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AMARIN CORP PLC\UK FORM F-3/A (Securities Registration (foreign private issuer)) Filed 08/12/03 Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 353 1 6699 020 0000897448 AMRN 2834 - Pharmaceutical Preparations Biotechnology & Drugs Healthcare 08/31 http://www.edgar-online.com © Copyright 2010, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. Table of Contents As filed with the Securities and Exchange Commission on August 12, 2003 Registration No. 333-104748 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 1 TO FORM F-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AMARIN CORPORATION PLC (Exact Name of Registrant as Specified in Its Charter) England (State or Other Jurisdiction of Incorporation or Organization) None (IRS Employer Identification Number) 7 Curzon Street London W1J 5HG England +44 (0) 20 7499 9009 (Address and Telephone Number of Registrant’s Principal Executive Offices) Amarin Pharmaceuticals, Inc. 2 Belvedere Place, Suite 330 Mill Valley, California 94941 (415) 389-4920 (Name, Address, and Telephone Number of Agent For Service) Please send copies of all communications to: Andrea Vachss, Esq. Covington & Burling One Front Street San Francisco, CA 94111 USA Kelly Vance, Esq. Covington & Burling 265 Strand London WC2R 1BH England Approximate date of commencement of proposed sale to the public : From time to time after this registration statement becomes effective as determined by market conditions. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. Pursuant to Rule 429 under the Securities Act, the prospectus contained in this registration statement also relates to, and this registration statement constitutes a post-effective amendment to, registration no. 333-12642, which was filed by the registrant on September 29, 2000 on Form F-3, and any unsold securities registered thereunder, and registration no. 333-13200, which was filed by the registrant on February 21, 2001 on Form F-3, and any unsold securities registered thereunder. TABLE OF CONTENTS TABLE OF CONTENTS ABOUT THIS PROSPECTUS RISK FACTORS WHERE YOU CAN FIND MORE INFORMATION ABOUT US AND THIS OFFERING CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS USE OF PROCEEDS CAPITALIZATION AND INDEBTEDNESS SHARE CAPITAL RECENT PRICE HISTORY RECENT DEVELOPMENTS SELLING SHAREHOLDERS PLAN OF DISTRIBUTION DESCRIPTION OF SECURITIES OFFERING EXPENSES FINANCIAL STATEMENTS DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES ENFORCEABILITY OF CIVIL LIABILITIES LEGAL MATTERS EXPERTS INDEPENDENT AUDITORS’ REPORT PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 8. Indemnification of Directors and Officers Item 9. Exhibits Item 10. Undertakings SIGNATURES EXHIBIT INDEX EX-5.1: OPINION OF NICHOLSON GRAHAM AND JONES EX-23.1: CONSENT OF PRICEWATERHOUSECOOPERS EX-23.3: CONSENT OF KPMG Table of Contents The information in this prospectus is not complete and may be changed. The selling shareholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to completion, dated August 12, 2003 Prospectus 11,060,781 Ordinary Shares Amarin Corporation plc From time to time, the selling shareholders identified in this prospectus may offer and sell up to 11,060,781 of our ordinary shares, £1.00 par value per share, under this prospectus. The selling shareholders may sell all or any portion of these ordinary shares in one or more transactions in such a manner, at such prices and on such terms as they may determine. We will not receive any of the proceeds from the sale of ordinary shares by the selling shareholders. Our American Depositary Shares, or ADSs, evidenced by American Depositary Receipts, or ADRs, are traded on the Nasdaq National Market, the principal trading market for our securities, under the symbol “AMRN”. There is no public trading market for our ordinary shares. On August 11, 2003, the closing sale price for our ADSs, each representing one ordinary share, on the Nasdaq National Market was US$2.75 per ADS. Investing in our ordinary shares and ADSs involves a high degree of risk. See “Risk Factors” beginning on page 1. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. Amarin Corporation plc 7 Curzon Street London W1J 5HG England +44 (0) 20 7499 9009 The date of this prospectus is [ ], 2003 Table of Contents TABLE OF CONTENTS Page About this Prospectus Risk Factors Where You Can Find More Information About Us and this Offering Cautionary Note Regarding Forward-Looking Statements Use of Proceeds Capitalization and Indebtedness Share Capital Recent Price History Recent Developments Selling Shareholders Plan of Distribution Description of Securities Offering Expenses Financial Statements Disclosure of Commission Position on Indemnification for Securities Act Liabilities Enforceability of Civil Liabilities Legal Matters Experts Financial Statements i ii 1 14 15 16 16 17 19 20 24 29 30 37 37 37 38 38 38 F-1 Table of Contents ABOUT THIS PROSPECTUS This document is called a prospectus and is part of a registration statement on Form F-3 that we filed with the Securities and Exchange Commission, or the SEC, using a “shelf” registration or continuing offering process. Under this shelf process, the selling shareholders may from time to time sell the offered securities described in this prospectus in one or more offerings. The prospectus provides you with a general description of the securities that the selling shareholders may offer. In addition, we may file one or more prospectus supplements from time to time. The prospectus supplement(s) may add, update or change information in this prospectus. If there is any inconsistency between the information in this prospectus and any prospectus supplement, you should rely on the information in that prospectus supplement. You should read both this prospectus and any prospectus supplement together with the additional information described below under the heading “Where You Can Find More Information About Us and this Offering.” Unless we have indicated otherwise, references in this prospectus to “Amarin”, “Company”, “we”, “us” and “our” and similar terms are to Amarin Corporation plc and its consolidated subsidiaries. Unless we have indicated otherwise, references in this prospectus to “Elan” are to Elan Corporation plc and its affiliates, as the context may require. Elan is a related party. We have amended our annual report on Form 20-F for the fiscal year ended December 31, 2002, including, in particular, “Item 18 — Financial Statements” of that report. References in this prospectus to our annual report on Form 20-F for the fiscal year ended December 31, 2002 mean that report as amended by amendment no. 1 filed with the SEC on July 31, 2003. In this prospectus, and in the material incorporated by reference into this prospectus from our annual report on Form 20-F or our reports on Form 6-K, references to “pounds sterling” or “£” are to UK currency and references to “US dollars”, “$” or “US$” are to US currency. This prospectus contains trademarks, tradenames or registered marks of