**United
        States**
 **Securities
        and Exchange Commission**
 Washington,
        D.C. 20549
 
 **FORM
        20-F**
 **(Mark
        One)**
 
 o
              REGISTRATION
                  STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
                  ACT
                  OF 1934


OR


x
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934


For
      the
      fiscal year ended: December 31, 2006





OR


o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934.





Commission
      file number:


**ICON
      public limited company**





(Exact
      name of Registrant as specified in its charter)





Ireland





(Jurisdiction
      of incorporation or organization)





South
      County Business Park, Leopardstown, Dublin 18, Ireland.





(Address
      of principal executive offices)





Securities
      registered or to be registered pursuant to Section 12(b) of the
      Act:


Title
                of each class
            
            Name
                  of exchangeon which
                registered





None





Securities
      registered or to be registered pursuant to Section 12(g) of the
      Act:


Title
      of
      each class





American
      Depository Shares, representing Ordinary Shares, par value €0.06
      each


Ordinary
      Shares, par value €0.06 each





Securities
      for which there is a reporting obligation pursuant to Section 15(d) of the
      Act:


None


(Title
      of
      Class)





Indicate
      the number of outstanding shares of each of the issuer’s classes of capital or
      common stock as of the close of the period covered by the annual report:
      28,517,852 Ordinary Shares.





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as determined
      in Rule 405 of the Securities Act.





Yes
                x
            No
                o







If
      this
      report is an annual or transition report, indicate by check mark if registrant
      is not required to file reports pursuant to section 13 or 15(d) of the
      Securities Exchange Act of 1934.





Yes
                x
            No
                o












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 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:





Yes
                x
            No
                o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non- accelerated filer





Large
                Accelerated filer x
            Accelerated
                filer o
            Non-accelerated
                filer o





Indicate
      by check mark which financial statement item the registrant has elected to
      follow:





Item
                17 o
            Item
                18 x





If
      this is
      an annual report, indicate by check mark whether the registrant is a shell
      company (as defined in Rule 12b-2 of the Exchange Act)





Yes
                o
            No
                x










**TABLE
      OF CONTENTS**




**General**
            
            
            1**Cautionary
                Statement**
            
            
            1**Part
                I**Item
                1.
            Identity
                of Directors, Senior Management and
                Advisors
            1Item
                2.
            Offer
                Statistics and Expected Timetable
            1Item
                3.
            Key
                Information
            2Item
                4.
            Information
                on the Company
            8Item
                5.
            Operating
                and Financial Review and
                Prospects
            18Item
                6.
            Directors,
                Senior Management and
                Employees.
            29Item
                7.
            Major
                Shareholders and Related Party
                Transactions
            38Item
                8.
            Financial
                Information
            40Item
                9.
            The
                Offer and the Listing
            40Item
                10.
            Additional
                Information
            41Item
                11.
            Quantitative
                and Qualitative Disclosures about Market
                Risk
            47Item
                12.
            Description
                of Securities Other than Equity
                Securities
            48**Part
                II**Item
                13.
            Defaults,
                Dividend Arrearages and
                Delinquencies
            48Item
                14.
            Material
                Modifications to the Rights of Security Holders
                and Use of Proceeds
            48Item
                15.
            Reserved
            48Item
                16.
            Reserved
            48**Part
                III**Item
                17.
            Financial
                Statements
            50Item
                18.
            Financial
                Statements
            50Item
                19.
            Financial
                Statements and Exhibits
            50










**General**





As
      used
      herein, “ICON plc”, the “Company” and “we” or “us” refer to ICON public limited
      company and its consolidated subsidiaries, unless the context requires
      otherwise.





Unless
      otherwise indicated, ICON plc’s financial statements and other financial data
      contained in this Form 20-F are presented in United States dollars (“$”) and are
      prepared in accordance with generally accepted accounting principles in the
      United States (“U.S. GAAP”).





In
      this
      Form 20-F, references to "U.S. dollars", "U.S.$" or "$" are to the lawful
      currency of the United States, references to "pounds sterling", "sterling",
      "£",
      "pence" or "p" are to the lawful currency of the United Kingdom, references
      to
“Euro” or “€” are to the European single currency adopted by thirteen members of
      the European Union (including the Republic of Ireland, France, Germany, Spain
      and the Netherlands). ICON publishes its consolidated financial statements
      in
      U.S. dollars.





On
      July
      27, 2005 the Board of Directors of the Company approved a change of the
      Company’s fiscal year end from a twelve-month period ending on May 31 to a
      twelve-month period ending on December 31.  The Company made this change in
      order to align its fiscal year end with the majority of other contract research
      organizations.  As a requirement of this change, the Company reported
      results for the seven-month period from June 1, 2005 to December 31, 2005 as
      a
      separate transition period. As of January 1, 2006, the
      Company’s fiscal year now begins on January 1 and ends on December 31 and
      its fiscal quarters end on the last day of March, June, September and December.





On
      September 29, 2006, ICON’s shareholders approved a bonus issue of ordinary
      shares (the “Bonus Issue”) to shareholders of record as of the close of business
      on October 13, 2006 (the “Record Date”). The Bonus Issue provided for each
      shareholder to receive one bonus ordinary share for each ordinary share held
      as
      of the Record Date, effecting the equivalent of a 2-for-1 stock split. The
      Bonus
      shares were issued on October 16, 2006 to ordinary shareholders and on October
      23, 2006 to holders of American Depositary Shares (“ADSs”). NASDAQ adjusted the
      trading price of ICON’s ADSs to effect the Bonus Issue prior to the opening of
      trading on October 24, 2006. All outstanding ordinary share amounts referenced
      in the consolidated financial statements and the notes thereto have been
      retrospectively restated to give effect to the Bonus Issue as if it had occurred
      as of the date referenced.





**Cautionary
      Statement**





Statements
      included herein which are not historical facts are forward looking statements.
      Such forward looking statements are made pursuant to the safe harbor provisions
      of the U.S. Private Securities Litigation Reform Act of 1995 (the “PSLRA”). The
      forward looking statements involve a number of risks and uncertainties and
      are
      subject to change at any time. In the event such risks or uncertainties
      materialize, our results could be materially affected. The risks and
      uncertainties include, but are not limited to, dependence on the pharmaceutical
      industry and certain clients, the need to regularly win projects and then to
      execute them efficiently, the challenges presented by rapid growth, competition
      and the continuing consolidation of the industry, the dependence on certain
      key
      executives and other factors identified in the Company’s Securities and Exchange
      Commission filings. The Company has no obligation under the PSLRA to update
      any
      forward looking statements and does not intend to do so.








**Part
      I**





**Item
      1.** ***Identity
      of Directors, Senior Management and
      Advisors.***





Not
      applicable.





**Item
      2.** ***Offer
      Statistics and Expected Timetable.***





Not
      applicable.




1




**Item
      3** ***.
      Key Information.***





**Selected
      Historical Consolidated Financial Data for ICON plc**


The
      following selected financial data set forth below are derived from ICON’s
      consolidated financial statements and should be read in conjunction with, and
      are qualified by reference to, "Operating and Financial Review and Prospects"
      and ICON's consolidated financial statements and related notes thereto included
      elsewhere in this Form 20-F.


**Year
                  ended May 31,**
              
              **7
                  month**
                **Period**
                **ended**
                **December**
                **31,**
              
              **Year**
                **ended**
                **December**
                **31****2002**
              
              **2003**
              
              **2004**
              
              **2005**
              
              **2005**
              
              **2006****(in
                  thousands, except share and per share data)****Statement
                  of Operations Data:**Gross
                  revenue
              
              $
              218,842
              
              $
              340,971
              
              $
              443,875
              
              $
              469,583
              
              $
              275,586
              
              $
              649,826Subcontractor
                  costs (1)
              
              
              (62,287
              )
              
              (115,246
              )
              
              (146,952
              )
              
              (142,925
              )
              
              (73,636
              )
              
              (194,229
              )Net
                  revenue
              
              
              156,555
              
              
              225,725
              
              
              296,923
              
              
              326,658
              
              
              201,950
              
              
              455,597Costs
                and expenses:Direct
                  costs
              
              
              83,371
              
              
              122,373
              
              
              162,562
              
              
              179,661
              
              
              114,004
              
              
              256,263Selling,
                  general and administrative
              
              
              48,951
              
              
              71,118
              
              
              88,807
              
              
              103,784
              
              
              62,276
              
              
              136,569Depreciation
                  and amortization
              
              
              6,020
              
              
              7,305
              
              
              11,171
              
              
              13,331
              
              
              8,094
              
              
              14,949Share
                  based compensation (2)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              6,024
              
              
              -Other
                  charges (4)
              
              
              -
              
              
              -
              
              
              -
              
              
              11,275
              
              
              -
              
              
              -Total
                  costs and expenses
              
              
              138,342
              
              
              200,796
              
              
              262,540
              
              
              308,051
              
              
              190,398
              
              
              407,781Income
                  from operations
              
              
              18,213
              
              
              24,929
              
              
              34,383
              
              
              18,607
              
              
              11,552
              
              
              47,816Net
                  interest income
              
              
              1,116
              
              
              354
              
              
              288
              
              
              979
              
              
              1,272
              
              
              3,640Income
                  before provision for income taxes
              
              
              19,329
              
              
              25,283
              
              
              34,671
              
              
              19,586
              
              
              12,824
              
              
              51,456Provision
                  for income taxes
              
              
              (5,129
              )
              
              (7,000
              )
              
              (8,929
              )
              
              (5,852
              )
              
              (5,396
              )
              
              (12,924
              )Minority
                  interest
              
              
              -
              
              
              -
              
              
              -
              
              
              (189
              )
              
              (10
              )
              
              (228
              )Net
                  income
              
              $
              14,200
              
              $
              18,283
              
              $
              25,742
              
              $
              13,545
              
              $
              7,418
              
              $
              38,304Net
                  income per
                ordinary
                  share (3):Basic
              
              $
              0.61
              
              $
              0.78
              
              $
              0.97
              
              $
              0.49
              
              $
              0.27
              
              $
              1.35Diluted
              
              $
              0.58
              
              $
              0.75
              
              $
              0.94
              
              $
              0.48
              
              $
              0.26
              
              $
              1.33Weighted
                  average number
                of
                  ordinary shares outstanding:Basic
              
              
              23,312,306
              
              
              23,627,576
              
              
              26,535,062
              
              
              27,720,406
              
              
              27,940,212
              
              
              28,314,985Diluted
              
              
              24,483,640
              
              
              24,362,188
              
              
              27,406,326
              
              
              28,306,890
              
              
              28,495,084
              
              
              28,863,334




2




**As
                  of May 31,**
              
              **As
                  of December 31,****2002**
              
              **2003**
              
              **2004**
              
              **2005**
              
              **2005**
              
              **2006****(in
                  thousands)****Balance
                  Sheet Data:**Cash
                  and cash equivalents
              
              $
              36,291
              
              $
              18,311
              
              $
              55,678
              
              $
              56,341
              
              $
              59,509
              
              $
              63,039Short
                  term investments
              
              
              18,551
              
              
              -
              
              
              23,085
              
              
              22,034
              
              
              22,809
              
              
              39,822Working
                  capital
              
              
              72,923
              
              
              53,827
              
              
              113,813
              
              
              125,288
              
              
              132,312
              
              
              160,321Total
                  assets
              
              
              165,794
              
              
              235,014
              
              
              335,323
              
              
              347,553
              
              
              349,067
              
              
              476,341Total
                  debt
              
              
              11,745
              
              
              7,126
              
              
              -
              
              
              -
              
              
              4,856
              
              
              5,000Long
                  term government grants
              
              
              962
              
              
              1,140
              
              
              1,411
              
              
              1,257
              
              
              1,160
              
              
              1,170Shareholders’
                  equity
              
              $
              107,561
              
              $
              136,910
              
              $
              216,760
              
              $
              233,066
              
              $
              241,558
              
              $
              302,738




(1)
              Subcontractor
                  costs are comprised of investigator payments and certain other
                  costs
                  reimbursed by clients under terms specific to each of ICON's contracts.
                  See Note 2 (d) to the Audited Consolidated Financial Statements.
 
 (2)
              $6.0million
                  stock compensation expensed during the period ended December 31,
                  2005 was
                  recorded in relation to the transfer of 288,000 shares from the
                  founders
                  of the Company to the Chief Executive
                  Officer.
 
 (3)
              Net
                  income per ordinary share is based on the weighted average number
                  of
                  outstanding ordinary shares. Diluted net income per share includes
                  potential ordinary shares from the exercise of options.
 
 (4)
              Other
                  operating charges of $11.3 million were realized in the year ended
                  May 31,
                  2005. These charges related to the recognition of an impairment
                  in the
                  carrying value of our investment in the central laboratory, a write-down
                  of certain fixed assets and the lease termination and exit costs
                  associated with the consolidation of some of our office facilities
                  in the
                  US.




**Risk
        Factors**
 
 ***We
        are dependent on the continued outsourcing of research and development by
        the
        pharmaceutical, biotechnology and medical device
        industries.***
  We
        are
        dependent upon the ability and willingness of the pharmaceutical, biotechnology
        and medical device companies to continue to spend on research and development
        and to outsource the services that we provide. We are therefore subject to
        risks, uncertainties and trends that affect companies in these industries.
        We
        have benefited to date from the tendency of pharmaceutical, biotechnology
        and
        medical device companies to outsource clinical research projects. Any downturn
        in these industries or reduction in spending or outsourcing could adversely
        affect our business. For example, if these companies expanded upon their
        in-house clinical or development capabilities, they would be less likely
        to
        utilize our services. In addition, if governmental regulations were changed,
        they could affect the ability of our clients to operate profitably, which
        may
        lead to a decrease in research spending and therefore this could have a material
        adverse effect on our business.
  3
  ***We
          depend on a limited number of clients and a loss of or significant decrease
          in
          business from them could affect our business.***
  We
          have in
          the past and may in the future derive a significant portion of our net
          revenue
          from a relatively limited number of clients. A loss of, or a significant
          decrease in business from any one or more of such clients could have a
          material
          adverse effect on our business. During the year ended December 31, 2006,
          35% of
          our net revenue was derived from our top five clients. During 2006, no
          client
          contributed more than 10% of net revenues. During the 7 month transition
          period
          ended December 31, 2005, 39% of our net revenue was derived from our top
          five
          clients and no client contributed more than 10% of net revenues. During
          the
          fiscal year ended May 31, 2005, 43% of our net revenue was derived from
          our top
          five clients. In the fiscal year ended May 31, 2005, 12% of our net revenue
          was
          from Astra Zeneca plc, no other client contributed more than 10% of net
          revenues. During the fiscal year ended May 31, 2004, 40% of our net revenue
          was
          derived from our top five clients. In fiscal 2004, 17% of our net revenue
          was
          from Astra Zeneca plc .
          No other
          client contributed more than 10% of net revenues.
  ***If
          our clients discontinue using our services, or cancel or discontinue projects,
          our revenue will be adversely affected and we may not receive their business
          in
          the future or may not be able to attract new clients.***
  Our
          clients may discontinue using our services completely or cancel some projects
          either without notice or upon short notice. The termination or delay of
          a large
          contract or of multiple contracts could have a material adverse effect
          on our
          revenue and profitability. Historically, clients have cancelled or discontinued
          projects and may in the future cancel their contracts with us for reasons
          including:
  •
                the
                    failure of products being tested to satisfy safety or efficacy
                    requirements;
  •
                unexpected
                    or undesired clinical results of the
                    product;
  •
                a
                    decision that a particular study is no longer
                    necessary;
  •
                poor
                    project performance, insufficient patient enrollment or investigator
                    recruitment;
  •
                production
                    problems resulting in shortages of the drug;
                    or
  If
          we lose
          clients, we may not be able to attract new ones, and if we lose individual
          projects, we may not be able to replace them.
  ***We
          compete against many companies and research institutions that may be larger
          or
          more efficient than we are. This may preclude us from being given the
          opportunity to bid, or may prevent us from being able to competitively
          bid on
          and win new contracts.***
  The
          market
          for Contract Research Organizations (CROs) is highly competitive. We primarily
          compete against in-house departments of pharmaceutical companies and other
          CROs
          including Quintiles Transnational Corporation, Covance Inc., PAREXEL
          International Corporation, Kendle International Inc., i3 Research (United
          Health
          Group Incorporated), Omnicare Inc., PRA International Inc., MDS Inc., PharmaNet
          Development Group, Inc. and Pharmaceutical Product Development, Inc.. Some
          of
          these competitors have substantially greater capital, research and development
          capabilities and human resources than we do. As a result, they may be selected
          as preferred vendors of our clients or potential clients for all projects
          or for
          significant projects, or they may be able to price projects more competitively
          than us. Any of these factors may prevent us from getting the opportunity
          to bid
          on new projects or prevent us from being competitive in bidding on new
          contracts.
  ***Our
          quarterly results are dependent upon a number of factors and can fluctuate
          from
          quarter to quarter.***
  Our
          results of operations in any quarter can fluctuate depending upon, among
          other
          things, the number and scope of ongoing client projects, the commencement,
          postponement, variation and cancellation or termination of projects in
          the
          quarter, the mix of revenue, cost overruns, employee hiring and other factors.
          Our net revenue in any period is directly related to the number of employees
          and
          the percentage of these employees who were working on projects and billed
          to the
          client during that period. We may be unable to compensate for periods of
          underutilization during one part of a fiscal period by augmenting revenues
          during another part of that period. We believe that operating results for
          any
          particular quarter are not necessarily a meaningful indication of future
          results.
  4




***Our
        Central Laboratory segment has been loss making in the past and may experience
        losses in the future.***
  Our
        central laboratory has experienced a period of underperformance over the
        past
        number of years. This business segment returned to profitability for the
        year
        ended December 31, 2006. To maintain this profitability we require continued
        strong levels of new business awards and economies of scale in the usage
        of both
        resources and lab inputs. If we do not achieve continued momentum in winning
        new
        business and if these economies are not sustained, then our central laboratory
        may return to a loss making position in the future.
  ***Approximately
        82% of our net revenue is earned from long-term fixed-fee contracts. We would
        lose money in performing these contracts if the costs of performance exceed
        the
        fixed fees for these projects.***
  Approximately
        82% of our net revenue is earned from long-term fixed-fee contracts. We have
        in
        the past and will continue to bear the risk of cost overruns under these
        contracts. If the costs of performing these projects exceed the fixed fees
        for
        these projects, (for example if we under price these contracts), if there
        are
        significant cost overruns or if there are unanticipated delays under these
        contracts, our business, financial condition and operating results could
        be
        adversely affected.
  ***If
        we fail to attract or retain qualified staff, our performance may
        suffer.***
  Our
        business, future success and ability to expand operations depends upon our
        ability to attract, hire, train and retain qualified professional, scientific
        and technical operating staff. We compete for qualified professionals with
        other
        CROs, temporary staffing agencies and the in-house departments of
        pharmaceutical, biotechnology and medical device companies. Although we have
        not
        had any difficulty attracting or retaining qualified staff in the past, there
        is
        no guarantee that we will be able to continue to attract a sufficient number
        of
        clinical research professionals at an acceptable cost.
  ***Failure
        to comply with the regulations of the U.S. Food and Drug Administration and
        other regulatory authorities could result in substantial penalties and/or
        loss
        of business.***
  The
        U.S.
        Food and Drug Administration, or FDA, and other regulatory authorities inspect
        us from time to time to ensure that we comply with their regulations and
        guidelines, including environmental and health and safety matters. In addition,
        we must comply with the applicable regulatory requirements governing the
        conduct
        of clinical trials in all countries in which we operate. If we fail to comply
        with any of these requirements we could suffer:
  •
              the
                  termination of any research;
  •
              the
                  disqualification of data;
  •
              the
                  denial of the right to conduct
                  business;
  •
              criminal
                  penalties; and
  •
              other
                  enforcement actions.
  ***Our
        exposure to exchange rate fluctuations could adversely affect our results
        of
        operations.***
  We
        derived
        approximately 41.6% of our consolidated net revenue in the year ended December
        31, 2006 from our operations outside of the United States. Our financial
        statements are presented in U.S. dollars. Accordingly, changes in exchange
        rates
        between the U.S. dollar and other currencies in which we report local results,
        including the pound sterling and the euro, will affect the translation of
        a
        subsidiary’s financial results into U.S. dollars for purposes of reporting our
        consolidated financial results.
  5




In
        addition, our contracts with our clients are sometimes denominated in currencies
        other than the currency in which we incur expenses related to such contracts.
        Where expenses are incurred in currencies other than those in which contracts
        are priced, fluctuations in the relative value of those currencies could
        have a
        material adverse effect on our results of operations. We regularly review
        our
        currency exchange exposure and hedge a portion of this exposure using forward
        exchange contracts.
  ***Liability
        claims brought against us could result in payment of substantial damages
        to
        plaintiffs and decrease our profitability.***
  We
        contract with physicians who serve as investigators in conducting clinical
        trials to test new drugs on their patients. This testing creates the risk
        of
        liability for personal injury to or death of the patients. Although
        investigators are generally required by law to maintain their own liability
        insurance, we could be named in lawsuits and incur expenses arising from
        any
        professional malpractice actions against the investigators with whom we
        contract. To date, we have not been subject to any liability claims that
        are
        expected to have a material effect on us.
  Indemnifications
        provided by our clients against the risk of liability for personal injury
        to or
        death of the patients vary from client to client and from trial to trial
        and may
        not be sufficient in scope or amount or the providers may not have the financial
        ability to fulfill their indemnification obligations. Furthermore, we would
        be
        liable for our own negligence and that of our employees.
  In
        addition, we maintain an appropriate level of worldwide Professional
        Liability/Error and Omissions Insurance. The amount of coverage we maintain
        depends upon the nature of the trial. We may in the future be unable to maintain
        or continue our current insurance coverage on the same or similar terms.
        If we
        are liable for a claim that is beyond the level of insurance coverage, we
        may be
        responsible for paying all or part of any award.
  ***We
        may lose business opportunities as a result of health care reform and the
        expansion of managed care organizations.***
  Numerous
        governments, including the U.S. government and governments outside of the
        U.S.,
        have undertaken efforts to control growing health care costs through
        legislation, regulation and voluntary agreements with medical care providers
        and
        drug companies. If these efforts are successful, pharmaceutical, biotechnology
        and medical device companies may react by spending less on research and
        development and therefore this could have a material adverse effect on our
        business.
  For
        instance, in the past the U.S. Congress has entertained several comprehensive
        healthcare reform proposals. The proposals were generally intended to expand
        healthcare coverage for the uninsured and reduce the growth of total healthcare
        expenditures. While the U.S. Congress has not yet adopted any comprehensive
        reform proposals, members of Congress may raise similar proposals in the
        future.
        We are unable to predict the likelihood that healthcare reform proposals
        will be
        enacted into law.
  In
        addition to healthcare reform proposals, the expansion of managed care
        organizations in the healthcare market may result in reduced spending on
        research and development. Managed care organizations' efforts to cut costs
        by
        limiting expenditures on pharmaceuticals and medical devices could result
        in
        pharmaceutical, biotechnology and medical device companies spending less
        on
        research and development. If this were to occur, we would have fewer business
        opportunities and our revenues could decrease, possibly materially.
  ***We
        may lose business as a result of changes in the regulatory
        environment***
  Various
        regulatory bodies throughout the world may enact legislation which could
        introduce changes to the regulatory environment for drug development and
        research. The adoption and implementation of such legislation is difficult
        to
        predict and therefore could have a material adverse effect on our
        business.
  ***We
        may not be able to successfully develop and market or acquire new
        services.***
  We
        may
        seek to develop and market new services that complement or expand our existing
        business or expand our service offerings through acquisition. If we are unable
        to develop new services and/or create demand for those newly developed services,
        or expand our service offerings through acquisition, our future business,
        results of operations, financial condition, and cash flows could be adversely
        affected.
  6




***We
        rely on third parties for important services.***
  We
        depend
        on third parties to provide us with services critical to our business. The
        failure of any of these third parties to adequately provide the needed services
        could have a material adverse effect on our business.
  ***We
        may make acquisitions in the future, which may lead to disruptions to our
        ongoing business.***
  We
        have
        made a number of acquisitions and will continue to review new acquisition
        opportunities. If we are unable to successfully integrate an acquired company,
        the acquisition could lead to disruptions to the business. The success of
        an
        acquisition will depend upon, among other things, our ability to:
  ·
              assimilate
                  the operations and services or products of the acquired company;
  ·
              integrate
                  acquired personnel;
  ·
              retain
                  and motivate key employees;
  ·
              retain
                  customers; and
  ·
              minimize
                  the diversion of management's attention from other business concerns.
  Acquisitions
        of foreign companies may also involve additional risks, including assimilating
        differences in foreign business practices and overcoming language and cultural
        barriers.
  In
        the
        event that the operations of an acquired business do not meet our performance
        expectations, we may have to restructure the acquired business or write-off
        the
        value of some or all of the assets of the acquired business.
  ***We
        rely on our interactive voice response systems to provide accurate information
        regarding the randomization of patients and the dosage required for patients
        enrolled in the trials.***
 
 We
        develop
        and maintain computer run interactive voice response systems to automatically
        manage the randomization of patients in trials, assign study drug, and adjust
        the dosage when required for patients enrolled in trials we support. An error
        in
        the design, programming or validation of these systems could lead to
        inappropriate assignment or dosing of patients which could give rise to patient
        safety issues, invalidation of the trial or both.
 
 ***We
        rely on various control measures to mitigate the risk of a serious adverse
        event
        resulting from healthy volunteer Phase I trials.***
 
 We
        conduct
        healthy volunteer Phase I trials including first-into-man trials for new
        clinical entities in the UK. Due to the experimental nature of these studies,
        serious adverse events may arise. We mitigate such events by following Good
        Clinical Practice and ensuring appropriately trained and experienced clinical
        physicians are managing these trials and that internal Standards Operating
        Procedures and client protocols are rigorously adhered to. We also ensure
        that a
        signed contract is in place with the client in advance of clinical dosing
        with
        appropriate indemnifications and insurance coverage. We maintain our own
        no-faults clinical trial insurance. Following our internal review and
        submission, an Independent Ethics committee approves the study protocol and
        appropriate approval is obtained from the UK regulatory body.
  7




**Item
        4.** ***Information
        on the Company.***
 
 **General**
 We
        are a
        contract research organization (“CRO”), providing outsourced development
        services on a global basis to the pharmaceutical, biotechnology and medical
        device industries. We specialize in the strategic development, management
        and
        analysis of programs that support Clinical Development - from compound selection
        to Phase I-IV clinical studies.
 
 Our
        primary approach is to use dedicated teams to achieve optimum results, but
        we
        can implement a range of resourcing models to suit client requirements.
 
 In
        a
        highly fragmented industry, we are one of a small number of companies with
        the
        capability and expertise to conduct clinical trials in all major therapeutic
        areas on a global basis. Currently, we have approximately 4,300 employees,
        in 49
        locations in 30 countries, providing Phase I - IV Clinical Trial Management,
        Drug Development Support Services, Data Management and Biostatistics and
        Central
        Laboratory and Imaging Services. We have the operational flexibility to provide
        development services on a stand-alone basis or as part of an integrated “full
        service” solution.
 
 Headquartered
        in Dublin, Ireland, we began operations in 1990 and have expanded our business
        through internal growth and strategic acquisitions. For the year ended December
        31, 2006, we derived approximately 58.4%, 35.8% and 5.8% of our net revenue
        in
        the United States, Europe and Rest of World, respectively.
 
 During
        the
        year ended December 31, 2006, we commenced operations in Vilnius, Lithuania,
        Warsaw, Poland, Beijing, China, San Diego, California, Salt Lake City, Utah
        and
        Bangalore, India and acquired an additional office, outside of Chicago, Illinois
        and also in San Francisco, California.
 
 On
        September 29, 2006, ICON’s shareholders approved a bonus issue of ordinary
        shares (the “Bonus Issue”) to shareholders of record as of the close of business
        on October 13, 2006 (the “Record Date”). The Bonus Issue provided for each
        shareholder to receive one bonus ordinary share for each ordinary share held
        as
        of the Record Date, effecting the equivalent of a 2-for-1 stock split. The
        Bonus
        shares were issued on October 16, 2006 to Ordinary Shareholders and on October
        23, 2006 to holders of American Depositary Shares (“ADSs”). NASDAQ adjusted the
        trading price of ICON’s ADSs to effect the Bonus Issue prior to the opening of
        trading on October 24, 2006. All outstanding ordinary share amounts referenced
        in the consolidated financial statements and the notes thereto have been
        retrospectively restated to give effect to the Bonus Issue as if it had occurred
        as of the date referenced.
 
 On
        July
        10, 2006, we acquired 100% of the common stock of Ovation Healthcare Research
        2
        Inc. (“Ovation”), based in Illinois, USA, for an initial cash consideration of
        U.S.$6.6 million, excluding costs of acquisition. Working capital provisions
        were built into the acquisition contract requiring the potential payment
        of
        additional deferred consideration up to a maximum of $1.4 million. On October
        27, 2006, $0.18 million was paid to the former shareholders of Ovation in
        full
        and final settlement of the working capital provisions.
 
 On
        July
        27, 2005, our Board of Directors approved a change of our fiscal year end
        from a
        twelve-month period ending on May 31, to a twelve-month period ending on
        December 31. We have made this change in order to align our fiscal year end
        with
        the majority of other contract research organizations. Our fiscal quarters
        now
        end on the last day of March, June, September and December of each
        year.
 
 On
        December 1, 2004, we acquired the workforce of Biomines Research Solutions
        Private Limited, based in Chennai, India. The workforce is engaged in the
        business of clinical trial data management and statistical analysis services
        and
        has been transferred to our existing Indian operation.
 
 On
        July 1,
        2004, we acquired 70% of the outstanding share capital of Beacon Bioscience,
        Inc., a leading specialist CRO, which provides a range of medical imaging
        services to the pharmaceutical, biotechnology and medical device
        industries.
 
 ICON
        plc’s
        principal executive office is located at: South County Business Park,
        Leopardstown, Dublin 18, Republic of Ireland. The contact telephone number
        of
        this office is 353 (1) 291 2000.
  8




**Industry
        Overview**
 
 The
        CRO
        industry provides independent product development services for the
        pharmaceutical, biotechnology and medical device industries. Companies in
        these
        industries outsource product development services to CROs in order to manage
        the
        drug development process more efficiently and to cost-effectively maximize
        the
        profit potential of both patent-protected and generic products. The CRO industry
        has evolved since the 1970s from a small number of companies that provided
        limited clinical services to a larger number of CROs that offer a range of
        services that encompass the entire research and development process, including
        pre-clinical development, clinical trials management, clinical data management,
        study design, biostatistical analysis, post marketing surveillance, central
        laboratory and regulatory affairs services. CROs are required to provide
        these
        services in accordance with good clinical and laboratory practices, as governed
        by the applicable regulatory authorities.
 
 The
        CRO
        industry is highly fragmented, consisting of several hundred small,
        limited-service providers and a limited number of medium-sized and large
        CROs
        with global operations. Although there are few barriers to entry for small,
        limited-service providers, we believe there are significant barriers to becoming
        a CRO with global capabilities. Some of these barriers include the
        infrastructure and experience necessary to serve the global demands of clients,
        the ability to manage simultaneously complex clinical trials in numerous
        countries, broad therapeutic expertise and the development and maintenance
        of
        the complex information technology systems required to integrate these
        capabilities. In recent years, the CRO industry has experienced consolidation,
        resulting in the emergence of a select group of CROs that have the capital,
        technical resources, integrated global capabilities and expertise to conduct
        multiple phases of clinical trials on behalf of pharmaceutical, biotechnology
        and medical device companies. We believe that some large pharmaceutical
        companies, rather than utilizing many CRO service providers, are selecting
        a
        limited number of CROs who are invited to bid for projects. We believe that
        this
        trend will further concentrate the market share among CROs with a track record
        of quality, speed, flexibility, responsiveness, global capabilities and overall
        development experience and expertise.
 
 **New
        Drug Development - An Overview**
 
 Before
        a
        new drug may be marketed, the drug must undergo extensive testing and regulatory
        review in order to determine that the drug is safe and effective. The following
        discussion primarily relates to the FDA approval process. Similar procedures
        must be followed for clinical trials in other countries. The stages of this
        development process are as follows:
  ***Preclinical
        Research (1 to 3.5 years).*** “In
        vitro”
(test tube) and animal studies are conducted to establish the relative toxicity
        of the drug over a wide range of doses and to detect any potential to cause
        birth defects or cancer. If results warrant continuing development of the
        drug,
        the manufacturer will file for an Investigational New Drug Application, or
        IND,
        upon which the FDA may grant permission to begin human trials.
  ***Clinical
        Trials (3.5 to 6 years)***
  **Phase
        I** (6
        months to 1 year). Basic
        safety and pharmacology testing in 20 to 80 human subjects, usually healthy
        volunteers, includes studies to determine how the drug works, if it is safe,
        how
        it is affected by other drugs, where it goes in the body, how long it remains
        active and how it is broken down and eliminated from the body.
  **Phase
        II** (1 to
        2 years). Basic
        efficacy (effectiveness) and dose-range testing in 100 to 200 patients to
        help
        determine the best effective dose, confirm that the drug works as expected,
        and
        provide additional safety data.
  **Phase
        III** (2 to
        3 years). Efficacy
        and safety studies in hundreds or thousands of patients at many investigational
        sites (hospitals and clinics). These studies can be placebo-controlled trials,
        in which the new drug is compared with a “sugar pill”, or studies comparing the
        new drug with one or more drugs with established safety and efficacy profiles
        in
        the same therapeutic category.
  ***TIND
        (may span late Phase II, Phase III, and FDA review).*** When
        results from Phase II or Phase III show special promise in the treatment
        of a
        serious condition for which existing therapeutic options are limited or of
        minimal value, the FDA may allow the manufacturer to make the new drug available
        to a larger number of patients through the regulated mechanism of a Treatment
        Investigational New Drug, or TIND. Although less scientifically rigorous
        than a
        controlled clinical trial, a TIND may enroll and collect a substantial amount
        of
        data from tens of thousands of patients.
  9


***NDA
        Preparation and Submission.*** Upon
        completion of Phase III trials, the manufacturer assembles the statistically
        analyzed data from all phases of development into a single large submission,
        the
        New Drug Application, or NDA, which today comprises, on average, approximately
        100,000 pages.
  ***FDA
        Review & Approval (1 to 1.5 years).*** Data from
        all phases of development (including a TIND) is scrutinized to confirm that
        the
        manufacturer has complied with regulations and that the drug is safe and
        effective for the specific use (or “indication”) under study.
  ***Post-Marketing
        Surveillance and Phase IV Studies.*** Federal
        regulation requires the manufacturer to collect and periodically report to the
        FDA additional safety and efficacy data on the drug for as long as the
        manufacturer markets the drug (post-marketing surveillance). If the drug
        is
        marketed outside the U.S., these reports must include data from all countries
        in
        which the drug is sold. Additional studies (Phase IV) may be undertaken after
        initial approval to find new uses for the drug, to test new dosage formulations,
        or to confirm selected non-clinical benefits, e.g., increased cost-effectiveness
        or improved quality of life.
  **Key
        Trends Affecting the CRO Industry**
 
 CROs
        derive substantially all of their revenue from the research and development
        expenditures of pharmaceutical, biotechnology and medical device companies.
        Based on industry surveys and investment analyst research, we estimate that
        clinical development expenditures outsourced by pharmaceutical and biotechnology
        companies worldwide in 2005 was approximately $14 billion. We believe that
        the
        following trends create further growth opportunities for global CROs, although
        there is no assurance that growth will materialize.
 
 *Innovation
        driving new Drug Development activity.*
 
 Technologies
        such as combinational chemistry and high throughput screening, together with
        improved understanding of disease pathology (driven by scientific advances
        such
        as the mapping of the human genome) have greatly increased the number of
        new
        drug candidates being investigated in early development and greatly broadened
        the number of biological mechanisms being targeted by such candidates. Arising
        from this innovation, funding for research and development, particularly
        by
        biotechnology companies, has been growing strongly. This is leading to
        significant increased activity in both Preclinical and Phase I development
        which
        we believe will lead to more treatments in Phase II-III clinical
        trials. As the
        number of trials that need to be performed increases, we believe that drug
        developers will increasingly rely on CROs to manage these trials in order
        to
        continue to focus on drug discovery.
 
 *Declining
        productivity within Research and Development programs.*
 
 Whilst
        the
        total number of compounds that have entered clinical development has risen
        over
        the last few years, the number of novel drugs that have successfully been
        approved for marketing has remained relatively stable. Pharmaceutical and
        biotechnology companies have responded in a number of ways including looking
        to
        extend the product life cycle of existing drugs and initiating programs to
        drive
        efficiency in the development process. One example of this has been the efforts
        to achieve a more seamless transition across development phases, particularly
        Phase I-III. In parallel regulatory initiatives such as the FDA’s “Critical
        Path” and the emergence of techniques such as adaptive trial design are focused
        on ensuring unsafe or ineffective drugs are eliminated from the development
        process earlier, allowing effective treatments to get to patients quicker
        at
        potentially reduced development costs.
 
