Eli Lilly 2008 Annual Report Download - page 14

FINANCIALS
12
Review of Operations
EXECUTIVE OVERVIEW
This section provides an overview of our fi nancial
results, recent product and late-stage pipeline devel-
opments, signifi cant business development, and legal,
regulatory, and other matters affecting our company
and the pharmaceutical industry.
Financial Results
We achieved worldwide sales growth of 9 percent,
which was primarily driven by volume increases in
several key products. The favorable impact of for-
eign exchange rates on cost of sales contributed to
an improvement in gross margin. Marketing, selling,
and administrative expenses grew at the same rate as
sales, driven by pre-launch activities associated with
prasugrel, marketing costs associated with Cymbalta®
and Evista®, the impact of foreign exchange rates, and
increased litigation-related expenses; while our invest-
ment in research and development grew 10 percent.
We completed our acquisition of ImClone Systems Inc.
(ImClone), resulting in a signifi cant charge of $4.69 bil-
lion for acquired in-process research and development
(IPR&D) and reached resolution on government investi-
gations related to our past U.S. marketing and promo-
tional practices for Zyprexa®, resulting in an additional
charge of $1.48 billion. We incurred tax expense of
$764.3 million, despite a loss before income taxes of
$1.31 billion, primarily caused by the non-deductibility
of the ImClone IPR&D charge and the partial deduct-
ibility of the Zyprexa investigation settlements.
Accord-
ingly, earnings decreased $5.02 billion, to a net loss of
$2.07 billion, and earnings per share decreased $4.60,
to a loss of $1.89 per share, in 2008 as compared with
net income of $2.95 billion, or earnings per share of
$2.71 in 2007. Net income comparisons between 2008
and 2007 are affected by the impact of the following sig-
nifi cant items (see Notes 3, 5, 12, and 14 to the consoli-
dated fi nancial statements for additional information):
2008
Acquisitions (Note 3)
•
We recognized charges totaling $4.73 billion (pretax)
associated with the acquisition of ImClone, which
decreased earnings per share by $4.46. These amounts
include an IPR&D charge of $4.69 billion (pretax).
The remaining net expenses are related to ImClone’s
operating results subsequent to the acquisition,
incremental interest costs, and amortization of the
intangible asset associated with Erbitux
®
. We also
incurred IPR&D charges of $28.0 million (pretax)
associated with the acquisition of SGX Pharmaceuticals,
Inc. (SGX), which decreased earnings per share by $.03.
• We incurred IPR&D charges associated with licensing
arrangements with BioMS Medical Corp. (BioMS) and
TransPharma Medical Ltd. totaling $122.0 million
(pretax), which decreased earnings per share by $.07.
Asset Impairments and Related Restructuring and Other
Special Charges (Notes 5 and 14)
• We recognized asset impairments, restructuring, and
other special charges totaling $497.0 million (pretax),
which decreased earnings per share by $.30. A similar
charge of $57.1 million (pretax), which decreased
earnings per share by $.04, was included in cost of
sales. These charges were primarily associated with
the sale of our Greenfi eld, Indiana site, the termination
of the AIR® Insulin program, and strategic exit activities
related to manufacturing operations.
• We recorded charges of $1.48 billion (pretax) related to
the federal and state Zyprexa investigations led by the
U.S. Attorney for the Eastern District of Pennsylvania
(EDPA), as well as the resolution of a multi-state
investigation regarding Zyprexa involving 32 states and
the District of Columbia, which decreased earnings per
share by $1.20.
Other (Note 12)
• We recognized a discrete income tax benefi t of
$210.3 million as a result of the resolution of a
substantial portion of the IRS audit of our federal
income tax returns for the years 2001 through 2004,
which increased earnings per share by $.19.
2007
Acquisitions (Note 3)
• We incurred IPR&D charges associated with the
acquisitions of ICOS Corporation (ICOS), Hypnion, Inc.
(Hypnion), and Ivy Animal Health, Inc. (Ivy), totaling
$631.6 million (pretax), which decreased earnings per
share by $.57.
• We incurred IPR&D charges associated with our
licensing arrangements with Glenmark Pharma-
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