UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 Commission file number: 000-28508
 Flamel Technologies S.A.
  Not Applicable
 (Translation of Registrants name into English)
 Republic of France
 (Jurisdiction of incorporation or organization)
 Parc Club du Moulin a Vent
33, avenue du Docteur Georges Levy
69693 Vénissieux Cedex France
 (Address of principal executive offices)
  Title of each class
    
    Name of Exchange on which RegisteredOrdinary Shares, nominal value 0.122 Euros per share, represented by American
Depositary Shares (as evidenced by American Depositary Receipts), each
representing one Ordinary Share
    
    NASDAQ Global Market
      o þ
  o þ
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  þ
 o
 o
  o þ
  o þ




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TABLE OF CONTENTS
 PART I
    
    
    1ITEM 1. Identity of Directors, Senior Management and Advisers
    
    
    1ITEM 2. Offer Statistics and Expected Timetable
    
    
    1ITEM 3. Key Information
    
    
    1ITEM 4. Information on the Company
    
    
    13ITEM 4A. Unresolved Staff Comments
    
    
    33ITEM 5. Operating and Financial Review and Prospects
    
    
    33ITEM 6. Directors, Senior Management and Employees
    
    
    41ITEM 7. Major Shareholders and Related Party Transactions
    
    
    49ITEM 8. Financial Information
    
    
    50ITEM 9. The Offer and Listing
    
    
    51ITEM 10. Additional Information
    
    
    52ITEM 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    59ITEM 12. Description of Securities Other Than Equity Securities
    
    
    59PART II
    
    
    59ITEM 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    59ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    59ITEM 15. Controls and Procedures
    
    
    60ITEM 16. [Reserved]
    
    
    61ITEM 16A. Audit Committee Financial Expert
    
    
    61ITEM 16B. Code of Ethics
    
    
    61ITEM 16C. Principal Accountant Fees and Services
    
    
    61ITEM 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    62ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    62ITEM 16F. Change in Registrants Certifying Accountant
    
    
    62ITEM 16G. Corporate Governance
    
    
    62PART III
    
    
    63ITEM 17. Financial Statements
    
    
    63ITEM 18. Financial Statements
    
    
    63ITEM 19. Exhibits
    
    
    63
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TM
 
 ii




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SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
  
    
    we depend on a few customers for the majority of our revenues, and the loss of
any one of these customers could reduce our revenues significantly;
    
    our revenues depend on pharmaceutical and biotechnology companies successfully
developing products that incorporate our drug delivery technologies;
    
    although products that incorporate our drug delivery technologies may appear
promising at their early stages of development and in clinical trials, none of
these potential products may reach the commercial market for a number
of reasons;
    
    we must invest substantial sums in research and development in order to remain
competitive, and we may not fully recover these investments;
    
    we depend on key personnel to execute our business plan. If we cannot attract
and retain key personnel, we may not be able to successfully implement our business
plan;
    
    products that incorporate our drug delivery technologies are subject to
regulatory approval. If our pharmaceutical and biotechnology company partners do
not obtain such approvals, or if such approvals are delayed, our revenues may be
adversely affected;
    
    we may face product liability claims related to participation in clinical trials
or the use or misuse of our products or products that incorporate our technologies;
    
    commercial products incorporating our technologies are subject to continuing
regulation, and we and our pharmaceutical and biotechnology company partners may be
subject to adverse consequences if we or they fail to comply with applicable
regulations;
    
    regulatory reforms may adversely affect our ability to sell our products
profitably;
    
    if our competitors develop and market drug delivery technologies or related
products that are more effective than ours, or obtain regulatory approval and
market such technology or products before we do, our commercial opportunity will be
reduced or eliminated;
    
    certain companies to which we have licensed our technology are subject to
extensive regulation by the FDA and other regulatory authorities. Their failure
to meet strict regulatory requirements could adversely affect our
business;
    
    if we cannot keep pace with the rapid technological change in our industry, we
may lose business;
    
    our products and technologies may not gain market acceptance;
    
    if we cannot adequately protect our technology and proprietary information, we
may be unable to sustain a competitive advantage;
 iii




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
    
    third parties have claimed, and may claim in the future, that our technologies,
or the products in which they are used, infringe on their rights and we may incur
significant costs resolving these claims;
    
    if we or our collaborative partners are required to obtain licenses from third
parties, our revenues and royalties on any commercialized products could be
reduced;
    
    if we use biological and hazardous materials in a manner that causes injury, we
may be liable for significant damages;
    
    healthcare reform and restrictions on reimbursements may limit our financial
returns;
    
    because we have a limited operating history, investors in our shares may have
difficulty evaluating our prospects;
    
    if we are not profitable in the future, the value of our
shares may fall;
    
    the current credit and financial market conditions may exacerbate certain risks
affecting our business;
    
    we may require additional financing, which may not be available on favorable
terms or at all, particularly in light of the global economic recession and its
negative effect on the capital markets and which may result in dilution of our
shareholders equity interest;
    
    our share price has been volatile and may continue to be
volatile;
    
    our operating results may fluctuate, which may adversely
affect our share price; and
    
    fluctuations in foreign currency exchange rates may cause fluctuations in our
financial results.
  iv




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PART I
 
 ITEM Identity of Directors, Senior Management and Advisers
  
 ITEM 2. Offer Statistics and Expected Timetable
  
 ITEM 3. Key Information
 Selected Financial Data
  Statement of Operations Data*:
 2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008Revenues
    
    $
    55,410
    
    
    $
    23,598
    
    
    $
    23,020
    
    
    $
    36,654
    
    
    $
    38,619Cost and Expenses
    
    
    (46,575
    )
    
    
    (64,367
    )
    
    
    (61,858
    )
    
    
    (77,503
    )
    
    
    (58,779
    )Income (Loss) from Operations
    
    
    8,835
    
    
    
    (40,769
    )
    
    
    (38,838
    )
    
    
    (40,849
    )
    
    
    (20,160
    )Interest and foreign exchange gain (loss), net
    
    
    363
    
    
    
    4,103
    
    
    
    1,388
    
    
    
    1,221
    
    
    
    1,417Other income
    
    
    100
    
    
    
    5,003
    
    
    
    131
    
    
    
    197
    
    
    
    181Income (loss) before income tax
    
    
    9,298
    
    
    
    (31,663
    )
    
    
    (37,319
    )
    
    
    (39,431
    )
    
    
    (18,562
    )Income tax benefit (expense)
    
    
    3,201
    
    
    
    4,286
    
    
    
    2,118
    
    
    
    1,694
    
    
    
    6,478Net income
(loss)
    
    $
    12,499
    
    
    $
    (27,377
    )
    
    $
    (35,201
    )
    
    $
    (37,737
    )
    
    $
    (12,084
    )Income
(Loss) from Operations per ordinary  share
    
    $
    0.41
    
    
    $
    (1.77
    )
    
    $
    (1.63
    )
    
    $
    (1.70
    )
    
    $
    (0.84
    )Basic earnings (loss) per ordinary share
    
    $
    0.58
    
    
    $
    (1.19
    )
    
    $
    (1.48
    )
    
    $
    (1.57
    )
    
    $
    (0.50
    )Diluted earnings (loss) per ordinary share
    
    $
    0.53
    
    
    $
    (1.19
    )
    
    $
    (1.48
    )
    
    $
    (1.57
    )
    
    $
    (0.50
    )Basic weighted average number of shares
outstanding (in thousands)
    
    
    21,514
    
    
    
    22,999
    
    
    
    23,812
    
    
    
    24,024
    
    
    
    24,082Diluted weighted average number of shares
outstanding (in thousands)
    
    
    23,559
    
    
    
    22,999
    
    
    
    23,812
    
    
    
    24,024
    
    
    
    24,082Dividends per share
    
    
    
    
    
    
    
 
 (* in thousands of U.S. dollars, except share and per share data) 1




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Balance Sheet Data*:
 2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008Cash, Cash
equivalents &
Marketable
securities
    
    $
    105,374
    
    
    $
    83,774
    
    
    $
    62,771
    
    
    $
    41,062
    
    
    $
    37,078Working capital**
    
    
    97,446
    
    
    
    67,092
    
    
    
    55,465
    
    
    
    31,155
    
    
    
    38,934Total assets
    
    
    145,608
    
    
    
    124,351
    
    
    
    114,894
    
    
    
    101,401
    
    
    
    91,861Long term
liabilities

(excluding deferred
revenues)
    
    
    4,665
    
    
    
    12,801
    
    
    
    20,504
    
    
    
    21,483
    
    
    
    22,859Shareholders equity
    
    
    116,757
    
    
    
    86,654
    
    
    
    73,026
    
    
    
    54,627
    
    
    
    48,546
 
 *
    
    (in thousands of U.S. dollars)**
    
    (current assets - current liabilities) Exchange Rates:
   Year Ended December 31,Euro to U.S. Dollar:
    
    High
    
    
    Low
    
    
    Average Rate12008
    
    
    1.599
    
    
    
    1.246
    
    
    
    1.47062007
    
    
    1.4874
    
    
    
    1.2893
    
    
    
    1.370642006
    
    
    1.3331
    
    
    
    1.1826
    
    
    
    1.255672005
    
    
    1.3507
    
    
    
    1.1667
    
    
    
    1.244782004
    
    
    1.367
    
    
    
    1.176
    
    
    
    1.248Previous Six Months,Euro to U.S. Dollar:
    
    High
    
    Low
    
    Average Rate1April, 2009
    
    
    1.3496
    
    
    
    1.2932
    
    
    
    1.31903March, 2009
    
    
    1.3671
    
    
    
    1.2555
    
    
    
    1.30498February, 2009
    
    
    1.3008
    
    
    
    1.2591
    
    
    
    1.27841January, 2009
    
    
    1.3866
    
    
    
    1.2795
    
    
    
    1.32867December, 2008
    
    
    1.4616
    
    
    
    1.2608
    
    
    
    1.3449November, 2008
    
    
    1.2935
    
    
    
    1.2525
    
    
    
    1.2732
 
 
 1
    
    Annual totals represent the average of the noon buying
rates for Euros of each business day during the relevant period. Monthly totals
represent the average of the noon buying rates for Euros for each business day
during the relevant month. 2




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Risk Factors:
 Our business faces many risks. The risks described below may not be the only risks we face.
Additional risks that we do not yet know of or that we currently believe are immaterial may also
impair our business operations. If any of the events or circumstances described in the following
risks actually occur, our business, financial condition or results of operations could suffer, and
the trading price of our securities could decline. As a result, you should consider all of the
following risks, together with all of the other information in this Annual Report on Form 20-F ,
before deciding to invest in our securities.
 We depend on a few customers for the majority of our revenues, and the loss of any one of these
customers could reduce our revenues significantly.
  Our revenues depend on pharmaceutical and biotechnology companies successfully developing products
that incorporate our drug delivery technologies.
   
    
    our collaborative agreements may not result in any new commercial products;
    
    the existing commercial products developed under our collaborative agreements may
not be successful;
    
    our pharmaceutical and biotechnology company partners may not successfully market
any commercial products;
    
    we may not be able to meet the milestones established in our current or future
collaborative agreements;
    
    we may not be able to successfully develop new drug delivery technologies that would
be attractive to potential pharmaceutical or biotechnology company partners;
    
    our collaborative partners may terminate their relationships with us; and
    
    our collaborative partners may enter bankruptcy or otherwise dissolve.
 
