Eli Lilly 2013 Annual Report Download - page 59

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Note 3: Acquisitions
During 2012 and 2011, we completed the acquisitions of ChemGen Corporation (ChemGen) and the animal
health business of Janssen Pharmaceuticia NV (Janssen), respectively. These acquisitions were accounted
for as business combinations 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. None of these acquisitions were material to our
consolidated financial statements.
In addition to the acquisitions of businesses, we also acquired assets in development in 2013 and 2011 which
are further discussed below in Product Acquisitions and in Note 4, respectively. Upon acquisition, the acquired
IPR&D related to these products was immediately written off as an expense because the products had no
alternative future use. For the years ended December 31, 2013 and 2011, we recorded acquired IPR&D
charges of $57.1 million and $388.0 million, respectively, associated with these transactions. There were no
acquired IPR&D charges in 2012.
In connection with the arrangements described below, our partners may be entitled to future milestones and
royalties based on sales should these products be approved for commercialization.
Acquisition of Businesses
ChemGen
On February 17, 2012, we acquired all of the outstanding stock of ChemGen Corporation, 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, for total purchase consideration of
$206.9 million in cash. In connection with this acquisition, we recorded $151.5 million of marketed product
assets and $55.4 million of other net assets.
Janssen
On July 7, 2011, we acquired the animal health business of Janssen, a Johnson & Johnson company, for total
purchase consideration of $307.8 million in cash. We obtained a portfolio of more than 50 marketed animal
health products. In connection with this acquisition, we recorded $234.4 million of marketed product assets,
$29.6 million of acquired IPR&D assets, and $43.8 million of other net assets.
Product Acquisitions
In December 2013, we acquired all development and commercial rights for a calcitonin gene-related peptide
(CGRP) antibody currently being studied as a potential treatment for the prevention of frequent, recurrent
migraine headaches for $57.1 million in cash. At the time of the purchase, the product had completed a
successful Phase II proof-of-concept study and had no alternative future use. The related $57.1 million charge
for acquired IPR&D was included as expense in the fourth quarter of 2013 and is deductible for tax purposes.
Note 4: Collaborations
We often enter into collaborative arrangements to develop and commercialize drug candidates. Collaborative
activities may include research and development, marketing and selling (including promotional activities and
physician detailing), manufacturing, and distribution. These collaborations often require milestone and royalty
or profit-share payments, contingent upon the occurrence of certain future events linked to the success of the
asset in development, as well as expense reimbursements or payments to the third party. Revenues related
to products we sell pursuant to these arrangements are included in net product sales, while other sources of
revenue (e.g., royalties and profit-share payments) are included in collaboration and other revenue. For the
years ended December 31, 2013, 2012, and 2011, we recognized collaboration and other revenue of
$707.5 million, $633.0 million, and $681.7 million, respectively. Operating expenses for costs incurred
pursuant to these arrangements are reported in their respective expense line item, net of any payments made