Indiana (State or Other Jurisdiction of Incorporation) Lilly Corporate Center Indianapolis, Indiana (Address of Principal Executive Offices) | 001-06351 (Commission File Number) | 35-0470950 (I.R.S. Employer Identification No.) 46285 (Zip Code) |
No Change |
Exhibit Number | Exhibit |
99.1 | Press release dated October 22, 2015, together with related attachments. |
October 22, 2015 | Eli Lilly and Company | |
Lilly Corporate Center | ||
Indianapolis, Indiana 46285 | ||
U.S.A. | ||
+1.317.276.2000 | ||
www.lilly.com |
• | Revenue increased 2 percent with the inclusion of Novartis Animal Health and higher volume for several products, including Cyramza and Trulicity; these contributions were partially offset by the unfavorable effect of foreign exchange rates and the residual impact of the Cymbalta patent expiration. |
• | Third-quarter 2015 earnings per share were $0.75 (reported), or $0.89 (non-GAAP). |
• | Significant pipeline progress has continued with positive Jardiance cardiovascular outcomes data, two positive topline results for baricitinib and Breakthrough Therapy Designation for abemaciclib, as well as the acquisition of a promising Phase III intranasal glucagon and multiple oncology collaborations. |
• | 2015 EPS guidance has been revised to be in the range of $2.40 to $2.45 on a reported basis and $3.40 to $3.45 on a non-GAAP basis, reflecting solid underlying performance and net investment gains in the third quarter. |
$ in millions, except per share data | Third Quarter | % | |||||||
2015 | 2014 | Change | |||||||
Revenue – Reported | $ | 4,959.7 | $ | 4,875.6 | 2 | % | |||
Net Income – Reported | 799.7 | 500.6 | 60 | % | |||||
EPS – Reported | 0.75 | 0.47 | 60 | % | |||||
Revenue – non-GAAP | 4,959.7 | 5,151.0 | (4 | )% | |||||
Net Income – non-GAAP | 949.6 | 781.2 | 22 | % | |||||
EPS – non-GAAP | 0.89 | 0.73 | 22 | % |
2 |
• | The company launched Basaglar®, a basal insulin product, in Japan, the UK, Germany and other European markets. Basaglar is part of the Boehringer Ingelheim and Eli Lilly and Company Diabetes Alliance. |
• | The company launched Trulicity® in Japan as a treatment for type 2 diabetes. |
• | The U.S. Food and Drug Administration (FDA) approved Synjardy® (empagliflozin and metformin hydrochloride) tablets and the product was launched in the U.S. for the treatment of adults with type 2 diabetes. Synjardy is part of the Boehringer Ingelheim and Eli Lilly and Company Diabetes Alliance. |
• | The FDA granted Breakthrough Therapy Designation to abemaciclib for patients with refractory hormone-receptor-positive advanced or metastatic breast cancer. Breakthrough Therapy Designation is designed to expedite the development and review of potential medicines that are intended to treat a serious condition, and preliminary clinical evidence indicates that the treatment may demonstrate substantial improvement over available therapy on a clinically significant endpoint. |
• | The company and Boehringer Ingelheim announced positive results from a long-term clinical trial investigating cardiovascular (CV) outcomes for Jardiance® in adults with type 2 diabetes at high risk for CV events. Jardiance is the only diabetes medicine to have demonstrated a significant reduction in both cardiovascular risk and cardiovascular death in a dedicated outcomes trial. |
• | The company will terminate the Phase III trials of evacetrapib for the treatment of high-risk atherosclerotic cardiovascular disease due to insufficient efficacy. |
• | The company and Incyte Corporation announced positive top-line results for baricitinib, an investigational medicine for patients with moderately-to-severely active rheumatoid arthritis. |
◦ | The third Phase III study evaluating safety and efficacy of baricitinib met its primary |
3 |