 3




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Although products that incorporate our drug delivery technologies may appear promising at their
early stages of development and in clinical trials, none of these potential products may reach the
commercial market for a number of reasons.
   
    
    the FDA (Food and Drug Administration) or an institutional review board may delay or
stop the conduct of clinical trials;
    
    our pharmaceutical or biotechnology partners may face slower than expected rate of
patient recruitment and enrollment;
    
    our technologies or our pharmaceutical and biotechnology company partners products
may be found to be ineffective or cause harmful side effects, or may fail during any
stage of pre-clinical testing or clinical trials;
    
    we may not find pharmaceutical or biotechnology companies to adopt the technologies
or, if partnered, the business strategy of our partner may change;
    
    our pharmaceutical and biotechnology company partners may find that certain products
cannot be manufactured on a commercial scale and, therefore, may not be economical to
produce;
    
    our pharmaceutical and biotechnology company partners may determine that managed
care providers are unwilling to reimburse patients at an economically attractive level
for products being developed; or
    
    products that use our technologies could fail to achieve market acceptance or be
precluded from commercialization by proprietary rights of third parties.
 We must invest substantial sums in research and development in order to remain competitive, and we
may not fully recover these investments.
  We depend on key personnel to execute our business plan. If we cannot attract and retain key
personnel, we may not be able to successfully implement our business plan.
  4




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Products that incorporate our drug delivery technologies are subject to regulatory approval. If
our pharmaceutical and biotechnology company partners do not obtain such approvals, or if such
approvals are delayed, our revenues may be adversely affected.
       5




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We may face product liability claims related to participation in clinical trials or the use or
misuse of our products or products that incorporate our technologies.
  Commercial products incorporating our technologies are subject to continuing regulation, and we and
our pharmaceutical and biotechnology company partners may be subject to adverse consequences if we
or they fail to comply with applicable regulations.
  
    
    adverse drug experiences and other reporting requirements;
    
    product promotion and marketing;
    
    product manufacturing, including cGMP compliance;
    
    record keeping;
    
    distribution of drug samples;
    
    required post-marketing studies or clinical trials;
    
    compliance with any required REMS;
    
    updating safety and efficacy information;
    
    use of electronic records and signatures; and
    
    changes to product manufacturing or labeling.
  
    
    issue warning letters;
    
    impose fines;
    
    seize products or order recalls;
    
    issue injunctions to stop future sales of products;
 6




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
    
    refuse to permit products to be imported into, or exported out of, the United
States;
    
    suspend or limit our production;
    
    withdraw approval of marketing applications; and
    
    initiate criminal prosecutions.
 Regulatory reforms may adversely affect our ability to sell our products profitably.
   If our competitors develop and market drug delivery technologies or related products that are more
effective than ours, or obtain regulatory approval and market such technology or products before we
do, our commercial opportunity will be reduced or eliminated.
    7




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Certain companies to which we have licensed our technology are subject to extensive regulation by
the FDA and other regulatory authorities. Their failure to meet strict regulatory requirements
could adversely affect our business.
  If we cannot keep pace with the rapid technological change in our industry, we may lose business.
  Our products and technologies may not gain market acceptance.
   
    
    the effectiveness of our marketing strategy;
    
    demonstration of the clinical efficacy and safety of the product or technology;
    
    no evidence of undesirable side effects which delay or extend trials;
    
    no regulatory delays or other regulatory actions;
    
    its cost-effectiveness;
    
    its potential advantage over alternative treatment methods; and
    
    the marketing and distribution support it receives.
  8




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If we cannot adequately protect our technology and proprietary information, we may be unable to
sustain a competitive advantage.
     Third parties have claimed, and may claim in the future, that our technologies, or the products in
which they are used, infringe on their rights and we may incur significant costs resolving these
claims.
    9




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If we or our collaborative partners are required to obtain licenses from third parties, our
revenues and royalties on any commercialized products could be reduced.
  If we use biological and hazardous materials in a manner that causes injury, we may be liable for
significant damages.
   Healthcare reform and restrictions on reimbursements may limit our financial returns.
  Because we have a limited operating history, investors in our shares may have difficulty evaluating
our prospects.
  10




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If we are not profitable in the future, the value of our shares may fall.
  
    
    the demand for our technologies and products;
    
    the level of product and price competition;
    
    our ability to develop new collaborative partnerships and additional commercial
applications for our products;
    
    our ability to control our costs;
    
    our ability to broaden our customer base;
    
    the effectiveness of our marketing strategy;
    
    the effectiveness of our partners marketing strategy for products which use our
technology; and
    
    general economic conditions.
 The current credit and financial market conditions may exacerbate certain risks affecting our
business.
  We may require additional financing, which may not be available on favorable terms or at all,
particularly in light of the global economic recession and its negative effect on the capital
markets, and which may result in dilution of our shareholders equity interest.
  
    
    the development and acquisition of new products and technologies;
    
    the progress of our research and product development programs;
    
    results of our collaborative efforts with current and potential pharmaceutical and
biotechnology company partners; and
    
    the timing of, and amounts received from, future product sales, product development
fees and licensing revenue and royalties.
 
 11




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Our share price has been volatile and may continue to be volatile.
 , ,
 
    
    fluctuations in our operating results;
    
    announcements of technological collaborations, innovations or new products by us or
our competitors;
    
    governmental regulations;
    
    developments in patent or other proprietary rights owned by us or others;
    
    public concern as to the safety of drugs developed by us or others;
    
    the results of pre-clinical testing and clinical studies or trials by us or our
competitors;
    
    litigation;
    
    decisions by our pharmaceutical and biotechnology company partners relating to the
products incorporating our technologies;
    
    actions by the FDA in connection with submissions related to the products
incorporating our technologies;
    
    the perception by the market of biotechnology and high technology companies
generally; and
    
    general market conditions, including the impact of the current financial
environment.
 Our operating results may fluctuate, which may adversely affect our share price.
  
    
    demand by consumers for the products we produce;
    
    new product introductions;
    
    pharmaceutical and biotechnology company ordering patterns;
    
    the number of new collaborative agreements into which we enter;
    
    the number and timing of product development milestones that we achieve under
collaborative agreements;
    
    the level of our development activity conducted for, and at the direction of,
pharmaceutical and biotechnology companies under collaborative agreements; and
    
    the level of our spending on new drug delivery technology development and technology
acquisition, and internal product development.
 
 12




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Fluctuations in foreign currency exchange rates may cause fluctuations in our financial results.
  
 ITEM 4. Information on the Company
 General Overview
 ®
   
   13




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14




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The Need for Novel Delivery Systems
  Business Strategy
  
    
    to maximize the potential of our existing drug delivery systems;
    
    to develop additional drug delivery technologies;
    
    to develop new formulations of proprietary compounds that we receive from additional
partners;
    
    to leverage capabilities of pharmaceutical partners for clinical development and
commercialization; and
    
    to identify additional compounds for unmet medical needs.
   Medusa: Delivery System for Therapeutic Proteins and Peptides
   
    
    can be metabolized by the human body into harmless substances;
    
    is compatible with the protein or peptide;
    
    keeps the structure of the protein intact;
    
    protects the therapeutic agent during transit and delivery; and
    
    has the required release properties once delivered.
 15




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Products Based on the Medusa Technology
 1. Interferon
    2. FT-105: Long-acting Basal Insulin Formulation
  Insulin Market
  ® ®
 16




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The Development of FT-105 basal insulin
   ®
 3. Interleukin
 ®
 17




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Other Products Based on the Medusa Technology
  Micropump: Delivery System for the Oral Administration of Drugs
      18




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Products Based on the Micropump Technology
  1. Coreg CR
  The Market for Beta Blockers
   19




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2. Asacard162.5mg: Controlled-Release Cardiovascular Aspirin
   Other Products Based on Micropump Technology
  Photochromic Materials
     20




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Strategic Alliances
  GlaxoSmithKline
  Merck Serono
   
 Wyeth
  Pfizer
  Servier
  21




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Corning: Photochromic Materials
    Manufacturing
       22




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Patents and Proprietary Technology
    ®
    Government Regulation
   23




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New Drug and Biological Product Development and Approval Process
 United States
     Chemical and Formulation Development
  24




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Pre-Clinical Testing
  Investigational New Drug Application
 USA:
 European Union:
 Clinical Trials
   25




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New Drug Application or Biological License Application
    26




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Other Countries
   Regulation of Combination Drugs
     27




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Marketing Approval and Reporting Requirements
    Post-Marketing Obligations
     28




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Patent Restoration and Exclusivity
     29




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Regulation of Medical Devices
 United States
  Other Countries
   Other Regulation
 Controlled Substances Act
 30




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cGMP.
  Healthcare Reimbursement
  Competition
  31




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
    
    demonstration of its clinical efficacy and safety;
    
    its cost-effectiveness;
    
    its potential advantage over alternative treatment methods; and
    
    the marketing and distribution support it receives.
 Description of Property
    32




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ITEM 4A. Unresolved Staff Comments
  
 ITEM 5. Operating and Financial Review and Prospects
  Overview
     33




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  
   34




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Critical Accounting Policies
 Revenue Recognition
   -
    
    As milestones relate to discrete development steps (i.e. can be used by the
co-development partners to decide whether to continue the development under the
agreement), the Company views that milestone events have substance and represent the
achievement of defined goals worthy of the payments. Therefore, milestone payments
based on performance are recognized when the performance criteria are met and there are
no further performance obligations.
 -
    
    Non-refundable technology access fees received from collaboration agreements that
require the Companys continuing involvement in the form of development efforts are
recognized as revenue ratably over the development period.
 -
    
    Research and development work is compensated at a non-refundable hourly rate for
a projected number of hours. Revenue on such agreements is recognized at the hourly rate
for the number of hours worked as the research and development work is performed. Costs
incurred under these contracts are considered costs in the period incurred. Payments
received in advance of performance are recorded as deferred revenue and recognized in
revenue as services are rendered.
      Translation of Financial Statements
  35




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Results of Operations
  Operating Revenues
  Amounts in millions of U.S. Dollars
    
    
    
    2006
    
    2007
    
    2008LICENSE AND RESEARCH REVENUES
    
    
    20.3
    
    
    
    10.3
    
    
    
    13.2RESEARCH
    
    
    
    
    13.4
    
    
    
    5.5
    
    
    
    9.4Research
    
    GSK Coreg CR
    
    
    9.6
    
    
    
    1.9
    
    
    
    1.1Merck Serono
    
    
    
    
    
    
    
    
    
    
    2.9Wyeth Pharmaceuticals
    
    
    
    
    
    
    0.3
    
    
    
    1.5RHEI Pharmaceuticals
    
    
    
    
    
    
    0.1
    
    
    
    0.1Undisclosed Partners
    
    
    3.8
    
    
    
    3.2
    
    
    
    3.8LICENSES
    
    
    
    
    6.9
    
    
    
    4.8
    
    
    
    3.8Up Front Payment
    
    GSK Coreg CR
    
    
    0.2Merck-Serono
    
    
    
    
    
    
    
    
    
    
    2.5Wyeth Pharmaceuticals
    
    
    
    
    
    
    0.2
    
    
    
    0.6RHEI Pharmaceuticals
    
    
    
    
    
    
    0.2Undisclosed Partners
    
    
    0.7
    
    
    
    0.4Milestones
    
    GSK Coreg CR
    
    
    6.0
    
    
    
    4.0Merck Serono
    
    
    
    
    
    
    
    
    
    
    0.7TOTAL
    
    
    
    
    20.3
    
    
    
    10.3
    
    
    
    13.2GSK Coreg CR
    
    
    15.8
    
    
    
    5.9
    
    
    
    1.1Merck Serono
    
    
    
    
    
    
    
    
    
    
    6.1Wyeth Pharmaceuticals
    
    
    
    
    
    
    0.5
    
    
    
    2.1RHEI Pharmaceuticals
    
    
    
    
    
    
    0.3
    
    
    
    0.1Undisclosed Partners
    
    
    4.5
    
    
    
    3.6
    
    
    
    3.8
    36




---



##### 



Operating Expenses
      37




---



##### 



Non-Operating Items
 Sociétés dInvestissement à
Capital Variable
      Net Income/Loss
  Liquidity and Capital Resources
  38




---



##### 



39




---



##### 



Payments Due Per PeriodLess than
    
    1 to 3
    
    3 to 5
    
    More than(in thousands of U.S.)
    
