Eli Lilly 2013 Annual Report Download - page 62

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Merck KGaA
A development and license agreement grants Merck exclusive rights to market Erbitux outside of the U.S. and
Canada, and expires in December 2018. A separate agreement grants co-exclusive rights among Merck,
BMS and us in Japan and expires in 2032.
Merck manufactures Erbitux for supply in its territory as well as for Japan. We receive a royalty on the sales of
Erbitux outside of the U.S. and Canada, which is included in collaboration and other revenue as earned.
Collaborative reimbursements received for research and development and for 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, net of any royalty reimbursements received, is
recorded as a reduction of collaboration and other revenue.
Diabetes Collaboration
In January 2011, we and Boehringer Ingelheim entered into a global agreement to jointly develop and
commercialize a portfolio of diabetes compounds. Currently, the compounds included in the collaboration are
Boehringer Ingelheim's two oral diabetes agents, linagliptin and empagliflozin, and our new insulin glargine
product. Additionally, Boehringer Ingelheim may elect to opt in to the Phase III development and potential
commercialization of our anti-TGF-beta monoclonal antibody. Under the terms of the global agreement, we
made an initial one-time payment to Boehringer Ingelheim of $388.0 million and recorded an acquired IPR&D
charge, which was included as expense in the first quarter of 2011 and was deductible for tax purposes.
Linagliptin was subsequently approved in 2011 and launched in the U.S. (trade name Tradjenta®), Japan
(trade name TrazentaTM), certain countries in Europe (trade name Trajenta®), and other countries. Currently,
empagliflozin and the new insulin glargine product are both under regulatory review in the U.S., Europe, and
Japan, and the anti-TGF-beta monoclonal antibody is in Phase II clinical testing.
In connection with the approval of linagliptin in the U.S., Japan, and Europe, in 2011 we paid $478.7 million in
success-based regulatory milestones, all of which were capitalized as intangible assets and are being
amortized to cost of sales. We incurred milestone-related expenses of $97.2 million in connection with
regulatory submissions for empagliflozin in the U.S., Europe, and Japan during 2013. These regulatory
submission milestones were recorded as research and development expenses. We may also pay up to
225.0 million euro in additional success-based regulatory milestones for empagliflozin.
During 2013, we earned $50.0 million in milestones for the regulatory submissions of our new insulin glargine
product in the U.S., Europe, and Japan. These submission milestones were recorded as income in other–net,
(income) expense. In the future, we will be eligible to receive up to $250.0 million in success-based regulatory
milestones on our new insulin glargine product.
Should Boehringer Ingelheim elect to opt in to the Phase III development and potential commercialization of
the anti-TGF-beta monoclonal antibody, we would be eligible for up to $525.0 million in opt-in and success-
based regulatory milestone payments.
The companies share ongoing development costs equally. The companies also share in the
commercialization costs and gross margin for any product resulting from the collaboration that receives
regulatory approval. We record our portion of the gross margin as collaboration and other revenue, and we
record our portion of the commercialization costs as marketing, selling, and administrative expense. Each
company will also be entitled to potential performance payments on sales of the molecules they contribute to
the collaboration. Our revenue related to this collaboration (which is, to-date, entirely related to Trajenta) was
$249.2 million, $88.6 million, and $15.1 million for the years ended December 31, 2013, 2012, and 2011,
respectively.
Solanezumab
We have an agreement with an affiliate of TPG-Axon Capital (TPG) whereby TPG funded a portion of the
Phase III development of solanezumab. Under the agreement, TPG’s obligation to fund solanezumab costs
was not material and ended in the first half of 2011. In exchange for their funding, TPG may receive success-
based sales milestones totaling approximately $70 million and mid-single digit royalties contingent upon the
successful development of solanezumab. The royalties would be paid for approximately ten years after launch
of a product.