us and other entities, including: • Phrenilin®, Motofen®, Diffusion Controlled Vesicle TM or DCV TM and Rhotard®, which are registered in or used by us or our affiliates; • Permax®, which is registered in Eli Lilly and Company or its affiliates, which we may refer to in this prospectus as “Lilly”; • Mirapex®, which is registered in Pharmacia Corporation or its affiliates, which we may refer to in this prospectus as “Pharmacia”; • Requip®, which is registered in GlaxoSmithKline PLC or its affiliates; • Zelapar TM , which is registered in Elan; • Moraxen TM , which is registered in CeNeS Limited or its affiliates, which we may refer to in this prospectus as “CeNeS”; and • Glucotrol XL®, which is registered in Pfizer, Inc. or its affiliates, which we may refer to in this prospectus as “Pfizer.” Unless otherwise specified, all shares and share related information (such as per share information and share price information) in this prospectus have been adjusted to give effect, retroactively, to our ten-for-one ordinary share consolidation effective on July 19, 2002 whereby ten ordinary shares of 10p each became one ordinary share of £1.00 each and to the simultaneous change in the ratio of ordinary shares to ADSs from ten-to-one to one-to-one. Our consolidated financial statements contained, discussed and incorporated by reference in this prospectus are prepared in accordance with generally accepted accounting principles in the UK, which we refer to in this prospectus as “UK GAAP” and which differs in certain significant aspects from generally accepted accounting principles in the US, which we refer to in this prospectus as “US GAAP”. These ii Table of Contents 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 39 to the consolidated financial statements in our annual report on Form 20-F for the fiscal year ended December 31, 2002. Note 39 to our consolidated financial statements also provides a reconciliation of our consolidated financial statements to US GAAP. Through the year ended December 31, 2002, we published our consolidated financial statements in pounds sterling. Beginning January 1, 2003 we are publishing our consolidated financial statements in US dollars. Solely for informational purposes, this prospectus contains translations of certain pound sterling amounts in, to or from US dollars at a specified rate. These translations should not be construed as representations that the pound sterling amounts actually represent the US dollar amounts indicated or could be converted into or from US dollars at the rate indicated. Unless otherwise stated herein, the translations of pounds sterling into and from US dollars have been made at £1.00 to US$1.6099, which was the closing midpoint rate on December 31, 2002 as quoted in the UK Financial Times. The noon buying rate in New York City for cable transfers in pounds sterling as certified for customs purposes by the Federal Reserve Bank of New York at December 31, 2002 was £1.00 to US$1.6095. We do not believe this difference to be material. The noon buying rate on August 1, 2003 was £1.00 to US $1.6045. Our fiscal year ends on December 31 of each year. Where this prospectus refers to a particular year, this means the fiscal year unless otherwise indicated. Historically, our fiscal year ended on August 31. During 1999, our fiscal year end date was changed to December 31. iii Table of Contents 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 prospectus. 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 develop into actual events, our business, financial condition and results of operations could be materially and adversely affected, and the trading price of our ADSs could decline. If we cannot find additional capital resources, we will not be able to pay our indebtedness or sustain and grow our business. We will need to raise additional capital to repay our existing debts by year-end and to fund our business from December 31, 2003 and beyond. In addition, we will need to raise additional capital in order to pursue our strategy of acquiring additional products, expanding our sales and marketing capabilities and growing our business. Depending on market conditions and our ability to ensure financial stability, we may not have access to additional capital on reasonable terms or at all. If we are unable to obtain additional financing before year-end, we will not be able to repay our debt to Elan by December 31, 2003, after which time all of our obligations to Elan will become payable on demand. See “Recent Developments.” In addition, if we are unable to raise additional financing, we will not have sufficient funds to operate beyond December 2003. In addition, even if we are able to obtain funds to meet our payment obligations to Elan and enable our operations to continue beyond December 2003 we may not have sufficient resources to grow our business. Our independent accountants have added language in their report in reference to our subsequent event note 40 to our financial statements, indicating that the adverse trading conditions we have suffered since December 31, 2002 raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. We have a history of losses. We have only been profitable in two of the last five fiscal years. For the fiscal quarter ended June 30, 2003, we reported a net loss of approximately $7.0 million under UK GAAP. For the fiscal quarter ended March 31, 2003, we reported a loss of approximately $3.7 million under UK GAAP. For the fiscal year ended December 31, 2002, we reported a loss of approximately £23.0 million under UK GAAP. In the fiscal year ended December 31, 2001 we reported a loss of approximately £3.3 million under UK GAAP. We reported net profits under UK GAAP of approximately £1.7 million and £2.7 million for the years ended December 31, 2000 and December 31, 1999, respectively. Prior to that, we had a net loss of approximately £1.2 million for the four-month period ended December 31, 1998, which was a transition period following the change of our fiscal year end from August 31 to December 31. We also reported a net loss of approximately £17.2 million under UK GAAP for the fiscal year ended August 31, 1998. In future periods, we may not be able to continue growing our sales and we may not be able to return to profitability. We may have to issue equity in Amarin leading to shareholder dilution. It is probable that we will have to issue new equity to fund our working capital requirements from September 2003 and beyond and to fund new product acquisitions and/or development programs. We are already committed to issue equity to Laxdale Limited, which we may refer to in this prospectus as “Laxdale”, upon the successful achievement of specified milestones for the LAX-101 development program. See Item 4 of our annual report on Form 20-F for the year ended December 31, 2002 “Information on the Company — Business Overview — Our Huntington’s Disease Strategy — LAX-101.” As part of our financing requirements new equity or convertible equity or debt instruments may be issued to