    Total
    
    1 year
    
    years
    
    years
    
    5 yearsLong-Term
Debt Obligations (see Note 13)
    
    $
    2,953
    
    
    $
    684
    
    
    $
    1,729
    
    
    $
    540
    
    
    
    Capital
Lease Obligations (see Note 14)
    
    $
    188
    
    
    $
    82
    
    
    $
    82
    
    
    $
    25
    
    
    
    Operating Leases Obligations (see Note 20.2)
    
    $
    4,523
    
    
    $
    1,106
    
    
    $
    1,859
    
    
    $
    1,202
    
    
    $
    356Other
Long-Term Liabilities reflected on the Registrants
Balance Sheet under GAAP 
(see
Note 18)
    
    $
    1,576
    
    
    $
    29
    
    
    $
    135
    
    
    $
    423
    
    
    $
    989Total Contractual Cash Obligations
    
    $
    9,240
    
    
    $
    1,901
    
    
    $
    3,805
    
    
    $
    2,190
    
    
    $
    1,345
  Off-Balance Sheet Arrangements
  40




---



##### 



ITEM 6. Directors, Senior Management and Employees
 Directors and Senior Management
  Year ofInitialName
    
    Position
    
    AppointmentElie Vannier (1) (2)
    
    Non-Executive Chairman of the Board of Directors
    
    
    2005Dr; Frank J.T Fildes (2) (4)
    
    Director
    
    
    2008Frédéric Lemoine (2) (3)
    
    Director
    
    
    2005Lodewijk J.R. de Vink (1) (3)
    
    Director
    
    
    2006John L. Vogelstein(1) (3)
    
    Director
    
    
    2005Stephen H. Willard (5)
    
    Chief Executive Officer and Director
    
    
    2000
 
 (1)
    
    Member of the Compensation Committee(2)
    
    Member of the Audit Committee(3)
    
    Member of the Nominating and Corporate Governance Committee(4)
    
    Nominated in February 2008 in replacement of Cor Boonstra(5)
    
    Appointed as a Director in 2001  Year ofInitialName
    
    Position
    
    AppointmentMichel Finance (6)
    
    Executive Vice President and Chief Financial Officer
    
    
    2005Rafael Jorda
    
    Executive Vice President and Chief Operating Officer
    
    
    1991Jeffery S. Vick
    
    Chief Business Officer
    
    
    2009Christian Kalita
    
    Directeur Général Délégué Pharmacien Responsable
(Chief Pharmacist)
    
    
    2005Yves Bourboulou
    
    Industrial Director
    
    
    2005Martine Capelle
    
    Human Resources Director
    
    
    2006Catherine Castan
    
    Director of R&D Micropump
    
    
    1992You Ping Chan
    
    Director of Chemistry Department
    
    
    1992Siân Crouzet
    
    Principal Financial Officer
    
    
    2005Roger Kravtzoff
    
    Preclinical and Early Clinical Development Director
    
    
    2002Nigel McWilliam
    
    Director of Business Development
    
    
    2005Rémi Meyrueix
    
    Director of Physico-Chemistry
    
    
    1990Charles Mosseri-Marlio
    
    Director of Strategic Planning and Investor Relations
    
    
    2004Raphaëlle Portella
    
    Legal Counsel, France
    
    
    2006David Weber
    
    Supply Chain Director
    
    
    2004
 
 (6)
    
    On March 3, 2008 Michel Finance ceased serving in the role of Chief Financial Officer  41




---



##### 



société anonyme Directeur Général Directeur Général Directeurs Généraux Délégués
 statuts, our bylaws,
   
    
    Elie Vannier, Chairman of the Board of Directors of the Company, Group Managing
Director of WALLY and former Chief Operating Officer of GrandVision SA, Director of
Ingénico, Famar, Conbipel and Compagnie Generale de Téléphonie,
    
    Frank Fildes, former Senior Vice President: Head of Global Development for
AstraZeneca, PLC, Director of ProStrakan Group PLC and Fildes Partners Ltd, and a
Fellow of the Royal Society of Medicine and the Royal Society of Chemistry.
    
    Frédéric Lemoine, Chief Executive Officer of Wendel, former Chairman of the
Supervisory Board of Areva, former Deputy General Secretary of Economic Affairs to
President Jacques Chirac of France, Chairman of the Supervisory Board of Bureau
Veritas, Director of Groupama SA, Legrand and Saint Gobain, Censor to the
Supervisory Board of Générale de Santé,
    
    Lodewijk J.R. de Vink, former President of Schering Plough International, former
Chairman and Chief Executive Officer of Warner Lambert, Inc., Director of Alcon,
Roche, and member of the International Advisory Board of Sothebys and Member of
the European Advisory Council of Rothschild; and,
    
    John L. Vogelstein, who is Senior Advisor of Warburg Pincus, former President
of Warburg Pincus and current Director of Mattel, Inc.
 Board Practices
  42




---



##### 



statuts societes anonymes statuts
 Comité dEntreprise
   Compensation of Directors and Officers
   43




---



##### 



Senior Management and Executive Officers
             44




---



##### 



Options to Purchase Securities from the Company
  2 2
  
 (2)
    
    Historical value at date of grant 45




---



##### 



Free Share Awards Granted and Warrants Subscribed from January 1, 2008 to April 30, 2009
 Exercise
    
    Exercise
    
    
    
    
    
    FreeStock
    
    Price in
    
    Price in
    
    
    
    
    
    ShareWarrants
    
    Options
    
    Euros 
    
    USD $2
    
    Expiration
    
    AwardsVannier
    
    
    50,000
    
    
    
    
    
    
    
    6.57
    
    
    
    10.20
    
    
    June 2012De Vink
    
    
    50,000
    
    
    
    
    
    
    
    6.57
    
    
    
    10.20
    
    
    June 2012Fildes
    
    
    50,000
    
    
    
    
    
    
    
    6.57
    
    
    
    10.20
    
    
    June 2012Lemoine
    
    
    50,000
    
    
    
    
    
    
    
    6.57
    
    
    
    10.20
    
    
    June 2012Vogelstein
    
    
    50,000
    
    
    
    
    
    
    
    6.57
    
    
    
    10.20
    
    
    June 2012Autant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Bardet
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Borel
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Bourboulou
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,000Capelle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Castan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Chan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Commaret
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Constancis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Crouzet
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,750Durning
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Fernandez
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Franoux
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Gorria
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Jorda
    
    
    
    
    
    
    50,000
    
    
    
    4.03
    
    
    
    5.17
    
    
    December 2018
    
    
    35,000Kalita
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,000Kravtzoff
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,500Lemercier
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Marlio
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000McWilliam
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Meyrueix
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Nicolas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Portella
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Prevot
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Vialas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Vick
    
    
    
    
    
    
    100,000
    
    
    
    4.03
    
    
    
    5.17
    
    
    December 2018
    
    
    25,000Weber
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Willard
    
    
    
    
    
    
    75,000
    
    
    
    4.03
    
    
    
    5.17
    
    
    December 2018
    
    
    65,000
 
 (2)
    
    Historical value at date of grant 46




---



##### 



Employees
  EmployeesVenissieux (1)
    
    Pessac (2)
    
    U.S. (3)
    
    TotalYear End2006
    
    
    128
    
    
    
    174
    
    
    
    4
    
    
    
    3062007
    
    
    130
    
    
    
    168
    
    
    
    4
    
    
    
    3022008
    
    
    130
    
    
    
    151
    
    
    
    3
    
    
    
    284
 
 (1)
    
    Primarily engaged in research activities(2)
    
    Primarily engaged in technical and pharmaceutical development activities and manufacturing(3)
    
    Primarily engaged in administrative and marketing activities  Share Ownership
   Exercise
    
    Exercise% of Ordinary
    
    
    
    
    
    
    
    
    
    Price in
    
    Price in USDShares
    
    
    
    
    
    Shares
    
    
    
    
    
    Number of
    
    Euros
    
    (2)
    
    
    
    Free Share
    
    
    
    
    
    TotalName
    
    Owned
    
    
    
    
    
    Outstanding
    
    Warrants
    
    Options
    
    
    
    $
    
    Expiration
    
    Awards
    
    Total
    
    %Vannier
    
    
    
    
    
    
    1
    
    
    
    0.00
    %
    
    
    25,000
    
    
    
    
    
    
    
    14.6
    
    
    
    18.48
    
    
    June 200925,000
    
    
    
    
    
    
    
    20.54
    
    
    
    27.83
    
    
    May 201050,000
    
    
    
    
    
    
    
    6.57
    
    
    
    10.20
    
    
    June 2012
    
    
    
    
    
    
    100,001
    
    
    
    0.36
    %De Vink
    
    
    
    
    
    
    1
    
    
    
    0.00
    %
    
    
    25,000
    
    
    
    
    
    
    
    14.6
    
    
    
    18.48
    
    
    June 200925,000
    
    
    
    
    
    
    
    20.54
    
    
    
    27.83
    
    
    May 201050,000
    
    
    
    
    
    
    
    6.57
    
    
    
    10.20
    
    
    June 2012
    
    
    
    
    
    
    100,001
    
    
    
    0.36
    %Fildes
    
    
    
    
    
    
    1
    
    
    
    0.00
    %
    
    
    50,000
    
    
    
    
    
    
    
    6.57
    
    
    
    10.20
    
    
    June 2012
    
    
    
    
    
    
    50,001
    
    
    
    0.18
    %Lemoine
    
    
    
    
    
    
    1
    
    
    
    0.00
    %
    
    
    25,000
    
    
    
    
    
    
    
    14.6
    
    
    
    18.48
    
    
    June 200925,000
    
    
    
    
    
    
    
    20.54
    
    
    
    27.83
    
    
    May 201050,000
    
    
    
    
    
    
    
    6.57
    
    
    
    10.20
    
    
    June 2012
    
    
    
    
    
    
    100,001
    
    
    
    0.36
    %Vogelstein
    
    
    100,001
    
    
    
    
    
    
    
    0.41
    %
    
    
    25,000
    
    
    
    
    
    
    
    14.6
    
    
    
    18.48
    
    
    June 200925,000
    
    
    
    
    
    
    
    20.54
    
    
    
    27.83
    
    
    May 201050,000
    
    
    
    
    
    
    
    6.57
    
    
    
    10.20
    
    
    June 2012
    
    
    
    
    
    
    200,001
    
    
    
    0.72
    %Willard
    
    
    60,001
    
    
    
    
    
    
    
    0.25
    %
    
    
    
    
    
    
    40,000
    
    
    
    7.58
    
    
    
    4.99
    
    
    September 201040,000
    
    
    
    6.4
    
    
    
    5.73
    
    
    December 201025,000
    
    
    
    6.4
    
    
    
    5.73
    
    
    December 201030,000
    
    
    
    1.09
    
    
    
    0.99
    
    
    September 2011195,000
    
    
    
    2.33
    
    
    
    2.04
    
    
    March 2012200,000
    
    
    
    4.32
    
    
    
    4.62
    
    
    March 2013100,000
    
    
    
    20.81
    
    
    
    25.27
    
    
    December 2013150,000
    
    
    
    14.81
    
    
    
    19.70
    
    
    December 2014100,000
    
    
    
    16.23
    
    
    
    19.35
    
    
    December 2015100,000
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 201675,000
    
    
    
    4.03
    
    
    
    5.17
    
    
    December 2018
    
    
    65,000
    
    
    
    1,180,001
    
    
    
    4.22
    %
 
 (2)
    
    Historical value at date of grant
 47




---



##### 



OWNERSHIP OF SHARES AS OF APRIL 30, 2009 continued
 Exercise
    
    Exercise% of Ordinary
    
    
    
    
    
    
    
    Price in
    
    Price in USDShares
    
    Shares
    
    
    
    Number of
    
    Euros
    
    (2)
    
    
    
    Free Share
    
    
    
    
    
    TotalName
    
    Owned
    
    Outstanding
    
    Warrants
    
    Options
    
    
    
    $
    
    Expiration
    
    Awards
    
    Total
    
    %Bourboulou
    
    
    5,000
    
    
    
    0.02
    %
    
    
    
    
    50,000
    
    
    
    13.08
    
    
    
    17.49
    
    
    May 201520,000
    
    
    
    12.86
    
    
    
    15.83
    
    
    September 20156,500
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    12,000
    
    
    
    170,118
    
    
    
    0.61
    %Capelle
    
    
    2,800
    
    
    
    0.01
    %
    
    
    
    
    25,000
    
    
    
    13.97
    
    
    
    17.65
    
    
    June 20163,750
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    9,000
    
    
    
    40,550
    
    
    
    0.15
    %Castan
    
    
    4,500
    
    
    
    0.02
    %
    
    
    