 *Pressure
        to Accelerate Time to Markets; Globalization of the Marketplace.*
 
 Reducing
        product development time maximizes the client’s potential period of patent
        exclusivity, which in turn maximizes potential economic returns. We believe
        that
        clients are increasingly using CROs that have the appropriate expertise to
        improve the speed of product development to assist them in improving economic
        returns. In addition, applying for regulatory approval in multiple markets
        and
        for multiple indications simultaneously, rather than sequentially, reduces
        product development time and thereby maximizes economic returns. We believe
        that
        CROs with global operations and experience in a broad range of therapeutic
        areas
        are a key resource to support a global regulatory approval strategy. Alongside
        this, the increasing need to access pools of “treatment naive” patients is
        leading to the conduct of clinical trials in new “emerging regions” such as
        Eastern Europe, Latin America, South America and India. We believe that having
        access to both traditional and emerging clinical research markets gives global
        CROs a competitive advantage.
  10
 
 *Emergence
        of the Biotechnology Sector*
 
 The
        nature
        of the drugs being developed is changing. Biotechnology is enabling the
        development of targeted drugs with diagnostic tests to determine a priori
        whether a drug will be effective given a patient’s genomic profile. An
        increasing proportion of R&D expenditure is being spent on the development
        of highly technical drugs to treat very specific therapeutic areas. Much
        of this
        discovery expertise is found in smaller biotechnology firms. We believe that
        it
        is to these organizations that the large pharmaceutical companies will look
        for
        an increasing proportion of their new drug pipelines. Whether it is through
        licensing agreements, joint ventures or equity investment, we believe we
        will
        see the emergence of more strategic relationships between small discovery
        firms
        and the larger pharmaceutical groups. As the majority of these biotechnology
        companies do not have a clinical development infrastructure, we believe that
        the
        services offered by CROs will continue to be in demand from such
        companies.
 
 *Cost
        Containment Pressures.*
 
 Over
        the
        last several years, drug companies have sought more efficient ways of conducting
        business due to margin pressures stemming from patent expirations, greater
        acceptance of generic drugs, pricing pressures caused by the impact of managed
        care, purchasing alliances and regulatory consideration of the economic benefit
        of new drugs. Consequently, drug companies are centralizing research and
        development, streamlining their internal structures and outsourcing certain
        functions to CROs, thereby converting previously fixed costs to variable
        costs.
        The CRO industry, by specializing in clinical trials management, is often
        able
        to perform the needed services with greater focus and at a lower cost than
        the
        client could perform internally.
 
 *Increasing
        Number of Large Long-Term Studies*
 
 We
        believe
        that to establish competitive claims and to encourage drug prescription by
        physicians in some large and competitive categories, more clients need to
        conduct outcome studies to demonstrate, for example, that mortality rates
        are
        reduced by certain drugs. To verify such outcomes, very large patient numbers
        are required and they must be monitored over long time periods. We believe
        that
        as these types of studies increase there will be a commensurate increase
        in
        demand for the services of CROs who have the ability to quickly assemble
        large
        patient populations, globally if necessary, and manage this complex process
        throughout its duration.
 
 *A
        focus on long-term product safety*
 
 High
        profile recalls for drugs in recent times have increased the emphasis on
        monitoring the health effects of long term drug usage. Historically the industry
        has not tracked what has happened to consumers of drugs over long periods.
        This
        is important given that people can potentially be taking a drug for 20 or
        30
        years, and may have no idea what side-effects it will have over that period
        of
        time. Registry studies are one method of collecting safety and efficacy data
        over an extensive patient population once a drug is on the market. Much of
        the
        information collected is voluntary by both physicians and patients as part
        of
        routine care. This data can provide an early warning if a patient were to
        experience a serious adverse reaction. With increasing regulation in the
        area of
        post marketing surveillance, we believe pharmaceutical firms will look to
        CROs
        for support in the design and rollout of major post marketing safety
        programs.
 
 *Increasing
        Regulatory Demands.*
 
 We
        believe
        that regulatory agencies are becoming more demanding with regard to the data
        required to support new drug approvals and are seeking more evidence that
        new
        drugs are safer and more effective than existing products. As a result, the
        complexity of clinical trials and the size of regulatory submissions are
        driving
        the demand for services provided by CROs.
 
 11
 
 **The
        ICON Strategy**
 
 ICON’s
        mission is to provide flexible, superior quality, global pharmaceutical
        development services, that enable clients to expedite development, reduce
        costs
        and establish the benefits of treatments that enhance people’s
        lives.
 
 We
        provide
        these development services to clients on a stand-alone basis or as part of
        an
        integrated “full service” solution. Our primary approach is to use dedicated
        teams to achieve optimum results. While we believe that this operating model
        differentiates us from our competition in the CRO industry and enables us
        to
        deliver high quality services to our clients, we do retain the operational
        flexibility to implement a range of resourcing models to suit client
        requirements.
 
 Our
        strategy is to continue to grow by penetrating further our existing client
        base
        and adding new clients within the Phase I-IV outsourced development services
        market. The aim being to ensure we will be considered by every company for
        every
        major Phase I - IV project.
 
 We
        intend
        to implement our strategy by continuing to deliver high quality services,
        by
        increasing our geographic presence, expanding the scale and range of our
        services and, where appropriate, cross selling these services into clients.
        As
        needed we intend to supplement our internal growth with strategic
        acquisitions.
 
 o
            ***Continue
                to Deliver High Quality Services and Customer
                Satisfaction.***ICON’s core competency is project management, built up over the last
                fifteen years managing complex projects and underpinned by comprehensive
                and consistent processes which conform to the ISO9001:2000 quality
                certification. 
 We
        have an
        extensive therapeutic and scientific knowledge residing in the organization
        and
        the capability to consistently solve the challenges that arise during clinical
        trials, each of which is the equivalent of a unique scientific
        study.
 
 We
        believe
        our quality processes, extensive experience and dedicated team approach allows
        us to provide consistent high quality, timely and cost effective services.
        We
        believe that the resulting customer satisfaction and enhanced reputation
        in the
        industry will continue to enable us to penetrate our existing client base
        and
        add new clients.
  o
            ***Expand
                Geographic Presence.***In
                a highly fragmented industry, we are one of a small group of organizations
                with the capability and expertise to conduct clinical trials on a
                global
                basis. We believe that this capability to provide our services globally
                in
                most major and developing pharmaceutical markets enhances our ability
                to
                compete for new business from large multinational pharmaceutical,
                biotechnology and medical device companies. We have expanded
                geographically through the establishment of 49 offices in 30 countries
                and
                intend to continue expanding in regions that have the potential to
                increase our client base or increase our investigator and patient
                populations. We have most recently been expanding our presence in
                Eastern
                Europe and Latin America as well as parts of Asia including India
                and
                Japan. 
 o
            ***Increase
                Scale and Range of Services.***We
                seek to enhance our competitive position by increasing the scale
                and range
                of our services. We intend to expand our clinical trials, central
                laboratory, digital imaging, IVRS (interactive voice recognition
                system),
                data management, statistical and consulting operations in order to
                capitalize further on the outsourcing opportunities currently available
                from our clients. The recent high profile withdrawal of several drugs
                from
                the market is also placing the spotlight on drug safety which will
                lead to
                greater emphasis, by all involved in drug development, on post-marketing
                safety monitoring. ICON’s recent acquisition of Ovation has added
                additional capabilities to the organization in the areas of health
                economics, patient registries and outcomes
                research. 
 o
            ***Cross
                Sell Services:***By
                building up a full range of development services, ICON can support
                clients
                through all stages of their product lifecycle. There are signs that
                certain client segments are looking to rationalize their supply base
                down
                to a small number of CROs who can provide this breadth of service.
                A core
                part of our business development strategy is to “cross sell” ICON’s
                service portfolio. By developing and maintaining close relationships
                with
                clients, we gain repeat business and achieve lateral penetration
                of
                services with the client organization. 
 o
            ***Strategic
                acquisitions:***Alongside organic growth, we will continue to seek strategic acquisitions
                that fall within and are complimentary to our existing service lines.  12
 **Services**
 
 ICON
        is a
        global provider of outsourced development services to the pharmaceutical,
        biotechnology and medical device industries. We specialize in the strategic
        development, management and analysis of programs that support Clinical
        Development - from compound selection to Phase I-IV clinical studies.
  Our
        core
        Clinical Research business specializes in the planning, management, execution
        and analysis of Phase I - IV clinical trials, ranging from small studies
        to
        complex, multinational projects. Specific clinical research services offered
        include:
  o
            Investigator
                Recruitment o
            Study
                Monitoring and Data Collection o
            Case
                Report Form ("CRF") Preparation o
            Patient
                Safety Monitoring o
            Clinical
                Data Management o
            IVR
                (Interactive Voice Response) o
            Medical
                Reporting o
            Patient
                Registries o
            Outcomes
                Research o
            Health
                Economics o
            Strategic
                Analysis and Data Operations o
            Clinical
                Pharmacology o
            Bioanalysis o
            Pharmacokinetic
                and Pharmacodynamic analysis o
            Study
                Protocol Preparation o
            Regulatory
                Consulting o
            Product
                Development Planning o
            Strategic
                Consulting o
            Medical
                Imaging o
            Contract
                Staffing  An
        important element in monitoring patient safety during a clinical trial is
        the
        conduct of various laboratory tests on the patient's blood, urine and other
        bodily fluids at appropriate intervals during the trial. The analysis of
        these
        samples must be standardized and the results must be promptly transmitted
        to the
        investigator. ICON Central Laboratories provides global central laboratory
        services dedicated exclusively to clinical trials. Specific services offered
        by
        ICON Central Laboratories include:
  o
            Sample
                analyses o
            Safety
                testing o
            Microbiology o
            Custom
                flow cytometry o
              Electronic
                  transmission of test results




13


**Organizational
      Structure**


***Name***
              ***Country
                  of incorporation***
              ***Group
                  ownership***ICON
                  Clinical Research (UK) Limited
              United
                  Kingdom
              100%ICON
                  Clinical Research Inc.
              USA
              100%ICON
                  Clinical Research Limited
              Republic
                  of Ireland
              100%ICON
                  Japan K.K.
              Japan
              100%ICON
                  Clinical Research GmbH
              Germany
              100%ICON
                  Clinical Research Pty Limited
              Australia
              100%ICON
                  Clinical Research S.A.
              Argentina
              100%ICON
                  Clinical Research SARL
              France
              100%ICON
                  Clinical Research Pte.
              Singapore
              100%ICON
                  Clinical Research Israel Limited
              Israel
              100%Medeval
                  Group Limited
              UK
              100%ICON
                  Laboratories, Inc.
              USA
              100%Managed
                  Clinical Solutions, Inc.
              USA
              100%ICON
                  Clinical Research (Canada) Inc.
              Canada
              100%GloboMax
                  LLC
              USA
              100%ICON
                  Clinical Research Espana S.L.
              Spain
              100%ICON
                  Clinical Research Kft
              Hungary
              100%Beacon
                  Bioscience, Inc.
              USA
              70%ICON
                  Clinical Research India Private Limited
              India
              100%ICON
                  Clinical Research México, S.A. de C.V.
              Mexico
              100%ICON
                  Pesquisas Clinicas LTDA
              Brazil
              100%Ovation
                  Research Group Inc.
              USA
              100%ICON
                  Chile Limitada
              Chile
              100%ICON
                  Clinical Research Korea Yuhan Hoesa
              Korea
              100%


All
        shareholdings comprise ordinary shares.
 All
        subsidiary undertakings are involved in the provision of contract research
        services to the pharmaceutical, biotechnology and medical device
        industries.




14


**Information
      Systems**





Our
      information technology strategy is built around deploying IT systems to enable
      the delivery of our business services in a global environment. The focus is
      to
      provide ease of access to information for our staff and clients globally. Our
      current information systems are built on open standards and leading commercial
      business applications from vendors including Microsoft, Oracle, EMC, BEA, Phase
      Forward and Medidata. IT expenditure is authorized by strict IT Governance
      policies requiring senior level approval of all strategic IT expenditure. All
      critical business systems are formally delivered following a structured project
      management and systems delivery life cycle approach. Critical clinical
      information systems, which manage clinical data, are validated in accordance
      with FDA regulations and those of other equivalent regulatory bodies throughout
      the world.





In
      Clinical Operations, we have deployed a suite of software applications that
      assist in the management and tracking of our clinical trials activities. These
      software applications are both internally developed and commercially available
      applications from leading vendors in the industry. These include a clinical
      trials management application that tracks all relevant data in a trial and
      automates all management and reporting processes. In our Data Management
      function, we have deployed leading clinical data management solutions plus
      Electronic Data Capture (EDC) solutions from leading industry vendors. Our
      state
      of the art workflow technology allows us to process clinical trials data
      seamlessly throughout the Company. We have also developed an interactive voice
      response system to increase the efficiency of clinical trials. This system
      provides features such as centralized patient randomization, drug inventory
      management, and patient diary collection and provides our clients with a fully
      flexible data retrieval solution which can be utilized via telephone, internet
      browser or a WAP enabled device.





Recognizing
      that each client has its own requirements and systems, we seek to ensure an
      entirely flexible approach to client needs. An example of this flexibility
      is in
      the provision of portal solutions that allows clients access to study related
      information via a secure web based environment. We also provide secure remote
      access to client systems for clients to require us to utilize their internal
      platforms.





ICON’s
      strategy of using technology to enhance our global process can be seen in our
      recent deployment of a new global SOP Document Management system and our current
      investment in WEB based training delivery solutions.





In
      our
      central laboratory, we utilize a comprehensive suite of software, including
      a
      laboratory information management system (LIMS), a kit/sample management system
      and a web interface system to allow clients to review results
      online.





Our
      IT
      systems are operated from two centralized hubs in Philadelphia and Dublin.
      Other
      offices are linked to these hubs through a resilient network that is outsourced
      to a leading tier one telecommunications provider. Traveling staff can also
      access all systems via secure remote dial up facilities. A global corporate
      intranet portal provides access to all authorized data and applications for
      our
      internal staff as well as providing an internal platform for company wide
      communication.





**Sales
      and Marketing**





Our
      global
      sales and marketing strategy is to focus our business development efforts on
      pharmaceutical, biotechnology and medical device companies whose development
      projects are advancing. By developing and maintaining close relationships with
      our clients, we gain repeat business, can leverage a full service portfolio
      and
      achieve lateral penetration into other therapeutic divisions where applicable.
      Simultaneously, we are actively establishing new client
      relationships.





While
      our
      sales and marketing activities are carried out locally by executives in each
      of
      the major locations, the sales and marketing process is coordinated centrally
      to
      ensure a consistent and differentiated market positioning for ICON. In addition,
      all our business development professionals, senior executives and project team
      leaders share responsibility for the maintenance of key client relationships
      and
      business development activities.





**Clients**





In
      the
      year ended December 31, 2006, revenue was earned from over 350 clients,
      including all of the top 20 pharmaceutical companies as ranked by 2005 revenues.





We
      have
      expanded geographically in order to pursue larger multi-national clinical trials
      in markets worldwide and have expanded through acquisition to offer a broader
      range of services. In the year ended December 31, 2006, 58.4% of our net revenue
      was generated in the United States, 35.8% in Europe and 5.8% in Rest of
      World .




15


We
      have in
      the past and may in the future derive a significant portion of our net revenue
      from a relatively limited number of major projects or clients. During the fiscal
      year ended May 31, 2004, we received 17% of our net revenue from Astra Zeneca.
      No other client contributed more than 10% of net revenues in the fiscal year
      ended May 31, 2004. During the fiscal year ended May 31, 2005, we received
      12%
      of our net revenue from Astra Zeneca. No other client contributed more than
      10%
      of net revenues in the fiscal year ended May 31, 2005. In the transition period
      ended December 31, 2005, no client contributed more than 10% of net revenues.
      During the year ended December 31, 2006, 35% of our net revenue was derived
      from
      our top five clients and no one client contributed more then 10% of net
      revenues. We believe that the importance of certain clients reflects our success
      in penetrating our client base. The loss of, or a significant decrease in
      business from one or more of these key clients could result in a material
      adverse effect.





**Contractual
      Arrangements**





We
      are
      generally awarded contracts based upon our response to requests for proposals
      received from pharmaceutical, biotechnology and medical device industries.





Most
      of
      our revenues are earned from contracts which are fixed price, based on certain
      activities and performance specifications. Payment terms usually provide either
      for payments based on the achievement of certain identified milestones or
      activity levels or monthly payments according to a fixed payment schedule over
      the life of the contract. Where clients request changes in the scope of a trial
      or in the services to be provided by us, a change order or amendment is issued
      often resulting in additional revenues for us. We also contract on a
      "fee-for-service," or "time and materials" basis, but this accounts for a small
      portion of overall project activities.





Contract
      terms may range from several weeks to several years depending on the nature
      of
      the work to be performed. In most cases, a portion of the contract fee,
      typically 10% to 20%, is paid at the time the study or trial is started. The
      balance of the contract fee payable is generally payable in installments over
      the study or trial duration and may be based on the achievement of certain
      performance targets or "milestones" or, to a lesser extent, on a fixed monthly
      payment schedule. For instance, installment payments may be based on patient
      enrollment or delivery of the database. Reimbursable expenses are typically
      estimated and budgeted within the contract and invoiced on a monthly basis.
      Reimbursable expenses include payments to investigators, travel and
      accommodation costs and various other direct costs incurred in the course of
      the
      clinical trial which are fully reimbursable by the client.





Most
      of
      our contracts are terminable immediately by the client with justifiable cause
      or
      with 60 days notice without cause. In the event of termination, we are entitled
      to all sums owed for work performed through the notice of termination and
      certain costs associated with termination of the study. Some of our contracts
      provide for an early termination fee. Termination or delay in the performance
      of
      a contract occurs for various reasons, including, but not limited to, unexpected
      or undesired results, production problems resulting in shortages of the drug,
      adverse patient reactions to the drug, the client's decision to de-emphasize
      a
      particular trial or inadequate patient enrollment or investigator
      recruitment.





**Backlog**





Our
      backlog consists of potential net revenue yet to be earned from projects awarded
      by clients.





At
      December 31, 2006, we had a backlog of approximately $872 million, compared
      with
      approximately $633 million at December 31, 2005. We believe that our backlog
      as
      of any date is not necessarily a meaningful predictor of future results, due
      to
      the potential for cancellation or delay of the projects underlying the backlog,
      and no assurances can be given that we will be able to realize this backlog
      as
      net revenue.





**Competition**





The
      CRO
      industry is highly fragmented, consisting of several hundred small,
      limited-service providers and a limited number of medium-sized and large CROs
      with global operations. We primarily compete against in-house departments of
      pharmaceutical companies and other CROs with global operations. Some of these
      competitors have substantially greater capital, technical and other resources
      than us. CROs generally compete on the basis of previous experience, the quality
      of contract research, the ability to organize and manage large-scale trials
      on a
      global basis, the ability to manage large and complex medical databases, the
      ability to provide statistical and regulatory services, the ability to recruit
      suitable investigators, the ability to integrate information technology with
      systems to improve the efficiency of contract research, an international
      presence with strategically located facilities, financial viability, medical
      and
      scientific expertise in specific therapeutic areas and price. We believe that
      we
      compete favorably in these areas. Our principal CRO competitors are Quintiles
      Transnational Corporation, Covance Inc., PAREXEL International Corp., Kendle
      International Inc., i3 Research. (United Health Group Incorporated), Omnicare,
      Inc., PRA International Inc., MDS Inc, PharmaNet Development Group, Inc. and
      Pharmaceutical Product Development, Inc. The trend toward CRO industry
      consolidation has resulted in heightened competition among the larger CROs
      for
      clients and acquisition candidates.





16




**Government
      Regulation**





*Regulation
      of Clinical Trials*





The
      clinical investigation of new drugs is highly regulated by government agencies.
      The standard for the conduct of clinical research and development studies is
      Good Clinical Practice, which stipulates procedures designed to ensure the
      quality and integrity of data obtained from clinical testing and to protect
      the
      rights and safety of clinical subjects.




Regulatory
      authorities, including the FDA, have promulgated regulations and guidelines
      that
      pertain to applications to initiate trials of products, the approval and conduct
      of studies, report and record retention, informed consent, applications for
      the
      approval of drugs and post-marketing requirements. Pursuant to these regulations
      and guidelines, service providers that assume the obligations of a drug sponsor
      are required to comply with applicable regulations and are subject to regulatory
      action for failure to comply with such regulations and guidelines. In the United
      States and Europe, the trend has been in the direction of increased regulation
      by the applicable regulatory authority.




In
      providing our services in the United States, we are obligated to comply with
      FDA
      requirements governing such activities. These include ensuring that the study
      is
      approved by an appropriate independent review board (IRB)/Ethics Committee,
      obtaining patient informed consents, verifying qualifications of investigators,
      reporting patients’ adverse reactions to drugs and maintaining thorough and
      accurate records. We must maintain critical documents for each study for
      specified periods, and such documents may be reviewed by the study sponsor
      and
      the FDA during audits.




The
      services we provide outside the United States are ultimately subject to similar
      regulation by the relevant regulatory authority, including the Medicines Control
      Agency in the United Kingdom and the Bundesinstitut für Arzneimittel und
      Medizinprodukte in Germany. In addition, our activities in Europe are affected
      by the European Medicines Evaluation Agency, which is based in London,
      England.




We
      must
      retain records for each study for specified periods for inspection by the client
      and by the applicable regulatory authority during audits. If such audits
      document that we have failed to comply adequately with applicable regulations
      and guidelines, it could result in a material adverse effect. In addition,
      our
      failure to comply with applicable regulation and guidelines, depending on the
      extent of the failure, could result in fines, debarment, termination or
      suspension of ongoing research or the disqualification of data, any of which
      could also result in a material adverse effect.




**Potential
      Liability and Insurance**




We
      contract with physicians who serve as investigators in conducting clinical
      trials to test new drugs on their patients. Such testing creates a risk of
      liability for personal injury to or death of the patients resulting from adverse
      reactions to the drugs administered. In addition, although we do not believe
      that we are legally accountable for the medical care rendered by third party
      investigators, it is possible that we could be subject to claims and expenses
      arising from any professional malpractice of the investigators with whom we
      contract. We also could be held liable for errors or omissions in connection
      with the services we perform.




17




We
      believe
      that the risk of liability to patients in clinical trials is mitigated by
      various regulatory requirements, including the role of institutional review
      boards and the need to obtain each patient’s informed consent. The FDA requires
      each human clinical trial to be reviewed and approved by the institutional
      review board at each study site. An institutional review board is an independent
      committee that includes both medical and non-medical personnel and is obligated
      to protect the interests of patients enrolled in the trial. After the trial
      begins, the institutional review board monitors the protocol and measures
      designed to protect patients, such as the requirement to obtain informed
      consent.




We
      further
      attempt to reduce our risks through contractual indemnification provisions
      with
      clients and through insurance maintained by clients, investigators and us.
      However, the contractual indemnifications generally do not protect us against
      certain of our own actions such as negligence, the terms and scope of such
      indemnification vary from client to client and from trial to trial, and the
      financial performance of these indemnities is not secured. Therefore, we bear
      the risk that the indemnity may not be sufficient or that the indemnifying
      party
      may not have the financial ability to fulfill its indemnification obligations.
      We maintain worldwide professional liability insurance. We believe that our
      insurance coverage is adequate. There can be no assurance, however, that we
      will
      be able to maintain such insurance coverage on terms acceptable to us, if at
      all. We could be materially adversely affected if we were required to pay
      damages or bear the costs of defending any claim outside the scope of or in
      excess of a contractual indemnification provision or beyond the level of
      insurance coverage or in the event that an indemnifying party does not fulfill
      its indemnification obligations.




**Description
      of Property**





We
      lease
      all but one of our facilities under operating leases.





Our
      principal executive offices are located in South County Business Park,
      Leopardstown, Dublin, Republic of Ireland, where we own an office facility
      of
      approximately 3,900 square meters on approximately four and a half acres. We
      currently lease an additional office facility of approximately 2,300 square
      meters in the same business park.




In
      February 2006, we began building an extension to the development which comprises
      four 4 storey office blocks linked to the existing building. The four additional
      blocks will extend the premises by approximately 11,900 square meters, bringing
      the entire development when completed to approximately 15,800 square meters.
      The
      new development is due for completion on a phased basis from June 2007 to
      October 2008.




We
      also
      maintain two U.S. offices in each of the following cities: New York, Chicago,
      Philadelphia and San Francisco, and one US office in each of the following
      cities: Irvine, Nashville, Houston, Wilmington, Raleigh, Baltimore, Tampa,
      San
      Diego and Salt Lake City. Our European subsidiaries maintain offices in
      Southampton, Frankfurt, Paris, Moscow, Amsterdam, Marlow, Manchester, Tel Aviv,
      Stockholm, Riga, Budapest, Milan, Barcelona, Vilinius and Warsaw. Our Rest
      of
      World offices are located in Tokyo, Singapore, Sydney, Chennai, Buenos Aires,
      Johannesburg, Montréal, Hong Kong, Mexico City, Taipei, São Paulo, Bangkok,
      Seoul, Santiago, Beijing and Bangalore.




**Item
      5.** ***Operating
      and Financial Review and
      Prospects.***





The
      following discussion and analysis should be read in conjunction with our
      Consolidated Financial Statements, accompanying notes and other financial
      information, appearing in Item 18. The Consolidated Financial Statements have
      been prepared in accordance with accounting principles generally accepted in
      the
      United States.





**Overview**





We
      are a
      contract research organization (“CRO”), providing outsourced development
      services on a global basis to the pharmaceutical, biotechnology and medical
      device industries. We specialize in the strategic development, management and
      analysis of programs that support Clinical Development - from compound selection
      to Phase I-IV clinical studies. We have the operational flexibility to provide
      development services on a stand-alone basis or as part of an integrated “full
      service” solution. Our primary approach is to use dedicated teams to achieve
      optimum results, but we can implement a range of resourcing models to suit
      client requirements.





18




In
      a
      highly fragmented industry, we are one of a small number of companies with
      the
      capability and expertise to conduct clinical trials in all major therapeutic
      areas on a global basis. Currently, we have approximately 4,300 employees,
      in 49
      locations in 30 countries, providing Phase I - IV Clinical Trial Management,
      Drug Development Support Services, Data Management and Biostatistics and Central
      Laboratory and Imaging Services. For the year ended December 31, 2006 we derived
      approximately 58.4%, 35.8% and 5.8% of our net revenue in the United States,
      Europe and Rest of World, respectively.





Revenue
      consists primarily of fees earned under contracts with third-party clients.
      In
      most cases, a portion of the contract fee is paid at the time the study or
      trial
      is started, often upon the signing of a letter of intent, and the balance of
      the
      contract fee is generally payable in installments over the study or trial
      duration, based on the achievement of certain performance targets or
      "milestones". Revenue for contracts is recognized on the basis of the
      relationship between time incurred and the total estimated duration of the
      trial
      or on a fee-for-service basis according to the particular circumstances of
      the
      contract. As is customary in the CRO industry, we subcontract with third party
      investigators in connection with clinical trials. All subcontractor costs and
      certain other costs where reimbursed by clients, are, in accordance with
      industry practice, deducted from gross revenue to arrive at net revenue. As
      these costs vary from contract to contract, we view net revenue as our primary
      measure of revenue growth.





Direct
      costs consist primarily of compensation and associated fringe benefits for
      project-related employees, other direct project driven costs and share based
      compensation expense. Selling, general and administrative expenses consist
      of
      compensation and related fringe benefits for selling and administrative
      employees, professional services, advertising costs, all costs related to
      facilities and information systems and share based compensation expense.





Our
      backlog consists of potential net revenue yet to be earned from projects awarded
      by clients. At December 31, 2006, we had a backlog of approximately $872
      million, compared with approximately $633 million at December 31, 2005. We
      believe that our backlog as of any date is not necessarily a meaningful
      predictor of future results, due to the potential for cancellation or delay
      of
      the projects underlying the backlog, and no assurances can be given that we
      will
      be able to realize this backlog as net revenue.





As
      the
      nature of ICON's business involves the management of projects having a typical
      duration of one to three years, the commencement or completion of projects
      in a
      fiscal year can have a material impact on revenues earned with the relevant
      clients in such years. In addition, as we typically work with some, but not
      all,
      divisions of a client, fluctuations in the number and status of available
      projects within such divisions can also have a material impact on revenues
      earned from such clients from year to year.





Although
      we are domiciled in Ireland, we report our results in U.S. dollars. As a
      consequence the results of our non-U.S. based operations, when translated into
      U.S. dollars, could be materially affected by fluctuations in exchange rates
      between the U.S. dollar and the currencies of those operations.





In
      addition to translation exposures, we are also subject to transaction exposures
      because the currency in which contracts are priced can be different from the
      currencies in which costs relating to those contracts are incurred. We have
      17
      operations operating in U.S. dollars, 6 trading in Euros, 3 in pounds Sterling,
      2 in Indian Rupee and 1 each in Australian dollars, Singapore dollars, Yen,
      Israeli New Shekels, Latvian Lats, Swedish Krona, Argentine Peso, South African
      Rand, Russian Rouble, Canadian dollar, Hungarian Forint, Hong Kong dollar,
      Taiwan dollar, Mexican Peso, Brazilian Real, Chilean Peso, South Korean Won,
      Thai Baht, Polish Zloty, Chinese Yuan Renminbi and Lithuanian Litas. Our
      operations in the United States are not materially exposed to such currency
      differences as the majority of our revenues and costs are in U.S. dollars.
      However, outside the United States the multinational nature of our activities
      means that contracts are usually priced in a single currency, most often pounds
      Sterling, U.S. dollars or Euros, while costs arise in a number of currencies,
      depending, among other things, on which of our offices provide staff for the
      contract, and the location of investigator sites. Although many such contracts
      benefit from some degree of natural hedging due to the matching of contract
      revenues and costs in the same currency, where costs are incurred in currencies
      other than those in which contracts are priced, fluctuations in the relative
      value of those currencies could have a material effect on ICON's results of
      operations. We regularly review our currency exposures and hedge a portion
      of
      these, using forward exchange contracts, where they are not covered by natural
      hedges.





19




We
      have
      received capital and revenue grants from Enterprise Ireland, an Irish government
      agency. We record capital grants as deferred income, which are credited to
      income on a basis consistent with the depreciation of the relevant asset. Grants
      relating to operating expenditures are credited to income in the period in
      which
      the related expenditure is charged. The capital grant agreements provide that
      in
      certain circumstances the grants received may be refundable in full. These
      circumstances include sale of the related asset, liquidation of ICON or failing
      to comply in other respects with the grant agreements. The operating expenditure
      grant agreements provide for repayment in the event of a downsizing calculated
      by reference to any reduction in employee numbers. We have not recognized any
      loss contingency having assessed as remote the likelihood of these events
      arising. Up to December 31, 2006, we have received $2,695,280 and $2,003,315
      under capital grants and operating grants, respectively. Pursuant to the terms
      of the grant agreements, we are restricted from distributing some of these
      amounts by way of dividend or otherwise.





As
      we
      conduct operations on a global basis, our effective tax rate has depended and
      will depend on the geographic distribution of our revenue and earnings among
      locations with varying tax rates. ICON's results of operations therefore may
      be
      affected by changes in the tax rates of the various jurisdictions. In
      particular, as the geographic mix of our results of operations among various
      tax
      jurisdictions changes, our effective tax rate may vary significantly from period
      to period.





**Operating
      Results**





The
      following table sets forth for the periods indicated certain financial data
      as a
      percentage of net revenue and the percentage change in these items compared
      to
      the prior comparable period. The trends illustrated in the following table
      may
      not be indicative of future results.


**May
                  31,**
                **2005**
              
              **Transition**
                **Period**
                **June
                  1, 2005**
                **to
                  Dec 31,**
                **2005**
              
              **Jan
                  1, 2006**
                **to
                  Dec 31,**
                **2006**
              
              **Transition**
                **Period**
                **June
                  1, 2005**
                **to
                  Dec 31,**
                **2****005**
              
              **Jan
                  1, 2006 to**
                **Dec
                  31, 2006****Percentage
                  of Net Revenue**
              
              
              
              **Percentage
                  Increase/**
                **(Decrease)**Net
                  revenue
              
              
              100
              %
              
              100
              %
              
              100
              %
              
              (38.2
              %)
              
              125.6
              %Costs
                  and expenses:
                Direct
                  costs
              
              
              55.0
              %
              
              56.5
              %
              
              56.2
              %
              
              (36.5
              %)
              
              124.8
              %Selling,
                  general and administrative
              
              
              31.8
              %
              
              30.8
              %
              
              30.0
              %
              
              (40.0
              %)
              
              119.3
              %Depreciation
                  and amortization
              
              
              4.1
              %
              
              4.0
              %
              
              3.3
              %
              
              (39.3
              %)
              
              84.7
              %Share
                  based compensation
              
              
              -
              
              
              3.0
              %
              
              -
              
              
              100
              %
              
              (100.0
              %)Other
                  charges
              
              
              3.4
              %
              
              -
              
              
              -
              
              
              (100
              %)
              
              -Income
                  from operations
              
              
              5.7
              %
              
              5.7
              %
              
              10.5
              %
              
              (37.9
              %)
              
              313.9
              %




20


***Year
      ended December 31, 2006 compared to Seven Month Transition Period Ended December
      31, 2005***





*Note:
      Results below compare a 12 month accounting period ended December 31, 2006
      to a
      7 month accounting period ended December 31, 2005*





Net
      revenue increased by $253.7 million, or 125.6%, from $201.9 million to $455.6
      million.  Revenues
      in the United States, Europe and the Rest of World increased by 125%, 139%
      and
      70% respectively. In the year ended December 31, 2006, net revenue from our
      central laboratory business increased by 160%, from $18.2 million, to $47.2
      million, while our clinical research segment improved by 122%, from $183.8
      million to $408.4 million, over the prior period. This increase in net revenue
      has resulted from a combination of increased business from existing clients,
      business won from new clients, increased use of outsourcing by the
      pharmaceutical, biotechnology and medical device industries, an underlying
      increase in research and development spending and consolidation in the CRO
      industry.




Direct
      costs increased by $142.3 million, or 124.8%, from $114.0 million to $256.3
      million. Direct costs as a percentage of net revenue decreased from 56.5% in
      the
      seven month transition period ended December 31, 2005, to 56.2% in the year
      ended December 31, 2006. A comparative period analysis shows an increase in
      direct costs primarily due to increased staff numbers needed to support
      increased project related activity. In addition, $2.3m can be attributed to
      the
      share based compensation expense arising from the adoption of SFAS123R Share
      Based Payments in 2006.




Selling,
      general and administrative expenses increased by $74.3 million, or 119.3%,
      from
      $62.3 million to $136.6 million. As a
      percentage of net revenue, selling, general and administrative expenses,
      decreased from 30.8% in
      the
      seven month transition period ended December 31, 2005, to
      30% for
      the
      year ended December 31, 2006 .
      A
      comparative period analysis shows an increase in SG&A costs due to the
      continued expansion of our operations.
      In addition, $1.8m can be attributed to the share based compensation expense
      arising from the adoption of SFAS123R Share Based Payments in 2006.





The
      total
      share based compensation expense during 2006 amounted to $4.1m.





Depreciation
      and amortization expense increased by $6.9 million, or 84.7%, from $8.1 million
      to $14.9 million. As
      a
      percentage of net revenue, depreciation and amortization decreased from 4%
      of
      net revenues in the seven
      month transition period ended December 31, 2005, to
      3.3%
      for the year
      ended
      December 31, 2006. A comparative period analysis shows an increase in
      depreciation as a result of continued investment in facilities and information
      technology to support the growth in activity and in providing for future
      capacity.





Income
      from operations increased by $36.3 million, or 313.9%, from $11.6 million to
      $47.8 million. As
      a
      percentage of net revenue, income from operations increased from 5.7% of net
      revenues in the seven
      month transition period ended December 31, 2005, to
      10.5%
      for the year
      ended
      December 31, 2006. The year
      ended December 31, 2006, saw a continued improvement in the performance of
      the
      central laboratory business, from a loss from operations, as a percentage of
      net
      revenue of 16.7% for the seven month transition period ended December 31, 2005,
      to an operating profit of 4.9% for the year ended December 31, 2006. The
      central laboratory constitutes approximately 10.4% of our business revenues
      for
      the year ended December 31, 2006. Operating margins for our clinical research
      segment increased to 11.1% in the year ended December 31, 2006, from 7.9% for
      the seven month transition period ended December 31, 2005.





Net
      interest income for the year ended December 31, 2006, was $3.6 million, an
      increase of $2.4 million from the seven month transition period ended December
      31, 2005. Higher interest rates in 2006 over the 2005 transition period
      contributed to the increased interest income.





ICON
      plc’s
      effective tax rate for the year ended December 31, 2006, was 25% compared with
      42% for the seven month transition period ended December 31, 2005. The decrease
      in the effective tax rate is due to a number of factors, including the release
      of $3.04 million of the valuation allowance against the losses forward in ICON
      Laboratories, Inc. In addition, in the seven month period ended December 31,
      2005, there had been a once off tax disallowance of the compensation expense
      amounting to $6.024 million in respect of the gift of 64,000 and 80,000 ADSs
      made by Dr. Ronan Lambe and Dr. John Climax to Mr. Peter Gray, the Company’s
      Chief Executive Officer.




21




*Seven
      Month Transition Period Ended December 31, 2005 Compared to Fiscal Year Ended
      May 31, 2005*





*Note:
      Results below compare a 7 month accounting period ended December 31, 2005 to
      a
      12 month accounting period ended May 31, 2005.*





Net
      revenue decreased by $124.8 million, or 38.2%, from $326.7 million to $201.9
      million.  Revenues
      in the United States, Europe and the Rest of World fell by 36.6%, 44.1% and
      14.9% respectively. In the transition period to December 31, 2005, net revenue
      from our central laboratory business decreased by 28.6% from $25.5 million
      to
      $18.2 million, while our clinical research segment declined by 39.0% from $301.2
      million to $183.8 million over the prior period. If the figures above were
      analyzed with a comparative period, they would show a general improvement
      through a combination of increased business from existing clients, business
      won
      from new clients, increased use of outsourcing by the pharmaceutical,
      biotechnology and medical device industries, an underlying increase in research
      and development spending and consolidation in the CRO industry.




Direct
      costs decreased by $65.7 million, or 36.5%, from $179.7 million to $114.0
      million. Direct costs as a percentage of net revenue increased from 55.0% in
      the
      twelve months to May 31, 2005 to 56.5% in the 2005 transition period ending
      December 31, 2005. A comparative period analysis shows an increase in direct
      costs primarily due to increased staff numbers needed to support increased
      project related activity.