◦ | The fourth Phase III study of baricitinib met its primary objective of demonstrating superiority compared to placebo after 12 weeks of treatment based on ACR20 response rate. Baricitinib was also superior to adalimumab in improving signs and symptoms of rheumatoid arthritis as measured by ACR20 response and improvement in the DAS28-hsCRP score after 12 weeks of treatment. |
• | The company announced external innovation agreements with: |
◦ | AstraZeneca to expand their existing immuno-oncology collaboration exploring novel combination therapies for the treatment of patients with solid tumors. The company and AstraZeneca will evaluate the safety and efficacy of a range of additional combinations across the companies’ complementary portfolios. |
◦ | ImaginAb Inc. to conduct preclinical research studying potential novel T-cell-based immuno-oncology therapies. |
◦ | Innovent Biologics, Inc. to expand their collaboration to support the development and potential commercialization of up to three anti-PD-1 based bispecific antibodies for cancer treatments over the next decade, both inside and outside of China. |
• | The company acquired worldwide rights from Locemia Solutions to a Phase III intranasal glucagon, a potential treatment for severe hypoglycemia in people with diabetes treated with insulin. |
• | Bristol-Myers Squibb transferred its Erbitux® commercialization rights to Lilly in North America. |
• | The company entered into a settlement agreement to resolve patent litigation with Sanofi regarding the company’s insulin glargine product, Basaglar. As a part of the agreement, Lilly and its alliance partner, Boehringer Ingelheim, will have the ability to launch Basaglar in the U.S. on December 15, 2016. Under the terms of the agreement, Sanofi granted Lilly a royalty- |
4 |
• | The U.S. District Court for the Southern District of Indiana ruled that the Alimta® vitamin regimen patent would be infringed by the generic challengers’ proposed products. The patent provides intellectual property protection for Alimta until May 2022. |
• | The Japan Patent Office issued a notice of closure in the trial regarding the validity of Lilly’s vitamin regimen patent for Alimta. We expect a written decision upholding the patent validity in the coming weeks. This is the first of two decisions pending. If the patents are ultimately upheld through all challenges and appeals, they would provide intellectual property protection for Alimta in Japan until June 2021. |
• | The company plans to add 30,000 square feet and approximately 50 new jobs to its research and development presence at the Alexandria Center for Life Science in New York, New York. Upon completion in 2016, this space will include a translational immuno-oncology hub and a Lilly “portal,” which will provide local academic scientists with opportunities for collaborative access to cutting-edge drug discovery capabilities. |
5 |
6 |
7 |
8 |
Third Quarter | ||||||||
2015 | 2014 | % Change | ||||||
Earnings per share (reported) | $ | 0.75 | $ | 0.47 | 60% | |||
Novartis Animal Health 2014 results | — | (.01 | ) | |||||
Novartis Animal Health inventory step-up | .01 | — | ||||||
Amortization of intangible assets | .10 | .08 | ||||||
Branded Prescription Drug Fee | — | .11 | ||||||
Acquired in-process research and development | — | .06 | ||||||
Asset impairment, restructuring and other special charges | .03 | .02 | ||||||
Earnings per share (non-GAAP) | $ | 0.89 | $ | 0.73 | 22% | |||
Numbers may not add due to rounding. |
9 |
Year-to-date | ||||||||
2015 | 2014 | % Change | ||||||
Earnings per share (reported) | $ | 1.81 | $ | 1.82 | (1)% | |||
Novartis Animal Health 2014 results | — | (.06 | ) | |||||
Novartis Animal Health inventory step-up | .10 | — | ||||||
Amortization of intangible assets | .29 | .24 | ||||||
Branded Prescription Drug Fee | — | .11 | ||||||
Acquired in-process research and development | .20 | .06 | ||||||
Asset impairment, restructuring and other special charges | .15 | .04 | ||||||
Net charge related to repurchase of debt | .09 | — | ||||||
