Eli Lilly 2009 Annual Report Download - page 67

of Evonik Industries AG (Evonik) in early 2010. In connection with the sale of the site, we entered into a
nine-year supply and services agreement, whereby Evonik will manufacture final and intermediate step
active pharmaceutical ingredient (API) for certain of our human and animal health products. The decision
to sell the site was based upon a projected decline in utilization of the site due to several factors,
including upcoming patent expirations on certain medicines made at the site; our strategic decision to
purchase, rather than manufacture, many late-stage chemical intermediates; and the evolution of our
pipeline toward more biotechnology medicines. In addition to the sale of the Tippecanoe site, in the third
quarter of 2009 we announced a voluntary exit program for certain U.S. sales employees. Components of
the third-quarter restructuring charge include non-cash asset impairment charges and other charges of
$363.7 million, and $61.1 million in severance related charges, substantially all of which is expected to be
paid in cash by early 2010. The fair value of assets used in determining impairment charges was based on
contracted sales prices.
We incurred asset impairments, restructuring, and other special charges of $80.0 million in the fourth
quarter of 2008. These charges were the result of decisions approved by management in the fourth
quarter as well as previously announced strategic decisions. The primary components of this charge
include non-cash asset impairments of $35.1 million for the write down of impaired assets, all of which
have no future use, and other charges of $44.9 million, primarily related to severance and environmental
cleanup charges in connection with previously announced strategic decisions made in prior periods.
Substantially all of these costs were paid during 2009.
Further, in the third quarter of 2008, as a result of our previously announced agreements with Covance
Inc. (Covance), Quintiles Transnational Corp. (Quintiles), and Ingenix Pharmaceutical Services, Inc., doing
business as i3 Statprobe (i3), and as part of our efforts to transform into a more flexible organization, we
recognized asset impairments, restructuring, and other special charges of $182.4 million. We sold our
Greenfield, Indiana site to Covance, a global drug development services firm, and entered into a 10-year
service agreement under which Covance will provide preclinical toxicology work and perform additional
clinical trials for us as well as operate the site to meet our needs and those of other pharmaceutical
industry clients. In addition, we signed agreements with Quintiles for clinical trial monitoring services and
with i3 for clinical data management services. Components of the third-quarter restructuring charge
include non-cash charges of $148.3 million primarily related to the loss on sale of assets sold to Covance,
severance costs of $27.8 million, and exit costs of $6.3 million. Substantially all of these costs were paid
in 2008.
In the second quarter of 2008, we recognized restructuring and other special charges of $88.9 million. In
addition, we recognized non-cash charges of $57.1 million for the write down of impaired manufacturing
assets that had no future use, which were included in cost of sales. In April 2008, we announced a
voluntary exit program that was offered to employees primarily in manufacturing. Components of the
second-quarter restructuring charge include total severance costs of $53.5 million related to these
programs and $35.4 million related to exit costs incurred during the second quarter in connection with
previously announced strategic decisions made in prior periods. Substantially all of these costs were paid
by the end of July 2008.
In March 2008, we terminated development of our AIR Insulin program, which was being conducted in
collaboration with Alkermes, Inc. The program had been in Phase III clinical development as a potential
treatment for type 1 and type 2 diabetes. This decision was not a result of any observations during AIR
Insulin trials relating to the safety of the product, but rather was a result of increasing uncertainties in the
regulatory environment, and a thorough evaluation of the evolving commercial and clinical potential of the
product compared to existing medical therapies. As a result of this decision, we halted our ongoing clinical
studies and transitioned the AIR Insulin patients in these studies to other appropriate therapies. We
implemented a patient program in the U.S., and other regions of the world where allowed, to provide
clinical trial participants with appropriate financial support to fund their medications and diagnostic
supplies through the end of 2008.
We recognized asset impairments, restructuring, and other special charges of $145.7 million in the first
quarter of 2008. These charges were primarily related to the decision to terminate development of AIR
Insulin. Components of these charges included non-cash charges of $40.9 million for the write down of
impaired manufacturing assets that had no use beyond the AIR Insulin program, as well as charges of
$91.7 million for estimated contractual obligations and wind-down costs associated with the termination
of clinical trials and certain development activities, and costs associated with the patient program to
transition participants from AIR Insulin. This amount includes an estimate of Alkermes’ wind-down costs
for which we were contractually obligated. The wind-down activities and patient programs were substan-
tially complete by the end of 2008. The remaining component of these charges, $13.1 million, is related to
exit costs incurred in the first quarter of 2008 in connection with previously announced strategic decisions
made in prior periods.
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FORM 10-K