Selling,
      general and administrative expenses decreased by $41.5 million, or 40.0%, from
      $103.8 million to $62.3 million. As a
      percentage of net revenue, selling, general and administrative expenses,
      decreased from 31.8% in
      the
      twelve months to May 31, 2005 to
      30.8% for
      the
      transition period ended December 31, 2005 .
      A
      comparative period analysis shows an increase in SG&A costs due to the
      continued expansion of our operations.





Depreciation
      and amortization expense decreased by $5.2 million, or 39.3%, from $13.3 million
      to $8.1 million. As
      a
      percentage of net revenue, depreciation and amortization decreased from 4.1%
      of
      net revenues in the twelve
      months to May 31, 2005, to
      4.0%
      for the transition
      period ended December 31, 2005. A comparative period analysis shows an increase
      in depreciation as a result of continued investment in facilities and
      information technology to support the growth in activity and in providing for
      future capacity.





In
      the
      transition period an amount of $6.2 million was expensed in relation to share
      based compensation (See Item 7: Major Shareholders and Related Party
      Transactions).





The
      principal items classified as other charges in the year ended May 31, 2005
      were
      asset impairments, computer software write-off and lease termination and exit
      costs.





Income
      from operations decreased by $7.0 million, or 37.9%, from $18.6 million to
      $11.6
      million. As a percentage of net revenue, income from operations remained static
      at 5.7% of net revenues for
      the transition
      period ended December 31, 2005 when compared to the twelve months to May 31,
      2005. For the transition period ended December 31, 2005, losses from operations,
      as a percentage of net revenue for the central laboratory decreased to 16.7%,
      from 59.9%, in the twelve month period ending May 31, 2005. The loss for the
      year to May 31, 2005 included the effects of other charges. The central
      laboratory constitutes approximately 9.0% of our business revenues for the
      period ended December 31, 2005. Operating margins for our clinical research
      segment decreased to 7.9% in the transition period ended December 31, 2005
      from
      11.3% for the twelve month period ending May 31, 2005.





Net
      interest income for the transition period ended December 31, 2005, was $1.3
      million, an increase of $0.3 million on the year ended May 31, 2005. Higher
      interest rates in the 2005 transition period over fiscal 2005 contributed to
      the
      increased interest income.





ICON
      plc’s
      effective tax rate for the transition period ended December 31, 2005, was 42.0%
      compared with 29.9% for the year ended May 31, 2005.





22





*Fiscal
      Year Ended May 31, 2005 Compared to Fiscal Year Ended May 31,
      2004*





Net
      revenue increased by $29.7 million, or 10.0%, from $296.9 million to $326.7
      million.  This
      improvement arose through a combination of increased business from existing
      clients, business won from new clients and revenues from acquisitions not
      included in the comparative period. The additional revenues from acquisitions
      amounted to $9.1 million for the fiscal year ended May 31, 2005. Including
      the
      impact of acquisition, revenues in the United States, Europe and the Rest of
      World grew by 0.9%, 20.1% and 73.5%, respectively. In the twelve months to
      May
      31, 2005, net revenue from our central laboratory business decreased by 5.2%
      from $26.9 million to $25.5 million while our clinical research segment grew
      by
      11.5% from $270.0 million to $301.2 million over the comparable period. The
      decrease in net revenue in our central laboratory segment is primarily due
      to
      lower testing volumes in fiscal 2005. The growth in net revenue in our clinical
      research segment is due to the expansion of our services to both existing and
      new clients, increased use of outsourcing by the Pharmaceutical, Biotechnology
      and Medical Device industries, an underlying increase in research and
      development spending and consolidation in the CRO industry.




Direct
      costs increased by $17.1 million, or 10.5%, from $162.6 million to $179.7
      million, primarily due to increased staff numbers needed to support increased
      project related activity and increased costs arising from acquisitions amounting
      to $4.3 million. Direct costs as a percentage of net revenue increased from
      54.7% in the twelve months to May 31, 2004 to 55.0% in fiscal 2005.




Selling,
      general and administrative expenses increased by $15.0 million, or 16.9%, from
      $88.8 million to $103.8 million. The
      increase in costs is due to the continued expansion of our operations and
      additional selling, general and administrative costs from acquisition of $3.3
      million not included in the comparative period.  As
      a
      percentage of net revenue, selling, general and administrative expenses,
      increased from 29.9% in
      the
      twelve months to May 31, 2004 to
      31.8% for
      the
      fiscal year ended May 31, 2005 .





Depreciation
      and amortization expense increased by $2.1 million, or 19.3%, from $11.2 million
      to $13.3 million. This
      increase is due to the continued investment in facilities and information
      technology to support the growth in activity and in providing for future
      capacity and increased costs arising from acquisition of $0.4
      million . As
      a
      percentage of net revenue, depreciation and amortization increased from 3.8%
      of
      net revenues in the twelve
      months to May 31, 2004, to
      4.1%
      for the fiscal
      year ended May 31, 2005.




Other
      charges of $11.3 million were incurred during the year ended May 31, 2005.
      The
      principal items classified as other charges include asset impairments, computer
      software write-off and lease termination and exit costs, as outlined in Note
      14
      to the Consolidated Financial Statements.





Income
      from operations decreased by $15.8 million, or 45.9%, from $34.4 million to
      $18.6 million, including acquisitions. As a percentage of net revenue, income
      from operations decreased from 11.6% for the twelve months to May 31, 2004
      to
      5.7% of net revenues for
      the fiscal
      year ended May 31, 2005. For the fiscal year 2005, losses from operations,
      as a
      percentage of net revenue for the central laboratory increased to 59.9%, or
      25.6% excluding other charges, from 12.2%, in fiscal 2004 due to an expanded
      cost base. The central laboratory constitutes approximately 7.8% of our business
      revenues in the year ended May 31, 2005. Operating margins for our clinical
      research segment decreased from 13.9% in the twelve months to May 31, 2004,
      to
      11.3% for the fiscal year ended May 31, 2005.





Net
      interest income for the year ended May 31, 2005, was $1.0 million, an increase
      of $0.7 million on the year ended May 31, 2004. Higher average level of funds
      invested and higher interest rates in fiscal 2005 over fiscal 2004 contributed
      to the increased interest income.





ICON
      plc’s
      effective tax rate for the year ended May 31, 2005, was 29.9% compared with
      25.8% for the comparable period in the previous year. The increase in the
      effective rate was primarily due to a change in the geographic distribution
      of
      pre-tax earnings.





23





**Liquidity
      and Capital Resources**





The
      CRO
      industry generally is not capital intensive. Since our inception, we have
      financed our operations and growth primarily with cash flows from operations,
      net proceeds of $49.1 million raised in our initial public offering in May
      1998
      and net proceeds of $44.3 million raised in our public offering in August 2003.
      Our principal cash needs are payment of salaries, office rents, travel
      expenditures and payments to investigators. The aggregate amount of employee
      compensation, excluding stock compensation expense, paid by us and our
      subsidiaries for the two years ended May 31, 2004 and 2005, the seven month
      transition period ending December 31, 2005 and the year ended December 31,
      2006,
      amounted to $174.5 million, $194.1 million, $121.4 million and $274.6 million,
      respectively. Investing activities primarily reflect capital expenditures for
      facilities, information systems enhancements, the purchase of short-term
      investments and acquisitions.





Our
      clinical research and development contracts are generally fixed price with
      some
      variable components and range in duration from a few weeks to several years.
      Revenue from contracts is generally recognized as income on the basis of the
      relationship between time incurred and the total estimated contract duration
      or
      on a fee-for-service basis. The cash flow from contracts typically consists
      of a
      down payment of between 10% and 20% paid at the time the contract is entered
      into, with the balance paid in installments over the contract's duration, in
      some cases on the achievement of certain milestones. Accordingly, cash receipts
      do not correspond to costs incurred and revenue recognized on contracts.




As
      of
      December 31, 2006, our working capital was $160.3 million, compared to $132.3
      million at December 31, 2005 and $125.3 million at May 31, 2005. The most
      significant influence on our operating cash flow is revenue outstanding, which
      comprises accounts receivable and unbilled revenue, less payments on account.
      The dollar values of these amounts and the related days revenue outstanding
      can
      vary due to the achievement of contractual milestones, including contract
      signing, and the timing of cash receipts. The number of days revenue outstanding
      was 53 days at December 31, 2006, 65 days at December 31, 2005, and 63 days
      at
      May 31, 2005.





Net
      cash
      provided by operating activities was $50.5 million in the year ended December
      31, 2006, compared with $13.8 million in the transition period ended December
      31, 2005, $25.2 million in fiscal year ended May 31, 2005, and $43.6 million
      in
      the fiscal year ended May 31, 2004.





Net
      cash
      used in investing activities was $55.3 million in the year ended December 31,
      2006, compared with $16.3 million in the seven month period ended December
      31,
      2005, $25.7 million in the year ended May 31, 2005 and $47.3 million in the
      year
      ended May 31, 2004. The increase in net cash used in the year ended December
      31,
      2006, over the seven month transition period ended December 31, 2005 is due
      principally to the commencement of the construction of the new facility head
      office building located in Dublin, Republic of Ireland, the acquisition of
      Ovation and the investment in short term investments.





Net
      cash
      provided by financing activities was $7.7 million in the year ended December
      31,
      2006, compared with $6.6 million in the seven month transition period ended
      December 31, 2005, $0.9 million in the year ended May 31, 2005 and $42.5 million
      in the fiscal year ended May 31, 2004.





As
      a
      result of these cash flows, cash and cash equivalents increased by $3.5 million
      in the year ended December 31, 2006 compared to $3.2 million in the transition
      period ended December 31, 2005, $0.7 million in the year ended May 31, 2005
      and
      $37.4 million in the year ended May 31, 2004.





The
      Company has short-term bank loan facilities as follows:




24




On
      July 3,
      2003, we entered into a facility agreement (the "Facility Agreement") for the
      provision of a term loan facility of U.S.$40 million, multi-currency overdraft
      facility of $5 million and revolving credit facility of $15 million (the
      "Facilities") with The Governor and Company of the Bank of Ireland and Ulster
      Bank Ireland Limited (the “Banks”). Our obligations under the Facilities are
      secured by certain composite guarantees and indemnities and pledges in favor
      of
      each of the banks. The term loan facility bears interest at an annual rate
      equal
      to the Banks’ prime rate plus one percent. The multi-currency overdraft facility
      and the revolving credit facility bear interest at an annual rate equal to
      the
      Banks’ prime rate plus three quarters of one percent. ICON plc and its
      subsidiaries are entitled to make borrowings under a term loan facility of
      $40
      million and a multi currency overdraft facility of $5 million. As at December
      31, 2006, $15 million of the term loan facility was available to be drawn down,
      while the entire $5 million multi currency overdraft had been drawn down. The
      multi currency overdraft facility will become payable on demand if the Company
      defaults under its obligations as specified in the loan agreement. The reduction
      in the term loan facility is due to amortization terms in the facility
      agreement. The term loan facility will reduce by a further $5 million dollars
      at
      six monthly intervals until the facility expires on June 30, 2008. ICON Clinical
      Research, Inc. (a subsidiary of ICON plc) is entitled to make borrowings under
      the revolving credit facility of $15 million. As at December 31, 2006, the
      full
      amount of this facility was available to be drawn down.




We
      entered
      into an overdraft agreement with Allied Irish Banks, plc (“AIB”) whereby the
      Company guarantees any overdraft of its subsidiary ICON Clinical Research GmbH
      up to an amount of €120,000 (U.S.$157,645). As of December 31, 2006, the full
      facility was available to be drawn down.




On
      July
      10, 2006, we acquired 100% of the common stock of Ovation Healthcare Research
      2
      Inc. (“Ovation”), based in Illinois, USA, for an initial cash consideration of
      U.S.$6.6 million, excluding costs of acquisition. Working capital provisions
      were built into the acquisition contract requiring the potential payment of
      additional deferred consideration up to a maximum of U.S.$1.4 million. On
      October 27, 2006, $0.18 million was paid to the former Shareholders of Ovation
      in full and final settlement of the working capital provisions.




On
      July 1,
      2004, we completed the acquisition of 70% of Beacon Biosciences, Inc. for an
      initial cash consideration of U.S.$9.9 million.




On
      December 1, 2004, we acquired the workforce of Biomines Research Solutions
      Private Limited for a total cash consideration of U.S. $0.25
      million. The
      workforce is engaged in the business of clinical trial data management and
      statistical analysis services and has been transferred to our existing Indian
      operation.




**Contractual
      obligations table**





The
      following table represents our contractual obligations and commercial
      commitments as of December 31, 2006:


**Payments
                    due by period****Total**
                
                **Less
                    than 1**
                  **year**
                
                **1
                    to 3**
                  **years**
                
                **3
                    to 5**
                  **years**
                
                **More
                    then**
                  **5
                    years****(U.S.$
                    in millions)**Capital
                    lease obligations
                
                $
                0.4
                
                $
                0.2
                
                $
                0.2
                
                $
                -
                
                $
                -Bank
                    credit lines and loans facilities
                
                
                5.0
                
                
                5.0
                
                
                -
                
                
                -
                
                
                -Operating
                    lease obligations
                
                
                160.7
                
                
                26.1
                
                
                43.7
                
                
                34.8
                
                
                56.1Building
                    construction commitments
                
                
                44.7
                
                
                44.7
                
                
                -
                
                
                -
                
                
                -Total
                    (U.S.$ in millions)
                
                $
                210.8
                
                $
                76
                
                $
                43.9
                
                $
                34.8
                
                $
                56.1


Excluding
      the expenditure in relation to the building construction, we expect to spend
      approximately $16 million in the next twelve months on further investments
      in
      information technology, the expansion of existing facilities and the addition
      of
      new offices  and
      expect
      to increase this level of spending in subsequent years. We believe that we
      will
      be able to fund our additional foreseeable cash needs for the next twelve months
      from cash flow from operations and existing cash balances. In the future, we
      will consider acquiring businesses to enhance our service offerings and global
      presence. Any such acquisitions may require additional external financing and
      we
      may from time to time seek to obtain funds from public or private issues of
      equity or debt securities. There can be no assurance that such financing will
      be
      available on terms acceptable to us.




25




**Critical
      Accounting Policies**





The
      preparation of consolidated financial statements in accordance with generally
      accepted accounting principles in the United States requires management to
      make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      revenues and expenses during the reported period.




We
      base
      our estimates and judgments on historical experience and on the other factors
      that we believe are reasonable under current circumstances. Actual results
      may
      differ from these estimates if these assumptions prove to be incorrect or if
      conditions develop other than as assumed for the purposes of such estimates.
      The
      following is a discussion of the accounting policies used by us, which we
      believe are critical in that they require estimates and judgments by
      management.




***Revenue
      Recognition***




Significant
      management judgments and estimates must be made and used in connection with
      the
      recognition of revenue in any accounting period. Material differences in the
      amount of revenue in any given period may result if these judgments or estimates
      prove to be incorrect or if management’s estimates change on the basis of
      development of the business or market conditions. To date there have been no
      material differences arising from these judgments and estimates.





We
      earn
      revenues by providing a number of different services to our clients. These
      services include clinical trials management, biometric activities, consulting
      and laboratory services. We recognize biometric, consulting and laboratory
      revenues on a fee-for-service basis. Our laboratory service contracts are
      multiple element arrangements, with laboratory kits and laboratory testing
      representing the contractual elements. We determine the fair values for these
      elements, each of which can be sold separately, based on objective and reliable
      evidence of their respective fair values. Our laboratory contracts entitle
      us to
      receive non-refundable set-up fees and we allocate such fees as additional
      consideration to the contractual elements based on the proportionate fair values
      of the elements. We recognize revenues for the elements on the basis of the
      number of deliverable units completed in a period.





We
      recognize clinical trials revenue on the basis of the relationship between
      time
      incurred and the total estimated duration of the contract as this represents
      the
      most accurate pattern over which our contractual obligations are fulfilled.
      We
      invoice our customers upon achievement of specified contractual milestones.
      This
      mechanism, which allows us to receive payment from our customers throughout
      the
      duration of the contract, is not reflective of revenue earned. We recognize
      revenues over the period from the awarding of the customer’s contract to study
      completion and acceptance. This requires us to estimate total expected revenue,
      time inputs, contract costs, profitability and expected duration of the clinical
      trial. These estimates are reviewed periodically and, if any of these estimates
      change or actual results differ from expected results, then an adjustment is
      recorded in the period in which they become readily estimable.





If
      we do
      not accurately estimate the resources required or the scope of the work to
      be
      performed, or do not manage our projects properly within the planned cost or
      satisfy our obligations under the contracts, then future results may be
      significantly and negatively affected.





***Goodwill***




The
      principal judgments and uncertainties affecting our accounting for goodwill
      relate to carrying values. The carrying values of purchased goodwill are
      assessed annually, using discounted cash flows and net realizable values. The
      estimates and judgments used to assess carrying values include those relating
      to
      commercial risk, revenue and cost projections, our intention with respect to
      the
      acquired goodwill, the impact of competition, the impact of any reorganization
      or change of our business focus, the level of third party interest in our
      operations and market conditions.





If
      the
      implied fair value of reporting unit goodwill is lower then its carrying amount,
      goodwill is impaired and written down to its implied fair value. If we were
      to
      use different estimates or judgments, particularly with respect to expected
      revenue and cost projections or the impact of any reorganization or change
      of
      business focus, a material impairment charge to the statement of operations
      could arise. We believe that we have used reasonable estimates and judgments
      in
      assessing the carrying value of our goodwill. For
      further information, refer to Note 14 to the Consolidated Financial
      Statements.




26





**Inflation**





We
      believe
      that the effects of inflation generally do not have a material adverse impact
      on
      our operations or financial conditions.





**New
      Accounting Pronouncements**





In
      May
      2005, the FASB issued SFAS No. 154, Accounting Changes and Error Correction
      (SFAS No. 154). SFAS No.154 is a replacement of APB Opinion No. 20, Accounting
      Changes (APB Opinion No. 20), and SFAS No. 3, Reporting Accounting Changes
      in
      Interim Financial Statements. The statement applies to all voluntary changes
      in
      accounting principle, and changes the accounting for, and reporting of, a change
      in accounting principle. SFAS No. 154 requires retrospective application to
      prior period financial statements of a voluntary change in accounting principle
      unless it is impracticable to do so. APB Opinion No. 20 previously required
      that
      most voluntary changes in accounting principle be recognized by including in
      net
      income of the period of the change the cumulative effect of changing to the
      new
      accounting principle. SFAS No. 154 carries forward many provisions of APB
      Opinion No. 20 without change, including the provisions related to the reporting
      of a change in accounting estimate, and the correction of an error. SFAS No.
      154
      does not change the provisions of any existing accounting pronouncements,
      including those that are in a transition phase at the effective date of the
      statement. The Company adopted the provisions of SFAS No. 154 on January 1,
      2006, and the adoption of the new standard did not have a material impact on
      the
      Company’s consolidated financial position or results of operations.





In
      June
      2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
      in
      Income Taxes - an interpretation of SFAS 109. This interpretation clarifies
      the
      accounting for uncertainty in income taxes recognized in a company’s financial
      statements in accordance with FASB Statement No. 109, *Accounting
      for Income Taxes* .
      This
      interpretation prescribes a recognition threshold and measurement attribute
      for
      the financial statement recognition and measurement of the tax position taken
      in
      a tax return. It also provides guidance on de-recognition classification,
      interest and penalties, accounting in interim periods, disclosure and
      transition. Interpretation No. 48 is effective for fiscal years beginning after
      December 15, 2006. Earlier application is encouraged if the company has not
      yet
      issued financial statements, including interim financial statements, in the
      period Interpretation No. 48 is adopted. The Company does not expect the
      adoption of Interpretation No. 48 to have a material impact on the financial
      statements.





In
      September 2006, the SEC issued SAB No. 108, Considering the Effects of Prior
      Year Misstatements when Quantifying Misstatements in Current Year Financial
      Statements. SAB No. 108 provides guidance on how prior year financial statement
      misstatements should be considered when quantifying misstatements in current
      year financial statements for purposes of determining whether the current year’s
      financial statements are materially misstated. SAB No. 108 is effective for
      fiscal years ending after November 15, 2006, and as such, the Company adopted
      SAB No. 108 in the year ended December 31, 2006. The adoption of SAB No. 108
      did
      not have a material impact on the Company’s consolidated results of operations
      or financial position.





In
      March
      2005, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      No. 47. In accordance with FASB Interpretation 47 companies must recognize
      a
      liability for the fair value of a legal obligation to perform asset-retirement
      activities that are conditional on a future event if the amount can be
      reasonably estimated. The Interpretation provides guidance on whether the fair
      value is reasonably estimable. The premise underlying the Interpretation is
      a
      need for more uniform application of Statement 143 "Accounting for Asset
      Retirement Obligations". Companies must adopt the Interpretation no later than
      the end of the fiscal year ending after December 15, 2005. The
      adoption of FASB Interpretation No 47 has not had a material impact on our
      financial position or results of operations.





In
      December 2004, the FASB issued Statement No. 123R, "Share-Based Payment” - An
      Amendment of FASB Statements No. 123 and 95 (“SFAS No.123R”), which is effective
      for public companies in periods beginning after June 15, 2005. We implemented
      the standard on January 1, 2006. SFAS No. 123R addresses the accounting for
      transactions in which an enterprise receives goods and services in exchange
      for:
      (a) equity instruments of the enterprise; or (b) liabilities that are based
      on
      the fair value of the enterprise’s equity instruments or that may be settled by
      the issuance of such equity instruments. SFAS No. 123R eliminates the ability
      to
      account for share-based compensation transactions using APB 25, and generally
      requires instead that such transactions be accounted for using a fair-value
      based method. Equity classified awards are measured at grant date at fair value
      and are not subsequently re-measured. Liability classified awards are
      re-measured at fair value at each balance sheet date until the awards are
      settled. We adopted the Black-Scholes model to derive fair values.




27


In
        November 2004, the FASB issued statement No. 151, "Inventory Costs, an amendment
        of ARB No. 43, Chapter 4" (“SFAS No. 151”), which is effective for public
        companies prospectively for inventory costs incurred in periods beginning
        after
        June 15, 2005. This Statement amends the guidance in ARB No. 43, Chapter
        4
“Inventory Pricing”, to clarify that accounting for abnormal amounts of idle
        facility expense, freight, handling costs and wasted material (spoilage)
        should
        be recognized as a current period change and to require the allocation of
        fixed
        production overhead to the costs of conversion based on normal capacity of
        the
        production facilities. The adoption of SFAS No. 151 has not had a material
        impact on our financial position or results of operations.
 
 In
        December 2004, the FASB issued Statement No. 153, “Exchanges of Nonmonetary
        assets - an amendment of APB Opinion No. 29” (“SFAS No. 153”), which is
        effective for public companies in periods beginning after June 15, 2005.
        The
        guidance in APB opinion No. 29, Accounting for Nonmonetary Transactions,
        is
        based on the principle that exchanges of nonmonetary assets should be measured
        based on the fair value of the assets exchanged. The guidance in that Opinion,
        however, included certain exceptions to that principle. This statement amends
        Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
        productive assets and replaces it with a general exception for exchanges
        of
        nonmonetary assets that do not have commercial substance. A nonmonetary exchange
        has commercial substance if the future cash flows of the entity are expected
        to
        change significantly as a result of the exchange. The adoption of SFAS No.
        153
        has not had a material impact on our financial position or results of
        operations.




In
      November 2003 and March 2004, the Emerging Issues Task Force (EITF) reached
      partial consensus on EITF 03-1, “The Meaning of Other-Than-Temporary Impairment
      and its Application to Certain Investments,” (“EITF 03-1”). EITF 03-1 addresses
      the meaning of other then temporary impairment and its application to
      investments classified as either available-for-sale or held-to-maturity under
      SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities” and
      investments accounted for under the cost method. The EITF agreed on certain
      quantitative and qualitative disclosures about unrealized losses pertaining
      to
      securities classified as available-for-sale or held-to-maturity. In addition,
      EITF 03-1 requires certain disclosures about cost method investments. The
      recognition and measurement provisions of EITF 03-1 have been deferred until
      additional guidance is issued.




28


**Item
      6.** ***Directors, Senior Management and Employees.***





**Directors
      and Senior Management**





The
      following table and accompanying biographies set forth certain information
      concerning each of ICON plc’s directors, officers and other key employees as of
      December 31, 2006.


**Name**
              **Age**
              **Position**Dr.
                  John Climax (1)(5)
              54
              Executive
                  Chairman of the Board, DirectorPeter
                  Gray (1)(5)
              52
              Chief
                  Executive Officer, DirectorCiaran
                  Murray (1)(5)
              44
              Chief
                  Financial OfficerSean
                  Leech (1)
              36
              Executive
                  Vice President Commercial and Organization DevelopmentDr.
                  Ronan Lambe (5)
              67
              DirectorThomas
                  Lynch (2)(3)(4)
              50
              DirectorEdward
                  Roberts (2)(3)(4)
              72
              DirectorShuji
                  Higuchi
              66
              DirectorDr.
                  Bruce Given (2)(3)(4)
              52
              DirectorWilliam
                  Taaffe
              58
              President
                  Corporate DevelopmentDr.
                  John Hubbard
              50
              President
                  and Chief Operating Officer, ICON Clinical Research -
                  U.S.Dr.
                  Peter Sowood
              53
              President
                  of ICON Clinical Research - EuropeRobert
                  Scott-Edwards
              53
              President
                  of ICON LaboratoriesDr.
                  Dan Weng
              44
              President
                  of ICON Clinical Research - Rest of WorldDr.
                  Thomas Frey
              54
              President
                  Strategic Drug DevelopmentJosephine
                  Coyle
              49
              Vice
                  President for Corporate Quality AssuranceMalcolm
                  Burgess
              55
              Chief
                  Operating Officer, U.S. OperationsAlan
                  Morgan
              42
              Vice
                  President, Process
                  Development


(1)
              Executive
                  Officer of the Company.(2)
              Member
                  of Compensation Committee.(3)
              Member
                  of Audit Committee.(4)
              Member
                  of Nomination Committee.(5)
              Member
                  of Executive Committee.


*Dr.
      John Climax* ,
      one of
      the Company’s co-founders, has served as a director of the Company and its
      subsidiaries since June 1990. Dr. Climax served as Chief Executive Officer
      from
      June 1990 to October 2002 and was appointed Executive Chairman of the Board
      in
      November 2002. Dr. Climax has over 21 years of experience in the contract
      research industry in both Europe and the United States. Dr. Climax received
      his
      primary degree in pharmacy in 1977 from the University of Singapore, his masters
      in applied pharmacology in 1979 from the University of Wales and his PhD. in
      pharmacology from the National University of Ireland in 1982.





*Peter
      Gray* has
      served as the Chief Executive Officer of ICON and its subsidiaries since
      November 2002. He served as the Group Chief Operating Officer of ICON and its
      subsidiaries from June 2001, and was Chief Financial Officer from June 1997
      to
      June 2001. He has been a director of the Company since June 1997. Mr. Gray
      has
      over 16 years experience in the pharmaceutical services industry and has also
      worked in the engineering and food sectors. Mr. Gray received a degree in Law
      from Trinity College Dublin in 1977 and became a chartered accountant in
      1980.





*Ciaran
      Murray* was
      appointed as Chief Financial Officer of ICON and its subsidiaries in October
      2005. Mr. Murray developed his experience in senior financial positions in
      the
      technology and food sectors, in such companies as Kraft foods and Novell. Prior
      to joining ICON, Mr. Murray served as the CFO of Codec Systems from 1999 to
      2005, a technology company headquartered in Ireland. Mr. Murray is a business
      graduate of University College Dublin. He trained as a chartered accountant
      with
      PricewaterhouseCoopers and is a Fellow of the Institute of Chartered Accountants
      in Ireland.





29




*Sean
      Leech* has
      served as Executive Vice President Commercial and Organization Development
      since
      October 2005. In this role Mr. Leech is responsible for providing support and
      assistance to the divisions of the Company as they grow and develop. Prior
      to
      this Mr. Leech served as the Chief Financial Officer of ICON and its
      subsidiaries since June 2001 and previously as Group Vice President of Finance
      from June 1999. Mr. Leech was Group Financial Controller of Jones Group plc,
      a
      shipping, manufacturing and fuel distribution company based in Ireland, from
      1997 to 1999. Mr. Leech is an associate member of the Chartered Institute of
      Management Accountants.





*Dr.
      Ronan Lambe* ,
      one of
      the Company’s co-founders, served as Chairman of the Board of the Company from
      June 1990 to November 2002. Dr. Lambe has over 24 years of experience in the
      contract research industry in Europe. Dr. Lambe attended the National University
      of Ireland where he received his bachelor of science degree in chemistry in
      1959, his masters in biochemistry in 1962 and his PhD. in pharmacology in 1976.
      Dr. Lambe continues to serve as a director of the Company.





*Thomas
      Lynch* has
      served as an outside director of the Company since January 1996. Mr. Lynch
      served as a director of Nanogen Inc., from 1996 to 2000. Mr.
      Lynch
      is currently the Chairman of Amarin Corporation plc, adirector
      of Royal Opera House (Covent Garden) and a non-executivedirector
      of IDA Ireland. In the period from May 1993 to July 2004, Mr. Lynch held
      several senior positions in Elan Corporation, plc, a specialty pharmaceutical
      company, including Executive Vice President, Chief Financial Officer, Vice
      Chairman and Senior Advisor to the Chairman of the Board of Elan Corporation
      plc. Mr. Lynch was a partner at KPMG from May 1990 to May 1993.





*Edward
      Roberts* has
      served as an outside director of the Company since February 1998. Mr. Roberts
      was Managing Director of the Pharmaceutical Division of Merck KGaA from 1990
      to
      1998. Prior to that, he held a number of senior management positions with Eli
      Lilly International in Europe and the United States. Mr. Roberts has over 40
      years of experience in the pharmaceutical industry. He has been a partner in
      Global Health Care Partners since June 1998, and also serves as Chairman of
      Biopartners and Chairman of the Advisory Board of Merz & Co.
      GmbH.





*Mr.
      Shuji Higuchi* has
      served as an outside director of the Company since September 2004. Dr. Higuchi
      has over 40 years of experience in the pharmaceutical industry. Dr. Higuchi
      is
      currently Director of R&D and Corporate Integration, Kyoto University
      Hospital, Japan. Prior to this Dr. Higuchi has served as President of Takeda
      Pharma GmbH from 1983 to 1992, President of Takeda Europe R&D Centre,
      Frankfurt / London from 1992 to 2002, and served as a Corporate Officer of
      Takeda Chemical Industries Limited, Japan from 1999 to 2002.





*Dr.
      Bruce Given* has
      served
      as an outside director of the Company since September 2004. Since March 2002,
      he
      has served as President and Chief Executive Officer of Encysive Pharmaceuticals
      Inc. Previously, Dr. Given has held various positions in Johnson & Johnson
      group companies. Dr. Given obtained his doctorate from the University of Chicago
      in 1980.





*William
      Taaffe* has
      served as President Corporate Development since April 2005. Prior to this Mr.
      Taaffe served as President and Chief Executive Officer of ICON Clinical Research
      - U.S. since 1993. Mr. Taaffe has over 30 years of experience in the contract
      research and pharmaceutical industries in Ireland, Canada and the United States.
      Mr. Taaffe received his bachelor of science degree in 1970 from University
      College Dublin.





*Dr.
      John W. Hubbard* has
      served as President of ICON Clinical Research - U.S. since April 2005 and
      currently also serves as Chief Operating Officer, U.S Operations, a position
      he
      has held since October 1999. Dr. Hubbard has more than 20 years of experience
      in
      pharmaceutical research and development. He has held positions of increasing
      responsibility at Revlon Health Care Group, Hoechst Marion Roussel
      Pharmaceuticals, Parexel International Corporation, and from July 1997 until
      joining ICON, he held the position of Senior Vice President of Clinical Research
      Operations at Clinical Studies, an industry leading site management organization
      and division of Innovative Clinical Solutions, Ltd.. Dr. Hubbard received a
      B.S.
      in Psychology/Biology from the University of Santa Clara, a Ph.D. in
      Cardiovascular Physiology from the University of Tennessee, and was a NIH
      Postdoctoral Fellow in Cardiovascular Pharmacology at the University of Texas
      Health Sciences Center.





30





*Dr.
      Peter Sowood* ,
      has
      served the Company as President of ICON Clinical Research Europe since November
      2003. Prior to joining the Company, Dr. Sowood held various positions at Covance
      Clinical and Periapproval Services Ltd., including the position of
      Vice-President Clinical Research. Dr. Sowood was educated at the University
      of
      Cambridge in Medical Sciences and followed on to Oxford University where he
      took
      Medical Degrees before joining the RAF as a Medical Officer. Dr. Sowood obtained
      his PhD in 1988 and his MBA in 1993.





*Robert
      Scott-Edwards,* has
      served
      the Company as President of ICON Laboratories since August 2004, having
      previously held the position of Vice President, Sales & Marketing for ICON
      Laboratories since June 2000. Prior to joining ICON, Mr. Scott-Edwards held
      various senior positions at Bristol-Myers Squibb from 1979 through 1997. Mr.
      Scott-Edwards began his career in the pharmaceutical industry in 1971 at
      Wyeth.





*Dr.
      Dan Weng* ,
      has
      served as President of ICON Clinical Research Rest of World since April 2004,
      having previously held the position of Senior Vice President of ICON Clinical
      Research Rest of World since joining the Company in January 2003. Dr. Weng
      previously worked in the Asia Pacific region for both Pharmanet and Quintiles.
      Prior to joining the CRO industry in 1997, Dr. Weng worked in the US at the
      Harvard Medical School and at UCSF. Educated as a physician in China, Dr. Weng
      subsequently obtained an MBA and a PhD in the UK.





*Dr.
      Thomas Frey* has
      served as Chief Operating Officer for ICON Clinical Research Europe since June
      2001 and previously served as Vice President of ICON Clinical Operations Europe
      from January 2000 to May 2001. Dr. Frey has 18 years of experience in
      pharmaceutical research and development. He started his career in 1987 with
      Hoechst Pharmaceuticals. From 1995 to the end of 1999 he was Senior Director
      of
      Clinical Development Europe at Hoechst Marion Roussel. Dr. Frey received his
      medical degree in 1980 from the University of Heidelberg.





*Josephine
      Coyle* has
      served as Vice President for Corporate Quality Assurance since April 2000.
      Ms.
      Coyle has held positions of increasing responsibility in ICON since August
      1992
      and previously held the position of Director of Quality Assurance.





*Malcolm
      Burgess* has
      served
      as Chief Operating Officer, US Operations since April 2006, and previously
      served as Senior Vice President, Biometrics, and Data Management &
Interactive Technologies since December 2002. He has nearly thirty years
      experience within the Pharmaceutical sector having held senior positions within
      Novartis, Hoechst Marion Roussel and SmithKline Beecham. Dr Burgess holds a
      BSC
      in Chemistry from University College, London and a PhD. in Biochemistry and
      Physiology from Bath University, UK.





*Alan
      Morgan* has
      served as the Vice President of Process Development for ICON plc since August
      2006. He has over 17 years experience in the Pharmaceutical services industry,
      having joined ICON from MDS Pharma Services Inc where he held the position
      of
      Global General Manager of the Phase II-IV business from August 2005. He joined
      MDS in September 2002 as General Manager of their European, Latin American
      and
      Asian Clinical Development operations. Previous to MDS Pharma Services Inc
      he
      held a number of senior positions in Covance Clinical and Periapproval Services,
      Ltd. including General Manager of their Phase II-IV business in Europe, Asia
      and
      Latin America.





*Board
      of Directors*


ICON's
      Articles of Association provide that, unless otherwise determined by ICON at
      a
      general meeting, the number of directors shall not be more than 15 nor less
      than
      3. At each annual general meeting, one third of the directors who are subject
      to
      retirement by rotation, rounded down to the next whole number if it is a
      fractional number, shall retire from office . The
      directors to retire shall be those who have been longest in office, but as
      between persons who became or were last re-appointed on the same day, those
      to
      retire shall be determined, unless otherwise agreed, by lot. Accordingly, at
      the
      annual general meeting of ICON to be held in 2007, it is anticipated that two
      directors will retire by rotation and offer themselves for re-election, such
      directors to be determined, unless otherwise agreed, by lot. Any additional
      director appointed by us shall hold office until the next annual general meeting
      and will be subject to re-election at that meeting.





*Board
      committees*


We
      established a compensation committee and an audit committee in 1998 and a
      nomination committee in 2004, and an executive committee in 2005, all of which
      are committees of the Board of Directors and are composed mainly of
      non-executive directors of ICON plc.





31




*Compensation
      Committee*


The
      Compensation Committee comprises Thomas Lynch (Chairman), Edward Roberts, and
      Dr. Bruce Given. It deals with all aspects of senior executive remuneration.
      The
      committee aims to ensure that remuneration packages are competitive so that
      individuals are appropriately rewarded relative to their responsibility,
      experience and value to ICON.





Annual
      bonuses for executive directors are determined by the committee based on the
      achievement of ICON’s objectives.





*Audit
      Committee*


The
      Audit
      Committee comprises Edward Roberts (Chairman), Thomas Lynch and Dr. Bruce Given.
      It reviews the annual report, the quarterly earnings releases, the effectiveness
      of the system of internal controls, compliance with our ethical code and legal
      requirements, and approves the appointment and removal of the external auditors.
      It also addresses all issues raised and recommendations made by the external
      auditors


and
      pre-approves all auditor services.





*Nomination
      Committee*


The
      Nomination Committee comprises Thomas Lynch, Edward Roberts and Dr. Bruce Given.
      On an ongoing basis it reviews the membership of the board of directors and
      board committees. It identifies and recommends individuals to fill any vacancy
      that is anticipated or arises on the board of directors. It reviews and
      recommends the corporate governance principles of the Company.





