##### 



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, 2006
 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)
  Name of ExchangeTitle of each class
    
    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 þ 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
    
    
    11ITEM 4A. Unresolved Staff Comments
    
    
    31ITEM 5. Operating and Financial Review and Prospects
    
    
    31ITEM 6. Directors, Senior Management and Employees
    
    
    38ITEM 7. Major Shareholders and Related Party Transactions
    
    
    47ITEM 8. Financial Information
    
    
    48ITEM 9. The Offer and Listing
    
    
    49ITEM 10. Additional Information
    
    
    49ITEM 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    56ITEM 12. Description of Securities Other Than Equity Securities
    
    
    56PART II
    
    
    57ITEM 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    57ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    57ITEM 15. Controls and Procedures
    
    
    57ITEM 16. [Reserved]
    
    
    58ITEM 16C. Principal Accountant Fees and Services
    
    
    58ITEM 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    59ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    59PART III
    
    
    60ITEM 17. Financial Statements
    
    
    60ITEM 18. Financial Statements
    
    
    60ITEM 19. Exhibits
    
    
    60
 i




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® TM ® ®
  ii




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##### 



SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
  
    
    our products and product candidates, if approved for marketing, may not produce
significant revenues and we rely on our partners to determine the regulatory and
marketing strategies;
    
    our products and product candidates, in commercial use, may have unintended side
effects, adverse reactions or incidents of misuse;
    
    we may enter into a collaboration with a third party to market or fund a
proprietary product candidate and the terms of such a collaboration may not meet
our expectations;
    
    our delivery technologies or product development efforts may not produce safe,
effective or commercially viable products;
    
    our collaborators could elect to terminate or delay programs at any time and
disputes with collaborators or failure to negotiate acceptable new collaborative
arrangements for our technologies could occur;
    
    we may be unable to manufacture or, if our products are successful, scale-up the
manufacturing of our products economically or on a commercial scale;
    
    unexpected events could interrupt manufacturing operations at our facilities,
which could be the sole source of supply for these products;
    
    after the completion of clinical trials of products incorporating our
technologies and the submission to the U.S. Food and Drug Administration (FDA) of a
New Drug Application (NDA), for marketing approval and to other health authorities
as a marketing authorization application, the FDA or other health authorities could
refuse to accept such filings or could request additional pre-clinical or clinical
studies be conducted, each of which could result in significant delays, or such
authorities could refuse to approve the product at all;
    
    our product candidates could be ineffective or unsafe during pre-clinical
studies and clinical trials and we and our collaborators may not be permitted by
regulatory authorities to undertake new or additional clinical trials for product
candidates incorporating our technologies, or clinical trials could be delayed;
    
    we may experience significant delays in clinical trials on our products;
    
    we may not realize any revenue from milestone or royalty payments under our
license agreements with our partners, including GlaxoSmithKline;
    
    even if our product candidates appear promising at an early stage of
development, product candidates could fail to receive necessary regulatory
approvals, be difficult to manufacture on a large scale, be uneconomical, fail to
achieve market acceptance, be precluded from commercialization by proprietary
rights of third parties or experience substantial competition in the marketplace;
 iii




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##### 




    
    technological changes in the biotechnology or pharmaceutical industries could
render our product candidates obsolete or noncompetitive;
    
    we may face difficulties or set-backs in obtaining and enforcing our patents or
defending claims of patent infringement by others; and
    
    we may need to raise substantial additional funding to continue research and
development programs and clinical trials and could incur difficulties or setbacks
in raising such funds.
  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: *
 2002
    
    2003
    
    2004
    
    2005
    
    2006Revenues
    
    $
    18,406
    
    
    $
    25,167
    
    
    $
    55,410
    
    
    $
    23,598
    
    
    $
    23,020Cost and Expenses
    
    
    (18,629
    )
    
    
    (29,866
    )
    
    
    (46,575
    )
    
    
    (64,367
    )
    
    
    (61,858)
    **Income (Loss) from Operations
    
    
    (223
    )
    
    
    (4,699
    )
    
    
    8,835
    
    
    
    (40,769
    )
    
    
    (38,838
    )Interest and foreign exchange gain (loss), net
    
    
    149
    
    
    
    (856
    )
    
    
    363
    
    
    
    4,103
    
    
    
    1,388Other income
    
    
    2,525
    
    
    
    1,128
    
    
    
    100
    
    
    
    5,003
    
    
    
    131Income (loss) before income tax
    
    
    2,452
    
    
    
    (4,427
    )
    
    
    9,298
    
    
    
    (31,663
    )
    
    
    (37,319
    )Income tax benefit (expense)
    
    
    553
    
    
    
    503
    
    
    
    3,201
    
    
    
    4,286
    
    
    
    2,118Net income (loss)
    
    $
    3,005
    
    
    $
    (3,924
    )
    
    $
    12,499
    
    
    $
    (27,377
    )
    
    $
    (35,201
    )Basic earnings (loss) per ordinary share
    
    $
    0.19
    
    
    $
    (0.22
    )
    
    $
    0.58
    
    
    $
    (1.19
    )
    
    $
    (1.48
    )Diluted earnings (loss) per ordinary share
    
    $
    0.18
    
    
    $
    (0.22
    )
    
    $
    0.53
    
    
    $
    (1.19
    )
    
    $
    (1.48
    )Basic weighted average number of shares
outstanding (in thousands)
    
    
    16,198
    
    
    
    17,762
    
    
    
    21,514
    
    
    
    22,999
    
    
    
    23,812Diluted weighted average number of shares
outstanding (in thousands)
    
    
    16,711
    
    
    
    17,762
    
    
    
    23,559
    
    
    
    22,999
    
    
    
    23,812Dividends per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (*
    
    in thousands of U.S. dollars, except share and per share data)(**
    
    the year ended December 31, 2006 includes stock-based compensation expense of $9,989 thousand) 1




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##### 



Balance Sheet Data: *
 2002
    
    2003
    
    2004
    
    2005
    
    2006Cash, Cash
equivalents &
Marketable
securities
    
    $
    14,527
    
    
    $
    109,617
    
    
    $
    105,374
    
    
    $
    83,774
    
    
    $
    62,771Working capital**
    
    
    12,202
    
    
    
    102,867
    
    
    
    97,446
    
    
    
    67,092
    
    
    
    55,465Total assets
    
    
    23,076
    
    
    
    127,252
    
    
    
    145,608
    
    
    
    124,351
    
    
    
    114,894Long term
liabilities
(excluding deferred
revenues)
    
    
    2,329
    
    
    
    3,123
    
    
    
    4,665
    
    
    
    12,801
    
    
    
    20,504Shareholders equity
    
    
    12,286
    
    
    
    92,061
    
    
    
    116,757
    
    
    
    86,654
    
    
    
    73,026
 
 (*
    
    in thousands of U.S. dollars)(**
    
    current assets  current liabilities) Exchange Rates:
   Year Ended December 31,Euro to U.S. Dollar:
    
    High
    
    Low
    
    Average Rate12006
    
    
    1.3331
    
    
    
    1.1826
    
    
    
    1.255672005
    
    
    1.3507
    
    
    
    1.1667
    
    
    
    1.244782004
    
    
    1.367
    
    
    
    1.176
    
    
    
    1.2482003
    
    
    1.246
    
    
    
    1.036
    
    
    
    1.1322002
    
    
    1.0485
    
    
    
    0.8594
    
    
    
    0.9495
 Previous Six Months,Euro to U.S. Dollar:
    
    High
    
    Low
    
    Average Rate1March, 2007
    
    
    1.3352
    
    
    
    1.3083
    
    
    
    1.324186February, 2007
    
    
    1.323
    
    
    
    1.2925
    
    
    
    1.30742January, 2007
    
    
    1.327
    
    
    
    1.2893
    
    
    
    1.299864December, 2006
    
    
    1.3331
    
    
    
    1.3095
    
    
    
    1.321279November, 2006
    
    
    1.32
    
    
    
    1.2702
    
    
    
    1.288141October, 2006
    
    
    1.2737
    
    
    
    1.2515
    
    
    
    1.261105
 
 
 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:
  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; and
    
    our collaborative partners may terminate their relationships with us.
 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.
  3




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
    
    the FDA 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;
    
    they may be found to be ineffective or cause harmful side effects, or they may fail
during 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; or
    
    products that use our technologies also could fail to achieve market acceptance or
be precluded from commercialization by proprietary rights of third parties.
 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.
   4




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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.
  5




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##### 



Our commercial products are subject to continuing regulation and we may be subject to adverse
consequences if we fail to comply with applicable regulations.
  
    
    adverse drug experience and other reporting requirements;
    
    product promotion and marketing;
    
    product manufacturing, including cGMP compliance;
    
    record keeping;
    
    distribution of drug samples;
    
    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;
    
    refuse to permit products to be imported into, or exported out of, the United States;
    
    suspend or limit our production;
    
    withdraw previously approved marketing applications; and
    
    initiate criminal prosecutions.
 U.S. law or FDA policy could change and expose us to competition from generic or follow-on
versions of our products, which may impact our market share and harm our business.
  6




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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.
 ® ®
   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.
 7




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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.
    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.
  8