Earnings per share (non-GAAP) | $ | 2.65 | $ | 2.21 | 20% | |||
Numbers may not add due to rounding. |
10 |
Select Revenue Highlights | ||||||||||||||||||||
(Dollars in millions) | Third Quarter | Year-to-Date | ||||||||||||||||||
2015 | 2014 | % Change | 2015 | 2014 | % Change | |||||||||||||||
Humalog® | $ | 705.0 | $ | 706.1 | 0% | $ | 2,043.3 | $ | 2,056.1 | (1)% | ||||||||||
Alimta | 628.5 | 723.4 | (13)% | 1,865.8 | 2,067.0 | (10)% | ||||||||||||||
Cialis® | 566.1 | 568.4 | 0% | 1,672.3 | 1,668.6 | 0% | ||||||||||||||
Forteo® | 348.9 | 332.2 | 5% | 970.4 | 941.2 | 3% | ||||||||||||||
Humulin® | 316.7 | 335.9 | (6)% | 948.8 | 1,004.5 | (6)% | ||||||||||||||
Cymbalta | 242.9 | 368.0 | (34)% | 804.0 | 1,247.5 | (36)% | ||||||||||||||
Zyprexa® | 237.9 | 257.4 | (8)% | 711.2 | 784.2 | (9)% | ||||||||||||||
Strattera® | 196.9 | 191.9 | 3% | 562.4 | 543.7 | 3% | ||||||||||||||
Effient® | 132.1 | 131.5 | 0% | 382.7 | 384.4 | 0% | ||||||||||||||
Cyramza | 111.2 | 28.4 | NM | 266.4 | 42.0 | NM | ||||||||||||||
Trajenta®(a) | 92.7 | 78.9 | 17% | 255.0 | 246.1 | 4% | ||||||||||||||
Evista | 58.0 | 89.5 | (35)% | 184.5 | 347.8 | (47)% | ||||||||||||||
Trulicity | 73.7 | — | NM | 136.2 | — | NM | ||||||||||||||
Animal Health | 778.8 | 584.7 | 33% | 2,369.3 | 1,713.3 | 38% | ||||||||||||||
Total Revenue | 4,959.7 | 4,875.6 | 2% | 14,583.1 | 14,494.3 | 1% | ||||||||||||||
(a)Trajenta revenue includes Jentadueto® NM – not meaningful |
11 |
12 |
13 |
14 |
2015 Expectations | ||
Earnings per share (reported) | $2.40 to $2.45 | |
Amortization of intangible assets including the impact of the transfer of Erbitux rights | .39 | |
Acquired in-process research and development charges | .20 | |
Net charge related to repurchase of debt | .09 | |
Asset impairment, restructuring, integration and inventory step-up costs, primarily related to the acquisition of Novartis Animal Health | .31 | |
Earnings per share (non-GAAP) | $3.40 to $3.45 | |
Amortization and inventory step-up costs associated with the acquisition of Novartis Animal Health and the transfer of Erbitux commercialization rights are subject to final acquisition accounting adjustments. The company’s 2015 financial guidance, on a reported basis, does not include the potential impact of the recent acquisition of worldwide rights to an intranasal glucagon from Locemia Solutions. Numbers may not add due to rounding. |
15 |
16 |
2015 Guidance | ||||
Prior | Revised | |||
Revenue | $19.7 to $20.0 billion | $19.7 to $20.0 billion | ||
Gross Margin % of Revenue (reported) | Approx. 74.5% | Approx. 74.5% | ||
Gross Margin % of Revenue (non-GAAP) | Approx. 78.0% | Approx. 78.0% | ||
Marketing, Selling & Admin (reported) | $6.4 to $6.7 billion | $6.4 to $6.6 billion | ||
Marketing, Selling & Admin (non-GAAP) | $6.3 to $6.6 billion | $6.3 to $6.5 billion | ||
Research & Development | $4.7 to $4.9 billion | $4.6 to $4.8 billion | ||
Other Income/(Expense) (reported) | ($50 million) to $0 | $50 to $75 million | ||
Other Income/(Expense) (non-GAAP) | $100 to $150 million | $200 to $225 million | ||
Tax Rate (reported) | Approx. 14.5% | Approx. 16.5% | ||
Tax Rate (non-GAAP) | Approx. 21.0% | Approx. 21.5% | ||
Earnings per share (reported) | $2.20 to $2.30 | $2.40 to $2.45 | ||
Earnings per share (non-GAAP) | $3.20 to $3.30 | $3.40 to $3.45 | ||
Capital Expenditures | Approx. $1.3 billion | Approx. $1.1 billion | ||
The company’s 2015 financial guidance is subject to final accounting adjustments for the acquisition of Novartis Animal Health and the transfer of Erbitux commercialization rights. |
17 |
18 |
19 |
Eli Lilly and Company |
Operating Results (Unaudited) – REPORTED |
(Dollars in millions, except per share data) |
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||||||||||||
2015 | 2014 | % Chg. | 2015 | 2014 | % Chg. | ||||||||||||||||||||||||||||
Revenue | $ | 4,959.7 | $ | 4,875.6 | 2% | $ | 14,583.1 | $ | 14,494.3 | 1% | |||||||||||||||||||||||