*Executive
      Committee*


The
      Executive Committee comprises Dr. John Climax, Peter Gray, Dr. Ronan Lambe
      and
      Ciaran Murray. Established in March 2005, this Committee is responsible for
      the
      direction of the business and the affairs of the Company in intervals between
      meetings of the Board and exercises business judgment to act in what the
      Committee members reasonably believe to be in the best interest of the Company
      and its shareholders. All powers exercised by the Executive Committee are
      ratified at board meetings. This Committee convenes as often as it determines
      to
      be necessary or appropriate.





The
      aggregate compensation paid by ICON to all persons who served in the capacity
      of
      director or executive officer in the 2006 (9 persons) was approximately $3.2
      million, but does not include expenses reimbursed to directors and executive
      officers (including business travel, professional and business association
      dues
      and expenses). As of December 31, 2006, options granted to directors and
      executive officers of ICON to purchase an aggregate of 274,800 of our ordinary
      shares were outstanding. The options are exercisable at prices between $9.00
      and
      $22.00 and expire between February 14, 2008 and February 3, 2014.





In
      addition, our officers are eligible to participate in ICON’s Incentive Share
      Option Scheme. See Note 10 to the Consolidated Financial Statements.





**Employees**





We
      employed 4,290, 3,036, 2,713 and 2,432 people for the year ended December 31,
      2006, the seven month period ended December 31, 2005, and the years ended May
      31, 2005 and May 31, 2004 respectively. Our employees are not unionized and
      we
      believe that our relations with our employees are good.





32




**Share
      Ownership**





The
      following table sets forth certain information regarding beneficial ownership
      of
      our ordinary shares (including ADSs) as of February 12, 2007 by all of our
      current directors and executive officers. Unless otherwise indicated below,
      to
      our knowledge, all persons listed below have sole voting and investment power
      with respect to their ordinary shares, except to the extent authority is shared
      by spouses under applicable law.


**Name
                  of Owner or**
                **Identity
                  of Group**
              
              **No.
                  of Shares**
                **(1)**
              
              **%
                  of total**
                **Shares**
              
              **No.
                  of Options**
                **(2)**
              
              **Exercise**
                **price**
              
              **Expiration
                  Date**Dr.
                  John Climax
              
              
              1,953,784
              
              
              6.9
              %
              
              10,000
              
              $
              14.50
              
              
              January
                  11, 201010,000
              
              $
              14.00
              
              
              January
                  21, 201110,000
              
              $
              17.75
              
              
              February
                  4, 20126,000
              
              $
              22.00
              
              
              February
                  3, 2014Dr.
                  Ronan Lambe
              
              
              888,940
              
              
              3.1
              %
              
              6,000
              
              $
              14.50
              
              
              January
                  11, 20103,000
              
              $
              14.00
              
              
              January
                  21, 20113,000
              
              $
              17.75
              
              
              February
                  4, 20122,000
              
              $
              17.20
              
              
              February
                  24, 20132,000
              
              $
              22.00
              
              
              February
                  3, 2014Mr.
                  Peter Gray
              
              
              316,440
              
              
              1.1
              %
              
              10,000
              
              $
              14.50
              
              
              January
                  11, 201010,000
              
              $
              14.00
              
              
              January
                  21, 201110,000
              
              $
              17.75
              
              
              February
                  4, 20126,000
              
              $
              22.00
              
              
              February
                  3, 2014Mr.
                  Ciaran Murray
              
              
              -
              
              
              -
              
              
              30,000
              
              $
              20.84
              
              
              January
                  17, 20149,000
              
              $
              22.00
              
              
              February
                  3, 2014Mr.
                  Sean Leech
              
              
              -
              
              
              -
              
              
              3,200
              
              $
              9.00
              
              
              February
                  14, 20081,600
              
              $
              10.63
              
              
              January
                  29, 20096,000
              
              $
              14.50
              
              
              January
                  11, 201016,000
              
              $
              14.00
              
              
              January
                  21, 201110,000
              
              $
              17.75
              
              
              February
                  4, 201260,000
              
              $
              17.20
              
              
              February
                  7, 20138,000
              
              $
              17.20
              
              
              February
                  24, 20136,000
              
              $
              22.00
              
              
              February
                  3, 2014Mr.
                  Thomas Lynch
              
              
              2
              
              
              -
              
              
              3,000
              
              $
              14.50
              
              
              January
                  11, 20103,000
              
              $
              14.00
              
              
              January
                  21, 20113,000
              
              $
              17.75
              
              
              February
                  4, 20122,000
              
              $
              17.20
              
              
              February
                  24, 20132,000
              
              $
              22.00
              
              
              February
                  3, 2014Mr.
                  Edward Roberts
              
              
              8,002
              
              
              -
              
              
              3,000
              
              $
              14.50
              
              
              January
                  11, 20103,000
              
              $
              14.00
              
              
              January
                  21, 20113,000
              
              $
              17.75
              
              
              February
                  4, 20122,000
              
              $
              17.20
              
              
              February
                  24, 20132,000
              
              $
              22.00
              
              
              February
                  3, 2014Mr.
                  Shugi Higuchi
              
              
              -
              
              
              -
              
              
              3,000
              
              $
              17.75
              
              
              February
                  4, 20122,000
              
              $
              17.20
              
              
              February
                  24, 20132,000
              
              $
              22.00
              
              
              February
                  3, 2014Dr.
                  Bruce Given
              
              
              -
              
              
              -
              
              
              2,000
              
              $
              17.20
              
              
              February
                  24, 20132,000
              
              $
              22.00
              
              
              February
                  3, 2014


(1)
            As
                used in this table, each person has the sole or shared power to vote
                or
                direct the voting of a security, or the sole or shared investment
                power
                with respect to a security (*i.e.*the
                power to dispose, or direct the disposition, of a security). A person
                is
                deemed as of any date to have "beneficial ownership" of any security
                if
                that such person has the right to acquire such security within 60
                days
                after such date.(2)
            The
                title of securities covered by all of the above options are non-revenue
                qualified.




33


**Employee
      Share Option Schemes**





On
      January
      17, 2003, we adopted the Share Option Plan 2003, or the 2003 Plan, pursuant
      to
      which the Compensation Committee of the Board may grant options to employees
      of
      the Company or its subsidiaries for the purchase of ordinary shares. Each option
      will be either an incentive stock option, or ISO, described in Section 422
      of
      the Internal Revenue Code or an employee stock option, or NSO. Each grant of
      an
      option under the 2003 Plan will be evidenced by a Stock Option Agreement between
      the optionee and the Company. The exercise price will be specified in each
      Stock
      Option Agreement, however option prices for an ISO will not be less than 100%
      of
      the fair market value of an ordinary share on the date the option is
      granted.




An
      aggregate of 3 million ordinary shares have been reserved under the 2003 Plan;
      and, in no event will the number of ordinary shares that may be issued pursuant
      to options awarded under the 2003 Plan exceed 10% of the outstanding shares,
      as
      defined in the 2003 Plan, at the time of the grant. Further, the maximum number
      of ordinary shares with respect to which options may be granted under the 2003
      Plan during any calendar year to any employee shall be 200,000 ordinary
      shares.




No
      options
      can be granted after January 17, 2013.




**Executive
      Officers and Directors Remuneration**





**Compensation
      Discussion & Analysis**





*Overview*


The
      Compensation Committee (the Committee) seeks to achieve the following goals
      with
      the Company’s executive compensation programs: to attract, motivate and retain
      key executives and to reward executives for value creation. The Committee seeks
      to foster a performance-oriented environment by tying a significant portion
      of
      each executive’s cash and equity compensation to the achievement of performance
      targets that are important to the Company and its shareholders.





The
      Company’s executive compensation program has three elements: base salary, a
      bonus plan and equity incentives in the form of stock option awards granted
      under the Share Option Plan 2003 (the “2003 Plan”). All elements of executive
      compensation are determined by the Committee based on the achievement of ICON’s
      objectives.





In
      the
      year ended December 31, 2006 the officers earned a bonus and the Company awarded
      executive officers equity incentives in the form of stock options.





*Base
      Salary and Bonus Incentive*


Total
      cash
      compensation is divided into a base salary portion and a bonus incentive
      portion. Base salary is established based on peer group and is adjusted based
      on
      individual performance and experience. The Committee targets total cash
      compensation at the peer group median of comparable Irish companies and peer
      CRO
      companies, adjusted upward or downward based on individual performance and
      experience. The Committee believes that the higher the executive’s level of
      responsibility within the Company, the greater the percentage of the executive’s
      compensation that should be tied to the Company’s performance. Target bonus
      incentive ranges from approximately 60% to 80% of base salary of executive
      officers.





For
      fiscal
      2006, based upon the Company’s income performance relative to the targets set by
      the Committee, and Company business unit, and individual objectives approved
      by
      the Committee, the Company’s named executive officers, excluding the Chief
      Executive Officer, earned an aggregate bonus of $722,079.





*Equity
      Incentive*


The
      Company’s executive officers are eligible to receive stock options granted under
      the Company’s equity incentive plans. If executive officers receive equity
      incentive grants, they are awarded annually at the first regularly scheduled
      meeting of the Committee in the fiscal year. Newly hired executive officers
      may
      receive sign-on grants, if approved by the Committee. In addition, the Committee
      may, in its discretion, issue additional equity incentive awards to executive
      officers if the Committee determines the awards are necessary for
      retention.





34




The
      Company granted equity incentive awards to executive officers in its fiscal
      year
      ended December 31, 2006. On February 3, 2006, the Company granted
      performance-based stock options to executive officers. The purpose of these
      grants is to align management and shareholder interests as measured by revenue
      growth and the stock markets’ assessment of the Company’s performance. The
      number of equity awards granted to each participant is determined primarily
      based on an award range determined by the Committee at the start of each year.
      The extent of existing options is not generally considered in granting equity
      awards, except that the Company sometimes grants an initial round of equity
      awards to newly recruited executives to provide them with some stake in the
      Company’s success from the commencement of their employment.





*Chief
      Executive Officer Compensation*


The
      Committee uses the same factors in determining the compensation of the Chief
      Executive Officer as it does for the other participants. The Chief Executive
      Officer’s base salary for the year ended December 31, 2006 was $435,200. The
      Chief Executive Officer received a cash incentive payment for fiscal 2006
      totaling $284,797.





**Executive
      Compensation Section**





*Summary
      compensation table*


Name
                  & principal position
              
              Year
              
              Salary
                  ($)
              
              Bonus
                  ($)
              
              Option
                awards
                ($)
              
              Company
                  contribution
                to
                pension
                ($)
              
              All
                  other compensation
                ($)
              
              Total
                  ($)Peter
                  Gray, Chief Executive Officer
              
              
              2006
              
              
              435,200
              
              
              305,509
              
              
              54,283
              
              
              44,274
              
              
              47,267
              
              
              886,533Ciaran
                  Murray, Chief Financial Officer
              
              
              2006
              
              
              246,190
              
              
              148,871
              
              
              106,198
              
              
              27,670
              
              
              19,934
              
              
              548,863John
                  Climax, Executive Chairman
              
              
              2006
              
              
              611,666
              
              
              433,668
              
              
              54,283
              
              
              18,674
              
              
              62,340
              
              
              1,180,631Sean
                  Leech, Executive VP Commercial & Organization
                Development
              
              
              2006
              
              
              282,652
              
              
              139,540
              
              
              229,391
              
              
              10,686
              
              
              27,461
              
              
              689,730Total
              
              
              
              
              
              1,575,708
              
              
              1,027,588
              
              
              444,155
              
              
              101,304
              
              
              157,002
              
              
              3,305,757


There
      were
      two employees who had total compensation higher than the lowest paid Named
      Executive Officer. The aggregate remuneration received by these two executives
      totaled $1,332,973 in the year ended December 31, 2006.




35


*Director
      compensation table*


Name
              
              Year
              
              Salary
                  ($)
              
              Option
                awards
                ($)
              
              Company
                contribution
                to
                pension
                ($)
              
              All
                  other
                compensation
                ($)
              
              Total
                  ($)John
                  Climax
              
              
              2006
              
              
              611,666
              
              
              54,283
              
              
              18,674
              
              
              496,008
              
              
              1,180,631Peter
                  Gray
              
              
              2006
              
              
              435,200
              
              
              54,283
              
              
              44,274
              
              
              352,776
              
              
              886,533Ronan
                  Lambe
              
              
              2006
              
              
              183,500
              
              
              23,839
              
              
              31,124
              
              
              57,551
              
              
              296,014Thomas
                  Lynch
              
              
              2006
              
              
              35,000
              
              
              21,645
              
              
              -
              
              
              -
              
              
              56,645Edward
                  Roberts
              
              
              2006
              
              
              50,000
              
              
              19,665
              
              
              -
              
              
              -
              
              
              69,665Shuji
                  Higuchi
              
              
              2006
              
              
              30,000
              
              
              11,585
              
              
              -
              
              
              -
              
              
              41,585Bruce
                  Given
              
              
              2006
              
              
              35,000
              
              
              6,620
              
              
              -
              
              
              -
              
              
              41,620Total
              
              
              
              
              
              1,380,366
              
              
              191,920
              
              
              94,072
              
              
              906,335
              
              
              2,572,693


*Grant
      of Plan-Based Awards - Fiscal 2006*


With
      the
      exception of the bonus element of compensation mentioned above, there were
      no
      plan based awards for any of the named executive officers in fiscal
      2006.





**Outstanding
      Equity Interests Received as Compensation**





*Outstanding
      Equity Awards Table*


The
      following table sets forth information concerning stock options held by the
      Named Executive Officers at December 31, 2006:


Name
                  
                  
                  Option
                      awardsNo
                      of securities underlying unexercised options -exercisable
                  
                  
                  No
                      of securities underlying unexercised options -
                      unexercisable
                  
                  
                  Equity
                      incentive plan awards: No of securities underlying unexercised
                      unearned
                      options
                  
                  
                  Option
                    exercise
                    price
                      ($)
                  
                  
                  Option
                    expiration
                    datePeter
                      Gray
                  
                  
                  10,000
                  
                  
                  -
                  
                  
                  -
                  
                  $
                  14.50
                  
                  
                  Jan
                      11, 20106,000
                  
                  
                  4,000
                  
                  
                  -
                  
                  $
                  14.00
                  
                  
                  Jan
                      21, 20114,000
                  
                  
                  6,000
                  
                  
                  -
                  
                  $
                  17.75
                  
                  
                  Feb
                      4, 2012-
                  
                  
                  6,000
                  
                  
                  -
                  
                  $
                  22.00
                  
                  
                  Feb
                      3, 2014Ciaran
                        Murray
                  
                  
                  -
                  
                  
                  30,000
                  
                  
                  -
                  
                  $
                  20.84
                  
                  
                  Jan
                      17, 2014-
                  
                  
                  9,000
                  
                  
                  -
                  
                  $
                  22.00
                  
                  
                  Feb
                      3, 2014John
                      Climax
                  
                  
                  10,000
                  
                  
                  -
                  
                  
                  -
                  
                  $
                  14.50
                  
                  
                  Jan
                      11, 20106,000
                  
                  
                  4,000
                  
                  
                  -
                  
                  $
                  14.00
                  
                  
                  Jan
                      21, 20114,000
                  
                  
                  6,000
                  
                  
                  -
                  
                  $
                  17.75
                  
                  
                  Feb
                      4, 2012-
                  
                  
                  6,000
                  
                  
                  -
                  
                  $
                  22.00
                  
                  
                  Feb
                      3, 2014Sean
                      Leech
                  
                  
                  3,200
                  
                  
                  -
                  
                  
                  -
                  
                  $
                  9.00
                  
                  
                  Feb
                      14, 20081,600
                  
                  
                  -
                  
                  
                  -
                  
                  $
                  10.63
                  
                  
                  Jan
                      29, 20096,000
                  
                  
                  -
                  
                  
                  -
                  
                  $
                  14.50
                  
                  
                  Jan
                      11, 20108,000
                  
                  
                  8,000
                  
                  
                  -
                  
                  $
                  14.00
                  
                  
                  Jan
                      21, 20114,000
                  
                  
                  6,000
                  
                  
                  -
                  
                  $
                  17.75
                  
                  
                  Feb
                      4, 2012-
                  
                  
                  60,000
                  
                  
                  -
                  
                  $
                  17.20
                  
                  
                  Feb
                      7, 20131,600
                  
                  
                  6,400
                  
                  
                  -
                  
                  $
                  17.20
                  
                  
                  Feb
                      24, 2013-
                  
                  
                  6,000
                  
                  
                  -
                  
                  $
                  22.00
                  
                  
                  Feb
                      3, 2014


All
      information in this table relates to nonqualified stock options. The Company
      has
      not granted any stock appreciation rights ("SARs") in fiscal year 2006.
      Substantially all options become exercisable in five equal installments each
      year beginning on the first anniversary of the grant date.





36





*Options
      Exercised Table*


There
      were
      no options exercised during fiscal 2006 by any of the Named Executive
      Officers.





**Retirement
      Plans & Other Post-Employment Payments & Benefits**





*Pension
      Plan*


All
      named
      executive officers are eligible to participate in a defined contribution plan
      (the "Plan"). The Company matches each participant's contributions up to a
      percentage of their annual compensation. Contributions to this plan are
      recorded, as expense in the Consolidated Statement of Operations. Total company
      contributions for the named executive officers for the year ended December
      31,
      2006 was $101,304.





The
      Company's United States operations maintain a retirement plan (the "U.S. Plan")
      that qualifies as a deferred salary arrangement under Section 401(k) of the
      Internal Revenue Code. In addition one of the Company’s subsidiaries which was
      acquired during the 2003 fiscal year, Medeval Group Limited, operates a defined
      benefit pension plan in the United Kingdom for its employees. None of the named
      executive officers are participants in the U.S. Plan or the defined benefit
      pension plan.





Information
      regarding the Company’s retirement plans can be found in Note 9 to the
      Consolidate Financial Statements “Employee Benefits”.





*New
      Non-qualified Defined Contributions and Deferred Compensation
      Plans*





None
      of
      the Named Executive Officers are involved in any non-qualified defined
      contribution plan or receives any nonqualified deferred
      compensation.





**Disclosure
      of compensation agreements**





*Employment
      Contracts, Termination of Employment and Change in Control Arrangements*


The
      Company does not have any Termination or Change of Control Agreements with
      its
      named executive officers.





*Directors’
      and Executive Officers’ service agreements and letters of
      engagement*





*Mr.
      Peter Gray*


Mr.
      Peter
      Gray has served as the Chief Executive Officer since November 2002. He served
      as
      the Chief Operating Officer of the Company from June 2001 to November 2002
      and
      as an Executive Director of the Company since June 1997. The service agreement
      with Mr. Gray is terminable on 6 months notice by either party. He is entitled
      to receive a bonus to be agreed by the Committee. He is also entitled to receive
      a pension contribution, company car and medical insurance cover for himself
      and
      his dependants. He has previously been granted 36,000 ordinary share options
      at
      exercise prices ranging from U.S.$14.00 to U.S.$22.00 per share. His service
      agreement requires him to devote his full time and attention to his duties
      for
      the Company. The agreement includes certain post termination clauses including
      non-disclosure, non-competition and non-solicitation provisions.





*Mr.
      Ciaran Murray*


Mr.
      Ciaran
      Murray has served as the Chief Financial Officer since October 2005. The service
      agreement with Mr. Murray is terminable on 6 months notice by either party.
      He
      is entitled to receive a bonus to be agreed by the Committee. He is also
      entitled to receive a pension contribution, a company car and medical insurance
      cover for himself and his dependants. He has previously been granted 39,000
      ordinary share options at exercise prices ranging from U.S.$20.84 to U.S.$22.00
      per share. His service agreement requires him to devote his full time and
      attention to his duties for the Company. The agreement includes certain post
      termination clauses including non-disclosure, non-competition and
      non-solicitation provisions.





*Dr.
      John Climax*


Dr.
      John
      Climax, one of the Company’s co-founders, has served as a Director since June
      1990, and Chief Executive Officer from June 1990 to October 2002. He was
      appointed Chairman of the Board in November 2002. The service agreement with
      Dr.
      Climax is terminable on 6 months notice by either party. He is entitled to
      receive a bonus to be agreed by the Committee. He is entitled to receive a
      pension contribution, company car and medical insurance cover for himself and
      his dependants. He has previously been granted 36,000 ordinary share options
      at
      exercise prices ranging from U.S.$14.00 to U.S.$22.00 per share. His service
      agreement requires him to devote his full time and attention to his duties
      for
      the Company. The agreement includes certain post termination clauses including
      non-disclosure, non-competition and non-solicitation provisions.





37




*Mr.
      Sean Leech*


Mr.
      Sean
      Leech has served as Executive Vice President Commercial and Organization
      Development since October 2005. Prior to this Mr. Leech served as the Chief
      Financial Officer of ICON and its subsidiaries since June 2001 and previously
      as
      Group Vice President of Finance from June 1999. The Company has a service
      agreement with Mr. Leech which is terminable on 6 months notice by either party.
      He is entitled to receive a bonus to be agreed by the Committee. He is also
      entitled to receive a pension contribution, a company car and medical insurance
      cover for himself and his dependants. He has previously been granted 110,800
      ordinary share options at exercise prices ranging from U.S.$9.00 to U.S.$22.00
      per share. His service agreement requires him to devote his full time and
      attention to his duties for the Company. The agreement includes certain post
      termination clauses including non-disclosure, non-competition and
      non-solicitation provisions.





**Item
      7.** ***Major Shareholders and Related Party Transactions.***


(a)
              ICON
                  plc, is not directly or indirectly, owned or controlled by another
                  corporation or by any government.(b)
              The
                  following table sets forth certain information regarding beneficial
                  ownership of ICON's ordinary shares (including ADSs) as of February
                  12,
                  2007 (i) by each person that beneficially owns more than 5% of
                  the
                  outstanding ordinary shares, based upon publicly available information;
                  and (ii) by all of our current directors and executive officers
                  as a
                  group. Unless otherwise indicated below, to our knowledge, all
                  persons
                  listed below have sole voting and investment power with respect
                  to their
                  ordinary shares, except to the extent authority is shared by spouses
                  under
                  applicable law.


**Name
                  of Owner or Identity of Group**
              
              **No.
                  of Shares (1)**
              
              **Percent
                  of Class**Fidelity
                  Group Companies (3)
              
              
              3,498,762
              
              
              12.3
              %Dr.
                  John Climax (2)
              
              
              1,989,784
              
              
              6.9
              %Wasatch
                  Group Companies (3)
              
              
              1,621,109
              
              
              5.7
              %All
                  directors and officers as a group (4)
              
              
              3,866,378
              
              
              13.6
              %


(1)
            As
                used in this table, each person has the sole or shared power to vote
                or
                direct the voting of a security, or the sole or shared investment
                power
                with respect to a security (i.e., the power to dispose, or direct
                the
                disposition, of a security). A person is deemed as of any date to
                have
                "beneficial ownership" of any security if that such person has the
                right
                to acquire such security within 60 days after such date. Note that
                all
                figures
                have been amended to reflect the Bonus Issue which took place with
                an
                effective date of October 13, 2006.(2)
            Includes
                1,953,784 ADSs held by Poplar Limited, a Jersey company controlled
                by Dr.
                Climax, and options to purchase 36,000 ADSs.(3)
            Neither
                the Company nor any of its officers, directors or affiliates hold
                any
                voting power in this entity.(4)
            Includes
                699,210 ordinary shares issuable upon the exercise of stock options
                granted by the Company.




38


**Related
      Parties**





On
      December 6, 2005, Dr. Ronan Lambe and Dr. John Climax gifted 64,000 and 80,000
      ADSs, respectively, to Mr. Peter Gray, the Company’s Chief Executive Officer.
      ICON has accounted for these transfers of equity instruments from shareholders
      to Mr. Gray as share based payment transactions, and recorded a compensation
      expense of $6,023,520 in its Statement of Operations, measured by reference
      to the fair value of the ADSs on the grant date. As this transaction is a
      transfer of already issued stock between officers and directors of the Company,
      the expense recorded had no cash flow impact on the Company and created no
      dilution of ordinary shares outstanding.  The fair value of the ADSs on the
      date of gift was determined by reference to market price.




NuPathe
      Inc. (“NuPathe”) is a specialty pharmaceutical company specializing in the
      acquisition and development of therapeutic products in the area of neuroscience.
      During the year ending December 31, 2006, NuPathe engaged ICON Clinical Research
      Limited (a wholly owned subsidiary of ICON), in consulting and clinical trial
      related activities. ICON recognized a total of $0.16 million of revenue in
      relation to these activities. As of December 31, 2006, Dr. John Climax’s and Dr.
      Ronan Lambe’s respective holdings in NuPathe were 6.8% and 6.5% of the issued
      share capital. Dr. Climax also serves as a non-executive director and chairman
      of the compensation committee on the Board of NuPathe.




AGI
      Therapeutics Limited (“AGI”) is a specialty pharmaceutical company focused on
      developing drug therapies for gastrointestinal diseases and disorders. ICON
      is
      engaged in conducting a series of clinical trials on behalf of AGI. In January
      2006, Dr. Ronan Lambe was appointed a non-executive director of AGI and took
      up
      the position of non-executive Chairman from February 2006. During September
      2004, AGI contracted ICON Clinical Research Limited (a wholly owned subsidiary
      of ICON), to conduct a clinical trial on its behalf. The total potential value
      of this study is $2.8m. During the year ended December 31, 2006 the Company
      recognized $0.5m revenue relating to the AGI contract. At December 31, 2006,
      $0.4m was outstanding to be received from AGI on this trial. As of December
      31,
      2006, Dr. Ronan Lambe and Sunninghill Limited (a company controlled by Dr.
      John
      Climax) held 0.9 million and 0.3 million shares, respectively, in AGI. This
      holding equates to approximately 0.1% and 0.05%, respectively of AGI's issued
      share capital.




Amarin
      Corporation plc ("Amarin") is a neuroscience company focused on the research,
      development and commercialization of drugs for the treatment of central nervous
      system disorders. During the fiscal year ending May 31, 2005, Amarin contracted
      ICON Clinical Research Limited (a wholly owned subsidiary of ICON), to conduct
      a
      clinical trial on its behalf. The total potential value of this study is $8m.
      As
      at December 31, 2006, Amarin Investment Holding Company Limited (a company
      controlled by Mr. Thomas Lynch), Sunninghill Limited (a company controlled
      by
      Dr. John Climax) and Dr. Ronan Lambe held 10 million, 6.4 million and 1.6
      million shares, respectively, in Amarin. These respective holdings equate to
      approximately 11%, 7.8% and 1.4%, respectively, of Amarin's issued share
      capital. Thomas Lynch also serves as chairman and non-executive director on
      the
      Board of Amarin. During the year ended December 31, 2006, the Company recognized
      $2.4m revenue relating to the Amarin contract. At December 31, 2006, $1.4m
      was
      outstanding to be received from Amarin on this trial.




On
      February 6, 1998, ICON entered into an Option Agreement (“The Put Option”) with
      Rosa Investment Limited ("Rosa"). Rosa's sole activity was to hold an investment
      in Clear Investments Limited ("Clear"), the sole activity of which was to hold
      Mr. Gray's 54,000 ordinary share options. Mr. Gray is a director of Rosa and
      Clear. Rosa is owned by a trust of which Mr. Gray is a beneficiary. On April
      21,
      2004, Mr. Gray acquired Clear from Rosa and exercised the Put Option in
      accordance with the terms of the Option Agreement. On April 22, 2004, pursuant
      to the Option Agreement, ICON purchased the outstanding share capital in Clear
      from Mr. Gray, the consideration for the acquisition being the issuance of
      54,000 fully paid ordinary shares in ICON, to Mr. Gray, such a sale being the
      economic equivalent of Mr. Gray exercising his stock options.




Encysive
      Pharmaceuticals Inc. (“Encysive”) is a biopharmaceutical company specializing in
      the development and commercialization of synthetic, small molecule compounds.
      During the year ending December 31, 2006, Encysive engaged ICON Clinical
      Research Limited (a wholly owned subsidiary of ICON), in consulting and clinical
      trial related activities. ICON recognized a total of $0.3 million of revenue
      in
      relation to these activities. As of December 31, 2006, Dr. Bruce Given’s
      holdings in Encysive were 0.4% of the issued share capital. Dr. Bruce Given
      also
      serves as the President and Chief Executive Officer of Encysive.




39





**Item
      8.** ***Financial
      Information.***





**Financial
      Statements**





See
      Item
      18.





**Legal
      Proceedings**





ICON
      is
      not party to any litigation or other legal proceedings that we believe could
      reasonably be expected to have a material adverse effect on our business,
      results of operations and financial condition.





**Dividends**





We
      have
      not paid cash dividends on our ordinary shares and do not intend to pay cash
      dividends on our ordinary shares in the foreseeable future.





**Item
      9.** ***The Offer and the Listing.***





ICON’s
      ADSs are traded on the NASDAQ National Market under the symbol “ICLR”. Our
      Depository for the ADSs is The Bank of New York. ICON also has a secondary
      listing on the Official List of the Irish Stock Exchange. No securities of
      ICON
      are traded in any other market. The following table sets forth the trading
      price
      for the dates indicated for ICON plc’s ADSs as reported by NASDAQ.


**Year
                  Ending**
              
              **High
                  Sales Price**
                **During
                  Period**
              
              **Low
                  Sales Price**
                **During
                  Period**May
                  31, 2002
              
              $
              19.79
              
              $
              11.47May
                  31, 2003
              
              $
              16.44
              
              $
              7.44May
                  31, 2004
              
              $
              23.03
              
              $
              12.94May
                  31, 2005
              
              $
              22.46
              
              $
              15.13December
                  31, 2005 (7 month transition period)
              
              $
              25.25
              
              $
              15.05December
                  31, 2006
              
              $
              40.36
              
              $
              20.50**Quarter
                  Ending**
              
              
              **High
                  Sales Price**
                **During
                  Period**
              
              
              **Low
                  Sales Price**
                **During
                  Period**Aug
                  31, 2003
              
              $
              18.40
              
              $
              12.94Nov
                  30, 2003
              
              $
              22.52
              
              $
              15.60Feb
                  29, 2004
              
              $
              23.03
              
              $
              16.52May
                  31, 2004
              
              $
              21.75
              
              $
              14.87Aug
                  31, 2004
              
              $
              22.46
              
              $
              15.88Nov
                  30, 2004
              
              $
              19.70
              
              $
              15.52Feb
                  28, 2005
              
              $
              19.50
              
              $
              16.89May
                  31, 2005
              
              $
              19.48
              
              $
              15.13Aug
                  31, 2005
              
              $
              20.95
              
              $
              15.05Nov
                  30, 2005
              
              $
              25.25
              
              $
              18.18Mar
                  31, 2006
              
              $
              24.50
              
              $
              20.50Jun
                  30, 2006
              
              $
              28.66
              
              $
              23.35Sept
                  30, 2006
              
              $
              36.00
              
              $
              27.25Dec
                  31, 2006
              
              $
              40.36
              
              $
              33.57




40


**Month
                Ending**
            
            **High
                Sales Price**
              **During
                Period**
            
            **Low
                Sales Price**
              **During
                Period**July
                31, 2006
            
            $
            34.00
            
            $
            27.25Aug
                31, 2006
            
            $
            36.00
            
            $
            32.13Sept
                30, 2006
            
            $
            35.98
            
            $
            33.13Oct
                31, 2006
            
            $
            38.86
            
            $
            34.29Nov
                30, 2006
            
            $
            40.36
            
            $
            33.57Dec
                31, 2006
            
            $
            38.23
            
            $
            34.63


All
      comparative figures above have been amended to reflect the Bonus Issue which
      took place with an effective date of October 13, 2006.





**Item
      10. Additional Information.**





**Exchange
      Controls and Other Limitations Affecting Security Holders.**





Irish
      exchange control regulations ceased to apply from and after December 31, 1992.
      Except as indicated below, there are no restrictions on non-residents of Ireland
      dealing in domestic securities, which includes shares or depository receipts
      of
      Irish companies. Except as indicated below, dividends and redemption proceeds
      also continue to be freely transferable to non-resident holders of such
      securities.





The
      Financial Transfers Act, 1992 gives power to the Minister for Finance of Ireland
      to make provision for the restriction of financial transfers between Ireland
      and
      other countries and persons. Financial transfers are broadly defined, and
      include all transfers which would be movements of capital or payments within
      the
      meaning of the treaties governing the European Communities. The acquisition
      or
      disposal of ADSs or ADRs representing shares issued by an Irish incorporated
      company and associated payments may fall within this definition. In addition,
      dividends or payments on redemption or purchase of shares and payments on a
      liquidation of an Irish incorporated company would fall within this definition.
      At present, the Financial


Transfers
      Act, 1992 prohibits financial transfers involving certain persons connected
      with
      the former regime in Iraq, certain persons indicted by the International
      Criminal Tribunal for the former Yugoslavia and certain associated persons,
      Zimbabwe, the Taliban of Afghanistan, Osama bin Laden and Al-Qaeda, Liberia,
      Burma/Myanmar, Uzbekistan, Sudan, Cote D’Ivoire, the Democratic Republic of
      Congo, President Lukashenko and certain other officials of Belarus, and
      countries that harbor certain terrorist groups, without the prior permission
      of
      the Central Bank of Ireland.





Any
      transfer of, or payment in respect of an ADS involving the government of any
      country or any person which is currently the subject of United Nations
      sanctions, any person or body controlled by any of the foregoing, or by any
      person acting on behalf of the foregoing, may be subject to restrictions
      pursuant to such sanctions as implemented into Irish law. The following
      countries and persons are currently the subject of such sanctions: Somalia,
      Sudan, Cote D’Ivoire, Democratic Republic of Congo, Liberia, the Taliban of
      Afghanistan, Osama bin Laden and Al-Qaeda. There are no restrictions under
      the
      Company’s Articles of Association, or under Irish Law that limit the right of
      non-residents or foreign owners to hold or vote the Company’s ordinary shares or
      ADSs.





**Memorandum
      and Articles of Association**





We
      hereby
      incorporate by reference the description of our Memorandum and Articles of
      Association located under the heading “Description of the Memorandum and
      Articles of Association of the Company” in our Form 6K filed with the Securities
      Exchange Commission on January 31, 2003.





On
      September 29, 2006, at ICON’s Extraordinary General Meeting, the Articles of
      Association of ICON plc were amended to increase the authorized share capital.
      The following amendments were made:





“That
      the
      authorized share capital of the Company be increased from €1,200,000 divided
      into 20,000,000 Ordinary Shares of €0.06 each, to €2,400,000 divided into
      40,000,000 Ordinary Shares of €0.06 each.”




41




**Taxation**





**General**





The
      following discussion is based on existing Irish tax law, Irish court decisions
      and the practice of the Revenue Commissioners of Ireland, and the convention
      between the United States and Ireland for the Avoidance of Double Taxation
      and
      the Prevention of Fiscal Evasion with respect to income and capital gains (the
      "Treaty"). This discussion does not purport to deal with the tax consequences
      of
      owning the ordinary shares for all categories of investors, some of which may
      be
      subject to special rules. Prospective purchasers of ordinary shares are advised
      to consult their own tax advisors concerning the overall tax consequences
      arising in their own particular situations under Irish law. Each prospective
      investor should understand that future legislative, administrative and judicial
      changes could modify the tax consequences described below, possibly with
      retroactive effect.




As
      used
      herein, the term "U.S. Holder" means a beneficial owner of ordinary shares
      that
      (i) owns the ordinary shares as capital assets; (ii) is a U.S. citizen or
      resident, a U.S. corporation, an estate the income of which is subject to U.S.
      federal income taxation regardless of its source or a trust that meets the
      following two tests: (A) a U.S. court is able to exercise primary supervision
      over the administration of the trust, and (B) one or more U.S. persons have
      the
      authority to control all substantial decisions of the trust; and for purposes
      of
      the discussion under Irish Taxation of U.S. Holders (A) is not a resident of,
      or
      ordinarily resident in, Ireland for the purposes of Irish tax; and (B) is not
      engaged in trade or business in Ireland through a permanent establishment.




AS
      USED
      HEREIN, REFERENCES TO THE ORDINARY SHARES SHALL INCLUDE ADSs REPRESENTING SUCH
      ORDINARY SHARES AND ADRs EVIDENCING OWNERSHIP OF SUCH ADSs.




**Irish
      Taxation**




*Irish
      corporation tax on income*


ICON
      is a
      public limited company incorporated and resident for tax purposes in Ireland.





For
      Irish
      tax purposes, the residence of a company is in the jurisdiction where the
      central management and control of the company is located. Subject
      to
      certain exceptions, all Irish incorporated companies are deemed to be Irish
      tax
      resident. Companies which are resident in the Republic of
      Ireland are subject to Irish corporation tax on their total profits (wherever
      arising and, generally, whether or not remitted to the Republic of Ireland).
      The
      question of residence, by virtue of management and control, is essentially
      one
      of fact. It is the present intention of the company's management to continue
      to
      manage and control the Company from the Republic of Ireland, so that the Company
      will continue to be resident in the Republic of Ireland.





The
      standard rate of Irish corporation tax on trading income (with certain
      exceptions) is currently 12.5%.




Patent
      exemption is available to Irish resident companies whose income derives from
      qualifying royalties or license fees paid in respect of qualifying patents.
      The
      main requirement to qualify for the exemption is that the research, planning,
      processing, experimentation, testing, devising, designing, developing or similar
      activity leading to the invention which is the subject of the patent is carried
      out in Ireland. Under Irish law, income from such qualifying patents is
      disregarded for taxation purposes. From January 1, 2008 there will be an annual
      limit of 5 million Euro placed on qualifying patent income. To the extent that
      income arises above this threshold, it will be subject to Irish corporation
      tax.





To
      the
      extent that the company is involved in the "manufacture" of goods in Ireland,
      income from this activity, in respect of its data processing operations carried
      out in Ireland (which is deemed to be manufacturing for Irish tax purposes)
      ,
      can qualify for a 10% rate of tax. This relief is available until December
      31,
      2010 and thereafter the income will be taxed at the standard rate applicable
      to
      trading income which is currently 12.5%.





