Eli Lilly 2015 Annual Report Download - page 45

F33
FINANCIAL REPORT
On a pro forma basis, which reflects the 2014 revenues of Novartis AH as described in Note 3 to the
consolidated financial statements, revenues of animal health products in the U.S. would have decreased 1
percent, driven primarily by decreased volume in food animal products. Revenues outside the U.S. would
have decreased 13 percent, driven by the unfavorable impact of foreign exchange rates and decreased
volume in companion animal products, partially offset by higher realized prices and volume for food animal
products.
Gross Margin, Costs, and Expenses
Gross margin as a percent of total revenue was 74.8 percent in 2015, essentially flat compared with 2014 as
the unfavorable impacts of the inclusion of Novartis AH and inventory step-up and amortization costs were
offset by the favorable impact of foreign exchange rates on international inventories sold.
Research and development expenses increased 1 percent to $4.80 billion in 2015, driven primarily by higher
late-stage clinical development costs, the inclusion of Novartis AH, and an increase in charges associated
with the termination of late-stage molecules, primarily evacetrapib and basal insulin peglispro, of
approximately $135 million, partially offset by the favorable impact of foreign exchange rates.
Marketing, selling, and administrative expenses decreased 1 percent to $6.53 billion in 2015, due to the
favorable impact of foreign exchange rates and a 2014 charge associated with the U.S. Drug Fee, partially
offset by the inclusion of Novartis AH and expenses related to new product launches.
We recognized acquired IPR&D charges of $535.0 million in 2015 resulting from various collaboration
agreements, primarily with Pfizer, as well as the consideration paid to acquire the worldwide rights to
Locemia's intranasal glucagon. There were $200.2 million of acquired IPR&D charges in 2014 related to
various collaboration agreements, including charges associated with the transfer of commercial rights to us,
from Boehringer Ingelheim, of the new insulin glargine product in certain countries where it was not yet
approved. See Notes 3 and 4 to the consolidated financial statements for additional information.
We recognized asset impairment, restructuring, and other special charges of $367.7 million in 2015. The
charges relate to severance costs, integration costs for Novartis AH, and asset impairments. In 2014, we
recognized charges of $468.7 million for asset impairment, restructuring, and other special charges. The
charges included severance costs, asset impairments primarily associated with the closure of a
manufacturing site in Puerto Rico, and integration costs for the then-pending acquisition of Novartis AH. See
Note 5 to the consolidated financial statements for additional information.
Other—net, (income) expense was income of $100.6 million in 2015, compared with income of $340.5 million
in 2014. Other income in 2015 included net gains of $236.7 million on investments, partially offset by a net
charge of $152.7 million related to the repurchase of $1.65 billion of debt. Other income in 2014 included net
gains of $216.4 million on investments and $92.0 million of income associated with the transfer of commercial
rights to linagliptin and empagliflozin in certain countries from us to Boehringer Ingelheim. See Notes 4 and
17 to the consolidated financial statements for additional information.
Our effective tax rate was 13.7 percent in 2015, compared with 20.3 percent in 2014. The effective tax rate for
2014 reflects the impact of a $119.0 million nondeductible charge associated with the U.S. Drug Fee. The
decrease in the tax rate for 2015 compared with 2014 is primarily due to a favorable tax impact of the net
charges related to the repurchase of debt, acquired IPR&D, and asset impairment, restructuring, and other
special charges. See Note 13 to the consolidated financial statements for additional information.