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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 demand for our technologies and products;
    
    the level of product and price competition;
    
    our ability to develop 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; and
    
    general economic conditions.
 9




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We may require additional financing, which may not be available on favorable terms or at all, 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.
 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.
 10




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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.
  ITEM 4. Information on the Company
 General Overview
   th
 ® ®
 11




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®
  ®
 ®
   The Need for Novel Delivery Systems
  12




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##### 



Business Strategy
  
    
    maximize the potential of our existing drug delivery systems;
    
    develop or acquire additional drug delivery technologies;
    
    identify additional compounds for unmet medical needs;
    
    develop new formulations of proprietary compounds that we receive from
additional partners; and
    
    leverage capabilities of pharmaceutical partners for clinical development and
commercialization.
   Micropump®: Delivery System for the Oral Administration of Drugs
     13




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Products Based on the Micropump® Technology
  1. Coreg CR
  14




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##### 



The Market for Beta Blockers
     2. Lansoprazole extended release
 ®
 The Market for Proton Pump Inhibitors
  15




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##### 



® ®
 3. Genvir : Controlled-release Oral Acyclovir
  The Market for Anti-Herpes Drugs
 ®
 Controlled-Release Acyclovir for Acute Genital Herpes
   4. Asacard®162.5mg: Controlled-Release Cardiovascular Aspirin
   16




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Other Products Based on Micropump Technology
  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.
  1. Basulin®: Long-acting Basal Insulin Formulation
  Insulin Market
  17




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##### 



The Development of Basulin
    2. Interferon
   18




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##### 



3. Interleukin
 ®
 Other Products Based on the Medusa® Technology
  Photochromic Materials
     Strategic Alliances
  19




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##### 



GlaxoSmithKline
  TAP
 ®
 Bristol-Myers Squibb
  Biovail
 
 Servier
  Merck & Co.
  20




---



##### 



Corning: Photochromic Materials
    Manufacturing
       21




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##### 



Patents and Proprietary Technology
      Government Regulation
    22




---



##### 



New Drug and Biological Product Development and Approval Process
 United States
     Chemical and Formulation Development
   23




---



##### 



Pre-Clinical Testing
  Investigational New Drug Application
 USA:
 European Union:
 Clinical Trials
    24




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##### 



New Drug Application or Biological License Application
    Other Countries
   25




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##### 



Regulation of Combination Drugs
    Marketing Approval and Reporting Requirements
   Post-Marketing Obligations
    26




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##### 



Patent Restoration and Exclusivity
     27




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##### 



Regulation of Medical Devices
 United States
  Other Countries
   28




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##### 



Other Regulation
 Controlled Substances Act
  cGMP.
  Healthcare Reimbursement
  Competition
   29




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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
     30




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##### 



ITEM 4A. Unresolved Staff Comments
  ITEM 5. Operating and Financial Review and Prospects
  Overview
      31




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##### 



Critical Accounting Policies
 Revenue Recognition
        32




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##### 



Results of Operations
  Operating Revenues
  2004
    
    2005
    
    2006LICENSE AND RESEARCH REVENUES
    
    
    50.9
    
    
    
    20.8
    
    
    
    20.3RESEARCH
    
    
    
    
    20.8
    
    
    
    15.4
    
    
    
    13.4Research
    
    Servier
    
    
    0.2GSK  Coreg CR
    
    
    6.4
    
    
    
    8.6
    
    
    
    9.6BMS
    
    
    8.0TAP Lansoprazole
    
    
    4.9
    
    
    
    6.8Biovail Genvir
    
    
    0.6Undisclosed Partners
    
    
    0.7
    
    
    
    
    
    
    
    3.8LICENSES
    
    
    
    
    30.1
    
    
    
    5.4
    
    
    
    6.9Up Front Payment
    
    Servier
    
    
    1.4GSK  Coreg CR
    
    
    0.8
    
    
    
    0.8
    
    
    
    0.2BMS
    
    
    19.9TAP Lansoprazole
    
    
    0.1
    
    
    
    0.9Biovail Genvir
    
    
    0.2
    
    
    
    0.2Undisclosed Partners
    
    
    0.1
    
    
    
    
    
    
    
    0.7Milestones
    
    GSK Coreg CR
    
    
    2.0
    
    
    
    2.0
    
    
    
    6.0BMS
    
    
    5.1TAP Lansoprazole
    
    
    0.5
    
    
    
    1.5TOTAL
    
    
    
    
    50.9
    
    
    
    20.8
    
    
    
    20.3Servier
    
    
    1.6GSK Coreg CR
    
    
    9.2
    
    
    
    11.4
    
    
    
    15.8BMS
    
    
    33.0TAP Lansoprazole
    
    
    5.5
    
    
    
    9.2Biovail Genvir
    
    
    0.8
    
    
    
    0.2Undisclosed Partners
    
    
    0.8
    
    
    
    
    
    
    
    4.5
    33




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##### 



Operating Expenses
      34




---



##### 



Non-Operating Items
      Net Income/Loss
  Liquidity and Capital Resources
   35




---



##### 



36




---



##### 



Payments Due Per PeriodLess than
    
    1 to 3
    
    3 to 5
    
    More than(in thousands of US)
    
    Total
    
    1 year
    
    years
    
    years
    
    5 yearsLong-Term Debt (see note 14)
    
    $
    2,795
    
    
    
    
    
    
    $
    648
    
    
    $
    1,636
    
    
    $
    511Capital Lease Obligation (see
note 15)
    
    $
    713
    
    
    $
    437
    
    
    $
    276Operating Leases (see note 21.2)
    
    $
    4,930
    
    
    $
    893
    
    
    $
    1,533
    
    
    $
    1,199
    
    
    $
    1,305Total Contractual Cash Obligations
    
    $
    8,438
    
    
    $
    1,330
    
    
    $
    2,457
    
    
    $
    2,835
    
    
    $
    1,816
  37




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##### 



ITEM 6. Directors, Senior Management and Employees
 Directors and Senior Management
  Year of InitialName
    
    Position
    
    AppointmentElie Vannier (1) (2)
    
    Non-Executive Chairman of the Board of Directors
    
    
    2005Cor Boonstra (2)
    
    Director
    
    
    2005Frédéric Lemoine (2) (3)
    
    Director
    
    
    2005Lodewijk J.R. de Vink (1) (3)
    
    Director
    
    
    2006John L. Vogelstein(1) (3)
    
    Director
    
    
    2005Stephen H. Willard
    
    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  Year of InitialName
    
    Position
    
    AppointmentMichel Finance
    
    Executive Vice President and Chief Financial Officer
    
    
    2005Rafael Jorda
    
    Executive Vice President and Chief Operating Officer
    
    
    1991Andrew Francis
    
    Vice President Business Development
    
    
    2005Christian 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
    
    
    1992Sian Crouzet
    
    Financial Controller
    
    
    2005Katherine Hanras
    
    Director of Innovative Technologies
    
    
    1998Roger Kravtzoff
    
    Preclinical and Early Clinical Development Director
    
    
    2002Kenneth Lundstrom
    
    Director of Research
    
    
    2006Remi Meyrueix
    
    Scientific Director
    
    
    1990Charles Mosseri-Marlio
    
    Director of Strategic Planning and Investor Relations
    
    
    2004Raphaëlle Portella
    
    Legal Counsel, France
    
    
    2006David Weber
    
    Supply Chain Director
    
    
    2004
   38




---



##### 



Board Practices
   statuts statuts
  39




---



##### 



Compensation of Directors and Officers
  th
 Senior Management and Executive Officers
      40




---



##### 



41




---



##### 



Options to Purchase Securities from the Company
  2
  2
 2
   
 2
    
    Price in USD represents the translation from Euros on the date of grant and does not
represent the subscription or exercise price which is expressed exclusively in Euros. 42




---



##### 



2
  2 2
 2 2
   2 2
 43




---



##### 



Options and Free of Charge Share Awards Granted and Warrants Subscribed from January 1, 2006
to March 31, 2007
 Free ofNumber
    
    Plan on
    
    Exercise
    
    Exercise
    
    
    
    
    
    Chargeof
    
    Which
    
    Price in
    
    Price in
    
    
    
    
    
    ShareWarrants
    
    Options
    
    Granted
    
    Euros 
    
    USD $2
    
    Expiration
    
    AwardsVannier
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    14.60
    
    
    
    18.48
    
    
    June 2009Boonstra
    
    
    60,000
    
    
    
    
    
    
    
    
    
    
    
    14.91
    
    
    
    17.88
    
    
    November 20083,083
    
    
    
    
    
    
    
    
    
    
    
    20.07
    
    
    
    23.99
    
    
    March 200925,000
    
    
    
    
    
    
    
    
    
    
    
    14.60
    
    
    
    18.48
    
    
    June 2009De Vink
    
    
    63,084
    
    
    
    
    
    
    
    
    
    
    
    20.07
    
    
    
    23.99
    
    
    March 200925,000
    
    
    
    
    
    
    
    
    
    
    
    14.60
    
    
    
    18.48
    
    
    June 2009Lemoine
    
    
    50,750
    
    
    
    
    
    
    
    
    
    
    
    14.91
    
    
    
    17.88
    
    
    November 200825,000
    
    
    
    
    
    
    
    
    
    
    
    14.60
    
    
    
