Eli Lilly 2011 Annual Report Download - page 33

FORM 10-K
Linagliptin and Empagliflozin—In January 2011, we announced a global agreement with Boehringer Ingelheim
(Boehringer) to jointly develop and commercialize a portfolio of diabetes compounds currently in mid- and late-
stage development, including Boehringer’s two investigational oral diabetes agents, linagliptin and
empagliflozin. In 2011, linagliptin was approved and launched in the U.S. (trade name Tradjenta), Japan (trade
name Trazenta™), Europe (trade name Trajenta®), and other countries. In January 2012, the FDA approved
Jentadueto™, a combination of linagliptin and metformin for the treatment of adults with type 2 diabetes.
Liprotamase—In April, we received a complete response letter from the FDA for the NDA for liprotamase that
communicated the need for us to conduct an additional clinical trial prior to a re-submission. We are currently
finalizing the study design and anticipate starting a clinical study in 2012.
Necitumumab—In February 2011, we and Bristol-Myers Squibb Company stopped enrollment in one of the two
global Phase III studies. The decision to stop enrollment in the Phase III non-squamous NSCLC INSPIRE trial
(combination treatment with Alimta) followed an independent Data Monitoring Committee recommendation that
no new or recently enrolled patients continue treatment in the trial because of safety concerns related to
thromboembolism (blood clots) in the experimental arm of the study. The second Phase III study in squamous
NSCLC looking at the combination use of necitumumab with Gemzar is continuing.
New insulin glargine product—In September, we began the first Phase III clinical trial for our new insulin
glargine product.
Novel basal insulin analog—In November, we began the first Phase III clinical trial for our novel basal insulin
analog.
Pomaglumetad Methionil—In February 2011, we began the first Phase III clinical trial for pomaglumetad
methionil.
Solanezumab—In January 2012, an independent Data Monitoring Committee (DMC) recommended that we
continue the two ongoing Phase III randomized pivotal trials for solanezumab without modifications, based on
pre-planned interim safety and futility analyses. The DMC also recommended that we make a protocol
modification to EXPEDITION-XT, the open-label extension study of the two Phase III trials, making the protocol
for the open-label extension more consistent with the current protocol for the pivotal studies.
Acquisition
In February 2012, we acquired ChemGen Corp., a privately-held bioscience company specializing in the development
and commercialization of innovative feed enzyme products that improve the efficiency of poultry, egg, and meat
production. The transaction is not material to our consolidated financial statements.
Legal, Regulatory, and Other Matters
In October 2011, we announced the withdrawal of our Xigris [drotrecogin alfa (activated)] product in all markets
following results of the PROWESS-SHOCK study, which did not meet the primary endpoint of a statistically significant
reduction in 28-day all-cause mortality in patients with septic shock. We incurred a charge of $85.0 million (pretax),
or approximately $.05 per share, for product returns and contractual commitments related to Xigris. Revenue
related to Xigris has not been material to our consolidated financial statements.
The enactment of the “Patient Protection and Affordable Care Act” (PPACA) and “The Health Care and Education
Reconciliation Act of 2010” in March 2010 brought significant changes to U.S. health care. These changes began to
affect our financial results in the first quarter of 2010 and will continue to have significant impact on our results in
the future. The U.S. Supreme Court has agreed to decide the constitutionality of the PPACA. Oral arguments will take
place in March 2012 and a decision is expected in the summer of 2012.
Changes to the rebates for prescription drugs sold to Medicaid beneficiaries, which increase the minimum statutory
rebate for branded drugs from 15.1 percent to 23.1 percent, became effective in the first quarter of 2010. This rebate
has been expanded to managed Medicaid, a program that provides for the delivery of Medicaid benefits via managed
care organizations, under arrangements between those organizations and state Medicaid agencies. Additionally, a
prescription drug discount program for outpatient drugs in certain types of health care facilities that serve
low-income and uninsured patients (known as 340B facilities) has been expanded.
Beginning in 2011, drug manufacturers provided a discount of 50 percent of the cost of branded prescription drugs
for Medicare Part D participants who are in the “doughnut hole” (the coverage gap in Medicare prescription drug
coverage). The doughnut hole will be phased out by the federal government between 2011 and 2020. Additionally,
beginning in 2011, a non-tax-deductible annual fee is imposed on pharmaceutical manufacturers and importers that
sell branded prescription drugs to specified government programs. This fee is allocated to companies based on their
prior-calendar-year market share for branded prescription drug sales into these government programs. In 2011, we
recorded $178.0 million related to this fee, which is included in marketing, selling, and administrative expense in our
consolidated statement of operations.
Also, there are changes to the tax treatment of subsidies paid by the government to employers, such as us, who
provide their retirees with a drug benefit at least equivalent to the Medicare Part D drug benefit. Beginning in 2013,
the federal government will tax the subsidy it provides to such employers. While this tax will not take effect for two
more years, accounting rules dictated that we adjust our deferred tax asset through a one-time non-cash charge of
$85.1 million upon enactment of the tax law change, which we recorded in the first quarter of 2010.
The continuing prominence of U.S. budget deficits as both a policy and political issue increases the risk that taxes,
fees, rebates, or other measures that would further reduce pharmaceutical companies’ revenue or increase
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