new or existing shareholders. The creation of new shares would lead to dilution of the current shareholder base. 1 Table of Contents Our revenues are predominantly based upon our levels of sales to wholesalers and similar purchasers of inventory in the US. Our revenues are predominantly based upon our sales in the US to wholesalers and similar purchasers of our products. The level of US sales reflects the demand from these wholesalers and similar purchasers to meet both the in-market consumption of our products and to reflect the levels of inventory that wholesalers and similar purchasers of our products carry. In the future, wholesalers and similar purchasers of our products may hold more or less inventory than they did for the same period of a prior year and throughout a calendar year. Changes in the level of inventories can directly impact the level of US sales and could result in our sales not being in-line with in-market consumption of our products. In the event that the in-market use of a product or products is overestimated by either us or our customers then any such wholesaler or similar purchaser may in certain circumstances be able to return product to us at their purchase cost. Wholesalers and similar customers typically need to hold at least one month in inventory to satisfy demand and may hold inventory in excess of that to assure continued supply. The loss of formulary coverage by a few payors in the US would have an adverse effect on our business. The success of our products may depend in part upon the ability of consumers to obtain reimbursement from third party health care payors, such as government and private insurance plans. Third party insurers and the US government (Medicaid or the Veterans Association) fund approximately 75% of prescriptions dispensed in the US pharmaceutical market. These payors will typically only provide reimbursement for pharmaceutical products that are included in their formularies. If pharmaceutical products cease to be included on these formularies, patients will often switch to alternative treatments that are included and reimbursed. Many of these payors have individually significant proportions of the total US market and the loss of coverage or disfavored status on their formularies for our products could have a material adverse affect on our level of prescriptions and sales. In other jurisdictions, such as the European Union, governments influence the price of pharmaceutical products through pricing and reimbursement rules and control of national health care systems that fund a large proportion of the cost of such products to consumers. The approach taken varies from country to country. Some jurisdictions operate positive and/or negative list systems under which products may only be marketed once a reimbursement price has been agreed. Other jurisdictions allow companies to fix their own prices for medicines, but monitor and control company profits. Third-party payors are increasingly attempting to contain health care costs by challenging the prices charged for medical products and services. Our Parkinson’s disease product, Permax, is marketed primarily to seniors. There is additional increasing pressure to provide pricing discounts or benefits to seniors. If the regulatory environment changes, some or all of our products may not remain eligible for third-party reimbursement. In addition, even if reimbursement is available, the levels of reimbursement may not be sufficient to permit us to set prices at which we can realize an acceptable return on capital. We are dependent on a few customers for the majority of our revenue. In 2002, 23% of our product revenue was attributable to one customer and the next four largest customers accounted for an additional 56% of our revenue. These percentages increased significantly from 2001. As with many pharmaceutical companies who sell through traditional wholesale channels there has been considerable consolidation in this sales channel resulting in concentration of customer sales. We expect to continue to depend on a few large customers to support our revenues for the foreseeable future. There is no assurance that revenue from these large customers will be maintained or that we will be able to sustain revenues in the future. See Item 5 of our annual report on Form 20-F for the year ended December 31, 2002 “Operating and Financial Review and Prospects — Operating Results — Comparison of Fiscal Years Ended December 31, 2002 and December 31, 2001 — Revenue.” 2 Table of Contents Our ability to generate revenues under our in-licensing agreements depends in part upon the financial condition of our licensors and the ability of our licensors to obtain regulatory approvals. We have entered into a license agreement with Laxdale that gives us the US marketing rights to LAX-101, a new molecular entity that is under investigation to treat Huntington’s disease. Laxdale is responsible for conducting, at its expense, all tests and clinical trials needed in order to meet regulatory requirements, for obtaining applicable regulatory approvals, and for prosecuting any patent applications with respect to this product. The costs of developing and obtaining regulatory approvals for pharmaceutical products can be substantial. On February 3, 2003, we announced our intention to work with Laxdale toward conducting an additional Phase III program to support a possible new drug application or “NDA” for LAX-101. This was determined after a meeting with the US Food and Drug Administration, or FDA, on January 29, 2003. The decision to conduct a further Phase III program is consistent with the approval process of new drug products for neurological diseases, and reflects the fact that statistical significance was not achieved in the entire study patient population in the first Phase III study. Our ability to commercialize this product is dependent upon the success of Laxdale’s further development efforts. If Laxdale is unable to maintain the financial and operational capability to complete its development efforts, we may not ever be able to generate revenues from the licensed product. In the event that Laxdale is unable to fund the Phase III program for LAX-101, we could not fund such Phase III program from our existing financial resources. We are dependent upon Laxdale having the financial and personnel resources necessary to fulfill its obligations to complete the clinical development and pursuit of approval of an NDA, if clinical study results warrant, and on the success of such development efforts. There can be no assurances that Laxdale, a small, closely held private company, will have the resources necessary to fulfill these obligations or that development success will otherwise be achieved. In addition, the Chairman of Laxdale, Dr. David Horrobin, one of its founders, died in April 2003. While we do not believe that Laxdale is wholly dependent on Dr. Horrobin for continued development progress of LAX-101, the impact of his death upon Laxdale remains uncertain at this time. Our ability