    18.48
    
    
    June 2009Vogelstein
    
    
    60,000
    
    
    
    
    
    
    
    
    
    
    
    14.91
    
    
    
    17.88
    
    
    November 20083,083
    
    
    
    
    
    
    
    
    
    
    
    20.07
    
    
    
    23.99
    
    
    March 200925,000
    
    
    
    
    
    
    
    
    
    
    
    14.60
    
    
    
    18.48
    
    
    June 2009Willard
    
    
    
    
    
    
    100,000
    
    
    
    2004
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016Alluis
    
    
    
    
    
    
    1,000
    
    
    
    2004
    
    
    
    16.56
    
    
    
    20.4
    
    
    April 2016
    
    
    1,500Angot
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500Autant
    
    
    
    
    
    
    3,250
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    2,450Bardet
    
    
    
    
    
    
    2,000
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    1,500Bourboulou
    
    
    
    
    
    
    6,500
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    5,000Borel
    
    
    
    
    
    
    2,750
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    2,000Caisse
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,700Capelle
    
    
    
    
    
    
    25,000
    
    
    
    2004
    
    
    
    13.97
    
    
    
    17.65
    
    
    July 20163,750
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    2,800Castan
    
    
    
    
    
    
    6,000
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    4,500Chan
    
    
    
    
    
    
    4,500
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    3,300Commaret
    
    
    
    
    
    
    3,250
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    2,400Crouzet
    
    
    
    
    
    
    3,750
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    2,800Fernandez
    
    
    
    
    
    
    3,750
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    2,800Finance
    
    
    
    
    
    
    30,000
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    2,500Gorria
    
    
    
    
    
    
    20,000
    
    
    
    2005
    
    
    
    20.07
    
    
    
    23.99
    
    
    April 20164,000
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    3,500Guest
    
    
    
    
    
    
    20,000
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016Guimberteau
    
    
    
    
    
    
    3,750
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    2,800Jorda
    
    
    
    
    
    
    53,500
    
    
    
    2004
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 20166,500
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    5,000Kalita
    
    
    
    
    
    
    6,500
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    5,000Kravtzoff
    
    
    
    
    
    
    4,500
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    3,300Lemercier
    
    
    
    
    
    
    10,000
    
    
    
    2005
    
    
    
    20.07
    
    
    
    23.99
    
    
    March 20162,000
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    1,500Lundstrom
    
    
    
    
    
    
    100,000
    
    
    
    2005
    
    
    
    16.56
    
    
    
    20.40
    
    
    June 2016Marlio
    
    
    
    
    
    
    2,250
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    1,700McWilliam
    
    
    
    
    
    
    10,000
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016Meyrueix
    
    
    
    
    
    
    7,250
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    5,400Nicolas
    
    
    
    
    
    
    2,400
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    1,750Portella
    
    
    
    
    
    
    2,750
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    2,000Prevot
    
    
    
    
    
    
    2,750
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    2,000Thomas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500Vialas
    
    
    
    
    
    
    20,000
    
    
    
    2005
    
    
    
    20.07
    
    
    
    23.99
    
    
    March 20162,350
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    1,750Weber
    
    
    
    
    
    
    2,750
    
    
    
    2005
    
    
    
    25.39
    
    
    
    33.46
    
    
    December 2016
    
    
    2,000
 44




---



##### 



Employees
  Employees
 Venissieux (1)
    
    Pessac (2)
    
    USA (3)
    
    TotalYear End2004
    
    
    120
    
    
    
    101
    
    
    
    3
    
    
    
    2242005
    
    
    123
    
    
    
    131
    
    
    
    5
    
    
    
    2592006
    
    
    128
    
    
    
    174
    
    
    
    4
    
    
    
    306
 
 (1)
    
    Primarily engaged in research and administrative activities(2)
    
    Primarily engaged in technical and pharmaceutical development activities(3)
    
    Primarily engaged in administrative and marketing activities  Share Ownership
   Exercise
    
    Exercise% of Ordinary
    
    
    
    
    
    
    
    
    
    Price in
    
    Price in USDShares
    
    Shares
    
    
    
    
    
    Number of
    
    Euros
    
    (2)
    
    
    
    
    
    
    
    TotalName
    
    Owned
    
    Outstanding
    
    Warrants
    
    Options
    
    
    
    $
    
    Expiration
    
    Total
    
    %Vannier
    
    
    1
    
    
    
    0,00
    %
    
    
    
    
    
    
    75 000
    
    
    
    13,72
    
    
    
    16,68
    
    
    September 200825 000
    
    
    
    
    
    
    
    14,6
    
    
    
    18,48
    
    
    June 2009
    
    
    100 001
    
    
    
    0,35
    %Boonstra
    
    
    1
    
    
    
    0,00
    %
    
    
    60 000
    
    
    
    
    
    
    
    14,91
    
    
    
    17,88
    
    
    November 20083 083
    
    
    
    
    
    
    
    20,07
    
    
    
    23,99
    
    
    March 200925 000
    
    
    
    
    
    
    
    14,6
    
    
    
    18,48
    
    
    June 2009
    
    
    88 084
    
    
    
    0,31
    %De Vink
    
    
    1
    
    
    
    0,00
    %
    
    
    63 084
    
    
    
    
    
    
    
    20,07
    
    
    
    23,99
    
    
    March 200925 000
    
    
    
    
    
    
    
    14,6
    
    
    
    18,48
    
    
    June 2009
    
    
    88 085
    
    
    
    0,31
    %Lemoine
    
    
    1
    
    
    
    0,00
    %
    
    
    30 750
    
    
    
    
    
    
    
    14,91
    
    
    
    17,88
    
    
    November 200825 000
    
    
    
    
    
    
    
    14,6
    
    
    
    18,48
    
    
    June 2009
    
    
    55 751
    
    
    
    0,20
    %Vogelstein
    
    
    100 001
    
    
    
    0,42
    %
    
    
    60 000
    
    
    
    
    
    
    
    14,91
    
    
    
    17,88
    
    
    November 20083 083
    
    
    
    
    
    
    
    20,07
    
    
    
    23,99
    
    
    March 200925 000
    
    
    
    
    
    
    
    14,6
    
    
    
    18,48
    
    
    June 2009
    
    
    188 084
    
    
    
    0,66
    %Willard
    
    
    40 001
    
    
    
    0,17
    %
    
    
    
    
    
    
    40 000
    
    
    
    7,58
    
    
    
    4,99
    
    
    September 201040 000
    
    
    
    6,4
    
    
    
    5,73
    
    
    December 201025 000
    
    
    
    6,4
    
    
    
    5,73
    
    
    December 201050 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 2016
    
    
    1 040 001
    
    
    
    3,66
    %
 45




---



##### 



Exercise
    
    Exercise
    
    
    
    Free of% of Ordinary
    
    
    
    
    
    
    
    
    
    Price in
    
    Price in USD
    
    
    
    ChargeShares
    
    Shares
    
    
    
    
    
    Number of
    
    Euros
    
    (2)
    
    
    
    Share
    
    
    
    TotalName
    
    Owned
    
    Outstanding
    
    Warrants
    
    Options
    
    
    
    $
    
    Expiration
    
    Awards
    
    
    Total
    
    %Bourboulou
    
    
    

    
    
    0,00
    %
    




    
    50 000
    
    
    
    13,08
    
    

    17,49
    

    May 201520 000
    
    
    
    12,86
    
    

    15,83
    

    September 20156 500
    
    
    
    25,39
    
    

    33,46
    

    December 2016
    
    5 000
    
    
    81 500
    
    0,29
    %Capelle
    
    
    

    
    
    0,00
    %
    




    
    25 000
    
    
    
    13,97
    
    

    17,65
    

    June 20163 750
    
    
    
    25,39
    
    

    33,46
    

    December 2016
    
    2 800
    
    
    31 550
    
    0,11
    %Castan
    
    
    

    
    
    0,00
    %
    




    
    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
    
    4 500
    
    
    98 500
    
    0,35
    %Chan
    
    
    

    
    
    0,00
    %
    




    
    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
    
    3 300
    
    
    52 800
    
    0,19
    %Crouzet
    
    
    

    
    
    0,00
    %
    




    
    50 000
    
    
    
    12,86
    
    

    15,83
    

    September 20155 000
    
    
    
    16,23
    
    
    
    19,35
    
    
    December 20153 750
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    2 800
    
    
    61 550
    
    0,22
    %Finance
    
    
    
    
    
    
    
    
    




    
    200 000
    
    
    
    12,86
    
    
    
    15,83
    
    
    September 201520 000
    
    
    
    16,23
    
    
    
    19,35
    
    
    December 201530 000
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    2 500
    
    
    252 500
    
    0,89
    %Francis
    
    
    
    
    
    
    0,00
    %
    




    
    100 000
    
    
    
    11,42
    
    
    
    15,24
    
    
    March 201530 000
    
    
    
    12,86
    
    
    
    15,83
    
    
    September 201520 000
    
    
    
    16,23
    
    
    
    19,35
    
    
    December 2015
    
    
    
    
    150 000
    
    0,53
    %Hanras
    
    
    
    
    
    
    0,00
    %
    




    
    5 000
    
    
    
    9,88
    
    
    
