Eli Lilly 2008 Annual Report Download - page 48

FINANCIALS
46
Quintiles
We are in a collaborative arrangement with Quintiles Transnational Corp. (Quintiles) to market and promote Cymbalta
in the U.S. Pursuant to the terms of the agreement, Quintiles shares in the costs to co-promote Cymbalta with us.
In exchange, Quintiles receives a payment based upon net sales. According to the current agreement, Quintiles’
obligation to promote Cymbalta expires in 2009, and we will pay a lower rate on net sales for three years post their
promotion efforts. The royalties paid to Quintiles are recorded in marketing, selling, and administrative expenses.
Prasugrel
We are in a collaborative arrangement with Daiichi Sankyo Company, Limited (D-S) to develop, market, and pro-
mote prasugrel, an investigational antiplatelet agent for the treatment of patients with acute coronary syndromes
(ACS) who are being managed with an artery-opening procedure known as percutaneous coronary intervention
(PCI). We have submitted new drug applications to the FDA and European Medicines Agency (EMEA) and are cur-
rently awaiting their decisions. Within this arrangement, we have agreed to co-promote under the same trademark
in certain territories (the U.S., fi ve major European markets, and Brazil), while we have exclusive marketing rights
in other territories. Pursuant to the terms of the agreement, we paid D-S an upfront license fee and agreed to pay
future success milestones. Both parties share in the costs of the development and marketing in the co-promotion
territories and share in the profi ts according to the terms specifi ed in the agreement. D-S is responsible for sup-
plying bulk product, but we will produce the fi nished product for our exclusive and co-promotion territories. Profi ts
in the U.S. and other co-promotion territories will be shared according to the agreement. In the exclusive territo-
ries, we will pay D-S a royalty specifi c to those territories. Profi t share payments made to D-S will be recorded as
marketing, selling, and administrative expenses. All royalties paid to D-S will be recorded in cost of sales.
TPG-Axon Capital
In 2008, we entered into an agreement with an affi liate of TPG-Axon Capital (TPG) for the Phase III development of
our gamma-secretase inhibitor and our A-beta antibody, our two lead molecules for the treatment of mild to mod-
erate Alzheimer’s disease. Pursuant to the terms of the agreement, both we and TPG will provide funding for the
Alzheimer’s clinical trials. Funding from TPG will not exceed $325 million and could extend into 2014. In exchange
for their funding, TPG may receive success-based milestones totaling $330 million and mid- to high-single digit
royalties that are contingent upon the successful development of the Alzheimer’s treatments. The royalties will be
paid for approximately eight years after launch of a product. Reimbursements received from TPG for their portion
of research and development costs incurred related to the Alzheimer’s treatments are recorded as a reduction to
the research and development expense line item on the consolidated statement of operations. The reimbursement
from TPG is not expected to be material in any period.
Note 5: Asset Impairments, Restructuring, and Other Special Charges
The components of the charges included in asset impairments, restructuring, and other special charges in our
consolidated statements of income are described below.
Asset Impairments and Related Restructuring and Other Charges
We incurred asset impairment, 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 impair-
ments 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. We anticipate that substantially all of these costs will be paid
during the fi rst quarter of 2009.
As discussed further in Note 14, in the third quarter of 2008, we recorded a charge of $1.48 billion related to
the Zyprexa investigations led by the U.S. Attorney for the Eastern District of Pennsylvania, as well as the resolu-
tion of a multi-state investigation regarding Zyprexa involving 32 states and the District of Columbia.
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 fl exible organization, we recognized asset
impairments, restructuring, and other special charges of $182.4 million. We sold our Greenfi eld, Indiana site to
Covance, a global drug development services fi rm, and entered into a 10-year service agreement under which