to derive any revenues under our licensing agreement with Laxdale for LAX-101 is subject to all of the risks associated with obtaining regulatory approvals, and as a licensee we have limited ability to control the outcome of the development process. Our licensors may not obtain regulatory approvals that are needed in order to market a new product, and the timing or scope of any approvals may prohibit or reduce our ability to commercialize a product successfully. For example, even if Laxdale obtains the necessary approvals for LAX-101, the approvals may take too long or the terms of the approvals may not have the scope or breadth needed for us to commercialize successfully products based on LAX-101. We are aware that CeNeS, our licensor of Moraxen, currently has financial problems. In light of this, we are currently assessing the viability and funding of the development project with CeNeS for Moraxen and wrote off the carrying value of Moraxen in 2002. See Item 4 of our annual report on Form 20-F for the year ended December 31, 2002 “Information on the Company — Business Overview — Our Huntington’s Disease Strategy — Moraxen.” Our 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. Our portfolio of marketable products competes with a variety of other products, including established drugs and major brand names. The market for generic products is particularly competitive. Generic copies of innovator drugs can generally be introduced on the basis of bioequivalence to an existing product after any patents and data exclusivity protection on such product have expired. Once a successful product is off patent, many companies often seek to market generic equivalents, thus saturating the market with a large number of similar products. Competitive factors could force innovator companies such as ourselves to lower prices or could result in reduced sales. In addition, new or currently marketed products developed by others could emerge as competitors to our products. Products based on new technologies or new drugs could render our products obsolete or uneconomical. Revenues from Permax have been in decline since a generic version of Permax was launched in December 2002 and the publication in December 2002 in the Mayo Clinic Proceedings of an article titled 3 Table of Contents “Valvular Heart Disease in Patients Taking Pergolide”, regarding three case studies reporting a possible connection between pergolide, which is ergot-derived, and valvular heart disease. The Mayo Clinic article led to a change to the Permax label to include the potential risk of valvular heart disease. Whilst we believe that the causal link between the taking of Permax and valvular heart disease has yet to be established and the incidence of any such problem in any event would appear to be rare, it is likely that this article may have put Permax at a competitive disadvantage to the other dopamine agonists that are not ergot-derived. Additionally, we recently received two notices of claims of personal injury and/or death from valvular heart disease allegedly associated with Permax. See Item 4 of our annual report on Form 20-F for the year ended December 31, 2002 “Information on the Company — Business Overview — Our Parkinson’s Disease Strategy — Permax.” We cannot predict whether litigation will follow, or the outcome of any such litigation. We intend to take all appropriate action to protect our interests with respect to these claims. In November 2002, Teva Pharmaceuticals Industries Ltd. announced that the FDA had issued final approval for its abbreviated new drug application or “ANDA” for pergolide mesylate tablets bioequivalent to Permax. This generic product has now been launched and has led to a significant reduction of sales of Permax in the US. Accordingly, in fiscal year 2002 we recorded an impairment charge of £23,796,000 against the carrying value of Permax. The charge was calculated in accordance with FRS 11 “Impairment of Fixed Assets and Goodwill”, which prescribes that the launch of a generic product is a “trigger” event which necessitates, where appropriate, a revision of the carrying value of the intangible. For the six months ended June 30, 2003, total prescriptions of Permax fell by approximately 50% when compared to the comparable period of the year 2002. As a result of this reduction in patient demand, we booked provisions totaling approximately $7.3 million for the quarter ended March 31, 2003 to cover the risk of returns, rebates and inventory losses. During the quarter ended June 30, 2003, we continued to experience significant generic competition to Permax and a further reduction in inventory levels at wholesalers. Sales of Permax declined to $0.1 million for the quarter ended June 30, 2003 compared to $15.2 million in the comparable period of the year 2002. Such reduction of our Permax sales will have a materially adverse effect on our cash flows and earnings in 2003 and possibly beyond. We have settled litigation with respect to a second ANDA also filed for pergolide. Under the provisions of our settlement agreement, Ivax Corporation (the holder of the ANDA) will receive a non-exclusive sublicense in the US for the two patents at issue and, in return, will pay us royalties based on its first six months of sales of its pergolide products under its ANDA, if and when approved by the FDA. Ivax has announced that its ANDA has received tentative approval by the FDA. Although we will be entitled to royalties based on the first six months of sales of this generic product, the entry into the marketplace of the Ivax generic product is likely to have a further material adverse impact on sales of Permax. We anticipate that this generic product will be launched in September 2003. In the third quarter of 2002, we concluded that one product in our Phrenilin line of products, Phrenilin with Caffeine and Codeine, had experienced intense generic competition. As a result, we took a one-time charge of £2.89 million ($4.65 million) relating to inventory writeoffs and we have discontinued the sale of this product. Our principal competitors both in the US and Europe include large, well-established pharmaceutical companies, specialty pharmaceutical sales and marketing companies and specialized drug delivery companies. In addition, we compete with universities and other institutions involved in the development of technologies and products that may be competitive with ours. Many of our competitors have greater resources and experience than us, including financial, product development, marketing, personnel and other resources and experience. In the area of Parkinson’s disease, our principal competitors include Pharmacia and GlaxoSmithKline PLC, who market Mirapex and Requip respectively, dopamine agonists indicated as primary therapy for Parkinson’s disease. In the area of headache medications, our principal competitors include Novartis AG and Elan. We also compete with numerous manufacturers of over-the-counter headache medications. The success of our products also depends in large part