    11,66
    
    
    June 201340 000
    
    
    
    20,81
    
    
    
    25,27
    
    
    December 2013
    
    
    
    
    45 000
    
    0,16
    %Jorda
    
    
    369
    
    
    
    0,00
    %
    




    
    50 000
    
    
    
    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 2016
    
    5 000
    
    
    360 369
    
    1,27
    %Kalita
    
    
    
    
    
    
    0,00
    %
    




    
    50 000
    
    
    
    16,23
    
    
    
    19,35
    
    
    December 20156 500
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    5 000
    
    
    61 500
    
    0,22
    %Kravtzoff
    
    
    400
    
    
    
    0,00
    %
    




    
    40 000
    
    
    
    1,36
    
    
    
    1,34
    
    
    June 20125 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
    
    3 300
    
    
    103 200
    
    0,36
    %Lundstrom
    
    
    
    
    
    
    0,00
    %
    




    
    100 000
    
    
    
    16,56
    
    
    
    20,40
    
    
    June 2016
    
    
    
    
    100 000
    
    0,35
    %Meyrueix
    
    
    125
    
    
    
    0,00
    %
    




    
    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
    
    5 400
    
    
    187 775
    
    0,66
    %
 46




---



##### 



Exercise
    
    Exercise
    
    
    
    Free of% of Ordinary
    
    
    
    
    
    
    
    
    
    Price in
    
    Price in USD
    
    
    
    ChargeShares
    
    Shares
    
    
    
    
    
    Number of
    
    Euros
    
    (2)
    
    
    
    Share
    
    
    
    
    
    TotalName
    
    Owned
    
    Outstanding
    
    Warrants
    
    Options
    
    
    
    $
    
    Expiration
    
    Awards
    
    Total
    
    %Mosseri-Marlio
    
    
    
    
    
    
    0,00
    %
    
    
    
    
    
    
    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
    
    
    1 700
    
    
    
    68 950
    
    
    
    0,24
    %Portella
    
    
    
    
    
    
    0,00
    %
    
    
    
    
    
    
    2 750
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    
    2 000
    
    
    
    4 750
    
    
    
    0,02
    %Weber
    
    
    
    
    
    
    0,00
    %
    
    
    
    
    
    
    50 000
    
    
    
    12,02
    
    
    
    14,81
    
    
    September 20142 750
    
    
    
    25,39
    
    
    
    33,46
    
    
    December 2016
    
    
    2 000
    
    
    
    54 750
    
    
    
    0,19
    %
 ITEM 7. Major Shareholders and Related Party Transactions
 Major Shareholders
  Amount of Ordinary
    
    PercentageIdentity of Person or Group
    
    Shares Owned
    
    of ClassO.S.S. Capital Management LP
    
    
    5,666,047
    (1)
    
    
    23.60
    %Knoll Capital Management, LP
    
    
    2,111,438
    (2)
    
    
    8.80
    %Greenlight Capital Management
    
    
    1,547,045
    (3)
    
    
    6.44
    %Glenhill Advisors, LLC
    
    
    1,193,832
    (4)
    
    
    4.97
    %
 
 (1)
    
    Based solely on a review of a Schedule 13D/A filed on April 5, 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 12.0% of the Ordinary Shares with O.S.S.
Overseas Fund Ltd.; in respect of 10.8% of the Ordinary Shares with
O.S.S. Advisors Ltd; and in respect of 9.9% of the Ordinary Shares
with Oscar S. Schafer & Partners II LP. Percentages are calculated
using the total number of shares outstanding as of April 20, 2007.(2)
    
    Based solely on a review of a Schedule 13G/A filed on February 14,
2007, Knoll Capital Management, LP shares beneficial ownership over
the Ordinary Shares it owns with Fred Knoll. Percentages are
calculated using the total number of shares outstanding as of April
20, 2007.(3)
    
    Based solely on a review of a Schedule 13G/A filed on July 18, 2005,
Greenlight Capital, LLC shares beneficial ownership over the Ordinary
Shares it owns with David Einhorn. Percentages are calculated using
the total number of shares outstanding as of April 20, 2007.(4)
    
    Based solely on a review of a Schedule 13G/A filed on February 14,
2007, Glenhill Advisors, LLC shares beneficial ownership over the
Ordinary Shares it owns with Glenn Krevlin and Glenhill Capital
Management LLC. Percentages are calculated using the total number of
shares outstanding as of April 20, 2007.  47




---



##### 



-
    
    The share ownership of O.S.S. Capital Management LP, Schafer Brothers LLC and Oscar S.
Schafer increased from approximately 3.10% as reported on January 28, 2004 to approximately
5.40% as reported on July 22, 2004 and approximately 7.80% as reported on February 11,
2005, then increased further to approximately 9.70% as reported on April 18, 2005; to
approximately 11.9% as reported on May 11, 2005; to approximately 12.3% as reported on May
12, 2005; it decreased on a percentage basis to 11.7% as reported on June 23, 2005 (the
actual number of shares owned increased); it increased further to 13.0% as reported on
September 9, 2006; further increased to 15.4% as reported on January 13, 2006 and then
increased further to [17.60%] on February 14, 2007.-
    
    The share ownership of Knoll Capital Management, LP and Fred Knoll increased from 6.8%
as reported on April 8, 2004 to 7.8% as reported on April 20, 2005 and further increased to
8.5% as reported on February 9, 2006.-
    
    The share ownership of BVF Inc. and BVF Partners L.P. decreased from approximately
12.18% as reported on April 9, 2004 to approximately 5.66% as reported on September 26,
2004; it increased to approximately 10.31% as reported on February 14, 2005 and increased
further to 11.41% as of April 21, 2005; it decreased to approximately 9.5% as reported on
July 22, 2005, decreased further to 8.1% as reported on January 13, 2006, decreased further
to 6.7% as reported on April 25, 2006, decreased further to 5.5% as reported on September
18, 2006 and decreased further to 4.9% on October 16, 2006.-
    
    The share ownership of Glenhill Advisors and Glen Krevlin declined from 5.01% as
reported on January 26, 2005 to 4.92% as reported on January 13, 2006.
 Related Party Transactions
  ITEM 8. Financial Information
 Financial Statements
  Legal Proceedings
   Dividend Policy
  48




---



##### 



ITEM 9. The Offer and Listing
   Price Per ADS (U.S.$)Year
    
    High
    
    Low2002
    
    
    4.85
    
    
    
    1.222003
    
    
    42.85
    
    
    
    3.742004
    
    
    31.73
    
    
    
    14.672005
    
    
    21.37
    
    
    
    12.252006
    
    
    34.88
    
    
    
    16.7
 Price Per ADS (U.S.$)Quarter Ended
    
    High
    
    Low1st Quarter, 2004
    
    
    31.73
    
    
    
    23.262ndQuarter, 2004
    
    
    30.78
    
    
    
    23.273rd Quarter, 2004
    
    
    25.51
    
    
    
    14.674th Quarter, 2004
    
    
    21.46
    
    
    
    14.861st Quarter, 2005
    
    
    19.65
    
    
    
    12.822nd Quarter, 2005
    
    
    12.25
    
    
    
    21.373rd Quarter, 2005
    
    
    20.45
    
    
    
    14.904th Quarter, 2005
    
    
    19.77
    
    
    
    17.221st Quarter, 2006
    
    
    24.40
    
    
    
    18.502ndQuarter, 2006
    
    
    21.37
    
    
    
    17.373rd Quarter, 2006
    
    
    18.75
    
    
    
    16.74th Quarter, 2006
    
    
    34.88
    
    
    
    18.371st Quarter 2007
    
    
    36.97
    
    
    
    25.6
 Price Per ADS (U.S.$)Month Ended
    
    High
    
    LowMarch 31, 2007
    
    
    30.9
    
    
    
    25.6February 28, 2007
    
    
    36.97
    
    
    
    31.41January 31, 2007
    
    
    35.79
    
    
    
    31.2December 31, 2006
    
    
    34.88
    
    
    
    27.9November 30, 2006
    
    
    29.21
    
    
    
    25.24October 31, 2006
    
    
    24.82
    
    
    
    18.37
 ITEM 10. Additional Information
 Exemptions from certain NASDAQ Corporate Governance Rules
  49




---



##### 



Memorandum and Articles of Association
  Ownership of Shares by Non-European Union Persons
    Material Contracts
  Exchange Controls
  Taxation
 Tax Consequences to Non-U.S. Holders
  50




---



##### 



Taxation on Sale or Disposal of Flamel Ordinary Shares
  
    
    the holder is not a French resident for French tax purposes; and
    
    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.
   
