Eli Lilly 2007 Annual Report Download - page 12

FINANCIALS
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Review of Operations
EXECUTIVE OVERVIEW
This section provides an overview of our fi nancial re-
sults, signifi cant business development, recent product
and late-stage pipeline developments, and legal, regu-
latory, and other matters affecting our company and the
pharmaceutical industry.
Financial Results
We achieved worldwide sales growth of 19 percent. This
growth was primarily driven by volume increases in a
number of key products, with a signifi cant portion of
this increase in volume resulting from the acquisition
of ICOS. Our additional investments in marketing and
selling expenses in support of key products, primarily
Cymbalta® and the diabetes care products, contributed
to this sales growth and enabled us to increase our
investment in research and development 11 percent
in 2007. While cost of sales and operating expenses in
the aggregate grew at approximately the same rate as
sales, other income—net decreased and the effective
tax rate increased. As a result, net income and earn-
ings per share increased 11 percent, to $2.95 billion, or
$2.71 per share, in 2007 as compared with $2.66 billion,
or $2.45 per share, in 2006. Net income comparisons
between 2007 and 2006 are affected by the impact of
the following signifi cant items that are refl ected in our
fi nancial results (see Notes 3, 4, and 13 to the consoli-
dated fi nancial statements for additional information):
2007
• We recognized asset impairments, restructuring,
and other special charges of $98.2 million (pretax)
in the fourth quarter, which decreased earnings per
share by $.07. In the fi rst quarter, we recognized
similar charges associated with previously announced
strategic decisions affecting manufacturing and
research facilities of $123.0 million (pretax), which
decreased earnings per share by $.08 (Note 4).
• We incurred a special charge following a settlement
with one of our insurance carriers over Zyprexa®
product liability claims, which led to a reduction of our
expected product liability insurance recoveries. This
resulted in a charge of $81.3 million (pretax), which
decreased earnings per share by $.06 in the third
quarter (Notes 4 and 13).
• We incurred in-process research and development
(IPR&D) charges associated with our licensing
arrangement with Glenmark Pharmaceuticals Limited
India of $45.0 million (pretax) and our licensing
arrangement with MacroGenics, Inc., of $44.0 million
(pretax), which decreased earnings per share by $.05 in
the fourth quarter (Note 3).
• We incurred IPR&D charges associated with the
acquisition of Hypnion, Inc. (Hypnion), of $291.1 million
(no tax benefi t) and the acquisition of Ivy Animal
Health, Inc. (Ivy), of $37.0 million (pretax), which
decreased earnings per share by $.29 in the second
quarter (Note 3).
• We incurred IPR&D charges associated with the
acquisition of ICOS of $303.5 million (no tax benefi t)
and a licensing arrangement with OSI Pharmaceuticals
of $25.0 million (pretax), which decreased earnings per
share by $.29 in the fi rst quarter (Note 3).
2006
• We recognized asset impairments, restructuring, and
other special charges of $450.3 million (pretax) in the
fourth quarter, which decreased earnings per share by
$.31 (Note 4).
•
In the fourth quarter, we incurred a charge related to
Zyprexa product liability litigation matters of $494.9 mil-
lion (pretax), or $.42 per share (Notes 4 and 13).
Late-Stage Pipeline Developments and Business
Development Activity
Our long-term success depends, to a great extent, on
our ability to continue to discover and develop innova-
tive pharmaceutical products and acquire or collabo-
rate on compounds currently in development by other
biotechnology or pharmaceutical companies. We have
achieved a number of successes with late-stage pipe-
line developments and recent business development
transactions within the past year, including:
Pipeline
• On December 26, 2007, together with our collaboration
partner Daiichi Sankyo Company, Limited, we
submitted a New Drug Application (NDA) for prasugrel
to the U.S. Food and Drug Administration (FDA). The
proposed trademark for prasugrel is Effi ent™. The
submission follows the release of results of the
TRITON TIMI-38 Phase III head-to-head study of