(5)

Commitments and Contingencies

Royalty and Milestone Obligations

As of June 30, 2012, the Company is party to certain milestone and royalty obligations under several product development agreements, as follows:

•

The 2010 supply agreement with the Company’s existing Japan-based supplier requires a one-time non-refundable payment of $0.5 million to the supplier upon the first marketing approval of Vascepa in the United States, which was received in July 2012. In addition, the supply agreement provides for minimum supply purchase obligations on behalf of the Company. Subsequent to this marketing approval, such aggregate minimum purchase obligations from the supplier are approximately $35.3 million covering purchases made during the six-month period following marketing approval. In preparation for the commercialization of Vascepa the Company may purchase more than this minimum amount.

•

The Company signed two additional agreements in 2011 for the supply of API materials for Vascepa. The Company recently agreed to terms with a fourth API supplier, which terms are subject to contingencies that the Company anticipate will be satisfied in 2012. These agreements provide access to additional API supply that is incremental to supply from its existing Japan-based API supplier. These agreements include requirements for the suppliers to qualify their materials and facilities with applicable regulatory authorities including the FDA. The Company anticipates incurring certain costs associated with the qualification of product produced by these suppliers as described below. In each case, following FDA approval of Vascepa and qualification of the supplier for the manufacture of API for commercial sale, these agreements include annual purchase levels to enable Amarin to maintain exclusivity with each respective supplier, and to prevent potential termination of the agreements. Because the Company had not yet obtained FDA approval for Vascepa nor have these suppliers been qualified for the manufacture of API for commercial sale as of June 30, 2012, no liability has been recorded for these minimum purchase obligations. The 2011 supply agreements also include (i) development fees up to a maximum of $0.5 million (ii) material commitments of up to $5.0 million for initial raw materials, which will be credited against future API purchases and is refundable to Amarin if the supplier does not successfully develop and qualify the API by a certain date and (iii) a raw material purchase commitment of $1.1 million. The agreement with the fourth API supplier, when all contingencies are eliminated by the supplier, provides for development fees of up to $2.3 million and a commitment of up to $15.0 million which will be credited against future API material purchases.

•

Concurrent with its entry into one of the two agreements entered into in 2011 for the supply of API materials for Vascepa, Amarin agreed to make a noncontrolling minority share equity investment in the supplier of up to $3.3 million. In July 2011, the Company invested $1.7 million under this agreement, and an additional $0.8 million in May 2012. These amounts have been included in other long term assets and accounted for under the cost method at June 30, 2012. The Company invested an additional $0.4 million under this agreement, as amended in July 2012, and anticipates making the remaining $0.4 million investment before the end of 2012.

•

Under the 2009 Lorazepam sale agreement with Elan Pharma International Ltd, Elan did not assume any obligations under a related development agreement with Neurostat Pharmaceuticals Inc. and, as a result, Amarin retained a potential obligation to make a $0.2 million milestone payment to Neurostat, contingent upon the drug being tested by Elan in an efficacy study.

•

Under the 2004 share repurchase agreement with Laxdale Limited, in connection with commercialization of Vascepa for cardiovascular indications, prior to the end of 2012 the Company is required to pay potential royalties to a former employee of Laxdale of 1% on net sales up to £100 million (approximately $156 million at June 30, 2012); 0.5% for net sales between £100 million (approximately $156 million at June 30, 2012) and £500 million (approximately $780.7 million at June 30, 2012); and 0.25% for sales in excess of £500 million (approximately $780.7 million at June 30, 2012). These royalty obligations terminate on December 31, 2012.

•

Also under the 2004 share repurchase agreement with Laxdale Limited, upon receipt of marketing approval in the U.S. and/or Europe for the first indication for Vascepa (or first indication of any product containing Amarin Neuroscience intellectual property acquired from Laxdale Limited in 2004), the Company must make an aggregate stock or cash payment to the former shareholders of Laxdale Limited (at the sole option of each of the sellers) of £7.5 million (approximately $11.7 million at June 30, 2012) for each of the two potential marketing approvals (i.e. £15 million maximum, or approximately $23.4 million at June 30, 2012). In addition, upon receipt of a marketing approval in the U.S. or Europe for a further indication of Vascepa (or further indication of any other product using Amarin Neuroscience intellectual property), the Company must make an aggregate stock or cash payment (at the sole option of each of the sellers) of £5 million (approximately $7.8 million at June 30, 2012) for each of the two potential market approvals (i.e. £10 million maximum, or approximately $15.6 million at June 30, 2012).

The Company had no provision for any of the obligations above since the amounts are either not probable or estimable at June 30, 2012. Upon FDA approval of Vascepa in July 2012 for commercial marketing in the United States, the Company accrued the liability associated with the former shareholders of Laxdale Limited as well as certain liabilities under its commercial supply contracts as described above.