Corporation
      tax is charged at the rate of 25% on a company's non-trading income and certain
      types of trading income not eligible for the lower rates discussed above.





42




Capital
      gains arising to an Irish resident company are liable to tax at 20%. However,
      a
      capital gains tax exemption has been introduced in Ireland in respect of
      disposals of certain shareholdings. The exemption applies with retrospective
      effect to disposals occurring on or after February 2, 2004.





The
      exemption from capital gains tax on the disposal of shares by an Irish resident
      company will apply where certain conditions are met. These conditions
      principally are:





·
            The
                company claiming the exemption must hold (directly or indirectly)
                at least
                5% of the ordinary share capital of the company in which the interest
                is
                being disposed of, for a period of at least one year, within the
                two year
                period prior to disposal.





·
            The
                shares being disposed of must be in a company, which at the date
                of
                disposal, is resident in an EU Member State or in a state with which
                Ireland has a double tax agreement.





·
            The
                shares must be in a company which is primarily a trading company
                or else
                the company making the disposal together with its “5% plus subsidiaries”
                should be primarily a trading
                group.





·
            The
                shares must not derive the greater part of their value from land
                or
                mineral rights in the State.





*Taxation
      of Dividends*


Unless
      exempted, all dividends paid by ICON, other than dividends paid entirely out
      of
      exempt patent income (subject to conditions), will be subject to Irish
      withholding tax at the standard rate of income tax in force at the time the
      dividend is paid, currently 20%. An individual shareholder who is neither
      resident nor ordinarily resident for tax purposes in Ireland, but is resident
      in
      a country with which Ireland has a double tax treaty, which includes the United
      States, or in a member state of the European Union, other than Ireland (together
      a “Relevant Territory”), will be exempt from withholding tax provided he or she
      makes the requisite declaration. No dividend withholding tax will apply on
      the
      payment of a dividend from an Irish resident company to its Irish resident
      51%
      parent company. Where the Irish company receiving the dividend does not hold
      at
      least 51% of the shares of the paying company, the dividend will be exempt
      if
      the Irish corporate shareholder makes the requisite declaration.





Non-Irish
      resident corporate shareholders that:





·
            are
                ultimately controlled by residents of a Relevant
                Territory;




·
            are
                resident in a Relevant Territory and are not controlled by Irish
                residents;




·
            have
                the principal class of their shares, or shares of a 75% parent,
                substantially and regularly traded on one or more recognized stock
                exchanges in a Relevant Territory or Territories;
                or




·
            are
                wholly owned by two or more companies, each of whose principal class
                of
                shares is substantially and regularly traded on one or more recognized
                stock exchanges in a Relevant Territory or
                Territories;




will
      be
      exempt from withholding tax on the production of the appropriate certificates
      and declarations.




U.S.
      Holders of ordinary shares (as opposed to ADSs: see below) should note, however,
      that these documentation requirements may be burdensome. As described below,
      these documentation requirements do not apply in the case of ADSs.





Special
      arrangements are available in the case of an interest in shares held in Irish
      companies through American depositary banks using ADSs. The depositary bank
      will
      be allowed to receive and pass on a dividend from the Irish company without
      any
      deduction for withholding tax in the following circumstances:





·
            the
                depositary has been authorized by the Irish Revenue Commissioners
                as a
                qualifying intermediary and such authorization has not expired or
                been
                revoked; and either




·
            the
                depositary bank’s ADS register shows that the beneficial owner has a U.S.
                address on the register; or




43




·
            if
                there is a further intermediary between the depositary bank and the
                beneficial owner, where the depositary bank receives confirmation
                from the
                intermediary that the beneficial owner’s address in the intermediary’s
                records is in the U.S.




*Income
      Tax*


Under
      certain circumstances, non-Irish resident shareholders will be subject to Irish
      income tax on dividend income. This liability is limited to tax at the standard
      rate and therefore, where withholding tax has been deducted, this will satisfy
      the tax liability.





However,
      a
      non-Irish resident shareholder will not have an Irish income tax liability
      on
      dividends from the company if the holder is neither resident nor ordinarily
      resident in the Republic of Ireland and the holder is:





·
            an
                individual resident in the U.S. (or any other country with which
                Ireland
                has concluded a double taxation
                treaty);




·
            a
                corporation that is ultimately controlled by persons resident in
                the U.S.
                (or any other country with which Ireland has concluded a double taxation
                treaty);




·
            a
                corporation whose principal class of shares (or its 75% or greater
                parent’s principal class of shares) is substantially and regularly traded
                on a recognized stock exchange in an EU country or a country with
                which
                Ireland has concluded a double taxation
                treaty;




·
            a
                corporation resident in another EU member state or in a country with
                which
                Ireland has concluded a double taxation treaty, which is not controlled
                directly or indirectly by Irish residents;
                or




·
            a
                corporation that is wholly owned by two or more corporations each
                of whose
                principal class of shares is substantially and regularly traded on
                a
                recognized stock exchange in an EU country or a country with which
                Ireland
                has concluded a double taxation
                treaty.




U.S.
      Holders that do not fulfill the documentation requirements or otherwise do
      not
      qualify for the withholding tax exemption may be able to claim treaty benefits
      under the treaty. U.S. Holders that are entitled to benefits under the treaty
      will be able to claim a partial refund of the 20% withholding tax from the
      Irish
      Revenue Commissioners.





*Taxation
      of Capital Gains*


A
      person
      who is not resident or ordinarily resident in Ireland, has not been an Irish
      resident within the past five years and who does not carry on a trade in Ireland
      through a branch or agency will not be subject to Irish capital gains tax on
      the
      disposal of ordinary shares or ADSs, so long as the ordinary shares or ADSs,
      as
      the case may be, are either quoted on a stock exchange or do not derive the
      greater part of their value from Irish land or mineral rights. There are
      provisions to subject a person who disposes of an interest in a company while
      temporarily being non-Irish resident, to Irish capital gains tax. This treatment
      will apply to Irish domiciled individuals -:





·
            who
                cease to be Irish resident;




·
            who
                own the shares when they cease to be
                resident;




·
            if
                there are not more than 5 years of assessment between the last year
                of
                Irish tax residence prior to becoming temporarily non-resident and
                the tax
                year that he/she resumes Irish tax
                residency;




·
            who
                dispose of an interest in a company during this temporary non-residence;
                and




·
            the
                interest disposed of represents 5% or greater of the share capital
                of the
                company or is worth at least
€500,000.




In
      these
      circumstances the person will be deemed, for Irish capital gains tax purposes,
      to have sold and immediately reacquired the interest in the company on the
      date
      of his or her departure and will be subject to tax at 20% of the taxable
      gain.





44




*Irish
      Capital Acquisitions Tax*


Irish
      capital acquisitions tax (referred to as CAT) applies to gifts and inheritances.





Where
      a
      gift or inheritance is taken under a disposition made after December 1, 1999,
      it
      will be within the charge to CAT:


·
            to
                the extent that the property of which the gift or inheritance consists
                is
                situated in the Republic of Ireland at the date of the gift or
                inheritance;


·
            where
                the person making the gift or inheritance is or was resident or ordinarily
                resident in the Republic of Ireland at the date of the disposition
                under
                which the gift or inheritance is
                taken;


·
            in
                the case of a gift taken under a discretionary trust where the person
                from
                whom the gift is taken was resident or ordinarily resident in the
                Republic
                of Ireland at the date he made the settlement, or at the date of
                the gift
                or, if he is dead at the date of the gift, at his death;
                or


·
            where
                the person receiving the gift or inheritance is resident or ordinarily
                resident in the Republic of Ireland at the date of the gift or
                inheritance.





Where
      a
      gift or an inheritance is taken under a disposition made prior to December
      1,
      1999, CAT is chargeable in the following circumstances:


·
            to
                the extent that the property of which the gift or inheritance consists
                is
                situated in the Republic of Ireland at the date of the gift or
                inheritance;


·
            where
                the person making the gift or inheritance is or was domiciled in
                Ireland
                at the date of the disposition under which the gift or inheritance
                is
                taken;


·
            in
                the case of a gift taken under a discretionary trust, where the disponer,
                who is usually the settlor, in relation to that trust was domiciled
                in
                Ireland at the date he made the settlement, or at the date of the
                gift or,
                where the gift is taken after his death, at the date of his
                death.





The
      person
      who receives the gift or inheritance is primarily liable for CAT. A person
      is
      secondarily liable if he is the donor, his personal representative or an agent,
      trustee or other person in whose care the property constituting the gift or
      inheritance or the income therefrom is placed. Taxable gifts or inheritances
      received by an individual since December 5, 1991 from donors in the same
      threshold class are aggregated and only the excess over a specified tax-free
      threshold is taxed. The tax-free


threshold
      is dependent on the relationship between the donor and the donees and the
      aggregation since December 5, 1991 of all previous gifts and inheritances,
      within the same tax threshold.





The
      tax-free threshold amounts currently in force are:


·
            €23,908
                in the case of persons who are not related to one
                another;


·
            €47,815
                in the case of gifts or inheritances received from inter alia a brother
                or
                sister or from a brother or sister of a parent or from a grandparent;
                and


·
            €478,155
                in the case of gifts and inheritances received from a parent (or
                from a
                grandparent by a minor child of a deceased child) and specified
                inheritances received by a parent from a child.





Gifts
      and
      inheritances passing between spouses are exempt from CAT.





A
      gift or
      inheritance of ordinary shares or ADSs will be within the charge to Irish
      capital acquisitions tax, notwithstanding that the person from whom or by whom
      the gift or inheritance is received is domiciled or resident outside Ireland.





The
      Estate
      Tax Convention between Ireland and the United States generally provides for
      Irish capital acquisitions tax paid on inheritances in Ireland to be credited
      against U.S. federal estate tax payable in the United States and for tax paid
      in
      the United States to be credited against tax payable in Ireland, based on
      priority rules set forth in the Estate Tax Convention. The Estate Tax Convention
      does not apply to Irish capital acquisitions tax paid on gifts.





*Irish
      Probate Tax*


Irish
      probate tax was abolished under the Finance Act, 2001. No probate tax will
      arise
      on any assets passing in respect of a death occurring on or after December
      6,
      2000.





45





*Irish
      Stamp Duty - Ordinary Shares*


Irish
      stamp duty, which is a tax on certain documents, including CREST operator
      instructions, is payable on all transfers of the ordinary shares (other than
      between spouses) whenever a document of transfer is executed. Where the transfer
      is attributable to a sale, stamp duty will be charged at a rate of 1%, rounded
      to the nearest Euro. The stamp duty is calculated on the amount or value of
      the
      consideration (i.e. purchase price) or, if the transfer is by way of a gift
      (subject to certain exceptions) or for consideration less than the market value,
      on the market value of the shares. Where the consideration for the sale is
      expressed in a currency other than Euro, the duty will be charged on the Euro
      equivalent calculated at the rate of exchange prevailing on the date of the
      transfer.





Transfers
      of ordinary shares between associated companies (broadly, companies within
      a 90%
      group relationship, and subject to the satisfaction of certain conditions)
      are
      exempt from stamp duty in the Republic of Ireland. In the case of transfers
      of
      ordinary shares where no beneficial interest passes (e.g. a transfer of shares
      from a beneficial owner to his nominee), no stamp duty arises where the transfer
      contains the appropriate certificate and, in the absence of such certificate,
      a
      flat rate of ࿠€12.70 (the nominal rate) will apply.





*Irish
      Stamp Duty - ADSs Representing Ordinary Shares*


A
      transfer
      by a shareholder to the depositary or custodian of ordinary shares for deposit
      under the deposit agreement in return for ADSs and a transfer of ordinary shares
      from the depositary or the custodian upon surrender of ADSs for the purposes
      of
      the withdrawal of the underlying ordinary shares in accordance with the terms
      of
      the deposit agreement will be stampable at the ad valorem rate if the transfer
      relates to a sale or contemplated sale or any other change in the beneficial
      ownership of such ordinary shares. However, it is not certain whether the mere
      withdrawal of ordinary shares in exchange for ADSs or ADSs for ordinary shares
      would be deemed to be a transfer of or change in the beneficial ownership which
      would be subject to stamp duty at the ad valorem rate. Where the transfer merely
      relates to a transfer where no change in the beneficial ownership in the
      underlying ordinary shares is effected or contemplated, no stamp duty arises
      where the transfer contains the appropriate certificate and, in the absence
      of
      such certificate, the nominal rate stamp duty of €12.70 applies.





Transfers
      of ADSs are exempt from Irish stamp duty as long as the ADSs are dealt in on
      the
      NASDAQ National Market or any recognized stock exchange in the United States
      or
      Canada.





The
      person
      accountable for payment of stamp duty is the transferee or, in the case of
      a
      transfer by way of gift, or for a consideration less than the market value,
      all
      parties to the transfer. A late or inadequate payment of stamp duty will result
      in a liability to pay interest, penalties and fines.





**Documents
      on Display**





We
      are
      subject to the informational requirements of the Securities Exchange Act of
      1934, as amended, (the “Exchange Act”) and file reports and other information
      with the SEC. You may read and copy any of our reports and other information
      at,
      and obtain copies upon payment of prescribed fees from, the Public Reference
      Room maintained by the SEC at 100F Street N.E., Washington, D.C. 20549. In
      addition, the SEC maintains a Web site that contains reports, proxy and
      information statements and other information regarding registrants that file
      electronically with the SEC at http://www.sec.gov. The public may obtain
      information on the operation of the Public Reference Room by calling the SEC
      at
      1-800-SEC-0330.





We
      “incorporate by reference” information that we file with the SEC, which means
      that we can disclose important information to you by referring you to those
      documents. The information incorporated by reference is an important part of
      this report and more recent information automatically updates and supersedes
      more dated information contained or incorporated by reference in this report.
      Our SEC file number for Exchange Act reports is 333-8704.





As
      a
      foreign private issuer, we are exempt from the rules under the Exchange Act,
      prescribing the furnishing and content of proxy statements to
      shareholders.





We
      will
      provide without charge to each person, including any beneficial owner, on the
      written or oral request of such person, a copy of any or all documents referred
      to above which have been or may be incorporated by reference in this report
      (not
      including exhibits to such incorporated information that are not specifically
      incorporated by reference into such information). Requests for such copies
      should be directed to us at the following address: ICON plc, South County
      Business Park, Leopardstown, Dublin 18, Ireland, Attention: Ciaran Murray,
      telephone number: (353) 1 291 2000.




46




**Exemptions
      From Corporate Governance Listing Requirements Under the NASDAQ Marketplace
      Rules**





NASDAQ
      may
      provide exemptions from the NASDAQ corporate governance standards to a foreign
      private issuer when those standards are contrary to a law, rule or regulation
      of
      any public authority exercising jurisdiction over such issuer or contrary to
      generally accepted business practices in the issuer’s country of domicile,
      except to the extent that such exemptions would be contrary to United States
      federal securities laws. ICON, as a foreign private issuer, was granted an
      exemption in 1998 from provisions set forth in NASDAQ Rule 4350(f), which
      requires each issuer to provide for a quorum in its by-laws for any meeting
      of
      the holders of common stock, which shall in no case be less than 33.33% of
      the
      outstanding shares of the issuer’s outstanding voting stock. ICON’s Articles of
      Association require that only 3 members be present at a shareholder meeting
      to
      constitute a quorum. This quorum requirement is in accordance with Irish law
      and
      generally accepted business practices in Ireland.





**Item
      11** ***.
      Quantitative and Qualitative Disclosures about Market
      Risk.***





***Qualitative
      Disclosure of Market Risk*** .
      The
      principal market risks (i.e. risk of loss arising from adverse changes in market
      rates and prices) to which we are exposed are:





·
            Interest
                rate changes on short term investments (available for sale) in the
                form of
                floating rate notes and medium term minimum “A” rated corporate
                securities, and


·
            Foreign
                currency risk on non-U.S. dollar denominated cash and non-U.S. dollar
                denominated debt.





We
      use
      derivative financial instruments solely to hedge exposure to these market risks
      and we do not enter into these instruments for trading or speculative
      purposes.





Our
      primary foreign currency exchange risk relates to movements in rates between
      the
      U.S. dollar, Sterling and the Euro. At December 31, 2006, we had cash
      denominated in non-U.S. dollar denominated currencies. In order to reduce the
      foreign currency exchange risk, we may enter into certain derivative instruments
      to reduce our exposure to adverse changes in exchange rates. At December 31,
      2006 we held no foreign exchange forward contracts.





***Quantitative
      disclosure of Market Risk*** **.** The
      analysis below presents the sensitivity of the market value, or fair value
      of
      our financial instruments to selected changes in market rates and prices. The
      changes chosen represent our view of changes that are reasonable over a one
      year
      period.





The
      hypothetical changes in fair value are estimated based on the same methodology
      used by the third party financial institutions to calculate the fair value
      of
      the original instruments, keeping all variables constant except the relevant
      exchange rate, as the case may be, which has been adjusted to reflect the
      hypothetical change. Fair value estimates by their nature are subjective and
      involve uncertainties and matters of significant judgment and therefore cannot
      be determined precisely.





47


**Foreign
      Currency Exchange Risk**





The
      sensitivity analysis below represents the hypothetical change in fair value
      based on an immediate 10% movement in the exchange rates.


**Fair
                  value at**
                **December
                  31, 2006**
              
              **Fair
                  value Change +10%**
                **movement
                  in foreign exchange rate**
              
              **Fair
                  value Change -10%**
                **movement
                  in foreign exchange rate****(in
                  thousands)**
              
              **(in
                  thousands)**
              
              **(in
                  thousands)**Non-U.S.
                  Dollar denominated cash
              
              $
              21,044
              
              $
              2,104
              
              
              ($2,104
              )Non-U.S.
                  Dollar denominated short term debt
              
              
              ($5,000
              )
              
              ($500
              )
              $
              500


**Item
      12** ***.
      Description of Securities Other than Equity
      Securities.***





Not
      applicable.





**Part
      II**





**Item
      13** ***.
      Defaults, Dividend Arrearages and
      Delinquencies.***





None.





**Item
      14.** ***Material
      Modifications to the Rights of Security Holders and
      Use of Proceeds.***





We
      hereby
      incorporate by reference the description of the amendment to our Memorandum
      and
      Articles of Association described under the heading “Memorandum and Articles of
      Association” from Item 10 of this Form 20F.





**Item
      15.** ***Controls and Procedures***





**(a)
      Evaluation of disclosure controls and procedures** **.**





An
      evaluation was carried out under the supervision and with the participation
      of
      the Company’s management, including the Chief Executive Officer (CEO) and the
      Chief Financial Officer (CFO), of the effectiveness of our disclosure controls
      and procedures as at December 31, 2006. Based on that evaluation, the CEO and
      CFO have concluded that the Company’s disclosure controls and procedures are
      effective to ensure that information required to be disclosed by the Company
      in
      reports that it files or submits under the Securities Exchange Act of 1934
      is
      recorded, processed, summarized and reported within the time periods specified
      in Securities and Exchange Commission rules and forms.





**(b)
      Changes in internal controls.**





There
      were
      no changes in our internal controls over financial reporting that occurred
      during the period covered by this Form 20-F that have materially affected or
      are
      reasonably likely to materially affect our internal controls over financial
      reporting.





**Item
      16.** ***Reserved.***





**Item
      16A. Audit Committee Financial Expert**





Mr.
      Thomas
      Lynch acts as the Audit Committee financial expert serving on our Audit
      Committee and Board of Directors. Mr. Lynch is independent and serves as one
      of
      our non-executive directors.





48




**Item
      16B. Code of Ethics**





Our
      Board
      of Directors adopted a code of ethics in 2003 that applies to the Chief
      Executive Officer, the Chief Financial Officer and any persons performing
      similar functions, if any, of the Company.





There
      are
      no material modifications to, or waivers from, the provisions of such code,
      which are required to be disclosed.





This
      code
      is available on our website at the following address:





http://www.iconclinical.com





**Item
      16C. Principal Accountant Fees and Services**





Our
      principal accountants for the year ended December 31, 2006 and the seven month
      transition period ended December 31, 2005 were KPMG.





The
      table
      below summarizes the fees for professional services rendered by KPMG for the
      audit of our annual financial statements for the year ended December 31, 2006
      and the seven month 2005 transition period ended December 31, 2005 and fees
      billed for other services rendered by KPMG.


**7
                    month transition period**
                  **ending
                    December 31, 2005**
                
                **12
                    month period**
                  **ending
                    December 31,**
                  **2006****(in
                    thousands)**Audit
                    fees (1)
                
                $
                673
                
                
                80
                %
                
                1,076
                
                
                81
                %Audit
                    related fees (2)
                
                
                21
                
                
                3
                %
                
                99
                
                
                7
                %Tax
                    fees (3)
                
                
                144
                
                
                17
                %
                
                162
                
                
                12
                %Total
                
                $
                838
                
                
                100
                %
                $
                1,337
                
                
                100
                %




(1)
              Audit
                  fees include annual audit fees for ICON plc and its
                  subsidiaries.(2)
              Audit
                  related fees principally consisted of fees for financial due diligence
                  services and fees for audit of financial statements of employee
                  benefit
                  plans.(3)
              Tax
                  fees are fees for tax compliance and tax consultation
                  services.


The
      Audit
      Committee pre-approves on an annual basis the audit and non-audit services
      provided to ICON plc by its auditors.





Such
      annual pre-approval is given with respect to particular services. The Audit
      Committee, on a case-by-case basis, may approve additional services not covered
      by the annual pre-approval, as the need for such services arises.





**Item
      16D. Exemptions from the Listing Standards for Audit
      Committees.**





Not
      applicable.





49





**Item
      16 E. Purchases of Equity Securities by the Issuer and Affiliated
      Purchasers.**





Not
      applicable.





**Part
      III**





**Item
      17.** ***Financial Statements.***





Not
      applicable.





**Item
      18** ***.
      Financial Statements.***





Reference
      is made to pages 53 to 91 of this Form 20-F.





**Item
      19.** ***Financial Statements and Exhibits.***





Financial
      statements of ICON plc and subsidiaries




Management's
                  Report on Internal Control over Financial ReportingReport
                  of Independent Registered Public Accounting Firm.Consolidated
                  Balance Sheets as at May 31, 2005, December 31, 2005 and December
                  31,
                  2006.Consolidated
                  Statements of Operations for the years ended May 31, 2004, and
                  2005, the
                  transition period ended December 31, 2005 and the year ended December
                  31,
                  2006.Consolidated
                  Statements of Shareholders’ Equity and Comprehensive Income for the years
                  ended May 31, 2004, and 2005, the transition period ended December
                  31,
                  2005, and the year ended December 31, 2006.Consolidated
                  Statements of Cash Flows for the years ended May 31, 2004, and
                  2005, the
                  transition period ended December 31, 2005, and the year ended December
                  31,
                  2006.Notes
                  to the Consolidated Financial Statements.**Exhibits
                  of ICON plc and subsidiaries**Significant
                  subsidiaries. (Incorporated by reference in item 4)Section
                  302 certifications.Section
                  906 certifications.




50


**Management's
      Report on Internal Control over Financial Reporting**








Management
      is responsible for establishing and maintaining adequate internal control over
      financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the
      Securities Exchange Act of 1934. The Company’s internal control over financial
      reporting is a process designed by, or under the supervision of, the Company’s
      executive and financial officers and effected by the Company’s board of
      directors, management and other personnel, to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of
      financial statements for external purposes in accordance with generally accepted
      accounting principles. A company’s internal control over financial reporting
      includes those policies and procedures that (i) pertain to the maintenance
      of
      records that, in reasonable detail, accurately and fairly reflect the
      transactions and dispositions of the assets of the company; (ii) provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorization of management and directors
      of
      the company; and (iii) provide reasonable assurance regarding prevention or
      timely detection of unauthorized acquisition, use, or disposition of the
      company’s assets that could have a material effect on the financial statements.





Because
      of
      the inherent limitation due to, for example, the potential for human error
      or
      circumvention of control, internal control over financial reporting may not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





Our
      management assessed the effectiveness of the Company’s internal control over
      financial reporting as of December 31, 2006. In making this assessment, we
      used
      the criteria set forth by the Committee of Sponsoring Organizations of the
      Treadway Commission (COSO) in *Internal
      Control - Integrated Framework* .
      Based
      upon the assessment performed, we determined that, as of December 31, 2006,
      the
      Company’s internal control over financial reporting was effective based on the
      COSO criteria.




51


REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To
      the
      Directors and Shareholders of ICON plc





We
      have
      audited the accompanying consolidated balance sheets of ICON plc and
      subsidiaries as of December 31, 2006 and 2005, and May 31, 2005, and the related
      consolidated statements of operations, shareholders' equity and comprehensive
      income, and cash flows for the year ended December 31, 2006, the seven-month
      period ended December 31, 2005, and the years ended May 31, 2005 and 2004.
      These
      consolidated financial statements are the responsibility of the Company's
      management. Our responsibility is to express an opinion on these consolidated
      financial statements based on our audits.





We
      conducted our audits in accordance with auditing standards generally accepted
      in
      Ireland and the standards of the Public Company Accounting Oversight Board
      (United States). Those standards 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. An audit
      also includes assessing the accounting principles used and significant estimates
      made by management, as well as evaluating the overall financial statement
      presentation. We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of ICON plc and
      subsidiaries as of December 31, 2006, December 31, 2005, May 31, 2005 and the
      consolidated results of their operations and their cash flows for the year
      ended
      December 31, 2006, the seven-month period ended December 31, 2005, and the
      years
      ended May 31, 2005 and 2004 in conformity with U.S. generally accepted
      accounting principles.





As
      described in Note 3 to the consolidated financial statements, effective January
      1, 2006, the Company has changed its method of accounting for stock-based
      compensation upon adoption of Statement of Financial Accounting Standard No.
      123R *Share
      Based Payments* .








KPMG





Dublin,
      Ireland


February
      12, 2006




52





**ICON
      plc**


**CONSOLIDATED
      BALANCE SHEETS**





**May
                    31,**
                
                **December
                    31,**
                
                **December
                    31,****2005**
                
                **2005**
                
                **2006****(in
                    thousands)****ASSETS**Current
                    Assets:Cash
                    and cash equivalents
                
                $
                56,341
                
                $
                59,509
                
                $
                63,039Short
                    term investments - available for sale (Note 3)
                
                
                22,034
                
                
                22,809
                
                
                39,822Accounts
                    receivable
                
                
                80,486
                
                
                71,450
                
                
                108,216Unbilled
                    revenue
                
                
                56,762
                
                
                62,270
                
                
                89,977Other
                    receivables
                
                
                5,662
                
                
                6,435
                
                
                7,468Deferred
                    tax asset (Note 13)
                
                
                2,637
                
                
                1,554
                
                
                6,028Prepayments
                    and other current assets
                
                
                10,717
                
                
                11,089
                
                
                14,335Total
                    current assets
                
                
                234,639
                
                
                235,116
                
                
                328,885Other
                    Assets:Property,
                    plant and equipment, net (Note 6)
                
                
                45,286
                
                
                47,652
                
                
                68,208Goodwill
                    (Note 4)
                
                
                67,440
                
                
                65,731
                
                
                78,717Non-current
                    deferred tax asset (Note 13)
                
                
                -
                
                
                452
                
                
                531Intangible
                    assets (Note 5)
                
                
                188
                
                
                116
                
                
                -Total
                    Assets
                
                $
                347,553
                
                $
                349,067
                
                $
                476,341**LIABILITIES
                    AND SHAREHOLDERS’ EQUITY**Current
                    Liabilities:Accounts
                    payable
                
                $
                10,379
                
                $
                7,575
                
                $
                9,691Payments
                    on account
                
                
                52,583
                
                
                50,211
                
                
                90,394Other
                    liabilities (Note 7)
                
                
                39,890
                
                
                33,184
                
                
                51,956Deferred
                    tax liability (Note 13)
                
                
                310
                
                
                682
                
                
                538Bank
                    credit lines and loan facilities
                
                
                -
                
                
                4,856
                
                
                5,000Income
                    taxes payable
                
                
                6,189
                
                
                6,296
                
                
                10,985Total
                    current liabilities
                
                
                109,351
                
                
                102,804
                
                
                168,564Other
                    Liabilities:Long
                    term government grants (Note 11)
                
                
                1,257
                
                
                1,160
                
                
                1,170Long
                    term finance leases
                
                
                248
                
                
                152
                
                
                163Non-current
                    deferred tax liability (Note 13)
                
                
                2,747
                
                
                2,499
                
                
                2,586Minority
                    interest
                
                
                884
                
                
                894
                
                
                1,120Shareholders'
                    Equity:Ordinary
                    shares, par value 6 euro cents per share; 40,000,000 shares
                    authorized,27,798,192
                    shares issued and outstanding at May 31, 2005 and 28,036,184
                    shares issued
                    and outstanding at December 31, 2005 and 28,517,852 shares issued
                    and
                    outstanding at December 31, 2006 (Note 12)
                
                
                2,047
                
                
                2,063
                
                
                2,100Additional
                    paid-in capital
                
                
                113,385
                
                
                122,263
                
                
                133,996Accumulated
                    other comprehensive income
                
                
                11,229
                
                
                3,409
                
                
                14,515Retained
                    earnings
                
                
                106,405
                
                
                113,823
                
                
                152,127Total
                    Shareholders’ Equity
                
                
                233,066
                
                
                241,558
                
                
                302,738Total
                    Liabilities and Shareholders’ Equity
                
                $
                347,553
                
                $
                349,067
                
                $
                476,341


The
      accompanying notes are an integral part of these consolidated financial
      statements.




53


**ICON
      plc**


**CONSOLIDATED** **STATEMENTS
      OF OPERATIONS**





**Year
                  Ended May 31,**
              
              **Seven
                  Month**
                **Period
                  Ended**
                **December
                  31,**
              
              **Year
                  Ended**
                **December
                  31,****2004**
              
              **2005**
              
              **2005**
              
              **2006****(in
                  thousands, except share and per share data)**Revenue:Gross
                  revenue
              
              $
              443,875
              
              $
              469,583
              
              $
              275,586
              
              $
              649,826Subcontractor
                  costs
              
              
              (146,952
              )
              
              (142,925
              )
              
              (73,636
              )
              
              (194,229
              )Net
                  revenue
              
              
              296,923
              
              
              326,658
              
              
              201,950
              
              
              455,597Costs
                  and expenses:Direct
                  costs
              
              
              162,562
              
              
              179,661
              
              
              114,004
              
              
              256,263Selling,
                  general and administrative
              
              
              88,807
              
              
              103,784
              
              
              62,276
              
              
              136,569Depreciation
                  and amortization
              
              
              11,171
              
              
              13,331
              
              
              8,094
              
              
              14,949Stock
                  compensation (Note 10)
              
              
              -
              
              
              -
              
              
              6,024
              
              
              -Other
                  charges (Note 14)
              
              
              -
              
              
              11,275
              
              
              -
              
              
              -Total
                  costs and expenses
              
              
              262,540
              
              
              308,051
              
              
              190,398
              
              
              407,781Income
                  from operations
              
              
              34,383
              
              
              18,607
              
              
              11,552
              
              
              47,816Interest
                  income
              
              
              490
              
              
              1,208
              
              
              1,294
              
              
              3,765Interest
                  expense
              
              
              (202
              )
              
              (229
              )
              
              (22
              )
              
              (125
              )Income
                  before provision for income taxes
              
              
              34,671
              
              
              19,586
              
              
              12,824
              
              
              51,456Provision
                  for income taxes (Note 13)
              
              
              (8,929
              )
              
              (5,852
              )
              
              (5,396
              )
              
              (12,924
              )Minority
                  interest
              
              
              -
              
              
              (189
              )
              
              (10
              )
              
              (228
              )Net
                  income
              
              $
              25,742
              
              $
              13,545
              
              $
              7,418
              
              $
              38,304Net
                  income per ordinary share:Basic
              
              $
              0.97
              
              $
              0.49
              
              $
              0.27
              
              $
              1.35Diluted
              
              $
              0.94
              
              $
              0.48
              
              $
              0.26
              
              $
              1.33Weighted
                  average number of ordinary shares outstanding:Basic
                  (Note 2)
              
              
              26,535,062
              
              
              27,720,406
              
              
              27,940,212
              
              
              28,314,985Diluted
                  (Note 2)
              
              
              27,406,326
              
              
              28,306,890
              
              
              28,495,084
              
              
              28,863,334The
                  accompanying notes are an integral part of these consolidated financial
                  statements.




54


**ICON
      plc**


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE
      INCOME**





**Accumulated****Additional**
              
              **Other****Paid-in**
              
              **Comprehensive**
              
              **Retained****Shares**
              
              **Amount**
              
              **Capital**
              
              **Income**
              
              **Earnings**
              
              **Total****Balance
                  at May 31, 2003***
              
              
              23,683,114
              
              $
              1,759
              
              $
              60,246
              
              $
              7,787
              
              $
              67,118
              
              $
              136,910Comprehensive
                  Income:Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              25,742
              
              
              25,742Currency
                  translation adjustment
              
              
              
              
              
              
              
              
              
              
              
              2,197
              
              
              
              
              
              2,197Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              27,939Exercise
                  of share options
              
              
              993,838
              
              
              70
              
              
              5,288
              
              
              
              
              
              
              
              
              5,358Shares
                  issued
              
              
              3,000,000
              
              
              208
              
              
              45,497
              
              
              
              
              
              
              
              
              45,705Share
                  issue costs
              
              
              
              
              
              
              
              
              (1,428
              )
              
              
              
              
              
              
              
              (1,428
              )Tax
                  benefit on exercise of options
              
              
              
              
              
              
              
              
              2,276
              
              
              
              
              
              
              
              
              2,276**Balance
                  at May 31, 2004***
              
              
              27,676,952
              
              $
              2,037
              
              $
              111,879
              
              $
              9,984
              
              $
              92,860
              
              $
              216,760Comprehensive
                  Income:Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              13,545
              
              
              13,545Currency
                  translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              1,245
              
              
              -
              
              
              1,245Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              14,790Exercise
                  of share options
              
              
              121,240
              
              
              10
              
              
              1,397
              
              
              -
              
              
              -
              
              
              1,407Share
                  issue costs
              
              
              -
              
              
              -
              
              
              (60
              )
              
              -
              
              
              -
              
              
              (60
              )Tax
                  benefit on exercise of options
              
              
              -
              
              
              -
              
              
              169
              
              
              -
              
              
              -
              
              
              169**Balance
                  at May 31, 2005***
              
              
              27,798,192
              
              $
              2,047
              
              $
              113,385
              
              $
              11,229
              
              $
              106,405
              
              $
              233,066Comprehensive
                  Income:Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              7,418
              
              
              7,418Currency
                  translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              (6,049
              )
              
              -
              
              
              (6,049
              )Minimum
                  pension liability adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,771
              )
              
              -
              
              
              (1,771
              )Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (402
              )Exercise
                  of share options
              
              
              237,992
              
              
              16
              
              
              1,895
              
              
              -
              
              
              -
              
              
              1,911Stock
                  compensation expense
              
              
              -
              
              
              -
              
              
              6,249
              
              
              -
              
              
              -
              
              
              6,249Share
                  issue costs
              
              
              -
              
              
              -
              
              
              (24
              )
              
              -
              
              
              -
              
              
              (24
              )Tax
                  benefit on exercise of options
              
              
              -
              
              
              -
              
              
              758
              
              
              -
              
              
              -
              
              
              758**Balance
                  at December 31, 2005***
              
              
              28,036,184
              
              $
              2,063
              
              $
              122,263
              
              $
              3,409
              
              $
              113,823
              
              $
              241,558




55





**Balance
                at December 31, 2005***
            
            
            28,036,184
            
            $
            2,063
            
            $
            122,263
            
            $
            3,409
            
            $
            113,823
            
            $
            241,558Comprehensive
                Income:Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            38,304
            
            
            38,304Currency
                translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            11,482
            
            
            -
            
            
            11,482Minimum
                pension liability adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            (376
            )
            
            -
            
            
            (376
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            49,410Exercise
                of share options
            
            
            481,668
            
            
            37
            
            
            6,642
            
            
            -
            
            
            -
            
            
            6,679Stock
                compensation expense
            
            
            -
            
            
            -
            
            
            4,066
            
            
            -
            
            
            -
            
            
            4,066Share
                issue costs
            
            
            -
            
            
            -
            
            
            (84
            )
            
            -
            
            
            -
            
            
            (84
            )Tax
                benefit on exercise of options
            
            
            -
            
            
            -
            
            
            1,109
            
            
            -
            
            
            -
            
            
            1,109**Balance
                at December 31, 2006***
            
            
            28,517,852
            
            $
            2,100
            
            $
            133,996
            
            $
            14,515
            
            $
            152,127
            
            $
            302,738


*Comparative
      figures have been amended to reflect the Bonus Issue which took place with
      an
      effective date of October 13, 2006.


The
      accompanying notes are an integral part of these consolidated financial
      statements.