Cost of sales | 1,236.9 | 1,267.0 | (2)% | 3,648.0 | 3,679.4 | (1)% | |||||||||||||||||||||||||||
Research and development | 1,143.4 | 1,243.2 | (8)% | 3,352.2 | 3,547.9 | (6)% | |||||||||||||||||||||||||||
Marketing, selling and administrative | 1,575.7 | 1,672.1 | (6)% | 4,734.6 | 4,820.9 | (2)% | |||||||||||||||||||||||||||
Acquired in-process research and development | — | 95.0 | NM | 336.0 | 95.0 | NM | |||||||||||||||||||||||||||
Asset impairment, restructuring and other special charges | 42.4 | 36.3 | 17% | 222.8 | 67.7 | NM | |||||||||||||||||||||||||||
Operating income | 961.3 | 562.0 | 71% | 2,289.5 | 2,283.4 | 0% | |||||||||||||||||||||||||||
Net interest income (expense) | (18.1 | ) | (9.3 | ) | (53.8 | ) | (14.6 | ) | |||||||||||||||||||||||||
Net other income (expense) | 104.6 | 102.8 | 109.7 | 217.9 | |||||||||||||||||||||||||||||
Other income (expense) | 86.5 | 93.5 | (7)% | 55.9 | 203.3 | (73)% | |||||||||||||||||||||||||||
Income before income taxes | 1,047.8 | 655.5 | 60% | 2,345.4 | 2,486.7 | (6)% | |||||||||||||||||||||||||||
Income taxes | 248.1 | 154.9 | 60% | 415.4 | 524.7 | (21)% | |||||||||||||||||||||||||||
Net income | $ | 799.7 | $ | 500.6 | 60% | $ | 1,930.0 | $ | 1,962.0 | (2)% | |||||||||||||||||||||||
Earnings per share – diluted | $ | 0.75 | $ | 0.47 | 60% | $ | 1.81 | $ | 1.82 | (1)% | |||||||||||||||||||||||
Dividends paid per share | $ | 0.50 | $ | 0.49 | 2% | $ | 1.50 | $ | 1.47 | 2% | |||||||||||||||||||||||
Weighted-average shares outstanding (thousands) – diluted | 1,065,159 | 1,074,386 | 1,065,961 | 1,075,740 |
20 |
Eli Lilly and Company | ||||||||||||||||||
Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information (Unaudited)(a) | ||||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||||
Three Months Ended September 30, 2015 | Three Months Ended September 30, 2014 | |||||||||||||||||
GAAP Reported | Adjustments(c) | Non-GAAP Adjusted | GAAP Reported | Adjustments(d) | Non-GAAP Adjusted | |||||||||||||
Revenue | $ | 4,959.7 | $ | — | $ | 4,959.7 | $ | 4,875.6 | $ | 275.4 | $ | 5,151.0 | ||||||
Cost of sales | 1,236.9 | (137.9 | ) | 1,099.0 | 1,267.0 | 32.6 | 1,299.7 | |||||||||||
Operating expenses(b) | 2,719.1 | (35.8 | ) | 2,683.3 | 2,915.3 | (23.2 | ) | 2,892.0 | ||||||||||
Acquired in-process research and development | — | — | — | 95.0 | (95.0 | ) | — | |||||||||||
Asset impairment, restructuring and other special charges | 42.4 | (42.4 | ) | — | 36.3 | (36.3 | ) | — | ||||||||||
Other income (expense) | 86.5 | — | 86.5 | 93.5 | (34.1 | ) | 59.3 | |||||||||||
Income taxes | 248.1 | 66.2 | 314.3 | 154.9 | 82.4 | 237.4 | ||||||||||||
Net income | $ | 799.7 | $ | 149.8 | $ | 949.6 | $ | 500.6 | $ | 280.7 | $ | 781.2 | ||||||
Earnings per share – diluted | $ | 0.75 | $ | 0.14 | $ | 0.89 | $ | 0.47 | $ | 0.26 | $ | 0.73 |
(a) | The company uses non-GAAP financial measures that differ from financial statements reported in conformity with U.S. generally accepted accounting principles (GAAP). The company's non-GAAP measures adjust reported results to exclude items that are typically highly variable, difficult to predict, and of a size that could have a substantial impact on the company’s reported operations for a period. Non-GAAP adjusted amounts for 2014 assume the Novartis Animal Health acquisition was completed on January 1, 2014. Beginning in 2015, non-GAAP financial measures for periods presented also exclude amortization of intangibles primarily associated with costs of marketed products acquired or licensed from third parties. The company believes that these non-GAAP measures provide useful information to investors. Among other things, they may help investors evaluate the company’s ongoing operations. They can assist in making meaningful period-over-period comparisons and in identifying operating trends that would otherwise be masked or distorted by the items subject to the adjustments. Management uses these non-GAAP measures internally to evaluate the performance of the business, including to allocate resources and to evaluate results relative to incentive compensation targets. Investors should consider these non-GAAP measures in addition to, not as a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. |
