Eli Lilly 2008 Annual Report Download - page 47

FINANCIALS
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trative expenses, are recorded as a reduction to the respective expense line items on the consolidated statement of
operations. Royalty expense paid to third parties is included in costs of sales. We receive a distribution fee in the form
of a royalty from BMS, based on a percentage of net sales in the U.S. and Canada, which is recorded in net sales.
We are responsible for the manufacture and supply of all requirements of Erbitux in bulk-form active pharma-
ceutical
ingredient (API) for clinical and commercial use in the territory, and BMS will purchase all of its require-
ments of API for commercial use from us, subject to certain stipulations per the agreement. Sales of Erbitux to
BMS for commercial use are reported in net sales.
Merck KGaA
A development and license agreement between ImClone and Merck KGaA (Merck) with respect to Erbitux granted
Merck exclusive rights to market Erbitux outside of North America and co-exclusive rights with BMS in Japan. Merck
also has rights to manufacture Erbitux for supply in its territory. We manufacture and provide a portion of Merck’s
requirements for API; we also receive a royalty on the sales of Erbitux outside of the U.S. and Canada, both of which
are included in net sales as earned. Collaborative reimbursements received for supply of product for research and
development, reimbursement of a portion of royalty expense, and marketing, selling, and administrative expenses
are recorded as a reduction to the respective expense line items on the consolidated statement of operations. Royalty
expense paid to third parties is included in cost of sales.
Exenatide
We are in a collaborative arrangement with Amylin Pharmaceuticals (Amylin) for the joint development, market-
ing, and selling of Byetta and other forms of exenatide such as exenatide once weekly. Byetta (exenatide injection)
is presently approved as an adjunctive therapy to improve glycemic control in patients with type 2 diabetes who
have not achieved adequate glycemic control using metformin, a sulfonylurea and/or a thiazolidinediene (U.S. only),
three common oral therapies for type 2 diabetes. Lilly and Amylin are co-promoting exenatide in the U.S. Amylin
is responsible for manufacturing and primarily utilizes third-party contract manufacturing organizations to supply
Byetta. However, Lilly is manufacturing Byetta pen delivery devices for Amylin. Lilly is responsible for development
and commercialization costs outside the U.S.
Under the terms of our collaboration with Amylin, we report as revenue our 50 percent share of gross margin
on sales in the U.S., 100 percent of sales outside the U.S., and our sales of Byetta pen delivery devices to Amylin.
We recorded revenues of $396.1 million, $330.7 million, and $219.0 million in 2008, 2007, and 2006, respectively,
for Byetta. We pay Amylin a percentage of the gross margin of exenatide sales outside of the U.S., and these costs
are recorded in cost of sales. Under the 50/50 profi t-sharing arrangement for the U.S., in addition to recording as
revenue our 50 percent share of exenatide’s gross margin, we also report 50 percent of U.S. research and develop-
ment costs, and marketing and selling costs in the research and development and marketing, selling, and adminis-
trative line items, respectively, on the consolidated statements of income.
Exenatide once weekly is presently in Phase III clinical trials and has not received regulatory approval. Amylin
is constructing and will operate a manufacturing facility for exenatide once weekly, and we have entered into a
supply agreement in which Amylin will supply exenatide once weekly product to us for sales outside the U.S. The
estimated total cost of the facility is approximately $550 million. In 2008, we paid $125.0 million to Amylin, which
we will amortize to cost of sales over the estimated life of the supply agreement beginning with product launch.
We would be required to reimburse Amylin for a portion of any future impairment of this facility, recognized in
accordance with GAAP. A portion of the $125.0 million payment we made to Amylin would be creditable against any
amount we would owe as a result of impairment. We have also agreed to loan up to $165.0 million to Amylin at an
indexed rate beginning December 1, 2009, and any borrowings have to be repaid by June 30, 2014.
Cymbalta
Boehringer Ingelheim
We are in a collaborative arrangement with Boehringer Ingelheim (BI) to market and promote Cymbalta, a product
for the treatment of major depressive disorder, diabetic peripheral neuropathic pain, generalized anxiety disorder,
and fi bromyalgia, outside the U.S. Pursuant to the terms of the agreement, we generally share equally in develop-
ment, marketing, and selling expenses, and pay BI a commission on sales in the co-promotional territories. We
manufacture the product for all territories.
Collaborative reimbursements or payments for the cost sharing of marketing, selling, and administrative
expenses are recorded in the respective expense line items in the consolidated statement of operations. The com-
mission paid to BI is recognized in marketing, selling, and administrative expenses.