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Amylin Pharmaceuticals 10-K 2010

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TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K

ý   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year Ended December 31, 2009

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to                         .

Commission File No. 0-19700

AMYLIN PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in its Charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  33-0266089
(I.R.S. Employer
Identification No.)

9360 Towne Centre Drive
San Diego, California

(Address of principal executive offices)

 

92121
(Zip Code)

Registrant's telephone number, including area code: (858) 552-2200

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class   Name of each Exchange on Which Registered
Common Stock, $.001 par value   The NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act:

NONE

(Title of Class)

          Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

          Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

          Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No o

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

          Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o    No ý

          The aggregate market value of the common stock of the registrant as of June 30, 2009 held by non-affiliates was $645,730,218.

          The number of shares outstanding of the registrant's common stock was 142,951,264 as of February 16, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

          Portions of the registrant's Definitive Proxy Statement to be filed with the Securities and Exchange Commission (the "Commission") pursuant to Regulation 14A in connection with the 2010 Annual Meeting of Stockholders to be held on April 29, 2010 are incorporated herein by reference into Part III of this Annual Report. Such Definitive Proxy Statement will be filed with the Commission not later than 120 days after December 31, 2009.


        You should read the following together with the more detailed information regarding our company, our common stock and our financial statements and notes to those statements appearing elsewhere in this document or incorporated by reference. The Securities and Exchange Commission, or SEC, allows us to "incorporate by reference" information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this annual report on Form 10-K.

        Except for the historical information contained herein, this annual report on Form 10-K and the information incorporated by reference contains forward-looking statements that involve risks and uncertainties. These statements include projections about our accounting and finances, plans and objectives for the future, future operating and economic performance and other statements regarding future performance. These statements are not guarantees of future performance or events. Our actual results may differ materially from those discussed here. Factors that could cause or contribute to such differences are described in Part I, Item 1A, entitled "Risk Factors," as well as those discussed in Part II, Item 7, entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere throughout this annual report on Form 10-K and in any other documents incorporated by reference into this annual report on Form 10-K. We disclaim any obligation to update any forward-looking statement.


PART I

Item 1.    Business

Business Overview

        We are a biopharmaceutical company committed to improving the lives of people with diabetes, obesity and other diseases through the discovery, development and commercialization of innovative medicines. We are marketing two first-in-class medicines to treat diabetes, BYETTA® (exenatide) injection and SYMLIN® (pramlintide acetate) injection and we are currently seeking approval for exenatide once weekly, an investigational sustained-release medication for type 2 diabetes that is administered only once a week.

        In 2009 we executed on key opportunities for the company including:

    gained approval for an expanded indication of BYETTA as a first-line, stand alone medication (monotherapy) along with diet and exercise;

    finalized BYETTA label updates;

    submitted a New Drug Application, or NDA, for exenatide once weekly and executed our DURATION clinical program designed to demonstrate superiority of exenatide once weekly compared to other diabetes medications;

    completed two obesity clinical trials and entered into a collaboration to develop obesity therapies with Takeda Pharmaceutical Company Limited, or Takeda; and

    improved our operating results and believe we are on track to achieve our stated goal of becoming operating cash flow positive on a sustainable basis by the end of 2010 and achieving operating profitability by the end of 2011.

        BYETTA is the first approved medicine in a class of compounds called glucagon-like peptide-1 (GLP-1) receptor agonists. In October 2009, the FDA approved an expanded indication to include BYETTA as a first-line, stand-alone medication (monotherapy) along with diet and exercise to improve glycemic control in adults with type 2 diabetes and changes to the BYETTA label to incorporate updated safety language. Previously BYETTA was approved as an adjunctive therapy to improve glycemic control in patients with type 2 diabetes who have not achieved adequate glycemic control by using metformin, a sulfonylurea and/or a thiazolidinediene (TZD), three common oral therapies for

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type 2 diabetes. We believe the expanded monotherapy indication and label update present new opportunities for the BYETTA brand. Net product sales of BYETTA were $667.6 million in 2009, $678.5 million in 2008 and $636.0 million in 2007.