 Taxation of Dividends
  avoir fiscal
 avoir fiscal crédit dimpôt  
   51




---



##### 



avoir fiscal crédit dimpôt  
 crédit dimpôt avoir fiscal
 Australia
    
    Ghana
    
    Malaysia
    
    Pakistan
    
    United StatesAustria
    
    Iceland
    
    Mali
    
    Senegal
    
    UkraineBelgium
    
    India
    
    Malta
    
    Singapore
    
    VenezuelaBolivia
    
    Israel
    
    Mauritius
    
    South KoreaBrazil
    
    Italy
    
    Mexico
    
    SpainBurkina Faso
    
    Ivory Coast
    
    Namibia
    
    SwedenCanada
    
    Japan
    
    Netherlands
    
    Switzerland
    
    MayotteEstonia
    
    Latvia
    
    New Zealand
    
    Togo New
    
    CaledoniaFinland
    
    Lithuania
    
    Niger
    
    Turkey
    
    Saint-Pierre et MiquelonGabon
    
    Luxembourg
    
    Norway
    
    United Kingdom
  Estate and Gift Tax
   Wealth Tax
 impôt de solidarité sur la fortune
  Tax Consequences to U.S. Holders
  52




---



##### 




    
    the U.S. Holder owns, directly or indirectly, less than 10% of Flamels share
capital;
    
    the U.S. Holder is entitled to the benefits of the U.S.-France tax treaty under
the limitations on benefits article of that treaty;
    
    the U.S. Holder holds Flamel Shares as capital assets; and
    
    the U.S. Holders functional currency is the U.S. dollar.
    Taxation of Dividends
 Withholding Tax
   53




---



##### 



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 U.S.-France tax 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 U.S.-France tax 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.
 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 Shares. 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 Shares.
    
    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
 54




---



##### 



Taxation of Capital Gains
 French Tax.
 U.S. Income Tax.
  
    
    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
  55




---



##### 



Documents on Display
 www.sec.gov
 ITEM 11. Quantitative and Qualitative Disclosures About Market Risk
  ITEM 12. Description of Securities Other Than Equity Securities
  56




---



##### 



PART II
 ITEM 13. Defaults, Dividend Arrearages and Delinquencies
  ITEM 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
  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
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.
   57




---



##### 



ITEM 16. [Reserved]
     ITEM 16C. Principal Accountant Fees and Services
  Fiscal 2006 Fees
    
    Fiscal 2005 FeesFee Category
    
    (Euros)
    
    (Euros)Audit
    
    
    158,300
    
    
    
    198,250Audit-Related Fees
    
    
    133,525
    
    
    
    0Tax Fees
    
    
    38,090
    
    
    
    0All Other Fees
    
    
    0
    
    
    
    0Total Fees
    
    
    329,915
    
    
    
    198,250
 All fees were billed in Euros. Using the average exchange rate of 1.25567 U.S dollars per Euro for
2006 and 1.24478 U.S dollars per Euro for 2005, audit fees equaled $414,264 for Fiscal 2006 and
$246,779 for Fiscal 2005.
 Audit Fees.
 Audit-Related Fees.
 Tax Fees.
 All Other Fees.
 58




---



##### 



Audit Committees Pre-Approval Policies and Procedures
    
 ITEM 16D. Exemptions from the Listing Standards for Audit Committees
  ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 .
 59




---



##### 



PART III
 ITEM 17. Financial Statements
  ITEM 18. Financial Statements
  Report of independent registered public accounting firm
    
    F-2Consolidated Balance Sheets as of December 31, 2005 and 2006
    
    F-3Consolidated Statement of Operations for the Years Ended December 31,
2004 ,2005 and 2006
    
    F-4Consolidated Statements of Shareholders Equity for the Years Ended
December 31, 2004, 2005 and 2006
    
    F-5Consolidated Statements of Cash Flows for the Years Ended December 31,
2004 ,2005 and 2006
    
    F-6Notes to Consolidated Financial Statements
    
    F-7See pages F-1 through F-34
 ITEM 19. Exhibits
 EXHIBIT INDEX
 ExhibitNumber
    
    Description1.1
    
    Revised Statutsor charter of the Company.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 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 Executive Vice President and Chief 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 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 Executive Vice President and Chief Financial
Officer pursuant to USC Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)23
    
    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 filed on April 26, 2004.
The registrant undertakes to provide to each shareholder requesting the same a copy of each exhibit
referred to herein upon payment of a reasonable fee limited to the registrants reasonable expenses
in furnishing such exhibit. 60




---



##### 



FLAMEL TECHNOLOGIES S.A.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets as of December 31, 2005 and 2006
    
    F-3Consolidated Statements of Operations for the Years Ended
December 31, 2004, 2005, and 2006
    
    F-4Consolidated Statements of Shareholders Equity for the
Years Ended December 31, 2004, 2005 and 2006
    
    F-5Consolidated Statements of Cash flows for the Years Ended
December 31, 2004, 2005, and 2006
    
    F-6Notes to Consolidated Financial Statements
    
    F-7
 F-1




---



##### 



REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
         F-2




---



##### 



FLAMEL TECHNOLOGIES S.A.
 CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of dollars except share data)
 December 31,Note
    
    
    2005
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    
    6
    
    
    $
    $1,018
    
    
    $
    51,827Marketable securities
    
    
    7
    
    
    
    82,756
    
    
    
    10,944Accounts receivable (net of allowance of $489 and $113 at
December 31,
2005 and 2006 respectively)
    
    
    
    
    
    
    2,583
    
    
    
    5,583Inventory
    
    
    8
    
    
    
    1,050
    
    
    
    3,332Research and development tax credit receivable current
portion
    
    
    18
    
    
    
    708
    
    
    
    615Prepaid expenses and other current assets
    
    
    9
    
    
    
    3,873
    
    
    
    4,478Total current assets
    
    
    
    
    
    
    91,988
    
    
    
    76,779Property and equipment, net
    
    
    10
    
    
    
    22,317
    
    
    
    25,705Other assets:Research and development tax credit receivable less current
portion
    
    
    18
    
    
    
    8,950
    
    
    
    11,599Other long-term assets
    
    
    
    
    
    
    1,096
    
    
    
    811Total assets
    
    
    
    
    
    $
    $124,351
    
    
    $
    114,894LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    
    14
    
    
    $
    449
    
    
    
    Current portion of capital lease obligations
    
    
    15
    
    
    
    379
    
    
    
    420Accounts payable
    
    
    
    
    
    
    11,497
    
    
    
    9,702Current portion of deferred revenue
    
    
    13
    
    
    
    182
    
    
    
    562Advances from customers
    
    
    
    
    
    
    385
    
    
    
    394Accrued expenses
    
    
    11
    
    
    
    4,457
    
    
    
    5,505Other current liabilities
    
    
    12
    
    
    
    7,547
    
    
    
    4,731Total current liabilities
    
    
    
    
    
    
    24,896
    
    
    
    21,314Long-term debt, less current portion
    
    
    14
    
    
    
    2,333
    
    
    
    2,795Capital lease obligations, less current portion
    
    
    15
    
    
    
    630
    
    
    
    272Deferred revenue, less current portion
    
    
    13
    
    
    
    
    
    
    
    50Other long-term liabilities
    
    
    12 - 19
    
    
    
    9,838
    
    
    
    17,437Total long-term liabilities
    
    
    
    
    
    
    12,801
    
    
    
    20,554Commitments and contingencies:
    
    
    
    
    
    
    
    
    
    
    Shareholders equity :
    
    
    17Ordinary shares: 23,706,590 issued and outstanding at
December 31, 2005
and 23,990,590 at December 31, 2006 (nominal value 0.122
euro )
    
    
    
    
    
    
    3,436
    
    
    
    3,480Additional paid-in capital
    
    
    
    
    
    
    161,120
    
    
    
    173,479Accumulated deficit
    
    
    
    
    
    
    (75,183
    )
    
    
    (110,384
    )Accumulated other comprehensive income
    
    
    
    
    
    
    (2,719
    )
    
    
    6,451Total shareholders equity
    
    
    
    
    
    
    86,654
    
    
    
    73,026Total liabilities and shareholders equity
    
    
    
    
    
    $
    $124,351
    
    
    $
    114,894
  F-3




---



##### 



FLAMEL TECHNOLOGIES S.A.
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands of dollars except share data)
 Note
    
    
    2004
    
    
    2005
    
    
    2006Revenue:License and research revenue
    
    
    3
    
    
    $
    50,893
    
    
    $
    20,825
    
    
    $
    20,263Product sales and services
    
    
    2
    
    
    
    3,755
    
    
    
    1,757
    
    
    
    2,083Other revenues
    
    
    
    
    
    
    762
    
    
    
    1,016
    
    
    
    674Total revenue
    
    
    
    
    
    
    55,410
    
    
    
    23,598
    
    
    
    23,020Costs and expenses:Cost of products and services sold
    
    
    
    
    
    
    (3,602
    )
    
    
    (2,525
    )
    
    
    (6,250
    )Research and development
    
    
    
    
    
    
    (35,359
    )
    
    
    (47,301
    )
    
    
    (38,233
    )Selling, general and administrative
    
    
    
    
    
    
    (7,614
    )
    
    
    (14,541
    )
    
    
    (17,375
    )Total
    
    
    
    
    
    
    (46,575
    )
    
    
    (64,367
    )
    
    
    (61,858
    )Income (loss) from operations
    
    
    
    
    
    
    8,835
    
    
    
    (40,769
    )
    
    
    (38,838
    )Interest expense
    
    
    
    
    
    
    (45
    )
    
    
    (68
    )
    
    
    (35
    )Interest income
    
    
    
    
    
    
    652
    
    
    
    3,671
    
    
    
    2,022Foreign exchange gain (loss)
    
    
    
    
    
    
    (244
    )
    
    
    500
    
    
    