on the willingness of physicians to prescribe these products to their patients. Many of our competitors’ products have achieved broad recognition and acceptance 4 Table of Contents among medical professionals. In order to achieve an acceptable level of prescriptions for our products, we must be able to meet the needs of both the medical community and end users with respect to cost, efficacy, safety and other factors. See Item 4 of our annual report on Form 20-F for the year ended December 31, 2002 “Information on the Company — Business Overview — Competition.” Our supply of products could be disrupted by problems affecting our manufacturers and key suppliers. We do not currently have a commercial manufacturing facility and, accordingly, we are dependent upon maintaining existing relationships with contract manufacturers and other vendors, or establishing new vendors, to supply inventory for our sales and marketing business in the US and elsewhere. There is no assurance that if any existing relationships were to terminate we would be able to replace our current vendors without disruption to operations. Among other difficulties in identifying and retaining a new manufacturer, FDA approval is generally required to change the manufacturer of a drug and the new manufacturer must demonstrate that it meets the FDA’s requirements for current good manufacturing practices. While we take prudent steps to maintain safety stocks of inventory, a product shortage or interruption could have a material impact on our revenues. In some but not all cases, we have identified and qualified an alternate or back-up supplier of product. We are currently out of stock for our products Capital with Codeine and Nolahist. While we are optimistic that stocking will occur within the next five months, there can be no guarantee that stocking will occur within this time frame or at all. Except for our products Capital with Codeine and Nolahist, we currently have sufficient supplies of products to meet our expected needs for at least four months, except for Motofen where we have approximately one month of stock in hand. We currently rely on a single source of supply for most of our products. In the case of Permax, currently our primary marketed product, as a part of our exclusive US rights we are contractually obligated to source all supplies of Permax from Lilly. There can be no assurance, however, that all of our Permax orders will be fulfilled in a timely fashion by Lilly. In addition, we received notice from Lilly in March 2003 that Lilly has elected to terminate its manufacturing and supply obligations to us, with such termination being effective March 4, 2006. Lilly is obliged to assist in transferring its manufacturing technology to us or to a third party we nominate for the purpose of ensuring that we can continue to manufacture and supply Permax. We believe that we will be able to take advantage of this opportunity to lower our cost of goods for Permax through the identification of a new supplier and that we will be able to do so in the three-year period before Lilly’s supply obligations end. However, there can be no assurances that we will find such a manufacturer within the timeframe of the notice period or that a lower cost of goods will result. Any failure to timely locate a new qualified manufacturer could result in lost sales and could have a material adverse effect on our business. If in the future our 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. Furthermore, manufacturers are required to comply with current good manufacturing practices regulations promulgated by the FDA and other regulatory bodies. The failure by a manufacturer to comply with these regulations could affect its ability to provide us with product. While we take prudent steps to maintain safety stocks of inventory, the loss of a contract manufacturer or a product shortage or interruption could have a material impact on our revenues. In some cases we have identified and qualified an alternate or back-up supplier of product. However, we do not have insurance coverage against the risk of manufacturing failure or disruption. If we acquire new products, we may need additional contract manufacturing capacity. Our contract manufacturers have no obligation to supply new products. Even if our contract manufacturers endeavor to meet our future needs, we cannot predict whether they will have sufficient capacity to do so. Accordingly, we may need to secure additional contract manufacturing capacity to accommodate any growth in our product portfolio. A failure to do so when needed could result in our inability to satisfy the requirements of our customers and could result in lost sales and diminished market share. We and, in turn, our vendors often rely on third parties to supply the raw materials needed to manufacture our products. In most cases our contract manufacturers are responsible for obtaining raw materials, although we have assumed responsibility for sourcing difenoxin, a critical component of Motofen. We currently rely on 5 Table of Contents a single source of supply for difenoxin, which is only available from a limited number of suppliers worldwide. Since acquiring our product portfolio in late 1999, we have not experienced any problems in obtaining difenoxin, and to our knowledge no other supplier has sought to terminate its relationship with our manufacturers. Our reliance on a limited number of suppliers involves several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality. For example, our current supplier of difenoxin allocates its output through a quota system and lead times can be as long as a year. Any unanticipated disruption to contract manufacture caused by problems at any suppliers could delay shipment of our 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 new products. We are pursuing a strategy of product acquisitions (both marketed and development products) in order to generate growth. This strategy depends substantially upon our ability to continue acquiring products that we can effectively market in the US. Although we engage in proprietary research and development of new products, these activities are limited. We must therefore rely 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. 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 addition, we may need to significantly increase our sales and marketing force and incur additional expenses in anticipation of a new product introduction. In order to achieve growth, we will need to expand our limited sales and marketing capability. At present, we market and sell our products primarily through direct marketing programs in the US. Our US subsidiary conducts all selling activities and has established a small sales and marketing staff of approximately 36 persons, including approximately 24 sales representatives to assist in the promotion of Permax and, potentially, our other neurology products. Although we currently have limited marketing, sales and distribution capability, we believe that our resources are sufficient to support our existing products. Our long-term strategy, though, is to significantly expand our portfolio by acquiring additional marketable products. In order to market any new products, we will need to add marketing and sales personnel who have expertise in the pharmaceuticals business. 