56


**ICON
      plc**


**CONSOLIDATED
      STATEMENTS OF** **CASH
      FLOWS**


**Year
                Ended May 31,**
            
            **Seven
                Month**
              **Period
                Ended**
              **December
                31,**
            
            **Year
                Ended**
              **December
                31,****2004**
            
            **2005**
            
            **2005**
            
            **2006****Cash
                flows from operating activities:**
            
            **(in
                thousands)**Net
                income
            
            $
            25,742
            
            $
            13,545
            
            $
            7,418
            
            $
            38,304Adjustments
                to reconcile net income to net cashprovided
                by operating activities:Loss
                on disposal of property, plant and equipment
            
            
            222
            
            
            66
            
            
            43
            
            
            186Depreciation
                and amortization
            
            
            11,171
            
            
            13,331
            
            
            8,094
            
            
            14,949Amortization
                of grants
            
            
            (569
            )
            
            (199
            )
            
            (105
            )
            
            (114
            )Stock
                compensation expense
            
            
            -
            
            
            -
            
            
            6,249
            
            
            4,066Deferred
                taxes
            
            
            985
            
            
            (532
            )
            
            717
            
            
            (1,887
            )Minority
                interest
            
            
            -
            
            
            189
            
            
            10
            
            
            228Other
                charges
            
            
            -
            
            
            11,275
            
            
            -
            
            
            -Changes
                in assets and liabilities:(Increase)/decrease
                in accounts receivable
            
            
            4,089
            
            
            (4,930
            )
            
            7,487
            
            
            (32,893
            )(Increase)/decrease
                in unbilled revenue
            
            
            (15,329
            )
            
            3,071
            
            
            (6,522
            )
            
            (24,178
            )Decrease/(increase)
                in other receivables
            
            
            4,307
            
            
            1,383
            
            
            (1,530
            )
            
            5,089Increase
                in prepayments and other current assets
            
            
            (778
            )
            
            (994
            )
            
            (703
            )
            
            (2,477
            )Increase/(decrease)
                in payments on account
            
            
            14,228
            
            
            (9,515
            )
            
            (1,579
            )
            
            35,605Increase/(decrease)
                in other liabilities
            
            
            (1,654
            )
            
            (446
            )
            
            (4,324
            )
            
            10,699Increase
                in income taxes payable
            
            
            2,237
            
            
            1,420
            
            
            1,125
            
            
            1,532Increase/(decrease)
                in accounts payable
            
            
            (1,009
            )
            
            (2,455
            )
            
            (2,599
            )
            
            1,343Net
                cash provided by operating activities
            
            
            43,642
            
            
            25,209
            
            
            13,781
            
            
            50,452**Cash
                flows from investing activities:**Purchase
                of property, plant and equipment
            
            
            (13,097
            )
            
            (15,595
            )
            
            (12,128
            )
            
            (31,516
            )Purchase
                of intangible asset
            
            
            -
            
            
            (250
            )
            
            -
            
            
            -Purchase
                of subsidiary undertakings and acquisition costs
            
            
            (11,258
            )
            
            (10,052
            )
            
            -
            
            
            (7,017
            )Cash
                acquired with subsidiary undertakings
            
            
            891
            
            
            1,658
            
            
            -
            
            
            341Deferred
                payments in respect of historical acquisitions
            
            
            (1,733
            )
            
            (2,514
            )
            
            (3,374
            )
            
            (96
            )Sale
                of short term investments
            
            
            -
            
            
            12,022
            
            
            14,016
            
            
            3,008Purchase
                of short term investments
            
            
            (23,085
            )
            
            (10,971
            )
            
            (14,791
            )
            
            (20,021
            )Receipt
                of government grant
            
            
            945
            
            
            -
            
            
            -
            
            
            -Net
                cash used in investing activities
            
            
            (47,337
            )
            
            (25,702
            )
            
            (16,277
            )
            
            (55,301
            )**Cash
                flows from financing activities:**(Repayment)/drawdown
                of bank overdraft
            
            
            (7,126
            )
            
            -
            
            
            4,833
            
            
            112Proceeds
                from exercise of share options
            
            
            5,358
            
            
            1,407
            
            
            1,911
            
            
            6,679Proceeds
                from the issuance of share capital
            
            
            45,705
            
            
            -
            
            
            -
            
            
            -Share
                issuance costs
            
            
            (1,182
            )
            
            (197
            )
            
            (24
            )
            
            (84
            )Tax
                benefit from exercise of share options
            
            
            -
            
            
            -
            
            
            -
            
            
            1,109Repayment
                of other liabilities
            
            
            (230
            )
            
            (272
            )
            
            (96
            )
            
            (114
            )Net
                cash provided by financing activities
            
            
            42,525
            
            
            938
            
            
            6,624
            
            
            7,702Effect
                of exchange rate movements on cash
            
            
            (1,463
            )
            
            218
            
            
            (960
            )
            
            677**Net
                increase in cash and cash equivalents**
            
            
            37,367
            
            
            663
            
            
            3,168
            
            
            3,530Cash
                and cash equivalents at beginning of year
            
            
            18,311
            
            
            55,678
            
            
            56,341
            
            
            59,509**Cash
                and cash equivalents at end of year**
            
            $
            55,678
            
            $
            56,341
            
            $
            59,509
            
            $
            63,039


The
        accompanying notes are an integral part of these consolidated financial
        statements.
  57


**ICON
      plc**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**








**1.
      Description of business**





ICON
      plc
      and subsidiaries (“The Company”) is a contract research organization (“CRO”),
      providing outsourced development services on a global basis to the
      pharmaceutical, biotechnology and medical device industries. The Company
      specializes in the strategic development, management and analysis of programs
      that support Clinical Development - from compound selection to Phase I-IV
      clinical studies.





The
      Company’s primary approach is to use dedicated teams to achieve optimum results,
      but the Company can implement a range of resourcing models to suit client
      requirements.





In
      a
      highly fragmented industry, we are one of a select group of companies with
      the
      capability and expertise to conduct clinical trials in all major therapeutic
      areas on a global basis. Currently, the Company have approximately 4,300
      employees, in 49 locations, in 30 countries, providing Phase I - IV Clinical
      Trial Management, Drug Development Support Services, Data Management and
      Biostatistics and Central Laboratory and Imaging Services. The Company has
      the
      operational flexibility to provide development services on a stand-alone basis
      or as part of an integrated “full service” solution.





Headquartered
      in Dublin, Ireland, we began operations in 1990 and have expanded our business
      through internal growth and strategic acquisitions. For the year ended December
      31, 2006, we derived approximately 58.4%, 35.8% and 5.8% of our net revenue
      in
      the United States, Europe and Rest of World, respectively.





On
      July
      27, 2005 the Board of Directors of ICON approved a change of the Company’s
      fiscal year end from a twelve-month period ending on May 31 to a twelve-month
      period ending on December 31.  The Company made this change in order to
      align our fiscal year end with the majority of other contract research
      organizations.  As a requirement of this change, ICON reported results for
      the seven-month period from June 1, 2005 to December 31, 2005 as a separate
      transition period. As of January 1, 2006, ICON’s fiscal year now
      begins on January 1 and ends on December 31 and its fiscal quarters end on
      the
      last day of March, June, September and December.





On
      September 29, 2006, ICON’s shareholders approved a bonus issue of ordinary
      shares (the “Bonus Issue”) to shareholders of record as of the close of business
      on October 13, 2006 (the “Record Date”). The Bonus Issue provided for each
      shareholder to receive one bonus ordinary share for each ordinary share held
      as
      of the Record Date, effecting the equivalent of a 2-for-1 stock split. The
      Bonus
      shares were issued on October 16, 2006 to Ordinary Shareholders and on October
      23, 2006 to holders of American Depositary Shares (“ADSs”). NASDAQ adjusted the
      trading price of ICON’s ADSs to effect the Bonus Issue prior to the opening of
      trading on October 24, 2006. All outstanding ordinary share amounts referenced
      in the consolidated financial statements and the notes thereto have been
      retrospectively restated to give effect to the Bonus Issue as if it had occurred
      as of the date referenced.








**2.
      Significant Accounting Policies**





The
      accounting policies noted below were applied in the preparation of the
      accompanying financial statements of the Company and are in conformity with
      accounting principles generally accepted in the United States.





(a)  Basis
      of
      consolidation





The
      consolidated financial statements include the financial statements of the
      Company and all of its subsidiaries. All significant intercompany profits,
      transactions and account balances have been eliminated. The results of
      subsidiary undertakings acquired in the period are included in the consolidated
      statement of operations from the date of acquisition.





58





(b)  Use
      of
      estimates





The
      preparation of financial statements in conformity with generally accepted
      accounting principles in the United States 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 reported
      period. Actual results could differ from those estimates.





(c)  Revenue
      recognition





The
      Company primarily earns revenues by providing a number of different services
      to
      its customers. These services include clinical trials management, biometric
      activities, consulting and laboratory services. Contracts range in duration
      from
      a number of months to several years.





Clinical
      trials management revenue is earned on the basis of the relationship between
      time incurred and the total estimated duration of the trial. Biometrics revenue
      is recognized on a fee-for-service method on the basis of the number of units
      completed in a period as a percentage of the total number of contracted units.
      Consulting revenue is recognized on a fee-for-service basis as the related
      service is performed. Laboratory service revenue is recognized on a
      fee-for-service basis. The Company accounts for laboratory service contracts
      as
      multiple element arrangements, with contractual elements comprising laboratory
      kits and laboratory testing, each of which can be sold separately. Fair values
      for contractual elements are determined by reference to objective and reliable
      evidence of their fair values. Non-refundable set-up fees are allocated as
      additional consideration to the contractual elements based on the proportionate
      fair values of each of these elements. Revenues for contractual elements are
      recognized on the basis of the number of deliverable units completed in the
      period.





Contracts
      generally contain provisions for renegotiation in the event of changes in the
      scope, nature, duration, volume of services or conditions of the contract.
      Renegotiated amounts are recognized as revenue by revision to the total contract
      value arising as a result of an authorized customer change order. Provisions
      for
      losses to be incurred on contracts are recognized in full in the period in
      which
      it is determined that a loss will result from performance of the contractual
      arrangement.





The
      difference between the amount of revenue recognized and the amount billed on
      a
      particular contract is included in the balance sheet as unbilled revenue.
      Normally, amounts become billable upon the achievement of certain milestones,
      in
      accordance with pre-agreed payment schedules included in the contract or on
      submission of appropriate billing detail. Such cash payments are not
      representative of revenue earned on the contract as revenues are recognized
      over
      the period in which the specified contractual obligations are fulfilled. Amounts
      included in unbilled revenue are expected to be collected within one year and
      are included within current assets. Advance billings to customers, for which
      revenue has not been recognized, are recognized as payments on account within
      current liabilities.





In
      the
      event of contract termination, if the value of work performed and recognized
      as
      revenue is greater than aggregate milestone billings at the date of termination,
      cancellation clauses ensure that the Company is paid for all work performed
      to
      the termination date.





(d)  Subcontractor
      costs





Subcontractor
      costs comprise investigator payments and certain other costs which are
      reimbursed by clients under terms specific to each contract and are deducted
      from gross revenue in arriving at net revenue. Investigator payments are accrued
      based on patient enrollment over the life of the contract. Investigator payments
      are made based on predetermined contractual arrangements, which may differ
      from
      the accrual of the expense. Payments to investigators in excess of the accrued
      expense are classified as prepaid expenses and accrued expense in excess of
      amounts paid are classified as accounts payable.





(e)  Direct
      costs





Direct
      costs consist of compensation and associated employee benefits for
      project-related employees, other direct project-related costs and stock based
      compensation.





59





(f)  Advertising
      costs





All
      costs
      associated with advertising and promotion are expensed as incurred. The
      advertising and promotion expense was U.S.$1,596,000, U.S.$2,401,000 and
      U.S.$1,453,000 for the years ended May 31, 2004, and 2005, and the seven month
      period ended December 31, 2005, and US$2,687,345 for the year ended December
      31,
      2006 respectively.





(g)  Foreign
      currencies and translation of subsidiaries





The
      Company's financial statements are prepared in United States dollars.
      Transactions in currencies other than United States dollars are recorded at
      the
      rate ruling at the date of the transactions. Monetary assets and liabilities
      denominated in currencies other than United States dollars are translated into
      United States dollars at exchange rates prevailing at the balance sheet date.
      Adjustments resulting from these translations are charged or credited to income.
      For the years ended May 31, 2004, and 2005, and the seven month period ending
      December 31, 2005 amounts (credited)/charged to income amounted to,
      (U.S.$2,445,000), U.S.$433, 000
      and
      U.S.$408,000 respectively. For the year ended December 31, 2006 amounts charged
      to income amounted to U.S. $1,538,386.





The
      financial statements of subsidiaries with other functional currencies are
      translated at period end rates for the balance sheet and average rates for
      the
      income statement. Translation gains and losses arising are reported as a
      movement on accumulated other comprehensive income.





(h)  Disclosure
      about fair value of financial instruments





The
      following methods and assumptions were used to estimate the fair value of each
      material class of financial instrument:





Cash,
      cash
      equivalents, unbilled revenue, other receivables, short term investments,
      prepayments and other current assets, accounts receivable, accounts payable,
      investigator payments, payments received on account, accrued liabilities,
      accrued bonuses, bank overdraft and taxes payable have carrying amounts that
      approximate fair value due to the short term maturities of these instruments.





Long-term
      debt and other liabilities carrying amounts approximate fair value based on
      net
      present value of estimated future cash flows.





(i)  Leased
      Assets





Costs
      in
      respect of operating leases are charged to the statement of operations on a
      straight line basis over the lease term.





Assets
      acquired under capital finance leases are included in the balance sheet at
      the
      present value of the future minimum lease payments and are depreciated over
      the
      shorter of the lease term and their remaining useful lives. The corresponding
      liabilities are recorded in the balance sheet and the interest element of the
      capital lease rental is charged to interest expense.





(j)  Goodwill





Goodwill
      represents the excess of the cost of acquired entities over the net of amounts
      assigned to assets acquired and liabilities assumed. Goodwill is stated net
      of
      any provision for impairment. The Company tests goodwill annually for any
      impairments or whenever events occur which may indicate impairment. The first
      step is to compare the carrying amount of the reporting units’ assets to the
      fair value of the reporting unit. If the carrying amount exceeds the fair value
      then a second step is completed which involves the fair value of the reporting
      unit being allocated to each asset and liability with the excess being implied
      goodwill. The impairment loss is the amount by which the recorded goodwill
      exceeds the implied goodwill. The Company’s annual test for impairment performed
      for the year ended May 31, 2005 identified an impairment charge to be taken
      against the central laboratory segment. For further information, refer to Note
      14 to the Consolidated Financial Statements. No impairment was recognized as
      a
      result of the impairment testing carried out as at December 31, 2006.





60





(k)  Other
      intangible assets





Other
      intangible assets are amortized on a straight line basis over their estimated
      useful life.





(l)  Cash
      and
      cash equivalents





Cash
      and
      cash equivalents include cash and highly liquid investments with initial
      maturities of three months or less and are stated at cost, which approximates
      market value.





(m)  Short
      term
      investments - available for sale





The
      Company has classified short-term investments as available for sale in
      accordance with the terms of SFAS No.115 “Accounting for Certain Investments in
      Debt and Equity Securities”. Realized gains and losses are determined using
      specific identification. The investments are reported at fair value, with
      unrealized gains or losses reported in a separate component of shareholders’
equity. Any differences between the cost and fair value of the investments
      are
      represented by accrued interest.





(n)  Inventory





Inventory
      is valued at the lower of cost and net market value and after provisions for
      obsolescence. Cost in the case of raw materials comprises the purchase price
      and
      attributable costs, less trade discounts. As at the year ended December 31,
      2006
      the carrying value of inventory on the balance sheet was $2.6 million (2005:
      $1.7 million).





(o)  Property,
      plant and equipment





Property,
      plant and equipment are stated at cost less accumulated depreciation.
      Depreciation of property, plant and equipment is computed using the straight
      line method based on the estimated useful lives of the assets as listed
      below:


YearsBuilding
              
              
              40Computer
                  equipment and software
              
              
              4Office
                  furniture and fixtures
              
              
              8Laboratory
                  equipment
              
              
              5Motor
                  vehicles
              
              
              5


Leasehold
      improvements are amortized using the straight-line method over the estimated
      useful life of the asset or the lease term, whichever is shorter.





(p)  Income
      taxes





The
      Company applies Statement of Financial Accounting Standard ("SFAS") No. 109,
      "Accounting for Income Taxes," which requires the asset and liability method
      of
      accounting for income taxes. Under the asset and liability method of SFAS No.
      109, deferred tax assets and liabilities are recognized for the future tax
      consequences attributable to differences between the financial statement
      carrying amounts of existing assets and liabilities and their respective tax
      bases, and operating loss and tax credit carryforwards. Deferred tax assets
      and
      liabilities are measured using enacted tax rates expected to apply to taxable
      income in the years in which these temporary differences are expected to be
      recovered or settled. The effect on deferred tax assets and liabilities of
      a
      change in tax rates is recognized in income in the period that includes the
      enactment date.




61





(q)  Government
      grants





Government
      grants received relating to capital expenditure are shown as deferred income
      and
      credited to income on a basis consistent with the depreciation policy of the
      relevant assets.





Grants
      relating to categories of operating expenditures are credited to income in
      the
      period in which the expenditure to which they relate is charged.





Under
      the
      grant agreements amounts received may become repayable in full should certain
      circumstances specified within the grant agreements occur, including downsizing
      by the Company, disposing of the related assets, ceasing to carry on its
      business or the appointment of a receiver over any of its assets.





The
      Company has not recognized any loss contingency having assessed as remote the
      likelihood of these events arising.





(r)  Pension
      costs





The
      Company contributes to defined contribution plans covering all eligible
      employees. The Company contributes to these plans based upon various fixed
      percentages of employee compensation and such contributions are expensed as
      incurred.





The
      Company operates, through a subsidiary, a defined benefit plan for certain
      of
      its United Kingdom employees. The Company accounts for the costs of this plan
      using actuarial models required by SFAS No.87, “Employers Accounting for
      Pensions”. Disclosures are presented in accordance with the requirements of SFAS
      No.158 “Employers’ Accounting for Defined Benefit Pensions and Other
      Post-retirement Plans”.





(s)  Net
      income
      per ordinary share





Basic
      net
      income per ordinary share has been computed by dividing net income available
      to
      ordinary shareholders by the weighted average number of ordinary shares
      outstanding during the period. Diluted net income per ordinary share is computed
      by adjusting the weighted average number of ordinary shares outstanding during
      the period for all potentially dilutive ordinary shares outstanding during
      the
      period and adjusting net income for any changes in income or loss that would
      result from the conversion of such potential ordinary shares.





There
      is
      no difference in net income used for basic and diluted net income per ordinary
      share. The reconciliation of the number of shares used in the computation of
      basic and diluted net income per ordinary share is as follows:


**Year
                  Ended May 31,**
              
              **Seven
                  month**
                **Period
                  Ended December 31,**
              
              **Year
                  Ended**
                **December
                  31,****2004**
              
              **2005**
              
              **2005**
              
              **2006**Weighted
                  average number of ordinary sharesoutstanding for basic net income
                  per
                  ordinary share
              
              
              26,535,062
              
              
              27,720,406
              
              
              27,940,212
              
              
              28,314,985Effect
                  of dilutive share options outstanding
              
              
              871,264
              
              
              586,484
              
              
              554,872
              
              
              548,349Weighted
                  average number of ordinary shares outstanding for diluted net income
                  per
                  ordinary share
              
              
              27,406,326
              
              
              28,306,890
              
              
              28,495,084
              
              
              28,863,334




62


(t)  Share-based
      compensation





The
      Company accounts for its share options in accordance with the provisions of
      SFAS
      No. 123R, “Share Based Payment”. SFAS 123R requires that all share based
      payments to employees, including stock options granted, be recognized in the
      financial statements based on their grant date fair values over the requisite
      service period. The Company adopted SFAS 123R with effect from January 1, 2006,
      with the Black-Scholes method of valuation being used to calculate the fair
      value of options granted. The Company adopted SFAS 123R using the
      modified-prospective transition method. Under that transition method
      compensation cost recognized in the year ended December 31, 2006, includes;
      (a)
      compensation cost for all share-based payments granted prior to, but not yet
      vested as of, January 1, 2006, based on grant date fair value estimated in
      accordance with the original provisions of SFAS 123 and (b) compensation cost
      for all share based payments granted subsequent to January 1, 2006, based on
      grant date fair values estimated in accordance with the provisions of SFAS
      123R
      and the estimated number of awards that are expected to vest. Results for prior
      periods have not been restated.





The
      following table illustrates the effect on net income and earnings per share
      as
      if the fair value method of SFAS No. 123R had been applied to all outstanding
      and unvested stock options in each period.


**Year
                  ended**
                **May
                  31,**
                **2004
                  ***
              
              **Year
                  ended**
                **May
                  31,**
                **2005
                  ***
              
              **Seven-month**
                **ended**
                **December
                  31,**
                **2005
                  *****(in
                  thousands)****(except
                  per share data)**Net
                  income, as reported
              
              $
              25,742
              
              $
              13,545
              
              $
              7,418Add:
                  Stock compensation expense
              
              
              -
              
              
              -
              
              
              22525,742
              
              
              13,545
              
              
              7,643Deduct:
                  Total stock-based employee compensation expense determined under
                  fair
                  value based method for all awards, net of related tax
                  effects
              
              
              (2,358
              )
              
              (2,729
              )
              
              (1,248
              )Pro
                  forma net income
              
              $
              23,384
              
              $
              10,816
              
              $
              6,395Earnings
                  per share (in $):Basic
                  - as reported *
              
              $
              0.97
              
              $
              0.49
              
              $
              0.27Basic
                  - pro forma *
              
              
              0.88
              
              
              0.39
              
              
              0.23Diluted
                  - as reported *
              
              $
              0.94
              
              $
              0.48
              
              $
              0.26Diluted
                  - pro forma *
              
              
              0.85
              
              
              0.38
              
              
              0.22


*
      Comparative figures have been amended to reflect the Bonus Issue which took
      place with an effective date of October 13, 2006





(u)  Impairment
      of long-lived assets





Long
      lived
      assets are reviewed for impairment whenever events or changes in circumstances
      indicate that the carrying amount of an asset may not be recoverable.
      Recoverability of assets to be held and used is measured by a comparison of
      the
      carrying amount of an asset to future undiscounted net cash flows expected
      to be
      generated by the asset. If such assets are considered to be impaired, the
      impairment to be recognized is measured by the amount by which the carrying
      amount of the assets exceeds the fair value of the assets. Assets to be disposed
      of are reported at the lower of the carrying amount or fair value less selling
      costs.





63




(v)  Reclassifications





Certain
      amounts in the consolidated financial statements have been reclassified where
      necessary to conform to the current year presentation.





**3.
      Short term investments - available for sale**




The
      Company has classified its entire investment portfolio comprising floating
      rate
      and medium term minimum “A” rated corporate securities, as available for sale.
      The investments are reported at fair value, with unrealized gains or losses
      reported in a separate component of shareholders’ equity. In the years to May
      31, 2004, 2005 and the seven month period ended December 31, 2005 and in the
      year ended December 31, 2006 no unrealized gains or losses arose. Any
      differences between the cost and fair value of the investments are represented
      by accrued interest.





**4.
      Goodwill**


**May
                  31,**
              
              **December
                  31,**
              
              **December
                  31,****2005**
              
              **2005**
              
              **2006****(in
                  thousands)**Opening
                  Goodwill
              
              $
              64,226
              
              $
              67,440
              
              $
              65,731Arising
                  during the year
              
              
              8,463
              
              
              -
              
              
              9,005Arising
                  on earn-out (prior year acquisitions)
              
              
              1,856
              
              
              -
              
              
              96Goodwill
                  impairment (Note 14)
              
              
              (7,017
              )
              
              -
              
              
              -Foreign
                  exchange movement
              
              
              (88
              )
              
              (1,709
              )
              
              3,885Closing
                  Goodwill
              
              $
              67,440
              
              $
              65,731
              
              $
              78,717


The
      distribution of goodwill by business segment was as follows:


**May
                    31,**
                
                **December
                    31,**
                
                **December
                    31,****2005**
                
                **2005**
                
                **2006****(in
                    thousands)**Central
                    laboratory (Note 14)
                
                $
                -
                
                $
                -
                
                $
                -Clinical
                    research
                
                
                67,440
                
                
                65,731
                
                
                78,717Total
                
                $
                67,440
                
                $
                65,731
                
                $
                78,717


*(a)
      Acquisition of Medeval Group Ltd*





On
      January
      24, 2003, the Company acquired 100% of the outstanding shares of Medeval Group
      Limited (“Medeval”), a company based in Manchester, England, for an initial cash
      consideration of Stg£9.5 million (U.S.$15.5 million), excluding costs of
      acquisition which amounted to U.S.$1million. Earn-out provisions have been
      built
      into the acquisition contract requiring the potential payment of additional
      deferred consideration up to a maximum of Stg£4.3 million (U.S.$6.9 million)
      depending on the performance of Medeval over the period to May 31, 2004. Such
      additional consideration has been accounted for as goodwill.




On
      May 31,
      2003, an amount of Stg£1.4 million (U.S.$2 million) was accrued in relation to
      the Medeval acquisition, as the first earn-out target identified in the
      acquisition contract was reached on this date. It was provided in the applicable
      acquisition agreement that the form of the earn-out would consist of cash
      payable to one specific named selling shareholder, with the balance due to
      the
      other selling shareholders being in the form of guaranteed loan notes. These
      guaranteed loan notes have a repayment date of three years from the date of
      issue but are exercisable six months from that date. On September 30, 2003,
      Stg£0.472 million (U.S.$0.8 million) was paid in cash to a specific named
      selling shareholder. On the same date, Stg£0.753 million (U.S.$1.403 million) of
      guaranteed loan notes were issued to the remaining selling shareholders and
      were
      included in other liabilities. The guaranteed loan note holders issued
      redemption notices to the Company, which required the Company to redeem all
      the
      guaranteed loan notes on June 30, 2004, in consideration for a cash payment
      of
      Stg£0.753 million (U.S.$1.380 million), the total amount of which was accrued at
      May 31, 2004.




64




On
      September 30, 2004, cash consideration of Stg£0.54 million (U.S.$0.97 million)
      was paid to a number of the former shareholders of Medeval and guaranteed loan
      notes with a value of Stg£1.08 million (U.S.$1.93 million) were issued to the
      remaining selling shareholders. At May 31, 2004, Stg£1.37 million (U.S.$2.5
      million) of this amount had been provided, therefore an additional Stg£0.253
      million (U.S.$0.452 million) was provided and accounted for under goodwill
      as at
      May 31, 2005. These guaranteed loan notes have a repayment date of three years
      from the date of issue but are exercisable nine months from the date of issue.
      The guaranteed loan note holders issued redemption notices to the Company,
      which
      required the Company to redeem all the guaranteed loan notes on June 30, 2005,
      in consideration of a cash payment of Stg£1.08 million (U.S.$1.93 million), the
      total amount of which was accrued for at May 31, 2005.




The
      acquisition of Medeval has been accounted for as a purchase in accordance with
      SFAS No. 141, “Business Combinations”. The following table summarizes the fair
      values of the assets acquired and the liabilities assumed at the date of
      acquisition.




**(in
                thousands)**Property,
                plant and equipment
            
            $
            1,632Goodwill
            
            
            22,824Current
                assets
            
            
            2,738Pension
                liabilities
            
            
            (2,588
            )Other
                current liabilities
            
            
            (3,113
            )Purchase
                Price
            
            $
            21,493







The
      results of Medeval have been included in the consolidated financial statements
      from January 24, 2003.




*(b)
      Acquisition of GloboMax LLC*




On
      September 9, 2003, the Company acquired 100% of the outstanding shares of
      GloboMax LLC, based in Maryland, USA, for an initial cash consideration of
      U.S.$10.9 million, excluding costs of acquisition. Earn-out provisions have
      been
      built into the acquisition contract requiring the potential payment of
      additional deferred consideration up to a maximum of U.S.$4 million depending
      on
      the performance of GloboMax over the period from date of acquisition to May
      31,
      2006. Such potential additional consideration will be accounted for as goodwill.
      The total amount of goodwill is expected to be tax deductible.




On
      August
      26, 2005, cash consideration of U.S.$1.4 million was paid to the former
      shareholders of GloboMax in respect of the first earn-out target which was
      reached on May 31, 2005, The total amount of this earn-out was accrued at May
      31, 2005.




On
      May 31,
      2006, an amount of U.S.$0.96 million was paid to the former shareholders of
      GloboMax. This U.S.$0.96 million was withheld from an earn-out payment made
      on
      August 31, 2005 due to an outstanding customer debt arising prior to the
      acquisition of GloboMax. This customer debt has subsequently been recovered
      and
      the U.S.$0.96 million in turn became due to the former shareholders of GloboMax.
      This payment has been accounted for as goodwill. No further payments are
      anticipated.




The
      acquisition of GloboMax has been accounted for as a purchase in accordance
      with
      SFAS No. 141, “Business Combinations”. The following table summarizes the fair
      values of the assets acquired and the liabilities assumed at the date of
      acquisition.




65


**(in
                thousands)**Property,
                plant and equipment
            
            $
            352Goodwill
            
            
            14,634Cash
            
            
            891Other
                current assets
            
            
            2,487Current
                liabilities
            
            
            (5,539
            )Purchase
                Price
            
            $
            12,825







The
      results of GloboMax have been included in the consolidated financial statements
      from September 9, 2003.




*(c)
      Acquisition of Beacon Biosciences, Inc*




On
      July 1,
      2004, the Company acquired 70% of the outstanding shares of Beacon Biosciences,
      inc. (“Beacon”), based in Pennsylvania, USA, for an initial cash consideration
      of U.S.$9.9 million, excluding costs of acquisition.




The
      following table summarizes the fair values of the assets acquired and the
      liabilities assumed at the date of acquisition.




**(in
                thousands)**Property,
                plant and equipment
            
            $
            792Goodwill
            
            
            8,463Cash
            
            
            1,658Other
                current assets
            
            
            935Current
                liabilities
            
            
            (718
            )Long
                term liabilities
            
            
            (352
            )10,778Minority
                interest
            
            
            (695
            )Purchase
                Price
            
            $
            10,083





The
      results of Beacon have been included in the consolidated financial statements
      from July 1, 2004




*(d)
      Acquisition of Ovation*




On
      July
      10, 2006, the Company acquired 100% of the common stock of Ovation Healthcare
      Research 2 Inc. (“Ovation”), based in Illinois, USA, for an initial cash
      consideration of U.S.$6.6 million, excluding costs of acquisition. Working
      capital provisions were built into the acquisition contract requiring the
      potential payment of additional deferred consideration up to a maximum of
      U.S.$1.4 million.  On October 27, 2006, $0.18 million was paid to the
      former shareholders of Ovation in full and final settlement of the working
      capital provisions.





The
      acquisition of Ovation has been accounted for as a purchase in accordance with
      SFAS No. 141, “Business Combinations”. The following table summarizes the fair
      values of the assets acquired and the liabilities assumed at the date of
      acquisition.




**(in
                  thousands)**Property,
                  plant and equipment
              
              $
              384Goodwill
              
              
              9,005Cash
              
              
              341Other
                  current assets
              
              
              4,381Current
                  liabilities
              
              
              (6,952
              )Long
                  term liabilities
              
              
              (124
              )Purchase
                  Price
              
              $
              7,035





66




**5.
        Intangible Assets**
 
 On
        December 1, 2004, the Company acquired the workforce of Biomines Research
        Solutions Private Limited, (“Biomines”), based in Chennai, India, for a cash
        consideration of U.S.$250,000.
  **December
                    1,**
                  **2004**
                  **(in
                    thousands)**Acquired
                    workforce - intangible asset
                
                $
                250Purchase
                    Price
                
                $
                250
  The
          cost
          of the acquired workforce is being amortized over 24 months in line with
          the
          life of the non-compete service contracts of the acquired employees.
          U.S.$250,000 has been amortized in the period since the date of acquisition.
 ****May
                      31,****
                    **2005**
                  
                  **December
                        31,**
                      **2005**
                  ****
                  **December
                        31,**
                      **2006**
                  ********
                  ****
                  **(in
                        thousands)**Cost
                  
                  $
                  250
                  
                  $
                  250
                  
                  $
                  250Accumulated
                      amortization
                  
                  
                  (62
                  )
                  
                  (134
                  )
                  
                  (250
                  )Net
                      book value
                  
                  $
                  188
                  
                  $
                  116
                  
                  $
                  -
  **6.
          Property, Plant and Equipment, net**
 **May
                        31,**
                      **2005**
                  ****
                  **December
                        31,**
                      **2005**
                  ****
                  **December
                        31,**
                      **2006****(in
                      thousands)****Cost**Land
                  
                  $
                  780
                  
                  $
                  3,477
                  
                  $
                  3,771Building
                  
                  
                  11,358
                  
                  
                  12,625
                  
                  
                  28,131Computer
                      equipment and software
                  
                  
                  51,867
                  
                  
                  53,768
                  
                  
                  68,353Office
                      furniture and fixtures
                  
                  
                  20,031
                  
                  
                  19,889
                  
                  
                  24,639Laboratory
                      equipment
                  
                  
                  5,538
                  
                  
                  6,820
                  
                  
                  8,525Leasehold
                      improvements
                  
                  
                  5,684
                  
                  
                  5,679
                  
                  
                  5,674Motor
                      vehicles
                  
                  
                  39
                  
                  
                  73
                  
                  
                  11095,297
                  
                  
                  102,331
                  
                  
                  139,203Less
                      accumulated depreciation and asset write off
                  
                  
                  (50,011
                  )
                  
                  (54,679
                  )
                  
                  (70,995
                  )Property,
                      plant and equipment (net)
                  
                  $
                  45,286
                  
                  $
                  47,652
                  
                  $
                  68,208
  Total
        cost
        above at December 31, 2006 includes U.S. $1,057,987 (December 31, 2005:
        U.S.$654,000; May 31, 2005: U.S.$725,643,), which relates to assets held
        under
        capital finance leases. Related accumulated depreciation amounted to U.S.
        $642,726, (December 31, 2005: U.S.$346,000; May 31, 2005: U.S.$305,867).
        The
        cost of assets under construction as at December 31, 2006 amounted to $11.2
        million.
  67
  **7.
          Other Liabilities**
 
 **May
                      31,****2005**
                
                **December
                    31,**
                  **2005**
                
                **December
                    31,**
                  **2006****(in
                    thousands)**Accrued
                    liabilities
                
                $
                20,684
                
                $
                18,844
                
                $
                26,349Accrued
                    salary and bonuses
                
                
                9,830
                
                
                5,762
                
                
                18,460Accrued
                    social welfare costs
                
                
                2,016
                
                
                3,124
                
                
                2,131Contingent
                    purchase consideration payable
                
                
                3,374
                
                
                -
                
                
                -Short
                    term government grants
                
                
                199
                
                
                109
                
                
                118Accrued
                    pension liability
                
                
                3,585
                
                
                5,152
                
                
                4,724Short
                    term finance leases (Note 16)
                
                
                202
                
                
                193
                
                
                174$
                39,890
                
                $
                33,184
                
                $
                51,956
  **8.
          Bank Loans**
 
 The
          Company has short-term bank loan facilities as follows:
  On
          July 3,
          2003, ICON entered into a facility agreement (the "Facility Agreement")
          for the
          provision of a term loan facility of U.S.$40 million, multi-currency overdraft
          facility of $5 million and revolving credit facility of $15 million (the
          "Facilities") with The Governor and Company of the Bank of Ireland and
          Ulster
          Bank Ireland Limited (the “Banks”). Our obligations under the Facilities are
          secured by certain composite guarantees and indemnities and pledges in
          favor of
          each of the banks. The term loan facility bears interest at an annual rate
          equal
          to the Banks’ prime rate plus one percent. The multi-currency overdraft facility
          and the revolving credit facility bear interest at an annual rate equal
          to the
          Banks’ prime rate plus three quarters of one percent. ICON plc and its
          subsidiaries are entitled to make borrowings under a term loan facility
          of $40
          million and a multi currency overdraft facility of $5 million. As at December
          31, 2006, $15 million of the term loan facility was available to be drawn
          down,
          while the entire $5 million multi currency overdraft had been drawn down.
          The
          multi currency overdraft facility will become payable on demand if the
          Company
          defaults under its obligations as specified in the loan agreement. The
          reduction
          in the term loan facility is due to amortization terms in the facility
          agreement. The term loan facility will reduce by a further $5 million dollars
          at
          six monthly intervals until the facility expires on June 30, 2008. ICON
          Clinical
          Research, Inc. (a subsidiary of ICON plc) is entitled to make borrowings
          under
          the revolving credit facility of $15 million. As at December 31, 2006,
          the full
          amount of this facility was available to be drawn down.
  The
          Company entered into an overdraft agreement with Allied Irish Banks, plc
          (“AIB”)
          whereby the Company guarantees any overdraft of its subsidiary ICON Clinical
          Research GmbH up to an amount of €120,000 (U.S.$157,645). As of December 31,
          2006, the full facility was available to be drawn down.
  **9.
          Employee Benefits**
 
 Certain
          Company employees are eligible to participate in a defined contribution
          plan
          (the "Plan"). Participants in the Plan may elect to defer a portion of
          their
          pre-tax earnings into a pension plan, which is run by an independent party.
          The
          Company matches each participant's contributions up to 10% of the participant's
          annual compensation. Contributions to this plan are recorded, as expense
          in the
          Consolidated Statement of Operations. Contributions for the years ended
          May 31,
          2004, and 2005, the seven month period ending December 31, 2005 and the
          year
          ended December 31, 2006 were U.S.$2,297,928, U.S.$3,443,374, U.S.$2,112,184
          and
          U.S.$4,837,040 respectively.
  68
  The
          Company's United States operations maintain a retirement plan (the "U.S.
          Plan")
          that qualifies as a deferred salary arrangement under Section 401(k) of
          the
          Internal Revenue Code. Participants in the U.S. Plan may elect to defer
          a
          portion of their pre-tax earnings, up to the Internal Revenue Service annual
          contribution limit. The Company matches 50% of each participant's contributions,
          each participant can contribute up to 6% of their annual compensation.
          Contributions to this U.S. Plan are recorded, in the year contributed,
          as an
          expense in the Consolidated Statement of Operations. Contributions for
          the years
          ended May 31, 2004, 2005, the seven month period ending December 31, 2005
          and
          the year ended December 31, 2006 were U.S.$ 2,389,757, U.S.$2,539,760,
          U.S.$1,587,626 and U.S.$ 3,427,916 respectively.
 