    (599
    )Other income
    
    
    5
    
    
    
    100
    
    
    
    5,003
    
    
    
    131Income (loss) before income taxes
    
    
    
    
    
    
    9,298
    
    
    
    (31,663
    )
    
    
    (37,319
    )Income tax benefit
    
    
    18
    
    
    
    3,201
    
    
    
    4,286
    
    
    
    2,118Net income (loss)
    
    
    
    
    
    $
    12,499
    
    
    
    ($27,377
    )
    
    
    ($35,201
    )Earnings (loss) per shareBasic earnings (loss) per share
    
    
    
    
    
    $
    0.58
    
    
    
    ($1.19
    )
    
    
    ($1.48
    )Diluted earnings (loss) per share
    
    
    16
    
    
    $
    0.53
    
    
    
    ($1.19
    )
    
    
    ($1.48
    )Weighted average number of shares outstanding (in thousands) :Basic
    
    
    
    
    
    
    21,514
    
    
    
    22,999
    
    
    
    23,812Diluted
    
    
    
    
    
    
    23,559
    
    
    
    22,999
    
    
    
    23,812
  F-4




---



##### 



FLAMEL TECHNOLOGIES S.A.
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
(Amounts in thousands of dollars except share data)
 AccumulatedOtherAdditional
    
    
    
    
    
    
    Deferred
    
    
    Comprehen-Ordinary Shares
    
    
    Paid-in
    
    
    Accumulated
    
    
    Compen-
    
    
    sive Income
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    sation
    
    
    (Loss)
    
    
    EquityBalance at January 1, 2004
    
    
    21,391,590
    
    
    $
    3,081
    
    
    $
    147,679
    
    
    
    ($60,305
    )
    
    
    ($2,388
    )
    
    $
    3,994
    
    
    $
    92,061Issuance of ordinary shares on
exercise
of stock-options
    
    
    360,000
    
    
    
    54
    
    
    
    710
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    764Amort. deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,266
    
    
    
    
    
    
    
    1,266Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,499
    
    
    
    
    
    
    
    
    
    
    
    12,499Unrealized gains on securities
available-for-sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,408
    
    
    
    1,408Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,759
    
    
    
    8,759Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,666Balance at December 31, 2004
    
    
    21,751,590
    
    
    $
    3,135
    
    
    $
    148,389
    
    
    
    ($47,806
    )
    
    
    ($1,122
    )
    
    $
    14,161
    
    
    $
    116,757Issuance of ordinary shares on
exercise
of warrants
    
    
    1,125,000
    
    
    
    180
    
    
    
    9,196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,376Issuance of ordinary shares on
exercise
of stock -options
    
    
    830,000
    
    
    
    121
    
    
    
    4,148
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,269Compensation on warrants
granted to
non employees
    
    
    
    
    
    
    
    
    
    
    207
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    207Amort. deferred compensation
    
    
    
    
    
    
    
    
    
    
    (820
    )
    
    
    
    
    
    
    1,122
    
    
    
    
    
    
    
    302Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,377
    )
    
    
    
    
    
    
    
    
    
    
    (27,377
    )Unrealized gains (loss) on
available-
for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,887
    )
    
    
    (1,887
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,993
    )
    
    
    (14,993
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ($44,257
    )Balance at December 31, 2005
    
    
    23,706,590
    
    
    $
    3,436
    
    
    $
    161,120
    
    
    
    ($75,183
    )
    
    $
    0
    
    
    
    ($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
expense9,787
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    )
    
    $
    0
    
    
    $
    6,451
    
    
    $
    73,026
  F-5




---



##### 



CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Amounts in thousands of dollars except share data)
 Year ended December 31,2004
    
    
    2005
    
    
    2006Cash flows from operating activities:Net income (loss)
    
    
    12,499
    
    
    
    ($27,377
    )
    
    
    ($35,201
    )Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:Depreciation of property and equipment
    
    
    2,530
    
    
    
    4,743
    
    
    
    5,639Loss (gain) on disposal of property and equipment
    
    
    4
    
    
    
    (93
    )
    
    
    (92
    )Gains on sales of marketable securities
    
    
    (642
    )
    
    
    (3,650
    )
    
    
    (1,336
    )Grants recognized in other income
    
    
    
    
    
    
    
    
    
    
    (183
    )Stock compensation expense
    
    
    1,389
    
    
    
    546
    
    
    
    9,989Provision for losses on accounts receivable
    
    
    216
    
    
    
    
    
    
    
    15Increase (decrease) in cash from:Accounts receivable
    
    
    532
    
    
    
    4,771
    
    
    
    (2,589
    )Inventory
    
    
    (419
    )
    
    
    351
    
    
    
    (2,059
    )Prepaid expenses and other current assets
    
    
    (3,443
    )
    
    
    1,029
    
    
    
    (146
    )Research and development tax credit receivable
    
    
    (4,636
    )
    
    
    (4,221
    )
    
    
    (1,365
    )Accounts payable
    
    
    4,490
    
    
    
    3,303
    
    
    
    (2,987
    )Deferred revenue
    
    
    (20,358
    )
    
    
    (2,905
    )
    
    
    390Accrued expenses
    
    
    2,068
    
    
    
    813
    
    
    
    387Other current liabilities
    
    
    1,451
    
    
    
    3,411
    
    
    
    (1,466
    )Other long-term assets and liabilities
    
    
    169
    
    
    
    (110
    )
    
    
    1,178Net cash provided by (used in) operating activities
    
    
    (4,150
    )
    
    
    (19,389
    )
    
    
    (29,826
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (13,837
    )
    
    
    (11,326
    )
    
    
    (6,394
    )Proceeds from disposal of property and equipment
    
    
    543
    
    
    
    154
    
    
    
    92Proceeds from sales of marketable securities
    
    
    37,945
    
    
    
    431,055
    
    
    
    262,584Purchase of marketable securities
    
    
    (22,573
    )
    
    
    (424,383
    )
    
    
    (183,614
    )Net cash provided by (used in) investing activities
    
    
    2,078
    
    
    
    (4,500
    )
    
    
    72,668Cash flows from financing activities:Funding from partner GSK
    
    
    6,353
    
    
    
    12,311
    
    
    
    5,023Use of funds received from partners (GSK) or relating to conditional grants
    
    
    (2,475
    )
    
    
    (7,951
    )
    
    
    (2,087
    )Proceeds from loans or conditional grants
    
    
    833
    
    
    
    3,470
    
    
    
    347Principal payments on capital lease obligations
    
    
    (389
    )
    
    
    (397
    )
    
    
    (419
    )Cash proceeds from issuance of ordinary shares and warrants
    
    
    764
    
    
    
    13,646
    
    
    
    2,617Net cash provided by (used in) financing activities
    
    
    5,086
    
    
    
    21,079
    
    
    
    5,481Effect of exchange rate changes on cash and cash equivalents
    
    
    378
    
    
    
    (763
    )
    
    
    2,486Net increase (decrease) in cash and cash equivalents
    
    
    3,392
    
    
    
    (3,573
    )
    
    
    50,809Cash and cash equivalents, beginning of year
    
    
    1,199
    
    
    
    4,591
    
    
    
    1,018Cash and cash equivalents, end of year
    
    $
    4,591
    
    
    $
    1,018
    
    
    $
    51,827Supplemental disclosures of cash flow information:Income tax paid
    
    
    10
    
    
    
    23
    
    
    
    Interest paid
    
    
    45
    
    
    
    68
    
    
    
    35Non cash transactions:Capital lease obligations incurred
    
    
    800
    
    
    
    339
    
    
    
    
  F-6




---



##### 



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:
   F-7




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    1.5. Government Grants:
  1.6. Research and development costs:
   1.7. Concentration of credit risk:
     F-8




---



##### 



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:
  F-9




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 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
  1.14. Impairment of Long-Lived Assets:
  1.15. Income taxes:
  1.16 . Employee stock options and warrants:
  F-10




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
  1.17. Comprehensive Income:
  1.18. Recent Accounting Pronouncements:
      F-11




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2. Subcontracting agreement:
   3. License, research and consulting agreements:
 TAP Pharmaceutical Products Inc.
 ®
       F-12




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    SB PharmA Puerto Rico Inc. (GSK)
 ®
       F-13




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Biovail
    Servier
  Corning
  F-14




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Others
  4. Stock based compensation:
 4.1 Adoption of SFAS 123R
 st
 Weighted-average expected life (years)
    
    
    4.36Expected volatility rate
    
    
    52.5
    %Expected dividend yield
    
    
    Risk-free interest rate
    
    
    4.66
    %Forfeiture rate
    
    
    5
    %
  F-15




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  2006Free ofcharge share(In thousands of U.S dollars except per share data)
    
    Options
    
    
    awards
    
    
    Warrants
    
    
    TotalResearch and development
    
    
    3,662
    
    
    
    56
    
    
    
    203
    
    
    
    3,921Cost of goods sold
    
    
    144
    
    
    
    10
    
    
    
    0
    
    
    
    154Selling, general and administrative
    
    
    3,581
    
    
    
    13
    
    
    
    2,319
    
    
    
    5,914Total stock-based compensation expense
    
    
    7,387
    
    
    
    79
    
    
    
    2,522
    
    
    
