Eli Lilly 2008 Annual Report Download - page 20

FINANCIALS
18
Acquired IPR&D charges related to the acquisitions
of ImClone and SGX, as well as our in-licensing arrange-
ments with BioMS and TransPharma, were $4.84 bil-
lion in 2008 as compared to $745.6 million in 2007. We
recognized asset impairments, restructuring, and other
special charges of $1.97 billion in 2008, as compared to
$302.5 million in 2007. The 2008 charges were primarily
associated with the resolution of Zyprexa investigations
with the U.S. Attorney for the EDPA and multiple states.
See Notes 3, 5 and 14 to the consolidated fi nancial state-
ments for additional information.
Other—net decreased $148.1 million, to a net
expense of $26.1 million. This line item consists of
interest expense, interest income, the after-tax operat-
ing results of the Lilly ICOS joint venture, and all other
miscellaneous income and expense items.
• Interest expense for 2008 was essentially fl at at
$228.3 million. The impact of lower interest rates on
our debt was substantially offset by lower capitalized
interest due to lower construction-in-progress
balances and increased interest expense due to the
fi nancing of the ImClone acquisition.
• Interest income for 2008 decreased $4.6 million, to
$210.7 million, as lower interest rates were partially
offset by higher cash balances.
• The Lilly ICOS joint venture income prior to the 2007
acquisition was $11.0 million. Subsequent to the
acquisition, all activity related to ICOS is included in
our consolidated fi nancial results.
• Net other miscellaneous items decreased $132.5 mil-
lion to a loss of $8.5 million, primarily as a result of
lower outlicensing income and increased net losses
on investment securities in 2008 (the majority of which
consisted of unrealized losses).
We incurred tax expense of $764.3 million in 2008,
despite having a loss before income taxes of $1.31 bil-
lion. Our net loss was driven by the $4.69 billion acquired
IPR&D charge for ImClone and the $1.48 billion Zyprexa
investigation settlements. The IPR&D charge was not tax
deductible, and only a portion of the Zyprexa investiga-
tion settlements was deductible. In addition, we recorded
tax expense associated with the ImClone acquisition, as
well as a discrete income tax benefi t of $210.3 million
for the resolution of the IRS audit. The effective tax rate
was 23.8 percent in 2007. See Note 12 to the consolidated
fi nancial statements for additional information.
OPERATING RESULTS—2007
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—net decreased and the effective tax rate
increased. As a result, net income and earnings 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 signifi cant
items that are refl ected in our fi nancial results. The sig-
nifi cant items for 2007 are summarized in the Executive
Overview. The 2006 items are summarized as follows
(see Notes 5 and 14 to the consolidated fi nancial state-
ments for additional information):
• 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 5).
•
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 5 and 14).
Sales
Our worldwide sales for 2007 increased 19 percent,
to $18.63 billion, driven primarily by the inclusion
of Cialis since our January 29, 2007 acquisition of
ICOS and sales growth of Cymbalta, Zyprexa, Alimta,
Gemzar, and Humalog. Worldwide sales volume
increased 12 percent, while selling prices and foreign
exchange rates each increased sales by 3 percent.
(Numbers do not add due to rounding.) Sales in the U.S.
increased 18 percent, to $10.15 billion, driven primar-
ily by increased sales of Cymbalta, Zyprexa, Alimta,
and Byetta, and the inclusion of Cialis. Sales outside
the U.S. increased 20 percent, to $8.49 billion, driven
primarily by the inclusion of Cialis, and sales growth
of Zyprexa, Alimta, Gemzar, and Cymbalta.
0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Research and Development Investment
Increasing
($ millions, percent of net sales)
Research and development expenditures
increased by 10 percent, to $3.8 billion, in 2008
due to increases in late-stage clinical trial and
discovery research costs. This sustained level of
investment in research and development enabled
us to move 17 drug candidates into human
clinical trials in 2008, unprecedented in Lilly’s
history, supporting our commitment to develop
best-in-class and first-in-class medicines to
provide answers that matter for our customers.
04 05 06 07 08
$3,487 18.7%
$3,129 19.9%
$2,691 19.4%
$3,026 20.7%
$3,841 18.8%