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 increase our sales force or to expand our distribution network in the US could 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 and the introduction of these products to the market. We intend to acquire products that have high growth potential. It is expected that any such new products will require substantially higher levels of support than our current portfolio. 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. This could create a strain on our financial and management resources. Our failure to manage such growth effectively could result in lost sales and could have a material adverse effect on our business. We may not be successful in developing new products or marketing existing products if we cannot meet extensive regulatory requirements for quality, safety and efficacy promulgated by the FDA and other regulatory agencies. Our product development activities generally involve the co-development of products with our strategic partners. The success of these efforts is dependent in part upon the ability of the products to meet and to continue to meet regulatory requirements in the jurisdictions where we and our development partners 6 Table of Contents ultimately intend to sell such products. The development, manufacture and marketing of pharmaceutical products are subject to extensive regulation by governmental authorities in the US, the European Union, Japan and elsewhere. In the US, 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: • the inability to manufacture sufficient quantities of qualified materials under current good manufacturing practices for use in clinical trials; • slower than expected rates of patient recruitment; • the inability to observe patients adequately after treatment; • changes in regulatory requirements for clinical trials; • the lack of effectiveness during clinical trials; • unforeseen safety issues; • delays, suspension, or termination of a trial due to the institutional review board responsible for overseeing the study at a particular study site; and • government or regulatory delays or “clinical holds” requiring suspension or termination of a trial. Even if we obtain positive results from pre-clinical or clinical trials, we may not achieve the same success in future trials. Clinical trials may not demonstrate statistically sufficient safety and effectiveness 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. 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. At present, four products developed by our partners using our drug delivery technologies are in various stages of development. One of these products has been submitted for approval in the US and one of these products has been submitted for approval in Japan. We expect that one of the other products will be submitted for approval in the US and the remaining product will be submitted in Japan. Even if approvals are obtained, they may not be on the terms or have the scope or breadth necessary for the successful commercialization of such products. This could adversely affect our ability to receive future royalty payments from the sale of such products. Moreover, 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 such product or manufacturer, including withdrawal of the product from the market, which would have a negative impact on our potential royalty stream. Our current research and development activities include the development of applications for our Diffusion Controlled Vesicle, or DCV, coating technology. In order to fully exploit this technology, we intend to pursue opportunities to develop an application for the US and potentially other markets. However, we have not yet submitted any products containing the DCV coating technology for approval by the FDA. This technology includes two components that have been approved in Europe. Often, if specific components of a new product have been approved in other jurisdictions, the FDA accepts such components when supported by a compilation of relevant information. Such information would include confidential data from the manufacturer as well as data generated by us or available in the public domain. However, at such time as any products incorporating DCV are submitted for approval, the FDA may determine that new data must be generated, notwithstanding the existence of supporting information. The generation of new data could involve 7 Table of Contents significant expense and delay. There is no certainty that the DCV components will be accepted solely on the basis of existing information. After approval, our products are 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 of 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 US and in other countries. In the US, the distribution of product samples to physicians must comply with the requirements of the US 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 comply with the US Medicare-Medicaid AntiFraud and Abuse Act, as amended, the US False Claims Act, as amended, and similar state laws. Pricing and rebate programs must comply with the US Medicaid rebate requirements of the US Omnibus Budget Reconciliation Act of 1990, as amended. If products are made available to authorized users of the US Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to US 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 may not realize profits from the licensing of our drug delivery technologies if our strategic partners fail to commercialize the products that incorporate these technologies. Our research and development activities in Sweden focus on joint product development projects with third parties, involving the incorporation of our drug delivery technologies into compounds belonging to the third parties. In many cases, we are entitled to future royalty payments based on anticipated commercial sales of the products being developed. Typically, after development work is completed, our codevelopment partners are responsible for obtaining regulatory approvals and are given a license to manufacture the product and bring it to market within designated territories. We may also use additional licensees to commercialize the product in other territories. Our ability to realize royalties thus depends upon numerous factors that are exclusively within the control of the licensee. These factors include: • the availability of raw materials for these products; • the ability to obtain regulatory approvals for the manufacture and sale of the products; • the successful manufacture and commercialization of the products; and • the successful marketing, promotion and distribution of the products in a favorable competitive environment. 