21 |
(b) | Operating expenses include research and development and marketing, selling and administrative expenses. |
(c) | Adjustments to certain GAAP reported measures for the three months ended September 30, 2015, include the following: |
(Dollars in millions, except per share data) | Amortization(i) | Inventory step-up(ii) | Other specified items(iii) | Total Adjustments | ||||||||
Revenue | $ | — | $ | — | $ | — | $ | — | ||||
Cost of sales | (116.7 | ) | (21.2 | ) | — | (137.9 | ) | |||||
Operating expenses | (35.8 | ) | — | — | (35.8 | ) | ||||||
Acquired in-process research and development | — | — | — | — | ||||||||
Asset impairment, restructuring and other special charges | — | — | (42.4 | ) | (42.4 | ) | ||||||
Other income (expense) | — | — | — | — | ||||||||
Income taxes | 51.0 | 6.0 | 9.3 | 66.2 | ||||||||
Net income | $ | 101.6 | $ | 15.1 | $ | 33.1 | $ | 149.8 | ||||
Earnings per share – diluted | $ | 0.10 | $ | 0.01 | $ | 0.03 | $ | 0.14 |
i. | Exclude amortization of intangibles primarily associated with costs of marketed products acquired or licensed from third parties. |
ii. | Exclude inventory step-up costs associated with the acquisition of Novartis Animal Health. |
iii. | Exclude costs associated with restructuring to reduce the company’s cost structure, asset impairments, and integration costs associated with the acquisition of Novartis Animal Health. |
22 |
(d) | Adjustments to certain GAAP reported measures for the three months ended September 30, 2014, include the following: |
(Dollars in millions, except per share data) | IPR&D(i) | Novartis Animal Health(ii) | Legacy Amortization(iii) | Branded Prescription Drug Fee(iv) | Other specified items(v) | Total Adjustments | ||||||||||||
Revenue | $ | — | $ | 275.4 | $ | — | $ | — | $ | — | $ | 275.4 | ||||||
Cost of sales | — | 130.7 | (98.1 | ) | — | — | 32.6 | |||||||||||
Operating expenses | — | 132.3 | (36.5 | ) | (119.0 | ) | — | (23.2 | ) | |||||||||
Acquired in-process research and development | (95.0 | ) | — | — | — | — | (95.0 | ) | ||||||||||
Asset impairment, restructuring and other special charges | — | — | — | (36.3 | ) | (36.3 | ) | |||||||||||
Other income (expense) | (34.1 | ) | — | — | — | (34.1 | ) | |||||||||||
Income taxes | 33.2 | (8.0 | ) | 46.1 | — | 11.1 | 82.4 | |||||||||||
Net income | $ | 61.8 | $ | (13.8 | ) | $ | 88.5 | $ | 119.0 | $ | 25.2 | $ | 280.7 | |||||
Earnings per share – diluted | $ | 0.06 | $ | (0.01 | ) | $ | 0.08 | $ | 0.11 | $ | 0.02 | $ | 0.26 |
i. | Exclude costs associated with upfront payments for acquired in-process research and development projects acquired in a transaction other than a business combination. These costs included $95.0 million of payments related to collaboration agreements with Immunocore Limited and AstraZeneca. |
ii. | Inclusion of the results of Novartis Animal Health as if the acquisition and the financing for the acquisition had occurred as of January 1, 2014. Amounts reflect GAAP reported measures of Novartis Animal Health, adjusted as follows: |
1. | Exclude results associated with the Sentinel® canine parasiticide franchise in the U.S., which was divested following the closing of the acquisition |
2. | Exclude amortization of intangibles |
3. | Exclude integration and inventory step-up costs |
4. | Other miscellaneous adjustments. |
iii. | Exclude legacy amortization of intangibles primarily associated with costs of marketed products acquired or licensed from third parties. |
