Eli Lilly 2010 Annual Report Download - page 37

FORM 10-K
Worldwide sales of Byetta increased 6 percent to $796.5 million during 2009. Our revenues increased 13 percent to
$448.5 million in 2009.
Erbitux revenues were $390.8 million in 2009, compared with $29.4 million in 2008. We acquired Erbitux as part of
our acquisition of ImClone in November 2008.
Animal health product sales in the U.S. increased 25 percent, primarily driven by the inclusion of Posilac sales
following the acquisition completed October 2008. Sales outside the U.S. decreased 4 percent, driven primarily by the
unfavorable impact of foreign exchange rates.
Gross Margin, Costs, and Expenses
The 2009 gross margin increased to 80.6 percent of total revenue compared with 78.5 percent for 2008. This increase
was due to the impact of changes in foreign currencies compared to the U.S. dollar on international inventories sold
during the year, which decreased cost of sales in 2009, but increased cost of sales in 2008.
Marketing, selling, and administrative expenses increased 4 percent in 2009 to $6.89 billion. The increase was driven
by the increased marketing and selling expenses outside the U.S., higher incentive compensation, and the impact of
the ImClone acquisition, partially offset by the movement of foreign exchange rates. Investment in research and
development increased 13 percent, to $4.33 billion, due primarily to the ImClone acquisition and increased late-
stage clinical trial costs.
We incurred an IPR&D charge of $90.0 million in 2009, associated with the in-licensing agreement with Incyte,
compared with $4.84 billion in 2008. The 2008 IPR&D charge included $4.69 billion resulting from the acquisition of
ImClone. We recognized asset impairments, restructuring, and other special charges of $692.7 million in 2009,
primarily related to asset impairment charges related to the sale of our Tippecanoe Laboratories manufacturing site
and special charges related to Zyprexa litigation with multiple state attorneys general, compared with $1.97 billion in
2008. The 2008 charges were primarily associated with the resolution of Zyprexa investigations with the U.S. Attorney
for the Eastern District of Pennsylvania and multiple states. See Notes 3, 5, and 15 to the consolidated financial
statements for additional information.
Other—net, expense was a net expense in both years, increasing by $203.4 million, to $229.5 million in 2009,
primarily due to lower interest income and higher interest expense resulting from the ImClone acquisition.
We incurred income tax expense of $1.03 billion in 2009 resulting in an effective tax rate of 19.2 percent. The
effective tax rate for 2009 was reduced due to the tax benefit of asset impairment and restructuring charges
associated with the sale of the Tippecanoe site. We incurred tax expense of $764.3 million in 2008, despite having a
loss before income taxes of $1.31 billion. Our net loss was driven by the $4.69 billion IPR&D charge for ImClone and
the $1.48 billion Zyprexa investigation settlements. The IPR&D charge was not tax deductible, and only a portion of
the Zyprexa investigation settlements was deductible. In addition, we recorded tax expense associated with the
ImClone acquisition, as well as a discrete income tax benefit of $210.3 million for the resolution of a substantial
portion of the 2001-2004 IRS audit. See Note 13 to the consolidated financial statements for additional information.
FINANCIAL CONDITION
As of December 31, 2010, cash, cash equivalents, and short-term investments totaled $6.73 billion compared with
$4.50 billion at December 31, 2009. The increase in cash was driven by cash from operations of $6.86 billion, partially
offset by dividends paid of $2.17 billion, business and product acquisitions of $1.10 billion, and purchases of property
and equipment of $694.3 million.
Capital expenditures of $694.3 million during 2010 were $70.7 million less than in 2009. We expect 2011 capital
expenditures to be between $800 million and $900 million as we invest in the long-term growth of our diabetes care
products, continue to upgrade our manufacturing and research facilities to enhance productivity and quality systems,
and invest in our oncology biotechnology capabilities.
Total debt at December 31, 2010, was $6.93 billion, an increase of $264.4 million from December 31, 2009, which was
due to the $141.8 million increase in the fair value of hedged debt and an increase in short-term debt of $130.7
million. Our current debt ratings from Standard & Poor’s and Moody’s are AA- and A2, respectively. Our Moody’s
long-term debt rating was moved to A2 from A1 in November 2010. Our ratings outlook from both Moody’s and
Standard and Poor’s is stable.
Dividends of $1.96 per share were paid in 2010 and 2009, 2010 was the 126th consecutive year in which we made
dividend payments. In the fourth quarter of 2010, effective for the dividend to be paid in the first quarter of 2011, the
quarterly dividend was maintained at $.49 per share, resulting in an indicated annual rate for 2011 of $1.96 per
share.
As of the fourth quarter of 2010, the U.S. and global economic recoveries proceed but face continued headwinds. U.S.
economic data in the fourth quarter reflected a steady pace of economic recovery, though the rate of recovery has
not been sufficient to materially reduce unemployment. Given persistently high unemployment and little sign of
near-term inflation risk, the U.S. Federal Reserve has maintained its accommodative monetary policy, most recently
through its November 2010 announcement of expanded asset purchases. The Federal Reserve continues its policy
stance of exceptionally low rates for an extended period to stimulate lending and economic growth. High sovereign
debt levels and efforts at fiscal austerity in the U.S. and other developed countries continue to be a concern for many
economists and are predicted to challenge the economic recovery globally. Given this backdrop, both private and
public health care payers are facing heightened fiscal challenges and are taking steps to reduce the costs of care,
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