    
    3,000
    
    
    
    1.09
    
    
    
    0.99
    
    
    September 20115,000
    
    
    
    9.88
    
    
    
    11.66
    
    
    June 201340,000
    
    
    
    20.81
    
    
    
    25.27
    
    
    December 201320,000
    
    
    
    12.86
    
    
    
    15.83
    
    
    September 201520,000
    
    
    
    16.23
    
    
    
    19.35
    
    
    December 20156,000
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    9,500
    
    
    
    108,000
    
    
    
    0.39
    %Chan
    
    
    3,300
    
    
    
    0.01
    %
    
    
    
    
    5,000
    
    
    
    9.88
    
    
    
    11.66
    
    
    June 201320,000
    
    
    
    12.86
    
    
    
    15.83
    
    
    September 201520,000
    
    
    
    16.23
    
    
    
    19.35
    
    
    December 20154,500
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    11,000
    
    
    
    63,800
    
    
    
    0.23
    %Crouzet
    
    
    2,810
    
    
    
    0.01
    %
    
    
    
    
    49,990
    
    
    
    12.86
    
    
    
    15.83
    
    
    September 20155,000
    
    
    
    16.23
    
    
    
    19.35
    
    
    December 20153,750
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    11,750
    
    
    
    73,300
    
    
    
    0.26
    %Fernandez
    
    
    2,800
    
    
    
    0.01
    %
    
    
    
    
    25,000
    
    
    
    4.11
    
    
    
    4.15
    
    
    December 20125,000
    
    
    
    9.88
    
    
    
    11.66
    
    
    June 201320,000
    
    
    
    12.86
    
    
    
    15.83
    
    
    September 20155,000
    
    
    
    16.23
    
    
    
    19.35
    
    
    December 20153,750
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    8,000
    
    
    
    69,550
    
    
    
    0.25
    %Jorda
    
    
    5,369
    
    
    
    0.02
    %
    
    
    
    
    20,000
    
    
    
    2.78
    
    
    
    2.49
    
    
    December 20115,000
    
    
    
    9.88
    
    
    
    11.66
    
    
    June 201360,000
    
    
    
    14.81
    
    
    
    19.70
    
    
    December 2014105,000
    
    
    
    12.86
    
    
    
    15.83
    
    
    September 201575,000
    
    
    
    16.23
    
    
    
    19.35
    
    
    December 201560,000
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 201650,000
    
    
    
    4.03
    
    
    
    5.17
    
    
    December 2018
    
    
    35,000
    
    
    
    415,369
    
    
    
    1.49
    %Kalita
    
    
    5,000
    
    
    
    0.02
    %
    
    
    
    
    50,000
    
    
    
    16.23
    
    
    
    19.35
    
    
    December 20156,500
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    11,500
    
    
    
    73,000
    
    
    
    0.26
    %Kravtzoff
    
    
    3,300
    
    
    
    0.01
    %
    
    
    
    
    5,000
    
    
    
    9.88
    
    
    
    11.66
    
    
    June 201330,000
    
    
    
    12.86
    
    
    
    15.83
    
    
    September 201520,000
    
    
    
    16.23
    
    
    
    19.35
    
    
    December 20154,500
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    13,500
    
    
    
    76,300
    
    
    
    0.27
    %McWilliam
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    12.86
    
    
    
    15.83
    
    
    September 20155,000
    
    
    
    16.23
    
    
    
    19.35
    
    
    December 201510,000
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    10,000
    
    
    
    125,000
    
    
    
    0.45
    %Meyrueix
    
    
    5,525
    
    
    
    0.02
    %
    
    
    
    
    40,000
    
    
    
    4.87
    
    
    
    4.65
    
    
    April 201040,000
    
    
    
    2.78
    
    
    
    2.49
    
    
    December 20115,000
    
    
    
    9.88
    
    
    
    11.66
    
    
    June 201340,000
    
    
    
    14.81
    
    
    
    19.70
    
    
    December 201430,000
    
    
    
    12.86
    
    
    
    15.83
    
    
    September 201520,000
    
    
    
    16.23
    
    
    
    19.35
    
    
    December 20157,250
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    9,500
    
    
    
    197,275
    
    
    
    0.71
    %Marlio
    
    
    1,700
    
    
    
    0.01
    %
    
    
    
    
    50,000
    
    
    
    19.2
    
    
    
    23.61
    
    
    March 201410,000
    
    
    
    12.86
    
    
    
    15.83
    
    
    September 20155,000
    
    
    
    16.23
    
    
    
    19.35
    
    
    December 20152,250
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    8,500
    
    
    
    77,450
    
    
    
    0.28
    %Portella
    
    
    2,000
    
    
    
    0.01
    %
    
    
    
    
    2,750
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    6,000
    
    
    
    10,750
    
    
    
    0.04
    %Weber
    
    
    2,000
    
    
    
    0.01
    %
    
    
    
    
    50,000
    
    
    
    12.02
    
    
    
    14.81
    
    
    September 20142,750
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    6,000
    
    
    
    60,750
    
    
    
    0.22
    %
 
 (2)
    
    Historical value at date of grant 48




---



##### 



ITEM 7. Major Shareholders and Related Party Transactions
 A. Major Shareholders
  Amount of Ordinary
    
    PercentageIdentity of Person or Group
    
    Shares Owned
    
    of ClassO.S.S. Capital Management LP
    
    6,346,047 (1)
    
    
    26.12
    %BVF, Inc.
    
    3,827,031 (2)
    
    
    15.80
    %Knoll Capital Management LP
    
    1,265,749 (3)
    
    
    5.22
    %
 
 (1)
    
    Based solely on a review of a Schedule 13D/A filed on August 31, 2007,
O.S.S. Capital Management LP, shares beneficial ownership over the
Ordinary Shares it owns with Schafer Brothers LLC and Oscar S.
Schafer; in respect of 13.3% of the Ordinary Shares with O.S.S.
Overseas Fund Ltd.; in respect of 12.1% of the Ordinary Shares with
O.S.S. Advisors Ltd; and in respect of 11.1% of the Ordinary Shares
with Oscar S. Schafer & Partners II LP.(2)
    
    Based solely on a review of a Schedule 13G filed on February 2, 2009,
BVF Inc. shares beneficial ownership over the Ordinary Shares it owns
with BVF partners.(3)
    
    Based solely on a review of a Schedule 13G/A filed on February 17,
2009, Knoll Capital Management, LP shares beneficial ownership over
the Ordinary Shares it owns with Fred Knoll.  49




---



##### 



OwnershipMajor Shareholder
    
    Date
    
    PercentageO.S.S. Capital Management LPSchafer Brothers LLC
    
    September 9, 2006
    
    13.0%Oscar S. Schafer
    
    January 13, 2006
    
    15.4%February 14, 2007
    
    17.6%August 31, 2007
    
    26.12%BVF, Inc.
    
    January 13, 2006
    
    8.1%BVF Partners L.P.
    
    April 25, 2006
    
    6.7%September 18, 2006
    
    5.5%October 16, 2006
    
    4.9%January 24, 2008
    
    10.12%October 17, 2008
    
    18.99%February 2, 2009
    
    15.88%Knoll Capital Management L.P.
    
    February 9, 2006
    
    8.5%Fred Knoll
    
    February 11, 2008
    
    9.27%February 17, 2009
    
    5.22%Greenlight Capital Management
    
    July, 18, 2005
    
    6.44%February 14, 2008
    
    7.84%February 13, 2009
    
    0.0%Silver Point Capital L.P.
    
    October 29, 2007
    
    5.2%February 14, 2008
    
    6.23%February 17, 2009
    
    0.0%
 B. Related Party Transactions
  C. Interests of Experts and Counsel
  
 ITEM 8. Financial Information
 Financial Statements
  Legal Proceedings
  50




---



##### 



Billhofer v. Flamel Technologies, et al
   Dividend Policy
  
 ITEM 9. The Offer and Listing
   Price Per ADS (U.S.$)Year
    
    High
    
    
    Low2004
    
    
    31.73
    
    
    
    14.672005
    
    
    21.37
    
    
    
    12.252006
    
    
    34.88
    
    
    
    16.72007
    
    
    36.97
    
    
    
    8.172008
    
    
    10.80
    
    
    
    3.68
 51




---



##### 



Price Per ADS (U.S.$)Quarter Ended
    
    High
    
    Low1st
    Quarter, 2006
    
    
    24.40
    
    
    
    18.502nd
    Quarter, 2006
    
    
    21.37
    
    
    
    17.373rd
    Quarter, 2006
    
    
    18.75
    
    
    
    16.74th
    Quarter, 2006
    
    
    34.88
    
    
    
    18.371st
    Quarter, 2007
    
    
    36.97
    
    
    
    25.602nd
    Quarter, 2007
    
    
    29.87
    
    
    
    20.973rd
    Quarter, 2007
    
    
    24.39
    
    
    
    8.994th
    Quarter, 2007
    
    
    12.03
    
    
    
    8.171st
    Quarter, 2008
    
    
    10.65
    
    
    
    8.382nd
    Quarter, 2008
    
    
    10.80
    
    
    
    9.183rd
    Quarter, 2008
    
    
    10.06
    
    
    
    7.204th
    Quarter, 2008
    
    
    7.25
    
    
    
    3.681st
    Quarter, 2009
    
    
    6.77
    
    
    
    3.92
 Price Per ADS (U.S.$)Month Ended
    
    High
    
    LowNovember 30, 2008
    
    
    7.25
    
    
    
    4.62December 31, 2008
    
    
    6.23
    
    
    
    3.68January 31, 2009
    
    
    4.70
    
    
    
    3.92February 28, 2009
    
    
    6.77
    
    
    
    4.14March 31, 2009
    
    
    6.16
    
    
    
    4.49April 30, 2009
    
    
    6.40
    
    
    
    5.88
 
 ITEM 10. Additional Information
 Memorandum and Articles of Association
  Ownership of Shares by Non-European Union Persons
    52




---



##### 



Material Contracts
  Exchange Controls
  Taxation
 Tax Consequences to Non-U.S. Holders
  Treaty"
   Taxation on Sale or Disposal of Flamel Ordinary Shares
  
    
    the holder is not a French resident for French tax purposes;
    
    the holder has held not more than 25% of Flamels dividend rights, known as
droits aux bénéfices sociaux, at any time during the preceding five years, either
directly or indirectly; and
    
    Flamel is not considered as a real estate company
   53




---



##### 




 Taxation of Dividends
   (abattement fixe annuel)   crédit dimpôt  
 Revenu de Solidarité Active st
     avoir fiscal crédit dimpôt  
 crédit dimpôt avoir fiscal
 Australia
    
    Gabon
    
    Luxembourg
    
    New Zealand
    
    SwitzerlandAustria
    
    Ghana
    
    Malaysia
    
    Niger
    
    TogoBelgium
    
    Iceland
    
    Mali
    
    Norway
    
    TurkeyBolivia
    
    India
    
    Malta
    
    Pakistan
    
    UkraineBrazil
    
    Israel
    
    Mauritius
    
    Saint-Pierre et Miquelon
    
    United KingdomBurkina Faso
    
    Italy
    
    Mayotte
    
    Senegal
    
    United StatesCameroun
    
    Ivory Coast
    
    Mexico
    
    Singapore
    
    VenezuelaCanada
    
    Japan
    
    Namibia
    
    South KoreaEstonia
    
    Latvia
    
    Netherlands
    
    SpainFinland
    
    Lithuania
    
    New Caledonia
    
    Sweden
  54




---



##### 



Estate and Gift Tax
   Wealth Tax
 impôt de solidarité sur la fortune
  Tax Consequences to U.S. Holders
    
    
    the U.S. Holder owns, directly, indirectly, or constructively, less than 10% of
Flamels share capital;
    
    the U.S. Holder is entitled to the benefits of the Treaty (including under the
limitations on benefits article of the Treaty);
    
    the U.S. Holder holds Flamel Shares as capital assets; and
    
    the U.S. Holders functional currency is the U.S. dollar.
 55




---



##### 



Taxation of Dividends
 Withholding Tax
   crédit dimpôt  
 
    
    the U.S. Holder is an individual or other non-corporate holder that is a resident of
the United States for purposes of the Treaty;
    
    the U.S. Holder is a U.S. corporation, other than a regulated investment company;
    
    the U.S. Holder is a U.S. corporation which is a regulated investment company,
provided that less than 20% of the U.S. Holders shares are beneficially owned by
persons who are neither citizens nor residents of the United States; or
    
    the U.S. Holder is a partnership or trust that is a resident of the United States
for purposes of the Treaty, but only to the extent that the U.S. Holders partners,
beneficiaries or grantors would qualify as eligible under one of the first two points
in this list.
 56




---



##### 



U.S. Income Tax. crédit dimpôt avoir fiscal
    
    
    First, as a tax-free return of capital, which will cause a reduction in the adjusted
basis of a U.S. Holders Flamel Ordinary Shares or Flamel ADSs. This adjustment will
increase the amount of gain, or decrease the amount of loss, which a U.S. Holder will
recognize if such U.S. Holder later disposes of those Flamel Ordinary Shares or Flamel
ADSs, as the case may be.
    
