(2)

Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents consist of cash, deposits held at call with banks, and short term highly liquid instruments with remaining maturities at the date of purchase of 90 days or less.

Research and Development Costs

The Company charges research and development costs to operations as incurred. Research and development expenses are comprised of costs incurred by the Company in performing research and development activities, including salary and benefits; stock-based compensation expense; laboratory supplies and other direct expenses; contractual services, including clinical trial and pharmaceutical development costs; commercial supply investment in its drug candidates; and infrastructure costs, including facilities costs and depreciation expense.

Marketing, General and Administrative Costs

Warrant related expense from non-cash changes in fair value of the warrant derivative liability associated with warrants issued in October 2009 to former employees of Amarin is recorded as compensation expense and classified as part of marketing, general and administrative costs, net of warrants exercised.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts and tax bases of assets and liabilities and operating loss carryforwards and other attributes using enacted rates expected to be in effect when those differences reverse. Valuation allowances are provided against deferred tax assets that are not more likely than not to be realized.

The Company provides reserves for potential payments of tax to various tax authorities or does not recognize tax benefits related to uncertain tax positions and other issues. Tax benefits for uncertain tax positions are based on a determination of whether a tax benefit taken by the Company in its tax filings or positions is “more likely than not” to be realized, assuming that the matter in question will be decided based on its technical merits. The Company’s policy is to record interest and penalties in the provision for income taxes.

Net Income (Loss) per Share

Basic net income (loss) per share is determined by dividing net income (loss) by the weighted average shares of common stock outstanding during the period. Diluted net income (loss) per share is determined by dividing net income (loss) by diluted weighted average shares outstanding. Diluted weighted average shares reflects the dilutive effect, if any, of potentially dilutive common shares, such as common stock options and warrants calculated using the treasury stock method and convertible notes using the “if-converted” method. In periods with reported net operating losses, all common stock options and warrants are deemed anti dilutive such that basic net loss per share and diluted net loss per share are equal.

The following table presents the calculation of both basic and diluted net income (loss) per share:


	Three months ended September 30,					Nine months ended September 30,
	2011		2010			2011			2010

Net income (loss)	$	96,345	$	(11,209	)	$	(87,464	)	$	(61,777	)


Weighted average shares outstanding		133,238		100,150			128,377			99,284
Dilutive effect of employee stock options and warrants		22,737		0			0			0


Diluted weighted average shares outstanding		155,975		100,150			128,377			99,284


Basic income (loss) per share	$	0.72	$	(0.11	)	$	(0.68	)	$	(0.62	)
Diluted income (loss) per share	$	0.62	$	(0.11	)	$	(0.68	)	$	(0.62	)

Potentially dilutive securities representing approximately 3.2 million and 51.0 million shares of common stock for the three month periods ended September 30, 2011 and September 30, 2010, respectively, and approximately 31.9 million and 51.0 million shares of common stock for the nine months ended September 30, 2011 and September 30, 2010, respectively were excluded from the computation of diluted earnings per share for these periods because their effect would have been anti-dilutive.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as compensation cost over the requisite service period.

Derivative Instruments

Derivative financial liabilities are recorded at fair value, with gains and losses arising for changes in fair value recognized in the statement of operations at each period end while such instruments are outstanding. If the Company issues shares to discharge the liability, the derivative financial liability is derecognized and common stock and additional paid-in capital are recognized on the issuance of those shares. The warrants are valued using a Black-Scholes option pricing model or a Monte Carlo simulation depending on the nature of instrument.

If the terms of warrants that initially require the warrants to be classified as derivative financial liabilities lapse, the derivative financial liability is reclassified out of financial liabilities into equity at its fair value on that date. At settlement date, if the instruments are settled in shares the carrying value of the warrants are derecognised and transferred to equity at their fair value at that date. The cash proceeds received from exercises of warrants are recorded in common stock and additional paid-in capital.

Foreign Currency

All subsidiaries use the United States dollar as the functional currency. Monetary assets and liabilities denominated in a foreign currency are remeasured into United States dollars at year-end exchange rates. Non-monetary assets and liabilities carried in a foreign currency are remeasured into United States dollars using rates of exchange prevailing when such assets or liabilities were obtained or incurred, and expenses are generally remeasured using rates of exchange prevailing when such expenses are incurred. Gains and losses from the remeasurement are included in other income, net in the consolidated financial statements of operations. For transactions settled during the period, gains and losses are included in other income, net in the consolidated statements of operations. Foreign exchange gains (and losses) have not been significant in the periods presented.

Fair Value of Financial Instruments

The Company provides disclosure of financial assets and financial liabilities that are carried at fair value based on the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements may be classified based on the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities using the following three levels:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3—Unobservable inputs that reflect the Company’s estimates of the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data.

The following table presents information about the Company’s liability as of September 30, 2011 and December 31, 2010 that is measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:


	September 30, 2011
*In thousands*	Total		Level 1		Level 2		Level 3
Liability:
Warrant derivative liability	$	155,018	$	—	$	—	$	155,018


	December 31, 2010
*In thousands*	Total		Level 1		Level 2		Level 3
Liability:
Warrant derivative liability	$	230,069	$	—	$	—	$	230,069

The carrying amounts of cash, cash equivalents, accounts payable and accrued liabilities approximate fair value because of their short-term nature.

At December 31, 2010, the fair value of the warrant derivative liability was determined to be $230.1 million using the Black-Scholes option valuation model applying the following assumptions: (i) risk-free rate of 1.52%, (ii) remaining term of 3.8 years, (iii) no dividend yield (iv) volatility of 117%, and (v) the stock price on the date of measurement.

At September 30, 2011, the fair value of the warrant derivative liability was determined to be $155.0 million using the Black-Scholes option valuation model applying the following assumptions: (i) risk-free rate of 0.42%, (ii) remaining term of 3.0 years, (iii) no dividend yield, (iv) volatility of 118%, and (v) the stock price on the date of measurement. The $75.1 million decrease in the fair value of the warrant liability during the nine months ended September 30, 2011 was recognized as: (i) a $129.5 million transfer from warrant liability to additional paid-in capital for the fair value of warrants exercised during the nine months ended September 30, 2011, (ii) a $53.4 million loss on the change in fair value of the remaining derivative liability and (iii) $1.0 million in compensation expense for the change in fair value of warrants issued to former employees. The change in the fair value of the warrant derivative liability is as follows (in thousands):


	Three months ended September 30			Nine months ended September 30
Balance at June 30, 2010 & December 31, 2009	$	72,422		$	41,520
Loss on change in fair value of derivative liability		1,370			33,402
Compensation expense for change in fair value of warrants issued to former employees		36			858
Transfers to equity		(2,685	)		(4,637	)


Balance at September 30, 2010	$	71,143		$	71,143


	Three months ended September 30			Nine months ended September 30
Balance at June 30, 2011 & December 31, 2010	$	285,984		$	230,069
(Gain) loss on change in fair value of derivative liability		(106,614	)		53,403
Compensation (income) expense for change in fair value of warrants issued to former employees		(3,352	)		1,004
Transfers to equity		(21,000	)		(129,458	)


Balance at September 30, 2011	$	155,018		$	155,018

Segment and Geographical Information

For the three and nine months ended September 30, 2011 and 2010, the Company has reported its business as a single reporting segment. The Company’s chief decision maker, who is the Chief Executive Officer, regularly evaluates the Company on a consolidated basis.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by FASB and are adopted by the Company as of the specified effective date. The Company believes that the impact of other recently issued but not yet adopted accounting pronouncements will not have a material impact on consolidated financial position, results of operations, and cash flows, or do not apply to the Company’s operations.