAP:
There is no significant effect of foreign exchange movements on cash balances.
E) Discontinued operations
In the years ended December 31, 1999, 2000 and 2001, the transdermal patch business has been classified as discontinued operations under UK GAAP and the comparatives restated to reflect this. Under US GAAP this would have been shown as continuing operations.
F) Stock-based compensation and National Insurance
Under UK GAAP the Company has recorded a provision for £77,000 (December 31, 2000: £53,000) relating to National Insurance (“NI”) amounts payable on stock option gains at the time of grant. This provision would not be required under US GAAP. Under UK GAAP NI contributions are accrued over the vesting period of the underlying option. Under US GAAP payroll taxes on stock options are accrued when the liability is incurred.
Under UK GAAP the Company recorded a one-off charge upon repricing the options. Under US GAAP repriced options lead to a revalued compensation charge at period end.
SFAS No 123, “Accounting for Stock-Based Compensation”, encourages, but does not require, companies to record compensation expense for grants of stock, stock options, and other equity instruments based on a fair-value method of accounting. Companies that do not adopt SFAS No 123 should continue to apply the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No 25, but are required to provide proforma disclosures of the compensation expense determined under the fair value provisions of SFAS No 123. The Company
continues to follow the accounting provisions of APB Opinion No 25 and the proforma disclosures required under SFAS No 123 are shown below.
The Company applies APB Opinion No 25 and related interpretations in accounting for its US share option plans. Accordingly, a charge of £2,647,000 was recorded (2000: £2,196,000 and 1999: £88,000). Had compensation for the Company’s share option plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No 123, the Company’s net income/(loss) and net income/(loss) per share under US GAAP would have been reduced to the pro forma amounts indicated below:
The fair value for options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions and no dividends:
G) Recently issued accounting standards
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement No 133 (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities”. In July 1999, the FASB issued Statement No 137,
“Deferral of the Effective Date of FASB Statement No 133”, which deferred the effective date of FAS 133 to no later than January 1, 2001 for the Company’s financial statements. The Company has adopted SFAS 133 during the year ended December 31, 2001 with no impact on the financial statements.
Business Combinations
In July 2001, the FASB issued SFAS No 141, “Business Combinations” (“SFAS 141”) which supersedes APB Opinion No 16, “Business Combinations”, and SFAS No 38, “Accounting for Preacquisition Contingencies of Purchased Enterprises”. SFAS 141 addresses financial accounting and reporting for business combinations and requires that all business combinations within scope of SFAS 141 be accounted for using only the purchase method. SFAS 141 is required to be adopted for all business combinations initiated after June 30, 2001. Management has assessed the impact of the adoption of SFAS 141 on its consolidated financial statements and believes there will be no impact.
Goodwill and Other Intangible Assets
Also in July 2001, the FASB issued SFAS No 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) which supersedes APB Opinion No 16, “Intangible Assets”. SFAS 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. SFAS 142 also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The provisions of SFAS 142 are required to be applied starting with fiscal years beginning after December 15, 2001. SFAS 142 is required to be applied at the beginning of an entity’s fiscal year and to be applied to all goodwill and other intangible assets recognized in its financial statements at that date. Management is currently evaluating the impact that adoption of SFAS 142 will have on its consolidated finan cial statements.
Impairments
In October 2001, the FASB issued SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”) which supersedes FAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of”, and the accounting and reporting provisions of ABP 30, “Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS 144 retains the fundamental provisions of FAS 121 for the recognition and measurement of the impairment for long-lived assets and the measurement of long-lived assets to be disposed of by sale. Its issuance is to address the significant issues relating to the implementation of FAS 121 and to develop a single accounting model, based on the framework established in FAS 121, for long-lived assets. Generally, the provisions of FAS 144 are effective for fiscal years beginning after December 15, 2001, with the initial application as of the beginning of the fiscal year. Management is currently evaluating the impact that adoption of SFAS 144 will have on its consolidated financial statements.
H) Earnings per share
The Company adopted SFAS No 128 - Earnings per Share during the fiscal year ended August 31, 1998.
The calculation of US GAAP basic earnings per share is based on the weighted average number of shares. In prior periods the continuing operations of the Company have been loss making, so the effect of the common stock equivalents has not been considered for the dilutive earnings per share calculation.
At December 31, 2001 under US GAAP the Company made a loss under continuing operations. There is no difference between the weighted average share for UK GAAP and US GAAP. The table below highlights the earning per share based on net income, under US GAAP. As a result of this, the following diluted earnings per share calculation has been performed.
* The dilutive effect of the Company’s option, warrants and convertible preferred stock have been excluded as the impact would have been antidilutive for the periods indicated above. Please refer to Notes (21) and (22) for more information with regard to these securities. 290,000 shares were issued during 2000 upon the exercise of certain options. 7,598,133 shares were issued in 2001 upon the exercise of certain options.
I) Treatment of intangible fixed assets
During 2000 the Company purchased rights relating to pharmaceutical products which are in the clinical trials phase of development. Under UK GAAP it is acceptable to attribute a value to these rights, where there is a sufficient likelihood of future economic benefit and capitalise and amortise them over their expected useful economic life. Under US GAAP specific guidance relating to pharmaceutical products in the development phase requires such amounts to be expensed unless they have attained certain regulatory milestones.
