Eli Lilly 2008 Annual Report Download - page 44

FINANCIALS
42
ImClone as if the acquisition and the fi nancing for the acquisition had occurred as of the beginning of each of the
years presented. We have adjusted the historical consolidated fi nancial information to give effect to pro forma
events that are directly attributable to the acquisition. The unaudited pro forma fi nancial information is not
necessarily indicative of what our consolidated results of operations actually would have been had we completed
the acquisition at the beginning of each year. In addition, the unaudited pro forma fi nancial information does not
attempt to project the future results of operations of our combined company.
2008 2007
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,801.8 $19,051.4
Net income1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,356.2 2,704.1
Earnings per share:
Basic and diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.15 2.48
1The unaudited pro forma fi nancial information above excludes the non-recurring charge incurred for acquired IPR&D of $4.69 billion
and other merger-related costs.
The unaudited pro forma fi nancial information above refl ects the following:
• a reduction of the amortization of ImClone’s deferred income of $86.2 million (2008) and $98.4 million (2007);
• the increase of amortization expense of $78.8 million in 2008 and 2007 related to the estimated fair value of
identifi able intangible assets from the purchase price allocation which are being amortized over their estimated
useful lives through 2023 in the U.S. and through 2018 in the rest of the world. The change in depreciation expense
related to the change in the estimated fair value of property and equipment from the book value at the time of the
acquisition was not material;
• the adjustment to increase interest expense related to the debt incurred to fi nance the acquisition and the
adjustment to decrease interest income related to the lost interest income on the cash used to purchase ImClone
by a total of $301.0 million in 2008 and 2007;
• the reduction of ImClone’s income tax expense to provide for income taxes at the statutory tax rate and the
adjustment to income taxes for pro forma adjustments at the statutory tax rate, totaling $139.3 million (2008) and
$189.5 million (2007). This excludes the acquired IPR&D charge of $4.69 billion, which was not tax deductible;
• certain reclassifi cations to conform to accounting policies and classifi cations that are consistent with our practices
(e.g., ImClone’s license fees and milestones were classifi ed as other—net, rather than net sales).
Posilac
On October 1, 2008, we acquired the worldwide rights to the dairy cow supplement Posilac, as well as the product’s
supporting operations, from Monsanto Company (Monsanto). The acquisition of Posilac provides us with a product
that complements those of our animal health business. Under the terms of the agreement, we acquired the rights
to the Posilac brand, as well as the product’s U.S. sales force and manufacturing facility, for an aggregate pur-
chase price of $403.9 million, which includes a $300.0 million upfront payment, transaction costs, and an accrual
for contingent consideration to Monsanto based on estimated future Posilac sales for which payment is considered
likely beyond a reasonable doubt.
This acquisition has been accounted for as a business combination under the purchase method of accounting.
We allocated $204.3 million to identifi able intangible assets related to Posilac, $167.6 million to inventories, and
$99.5 million of the purchase price to property and equipment. We also assumed $67.5 million of liabilities. Sub-
stantially all of the identifi able intangible assets are being amortized over their estimated remaining useful lives of
20 years. The amount allocated to each of the intangible assets acquired is deductible for tax purposes.
SGX Pharmaceuticals, Inc.
On August 20, 2008, we acquired all of the outstanding common stock of SGX Pharmaceuticals, Inc. (SGX), a collab-
oration partner since 2003. The acquisition allows us to integrate SGX’s structure-guided drug discovery platform
into our drug discovery efforts. It also gives us access to FAST™, SGX’s fragment-based, protein structure guided
drug discovery technology, and to a portfolio of preclinical oncology compounds focused on a number of kinase
targets. Under the terms of the agreement, the outstanding shares of SGX common stock were redeemed for an
aggregate purchase price, including transaction costs, of $66.8 million.
The acquisition has been accounted for as a business combination under the purchase method of accounting. We
allocated $29.6 million of the purchase price to deferred tax assets and $28.0 million to acquired IPR&D. The acquired
IPR&D charge of $28.0 million was recorded in the third quarter of 2008 and was not deductible for tax purposes.