8 Table of Contents In addition, licensees could decide to delay or discontinue the commercialization of products for financial or other business reasons. For example, three of our licensees have discontinued or significantly delayed marketing efforts for the products licensed to them. If the companies to which we license our technologies fail to commercialize such products successfully, or if existing sales activities cease or materially decline, this could have an adverse affect on our future royalty payments. For some products, we have also entered into distribution agreements under which we sell finished goods to distributors who are authorized to re-sell the product in a designated territory. Unlike our licensees, these distributors are not responsible for manufacturing the product. Therefore, risks relating to raw materials and successful manufacture are not applicable. However, the distributors do generally have responsibility for obtaining regulatory approvals and marketing the products within their territory. To this extent, our distribution arrangements are subject to the same risks that exist under our licensing agreements. In addition, we typically have no control over a distributor’s decision to discontinue commercializing a product. If existing sales activities by our distributors cease or materially decline for any reason, this could adversely affect our future income stream. We currently have seven distribution agreements covering three products. Sales are taking place under six of these agreements, and the seventh is inactive due to the distributor’s failure to obtain regulatory approval in the designated territory. We may incur potential liabilities relating to discontinued operations or products. In connection with our restructuring which began in 1999, we decided to discontinue our UK-based transdermal patch business. In December 1999, we sold certain assets relating to this business to Elan. However, Elan did not assume the licensing and development agreements associated with the divested assets, and we remained obligated to perform all of these contracts. Since we no longer operate a transdermal patch business, Elan agreed to assist us in seeking to terminate such agreements or transfer them to licensees. To date, we have formally terminated, assigned or reached agreement with respect to the termination or assignment of all but one of the fifteen contracts to which we were a party and are reasonably confident that the remaining contract will either be assigned or will not result in any significant payment to the other party relating to our inability to perform continuing obligations. In the third quarter of 2002, we took a one-time charge of $4.65 million (£2.89 million) relating to inventory write-offs and the discontinuance of sales of Phrenilin with Caffeine and Codeine. This action was based on our determination that the product had experienced intense generic competition and did not provide us with competitive advantage. We may incur expenses under our ongoing product development contracts without receiving offsetting payments. In prior years, our revenues and profitability have been primarily dependent upon the fees that we received under license and development agreements with third parties. This dependency has diminished as we have shifted our focus from product development to the marketing and sale of developed and approved products. However, our facility in Malmö, Sweden continues to conduct research and development activities focused on oral delivery technologies. In this area, we continue to rely upon periodic payments that are contingent on our attainment of regulatory approvals and/or achievement of technical and clinical milestones set forth in agreements with third parties. We may have to commit significant personnel and financial resources to meet these requirements. The failure to achieve, or delays in achieving, any required milestones or approvals can cause us to fail to receive significant payments. Even if a milestone is achieved, the costs incurred may exceed the amount of the payment. We generally negotiate payments in advance based on estimates of how much work is required, and these estimates may prove to be too low. As a result, we may be unable to recoup our development expenses, which could adversely affect our profitability. We are 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 9 Table of Contents processes. As of June 30, 2003, we maintained 128 issued patents and had 19 patent applications pending worldwide. Expiration dates of the issued patents range from 2003 to 2014. The patents expiring in 2003 are not considered to be material to our business. Our success depends in large part on our continued ability to: • acquire patented or patentable products and technologies; • obtain patents for our newly-developed products and technologies; • maintain patent protection for both acquired and developed products; • preserve our trade secrets; and • operate without infringing the proprietary rights of third parties. Although we believe that we make reasonable efforts to protect our intellectual property rights and to ensure that our proprietary technology does not infringe the rights of other parties, we cannot ascertain the existence of all potentially conflicting claims. Therefore, there is a risk that third parties may make claims of infringement against our products or technologies. In addition, third parties may be able to obtain patents that prevent the sale of our products or require us to obtain a license and pay significant fees or royalties in order to continue selling our products. For example, one of our technologies is incorporated in a generic formulation of glipizide extended release tablets, as part of an agreement with Watson Pharmaceuticals, Inc. Glipizide extended release tablets are marketed in the US under the trade name Glucotrol XL by Pfizer. Watson Pharmaceuticals announced in December 2002 that it has filed an ANDA with the FDA seeking approval to market its generic version of Glucotrol XL tablets. We are aware that a third party has commenced proceedings in the US against Watson Pharmaceuticals with respect to the filing of this ANDA. Any such claim if successful could have a material effect on our business. 