Under UK GAAP the Company has capitalised £3,452,000 at December 31, 2001 (December 31, 2000 £3,860,000) relating to rights over products, which would have been expensed under US GAAP.
J) Adjustment for revenue recognition
In December 1999, the SEC issued SAB 101 “Revenue Recognition in Financial Statements”. SAB 101 provides guidance on revenue recognition and related disclosures in financial statements, and requires deferral and amortisation of up-front licence fees where there is a continuing involvement with the licensed asset through the provision of research and development services. Generally, milestone payments have been treated similarly under both UK and US GAAP. They have been recognised when earned and non-refundable, and when the Company has no future legal obligation pursuant to the milestone payment. However, the actual accounting for milestones depends on the facts and circumstances of each contract. In certain cases milestones may be deferred and amortised under US GAAP, whilst under UK GAAP immediate recognition may have been appropriate.
Under US GAAP the Company adopted SAB 101 for the fiscal year ended December 31, 2000 and recorded £619,000 as a cumulative adjustment in respect of its accounting for certain up-front payments and refundable milestone payments. As required by SAB 101, the adjustment was recorded in Q4 2000 with retroactive effect to January 1, 2000. The effect of this adjustment was to reduce retained earnings and increase deferred revenue by equal amounts under US GAAP. Licence and development fees for 2000 were £106,000 higher under US GAAP compared to UK GAAP as a result of SAB 101 requirements.
The change increased net sales for the year ended December 31, 2000 by £106,000. This change had no impact on the Company’s loss per share for the year ended December 31, 2000. For the fiscal year ended December 31, 2001
the effect of SAB 101 increased net sales by £60,000. The cumulative effect, as recognized in shareholders’ equity in accordance with US GAAP, resulted in a reduction in equity of £453,000.
K) Gain on extinguishment of a trade payable
Under UK GAAP the Company has recognised a gain on the reversal of a third party payable by a related party as discussed in Note (2). Under US GAAP the payment of a third party liability by a related party is considered a contribution to capital.
L) Imputed interest on non-interest bearing debt
In connection with the Company’s acquisition of the product portfolio from Elan, the Company obtained a non-interest bearing loan for a period of one year in the amount of £4,466,000 to fund the acquisition of such portfolio. Under UK GAAP the face value of the note is included in the fair value of the portfolio acquired. Under US GAAP the note payable and the product portfolio are recorded at the present value of amounts to be paid determined using an appropriate interest rate. The note payable is then accreted up to its face value over the term of the loan with a corresponding charge to interest expense.
In June 2000, the entire loan amount referred to above of £4,466,000 was extended for a period of approximately 4 years (see Note 19(a)). Under UK GAAP there is no accounting impact as a result of the extension of the loan term. Under US GAAP the modification resulted in an extraordinary gain for fiscal 2000 of £1,251,000, computed as the difference between the face value of the loan and the present value of the amounts to be paid using the appropriate interest rate, which has been accounted for as a capital contribution from a related party. For US GAAP the loan will be carried at its present value and accreted up to its face value over the term of the loan with a corresponding charge to interest expense, accordingly a charge of £268,000 under US GAAP has been charged to interest expense for the year ended December 31, 2001.
M) Accrual for PPA returns
Under UK GAAP the Company did not accrue for the estimated costs expected to be incurred during the year ended December 31, 2000. Under US GAAP the Company was required to accrue for the estimated costs of returns. During the year ended December 31, 2001 the accrual made under US GAAP has been utilised so no GAAP difference remains.
N) Reversal of transdermal accrual
Under UK GAAP the Company has accrued for the estimated costs of terminating its transdermal contracts. Under US GAAP a portion of this amount relates to revenues reflected as deferred revenue under SAB 101.
O) Preferred dividends
Under UK GAAP cumulative preferred dividends are accrued whether paid or not. Under US GAAP, preferred dividends are not accounted for until declared. The Company has restated its shareholders’ equity for the year ended December 31, 2000 to reverse an accrual for preferred stock dividends.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Date: May 7, 2002
EXHIBIT INDEX
Exhibits filed as part of this annual report
* Confidential portions of this Exhibit have been omitted pursuant to a request for confidential treatment. The omitted confidential information has been filed with the Securities and Exchange Commission.
(1) Incorporated herein by reference to certain exhibits to the Company’s Registration Statement on Form F-1, as amended, File No. 33-58160, filed with the Securities and Exchange Commission
(2) Incorporated herein by reference to certain exhibits to the Company’s Registration Statement on Form F-1, as amended, File No. 33-77560, filed with the Securities and Exchange Commission
(3) Incorporated herein by reference to certain exhibits to the Company’s Annual Report on Form 20-F for the year ended December 31, 1999, filed with the Securities and Exchange Commission
(4) Incorporated herein by reference to Exhibit (a)(1) to the Company’s Registration Statement on Form F-6, as amended, File No. 333-5946, filed with the Securities and Exchange Commission
(5) Incorporated herein by reference to certain exhibits to the Company’s Registration Statement on Form F-3, as amended, File No. 33-13200, filed with the Securities and Exchange Commission