Eli Lilly 2007 Annual Report Download - page 41

FINANCIALS
39
consolidated fi nancial statements from the respective dates of acquisition.
The acquisition of Hypnion provides us with a broader and more substantive presence in the area of sleep
disorder research and ownership of HY10275, a novel Phase II compound with a dual mechanism of action aimed
at promoting better sleep onset and sleep maintenance. This was Hypnion’s only signifi cant asset. For this acquisi-
tion, we recorded a charge of $291.1 million, representing the estimated fair value of the acquired compound, to
acquired IPR&D in the second quarter of 2007 because the development-stage compound acquired did not have
any alternative future use. This charge was not deductible for tax purposes. Because Hypnion was a development-
stage company, the transaction was accounted for as an acquisition of assets rather than as a business combina-
tion and, therefore, goodwill was not recorded.
The acquisition of Ivy provides us with products that complement those of our animal health product line. This
acquisition has been accounted for as a business combination under the purchase method of accounting. We have
allocated $88.7 million of the purchase price to other identifi able intangible assets, primarily related to marketed
products, $37.0 million to acquired IPR&D, and $25.0 million to goodwill. The IPR&D represents products in devel-
opment that are not yet approved for marketing and have no alternative future use. Accordingly, the $37.0 mil-
lion allocated to acquired IPR&D was expensed immediately subsequent to the acquisition. The other identifi able
intangible assets will be amortized over their estimated remaining useful lives of 10 to 20 years. Goodwill resulting
from this acquisition has been fully allocated to the animal health business segment. The amount allocated to each
of the intangible assets acquired, including goodwill, is expected to be deductible for tax purposes.
Product Acquisitions
In October 2007, we entered into an agreement with Glenmark Pharmaceuticals Limited India whereby we ac-
quired the rights to a portfolio of transient receptor potential vanilloid sub-family 1 (TRPV1) antagonist molecules,
including a clinical-phase compound. The compound is currently in early clinical phase development as a potential
next-generation treatment for various pain conditions, including osteoarthritic pain, and had no alternative future
use. As with many development-phase compounds, launch of the product, if approved, was not expected in the
near term. Our charge for acquired IPR&D was $45.0 million, is deductible for tax purposes, and was included as
expense in the fourth quarter of 2007.
In October 2007, we entered into a global strategic alliance with MacroGenics, Inc. (MacroGenics) to develop
and commercialize teplizumab, a humanized anti-CD3 monoclonal antibody, as well as other potential next-gen-
eration anti-CD3 molecules for use in the treatment of autoimmune diseases. As part of the arrangement, we
acquired the exclusive rights to the molecule, which was in the development stage (Phase II/III clinical trial for
individuals with recent-onset type 1 diabetes) and had no alternative future use. As with many development-phase
compounds, launch of the product, if approved, was not expected in the near term. Our charge for acquired IPR&D
was $44.0 million, is deductible for tax purposes, and was included as expense in the fourth quarter of 2007.
In January 2007, we entered into an agreement with OSI Pharmaceuticals, Inc. to acquire the rights to its
compound for the treatment of type 2 diabetes. At the inception of this agreement, this compound was in the
development stage (Phase I clinical trials) and had no alternative future use. As with many development-phase
compounds, launch of the product, if approved, was not expected in the near term. Our charge for acquired IPR&D
related to this arrangement was $25.0 million, was included as expense in the fi rst quarter of 2007, and is deduct-
ible for tax purposes.
In December 2007, we entered into an agreement with BioMS Medical Corp. to acquire the rights to its com-
pound for the treatment of multiple sclerosis. This agreement was contingent upon clearance under the Hart-
Scott-Rodino Anti-Trust Improvements Act and became effective after clearance was received in January 2008.
This compound is in the development stage (Phase III clinical trials) and has no alternative future use. As with
many development-phase compounds, launch of the product, if approved, was not expected in the near term. Our
charge for acquired IPR&D related to this arrangement was $87.0 million, is deductible for tax purposes, and will
be included as expense in the fi rst quarter of 2008.
In connection with these arrangements, our partners are generally entitled to future milestones and royalties
based on sales should these products be approved for commercialization.