 One
          of the
          Company’s subsidiaries which was acquired during the 2003 fiscal year, Medeval
          Group Limited, operates a defined benefit pension plan in the United Kingdom
          for
          its employees. The plan is managed externally and the related pension costs
          and
          liabilities are assessed in accordance with the advice of a professionally
          qualified actuary. Plan assets at May 31, 2004, 2005, December 31, 2005
          and
          December 31, 2006 consist of units held in independently administered funds.
          The
          pension costs of this plan are presented in the following tables in accordance
          with the requirements of SFAS No.158, “Employers’ Accounting for Defined Pension
          and Other Postretirement Plans”. The plan is no longer open to new
          entrants.
  **Change
                      in benefit obligation**
                  
                  **May
                      31,**
                    **2005**
                  
                  **December
                      31,**
                    **2005**
                  
                  **December
                      31,**
                    **2006****(in
                      thousands)**Benefit
                      obligation at beginning of year/period
                  
                  $
                  9,056
                  
                  $
                  11,323
                  
                  $
                  13,244Service
                      cost
                  
                  
                  832
                  
                  
                  368
                  
                  
                  685Interest
                      cost
                  
                  
                  559
                  
                  
                  350
                  
                  
                  730Plan
                      participants’ contributions
                  
                  
                  256
                  
                  
                  129
                  
                  
                  216Benefits
                      paid
                  
                  
                  (117
                  )
                  
                  (93
                  )
                  
                  (74
                  )Actuarial
                      loss
                  
                  
                  819
                  
                  
                  1,875
                  
                  
                  1,015Foreign
                      currency exchange rate changes
                  
                  
                  (82
                  )
                  
                  (708
                  )
                  
                  2,000**Benefit
                      obligation at end of year/period**
                  
                  $
                  11,323
                  
                  $
                  13,244
                  
                  $
                  17,816
 
 
 **Change
                      in plan assets**
                  
                  **May
                      31,**
                    **2005**
                  
                  **December
                      31,**
                    **2005**
                  
                  **December
                      31,**
                    **2006****(in
                      thousands)**Fair
                      value of plan assets at beginning of year/period
                  
                  $
                  6,129
                  
                  $
                  7,354
                  
                  $
                  8,092Actual
                      return on plan assets
                  
                  
                  371
                  
                  
                  342
                  
                  
                  1,218Employer
                      contributions
                  
                  
                  765
                  
                  
                  808
                  
                  
                  2,287Plan
                      participants’ contributions
                  
                  
                  256
                  
                  
                  128
                  
                  
                  216Benefits
                      paid
                  
                  
                  (117
                  )
                  
                  (93
                  )
                  
                  (74
                  )Foreign
                      currency exchange rate changes
                  
                  
                  (50
                  )
                  
                  (447
                  )
                  
                  1,353**Fair
                      value of plan assets at end of year/period**
                  
                  $
                  7,354
                  
                  $
                  8,092
                  
                  $
                  13,092
 
 
 **Funded
                      status**
                  
                  **May
                      31,**
                    **2005**
                  
                  **December
                      31,**
                    **2005**
                  
                  **December
                      31,**
                    **2006****(in
                      thousands)**Projected
                      benefit obligation
                  
                  
                  ($11,323
                  )
                  
                  ($13,244
                  )
                  
                  ($17,816
                  )Fair
                      value of plan assets
                  
                  
                  7,354
                  
                  
                  8,092
                  
                  
                  13,092Funded
                      status
                  
                  
                  ($3,969
                  )
                  
                  ($5,152
                  )
                  
                  ($4,724
                  )Unrecognized
                      net loss
                  
                  
                  384
                  
                  
                  1,771
                  
                  
                  -Current
                      liability
                  
                  
                  3,585
                  
                  
                  5,152
                  
                  
                  4,724Non-current
                      asset (liability)
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
  69
 
 **Amounts
                    included in other comprehensive**
                  **income
                    consist of:**
                
                **May
                    31,**
                  **2005**
                
                **December
                    31,**
                  **2005**
                
                **December
                    31,**
                  **2006****(in
                    thousands)**Actuarial
                    loss
                
                $
                -
                
                $
                -
                
                $
                391Less
                    actuarial gain recognized in Net Periodic Benefit Cost
                
                
                -
                
                
                -
                
                
                (15
                )**Amounts
                    recognized in other comprehensive income**
                
                $
                -
                
                $
                -
                
                $
                376
 
 
 **Accumulated
                    other comprehensive income**
                  **not
                    yet recognized as components of net**
                  **periodic
                    benefit**
                
                **May
                    31,**
                  **2005**
                
                **December
                    31,**
                  **2005**
                
                **December
                    31,**
                  **2006**Net
                    gain
                
                $
                -
                
                $
                -
                
                $
                2,220**Total
                    Amount in Accumulated Other**
                  **Comprehensive
                    income**
                
                $
                -
                
                $
                -
                
                $
                2,220
 
 
 **Components
                    of Net Periodic Benefit Cost**
                
                **May
                    31,**
                  **2005**
                
                **December
                    31,**
                  **2005**
                
                **December
                    31,**
                  **2006****(in
                    thousands)**Service
                    cost
                
                $
                832
                
                $
                368
                
                $
                685Interest
                    cost
                
                
                559
                
                
                350
                
                
                730Expected
                    return on plan assets
                
                
                (429
                )
                
                (285
                )
                
                (593
                )Amortization
                    of net loss
                
                
                -
                
                
                -
                
                
                15**Net
                    Periodic Benefit Cost**
                
                $
                962
                
                $
                433
                
                $
                837
 
 The
          estimated net loss and prior service cost for the defined benefit pension
          plans
          that will be amortized from accumulated other comprehensive income into
          net
          periodic benefit cost over the next fiscal year are U.S.$0.04m and nil,
          respectively.
 
 **Weighted
                    average assumptions to determine**
                  **benefit
                    obligation**
                
                **May
                    31,**
                  **2005**
                
                **December
                    31,**
                  **2005**
                
                **December
                    31,**
                  **2006**Discount
                    rate
                
                
                5.4
                %
                
                5.0
                %
                
                5.0
                %Rate
                    of compensation increase
                
                
                4.1
                %
                
                4.4
                %
                
                4.8
                %Expected
                    rate of return on plan assets
                
                
                6.5
                %
                
                6.0
                %
                
                6.8
                %
 
 The
          assets
          of the scheme are invested in a unitized with profits policy. The expected
          long-term rate of return on assets of 6.8% was calculated as the value
          of the
          unitized with profits fund after application of a market value reduction
          factor.
          The underlying asset split of the fund is shown below.
 
 70
  **Asset
                    Category**
                
                **May
                    31,**
                  **2005**
                
                **December
                    31,**
                  **2005**
                
                **December
                    31,**
                  **2006**Equity
                
                
                28
                %
                
                30
                %
                
                59
                %Bonds
                
                
                51
                %
                
                49
                %
                
                26
                %Property
                
                
                16
                %
                
                18
                %
                
                12
                %Cash/
                    other
                
                
                5
                %
                
                3
                %
                
                3
                %100
                %
                
                100
                %
                
                100
                %
  The
          accumulated benefit obligation for all defined pension plans was $17.8
          million
          at December 31, 2006 (December 2005: $13.2, May 2005: $11.3 million). With
          effect from July 1, 2003, the scheme was closed to new entrants. The Company
          expects to contribute $0.4 million to its pension fund in the year ending
          December 31, 2007.
 **Accumulated
                      other comprehensive income expected**
                    **to
                      be recognized as periodic benefit cost over the**
                    **next
                      financial year**
                  
                  **December
                      31,**
                    **2007**Net
                      gain
                  
                  $
                  39$
                  39
  The
          following annual benefit payments, which reflect expected future service,
          as
          appropriate, are expected to be paid.
  **Estimated
                    Future benefit payments**
                
                **(in
                    thousands)**2007
                
                $
                202008
                
                
                202009
                
                
                592010
                
                
                592011
                
                
                98Years
                    2012 - 2016
                
                $
                490
  The
          expected cash flows are estimated figures based on the members expected
          to
          retire over the next 10 years assuming no early retirements plus an additional
          amount in respect of recent average withdrawal experience. At the present
          time
          it is not clear whether annuities will be purchased when members reach
          retirement or whether pensions will be paid each month out of the Scheme
          assets.
          The above cash flows have been estimated on the assumption that pension
          will be
          paid monthly out of the Scheme assets. If annuities are purchased, then
          the
          expected benefit payments will be significantly different from those shown
          above.
  **Transitional
                      disclosure of impact of FAS 158**
                    **in
                      the first year of implementation:**
                  
                  **Before**
                    **implementation
                      of**
                    **FAS158**
                  
                  **Adjustments**
                  
                  **After**
                    **implementation**
                    **of
                      FAS158**Liability
                      for pension benefits
                  
                  $
                  4,724
                  
                  $
                  -
                  
                  $
                  4,724Deferred
                      income taxes
                  
                  
                  3,437
                  
                  
                  -
                  
                  
                  3,437Total
                      liabilities
                  
                  
                  173,603
                  
                  
                  -
                  
                  
                  173,603Accumulated
                      other comprehensive income
                  
                  
                  14,500
                  
                  
                  15
                  
                  
                  14,515Retained
                      earnings
                  
                  
                  152,142
                  
                  
                  (15
                  )
                  
                  152,127
  71
  **Details
          of the Medeval Group Limited pension and life assurance scheme.**
  The
          assets
          of the Scheme are invested in the Norwich Union With-Profit Fund and the
          Legal
& General Global Equity Fixed Weights (50:50) Index Fund. The aim of the
          Index Fund is to capture the returns of the UK and overseas equity markets
          with
          a more even spread of overseas equities than would be provided by market
          capitalization or consensus weights. The aim of the With-Profits Fund is
          to
          provide good investment returns through steady growth over the duration
          of the
          policy. Although market fluctuations of investment return are evened through
          the
          declaration of bonuses, the investment objective is to provide payments
          which
          reflects the actual investment returns achieved by the Scheme over the
          long
          term.
  
 ***Asset
          Allocation***
  The
          asset
          distribution of the Legal & General Fund is 50% UK Equities and 50% global
          equities. The asset distribution of the With-Profits Fund (the most up
          to date
          available) was as follows:
  **Asset
                    Category**
                
                **December
                    31,**
                  **2005**
                
                **December
                    31,**
                  **2006**UK
                    Equities
                
                
                24
                %
                
                31
                %Overseas
                    Equities
                
                
                6
                %
                
                12
                %Property
                
                
                18
                %
                
                17
                %UK
                    Fixed Interest
                
                
                21
                %
                
                20
                %Corporate
                    Bonds
                
                
                24
                %
                
                13
                %Overseas
                    Bonds
                
                
                4
                %
                
                3
                %Cash
                
                
                3
                %
                
                4
                %Total
                
                
                100
                %
                
                100
                %
 
 Bonuses
          paid under the Unitised With-Profits policy which is invested in the Norwich
          Union With-Profit Fund consist of regular bonuses and final bonuses which
          are
          explained below in further detail.
  ***Norwich
          Union*** **** ***Regular
          Bonus***
  Premiums
          paid under the policy are used to buy units which increase in price daily
          in
          line with the current Regular Bonus rate. The Regular Bonus rate is normally
          declared at the end of each calendar year and remains in force until further
          notice.
  Regular
          Bonuses have been declared at the following levels:
  **Date**
                  
                  **Regular
                      Bonus**
                    **%
                      per annum**August
                      1, 2002
                  
                  
                  4.8
                  %December
                      31, 2002
                  
                  
                  4.0
                  %December
                      31, 2003
                  
                  
                  4.0
                  %December
                      31, 2004
                  
                  
                  3.0
                  %December
                      31, 2005
                  
                  
                  3.0
                  %December
                      31, 2006
                  
                  
                  3.0
                  %
  72
  The
          purpose of the Final Bonus is to enable the investment return provided
          by the
          policy to reflect more closely what has actually been earned over its lifetime.
          Final Bonus is added when units are cashed and is taken into account in
          calculating the market value of the policy. The last units purchased are
          the
          first units cashed. The amount of Final Bonus depends on the year units
          were
          purchased. A scale of bonus rates is normally declared at the end of each
          calendar year and remains in force until further notice. The scale can
          be
          altered during the year.
  When
          units
          are cashed a Market Value Reduction (“MVR”) scale may be applied instead of a
          Final Bonus Scale. This reduction may be applied at any time except when
          units
          are cashed to provide a member’s normal retirement benefits or because of a
          member’s death before retirement.
  An
          MVR is
          applied when the value of the units plus the Final Bonus is significantly
          greater than the value of the underlying investments. It is applied so
          that
          non-contracted encashments do not result in more than the fair share of
          the fund
          being taken in times of poor performance in the stock market and other
          asset
          types in which Norwich Union’s With-Profits Fund is invested.
  **Year
                    units purchased**
                
                **Final
                    Bonus**
                
                **Final
                    Bonus**
                  **(including
                    MVR)**2002
                
                
                2
                %
                
                2
                %2003
                
                
                7
                %
                
                7
                %2004
                
                
                3
                %
                
                3
                %2005
                
                
                -
                %
                
                -
                %2006
                
                
                -
                %
                
                -
                %
 
 ***Overall
          Rate of Return***
  At
          December 31, 2006, UK gilts were yielding around 4.6% per annum. This is
          often
          referred to as the risk free rate of return as UK gilts have a negligible
          risk
          of default and the income payments and capital on redemption are guaranteed
          by
          the UK Government. Overseas bonds have been assumed to produce returns
          in line
          with UK gilts.
  A
          long
          term equity “risk-premium” of 3.1% per annum has been assumed. This being the
          expected long term out-performance of equities over UK gilts. Property
          has been
          assumed to provide a return in line with equities over the long term. An
          out-performance of 0.5% per annum over the long term for corporate bonds
          over UK
          gilts has been taken into account.
  The
          expected long term rates of return on different asset classes over the
          long term
          are as follows:
  **Asset
                      Category**
                  
                  **Expected
                      long-term**
                    **return
                      per annum**UK
                      equities
                  
                  
                  7.7
                  %Overseas
                      equities
                  
                  
                  7.7
                  %Property
                  
                  
                  7.7
                  %UK
                      Gilts
                  
                  
                  4.6
                  %Overseas
                      bonds
                  
                  
                  4.6
                  %Corporate
                      bonds
                  
                  
                  5.1
                  %Cash
                  
                  
                  4.0
                  %
 
 Applying
            the above expected long term rates of return to the asset distribution
            of the
            With-Profits Fund at December 31, 2006 gives rise to an expected overall
            rate of
            return of scheme assets of around 6.8% per annum.
  73
  **10.
          Share Options and Stock Compensation Charges**
  The
          Company accounts for its share options in accordance with the provisions
          of SFAS
          No. 123R, “Share Based Payment”. SFAS 123R requires that all share based
          payments to employees, including stock options granted, be recognized in
          the
          financial statements based on their grant date fair values. The Company
          adopted
          SFAS 123R with effect from January 1, 2006, with the Black-Scholes method
          of
          valuation being used to calculate the fair value of options granted. The
          Company
          adopted SFAS 123R using the modified-prospective transition method. Under
          that
          transition method compensation cost recognized in the year ended December
          31,
          2006, includes; (a) compensation cost for all share-based payments granted
          prior
          to, but not yet vested as of, January 1, 2006, based on grant date fair
          value
          estimated in accordance with the original provisions of SFAS 123 and (b)
          compensation cost for all share based payments granted subsequent to January
          1,
          2006, based on grant date fair values estimated in accordance with the
          provisions of SFAS 123R. Results for prior periods have not been
          restated.
 
 On
          January
          17, 2003, the Company adopted the Share Option Plan 2003 (the “2003 Plan”)
          pursuant to which the Compensation Committee of the Board may grant options
          to
          officers and other employees of the Company or its subsidiaries for the
          purchase
          of ordinary shares. Each option will be either an incentive stock option,
          or
          ISO, as described in Section 422 of the Code or an employee stock option,
          or
          NSO, as described in Section 422 or 423 of the Code. Each grant of an option
          under the 2003 Plan will be evidenced by a Stock Option Agreement between
          the
          optionee and the Company. The exercise price will be specified in each
          Stock
          Option Agreement, however option prices for an ISO will not be less than
          100% of
          the fair market value of an ordinary share on the date the option is
          granted.
  An
          aggregate of 3 million ordinary shares have been reserved under the 2003
          Plan;
          and, in no event will the number of ordinary shares that may be issued
          pursuant
          to options awarded under the 2003 Plan exceed 10% of the outstanding shares,
          as
          defined in the 2003 Plan, at the time of the grant. Further, the maximum
          number
          of ordinary shares with respect to which options may be granted under the
          2003
          Plan during any calendar year to any employee shall be 200,000 ordinary
          shares.
  Share
          option awards are granted with an exercise price equal to the market price
          of
          the Company’s shares at date of grant. Share options typically vest over a
          period of five years from date of grant and expire eight years from date
          of
          grant. The maximum contractual term of options outstanding at December
          31, 2006
          is eight years. No options can be granted after January 17, 2013.
 
 In
          December 2004, the Financial Accounting Standards Board (“FASB”) issued
          Statement of Accounting Standards (“SFAS”) 123 (revised 2004), *Share
          Based Payment* (“SFAS
          123R”) which replaced SFAS 123 *Accounting
          for Stock-Based Compensation* and
          supersedes Accounting Principles Board (“APB”) Opinion No. 25 *Accounting
          for Stock Issued to Employees* .
          SFAS
          123R requires, with effect from accounting periods beginning after June
          15,
          2005, that all share based payments to employees, including stock options
          granted, be recognized in the financial statements based on their grant
          date
          fair values.
 
 The
          following table summarizes the transactions for the Company’s share option plans
          for the years ended May 31, 2004 and 2005, the seven month period ended
          December
          31, 2005 and the year ended December 31, 2006:
  74
  **Options**
                  **Granted**
                  **Prior
                    to**
                  **Jan
                    15,**
                  **1998
                    ***
                
                **Options
                    Granted**
                  **Under
                    Plans ***
                
                **Number
                    of**
                  **Shares
                    ***
                
                **Weighted**
                  **Average**
                  **Exercise**
                  **Price
                    ***
                
                **Weighted**
                  **Average
                    Grant**
                  **Date
                    Fair**
                  **Value
                    ***Outstanding
                    at May 31, 2003
                
                
                584,060
                
                
                1,787,230
                
                
                2,371,290
                
                $
                9.12Granted
                
                
                -
                
                
                745,852
                
                
                745,852
                
                $
                17.76Exercised
                
                
                (489,920
                )
                
                (503,918
                )
                
                (993,838
                )
                $
                5.39Canceled
                
                
                -
                
                
                (136,160
                )
                
                (136,160
                )
                $
                13.25Outstanding
                    at May 31, 2004
                
                
                94,140
                
                
                1,893,004
                
                
                1,987,144
                
                $
                13.95Granted
                
                
                -
                
                
                855,460
                
                
                855,460
                
                $
                17.20Exercised
                
                
                -
                
                
                (121,240
                )
                
                (121,240
                )
                $
                11.56Canceled
                
                
                -
                
                
                (144,880
                )
                
                (144,880
                )
                $
                15.54Outstanding
                    at May 31, 2005
                
                
                94,140
                
                
                2,482,344
                
                
                2,576,484
                
                $
                15.1Exercised
                
                
                (80,000
                )
                
                (157,992
                )
                
                (237,992
                )
                $
                8.04Canceled
                
                
                -
                
                
                (74,200
                )
                
                (74,200
                )
                $
                16.19Outstanding
                    at December 31, 2005
                
                
                14,140
                
                
                2,250,152
                
                
                2,264,292
                
                $
                15.75
                
                $
                7.30Granted
                
                
                -
                
                
                818,502
                
                
                818,502
                
                $
                23.16
                
                $
                10.39Exercised
                
                
                (14,140
                )
                
                (467,528
                )
                
                (481,668
                )
                $
                13.87
                
                $
                7.12Canceled
                
                
                -
                
                
                (279,274
                )
                
                (279,274
                )
                $
                16.64
                
                $
                7.76Outstanding
                    at December 31, 2006
                
                
                -
                
                
                2,321,852
                
                
                2,321,852
                
                $
                18.61
                
                $
                8.45Exercisable
                    at December 31, 2006
                
                
                -
                
                
                533,544
                
                
                533,544
                
                $
                16.24
                
                $
                7.65
  *
          Comparative figures have been amended to reflect the Bonus Issue which
          took
          place with an effective date of October 13, 2006
 
 The
          weighted average fair value of options granted during the year was U.S.$23.16.
          The weighted average remaining contractual life of options outstanding
          and
          exercisable at December 31, 2006 was 5.75 years and 4.60 years respectively.
 
 There
          were
          498,041 options vested during the year and the weighted average fair value
          of
          these options U.S.$7.66. There were 279,274 options cancelled during the
          year
          and the weighted average fair value of these options was U.S.$7.76.
 
 The
          intrinsic value of options exercised during the year was U.S.$14,727,577.
          The
          Company calculated the intrinsic value at the market value of options as
          at
          December 31, 2006, as per SFAS 123R. The aggregate intrinsic value of options
          outstanding and exercisable as at December 31, 2006 was U.S.$67,904,616
          and
          U.S.$16,034,491 respectively.
 
 The
          total
          recognized tax benefit related to the compensation charge during the year
          was
          U.S.$0.3 million. The total compensation cost capitalized during the year
          was
          U.S.$nil.
 
 The
          total
          compensation cost not yet recognized at December 31, 2006 was U.S.$10.2
          million
          and the weighted average period over which this is expected to be recognized
          is
          2.1 years.
 
 The
          Company grants share options at an option grant price equal to or greater
          than
          the estimated fair value of ordinary shares on the measurement date and
          therefore the share option grants summarized in the above table do not
          result in
          a compensation expense in addition to the SFAS 123R expense in the current
          period.
 
 Outstanding
          and exercisable share options:
 The
          following table summarizes information concerning outstanding and exercisable
          share options as of December 31, 2006:
  75
  **Options
                    Outstanding**
                **Options
                    Exercisable****Range**
                  **Exercise**
                  **Price**
                **Number
                    of**
                  **Shares**
                **Weighted**
                  **Average**
                  **Remaining**
                  **Contractual
                    Life**
                **Weighted**
                  **Average**
                  **Exercise
                    Price**
                **Number
                    of**
                  **Shares**
                **Weighted**
                  **Average**
                  **Exercise
                    Price**$9.00
                29,600
                0.5
                $9.00
                29,600
                $9.00$10.63
                23,440
                2.1
                $10.63
                23,440
                $10.63$14.50
                119,832
                3.0
                $14.50
                73,592
                $14.50$13.25
                16,000
                2.9
                $13.25
                16,000
                $13.25$14.00
                241,558
                4.1
                $14.00
                94,282
                $14.00$21.36
                3,596
                4.8
                $21.36
                3,596
                $21.36$17.75
                435,622
                5.1
                $17.75
                123,936
                $17.75$17.20
                696,284
                6.1
                $17.20
                92,748
                $17.20$20.84
                30,000
                7.1
                $20.84
                -
                $20.84$22.00
                653,920
                7.1
                $22.00
                76,350
                $22.00$34.60
                12,000
                7.7
                $34.60
                -
                $34.60$35.99
                60,000
                7.8
                $35.99
                -
                $35.99$9.00
                    - $35.99
                2,321,852
                5.8
                $18.61
                533,544
                $16.24
  Substantially
          all of the options granted at exercise prices from $14.00 to $35.99 vest
          over a
          five year period from the date of grant. All other options have fully vested
          as
          of December 31, 2006.
 
 Fair
          value
          of Stock Options Assumptions
 
 Expected
          volatility is based on historical volatility of our common stock over a
          period
          equal to the expected term of the options; the expected life represents
          the
          weighted average period of time that options granted are expected to be
          outstanding given consideration to vesting schedules, and our historical
          experience of part vesting and termination patterns. The risk-free rate
          is based
          on the U.S. government zero-coupon bonds yield curve in effect at time
          of grant
          for periods corresponding with the expected life of the option.
 
 The
          weighted average fair value of stock options granted during the year ended
          May
          31, 2004, calculated using the Black-Scholes option pricing model, was
          $24.58
          using the following assumptions; expected dividend yield - 0%, risk free
          interest rate - 4.87%, expected volatility - 50% and expected life - 4.8
          years.
 
 The
          weighted average fair value of stock options granted during the year ended
          May
          31, 2005, calculated using the Black-Scholes option pricing model, was
          $17.09
          using the following assumptions; expected dividend yield - 0%, risk free
          interest rate - 4.02%, expected volatility - 50% and expected life - 4.8
          years.
 
 There
          were
          no stock options granted during the seven months ended December 31,
          2005.
 
 The
          weighted average fair value of stock options granted during the year ended
          December 31, 2006, calculated using the Black-Scholes option pricing model,
          was
          $10.39 using the following assumptions; expected dividend yield - 0%, risk
          free
          interest rate - 4.68%, expected volatility - 45% and expected life - 4.8
          years.
  76
  Total
          Compensation cost recognized in income:
 
 Income
          from operations for the year ended December 31, 2006, is stated after charging
          $4.1 million in respect of non-cash stock compensation expense. Basic and
          diluted earnings per share for the year ended December 31, 2006, had SFAS
          123R
          not been introduced would have been $1.50 and $1.45 respectively. Non-cash
          stock
          compensation expense for the year ended December 31, 2006, has been allocated
          to
          direct costs and selling, general and administrative expenses as
          follows:
 
 
 **Seven**
                  **Months**
                  **Ended**
                  **Decem****ber
                    31,**
                  **2005**
                
                **Year
                    Ended**
                  **December
                    31,**
                  **2006****(in
                    thousands)**Direct
                    costs
                
                $
                -
                
                $
                2,240Selling,
                    general and administrative
                
                $
                255
                
                $
                1,826Total
                    compensation costs
                
                $
                255
                
                $
                4,066
 
 On
          December 6, 2005, Dr. Ronan Lambe and Dr. John Climax gifted 64,000 and
          80,000
          ADSs, respectively, to Mr. Peter Gray, the Company’s Chief Executive Officer.
          The Company has accounted for these transfers of equity instruments from
          shareholders to Mr. Gray as share based payment transactions, and recorded
          a
          compensation expense of $6,023,520 in its Statement of Operations, measured
          by reference to the fair value of the ADSs on the grant date. As this
          transaction is a transfer of already issued stock between officers and
          directors
          of the Company, the expense recorded no cash flow impact on the Company
          and
          created no dilution of ordinary shares outstanding.  The fair value of the
          ADSs on the date of gift was determined by reference to market
          price.
  **11.
            Government Grants**
  **May
                        31,**
                      **2005**
                    
                    **December
                        31,**
                      **2005**
                    
                    **December
                        31,**
                      **2006****(in
                        thousands)**Received
                    
                    $
                    2,225
                    
                    $
                    2,225
                    
                    $
                    2,225Less
                        accumulated amortization
                    
                    
                    (1,048
                    )
                    
                    (1,153
                    )
                    
                    (1,266
                    )Foreign
                        exchange translation adjustment
                    
                    
                    279
                    
                    
                    197
                    
                    
                    3291,456
                    
                    
                    1,269
                    
                    
                    1,288Less
                        current portion
                    
                    
                    (199
                    )
                    
                    (109
                    )
                    
                    (118
                    )$
                    1,257
                    
                    $
                    1,160
                    
                    $
                    1,170
  Government
          grants amortized to the profit and loss account amounted to U.S.$569,000,
          U.S.$199,000, U.S.$105,000 and U.S.$113,000 for the years ended May 31,
          2004 and
          2005, for the seven month period ended December 31, 2005 and for the year
          ended
          December 31, 2006, respectively.
 
 As
          of
          December 31, 2006 the Company had U.S.$1,351,000 in restricted retained
          earnings, pursuant to the terms of the grant agreements.
  77
  **12.
          Share Capital**
  ***Ordinary
            Shares***
 Holders
            of
            ordinary shares will be entitled to receive such dividends as may be
            recommended
            by the board of directors of the Company and approved by the shareholders
            and/or
            such interim dividends as the board of directors of the Company may decide.
            On
            liquidation or a winding up of the Company, the par value of the ordinary
            shares
            will be repaid out of the assets available for distribution among the
            holders of
            the Company's ADSs and ordinary shares not otherwise represented by ADRs.
            Holders of ordinary shares have no conversion or redemption rights. On
            a show of
            hands, every holder of an ordinary share present in person at a general
            meeting
            of shareholders, and every proxy, shall have one vote, for each ordinary
            share
            held with no individual having more than one vote.
 
 During
            the
            year to May 31, 2004, 993,838 options were exercised by employees at
            an average
            exercise price of U.S.$5.39 per share for total proceeds of U.S.$5.4
            million.
  During
            the
            year to May 31, 2005, a further 121,240 options were exercised by employees
            at
            an average exercise price of U.S.$11.56 per share for total proceeds
            of U.S.$1.4
            million.
 
 During
            the
            seven month period to December 31, 2005, a further 237,992 options were
            exercised by employees at an average exercise price of U.S.$8.04 per
            share for
            total proceeds of U.S.$1.9 million.
 
 During
            the
            year ended December 31, 2006, a further 481,668 options were exercised
            by
            employees at an average exercise price of U.S.$13.87 per share for total
            proceeds of U.S.$6.7 million.
 
 On
            September 29, 2006, ICON’s shareholders approved a bonus issue of ordinary
            shares (the “Bonus Issue”) to shareholders of record as of the close of business
            on October 13, 2006 (the “Record Date”). The Bonus Issue provided for each
            shareholder to receive one bonus ordinary share for each ordinary share
            held as
            of the Record Date, effecting the equivalent of a 2-for-1 stock split.
            The Bonus
            shares were issued on October 16, 2006 to Ordinary Shareholders and on
            October
            23, 2006 to holders of American Depositary Shares (“ADSs”). NASDAQ adjusted the
            trading price of ICON’s ADSs to effect the Bonus Issue prior to the opening of
            trading on October 24, 2006. All outstanding ordinary share amounts referenced
            in the consolidated financial statements and the notes thereto have
            been
            retrospectively restated to give
            effect to the Bonus Issue as if it had
            occurred as of the date referenced.
  78
  **13.
          Income Taxes**
  The
            U.S.
            based and Irish based subsidiaries file tax returns in the United States
            and
            Ireland, respectively. The other foreign subsidiaries are taxed separately
            under
            the laws of their respective countries.
 
 The
            components of income before provision for income tax expense are as
            follows:
  **Year
                        Ended May 31,**
                    
                    **Seven**
                    
                    **Year
                        Ended****Months
                        Ended****December
                        31,**
                    
                    **December
                        31,****2004**
                    
                    **2005**
                    
                    **2005**
                    
                    **2006****(in
                        thousands)**Ireland
                    
                    $
                    12,674
                    
                    $
                    13,795
                    
                    
                    ($1,470
                    )
                    $
                    31,212*United
                        States
                    
                    
                    9,601
                    
                    
                    (9,001
                    )
                    
                    2,647
                    
                    
                    12,l69*Other
                    
                    
                    12,396
                    
                    
                    14,792
                    
                    
                    11,647
                    
                    
                    8,075Income
                        before provision for income taxes
                    
                    $
                    34,671
                    
                    $
                    19,586
                    
                    $
                    12,824
                    
                    $
                    51,456*Net
                        Income as reported for the year ended December 31, 2006 for
                        Ireland and
                        United States is stated inclusive of stock compensation expense
                        of $1.95m
                        and $2.12m respectively (see Note 10: Share Options and Stock
                        Compensation
                        Charges).
  The
          components of total income tax expense are as follows:
  **Year
                      Ended May 31**
                  
                  **Seven
                      Months**
                    **Ended**
                  
                  **Year
                      Ended****December
                      31,**
                  
                  **December
                      31,****2004**
                  
                  **2005**
                  
                  **2005**
                  
                  **2006****(in
                      thousands)*****Provision
                      for income taxes***Current:Ireland
                  
                  $
                  1,365
                  
                  $
                  1,821
                  
                  $
                  401
                  
                  $
                  4,291United
                      States
                  
                  
                  3,339
                  
                  
                  1,872
                  
                  
                  1,196
                  
                  
                  8,855Other
                  
                  
                  3,209
                  
                  
                  2,885
                  
                  
                  3,044
                  
                  
                  4,389Total
                      current tax
                  
                  
                  7,913
                  
                  
                  6,578
                  
                  
                  4,641
                  
                  
                  17,535Deferred
                      expenses/(benefit):Ireland
                  
                  
                  -
                  
                  
                  (128
                  )
                  
                  6
                  
                  
                  (330
                  )United
                      States
                  
                  
                  1,016
                  
                  
                  16
                  
                  
                  475
                  
                  
                  (4,445
                  )Other
                  
                  
                  -
                  
                  
                  (614
                  )
                  
                  274
                  
                  
                  164Total
                      deferred (benefit) /tax
                  
                  
                  1,016
                  
                  
                  (726
                  )
                  
                  755
                  
                  
                  (4,611
                  )Provision
                      for income taxes
                  
                  
                  8,929
                  
                  
                  5,852
                  
                  
                  5,396
                  
                  
                  12,924Impact
                      on shareholders equity of the tax consequence of compensation
                      expense.
                  
                  
                  (2,276
                  )
                  
                  (169
                  )
                  
                  (758
                  )
                  
                  (1,109
                  )Total
                  
                  $
                  6,653
                  
                  $
                  5,683
                  
                  $
                  4,638
                  
                  $
                  11,815
  79
  Ireland’s
          statutory income tax rate is 12.5%. Certain activities carried out by the
          Irish
          company, principally data processing services, are taxed at a reduced rate
          of
          10%. The Company’s consolidated effective tax rate differed from the statutory
          rate as set forth below;
  **Seven
                      Months****Year
                      Ended**
                  
                  **Ended**
                  
                  **Year
                      Ended****May
                      31,**
                  
                  **December
                      31,**
                  
                  **December
                      31,****2004**
                  
                  **2005**
                  
                  **2005**
                  
                  **2006****(in
                      thousands)**Taxes
                      at Irish statutory rate of 12.5% (2005:12.5%, 2004: 12.5%)
                  
                  $
                  4,334
                  
                  $
                  2,448
                  
                  $
                  1,603
                  
                  $
                  6,430Foreign
                      and other income taxed at higher/(reduced) rates
                  
                  
                  2,786
                  
                  
                  (1,068
                  )
                  
                  953
                  
                  
                  10,575United
                      States state tax net of United States Federal benefit and other
                      foreign
                      taxes
                  
                  
                  403
                  
                  
                  767
                  
                  
                  428
                  
                  
                  -Movement
                      in valuation allowance
                  
                  
                  1,445
                  
                  
                  2,473
                  
                  
                  2,020
                  
                  
                  (6,113
                  )Prior
                      year over / under provision in respect of foreign taxes
                  
                  
                  (444
                  )
                  
                  (1,319
                  )
                  
                  (553
                  )
                  
                  1,438Non
                      deductible expenses
                  
                  
                  531
                  
                  
                  2,491
                  
                  
                  995
                  
                  
                  538Other
                  
                  
                  (126
                  )
                  
                  60
                  
                  
                  (50
                  )
                  
                  56Total
                      provision for income taxes
                  
                  $
                  8,929
                  
                  $
                  5,852
                  
                  $
                  5,396
                  
                  $
                  12,924
  The
          tax
          effects of temporary differences that give rise to significant portions
          of
          deferred tax assets and deferred tax liabilities are presented
          below:
  **Seven
                      Months****Year
                      Ended**
                  
                  **Ended**
                  
                  **Year
                      Ended****May
                      31,**
                  
                  **December
                      31,**
                  
                  **December
                      31,****2005**
                  
                  **2005**
                  
                  **2006****(in
                      thousands)**Deferred
                    tax liabilities:Property,
                      plant and equipment
                  
                  $
                  1,914
                  
                  $
                  1,659
                  
                  $
                  1,188Goodwill
                      and related assets
                  
                  
                  1,575
                  
                  
                  1,865
                  
                  
                  2,742Accruals
                      to cash method adjustment
                  
                  
                  310
                  
                  
                  687
                  
                  
                  684Other
                  
                  
                  214
                  
                  
                  359
                  
                  
                  41Total
                      deferred tax liabilities
                  
                  
                  4,013
                  
                  
                  4,570
                  
                  
                  4,655Deferred
                      tax assets:Net
                      operating loss carry forwards
                  
                  
                  5,891
                  
                  
                  7,330
                  
                  
                  5,971Property,
                      plant and equipment
                  
                  
                  853
                  
                  
                  768
                  
                  
                  486Accrued
                      expenses and payments on account
                  
                  
                  4,354
                  
                  
                  4,680
                  
                  
                  4,520Stock
                      options exercised
                  
                  
                  -
                  
                  
                  -
                  
                  
                  467Deferred
                      compensation expense
                  
                  
                  321
                  
                  
                  310
                  
                  
                  370Other
                  
                  
                  451
                  
                  
                  259
                  
                  
                  115Total
                      deferred tax assets
                  
                  
                  11,870
                  
                  
                  13,347
                  
                  
                  11,929Valuation
                      allowance for deferred tax assets
                  
                  
                  (8,277
                  )
                  
                  (9,952
                  )
                  
                  (3,839
                  )Deferred
                      tax assets recognized
                  
                  $
                  3,593
                  
                  $
                  3,395
                  
                  $
                  8,090Net
                      deferred tax asset / (liability)
                  
                  $
                  (420
                  )
                  $
                  (1,175
                  )
                  $
                  3,435
  80
  U.S.$0.531
          million of the deferred tax asset of U.S.$8.090 million above is non-current.
          U.S.$2.586 million of the deferred tax liability of U.S.$4.655 million
          is
          non-current.
 
 At
          December 31, 2006, non-US subsidiaries had operating loss carry forwards
          for
          income tax purposes that may be carried forward indefinitely, available
          to
          offset against future taxable income, if any, of approximately U.S.$5.170
          million.
 