    9,989Effect on earnings per shareBasic
    
    
    0.31
    
    
    
    0.00
    
    
    
    0.11
    
    
    
    0.42Diluted
    
    
    0.31
    
    
    
    0.00
    
    
    
    0.11
    
    
    
    0.42
 4.2 Proforma information for periods prior to adoption of SFAS 123R
  Year Ended December 31,(In thousands of U.S. dollars except share data)
    
    2004
    
    
    2005Net income (loss), as reported
    
    
    12,499
    
    
    
    (27,377
    )Add:
Stock-based employee compensation expense included in reported net income (loss), net of
related tax effects
    
    
    1,619
    
    
    
    335Deduct:
Total stock-based employee compensation expense determined under fair value based method
for all awards, net of related tax effects
    
    
    (7,254
    )
    
    
    (2,220
    )Pro forma net income (loss)
    
    
    6,864
    
    
    
    (29,262
    )
 Year Ended December 31(In thousands of U.S. dollars except share data)
    
    2004
    
    
    2005Earnings per share:Basic, as reported
    
    
    0.58
    
    
    
    (1.19
    )Basic, pro forma
    
    
    0.31
    
    
    
    (1.27
    )Diluted, as reported
    
    
    0.53
    
    
    
    (1.19
    )Diluted, pro forma
    
    
    0.28
    
    
    
    (1.27
    )
 F-16




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Year Ended December 312004
    
    2005
    
    2006Weighted avg.
    
    Weighted avg.
    
    Weighted avg.
    
    Weighted avg.
    
    Weighted avg.
    
    Weighted avg.(In U.S. dollars)
    
    Fair value1
    
    Exer. Price1
    
    Fair value1
    
    Exer. Price1
    
    Fair value1
    
    Exer. Price1Options or warrants whose price equaled market
price of the underlying shares on the date of
grant
    
    
    10.96
    
    
    
    12.83
    
    
    
    9.61
    
    
    
    16.82
    
    
    
    14.39
    
    
    
    25.67Options or warrants whose price was less than
the market price of the underlying shares on the
date of grant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options or warrants whose price was more than
the market price of the underlying shares on the
date of grant
    
    
    13.38
    
    
    
    20.43
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 [1] Historical exchange rate at date of grant
 4.3 Warrants
  Weighted Average
    
    
    Weighted AverageWarrants
    
    
    Exercise Price in U.S
    
    
    Exercise Price inOutstanding
    
    
    dollars [1]
    
    
    EurosBalance at January 1, 2004
    
    
    1,195,000
    
    
    $
    6.55
    
    
    
    6.52Warrants granted
    
    
    80,000
    
    
    $
    26.27
    
    
    
    21.73Balance at December 31, 2004
    
    
    1,275,000
    
    
    $
    7.79
    
    
    
    7.47Warrants granted
    
    
    40,000
    
    
    $
    16.18
    
    
    
    12.34Warrants exercised
    
    
    1,125,000
    
    
    $
    6.34
    
    
    
    6.37Warrants cancelled
    
    
    150,000
    
    
    $
    18.68
    
    
    
    15.70Balance at December 31, 2005
    
    
    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
    
    
    
    15.53
 
  F-17




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Warrants Outstanding
    
    Warrants ExercisableWeighted
    
    Weighted
    
    
    
    
    
    WeightedRange of
    
    
    
    
    
    average
    
    average
    
    
    
    
    
    averageexercise prices
    

Number of
    

remaining
    

exercise price
    

Number of
    

exercise pricein euros
    
    shares
    
    contractual life
    
    in euros
    
    shares
    
    in euros0 to 12.34
    
    
    33,000
    
    
    
    3.01
    
    
    
    12.34
    
    
    
    13,000
    
    
    
    12.3414.60 to 14.91
    
    
    275,750
    
    
    
    2.12
    
    
    
    14.77
    
    
    
    150,750
    
    
    
    14.9120.07
    
    
    69,250
    
    
    
    2.17
    
    
    
    20.07
    
    
    
    
    
    
    
 4.4 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, 2004
    
    
    772,500
    
    
    
    3,220,000
    
    
    $
    8.65
    
    
    
    7.68Granted
    
    
    (926,500
    )
    
    
    926,500
    
    
    $
    20.75
    
    
    
    16.15Exercised
    
    
    
    
    
    
    (360,000
    )
    
    $
    1.55
    
    
    
    1.72Forfeited
    
    
    203,000
    
    
    
    (203,000
    )
    
    $
    25.27
    
    
    
    20.81Balance at December 31, 2004
    
    
    49,000
    
    
    
    3,583,500
    
    
    $
    11.55
    
    
    
    9.72Options authorized
    
    
    1,500,000Granted
    
    
    (1,545,500
    )
    
    
    1,545,500
    
    
    $
    16.83
    
    
    
    13.64Exercised
    
    
    
    
    
    
    (830,000
    )
    
    $
    4.12
    
    
    
    4.26Forfeited
    
    
    794,000
    
    
    
    (874,000
    )
    
    $
    19.60
    
    
    
    15.69Balance at December 31, 2005
    
    
    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
    
    
    
    13.18
 
 [1] Historical exchange rate at date of grant
 F-18




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Stock Options Outstanding
    

Stock Options ExercisableWeighted
    
    Weighted
    
    
    
    
    
    Weightedaverage
    
    average
    
    
    
    
    
    averageRange of exercise
    

Number of
    

remaining
    

exercise price
    

Number of
    

exercise priceprices in euros
    
    shares
    
    contractual life
    
    in euros
    
    shares
    
    in euros0 to 1.36
    
    
    108,000
    
    
    
    5.01
    
    
    
    1.19
    
    
    
    108,000
    
    
    
    1.192.33 to 2.77
    
    
    285,000
    
    
    
    5.12
    
    
    
    2.47
    
    
    
    285,000
    
    
    
    2.474.11 to 4.86
    
    
    305,000
    
    
    
    5.77
    
    
    
    4.35
    
    
    
    305,000
    
    
    
    4.356.40 to 7.58
    
    
    125,000
    
    
    
    3.89
    
    
    
    6.78
    
    
    
    125,000
    
    
    
    6.789.88 to 12.02
    
    
    325,000
    
    
    
    7.75
    
    
    
    11.19
    
    
    
    145,000
    
    
    
    10.7812.86 to 16.23
    
    
    1,684,000
    
    
    
    8.70
    
    
    
    14.32
    
    
    
    501,250
    
    
    
    14.2019.2 to 25.39
    
    
    697,250
    
    
    
    8.46
    
    
    
    22.61
    
    
    
    185,000
    
    
    
    20.573,529,250
    
    
    
    7.74
    
    
    
    13.18
    
    
    
    1,654,250
    
    
    
    9.37
 5. Other Income:
  6. Cash and Cash Equivalents:
  F-19




---



##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  December 31,(In thousands of U.S. dollars)
    
    2005
    
    
    2006HSBC
    
    $
    185
    
    
    $
    26,605Credit Lyonnais
    
    
    596
    
    
    
    61Credit Agricole
    
    
    103
    
    
    
    24,883Other
    
    
    134
    
    
    
    278Total cash and cash equivalents
    
    $
    $1,018
    
    
    $
    51,827
  7. Marketable securities:
    Unrealized GainsMarket value
    
    
    Value atcost
    
    
    (Losses)(in thousands of U.S dollars)
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006Credit Agricole securities
    
    
    33,573
    
    
    
    1,520
    
    
    
    33,573
    
    
    
    1,520
    
    
    
    
    
    
    
    Credit Lyonnais securities
    
    
    393
    
    
    
    102
    
    
    
    393
    
    
    
    102
    
    
    
    
    
    
    
    HSBC securities
    
    
    48,790
    
    
    
    2,779
    
    
    
    48,789
    
    
    
    2,779
    
    
    
    1
    
    
    
    Barclays securities
    
    
    
    
    
    
    6,543
    
    
    
    
    
    
    
    6,560
    
    
    
    
    
    
    
    (17
    )Total
    
    
    82,756
    
    
    
    10,944
    
    
    
    82,755
    
    
    
    10,961
    
    
    
    1
    
    
    
    (17
    )
  Proceeds from sales
    
    
    Purchase of securities
    
    
    Gross gains (Losses)(in thousands of U.S dollars)
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006Credit Agricole securities
    
    
    173,063
    
    
    
    104,280
    
    
    
    163,411
    
    
    
    69,494
    
    
    
    1,675
    
    
    
    500Credit Lyonnais securities
    
    
    6,845
    
    
    
    1,615
    
    
    
    6,244
    
    
    
    1,288
    
    
    
    28
    
    
    
    7HSBC securities
    
    
    251,147
    
    
    
    144,147
    
    
    
    254,724
    
    
    
    94,125
    
    
    
    1,947
    
    
    
    740Barclays securities
    
    
    
    
    
    
    12,542
    
    
    
    
    
    
    
    18,707
    
    
    
    
    
    
    
    90Total
    
    
    431,055
    
    
    
    262,584
    
    
    
    424,379
    
    
    
    183,614
    
    
    
    3,650
    
    
    
    1,337
 F-20




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##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 8. Inventory:
  December 31,(In thousands of U.S. dollars)
    
    2005
    
    2006Raw materials
    
    
    1,083
    
    
    
