Eli Lilly 2011 Annual Report Download - page 58

FORM 10-K
Erbitux
We have several collaborations with respect to Erbitux. The most significant collaborations are in the U.S., Japan,
and Canada (Bristol-Myers Squibb Company); and worldwide except the U.S. and Canada (Merck KGaA). The
agreements are expected to expire in 2018, upon which all of the rights with respect to Erbitux in the U.S. and
Canada return to us and certain rights with respect to Erbitux outside the U.S. and Canada (excluding Japan) remain
with Merck KGaA (Merck). The following table summarizes the revenue recognized with respect to Erbitux:
2011 2010 2009
Net product sales .............................................................. $ 87.6 $ 71.9 $ 92.5
Collaboration and other revenue .................................................. 321.6 314.2 298.3
Total revenue .................................................................. $409.2 $386.1 $390.8
Bristol-Myers Squibb Company
Pursuant to a commercial agreement with Bristol-Myers Squibb Company and E.R. Squibb (collectively, BMS),
relating to Erbitux, we are co-developing Erbitux in the U.S. and Canada with BMS, exclusively, and in Japan with
BMS and Merck. The companies have jointly agreed to expand the investment in the ongoing clinical development
plan for Erbitux to further explore its use in additional tumor types. Under this arrangement, Erbitux research and
development and other costs are shared by both companies according to a predetermined ratio.
Responsibilities associated with clinical and other ongoing studies are apportioned between the parties under the
agreement. Collaborative reimbursements received by us for supply of clinical trial materials; for research and
development; and for a portion of marketing, selling, and administrative expenses are recorded as a reduction to the
respective expense line items on the consolidated statement of operations. We receive a distribution fee in the form
of a royalty from BMS, based on a percentage of net sales in the U.S. and Canada, which is recorded in collaboration
and other revenue. Royalty expense paid to third parties, net of any reimbursements received, is recorded as a
reduction of collaboration and other revenue.
We are responsible for the manufacture and supply of all requirements of Erbitux in bulk-form active
pharmaceutical ingredient (API) for clinical and commercial use in the territory, and BMS will purchase all of its
requirements of API for commercial use from us, subject to certain stipulations per the agreement. Sales of Erbitux
to BMS for commercial use are reported in net product sales.
Merck KGaA
A development and license agreement with Merck with respect to Erbitux granted Merck exclusive rights to market
Erbitux outside of the U.S. and Canada, and co-exclusive rights with BMS and us in Japan. Merck also has rights to
manufacture Erbitux for supply in its territory. We also receive a royalty on the sales of Erbitux outside of the U.S.
and Canada, which is included in collaboration and other revenue as earned. Collaborative reimbursements received
for research and for development; and marketing, selling, and administrative expenses are recorded as a reduction
to the respective expense line items on the consolidated statement of operations. Royalty expense paid to third
parties, net of any royalty reimbursements received, is recorded as a reduction of collaboration and other revenue.
Necitumumab
The commercial agreement with BMS described above includes the co-development and co-commercialization of
necitumumab, which is currently in Phase III clinical testing for squamous non-small cell lung cancer. We and BMS
share the cost of developing and potentially commercializing necitumumab in the U.S., Canada, and Japan. We
maintain exclusive rights to necitumumab in all other markets. We will fund 45 percent of the development costs for
studies that will be used only in the U.S., and 72.5 percent for global studies. We will be responsible for the
manufacturing of API, and BMS will be responsible for manufacturing the finished product. We could receive a
payment of $250.0 million upon approval in the U.S. In the U.S. and Canada, BMS will record sales and we will
receive 45 percent of the profits for necitumumab, while we will provide 50 percent of the selling effort. In Japan, we
and BMS will share costs and profits evenly.
Exenatide
In November 2011, we agreed with Amylin Pharmaceuticals, Inc. (Amylin) to terminate our collaborative
arrangement for the joint development, marketing, and selling of Byetta (exenatide injection) and other forms of
exenatide such as Bydureon (exenatide extended-release for injectable suspension). Under the terms of the
termination agreement, Amylin made a one-time, upfront payment to us of $250.0 million. Amylin also agreed to
make future revenue-sharing payments to us in an amount equal to 15 percent of their global net sales of exenatide
products until Amylin has made aggregate payments to us of $1.20 billion plus interest, which will accrue at
9.5 percent. Amylin issued a secured note in the amount of $1.20 billion to us under which any revenue-sharing
payments made to us will reduce amounts outstanding under the note. In general, Amylin’s obligation for the
revenue-sharing payments and the secured note will terminate if all exenatide products are withdrawn from the
market due to safety or efficacy issues and are not sold for a period of four years. Amylin will also pay a
$150.0 million milestone to us contingent upon FDA approval of a once-monthly suspension version of exenatide that
is currently in Phase II clinical trials.
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