    Second, the balance of the dividend in excess of the adjusted basis will be taxed as
capital gain recognized on a sale or exchange.
 crédit
dimpôt avoir fiscal
 crédit
dimpôt avoir fiscal
 Taxation of Capital Gains
 French Tax.
 U.S. Income Tax.
 57




---



##### 



PFIC Status
 
    
    75% or more of its gross income is passive income; or
    
    its assets which produce passive income or which are held for the production of
passive income amount to at least 50% of the value of its total assets on average.
  French Estate and Gift Taxes
  
    
    the U.S. Holder is domiciled in France at the time of making the gift, or at the
time of the U.S. Holders death; or
    
    the U.S. Holder used the Flamel Shares in conducting a business through a permanent
establishment or fixed base in France, or the U.S. Holder held the Flamel Shares for
that use.
 French Wealth Tax
 participation substantielle)
 United States Information Reporting and Backup Withholding
   58




---



##### 



Documents on Display
 www.sec.gov www.flamel.com
 
 ITEM 11. Quantitative and Qualitative Disclosures About Market Risk
   
 ITEM 12. Description of Securities Other Than Equity Securities
  
 PART II
 
 ITEM 13. Defaults, Dividend Arrearages and Delinquencies
  
 ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  59




---



##### 



ITEM 15. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  Management Report on Internal Control over Financial Reporting
   
    
    pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
    
    provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States of
America;
    
    provide reasonable assurance that receipts and expenditures of the
Company are being made only in accordance with authorization of
management and directors of the Company; and
    
    provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of assets that could
have a material effect on the consolidated financial statements.
   Attestation report of registered public accounting firm
  60




---



##### 



ITEM 16. [Reserved]
 
 ITEM 16A. Audit Committee Financial Expert
  
 ITEM 16B. Code of Ethics
  
 ITEM 16C. Principal Accountant Fees and Services
  Fiscal 2008 Fees
    
    Fiscal 2007 FeesFee Category
    
    (Euros)
    
    (Euros)Audit Fees
    
    
    199,800
    
    
    
    333,275Audit-Related Fees
    
    
    9,500
    
    
    
    15,000Tax Fees
    
    
    
    
    
    
    47,413All Other Fees
    
    
    
    
    
    
    0Total Fees
    
    
    209,300
    
    
    
    395,688
 All fees were billed in Euros. Using the average exchange rate of 1.47059 U.S dollars per Euro for
2008 and 1.37064 U.S dollars per Euro for 2007, audit fees equaled $307,794 for Fiscal 2008 and
$542,346 for Fiscal 2007.
 Audit Fees.
 Audit-Related Fees.
 Tax Fees.
 All Other Fees.
 Audit Committees Pre-Approval Policies and Procedures
  61




---



##### 



   
 
 ITEM 16D. Exemptions from the Listing Standards for Audit Committees
  
 ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 .
 
 ITEM 16F. Change in Registrants Certifying Accountant
 .
 
 ITEM 16G. Corporate Governance
  statuts,
  62




---



##### 



PART III
 
 ITEM 17. Financial Statements
  
 ITEM 18. Financial Statements
  Reports of independent registered public accounting firms
    
    
    F-2Consolidated Balance Sheets as of December 31, 2007 and 2008
    
    
    F-4Consolidated
Statement of Operations for the Years Ended December 31, 2006, 2007 and 2008
    
    
    F-5Consolidated
Statements of Shareholders Equity for the Years Ended December 31, 2006, 2007 and 2008
    
    
    F-6Consolidated
Statements of Cash Flows for the Years Ended December 31, 2006, 2007 and 2008
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
   
 ITEM 19. Exhibits
 
 EXHIBIT INDEX
 ExhibitNumber
    
    Description1.1
    
    Revised Statutsor byelaws
of the Company (Filed herewith)2.1
    
    Deposit Agreement among Flamel, The Bank of New York, as
Depositary, and holders from time to time of American Depositary
Shares issued thereunder (including as an exhibit the form of
American Depositary Receipt) (1)8.1
    
    List of Subsidiaries (Filed herewith)11.1
    
    Code of Ethics for CEO (Directeur Général), Delegated Managing
Directors (Directeurs Generaux Delegues) and Senior Financial
Officers (2)12.1
    
    Certification of the Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed
herewith)12.2
    
    Certification of the Principal Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed
herewith)13.1
    
    Certification of the Chief Executive Officer pursuant to USC
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Furnished herewith)13.2
    
    Certification of the Principal Financial Officer pursuant to USC
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Furnished herewith)23.1
    
    Consent of PricewaterhouseCoopers Audit (Filed herewith)23.2
    
    Consent of Ernst & Young Audit (Filed herewith)
 
 (1)
    
    Incorporated by reference to Post-Effective Amendment No. 1 to the Companys registration
statement on Form F-6 filed July 26, 2001, as amended (No. 333-12790).(2)
    
    Incorporated by reference to the Companys Annual Report on Form 20-F for the year ended
December 31, 2003, filed on April 26, 2004. 63




---



##### 



FLAMEL TECHNOLOGIES S.A.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm, PricewaterhouseCoopers Audit
    
    F-2Report of Independent Registered Public Accounting Firm, Ernst & Young Audit
    
    F-3Consolidated Balance Sheets as of December 31, 2007 and 2008
    
    F-4Consolidated Statements of Operations for the Years Ended December 31, 2006, 2007 and 2008
    
    F-5Consolidated Statements of Shareholders Equity for the years Ended December 31, 2006,
2007 and 2008
    
    F-6Consolidated Statements of Cash flows for the Years Ended December 31, 2006, 2007 and 2008
    
    F-7Notes to Consolidated Financial Statements
    
    F-8
 F-1




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Internal Control -
Integrated Framework
     
 F-2




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   
    The Independent Registered Public Accounting Firm
ERNST & YOUNG AuditRepresented byJean-Luc Desplat
 F-3




---



##### 



FLAMEL TECHNOLOGIES S.A.
 
 CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of dollars except share data)
 December 31,Note
    
    
    2007
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    
    5
    
    
    $
    26,313
    
    
    $
    27,021Marketable securities
    
    
    6
    
    
    
    14,749
    
    
    
    10,057Accounts receivable (net of allowance of $126 and $147 at December 31,
2007 and 2008 respectively)
    
    
    
    
    
    
    4,987
    
    
    
    6,979Inventory
    
    
    7
    
    
    
    1,771
    
    
    
    1,837Research and development tax credit receivable current portion
    
    
    17
    
    
    
    5,490
    
    
    
    11,114Prepaid expenses and other current assets
    
    
    8
    
    
    
    2,800
    
    
    
    2,181Total current assets
    
    
    
    
    
    
    56,110
    
    
    
    59,189Property and equipment, net
    
    
    9
    
    
    
    35,140
    
    
    
    27,601Other assets:Research and development tax credit receivable less current portion
    
    
    17
    
    
    
    9,932
    
    
    
    4,880Other long-term assets
    
    
    
    
    
    
    219
    
    
    
    191Total assets
    
    
    
    
    
    $
    101,401
    
    
    $
    91,861LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    
    13
    
    
    
    724
    
    
    
    684Current portion of capital lease obligations
    
    
    14
    
    
    
    256
    
    
    
    69Accounts payable
    
    
    
    
    
    
    8,568
    
    
    
    5,760Current portion of deferred revenue
    
    
    12
    
    
    
    2,948
    
    
    
    798Advances from customers
    
    
    
    
    
    
    1,215
    
    
    
    587Accrued expenses
    
    
    10
    
    
    
    5,369
    
    
    
    5,905Other current liabilities
    
    
    11
    
    
    
    5,875
    
    
    
    6,452Total current liabilities
    
    
    
    
    
    
    24,955
    
    
    
    20,255Long-term debt, less current portion
    
    
    13
    
    
    
    2,400
    
    
    
    2,269Capital lease obligations, less current portion
    
    
    14
    
    
    
    44
    
    
    
    96Deferred revenue, less current portion
    
    
    12
    
    
    
    336
    
    
    
    201Other long-term liabilities
    
    
    11 - 18
    
    
    
    19,039
    
    
    
    20,494Total long-term liabilities
    
    
    
    
    
    
    21,819
    
    
    
    23,060Commitments and contingencies:
    
    
    
    
    
    
    
    
    
    
    Shareholders equity :
    
    
    16Ordinary shares: 24,051,590 issued and outstanding at December 31, 2007
and
24,205,350 at December 31, 2008 (shares authorised 28,402,757) at
nominal value of 0.122 euro
    
    
    
    
    
    
    3,490
    
    
    
    3,516Additional paid-in capital
    
    
    
    
    
    
    185,173
    
    
    
    193,085Accumulated deficit
    
    
    
    
    
    
    (148,121
    )
    
    
    (160,205
    )Accumulated other comprehensive income
    
    
    
    
    
    
    14,085
    
    
    
    12,150Total shareholders equity
    
    
    
    
    
    
    54,627
    
    
    
    48,546Total liabilities and shareholders equity
    
    
    
    
    
    $
    101,401
    
    
    $
    91,861
 F-4




---



##### 



FLAMEL TECHNOLOGIES S.A.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands of dollars except share data)
 Year ended December 31,Note
    
    
    2006
    
    
    2007
    
    
    2008Revenue:License and research revenue
    
    
    3
    
    
    $
    20,263
    
    
    $
    10,307
    
    
    $
    13,247Product sales and services
    
    
    2
    
    
    
    2,083
    
    
    
    19,768
    
    
    
    13,549Other revenues
    
    
    
    
    
    
    674
    
    
    
    6,579
    
    
    
    11,823Total revenue
    
    
    
    
    
    
    23,020
    
    
    
    36,654
    
    
    
    38,619Costs and expenses:Cost of products and services sold
    
    
    
    
    
    
    (6,250
    )
    
    
    (17,320
    )
    
    
    (9,621
    )Research and development
    
    
    
    
    
    
    (38,233
    )
    
    
    (43,557
    )
    
    
    (36,247
    )Selling, general and administrative
    
    
    
    
    
    
    (17,375
    )
    
    
    (16,626
    )
    
    
    (12,911
    )Total
    
    
    
    
    
    
    (61,858
    )
    
    
    (77,503
    )
    
    
    (58,779
    )Income (loss) from operations
    
    
    
    
    
    
    (38,838
    )
    
    
    (40,849
    )
    
    
    (20,160
    )Interest expense
    
    
    
    
    
    
    (35
    )
    
    
    (16
    )
    
    
    (18
    )Interest income
    
    
    
    
    
    
    2,022
    
    
    
    1,691
    
    
    
    1,432Foreign exchange gain (loss)
    
    
    
    
    
    
    (599
    )
    
    
    (454
    )
    
    
    3Other income
    
    
    
    
    
    
    131
    
    
    
    197
    
    
    
    181Income (loss) before income taxes
    
    
    
    
    
    
    (37,319
    )
    
    
    (39,431
    )
    
    
    (18,562
    )Income tax benefit
    
    
    17
    
    
    
    2,118
    
    
    
    1,694
    
    
    
    6,478Net income (loss)
    
    
    
    
    
    $
    (35,201
    )
    
    $
    (37,737
    )
    