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 seek to protect our trade secrets and proprietary know-how through confidentiality agreements with our manufacturers, employees and consultants, we cannot prevent our competitors from breaching these agreements or independently developing or learning of our trade secrets. Both the defense and prosecution of patent claims can be expensive, time-consuming and uncertain. An adverse outcome could subject us to significant liabilities to third parties, requiring us to obtain licenses from third parties or cease our sales or research and development activities. We are presently a plaintiff in one lawsuit alleging patent infringement of our licensed patent rights with respect to Permax, currently our primary marketed product. See Item 4 of our annual report on Form 20-F for the year ended December 31, 2002 “Information on the Company — Business Overview — Our Parkinson’s Disease Strategy — Permax.” We anticipate that competitors may from time to time oppose our efforts to obtain patent protection for new technologies or to submit existing 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 engage in 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; • our US-based sales and marketing team; and • our Sweden-based scientific team. The loss of the services of one or more members of senior management, the sales and marketing team or the scientific team could have a material adverse effect on us. As a small company with a streamlined 10 Table of Contents management structure, the departure of any key person could have a significant impact and would be potentially disruptive to our business. In addition, because our operations are spread out geographically, it may not be practicable for existing management to take on responsibilities of any departing key employee. Furthermore, because of the specialized nature of our business, we are highly dependent upon our ability to attract and retain qualified sales, 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 continue to attract and retain the personnel necessary for the development of our business, particularly if we do not maintain profitability. Loss of the services of key sales, scientific and technical personnel, or the failure to recruit such personnel, would be detrimental to our marketing activities and development programs. We have entered into an employment agreement with our chief executive officer. The term of this agreement automatically renews on an annual basis, subject to each party’s right to terminate upon six months’ notice. Our officers and key employees in the US are employed on an at-will basis and are therefore not restricted from seeking employment elsewhere. Our officers and key employees in the UK, other than our chief executive officer, are not employed for any specified period and are not restricted from seeking employment elsewhere, subject only to giving appropriate notice to us. We are subject to continuing potential product liability. Risks relating to product liability claims are inherent in the manufacturing and marketing of our products. Any person who is injured as a result of using one of our products may have a product liability claim against us without having to prove that we were at fault. Since we distribute and sell our products to a wide number of end users, the risk of such claims could be material. Product liability claims could also be brought by persons who took part in clinical trials involving our products, including clinical trials of transdermal products carried out prior to the disposal of our transdermal business. We have obtained insurance against claims arising in the ordinary course of business up to a limit of US$10 million. However, this may not adequately protect us if there is a high occurrence of claims in the future or if any future claim exceeds the limits of our coverage. A successful claim brought against us in excess of our insurance coverage could have a material adverse effect on our business. We are not presently the subject of any litigation alleging product liability. We have, however, recently received two notices of claims of personal injury and/or death from valvular heart disease allegedly associated with Permax. See Item 4 of our annual report on Form 20-F for the year ended December 31, 2002 “Information on the Company — Business Overview — Our Parkinson’s Disease Strategy — Permax.” We cannot predict whether litigation will follow, or the outcome of any such litigation. We intend to take all appropriate action to protect our interests with respect to these claims. We may not be able to maintain product liability coverage on acceptable terms if our claims experience results in higher rates, or if product liability insurance otherwise becomes costlier or unavailable because of general economic, market or industry conditions. If sales of our products increase materially, or if we add significant products to our portfolio, we will require increased coverage and may not be able to secure such coverage at reasonable rates or at all. The price of our ADSs 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 are also subject to volatility as a result of the relatively limited size of their trading market. With approximately 6.7 million ADSs outstanding, 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 securities, either of which could result in price volatility. Additionally, there is a potential for additional ordinary shares, including almost all of the ordinary shares being sold under this prospectus, to be exchanged for ADSs in quantities that may be substantial in relation to our public float, 11 Table of Contents which could have a material impact on market price and create volatility. These factors increase the risk that the market price of our ADSs may be affected by factors such as: • the announcement of new products or technologies; • innovation by us or our competitors; • developments or disputes concerning patent or proprietary rights; • actual or potential medical results relating to our products or our competitors’ products; • interim failures or setbacks in product development; • regulatory developments in the US, the European Union or other countries; • currency exchange rate fluctuations; and • period-to-period variations in our results of operations. The rights of our shareholders may differ from the rights typically afforded to shareholders of a US corporation. We are incorporated under English law. The rights of holders of ordinary shares and, therefore, certain of the rights of holders of ADSs, are governed by English law, including the UK Companies Act 1985, as amended by the UK Companies Act 1989, and by our memorandum and articles of association. These rights differ in certain respects from the rights of shareholders in typical US corporations. See Item 10 of our annual report on Form 20-F for the year ended December 31, 2002 “Additional Information — Memorandum and Articles of Association.” The principal differences include the following: • Under English law, each shareholder present at a meeting has only one vote unless a valid demand is made for a vote on a poll, in which each holder gets one vote per share owned. Under US law, each shareholder typically is entitled to one vote per share at all meetings. Under English law, it is only on a poll that the number of shares determines the number of votes a holder may cast. You should be aware, however, that the voting rights of ADSs are also governed by the provisions of a deposit agreement with the depositary bank. See “Description of Securities — Description of American Depositary Receipts and American Depositary Shares” below. Also see Item 10 of our annual report on Form 20-F for the year ended December 31, 2002 “Additional Information — Memorandum and Articles of Association — Description of Ordinary Shares — Voting Rights.” • Under English law, each