Eli Lilly 2012 Annual Report Download - page 67

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We also acquired a manufacturing facility in Sligo, Ireland, currently used in the production of animal
vaccines. In connection with this acquisition, we recorded $76.2 million of marketed product intangible assets,
with $72.2 million of other net assets.
Product Acquisitions
In March 2010, we entered into a license agreement with Acrux Limited to acquire the exclusive rights to
commercialize its proprietary testosterone solution Axiron. At the time of the licensing, the product had not
been approved and had no alternative future use. The charge of $50.0 million for acquired IPR&D related to
this arrangement was included as expense in the first quarter of 2010 and is deductible for tax purposes. In
the fourth quarter of 2010, Axiron was approved by the FDA for the treatment of testosterone deficiency in
men. In the first quarter of 2011, the product was available in pharmacies in the United States.
Note 4: Collaborations
We often enter into collaborative arrangements to develop and commercialize drug candidates. Collaborative
activities may include research and development, marketing and selling (including promotional activities and
physician detailing), manufacturing, and distribution. These collaborations often require milestone and royalty
or profit-share payments, contingent upon the occurrence of certain future events linked to the success of the
asset in development, as well as expense reimbursements or payments to the third party. Revenues related to
products sold by us pursuant to these arrangements are included in net product sales, while other sources of
revenue (e.g., royalties and profit-share payments) are included in collaboration and other revenue. Operating
expenses for costs incurred pursuant to these arrangements are reported in their respective expense line
item, net of any payments made to or reimbursements received from our collaboration partners. Each
collaboration is unique in nature, and our more significant arrangements are discussed below.
Exenatide
In November 2011, we agreed with Amylin Pharmaceuticals, Inc. (Amylin) to terminate our collaborative
arrangement for the joint development, marketing, and selling of Byetta (exenatide injection) and other forms
of exenatide such as Bydureon (exenatide extended-release for injectable suspension). Under the terms of the
termination agreement, Amylin made a one-time, upfront payment to us of $250.0 million. Amylin also agreed
to make future revenue-sharing payments to us in an amount equal to 15.0 percent of their global net sales of
exenatide products until Amylin made aggregate payments to us of $1.20 billion plus interest, which would
accrue at 9.5 percent. Upon completion of the acquisition of Amylin by Bristol-Myers Squibb in August 2012,
Amylin's obligation of $1.26 billion, including accrued interest, was paid in full, with $1.21 billion representing
a prepayment of the obligation. Amylin will also pay a $150.0 million milestone to us contingent upon FDA
approval of a once-monthly suspension version of exenatide that is currently in Phase II clinical trials.
Commercial operations were transferred to Amylin in the U.S. at the end of November 2011. Outside the U.S.,
we anticipate transferring responsibility for commercialization of exenatide to Amylin in substantially all
markets at the end of the first quarter of 2013.
Payments received from Amylin were allocated 65 percent to the U.S., which was treated as a contract
termination, and 35 percent to the business outside the U.S., which will be treated as the disposition of a
business. The allocation was based upon relative fair values. The revenue-sharing income allocated to the
U.S. was recognized as collaboration and other revenue, consistent with our policy for royalty revenue, while
the income related to the prepayment of Amylin's obligation allocated to the U.S. was recognized as other-net,
(income) expense. All income allocated to the business outside the U.S. will be recognized on a pro rata basis
as a gain on the disposition of a business in other–net, (income) expense as control of the business transfers
to Amylin during 2013. We expect to recognize a net gain of approximately $490 million in 2013 contingent
upon the transfer of the commercial rights outside the United States.
Prior to termination of the collaboration, we and Amylin were co-promoting Byetta in the United States.
Amylin was responsible for manufacturing and primarily utilized third-party contract manufacturers to supply
Byetta. We supplied Byetta pen delivery devices for Amylin and will continue to do so for a period that will not
extend beyond December 31, 2013. We are responsible for certain development costs related to certain clinical
trials outside the U.S. that we were conducting as of the date of the termination agreement as well as
commercialization costs outside the U.S. until the commercial operations are transferred to Amylin.