    $
    (12,084
    )Earnings (loss) per shareBasic earnings (loss) per share
    
    
    
    
    
    $
    (1.48
    )
    
    $
    (1.57
    )
    
    $
    (0.50
    )15Diluted earnings (loss) per share
    
    
    
    
    
    $
    (1.48
    )
    
    $
    (1.57
    )
    
    $
    (0.50
    )Weighted average number of shares outstanding (in thousands) :Basic
    
    
    
    
    
    
    23,812
    
    
    
    24,024
    
    
    
    24,082Diluted
    
    
    
    
    
    
    23,812
    
    
    
    24,024
    
    
    
    24,082
 F-5




---



##### 



FLAMEL TECHNOLOGIES S.A.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Amounts in thousands of dollars except share data)
 AccumulatedOtherAdditional
    
    
    
    
    
    
    Comprehen-Ordinary Shares
    
    
    Paid-in
    
    
    Accumulated
    
    
    sive Income
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    (Loss)
    
    
    EquityBalance at January 1, 2006
    
    
    23,706,590
    
    
    $
    3,436
    
    
    $
    161,120
    
    
    $
    (75,183
    )
    
    $
    (2,719
    )
    
    $
    86,654Subscription of warrants
    
    
    
    
    
    
    
    
    
    
    706
    
    
    
    
    
    
    
    
    
    
    
    706Issuance of ordinary shares on exercise of
stock -options
    
    
    257,000
    
    
    
    40
    
    
    
    1,366
    
    
    
    
    
    
    
    
    
    
    
    1,406Issuance of ordinary shares on exercise of
warrants
    
    
    27,000
    
    
    
    4
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    504Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    9,787
    
    
    
    
    
    
    
    
    
    
    
    9,787Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,201
    )
    
    
    
    
    
    
    (35,201
    )Unrealized losses on available-
for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,187
    
    
    
    9,187Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (26,031
    )Balance at December 31, 2006
    
    
    23,990,590
    
    
    $
    3,480
    
    
    $
    173,479
    
    
    $
    (110,384
    )
    
    $
    6,451
    
    
    $
    73,026Subscription of warrants
    
    
    
    
    
    
    
    
    
    
    362
    
    
    
    
    
    
    
    
    
    
    
    362Issuance of ordinary shares on exercise
of stock -options
    
    
    61,000
    
    
    
    10
    
    
    
    197
    
    
    
    
    
    
    
    
    
    
    
    207Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    11,135
    
    
    
    
    
    
    
    
    
    
    
    11,135Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,737
    )
    
    
    
    
    
    
    (37,737
    )Unrealized losses on available-
for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    17Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,617
    
    
    
    7,617Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (30,103
    )Balance at December 31, 2007
    
    
    24,051,590
    
    
    $
    3,490
    
    
    $
    185,173
    
    
    $
    (148,121
    )
    
    $
    14,085
    
    
    $
    54,627Subscription of warrants
    
    
    
    
    
    
    
    
    
    
    354
    
    
    
    
    
    
    
    
    
    
    
    354Issuance of ordinary shares on exercise
of stock -options
    
    
    55,010
    
    
    
    10
    
    
    
    176
    
    
    
    
    
    
    
    
    
    
    
    186Issuance of ordinary shares on vesting of
free shares (note 16.5)
    
    
    98,750
    
    
    
    16
    
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    7,398
    
    
    
    
    
    
    
    
    
    
    
    7,398Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,084
    )
    
    
    
    
    
    
    (12,084
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,935
    )
    
    
    (1,935
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (14,019
    )Balance at December 31, 2008
    
    
    24,205,350
    
    
    $
    3,516
    
    
    $
    193,085
    
    
    $
    (160,205
    )
    
    $
    12,150
    
    
    $
    48,546
 F-6




---



##### 



FLAMEL TECHNOLOGIES S.A
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of dollars except share data)
 Year ended December 31,2006
    
    
    2007
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    (35,201
    )
    
    $
    (37,737
    )
    
    $
    (12,084
    )Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:Depreciation of property and equipment
    
    
    5,639
    
    
    
    6,198.0
    
    
    
    7,249Loss (gain) on disposal of property and equipment
    
    
    (92
    )
    
    
    (39.0
    )
    
    
    Gains on sales of marketable securities
    
    
    (1,336
    )
    
    
    (318.0
    )
    
    
    (327
    )Grants recognized in other income and income from operations
    
    
    (183
    )
    
    
    (1,216.0
    )
    
    
    (1,360
    )Stock compensation expense
    
    
    9,989
    
    
    
    12,004.0
    
    
    
    8,286Provision for losses on accounts receivable
    
    
    15
    
    
    
    
    
    
    
    Increase (decrease) in cash from:Accounts receivable
    
    
    (2,589
    )
    
    
    1,167.0
    
    
    
    (2,392
    )Inventory
    
    
    (2,059
    )
    
    
    1,818.0
    
    
    
    (171
    )Prepaid expenses and other current assets
    
    
    (146
    )
    
    
    2,054.0
    
    
    
    492Research and development tax credit receivable
    
    
    (1,365
    )
    
    
    (1,648.0
    )
    
    
    (1,494
    )Accounts payable
    
    
    (2,987
    )
    
    
    (3,023.0
    )
    
    
    (258
    )Deferred revenue
    
    
    390
    
    
    
    2,421.0
    
    
    
    (2,226
    )Accrued expenses
    
    
    387
    
    
    
    (9.0
    )
    
    
    282Other current liabilities
    
    
    (1,466
    )
    
    
    547.0
    
    
    
    (1,644
    )Other long-term assets and liabilities
    
    
    1,178
    
    
    
    (1,460.0
    )
    
    
    (1,861
    )Net cash used in operating activities
    
    
    (29,826
    )
    
    
    (19,241
    )
    
    
    (7,508
    )Cash flows from investing activities:Purchases of property and equipment .
    
    
    (6,394
    )
    
    
    (11,272
    )
    
    
    (3,523
    )Proceeds from disposal of property and equipment
    
    
    92
    
    
    
    47
    
    
    
    Proceeds from sales of marketable securities
    
    
    262,584
    
    
    
    94,707
    
    
    
    75,216Purchase of marketable securities
    
    
    (183,614
    )
    
    
    (96,713
    )
    
    
    (70,782
    )Net cash provided by (used in) investing activities
    
    
    72,668
    
    
    
    (13,231
    )
    
    
    911Cash flows from financing activities:Funding from partner GSK
    
    
    5,023
    
    
    
    2,056
    
    
    
    Use of funds received from partners (GSK) or relating to conditional grants
    
    
    (2,087
    )
    
    
    
    
    
    
    Proceeds from loans or conditional grants
    
    
    347
    
    
    
    839
    
    
    
    8,467Principal payments on capital lease obligations
    
    
    (419
    )
    
    
    (441
    )
    
    
    (272
    )New capital lease obligation
    
    
    
    
    
    
    
    
    
    
    147Cash proceeds from issuance of ordinary shares and warrants
    
    
    2,617
    
    
    
    569
    
    
    
    540Net cash provided by financing activities
    
    
    5,481
    
    
    
    3,023
    
    
    
    8,882Effect of exchange rate changes on cash and cash equivalents
    
    
    2,486
    
    
    
    3,935
    
    
    
    (1,577
    )Net increase (decrease) in cash and cash equivalents
    
    
    50,809
    
    
    
    (25,515
    )
    
    
    708Cash and cash equivalents, beginning of year
    
    
    1,018
    
    
    
    51,827
    
    
    
    26,313Cash and cash equivalents, end of year
    
    $
    51,827
    
    
    $
    26,313
    
    
    $
    27,021Supplemental disclosures of cash flow information:Income tax paid
    
    
    
    
    
    
    
    
    
    
    Interest paid
    
    
    35
    
    
    
    16
    
    
    
    18Non cash transactions:Capital lease obligations incurred
    
    
    
    
    
    
    
    
    
    
    124
 F-7




---



##### 



FLAMEL TECHNOLOGIES S.A
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Nature of business and summary of significant accounting policies:
 1.1. Nature of business:
 société anonyme
 1.2. Principles of consolidation:
    1.3. Translation of financial statements of foreign entities and foreign currency
transactions:
    1.4. Revenue recognition:
   -
    
    As milestones relate to discrete development steps (i.e. can be used by the
co-development partners to decide whether to continue the development under the
agreement), the Company views that milestone events have substance and represent the
achievement of defined goals worthy of the payments. Therefore, milestone payments based
on performance are recognized when the performance criteria are met and there are no
further performance obligations.-
    
    Non-refundable technology access fees received from collaboration agreements that
require the Companys continuing involvement in the form of development efforts are
recognized as revenue ratably over the development period.
 F-8




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 -
    
    Research and development work is compensated at a non-refundable hourly rate for a
projected number of hours. Revenue on such agreements is recognized at the hourly rate for
the number of hours worked as the research and development work is performed. Costs
incurred under these contracts are considered costs in the period incurred. Payments
received in advance of performance are recorded as deferred revenue and recognized in
revenue as services are rendered.
    1.5. Governmental Grants:
     1.6. Research and development costs:
   1.7. Concentration of credit risk:
     F-9




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.8. Earnings per share:
  1.9. Cash and cash equivalents:
  1.10. Marketable securities:
  1.11. Accounts Receivable:
 .
 1.12. Inventories:
  1.13. Property and equipment:
  Land and buildings
    
    20 yearsLaboratory equipment
    
    4 - 5 yearsOffice and computer equipment
    
    3 yearsFurniture, fixtures and fittings
    
    5-10 years
  F-10




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.14. Impairment of Long-Lived Assets:
  1.15. Income taxes:
   1.16 . Employee stock options and warrants:
 
   F-11




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.17. Comprehensive Income:
  1.18. Recent Accounting Pronouncements:
 Accounting for Collaborative Agreements
 Accounting for Nonrefundable Advance Payments
for Goods or Services to Be Used in Future Research and Development Activities (
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Fair Value Measurement
 2. Subcontracting agreement:
  F-12




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3. License, research and consulting agreements:
 SB Pharma Puerto Rico Inc. (GSK)
 ®
           F-13




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Wyeth Pharmaceuticals
    Merck-Serono
    Pfizer Inc
  Corning
   Others
  F-14




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4. Stock based compensation :
 4.1 Adoption of SFAS 123R
  2006
    
    2007
    
    2008Weighted-average expected life (years)
    
    
    4.36
    
    
    
    1.71
    
    
    
    3.73Expected volatility rate
    
    
    52.5
    %
    
    
    52.7
    %
    
    
    61.5
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    Risk-free interest rate
    
    
    4.66
    %
    
    
    4.83
    %
    
    
    2.57
    %Forfeiture rate
    
    
    5
    %
    
    
    5
    %
    
    
    5
    %
    (In thousands of U.S dollars except per
    
    Options
    
    

Free of charge shareawards
    
    
    Warrants
    
    
    Totalshare data)
    
    2006
    
    
    2007
    
    
    2008
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2006
    
    
    2007
    
    
    2008Research and development
    
    
    3,662
    
    
    
    4,598
    
    
    
    2,691
    
    
    
    56
    
    
    
    1,220
    
    
    
    1,454
    
    
    
    203
    
    
    
    (88
    )
    
    
    (5
    )
    
    
    3,921
    
    
    
    5,730
    
    
    
    4,141Cost of goods sold
    
    
    144
    
    
    
    234
    
    
    
    150
    
    
    
    10
    
    
    
    223
    
    
    
    285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154
    
    
    
    457
    
    
    
    434Selling, general and administrative
    
    
    3,581
    
    
    
    4,542
    
    
    
    2,412
    
    
    
    13
    
    
    
    317
    
    
    
    642
    
    
    
    2,319
    
    
    
    958
    
    
    
    657
    
    
    
    5,914
    
    
    
    5,817
    
    
    
    3,711Total stock-based compensation expense
    
    
    7,387
    
    
    
    9,374
    
    
    
    5,253
    
    
    
    79
    
    
    
    1,760
    
    
    
    2,381
    
    
    
    2,522
    
    
    
    870
    
    
    
    652
    
    
    
    9,989
    
    
    
    12,004
    
    
    
