Eli Lilly and Company will pocket a $1.26 billion payment from former drug development partner Amylin Pharmaceuticals after Bristol-Myers Squibb acquired Amylin for $5 billion earlier this week.
The payment, which will be recognised in Lilly’s third quarter financials as $790 million in pre-tax income, reflects the revenue sharing obligation Amylin had with respect to diabetes treatment Byetta (exenatide) and the long-acting exenatide version Bydureon.
In addition, Lilly will also receive a pre-tax payment of about $425 million contingent on the transfer of Byetta and Bydureon commercial rights outside the USA to Amylin, but Lilly will not recognise this income until 2013.
Lilly and Amylin joined forces in 2002 to develop diabetes drugs but in November last year the pair decided to quit the partnership after Amylin questioned Lilly's commitment to exenatide when Lilly signed a deal with Boehringer Ingelheim, including a marketing link-up for the German firm's oral dipeptidyl peptidase-4 inhibitor Tradjenta (linagliptin).
The cash injection will help bolster Lilly’s balance sheet at a time when the drug giant faces a drop in revenue as several patents expire over the coming years.
“The early payment of the revenue sharing obligation by Amylin allows Lilly to recognise the obligation’s value in the near-term, receive significant income in both 2012 and 2013, and further strengthen our balance sheet,” said Derica Rice, Lilly executive vice president, global services and chief financial officer. “With this additional cash, we will continue to advance our pipeline of more than 60 potential new medicines in development, as well as fund capital expenditures, business development activity, our dividend and share repurchases.”
The payment has caused Lilly to revise certain elements of its 2012 reported financial guidance but the extra income has been excluded from the company’s 2012 non-GAAP (generally accepted accounting principles) financial guidance.
From now through 2014, the company expects annual revenue to be at least $20 billion, net income to be at least $3 billion, and operating cash flow to be at least $4 billion, the company said.