Eli Lilly 2010 Annual Report Download - page 60

FORM 10-K
The pro forma financial information above reflects the following:
• a reduction of the amortization of ImClone’s deferred income of $86.2 million;
• the increase of amortization expense of $78.8 million related to the estimated fair value of identifiable intangible
assets from the purchase price allocation which are being amortized over their estimated useful lives through
2023 in the U.S. and through 2018 in the rest of the world. The change in depreciation expense related to the
change in the estimated fair value of property and equipment from the book value at the time of the acquisition
was not material;
• the adjustment to increase interest expense related to the debt incurred to finance the acquisition and the
adjustment to decrease interest income related to the lost interest income on the cash used to purchase
ImClone by a total of $301.0 million;
• the reduction of ImClone’s income tax expense to provide for income taxes at the statutory tax rate and the
adjustment to income taxes for pro forma adjustments at the statutory tax rate, totaling $139.3 million. This
excludes the acquired IPR&D charge of $4.69 billion, which was not tax deductible;
• certain reclassifications to conform to accounting policies and classifications that are consistent with our
practices (e.g., ImClone’s license fees and milestones were classified as other—net, expense, rather than net
sales).
Other 2008 Acquisitions of Businesses
In addition to the ImClone acquisition noted above, in 2008, we completed the acquisitions of rights to Posilac from
Monsanto Company (Monsanto) and SGX Pharmaceuticals, Inc. (SGX), both of which have been accounted for as
business combinations, and neither of which are material individually or in the aggregate to our consolidated
financial statements.
Posilac
On October 1, 2008, we acquired the worldwide rights to the dairy cow supplement Posilac, as well as the product’s
supporting operations, from Monsanto. The acquisition of Posilac provides us with a product that complements those
of our animal health business. Under the terms of the agreement, we acquired the rights to the Posilac brand, as
well as the product’s U.S. sales force and manufacturing facility, for a $300.0 million upfront payment, transaction
costs, and contingent consideration to Monsanto based on estimated future Posilac sales.
SGX Pharmaceuticals, Inc.
On August 20, 2008, we acquired all of the outstanding common stock of SGX. The acquisition allowed us to integrate
SGX’s structure-guided drug discovery platform into our drug discovery efforts. It also gave us access to FASTTM,
SGX’s fragment-based, protein structure guided drug discovery technology, and to a portfolio of preclinical oncology
compounds focused on a number of kinase targets. Under the terms of the agreement, the outstanding shares of
SGX common stock were redeemed for an aggregate purchase price of $66.8 million.
In connection with the Monsanto and SGX acquisitions, we recorded $210.0 million of identifiable intangible assets,
$167.6 million of inventories, $102.8 million of property and equipment and $133.1 million of liabilities.
Product Acquisitions
In March 2010, we entered into a license agreement with Acrux Limited to acquire the exclusive rights to
commercialize its proprietary testosterone solution with the proposed tradename Axiron. In the fourth quarter of
2010, the product was approved by the FDA for the treatment of testosterone deficiency in men; however, at the time
of the licensing the product had not yet been approved and had no alternative future use. The charge of $50.0 million
for acquired IPR&D related to this arrangement was included as expense in the first quarter of 2010 and is
deductible for tax purposes.
In December 2009, we entered into a licensing and collaboration agreement with Incyte Corporation to acquire rights
to its compound, and certain follow-on compounds, for the treatment of inflammatory and autoimmune diseases.
The lead compound was in the development stage (Phase II clinical trials for rheumatoid arthritis) and had no
alternative future use. The charge of $90.0 million for acquired IPR&D related to this arrangement was included in
expense in the fourth quarter of 2009 and is deductible for tax purposes. As part of this agreement, Incyte has the
option to co-develop these compounds and the option to co-promote in the United States.
In June 2008, we entered into a licensing and development agreement with TransPharma Medical Ltd.
(TransPharma) to acquire rights to its product and related drug delivery system for the treatment of osteoporosis.
The charge of $35.0 million for acquired IPR&D related to this arrangement was included as expense in the second
quarter of 2008 and is deductible for tax purposes.
In January 2008, our agreement with BioMS Medical Corp. to acquire the rights to its compound for the treatment of
multiple sclerosis became effective. In the third quarter of 2009, data from the Phase III clinical trials showed there
were no statistically significant differences between dirucotide and placebo on the primary or secondary endpoints of
the study, and ongoing clinical trials and the arrangement were discontinued. The charge of $87.0 million for
acquired IPR&D related to this arrangement was included as expense in the first quarter of 2008 and is deductible
for tax purposes.
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