Eli Lilly 2006 Annual Report Download - page 12

FINANCIALS
10
Review of Operations
EXECUTIVE OVERVIEW
This section provides an overview of our fi nancial re-
sults, signifi cant business development, recent product
and late-stage pipeline developments, and legal and
governmental matters affecting our company and the
pharmaceutical industry.
Financial Results
We achieved worldwide sales growth of 7 percent, pri-
marily as a result of strong growth of our newer prod-
ucts. We increased our investment in marketing expens-
es in support of key products, primarily Cymbalta® and
diabetes care products, and continued our commitment
to research and development, investing approximately
20 percent of our sales during 2006. Our results also
benefi ted from continued growth in profi tability of the
Lilly ICOS joint venture as well as cost-containment and
productivity initiatives. Net income was $2.66 billion, or
$2.45 per share, in 2006 as compared with $1.98 billion,
or $1.81 per share, in 2005, representing an increase in
net income and earnings per share of 35 percent. Net in-
come comparisons between 2006 and 2005 are affected
by the impact of the following signifi cant items that are
refl ected in our fi nancial results (see Notes 2, 4, and 13
to the consolidated fi nancial statements for additional
information):
2006
• We recognized asset impairments, restructuring and
other special charges of $450.3 million (pretax) in the
fourth quarter, which decreased earnings per share by
$.31 (Note 4).
• In the fourth quarter, we incurred a charge related to
Zyprexa® product liability litigation matters of $494.9
million (pretax), or $.42 per share (Notes 4 and 13).
2005
• We incurred a charge related to product liability
litigation matters, primarily related to Zyprexa, of $1.07
billion (pretax), which decreased earnings per share by
$.90 in the second quarter of 2005 (Notes 4 and 13).
• We recognized asset impairments and other special
charges of $171.9 million (pretax) in the fourth quarter,
which decreased earnings per share by $.14 (Note 4).
• We adopted Financial Accounting Standards
Board (FASB) Interpretation (FIN) 47, Accounting
for Conditional Asset Retirement Obligations, an
interpretation of FASB Statement No. 143, in the fourth
quarter of 2005. The adoption of FIN 47 resulted in an
adjustment for the cumulative effect of a change in
accounting principle of $22.0 million (after-tax), which
decreased earnings per share by $.02 (Note 2).
Business Development, and Recent Product and Late-
Stage Pipeline Developments
Our long-term success depends, to a great extent, on
our ability to continue to discover and develop innovative
pharmaceutical products and acquire or collaborate on
compounds currently in development by other biotech-
nology or pharmaceutical companies. We have achieved
a number of successes with recent product launches
and late-stage pipeline developments, including:
• On January 29, 2007, we completed the acquisition
of ICOS Corporation for approximately $2.3 billion in
cash. The acquisition brings the full value of Cialis® to
us and enables us to realize operational effi ciencies in
the further development, marketing and selling of this
product. The allocation of the purchase price has not
yet been completed; however, we anticipate that the
one-time charge to earnings for acquired in-process
research and development (IPR&D) will approximate
$300 million (no tax benefi t) (Note 3).
• In November 2006, we received European Commission
authorization to market Byetta® as a treatment for type
2 diabetes with our partner, Amylin Pharmaceuticals,
Inc. (Amylin). In addition, in December 2006, we
received approval from the U.S. Food and Drug
Administration (FDA) for Byetta as an add-on therapy
to improve blood sugar control in people with type 2
diabetes who have not achieved adequate control on a
thiazolidinedione (TZD).
•
We submitted a New Drug Application (NDA) to the FDA
for Evista® for the reduction in risk of invasive breast
cancer in postmenopausal women with osteoporosis and
postmenopausal women at high risk for breast cancer.
• We initiated a Phase III clinical trial to study
enzastaurin as a maintenance therapy to prevent
relapse in patients with non-Hodgkin’s lymphoma.
Additionally, we closed the enrollment of a Phase III
study of enzastaurin for the treatment of recurrent
glioblastoma after an external data monitoring
committee determined the study would likely not meet
its primary effi cacy endpoint.
FIVE PRODUCTS EXCEEDED
$1 BILLION IN NET SALES
($ millions)
Nine products exceeded $500 million
in net sales during 2006. Five of these
products—Zyprexa, Gemzar,
Cymbalta, Humalog, and Evista—
exceeded $1 billion in 2006. In
addition, the combined efforts of Lilly
and ICOS generated worldwide Cialis
sales of $971 million. At more than
$1.3 billion in sales in 2006, Cymbalta
reached “blockbuster” status in only
its second full year on the market.
Zyprexa
Gemzar
Cymbalta
Humalog
Evista
Humulin
Alimta
Forteo
Strattera
$1,300
$1,045
$925
$612
$594
$579
$4,364
$1,408
$1,316