    1,752Finished goods
    
    
    40
    
    
    
    1,752Provision for inventory obsolescence
    
    
    (73
    )
    
    
    (172
    )Inventories, net
    
    
    1,050
    
    
    
    3,332
 9. Prepaid expenses and other current assets
  December 31,(In thousands of U.S. dollars)
    
    2005
    
    2006Prepaid expenses
    
    
    699
    
    
    
    1,427Valued-added tax recoverable
    
    
    2,912
    
    
    
    2,790Advance to suppliers
    
    
    262
    
    
    
    261Total Prepaid expenses and other current assets
    
    
    3,873
    
    
    
    4,478
 10. Property and Equipment:
  December 31,(In thousands of U.S. dollars)
    
    2005
    
    2006Land and buildings
    
    
    105
    
    
    
    5,930Laboratory equipment
    
    
    18,128
    
    
    
    22,231Office and computer equipment
    
    
    2,036
    
    
    
    3,051Furniture, fixtures and fittings
    
    
    9,733
    
    
    
    13,971Construction in progress
    
    
    8,742
    
    
    
    4,312Total property and equipment
    
    
    38,744
    
    
    
    49,495Less accumulated depreciation and amortization
    
    
    (16,427
    )
    
    
    (23,790
    )Property and equipment, net
    
    
    22,317
    
    
    
    25,705
 F-21




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##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     11. Accrued Expenses:
   December 31,(In thousands of U.S. dollars)
    
    2005
    
    2006Accrued compensation
    
    
    2,119
    
    
    
    2,364Accrued social charges
    
    
    2,308
    
    
    
    3,128Other
    
    
    30
    
    
    
    13Total accrued expenses
    
    
    4,457
    
    
    
    5,505
 F-22




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##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 12. Other current and Long Term liabilities:
 12.1. Other current liabilities:
  December 31,(In thousands of U.S. dollars)
    
    2005
    
    2006Advance received from partner GSK
    
    
    1,854
    
    
    
    Funding from partner GSK short term
    
    
    1,042
    
    
    
    925Provision for costs
    
    
    4,400
    
    
    
    2,256Employee service award provision short term
    
    
    172
    
    
    
    549Valued-added tax payable
    
    
    79
    
    
    
    1,001Total Other current liabilities
    
    
    7,547
    
    
    
    4,731
     F-23




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##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 12.2. Other long term liabilities
  December 31,(In thousands of U.S. dollars)
    
    2005
    
    2006Funding from partner GSK long term
    
    
    5,905
    
    
    
    12,375Conditional grants
    
    
    2,072
    
    
    
    2,675Provision for retirement indemnity (see note 19)
    
    
    664
    
    
    
    914Employee service award provision long term
    
    
    807
    
    
    
    976Other
    
    
    390
    
    
    
    497Total Other long term liabilities
    
    
    9,838
    
    
    
    17,437
   13. Deferred Revenue:
  F-24




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##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 14. Long-term Debt:
  December 31,(In thousands of U.S. dollars)
    
    2005
    
    2006Anvar loans (a) :Asacard program
    
    
    809
    
    
    
    853Other programs
    
    
    234
    
    
    
    French Ministry of Industry (b)
    
    
    1,739
    
    
    
    1,942Total
    
    
    2,782
    
    
    
    2,795Current portion
    
    
    449
    
    
    
    Long-term portion
    
    
    2,333
    
    
    
    2,795
    (In thousands of U.S. dollars)
    
    December 31,2007
    
    
    2008
    
    
    6482009
    
    
    2010
    
    
    1412011
    
    
    1,4952012
    
    
    2612013
    
    
    2502,795
 F-25




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##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 15. Capital lease obligations:
   (In thousands of U.S. dollars)
    
    December 31,2007
    
    
    4372008
    
    
    2462009
    
    
    30Total
    
    
    713Less amounts representing interest
    
    
    (21
    )Future payments on capital leases
    
    
    692Less current portion
    
    
    420Long -term portion
    
    
    272
  16. Earnings Per Share:
  Year ended December 31,(In thousands, except per share amounts)
    
    2004
    
    2005
    
    2006Numerator:Net income (loss)
    
    $
    12,499
    
    
    
    ($27,377
    )
    
    
    ($35,201
    )Denominator:Weighted average shares outstanding used for basic earnings (loss) per
share
    
    
    21,513,905
    
    
    
    22,998,504
    
    
    
    23,811,624Effect of dilutive securities:Stock-options and warrants
    
    
    2,045,249
    
    
    
    
    
    
    
    Weighted average shares outstanding and dilutive securities used for
diluted earnings (loss) per share
    
    
    23,559,154
    
    
    
    22,998,504
    
    
    
    23,811,624Basic earnings (loss) per share
    
    $
    0.58
    
    
    
    ($1.19
    )
    
    
    ($1.48
    )Diluted earnings (loss) per share
    
    $
    0.53
    
    
    
    ($1.19
    )
    
    
    ($1.48
    )
  F-26




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##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 17. Shareholders Equity:
 17.1. Preemptive subscription rights:
 pro rata
 17.2. Dividends:
  17.3. Warrants:
   
  
  
 F-27




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##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  
  
   
  
 F-28
       FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   17.4. Stock options:
     17.5 Free of Charge Share Awards
   F-29




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##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 17.6. Accumulated other comprehensive income:
  December 31,(In thousands of U.S. dollars)
    
    2005
    
    2006Unrealized gains (loss) on available-for-sale securities
    
    
    
    
    
    
    (17
    )Foreign currency translation
    
    
    2,719
    
    
    
    6,462Total
    
    
    2,719
    
    
    
    6,445
 18. Income taxes :
  Year ended December 31,(in thousands of dollars)
    
    2004
    
    2005
    
    2006France
    
    $
    9,298
    
    
    
    ($31,663
    )
    
    
    ($37,319
    )
  Year ended December 31,(in thousands of dollars)
    
    2004
    
    2005
    
    2006Income tax benefit (provision) computed at the French statutory rate
    
    
    (3,146
    )
    
    
    10,712
    
    
    
    12,438Operating losses (not utilized )
    
    
    3,146
    
    
    
    (10,712
    )
    
    
    (12,438
    )Withholding tax
    
    
    (1,425
    )
    
    
    89
    
    
    
    Research tax credits
    
    
    4,636
    
    
    
    4,220
    
    
    
    2,118Minimum tax payable
    
    
    (10
    )
    
    
    (23
    )
    
    
    Total
    
    
    3,201
    
    
    
    4,286
    
    
    
    2,118
  F-30
       FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   December 31,(In thousands of U.S. dollars)
    
    2005
    
    
    2006Deferred income tax assets:Net french taxable operating loss carry-forwards (not utilized)
    
    
    19,210
    
    
    
    29,866Other deferred income tax assets
    
    
    1,276
    
    
    
    2,656Valuation allowance
    
    
    (20,486
    )
    
    
    (32,522
    )Net deferred income tax assets
    
    
    14
    
    
    
    97Deferred income tax liabilities
    
    
    (14
    )
    
    
    (97
    )Deferred income taxes, net
    
    
    
    
    
    
    
    (In thousands of U.S. dollars)
    
    December 31,2007
    
    
    615Total current portion
    
    
    6152008
    
    
    4,9112009
    
    
    4,4662010
    
    
    2,222Total long term portion
    
    
    11,599TOTAL
    
    
    12,214
 19. Employee Retirement plans:
 F-31
       FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   2004
    
    2005
    
    2006Average increase of salary costs
    
    2%
    
    3%
    
    3%Discounted interest rate
    
    5%
    
    4%
    
    4.5%Employee turnover
    
    average of the last 4 years
    
    average of the last 4 years
    
    average of the last 4 yearsAge of retirement
    
    65 years
    
    65 years
    
    65 years
  20. Fair value of financial instruments:
  .
 21. Commitments and Contingencies:
 21.1. Capital leases
 F-32
       FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 21.2. Operating leases
  (In thousands of U.S. dollars)
    
    December 31,2007
    
    
    8932008
    
    
    8632009
    
    
    6702010
    
    
    6242011
    
    
    575Thereafter
    
    
    1,305TOTAL
    
    
    4,930
  21.3. Litigation
  21.4 Other commitments
  F-33




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##### 



FLAMEL TECHNOLOGIES S.A
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 22. Industry and geographic information:
    As of December 31,(in thousands)

    
    2004
    
    
    2005
    
    
    2006RevenuesUSA
    
    $
    48,302
    
    
    $
    18,972
    
    
    $
    16,385France
    
    $
    6,095
    
    
    $
    2,773
    
    
    $
    699Other
    
    $
    1,013
    
    
    $
    1,853
    
    
    $
    5,936Total Revenues
    
    $
    55,410
    
    
    $
    23,598
    
    
    $
    23,020
  As of December 31,(in thousands)

    
    2005
    
    
    2006Long-lived assets:USA
    
    $
    39
    
    
    $
    55France
    
    $
    32,325
    
    
    $
    38,060Total long-lived assets
    
    $
    32,363
    
    
    $
    38,115
 F-34




---



##### 



SIGNATURES
  FLAMEL TECHNOLOGIES S.A.(Registrant)Stephen H. WillardChief Executive Officer