Eli Lilly 2010 Annual Report Download - page 58

FORM 10-K
Note 3: Acquisitions
During 2010 and 2008 we acquired several businesses. These acquisitions were accounted for as business
combinations under the acquisition method of accounting. Under the acquisition method of accounting, the assets
acquired and liabilities assumed were recorded at their respective fair values as of the acquisition date in our
consolidated financial statements. The determination of estimated fair value required management to make
significant estimates and assumptions. The excess of the purchase price over the fair value of the acquired net
assets, where applicable, has been recorded as goodwill. The results of operations of these acquisitions are included
in our consolidated financial statements from the date of acquisition.
Most of these acquisitions included IPR&D, which represented compounds, new indications, or line extensions under
development that had not yet achieved regulatory approval for marketing. As discussed in Note 1, the fair values of
IPR&D assets acquired as part of the acquisition of a business were expensed prior to 2009, but are capitalized as
intangible assets for subsequent acquisitions. Accordingly, we capitalized IPR&D assets acquired in business
combinations totaling $598.0 million in 2010 and expensed $4.71 billion in 2008 upon acquisition because the
products had no alternative future use. The ongoing expenses with respect to each of these products in development
are not material to our total research and development expense currently and are not expected to be material to our
total research and development expense on an annual basis in the future.
Some of these acquisitions included contingent consideration, which is recorded at fair value as a liability as of the
acquisition date for acquisitions that closed after 2008. The fair value of the contingent consideration was
determined by utilizing a probability weighted estimated cash flow stream adjusted for the expected timing of each
payment. Subsequent to the acquisition date, on a quarterly basis we remeasure the contingent consideration at
current fair value with changes recorded in other—net, expense in the statement of operations.
In addition to the acquisitions of businesses, we also acquired several products in development. The acquired IPR&D
related to these products of $50.0 million, $90.0 million, and $122.0 million in 2010, 2009, and 2008, respectively, was
written off by a charge to income immediately upon acquisition because the products had no alternative future use.
2010 Acquisitions of Businesses
In 2010, we completed the acquisitions of Avid Radiopharmaceuticals, Inc. (Avid), Alnara Pharmaceuticals, Inc.
(Alnara), and a group of animal health product lines, all of which have been accounted for as business combinations,
and none of which were material to our consolidated financial statements.
Avid
On December 20, 2010, we acquired all of the outstanding stock of Avid, a company focusing on developing molecular
radiopharmaceutical tracers in positron emission topography (PET) scan imaging with the potential for earlier and
more effective detection, diagnosis, and monitoring of major chronic human diseases, for total purchase
consideration of $346.1 million, which included an upfront payment of $286.3 million and up to $550 million in
additional payments contingent upon potential future regulatory and commercial milestones. The fair value of the
contingent consideration at the acquisition date was $59.8 million. Avid’s lead product under development,
florbetapir, is a PET agent indicated for imaging amyloid plaque pathology in the brain to aid the evaluation of
patients with signs or symptoms of cognitive impairment, including Alzheimer’s disease. The New Drug Application
(NDA) was submitted to the U.S. Food and Drug Administration (FDA) in the third quarter of 2010, and the FDA
assigned priority review designation to the marketing application. In connection with this acquisition, we
preliminarily recorded $334.0 million of acquired IPR&D assets, $132.5 million of goodwill, and $116.9 million of
deferred tax liability.
Alnara
On July 20, 2010, we acquired all of the outstanding stock of Alnara, a privately-held company developing protein
therapeutics for the treatment of metabolic diseases, for total purchase consideration of $291.7 million, which
included an upfront payment of $188.7 million and up to $200 million in additional payments contingent upon
potential future regulatory and commercial milestones. The fair value of the contingent consideration at the
acquisition date was $103.0 million. Alnara’s lead product in development is liprotamase, a non-porcine pancreatic
enzyme replacement therapy. Liprotamase is under review by the FDA for the treatment of exocrine pancreatic
insufficiency. In connection with this acquisition, we preliminarily recorded $264.0 million of acquired IPR&D assets,
$100.5 million of goodwill, and $92.4 million of deferred tax liability.
Animal Health Product Lines
On May 28, 2010, we acquired the European marketing rights to several animal health product lines divested by
Pfizer Inc. as part of its acquisition of Wyeth, Inc., for total purchase consideration of $148.4 million paid in cash.
These products, including vaccines, parasiticides, and feed additives, serve both the production animal and
companion animal markets. We also acquired a manufacturing facility in Sligo, Ireland, currently used in the
production of animal vaccines. In connection with this acquisition, we preliminarily recorded $76.2 million of
developed product technology.
In connection with these 2010 acquisitions, certain estimated fair values are not yet finalized and are subject to
change. We expect to finalize these amounts as soon as possible, but no later than one year from the acquisition
date. Although the final determination may result in asset and liability fair values that are different than the
46