    8,286Effect on earnings per shareBasic
    
    
    0.31
    
    
    
    0.39
    
    
    
    0.22
    
    
    
    0.00
    
    
    
    0.07
    
    
    
    0.10
    
    
    
    0.11
    
    
    
    0.04
    
    
    
    0.03
    
    
    
    0.42
    
    
    
    0.50
    
    
    
    0.34Diluted
    
    
    0.31
    
    
    
    0.39
    
    
    
    0.22
    
    
    
    0.00
    
    
    
    0.07
    
    
    
    0.10
    
    
    
    0.11
    
    
    
    0.04
    
    
    
    0.03
    
    
    
    0.42
    
    
    
    0.50
    
    
    
    0.34
  F-15




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4.2 Warrants
  Weighted Average
    
    Weighted AverageWarrants
    
    Exercise Price in U.S
    
    Exercise Price inOutstanding
    
    dollars [1]
    
    EurosBalance at January 1, 2006
    
    
    40,000
    
    
    $
    16.18
    
    
    
    12.34Warrants granted
    
    
    365,000
    
    
    $
    19.25
    
    
    
    15.78Warrants exercised
    
    
    27,000
    
    
    $
    17.44
    
    
    
    14.24Balance at December 31, 2006
    
    
    378,000
    
    
    $
    19.05
    
    
    
    15.53Warrants granted
    
    
    125,000
    
    
    $
    27.83
    
    
    
    20.54Warrants cancelled
    
    
    2,500
    
    
    $
    16.18
    
    
    
    12.34Balance at December 31, 2007
    
    
    500,500
    
    
    $
    21.26
    
    
    
    16.80Warrants granted
    
    
    250,000
    
    
    $
    10.20
    
    
    
    6.57Warrants cancelled
    
    
    203,833
    
    
    $
    19.27
    
    
    
    15.64Balance at December 31, 2008
    
    
    546,667
    
    
    $
    16.94
    
    
    
    12.55
 
 [1] Historical exchange rate at date of
grant
No warrants were exercised in 2007 and 2008.  Warrants Outstanding
    
    
    Warrants ExercisableWeighted
    
    
    Weighted
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    average
    
    
    average
    
    
    
    
    
    
    averageRange of
    
    
    
    
    
    remaining
    
    
    exercise
    
    
    intrinsic
    
    
    
    
    
    
    exercise
    
    
    Weighted averageexercise prices
    
    Number of
    
    
    contractual
    
    
    price in
    
    
    value in
    
    
    Number of
    
    
    price in
    
    
    intrinsic value inin euros
    
    shares
    
    
    life
    
    
    euros
    
    
    euros
    
    
    shares
    
    
    euros
    
    
    euros0 to 12.34
    
    
    280,500
    
    
    
    3.16
    
    
    
    7.20
    
    
    
    
    
    
    
    30,500
    
    
    
    12.34
    
    
    
    14.60 to 14.91
    
    
    100,000
    
    
    
    0.45
    
    
    
    14.60
    
    
    
    
    
    
    
    100,000
    
    
    
    14.60
    
    
    
    20.07 to 20.54
    
    
    166,167
    
    
    
    0.94
    
    
    
    20.35
    
    
    
    
    
    
    
    166,167
    
    
    
    20.35
    
    
    
    546,667
    
    
    
    1.97
    
    
    
    12.55
    
    
    
    
    
    
    
    296,667
    
    
    
    17.59
    
    
    
    
 
 
  F-16




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4.3 Stock Options
  Weighted Average
    
    
    Weighted AverageShares Available
    
    
    Options Granted
    
    
    Exercise Price in
    
    
    Exercise Price infor Grant
    
    
    and Outstanding
    
    
    U.S dollars[1]
    
    
    EurosBalance at January 1, 2006
    
    
    797,500
    
    
    
    3,425,000
    
    
    $
    13.69
    
    
    
    11.31Options authorized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    (483,750
    )
    
    
    483,750
    
    
    $
    28.81
    
    
    
    22.33Exercised
    
    
    
    
    
    
    (257,000
    )
    
    $
    4.74
    
    
    
    4.39Forfeited
    
    
    32,500
    
    
    
    (122,500
    )
    
    $
    18.82
    
    
    
    14.95Balance at December 31, 2006
    
    
    346,250
    
    
    
    3,529,250
    
    
    $
    16.23
    
    
    
    13.18Options authorized
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    (61,000
    )
    
    $
    2.33
    
    
    
    2.48Forfeited
    
    
    219,500
    
    
    
    (255,500
    )
    
    $
    17.73
    
    
    
    14.06Balance at December 31, 2007
    
    
    1,065,750
    
    
    
    3,212,750
    
    
    $
    16.37
    
    
    
    13.31Options authorized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    (125,000
    )
    
    
    125,000
    
    
    $
    5.17
    
    
    
    4.03Exercised
    
    
    
    
    
    
    (55,010
    )
    
    $
    2.36
    
    
    
    2.36Forfeited
    
    
    (565,750
    )
    
    
    (477,750
    )
    
    $
    18.18
    
    
    
    14.68Balance at December 31, 2008
    
    
    375,000
    
    
    
    2,804,990
    
    
    $
    15.84
    
    
    
    12.88
 
 [1]   Historical exchange rate at date of grant 
 
    
 Stock Options Outstanding
    
    Stock Options ExercisableWeighted
    
    
    
    
    
    Weightedaverage
    
    Weighted
    
    average
    
    
    
    
    
    Weighted
    
    Weightedremaining
    
    average
    
    intrinsic
    
    
    
    average
    
    averageRange of exercise
    
    Number of
    
    contractual
    
    exercise price
    
    value in
    
    Number of
    
    exercise price
    
    intrinsic valueprices in euros
    
    shares
    
    life
    
    in euros
    
    euros
    
    shares
    
    in euros
    
    in euros0 to 1.36
    
    
    53,000
    
    
    
    2.73
    
    
    
    1.09
    
    
    
    1.73
    
    
    
    53,000
    
    
    
    1.09
    
    
    
    1.732.33 to 2.77
    
    
    255,000
    
    
    
    3.13
    
    
    
    2.43
    
    
    
    0.38
    
    
    
    255,000
    
    
    
    2.43
    
    
    
    0.384.03 to 4.86
    
    
    399,000
    
    
    
    3.58
    
    
    
    4.27
    
    
    
    
    
    
    
    274,000
    
    
    
    4.37
    
    
    
    6.40 to 7.58
    
    
    125,000
    
    
    
    1.89
    
    
    
    6.78
    
    
    
    
    
    
    
    125,000
    
    
    
    6.78
    
    
    
    9.88 to 12.02
    
    
    193,500
    
    
    
    5.53
    
    
    
    11.10
    
    
    
    
    
    
    
    171,500
    
    
    
    11.06
    
    
    
    12.86 to 16.23
    
    
    1,163,990
    
    
    
    6.63
    
    
    
    14.47
    
    
    
    
    
    
    
    913,740
    
    
    
    14.50
    
    
    
    19.2 to 25.39
    
    
    615,500
    
    
    
    6.48
    
    
    
    22.60
    
    
    
    
    
    
    
    455,500
    
    
    
    21.92
    
    
    
    2,804,990
    
    
    
    5.78
    
    
    
    12.88
    
    
    
    0.61
    
    
    
    2,247,740
    
    
    
    12.39
    
    
    
    0.61
 
 F-17




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 4.4 Free share award
  Free of ChargeFree of Charge
    
    
    Share Award
    
    
    Weighted AverageShare Award
    
    
    Granted and
    
    
    Fair Value in U.S
    
    
    Weighted AverageAvailable for Grant
    
    
    Outstanding
    
    
    dollars[1]
    
    
    Fair Value in EurosBalance at January 1, 2006
    
    
    200,000Granted
    
    
    (106,000
    )
    
    
    106,000
    
    
    $
    33.46
    
    
    
    25.39Balance at December 31, 2006
    
    
    94,000
    
    
    
    106,000
    
    
    $
    33.46
    
    
    
    25.39Authorized
    
    
    200,000Granted
    
    
    (130,000
    )
    
    
    130,000
    
    
    $
    8.54
    
    
    
    5.80Forfeited
    
    
    1,450
    
    
    
    (1,450
    )
    
    $
    33.46
    
    
    
    25.39Balance at December 31, 2007
    
    
    165,450
    
    
    
    234,550
    
    
    $
    19.64
    
    
    
    14.53Options authorized
    
    
    200,000Granted
    
    
    (250,000
    )
    
    
    250,000
    
    
    $
    5.88
    
    
    
    4.37Exercised
    
    
    
    
    
    
    (98,750
    )
    
    $
    33.46
    
    
    
    25.39Forfeited
    
    
    12,100
    
    
    
    (12,100
    )
    
    $
    20.48
    
    
    
    15.19Balance at December 31, 2008
    
    
    127,550
    
    
    
    373,700
    
    
    $
    6.42
    
    
    
    4.69
 
 [1]   Historical exchange rate at date of grant 
 
 5. Cash and Cash Equivalents:
  December 31,(In thousands of U.S. dollars)
    
    2007
    
    
    2008HSBC
    
    $
    13,968
    
    
    $
    7,573Credit Lyonnais
    
    
    17
    
    
    
    38Credit Agricole
    
    
    4,796
    
    
    
    19,217Barclays Bank
    
    
    7,438
    
    
    
    Other
    
    
    94
    
    
    
    192Total cash and cash equivalents
    
    $
    26,313
    
    
    $
    27,021
 F-18




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  6. Marketable securities:
    Unrealized GainsFair value
    
    Value at cost
    
    (Losses)(in thousands of U.S dollars)
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007
    
    2008Credit Agricole securities
    
    
    4,739
    
    
    
    3,359
    
    
    
    4,739
    
    
    
    3,359
    
    
    
    
    
    
    
    Credit Lyonnais securities
    
    
    79
    
    
    
    47
    
    
    
    79
    
    
    
    47
    
    
    
    
    
    
    
    HSBC securities
    
    
    9,931
    
    
    
    6,651
    
    
    
    9,931
    
    
    
    6,651
    
    
    
    
    
    
    
    Total
    
    
    14,749
    
    
    
    10,057
    
    
    
    14,749
    
    
    
    10,057
    
    
    
    
    
    
    
    
  Proceeds from sales
    
    Purchase of securities
    
    Gross gains (Losses)(in thousands of U.S dollars)
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007
    
    2008Credit Agricole securities
    
    
    40,034
    
    
    
    27,295
    
    
    
    42,753
    
    
    
    25,962
    
    
    
    111
    
    
    
    149Credit Lyonnais securities
    
    
    327
    
    
    
    413
    
    
    
    292
    
    
    
    380
    
    
    
    2
    
    
    
    3HSBC securities
    
    
    40,635
    
    
    
    47,508
    
    
    
    46,818
    
    
    
    44,440
    
    
    
    171
    
    
    
    175Barclays securities
    
    
    13,711
    
    
    
    
    
    
    
    6,851
    
    
    
    
    
    
    
    34
    
    
    
    Total
    
    
    94,707
    
    
    
    75,216
    
    
    
    96,714
    
    
    
    70,782
    
    
    
    318
    
    
    
    327
 7. Inventory:
  December 31,(In thousands of U.S. dollars)
    
    2007
    
    2008Raw materials
    
    
    2,676
    
    
    
    2,272Finished goods
    
    
    535
    
    
    
    781Provision for inventory obsolescence
    
    
    (1,439
    )
    
    
    (1,216
    )Inventories, net
    
    
    1,771
    
    
    
    1,837
 F-19




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 8. Prepaid expenses and other current assets
  December 31,(In thousands of U.S. dollars)
    
    2007
    
    2008Prepaid expenses
    
    
    845
    
    
    
    664Valued-added tax recoverable
    
    
    1,662
    
    
    
    1,226Advance to suppliers
    
    
    293
    
    
    
    291Total Prepaid expenses and other current assets
    
    
    2,800
    
    
    
    2,181
 9. Property and Equipment:
  December 31,(In thousands of U.S. dollars)
    
    2007
    
    2008Land and buildings
    
    
    6,627
    
    
    
    10,895Laboratory equipment
    
    
    26,101
    
    
    