iv. | Exclude charge created by the IRS final regulations in regard to its administration of the U.S. Branded Prescription Drug Fee. In addition to accounting for the fee that was imposed and paid in 2014, the company accrued for the fee imposed and paid in 2015. |
v. | Exclude costs primarily associated with restructuring to reduce the company’s cost structure. |
23 |
Eli Lilly and Company | ||||||||||||||||||
Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information (Unaudited)(a) | ||||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||||
Nine Months Ended September 30, 2015 | Nine Months Ended September 30, 2014 | |||||||||||||||||
GAAP Reported | Adjustments(c) | Non-GAAP Adjusted | GAAP Reported | Adjustments(d) | Non-GAAP Adjusted | |||||||||||||
Total revenue | $ | 14,583.1 | $ | — | $ | 14,583.1 | $ | 14,494.3 | $ | 802.8 | $ | 15,297.1 | ||||||
Cost of sales | 3,648.0 | (502.8 | ) | 3,145.2 | 3,679.4 | 90.5 | 3,770.0 | |||||||||||
Operating expenses(b) | 8,086.8 | (107.4 | ) | 7,979.4 | 8,368.8 | 219.5 | 8,588.2 | |||||||||||
Acquired in-process research and development | 336.0 | (336.0 | ) | — | 95.0 | (95.0 | ) | — | ||||||||||
Asset impairment, restructuring and other special charges | 222.8 | (222.8 | ) | — | 67.7 | (67.7 | ) | — | ||||||||||
Other income (expense) | 55.9 | 152.7 | 208.6 | 203.3 | (89.8 | ) | 113.4 | |||||||||||
Income taxes | 415.4 | 423.5 | 839.0 | 524.7 | 150.4 | 675.2 | ||||||||||||
Net income | $ | 1,930.0 | 898.1 | $ | 2,828.1 | $ | 1,962.0 | 415.1 | $ | 2,377.1 | ||||||||
Earnings per share – diluted | $ | 1.81 | 0.84 | $ | 2.65 | $ | 1.82 | 0.39 | $ | 2.21 |
(a) | The company uses non-GAAP financial measures that differ from financial statements reported in conformity with U.S. generally accepted accounting principles (GAAP). The company's non-GAAP measures adjust reported results to exclude items that are typically highly variable, difficult to predict, and of a size that could have a substantial impact on the company’s reported operations for a period. Non-GAAP adjusted amounts for 2014 assume the Novartis Animal Health acquisition was completed on January 1, 2014. Beginning in 2015, non-GAAP financial measures for periods presented also exclude amortization of intangibles primarily associated with costs of marketed products acquired or licensed from third parties. The company believes that these non-GAAP measures provide useful information to investors. Among other things, they may help investors evaluate the company’s ongoing operations. They can assist in making meaningful period-over-period comparisons and in identifying operating trends that would otherwise be masked or distorted by the items subject to the adjustments. Management uses these non-GAAP measures internally to evaluate the performance of the business, including to allocate resources and to evaluate results relative to incentive compensation targets. Investors should consider these non-GAAP measures in addition to, not as a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. |
24 |
(b) | Operating expenses include research and development and marketing, selling and administrative expenses. |
(c) | Adjustments to certain GAAP reported measures for the nine months ended September 30, 2015, include the following: |
(Dollars in millions, except per share data) | Amortization(i) | IPR&D(ii) | Inventory step-up(iii) | Repurchase of debt(iv) | Other specified items(v) | Total Adjustments | ||||||||||||
Revenue | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||
Cost of sales | (349.8 | ) | — | (153.0 | ) | — | — | (502.8 | ) | |||||||||
Operating expenses | (107.4 | ) | — | — | — | — | (107.4 | ) | ||||||||||
Acquired in-process research and development | — | (336.0 | ) | — | — | — | (336.0 | ) | ||||||||||
Asset impairment, restructuring and other special charges | — | — | — | — | (222.8 | ) | (222.8 | ) | ||||||||||
Other income (expense) | — | — | — | 152.7 | — | 152.7 | ||||||||||||
Income taxes | 150.8 | 117.6 | 43.6 | 53.5 | 58.0 | 423.5 | ||||||||||||