 At
          December 31, 2006, ICON Laboratory Inc., a U.S. subsidiary had net operating
          loss carry forwards for U.S. Federal and State income tax purposes, available
          to
          offset against future taxable income if any of approximately U.S.$9.979
          million
          for U.S. Federal and U.S.$11.859 million for State income tax, which expire
          between 2021 and 2026.
 
 Of
          the
          U.S.$9.979 million U.S. Federal and U.S.$11.859 million State net operating
          losses, approximately U.S.$9.301 million and U.S.$11.181 million respectively
          will be available for offset against future taxable income, if any, of
          future
          accounting periods. The subsidiary’s ability to use the remaining net operating
          loss carryforward of U.S.$1.322 million for Federal and State taxes is
          limited
          to U.S.$113,000 per year due to the subsidiary experiencing a change of
          ownership in 2000, as defined by Section 382 of the Internal Revenue Code
          of
          1986, as amended.
 
 A
          valuation allowance is provided when it is more likely than not that some
          portion or all of the deferred tax assets will not be realized. The Company
          has
          provided a valuation allowance at December 31, 2006, of U.S.$3,839,000
          and
          U.S.$9,952,000, U.S.$8,277,000 and U.S.$3,361,000 at December 31, 2005,
          May 31,
          2005 and 2004, respectively. This valuation allowance is based on management’s
          belief that it is more likely than not that the European, US and other
          entities’
losses and other deferred tax assets will not be utilized given their history
          of
          operating losses. The valuation allowance was U.S.$1.9 million as of June
          1,
          2003 and increased by U.S.$1.4 million, U.S.$4.9 million, and U.S.$1.7
          million
          for the years ended May 31, 2004 and 2005 and the seven month period ended
          December 31, 2005, respectively. The valuation allowance decreased by U.S.$6.1
          in the year ended December 31, 2006.
 
 **14.
          Other charges**
 
 The
          principal items classified as other charges include asset impairments,
          computer
          software write-off and lease termination and exit costs. These charges
          were
          expensed to the statement of operations during the year ended May 31,
          2005.
  **(in
                      thousands)**(A)
                  Goodwill
                      impairment charge
                  $7,017(B)
                  Computer
                      software write-off
                  1,031(C)
                  Lease
                      termination and exit costs
                  3,227$11,275
  (A)
                Goodwill
                    impairment charge
 
 Under
          SFAS
          No.142, goodwill and intangible assets with indefinite lives are no longer
          amortized, but instead are tested for impairment at least annually. Given
          the
          pattern of operating losses in recent years, slowdown in growth and future
          outlook in our central laboratory reporting unit, management determined
          that the
          carrying value of the reporting unit exceeded its fair value at February
          28,
          2005. After allocating the fair value of the reporting unit to all of the
          assets
          and liabilities of that unit, management determined that the carrying value
          of
          the central laboratory goodwill was impaired. The
          fair
          value of the central laboratory segment was determined using discounted
          cash
          flows and net realizable values. The
          central laboratory segment was formed by the combination of our existing
          central
          laboratory operation in Dublin, Ireland and by the acquisition in June
          2000 of
          UCT (U.S.) Inc. (“UCT”), a central laboratory company based in New York, USA.
 
 (B)
                Computer
                    software write-off
 
 This
          charge represents the write off of the carrying value of computer software
          costs, which did not provide a reasonable economic return.
  81
  (C)
                Lease
                    termination and exit costs
 
 This
          charge represents the lease termination and exit costs associated with
          the close
          of a facility in Irvine, California and the termination of two redundant
          leases
          in New York following the relocation of the central laboratory. Total costs
          expected to be incurred in association with these lease termination and
          exit
          costs have been accrued. Of the total $1.2 million relates to the central
          laboratory segment and $2.1 million to the clinical research segment. During
          the
          period ended December 31, 2005, $2.4 million of this was used and the excess
          balance of $0.9 million was released to the income statement.
 
 **15.
          Significant Concentrations**
 
 The
          Company does business with most major international pharmaceutical companies.
          As
          at December 31, 2006 the balance for doubtful debts was $0.24 million (December
          31, 2005: $0.67 million; May 31, 2005: $0.48 million). During the year
          ended
          December 31, 2006, an additional reserve for doubtful debts of $0.68 million
          was
          created and $1.12 million was used.
 
 **16.
          Commitments and Contingencies**
 
 The
          Company is not party to any litigation or other legal proceedings that
          the
          Company believes could reasonably be expected to have a material adverse
          effect
          on the Company's business, results of operations and financial condition.
 
 The
          Company has several non-cancelable operating leases, primarily for facilities,
          that expire over the next 10 years. These leases generally contain renewal
          options and require the Company to pay all executory costs such as maintenance
          and insurance. The Company recognized U.S.$22,179,000, U.S.$26,158,000
          and
          U.S.$14,462,000 in rental expense for the fiscal years ended May 31, 2004,
          and
          2005, and the seven month period ended December 31, 2005, respectively
          and
          U.S.$28,449,839 for the year ended December 31, 2006. Future minimum rental
          commitments for operating leases with non-cancelable terms in excess of
          one year
          are as follows:
  **Minimum
                    rental payments****(in
                    thousands)**2007
                
                $
                26,1372008
                
                
                22,5342009
                
                
                21,1802010
                
                
                19,0732011
                
                
                15,689Thereafter
                
                
                56,099Total
                
                $
                160,712
 
 The
          Company has a number of finance leases, primarily over furniture and equipment,
          which expire over the next five years. Future commitments are as follows:
  **Lease
                    payments****(in
                    thousands)**2007
                
                $
                2012008
                
                
                1322009
                
                
                362010
                
                
                16Thereafter
                
                
                5Less
                    future finance charges
                
                
                (53
                )Total
                
                $
                337
  82
  The
          Company made a number of acquisitions in recent years with earn-out provisions
          built into the purchase contracts, however no payments are expected to
          be made
          during the year ended December 31, 2007.
  **17.
          Business Segment Information**
 
 The
          Company operates predominantly in the contract clinical research industry
          providing a broad range of clinical research and integrated product development
          services on a global basis for the pharmaceutical and biotechnology industries.
          The Company also has a central laboratory segment primarily based in New
          York,
          USA. This, together with laboratory services based in Dublin, form the
          central
          laboratory segment information disclosed below.
 
 The
          Company's areas of operation outside of Ireland principally include the
          United
          Kingdom, United States, Germany, Australia, Argentina, France, Italy, Japan,
          Israel, Singapore, Canada, Sweden, The Netherlands, Latvia, Russia, Lithuania,
          Poland, South Africa, India, Hong Kong, Taiwan, Mexico, Brazil, Hungary,
          Spain,
          Thailand, South Korea, China and Chile. Segment information for the fiscal
          years
          ended May 31, 2004, and 2005, the seven month period ended December 31,
          2005 and
          the year ended December 31, 2006 is as follows:
  a)
                      The distribution of net revenue by geographical area was as
                      follows:**Year
                      Ended**
                  
                  **Period
                      Ended**
                  
                  **Year
                      Ended****May
                      31,**
                  
                  **December
                      31,****2004**
                  
                  **2005**
                  
                  **2005**
                  
                  **2006****(in
                      thousands)**Ireland*
                  
                  $
                  35,109
                  
                  $
                  37,242
                  
                  $
                  19,838
                  
                  $
                  66,028Rest
                      of Europe
                  
                  
                  65,930
                  
                  
                  84,140
                  
                  
                  48,206
                  
                  
                  96,868U.S.
                  
                  
                  185,301
                  
                  
                  186,919
                  
                  
                  118,292
                  
                  
                  266,175Other
                  
                  
                  10,583
                  
                  
                  18,357
                  
                  
                  15,614
                  
                  
                  26,526Total
                  
                  $
                  296,923
                  
                  $
                  326,658
                  
                  $
                  201,950
                  
                  $
                  455,597*
                      All sales shown for Ireland are export sales.
 
 b)
                    The distribution of net revenue by business segment was as
                    follows:**Year
                    Ended**
                
                **Period
                    Ended**
                
                **Year
                    Ended****May
                    31,**
                
                **December
                    31,****2004**
                
                **2005**
                
                **2005**
                
                **2006****(in
                    thousands)**Central
                    laboratory
                
                $
                26,905
                
                $
                25,499
                
                $
                18,190
                
                $
                47,230Clinical
                    research
                
                
                270,018
                
                
                301,159
                
                
                183,760
                
                
                408,367Total
                
                $
                296,923
                
                $
                326,658
                
                $
                201,950
                
                $
                455,597
  83
  c)The
                    distribution of income from operations by geographical area was
                    as
                    follows:**Year
                    Ended**
                
                **Period
                    Ended**
                
                **Year
                    Ended****May
                    31,**
                
                **December
                    31,****2004**
                
                **2005**
                
                **2005**
                
                **2006****(in
                    thousands)**Ireland
                
                $
                9,363
                
                $
                6,223
                
                
                ($8,338
                )
                $
                28,375Rest
                    of Europe
                
                
                10,209
                
                
                14,033
                
                
                10,437
                
                
                2,681U.S.
                
                
                13,023
                
                
                (4,130
                )
                
                5,152
                
                
                15,216Other
                
                
                1,788
                
                
                2,481
                
                
                4,301
                
                
                1,544Total
                
                $
                34,383
                
                $
                18,607
                
                $
                11,552
                
                $
                47,816
  d)The
                    distribution of income from operations by business segment was
                    as
                    follows:**Year
                    Ended**
                
                **Period
                    Ended**
                
                **Year
                    Ended****May
                    31,**
                
                **December
                    31,****2004**
                
                **2005**
                
                **2005**
                
                **2006****(in
                    thousands)**Central
                    laboratory
                
                
                ($3,274
                )
                
                ($15,284
                )
                
                ($3,035
                )
                $
                2,297Clinical
                    research
                
                
                37,657
                
                
                33,891
                
                
                14,587
                
                
                45,519Total
                
                $
                34,383
                
                $
                18,607
                
                $
                11,552
                
                $
                47,816
  e)
                    The distribution of property, plant and equipment, net, by geographical
                    area was as follows:**May
                    31,**
                
                **December
                    31,**
                
                **December
                    31****2005**
                
                **2005**
                
                **2006****(in
                    thousands)**Ireland
                
                $
                20,471
                
                $
                22,538
                
                $
                33,999Rest
                    of Europe
                
                
                7,273
                
                
                6,669
                
                
                9,213U.S.
                
                
                15,927
                
                
                16,720
                
                
                21,421Other
                
                
                1,615
                
                
                1,725
                
                
                3,575Total
                
                $
                45,286
                
                $
                47,652
                
                $
                68,208
  f)
                    The distribution of property, plant and equipment, net, by business
                    segment was as follows:**May
                    31,**
                
                **December
                    31,**
                
                **December
                    31****2005**
                
                **2005**
                
                **2006****(in
                    thousands)**Central
                    laboratory
                
                $
                2,940
                
                $
                3,380
                
                $
                5,050Clinical
                    research
                
                
                42,346
                
                
                44,272
                
                
                63,158Total
                
                $
                45,286
                
                $
                47,652
                
                $
                68,208
  84
  g)
                    The distribution of depreciation and amortization by geographical
                    area was
                    as follows:**Year
                    Ended**
                
                **Period
                    Ended**
                
                **Year
                    Ended****May
                    31,**
                
                **December
                    31,****2004**
                
                **2005**
                
                **2005**
                
                **2006****(in
                    thousands)**Ireland
                
                $
                3,710
                
                $
                5,091
                
                $
                3,115
                
                $
                5,099Rest
                    of Europe
                
                
                1,842
                
                
                2,157
                
                
                1,210
                
                
                2,489U.S.
                
                
                5,271
                
                
                5,552
                
                
                3,415
                
                
                6,521Other
                
                
                348
                
                
                531
                
                
                354
                
                
                840Total
                
                $
                11,171
                
                $
                13,331
                
                $
                8,094
                
                $
                14,949
  h)The
                    distribution of depreciation and amortization by business segment
                    was as
                    follows:**Year
                    Ended**
                
                **Period
                    Ended**
                
                **Year
                    Ended****May
                    31,**
                
                **December
                    31,****2004**
                
                **2005**
                
                **2005**
                
                **2006****(in
                    thousands)**Central
                    laboratory
                
                $
                1,014
                
                $
                995
                
                $
                687
                
                $
                1,340Clinical
                    research
                
                
                10,157
                
                
                12,336
                
                
                7,407
                
                
                13,609Total
                
                $
                11,171
                
                $
                13,331
                
                $
                8,094
                
                $
                14,949




i)
                    The distribution of total assets by geographical area was as
                    follows:**May
                    31,**
                
                **December
                    31,**
                
                **December
                    31****2005**
                
                **2005**
                
                **2006****(in
                    thousands)**Ireland
                
                $
                109,596
                
                $
                91,826
                
                $
                115,802Rest
                    of Europe
                
                
                79,878
                
                
                81,268
                
                
                100,212U.S.
                
                
                153,577
                
                
                169,231
                
                
                245,381Other
                
                
                4,502
                
                
                6,742
                
                
                14,946Total
                
                $
                347,553
                
                $
                349,067
                
                $
                476,341
   j)
                  The distribution of total assets by business segment was as
                  follows:**May
                  31,**
              
              **December
                  31,**
              
              **December
                  31****2005**
              
              **2005**
              
              **2006****(in
                  thousands)**Central
                  laboratory
              
              $
              18,083
              
              $
              17,150
              
              $
              28,272Clinical
                  research
              
              
              329,470
              
              
              331,917
              
              
              448,069Total
              
              $
              347,553
              
              $
              349,067
              
              $
              476,341




85




k)
                The distribution of capital expenditures by geographical area was
                as
                follows:**Year
                Ended**
            
            **Period
                Ended**
            
            **Year
                Ended****May
                31,**
            
            **December
                31,****2004**
            
            **2005**
            
            **2005**
            
            **2006****(in
                thousands)**Ireland
            
            $
            4,812
            
            $
            6,583
            
            $
            6,438
            
            $
            13,854Rest
                of Europe
            
            
            2,167
            
            
            2,168
            
            
            600
            
            
            4,073U.S.
            
            
            5,826
            
            
            5,873
            
            
            4,197
            
            
            10,905Other
            
            
            160
            
            
            1,053
            
            
            425
            
            
            2,881Total
            
            $
            12,965
            
            $
            15,677
            
            $
            11,660
            
            $
            31,713






l)The
                distribution of capital expenditures by business segment was as
                follows:**Year
                Ended**
            
            **Period
                Ended**
            
            **Year
                Ended****May
                31,**
            
            **December
                31,****2004**
            
            **2005**
            
            **2005**
            
            **2006****(in
                thousands)**Central
                laboratory
            
            $
            1,552
            
            $
            965
            
            $
            948
            
            $
            2,538Clinical
                research
            
            
            11,413
            
            
            14,712
            
            
            10,712
            
            
            29,175Total
            
            $
            12,965
            
            $
            15,677
            
            $
            11,660
            
            $
            31,713




m)
                  The following table sets forth the clients which represented 10%
                  or more
                  of the Company's net revenue in each of the periods set out
                  below.**Year
                  Ended**
              
              **Period
                  Ended**
              
              **Year
                  Ended****May
                  31,**
              
              **December
                  31,****2004**
              
              **2005**
              
              **2005**
              
              **2006**Client
                  A
              
              
              17
              %
              
              12
              %
              
              *
              
              
              *


·
            Net
                Revenue did not exceed 10%




86




n)
                The distribution of interest income by geographical area was as
                follows:**Year
                Ended**
            
            **Period
                Ended**
            
            **Year
                Ended****May
                31,**
            
            **December
                31,****2004**
            
            **2005**
            
            **2005**
            
            **2006****(in
                thousands)**Ireland
            
            $
            145
            
            $
            103
            
            $
            115
            
            $
            162Rest
                of Europe
            
            
            266
            
            
            881
            
            
            988
            
            
            2,737U.S.
            
            
            67
            
            
            206
            
            
            176
            
            
            822Other
            
            
            12
            
            
            18
            
            
            15
            
            
            44Total
            
            $
            490
            
            $
            1,208
            
            $
            1,294
            
            $
            3,765






o)The
                distribution of interest income by business segment was as
                follows:**Year
                Ended**
            
            **Period
                Ended**
            
            **Year
                Ended****May
                31,**
            
            **December
                31,****2004**
            
            **2005**
            
            **2005**
            
            **2006****(in
                thousands)**Central
                laboratory
            
            $
            8
            
            $
            12
            
            $
            9
            
            $
            97Clinical
                research
            
            
            482
            
            
            1,196
            
            
            1,285
            
            
            3,668Total
            
            $
            490
            
            $
            1,208
            
            $
            1,294
            
            $
            3,765




p)
                The distribution of tax charge by geographical area was as
                follows:**Year
                Ended**
            
            **Period
                Ended**
            
            **Year
                Ended****May
                31,**
            
            **December
                31,****2004**
            
            **2005**
            
            **2005**
            
            **2006****(in
                thousands)**Ireland
            
            $
            1,365
            
            $
            1,693
            
            $
            407
            
            $
            3,961Rest
                of Europe
            
            
            2,388
            
            
            1,004
            
            
            1,460
            
            
            2,034U.S.
            
            
            4,355
            
            
            1,888
            
            
            1,671
            
            
            4,411Other
            
            
            821
            
            
            1,267
            
            
            1,858
            
            
            2,518Total
            
            $
            8,929
            
            $
            5,852
            
            $
            5,396
            
            $
            12,924




87




q)The
                distribution of the tax charge by business segment was as
                follows:**Year
                Ended**
            
            **Period
                Ended**
            
            **Year
                Ended****May
                31,**
            
            **December
                31,****2004**
            
            **2005**
            
            **2005**
            
            **2006****(in
                thousands)**Central
                laboratory
            
            $
            -
            
            $
            53
            
            $
            (84
            )
            $
            (2,877
            )Clinical
                research
            
            
            8,929
            
            
            5,799
            
            
            5,480
            
            
            15,801Total
            
            $
            8,929
            
            $
            5,852
            
            $
            5,396
            
            $
            12,924




**18.
        Supplemental Disclosure of Cash Flow Information**
 **Year
                    Ended**
                
                **Period
                    Ended**
                
                **Year**
                  **Ended****May
                    31,**
                
                **December
                    31,**
                
                **December
                    31,****2004**
                
                **2005**
                
                **2005**
                
                **2006****(in
                    thousands)**Cash
                    paid for interest
                
                $
                202
                
                $
                229
                
                $
                19
                
                $
                54Cash
                    paid for income taxes
                
                $
                5,731
                
                $
                5,290
                
                $
                4,794
                
                $
                11,632
  **19.
            New Accounting Pronouncements**
  In
            May
            2005, the FASB issued SFAS No. 154, Accounting Changes and Error Correction
            (SFAS No. 154). SFAS No.154 is a replacement of APB Opinion No. 20, Accounting
            Changes (APB Opinion No. 20), and SFAS No. 3, Reporting Accounting Changes
            in
            Interim Financial Statements. The statement applies to all voluntary
            changes in
            accounting principle, and changes the accounting for, and reporting of,
            a change
            in accounting principle. SFAS No. 154 requires retrospective application
            to
            prior period financial statements of a voluntary change in accounting
            principle
            unless it is impracticable to do so. APB Opinion No. 20 previously required
            that
            most voluntary changes in accounting principle be recognized by including
            in net
            income of the period of the change the cumulative effect of changing
            to the new
            accounting principle. SFAS No. 154 carries forward many provisions of
            APB
            Opinion No. 20 without change, including the provisions related to the
            reporting
            of a change in accounting estimate, and the correction of an error. SFAS
            No. 154
            does not change the provisions of any existing accounting pronouncements,
            including those that are in a transition phase at the effective date
            of the
            statement. The Company adopted the provisions of SFAS No. 154 on January
            1,
            2006, and the adoption of the new standard did not have a material impact
            on the
            Company’s consolidated financial position or results of operations.
 
 In
            June
            2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
            in
            Income Taxes - an interpretation of SFAS 109. This interpretation clarifies
            the
            accounting for uncertainty in income taxes recognized in a company’s financial
            statements in accordance with FASB Statement No. 109, *Accounting
            for Income Taxes* .
            This
            interpretation prescribes a recognition threshold and measurement attribute
            for
            the financial statement recognition and measurement of tax position taken
            in a
            tax return. It also provides guidance on de-recognition classification,
            interest
            and penalties, accounting in interim periods, disclosure and transition.
            Interpretation No. 48 is effective for fiscal years beginning after December
            15,
            2006. Earlier application is encouraged if the company has not yet issued
            financial statements, including interim financial statements, in the
            period
            Interpretation No. 48 is adopted. The Company does not expect the adoption
            of
            Interpretation No. 48 to have a material impact on the financial statements.
  88




In
        September 2006, the SEC issued SAB No. 108, Considering the Effects of Prior
        Year Misstatements when Quantifying Misstatements in Current Year Financial
        Statements. SAB No. 108 provides guidance on how prior year financial statement
        misstatements should be considered when quantifying misstatements in current
        year financial statements for purposes of determining whether the current
        year’s
        financial statements are materially misstated. SAB No. 108 is effective for
        fiscal years ending after November 15, 2006, and as such, the Company adopted
        SAB No. 108 in the year ended December 31, 2006. The adoption of SAB No.
        108 did
        not have a material impact on the Company’s consolidated results of operations
        or financial position.
 
 In
        March
        2005, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
        No. 47.  In accordance with FASB Interpretation 47 companies must recognize
        a liability for the fair value of a legal obligation to perform asset-retirement
        activities that are conditional on a future event if the amount can be
        reasonably estimated.  The Interpretation provides guidance on whether the
        fair value is reasonably estimable.  The premise underlying the
        Interpretation is a need for more uniform application of Statement 143
        "Accounting for Asset Retirement Obligations".  Companies must adopt the
        Interpretation no later than the end of the fiscal year ending after December
        15, 2005. The
        adoption of FASB Interpretation No 47 has not had a material impact on our
        financial position or results of operations.
 
 In
        December 2004, the FASB issued Statement No. 123R, "Share-Based Payment” - An
        Amendment of FASB Statements No. 123 and 95 (“SFAS No.123R”), which is effective
        for public companies in periods beginning after June 15, 2005. We implemented
        the standard on January 1, 2006. SFAS No. 123R addresses the accounting for
        transactions in which an enterprise receives goods and services in exchange
        for:
        (a) equity instruments of the enterprise; or (b) liabilities that are based
        on
        the fair value of the enterprise’s equity instruments or that may be settled by
        the issuance of such equity instruments. SFAS No. 123R eliminates the ability
        to
        account for share-based compensation transactions using APB 25, and generally
        requires instead that such transactions be accounted for using a fair-value
        based method. Equity classified awards are measured at grant date at fair
        value
        and are not subsequently re-measured. Liability classified awards are
        re-measured at fair value at each balance sheet date until the awards are
        settled. We adopted the Black-Scholes model to derive fair values.
 
 In
        November 2004, the FASB issued Statement No. 151, "Inventory Costs, an amendment
        of ARB No. 43, Chapter 4" (“SFAS No. 151”), which is effective for public
        companies prospectively for inventory costs incurred in periods beginning
        after
        June 15, 2005. This Statement amends the guidance in ARB No. 43, Chapter
        4
“Inventory Pricing”, to clarify that accounting for abnormal amounts of idle
        facility expense, freight, handling costs and wasted material (spoilage)
        should
        be recognized as a current period change and to require the allocation of
        fixed
        production overhead to the costs of conversion based on normal capacity of
        the
        production facilities. The adoption of SFAS No. 151 has not had a material
        impact on our financial position or results of operations.
 
 In
        December 2004, the FASB issued Statement No. 153, “Exchanges of Nonmonetary
        assets - an amendment of APB Opinion No. 29” (“SFAS No. 153”), which is
        effective for public companies in periods beginning after June 15, 2005.
        The
        guidance in APB opinion No. 29, Accounting for Nonmonetary Transactions,
        is
        based on the principle that exchanges of nonmonetary assets should be measured
        based on the fair value of the assets exchanged. The guidance in that Opinion,
        however, included certain exceptions to that principle. This statement amends
        Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
        productive assets and replaces it with a general exception for exchanges
        of
        nonmonetary assets that do not have commercial substance. A nonmonetary exchange
        has commercial substance if the future cash flows of the entity are expected
        to
        change significantly as a result of the exchange. The adoption of SFAS No.
        153
        has not had a material impact on our financial position or results of
        operations.
 
 In
        November 2003 and March 2004, the Emerging Issues Task Force (EITF) reached
        partial consensus on EITF 03-1, “The Meaning of Other-Than-Temporary Impairment
        and its Application to Certain Investments,” (“EITF 03-1”). EITF 03-1 addresses
        the meaning of other then temporary impairment and its application to
        investments classified as either available-for-sale or held-to-maturity under
        SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities” and
        investments accounted for under the cost method. The EITF agreed on certain
        quantitative and qualitative disclosures about unrealized losses pertaining
        to
        securities classified as available-for-sale or held-to-maturity. In addition,
        EITF 03-1 requires certain disclosures about cost method investments. The
        recognition and measurement provisions of EITF 03-1 have been deferred until
        additional guidance is issued.
  89




**20.
        Related Parties**
 
 On
        December 6, 2005, Dr. Ronan Lambe and Dr. John Climax gifted 64,000 and 80,000
        ADSs, respectively, to Mr. Peter Gray, the Company’s Chief Executive Officer.
        ICON has accounted for these transfers of equity instruments from shareholders
        to Mr. Gray as share based payment transactions, and recorded a compensation
        expense of $6,023,520 in its Consolidated Statement of Operations, measured
        by reference to the fair value of the ADSs on the grant date. As this
        transaction is a transfer of already issued stock between officers and directors
        of the Company, the expense recorded had no cash flow impact on the Company
        and
        created no dilution of ordinary shares outstanding.  The fair value of the
        ADSs on the date of gift was determined by reference to market
        price.
  NuPathe
        Inc. (“NuPathe”) is a specialty pharmaceutical company specializing in the
        acquisition and development of therapeutic products in the area of neuroscience.
        During the year ending December 31, 2006, NuPathe engaged ICON Clinical Research
        Limited (a wholly owned subsidiary of ICON), in consulting and clinical trial
        related activities. ICON recognized a total of $0.16 million of revenue in
        relation to these activities. As of December 31, 2006, Dr. John Climax’s and Dr.
        Ronan Lambe’s respective holdings in NuPathe were 6.8% and 6.5% of the issued
        share capital. Dr. Climax also serves as a non-executive director and chairman
        of the compensation committee on the Board of NuPathe.
  AGI
        Therapeutics Limited (“AGI”) is a specialty pharmaceutical company focused on
        developing drug therapies for gastrointestinal diseases and disorders. ICON
        is
        engaged in conducting a series of clinical trials on behalf of AGI. In January
        2006, Dr. Ronan Lambe was appointed a non-executive director of AGI and took
        up
        the position of non-executive Chairman from February 2006. During September
        2004, AGI contracted ICON Clinical Research Limited (a wholly owned subsidiary
        of ICON), to conduct a clinical trial on its behalf. The total potential
        value
        of this study is $2.8m. During the year ended December 31, 2006 the Company
        recognized $0.5m revenue relating to the AGI contract. At December 31, 2006,
        $0.4m was outstanding to be received from AGI on this trial. As of December
        31,
        2006, Dr. Ronan Lambe and Sunninghill Limited (a company controlled by Dr.
        John
        Climax) held 0.9 million and 0.3 million shares, respectively, in AGI. This
        holding equates to approximately 0.1% and 0.05%, respectively of AGI's issued
        share capital.
  Amarin
        Corporation plc ("Amarin") is a neuroscience company focused on the research,
        development and commercialization of drugs for the treatment of central nervous
        system disorders. During the fiscal year ending May 31, 2005, Amarin contracted
        ICON Clinical Research Limited (a wholly owned subsidiary of ICON), to conduct
        a
        clinical trial on its behalf. The total potential value of this study is
        $8m. As
        at December 31, 2006, Amarin Investment Holding Company Limited (a company
        controlled by Mr. Thomas Lynch), Sunninghill Limited (a company controlled
        by
        Dr. John Climax) and Dr. Ronan Lambe held 10 million, 6.4 million and 1.6
        million shares, respectively, in Amarin. These respective holdings equate
        to
        approximately 11%, 7.8% and 1.4%, respectively, of Amarin's issued share
        capital. Thomas Lynch also serves as chairman and non-executive director
        on the
        Board of Amarin. During the year ended December 31, 2006, the Company recognized
        $2.4m revenue relating to the Amarin contract. At December 31, 2006, $1.4m
        was
        outstanding to be received from Amarin on this trial.
  On
        February 6, 1998, ICON entered into an Option Agreement (“The Put Option”) with
        Rosa Investment Limited ("Rosa"). Rosa's sole activity was to hold an investment
        in Clear Investments Limited ("Clear"), the sole activity of which was to
        hold
        Mr. Gray's 54,000 ordinary share options. Mr. Gray is a director of Rosa
        and
        Clear. Rosa is owned by a trust of which Mr. Gray is a beneficiary. On April
        21,
        2004, Mr. Gray acquired Clear from Rosa and exercised the Put Option in
        accordance with the terms of the Option Agreement. On April 22, 2004, pursuant
        to the Option Agreement, ICON purchased the outstanding share capital in
        Clear
        from Mr. Gray, the consideration for the acquisition being the issuance of
        54,000 fully paid ordinary shares in ICON, to Mr. Gray, such a sale being
        the
        economic equivalent of Mr. Gray exercising his stock options.
  Encysive
        Pharmaceuticals Inc. (“Encysive”) is a biopharmaceutical company specializing in
        the development and commercialization of synthetic, small molecule compounds.
        During the year ending December 31, 2006, Encysive engaged ICON Clinical
        Research Limited (a wholly owned subsidiary of ICON), in consulting and clinical
        trial related activities. ICON recognized a total of $0.3 million of revenue
        in
        relation to these activities. As of December 31, 2006, Dr. Bruce Given’s
        holdings in Encysive were 0.4% of the issued share capital. Dr. Bruce Given
        also
        serves as the President and Chief Executive Officer of Encysive.
  90




**SIGNATURES**
 
 The
        Registrant certifies that it meets all of the US requirements for filing
        on Form
        20-F and has duly caused and authorized this annual report to be signed on
        its
        behalf.
  **ICON
                    plc**____________________________
                
                /s/
                    Ciaran MurrayDate
                    February 12, 2007
                
                Ciaran
                    MurrayChief
                    Financial Officer




91




**Certification
        of Chief Executive Officer**
 **Pursuant
        to Section 302 of**
 **the
        Sarbanes-Oxley Act of 2002**
 
 I,
        Peter
        Gray, certify that:
 
 1.
        I have
        reviewed this annual report on Form 20-F of ICON plc (“the
        registrant”).
 
 2.
        Based
        on my knowledge, this report does not contain any untrue statement of a material
        fact or omit to state a material fact necessary to make the statements made,
        in
        light of the circumstances under which such statements were made, not misleading
        with respect to the period covered by this report;
 
 3.
        Based
        on my knowledge, the financial statements, and other financial information
        included in this report, fairly present in all material respects the financial
        condition, results of operations and cash flows of the registrant as of,
        and
        for, the periods presented in this report;
 
 4.
        The
        registrant's other certifying officer and I are responsible for establishing
        and
        maintaining disclosure controls and procedures (as defined in Exchange Act
        Rules
        13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
        defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
        and
        have:
  a)
        Designed such disclosure controls and procedures, or caused such disclosure
        controls and procedures to be designed under our supervision, to ensure that
        material information relating to the registrant, including its consolidated
        subsidiaries, is made known to us by others within those entities, particularly
        during the period in which this report is being prepared;
 
 b)
        Designed such internal control over financial reporting, or caused such internal
        control over financial reporting to be designed under our supervision, to
        provide reasonable assurance regarding the reliability of financial reporting
        and the preparation of financial statements for external purposes in accordance
        with generally accepted accounting principles;
 
 c)
        Evaluated the effectiveness of the registrant's disclosure controls and
        procedures and presented in this report our conclusions about the effectiveness
        of the disclosure controls and procedures, as of the end of the period covered
        by this report based on such evaluation; and
 
 d)
        Disclosed in this report any change in the registrant's internal control
        over
        financial reporting that occurred during the period covered by this report
        that
        has materially affected, or is reasonably likely to materially affect, the
        company’s internal control over financial reporting.
 
 5.
        The
        registrant's other certifying officer and I have disclosed, based on our
        most
        recent evaluation of internal control over financial reporting, to the
        registrant's auditors and the audit committee of the registrant's board of
        directors (or persons performing the equivalent functions):
 
 a)
        All
        significant deficiencies and material weaknesses in the design or operation
        of
        internal control over financial reporting which are reasonably likely to
        adversely affect the registrant's ability to record, process, summarize and
        report financial information; and
 
 b)
        Any
        fraud, whether or not material, that involves management or other employees
        who
        have a significant role in the registrant's internal control over financial
        reporting.
 
 Dated:
        February 12, 2007
 
 
 __________________
 Peter
        Gray
 Chief
        Executive Officer
  92


**Certification
        of Chief Financial Officer**
 **Pursuant
        to Section 302 of**
 **the
        Sarbanes-Oxley Act of 2002**
  I,
        Ciaran
        Murray, certify that:
 
 1.
        I have
        reviewed this annual report on Form 20-F of ICON plc (“the
        registrant”).
 
 2.
        Based
        on my knowledge, this report does not contain any untrue statement of a material
        fact or omit to state a material fact necessary to make the statements made,
        in
        light of the circumstances under which such statements were made, not misleading
        with respect to the period covered by this report;
 
 3.
        Based
        on my knowledge, the financial statements, and other financial information
        included in this report, fairly present in all material respects the financial
        condition, results of operations and cash flows of the registrant as of,
        and
        for, the periods presented in this report;
 
 4.
        The
        registrant's other certifying officer and I are responsible for establishing
        and
        maintaining disclosure controls and procedures (as defined in Exchange Act
        Rules
        13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
        defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
        and
        have:
  a)
        Designed such disclosure controls and procedures, or caused such disclosure
        controls and procedures to be designed under our supervision, to ensure that
        material information relating to the registrant, including its consolidated
        subsidiaries, is made known to us by others within those entities, particularly
        during the period in which this report is being prepared;
 
 b)
        Designed such internal control over financial reporting, or caused such internal
        control over financial reporting to be designed under our supervision, to
        provide reasonable assurance regarding the reliability of financial reporting
        and the preparation of financial statements for external purposes in accordance
        with generally accepted accounting principles;
 
 c)
        Evaluated the effectiveness of the registrant's disclosure controls and
        procedures and presented in this report our conclusions about the effectiveness
        of the disclosure controls and procedures, as of the end of the period covered
        by this report based on such evaluation; and
 
 d)
        Disclosed in this report any change in the registrant's internal control
        over
        financial reporting that occurred during the period covered by this report
        that
        has materially affected, or is reasonably likely to materially affect, the
        company’s internal control over financial reporting.
 
 5.
        The
        registrant's other certifying officer and I have disclosed, based on our
        most
        recent evaluation of internal control over financial reporting, to the
        registrant's auditors and the audit committee of the registrant's board of
        directors (or persons performing the equivalent functions):
 
 a)
        All
        significant deficiencies and material weaknesses in the design or operation
        of
        internal control over financial reporting which are reasonably likely to
        adversely affect the registrant's ability to record, process, summarize and
        report financial information; and
 
 b)
        Any
        fraud, whether or not material, that involves management or other employees
        who
        have a significant role in the registrant's internal control over financial
        reporting.
 
 Dated:
        February 12, 2007
 
 
 __________________
 Ciaran
        Murray
 Chief
        Financial Officer
 
 93
 **Certification
        Pursuant to 18 U.S.C. Section 1350,**
 **As
        Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
        2002**
 
 
 In
        connection with the Annual Report of ICON plc (the “Company”) on Form 20-F for
        the year ending December 31, 2006, as filed with the Securities and Exchange
        Commission on the date hereof (the “Report”), I, Peter Gray, Chief Executive
        Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted
        pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
 (1)
        the
        Report fully complies with the requirements of section 13(a) or 15(d) of
        the
        Securities Exchange Act of 1934; and
 
 (2)
        the
        information contained in the Report fairly presents, in all material respects,
        the financial condition and result of operations of the Company.
 
 Date:  February
        12, 2007
 
  
 _______________________
 Peter
        Gray
 Chief
        Executive Officer
 
 The
        foregoing certification is being furnished solely pursuant to section 906
        of the
        Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter
        63
        of title 18, United States Code) and is not being filed as part of the report
        or
        as a separate disclosure document. A signed original of this written statement
        required by section 906 has been provided to ICON plc
        and
        will be retained by ICON plc and furnished to the Securities and Exchange
        Commission or its staff upon request.
 
 
 **Certification
        Pursuant to 18 U.S.C. Section 1350,**
 **As
        Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
        2002**
  
  In
        connection with the Annual Report of ICON plc (the “Company”) on Form 20-F for
        the year ending December  31, 2006, as filed with the Securities and
        Exchange Commission on the date hereof (the “Report”), I, Ciaran Murray, Chief
        Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as
        adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my
        knowledge:
 
 (1)
        the
        Report fully complies with the requirements of section 13(a) or 15(d) of
        the
        Securities Exchange Act of 1934; and
 
 (2)
        The
        information contained in the Report fairly presents, in all material respects,
        the financial condition and result of operations of the Company.
 
 Date:  February
        12, 2007
 
 
 _______________________
 Ciaran
        Murray
 Chief
        Financial Officer
 
 The
        foregoing certification is being furnished solely pursuant to section 906
        of the
        Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter
        63
        of title 18, United States Code) and is not being filed as part of the report
        or
        as a separate disclosure document. A signed original of this written statement
        required by section 906 has been provided to ICON plc and will be retained
        by
        ICON plc and furnished to the Securities and Exchange Commission or its staff
        upon request.
  94