    30,542Office and computer equipment
    
    
    3,853
    
    
    
    3,856Furniture, fixtures and fittings
    
    
    16,053
    
    
    
    20,218Construction in progress
    
    
    15,731
    
    
    
    Total property and equipment
    
    
    68,365
    
    
    
    65,511Less accumulated depreciation and amortization
    
    
    (33,225
    )
    
    
    (37,910
    )Property and equipment, net
    
    
    35,140
    
    
    
    27,601
    F-20




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10. Accrued Expenses:
   December 31,(In thousands of U.S. dollars)
    
    2007
    
    2008Accrued compensation
    
    
    1,703
    
    
    
    2,499Accrued social charges
    
    
    3,666
    
    
    
    3,406Total accrued expenses
    
    
    5,369
    
    
    
    5,905
 11. Other current and Long Term liabilities:
 11.1. Other current liabilities:
  December 31,(In thousands of U.S. dollars)
    
    2007
    
    2008Funding from partner GSK short term
    
    
    1,805
    
    
    
    1,813R&D credit tax financing short term
    
    
    
    
    
    
    4,272Provision for costs
    
    
    2,091
    
    
    
    11Conditional grants short term
    
    
    1,362
    
    
    
    Withholding tax
    
    
    236
    
    
    
    Employee service award provision short term
    
    
    129
    
    
    
    284Valued-added tax payable
    
    
    252
    
    
    
    72Total Other current liabilities
    
    
    5,875
    
    
    
    6,452
     F-21




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   11.2. Other long term liabilities
  December 31,(In thousands of U.S. dollars)
    
    2007
    
    2008Funding from partner GSK long term
    
    
    14,307
    
    
    
    11,494Conditional grants
    
    
    1,372
    
    
    
    1,819Provision for retirement indemnity (see note 19)
    
    
    1,450
    
    
    
    1,649R&D credit tax financing long term (see note 11.1)
    
    
    
    
    
    
    3,741Employee service award provision long term
    
    
    1,412
    
    
    
    1,343Other
    
    
    498
    
    
    
    448Total Other long term liabilities
    
    
    19,039
    
    
    
    20,494
   12. Deferred Revenue:
  F-22




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13. Long-term Debt:
  December 31,(In thousands of U.S. dollars)
    
    2007
    
    2008Anvar loans (a) :Asacard program
    
    
    953
    
    
    
    901French Ministry of Industry (b)
    
    
    2,171
    
    
    
    2,052Total
    
    
    3,124
    
    
    
    2,953Current portion
    
    
    724
    
    
    
    684Long-term portion
    
    
    2,400
    
    
    
    2,269
 
 (a)
    
    OSEO Anvar is an agency of the French government that provides financing to French
companies for research and development. At December 31, 2007 and 2008, the Company had
outstanding loans from Anvar of $953,000 and $901,000, respectively. These loans do not
bear interest and are repayable only in the event the research project is technically or
commercially successful. In 2006, Anvar agreed a further postponement of the scheduled
repayments under the Asacard program. Potential repayment is now scheduled to occur from
2010 through 2013.(b)
    
    In 2002, the Company received a loan of $464,000 from the French Ministry of Industry on a
research project (the Proteozome project) related to the development of new Medusa
applications. Pursuant to the agreement, the Company is granted a loan equal to 50% of the total
expenses incurred on this project over a three-year period beginning on January 2, 2002. The
remainder of the advance of $1,707,000 was received in 2005. One third of this loan is due for
repayment 2009 with the remainder due in 2011. The loan is non-interest bearing and is repayable
only in the event the research project is technically or commercially successful.  (In thousands of U.S. dollars)
    
    December 31,2009
    
    
    6842010
    
    
    1492011
    
    
    1,5802012
    
    
    2762013
    
    
    2642,953
 F-23




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 14. Capital lease obligations:
   (In thousands of U.S. dollars)
    
    December 31,2009
    
    
    822010
    
    
    412011
    
    
    412012
    
    
    25Total
    
    
    188Less amounts representing interest
    
    
    (24
    )Future payments on capital leases
    
    
    165Less current portion
    
    
    69Long term portion
    
    
    96
  15. Earnings Per Share:
  Year ended December 31,(In thousands, except per share amounts)
    
    2006
    
    
    2007
    
    
    2008Numerator:Net income (loss)
    
    $
    (35,201
    )
    
    $
    (37,737
    )
    
    $
    (12,084
    )Denominator:Weighted average shares outstanding used for basic earnings (loss) per
share
    
    
    23,811,624
    
    
    
    24,024,131
    
    
    
    24,081,723Effect of dilutive securities:Stock-options and warrants
    
    
    
    
    
    
    
    
    
    
    Weighted average shares outstanding and dilutive securities used for
diluted earnings (loss) per share
    
    
    23,811,624
    
    
    
    24,024,131
    
    
    
    24,081,723Basic earnings (loss) per share
    
    $
    (1.48
    )
    
    $
    (1.57
    )
    
    $
    (0.50
    )Diluted earnings (loss) per share
    
    $
    (1.48
    )
    
    $
    (1.57
    )
    
    $
    (0.50
    )
  
 F-24




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 16. Shareholders Equity:
 16.1. Preemptive subscription rights:
 pro rata
 16.2. Dividends:
  16.3. Warrants:
  
    
  
  
  
  
  F-25




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 16.4. Stock options:
      16.5 Free Share Awards
       F-26




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 16.6. Accumulated other comprehensive income:
  December 31,(In thousands of U.S. dollars)
    
    2007
    
    2008Foreign currency translation
    
    
    14,085
    
    
    
    12,150Total
    
    
    14,085
    
    
    
    12,150
 17. Income taxes :
  Year ended December 31,(in thousands of U.S. dollars)
    
    2006
    
    2007
    
    2008France
    
    
    ($37,319
    )
    
    
    ($39,431
    )
    
    
    ($18,562
    )
  (in thousands of U.S. dollars)
    
    2006
    
    2007
    
    2008Income tax benefit (provision) computed at the French statutory rate
    
    
    12,438
    
    
    
    13,142
    
    
    
    6,187Deferred Tax Allowance
    
    
    (12,438
    )
    
    
    (13,142
    )
    
    
    (6,187
    )Withholding tax
    
    
    
    
    
    
    (594
    )
    
    
    (500
    )Research tax credits
    
    
    2,118
    
    
    
    2,288
    
    
    
    6,978Minimum tax payable
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,118
    
    
    
    1,694
    
    
    
    6,478
    F-27




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  December 31,(In thousands of U.S. dollars)
    
    2007
    
    2008Deferred income tax assets:Net French taxable operating loss carry-forwards (not utilized)
    
    
    42,056
    
    
    
    45,266Other deferred income tax assets
    
    
    3,684
    
    
    
    3,528Valuation allowance
    
    
    (45,740
    )
    
    
    (48,593
    )Net deferred income tax assets
    
    
    166
    
    
    
    201Deferred income tax liabilities
    
    
    (166
    )
    
    
    (201
    )Deferred income taxes, net
    
    
    
    
    
    
    
    (In thousands of U.S. dollars)
    
    December 31,2009
    
    
    11,114Total current portion
    
    
    11,1142010
    
    
    2,4802011
    
    
    2,400Total long term portion
    
    
    4,880Total
    
    
    15,994
 18. Employee Retirement plans:
   F-28




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   2006
    
    2007
    
    2008Average increase of salaries
    
    3%
    
    3%
    
    3%Discounted interest rate
    
    4.5%
    
    5.5%
    
    5.5%Turn over
    
    average of the last 4 years
    
    average of the last 4 years
    
    actuarial standard and average
of the last 5 yearsAge of retirement
    
    65 years
    
    65 years
    
    60 to 65 yearsactuarial standard basedon age and professionalstatus
  December 31,In thousands of U.S. dollars
    
    2007
    
    2008Benefit obligations at beginning of year
    
    
    913
    
    
    
    1,450Service cost
    
    
    97
    
    
    
    131Interest cost
    
    
    43
    
    
    
    80Benefits paids
    
    
    (39
    )
    
    
    (143
    )Actuarial loss (gain)
    
    
    299
    
    
    
    226Exchange rate changes
    
    
    137
    
    
    
    (95
    )Benefit obligations at end of year
    
    
    1,450
    
    
    
    1,649
 December 31,Change in plan assets
    
    2007
    
    2008Fair value of plan assets at beginning of year
    
    
    
    
    
    
    Employer contributions
    
    
    39
    
    
    
    143Benefits paid
    
    
    (39
    )
    
    
    (143
    )Fair value of plan assets at end of year
    
    
    
    
    
    
    
 December 31,Reconciliation of funded status
    
    2007
    
    2008Fair value of plan assets
    
    
    
    
    
    
    Benefit obligations
    
    
    1,450
    
    
    
    1,649Funded status (plan assets less benefit
obligations)
    
    
    (1,450
    )
    
    
    (1,649
    )
 F-29




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Future expected payment of benefits:
    
    Year Ending:In thousands of U.S. dollars
    
    12/31/2009
    
    
    2912/31/2010
    
    
    5112/31/2011
    
    
    8412/31/2012
    
    
    33812/31/2013
    
    
    85Next 5 Years
    
    
    989
  19. Fair value of financial instruments:
  .
 20. Commitments and Contingencies:
 20.1. Capital leases
  20.2. Operating leases
  (In thousands of U.S. dollars)
    
    December 31,2009
    
    
    1,1062010
    
    
    9562011
    
    
    9032012
    
    
    8052013
    
    
    397Thereafter
    
    
    356TOTAL
    
    
    4,523
  F-30




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 20.3. Litigation
     21. Industry and geographic information:
    F-31




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  As of December 31,(in thousands of U.S. dollars)
    
    2006
    
    2007
    
    2008RevenuesUnited Kingdom
    
    
    5,832
    
    
    
    20,064
    
    
    
    15,035USA
    
    
    16,385
    
    
    
    15,278
    
    
    
    9,219France
    
    
    699
    
    
    
    1,234
    
    
    
    1,472Other
    
    
    104
    
    
    
    78
    
    
    
    12,893Total Revenues
    
    
    23,020
    
    
    
    36,654
    
    
    
    38,619
  As of December 31,(in thousands of U.S. dollars)
    
    2007
    
    2008Long-lived assets:USA
    
    $
    53
    
    
    $
    20France
    
    $
    45,238
    
    
    $
    32,652Total long-lived assets
    
    $
    45,291
    
    
    $
    32,672
 22. Subsequent Events:
 
 F-32




---



##### 








SIGNATURES




| |                                       |  |  | 
| | ------------------------------------- |  |  | 
| | FLAMEL TECHNOLOGIES S.A.
(Registrant) | 
| | /s/ Stephen H. Willard                | 
| | Stephen H. Willard                    | 
| | Chief Executive Officer               | 







---



##### 



EXHIBIT INDEX
 ExhibitNumber
    
    Description1.1
    
    Revised Statutsor bye laws of the Company (Filed herewith)2.1
    
    Deposit Agreement among Flamel, The Bank of New York, as
Depositary, and holders from time to time of American Depositary
Shares issued thereunder (including as an exhibit the form of
American Depositary Receipt) (1)8.1
    
    List of Subsidiaries (Filed herewith)11.1
    
    Code of Ethics for CEO (Directeur Général), Delegated Managing
Directors (Directeurs Generaux Delegues) and Senior Financial
Officers (2)12.1
    
    Certification of the Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed
herewith)12.2
    
    Certification of the Principal Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (Filed herewith)13.1
    
    Certification of the Chief Executive Officer pursuant to USC
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Furnished herewith)13.2
    
    Certification of the Principal Financial Officer pursuant to USC
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Furnished herewith)23.1
    
    Consent of PricewaterhouseCoopers Audit. (Filed herewith)23.2
    
    Consent of Ernst & Young Audit (Filed herewith)
 
 (1)
    
    Incorporated by reference to Post-Effective Amendment No. 1 to the Companys registration
statement on Form F-6 filed July 26, 2001, as amended (No. 333-12790).(2)
    
    Incorporated by reference to the Companys Annual Report on Form 20-F for the year ended
December 31, 2003, filed on April 26, 2004.