Eli Lilly 2005 Annual Report Download - page 15

FI NA NCI A L S
13
REVENUES
($ millions)
Twelve products exceeded $300
million in net revenues during
2005. Five of these products—
Zyprexa, Gemzar, Humalog,
Evista, and Humulin—exceeded
$1 billion in 2005. In addition,
the combined efforts of Lilly and
ICOS generated worldwide
Cialis sales of $747 million.
Zyprexa
Gemzar
Humalog
Evista
Humulin
Cymbalta
Strattera
Actos
Alimta
Prozac/Sarafem/
Prozac Weekly
Humatrope
Forteo
$1,036
$1,005
$680
$552
$493
$463
$453
$414
$389
$4,202
$1,335
$1,198
Review of Operations
EXECUTIVE OVERVIEW
This section provides an overview of our financial re-
sults, product launches and late-stage product pipeline
developments, and legal and governmental matters
affecting our company and the pharmaceutical industry.
Financial Results
We achieved worldwide sales growth of 6 percent, due in
part to the launch in 2004 of five new products as well as
six new indications or formulations for expanded use of
new and existing products in key markets. In addition, we
launched one new product in the U.S. and several new
products, new indications, or new formulations in key
markets in 2005. We continued our substantial invest-
ments in our manufacturing operations and research
and development activities, resulting in cost of products
sold and research and development costs increasing at
rates greater than sales. Despite product launch expen-
ditures, our cost-containment and productivity measures
contributed to marketing and administrative expenses
increasing at a rate less than sales. During 2005, we
began to expense stock options, which had the effect of
increasing our research and development and marketing
and administrative expenses. We also benefited from an
increase in net other income due primarily to increased
profitability of the Lilly ICOS joint venture and a decrease
in the tax rate in 2005. Net income was $1.98 billion, or
$1.81 per share, in 2005 as compared with $1.81 billion,
or $1.66 per share, in 2004, representing an increase
in net income and earnings per share of 9 percent. Net
income comparisons between 2005 and 2004 are also
affected by the impact of the following significant items
that are reflected in our financial results (see Notes 1, 2,
3, 4, 7, 11, and 13 to the consolidated financial statements
for additional information):
2005
• We incurred a charge related to product liability litigation
matters, primarily related to Zyprexa®, of $1.07 billion
(pretax), which decreased earnings per share by $.90 in
the second quarter of 2005 (Notes 4 and 13).
• In 2005, we began to expense stock options in ac-
cordance with SFAS 123(R). Had we expensed stock
options in 2004, our 2004 net income would have been
lower by $266.4 million, which would have decreased
earnings per share by $.24 per share (Notes 1 and 7).
• We recognized asset impairment and other special
charges of $171.9 million (pretax) in the fourth quarter,
which decreased earnings per share by $.14 (Note 4).
• We adopted Financial Accounting Standards Board
(FASB) Interpretation (FIN) 47, Accounting for Condi-
tional Asset Retirement Obligations, an interpretation
of FASB Statement No. 143, in the fourth quarter of
2005. The adoption of FIN 47 resulted in an adjustment
for the cumulative effect of a change in accounting
principle of $22.0 million (after-tax), which decreased
earnings per share by $.02 (Note 2).
2004
•
We recognized asset impairment charges, streamlined
our infrastructure, and provided for the anticipated reso-
lution of the government investigation of Evista® market-
ing and promotional practices, resulting in charges of
$108.9 million (pretax) in the second quarter and $494.1
million (pretax) in the fourth quarter, which decreased
earnings per share by $.08 and $.30, respectively (Note 4).
• We incurred charges for acquired in-process research
and development (IPR&D) of $362.3 million (no tax ben-
efit) in the first quarter related to the acquisition
of Applied Molecular Evolution, Inc. (AME), and
$29.9 million (pretax) in the fourth quarter related to our
acquisition of a Phase I compound currently under de-
velopment as a potential treatment for insomnia, which
decreased earnings per share by $.33 in the first quarter
and $.02 in the fourth quarter (Note 3).
• As discussed further in Financial Condition, we rec-
ognized tax expenses of $465.0 million in the fourth
quarter associated with the anticipated repatriation in
2005 of $8.00 billion of our earnings reinvested outside
the U.S., as a result of the passage of the American Jobs
Creation Act of 2004 (AJCA). This tax expense decreased
earnings per share by $.43 in that quarter (Note 11).
Recent Product Launches and Late-Stage Product
Pipeline Developments
Our long-term success depends, to a great extent, on
our ability to continue to discover and develop innovative
pharmaceutical products and acquire or collaborate on
compounds currently in development by other biotech-
nology or pharmaceutical companies. We have achieved
a number of successes with recent product launches and
late-stage pipeline developments, including:
• We are in the process of rolling out the global launches
of a number of new products, including Alimta®, Byetta®,
Cialis®, Cymbalta®, Forteo®, Strattera®, Symbyax®, and
Yentreve®. In addition, we recently launched new indica-
tions or formulations of Alimta, Cymbalta, Gemzar®,