Eli Lilly 2012 Annual Report Download - page 69

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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 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. Under the agreement, we and BMS have shared in the costs of developing and potentially
commercializing necitumumab; however, in the fourth quarter of 2012, BMS provided notice of termination of
its involvement with necitumumab. Under the terms of the agreement, BMS will continue to fund a portion of
the costs over the following 18-month period, at which point BMS's involvement with necitumumab will
terminate and we will hold exclusive rights to necitumumab in all markets.
Effient
We are in a collaborative arrangement with Daiichi Sankyo Co., Ltd. (Daiichi Sankyo) to develop, market, and
promote Effient. We and Daiichi Sankyo co-promote Effient in certain territories (including the U.S. and five
major European markets), while we have exclusive marketing rights in certain other territories. Daiichi
Sankyo has exclusive marketing rights in Japan and certain other territories. The parties share approximately
50/50 in the profits, as well as in the costs of development and marketing in the co-promotion territories. A
third party manufactures bulk product, and we produce the finished product for our exclusive and co-
promotion territories. We record product sales in our exclusive and co-promotion territories. In our exclusive
territories, we pay Daiichi Sankyo a royalty specific to these territories. Profit-share payments made to Daiichi
Sankyo are recorded as marketing, selling, and administrative expenses. All royalties paid to Daiichi Sankyo
and the third-party manufacturer are recorded in cost of sales. Effient sales were $457.2 million,
$302.5 million, and $115.0 million for the years ended December 31, 2012, 2011, and 2010, respectively.
Diabetes Collaboration
In January 2011, we and Boehringer Ingelheim entered into a global agreement to jointly develop and
commercialize a portfolio of diabetes compounds. Included are Boehringer Ingelheim's two oral diabetes
agents, linagliptin and empagliflozin. Subsequently in 2011, linagliptin was approved and launched in the U.S.
(trade name Tradjenta), Japan (trade name TrazentaTM), Europe (trade name Trajenta®), and other countries.
Empagliflozin is currently in Phase III clinical testing. Also included in the agreement were our new insulin
glargine product and our novel basal insulin analog, both of which began Phase III clinical testing in the
second half of 2011; and an option granted to Boehringer Ingelheim to co-develop and co-commercialize our
anti-TGF-beta monoclonal antibody, which is currently in Phase II clinical testing. Subsequently in 2013,
Boehringer Ingelheim elected to terminate our collaboration with respect to the novel basal insulin analog.
Under the terms of the global agreement, we made an initial one-time payment to Boehringer Ingelheim of
$388.0 million and recorded an acquired IPR&D charge, which was included as expense in the first quarter of
2011 and is deductible for tax purposes.
In connection with the approval of linagliptin in the U.S., Japan, and Europe, in 2011 we paid $478.7 million in
success-based regulatory milestones, all of which were capitalized as intangible assets and are being
amortized to cost of sales. We may pay up to 300.0 million euro in additional success-based regulatory
milestones for empagliflozin. We will be eligible to receive up to a total of $300.0 million in success-based
regulatory milestones on our new insulin glargine product. Should Boehringer Ingelheim elect to opt in to the
Phase III development and potential commercialization of the anti-TGF-beta monoclonal antibody, we would
be eligible for up to $525.0 million in opt-in and success-based regulatory milestone payments. The
companies share ongoing development costs equally. The companies also share in the commercialization
costs and gross margin for any product resulting from the collaboration that receives regulatory approval. We