Net income | $ | 306.3 | $ | 218.4 | $ | 109.4 | $ | 99.3 | $ | 164.7 | $ | 898.1 | ||||||
Earnings per share – diluted | $ | 0.29 | $ | 0.20 | $ | 0.10 | $ | 0.09 | $ | 0.15 | $ | 0.84 |
i. | Exclude amortization of intangibles primarily associated with costs of marketed products acquired or licensed from third parties. |
ii. | Exclude costs associated with upfront payments for acquired in-process research and development projects acquired in a transaction other than a business combination. These costs included a $200.0 million payment to Pfizer following the FDA decision allowing the resumption of the Phase III clinical program for tanezumab, a $56.0 million charge associated with a collaboration with Innovent to develop potential oncology therapies, a $50.0 million payment to Hanmi Pharma related to an exclusive license and collaboration agreement for Hanmi’s oral Bruton’s tyrosine kinase (BTK) inhibitor for the treatment of autoimmune and other diseases, and a $30.0 million payment to BioNTech AG related to a research collaboration to discover novel cancer immunotherapies. |
iii. | Exclude inventory step-up costs associated with the acquisition of Novartis Animal Health. |
iv. | Exclude a net charge associated with the repurchase of $1.65 billion of debt. |
v. | Exclude costs associated with restructuring to reduce the company’s cost structure, asset impairments, and integration costs associated with the acquisition of Novartis Animal Health. |
25 |
(d) | Adjustments to certain GAAP reported measures for the nine months ended September 30, 2014, include the following: |
(Dollars in millions, except per share data) | IPR&D(i) | Novartis Animal Health(ii) | Legacy Amortization(iii) | Branded Prescription Drug Fee(iv) | Other specified items(v) | Total Adjustments | ||||||||||||
Revenue | $ | — | $ | 802.8 | $ | — | $ | — | $ | — | $ | 802.8 | ||||||
Cost of sales | — | 376.8 | (286.3 | ) | — | — | 90.5 | |||||||||||
Operating expenses | — | 447.7 | (109.2 | ) | (119.0 | ) | — | 219.5 | ||||||||||
Acquired in-process research and development | (95.0 | ) | — | — | — | — | (95.0 | ) | ||||||||||
Asset impairment, restructuring and other special charges | — | — | — | — | (67.7 | ) | (67.7 | ) | ||||||||||
Other income (expense) | — | (89.8 | ) | — | — | — | (89.8 | ) | ||||||||||
Income taxes | 33.2 | (38.7 | ) | 135.4 | — | 20.5 | 150.4 | |||||||||||
Net income | $ | 61.8 | $ | (72.9 | ) | $ | 260.0 | $ | 119.0 | $ | 47.2 | $ | 415.1 | |||||
Earnings per share – diluted | $ | 0.06 | $ | (0.06 | ) | $ | 0.24 | $ | 0.11 | $ | 0.04 | $ | 0.39 |
i. | Exclude costs associated with upfront payments for acquired in-process research and development projects acquired in a transaction other than a business combination. These costs included $95.0 million of payments related to collaboration agreements with Immunocore Limited and AstraZeneca. |
ii. | Inclusion of the results of Novartis Animal Health as if the acquisition and the financing for the acquisition had occurred as of January 1, 2014. Amounts reflect GAAP reported measures of Novartis Animal Health, adjusted as follows: |
1. | Exclude results associated with the Sentinel® canine parasiticide franchise in the U.S., which was divested following the closing of the acquisition |
2. | Exclude amortization of intangibles |
3. | Exclude integration and inventory step-up costs |
4. | Other miscellaneous adjustments. |
iii. | Exclude legacy amortization of intangibles primarily associated with costs of marketed products acquired or licensed from third parties. |
iv. | Exclude charge created by the IRS final regulations in regard to its administration of the U.S. Branded Prescription Drug Fee. In addition to accounting for the fee that was imposed and paid in 2014, the company accrued for the fee imposed and paid in 2015. |
v. | Exclude costs primarily associated with restructuring to reduce the company’s cost structure. |
26 |