        We have an agreement with Eli Lilly and Company, or Lilly, for the global development and commercialization of exenatide. This agreement includes BYETTA and other formulations of exenatide such as exenatide once weekly. Under the terms of the agreement, operating profits from products sold in the United States are shared equally between Lilly and us, and Lilly will pay us royalties for product sales outside of the United States. Lilly has primary responsibility for developing and commercializing BYETTA outside of the United States, including any sustained release formulations of exenatide such as exenatide once weekly. By the end of 2009, BYETTA was commercially launched in approximately 60 countries worldwide.

        SYMLIN is the first and only approved medicine in a class of compounds called amylinomimetics. It is approved as an adjunctive therapy to improve glycemic control in patients with either type 2 or type 1 diabetes who are treated with mealtime insulin but who have not achieved adequate glycemic control. We own 100% of the global rights to SYMLIN and in 2010 we plan to explore partnering SYMLIN outside of the United States. Net product sales of SYMLIN were $86.4 million in 2009, $86.8 million in 2008 and $65.5 million in 2007.

        We have a field force of approximately 390 people dedicated to marketing BYETTA and SYMLIN in the United States. Our field force includes our specialty sales force and our managed care organization. Lilly co-promotes BYETTA in the United States. In May 2009, we announced a restructuring of our sales force, a new sales approach within the diabetes market and merged our then-existing primary care and specialty sales forces into a single organization that brings a specialty approach to endocrinologists and diabetes-focused primary care physicians. This new sales force is focused on targeting those doctors that write the majority of prescriptions for branded diabetes therapies. The restructuring of our sales force reduced our total number of sales representatives by approximately 200.

        In addition to our marketed products, we are working with Lilly and Alkermes, Inc., or Alkermes, to develop exenatide once weekly. In May 2009, we submitted an NDA for exenatide once weekly to the FDA. The FDA filed the NDA submission in July 2009 and the application has a ten-month review period. Clinical components of the NDA included results from our DURATION-1 study which tested the superiority of exenatide once weekly as compared to BYETTA and a meta-analysis across controlled clinical studies of three months or greater from the BYETTA database which showed no increased risk of cardiovascular events associated with exenatide use. Components of the NDA submission supporting product manufacturing included analyses of data from patients in our ongoing extension of the DURATION-1 study who used exenatide once weekly produced at our Ohio manufacturing facility to demonstrate comparability of the intended commercial product with that used during development. The FDA conducted a pre-approval inspection of this facility and has made a number of observations which we believe are addressable.

        In March 2009 and July 2009, we announced positive results from DURATION-2 and DURATION-3, respectively, the second and third in a series of six such studies designed to test the superiority of exenatide once weekly compared to other diabetes therapies. In DURATION-2, exenatide once weekly demonstrated superior glucose control with weight loss and no increase in hypoglycemia compared to maximum doses of sitagliptin (Januvia®) or pioglitazone (Actos®). In DURATION-3, exenatide once weekly demonstrated superior glucose control with weight loss and with less hypoglycemia compared to insulin glargine (Lantus®). In December 2009, we announced results from DURATION-5, a head-to-head study comparing exenatide once weekly to BYETTA. In DURATION-5, patients taking exenatide once weekly experienced a statistically superior reduction in glycated hemoglobin (A1C) compared to BYETTA.

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        In 2010, we will continue to focus on building a superior profile for exenatide once weekly by conducting additional clinical trials that will compare exenatide once weekly against competing products. For example, we expect to report results from our DURATION-4 study in late 2010 comparing exenatide once weekly with metformin, sitagliptin or pioglitazone and we have initiated DURATION-6 comparing exenatide once weekly with liraglutide (Victoza®). In addition, we expect to start our EXSCEL study in the first quarter of 2010, to demonstrate exenatide once weekly's effect on cardiovascular endpoints. We plan to continue making strategic investments in the exenatide franchise including the development of an exenatide once weekly pen delivery system, an exenatide suspension formulation and potential noninvasive delivery systems including transdermal and nasal.

        Our long-term growth strategy is focused on making prudent investment decisions based on strong clinical data to advance our obesity program and includes our Integrated Neurohormonal Treatment of Obesity, or INTO, strategy. In October 2009, we entered into a worldwide exclusive license, development and commercialization agreement with Takeda to co-develop and commercialize pharmaceutical products for the treatment of obesity and related indications. The agreement includes products to be developed from our product pipeline, including pramlintide/metreleptin, which is a compound currently in phase 2 development for the treatment of obesity. We recently announced results of a 52-week phase 2 study of this compound and, based on those results, we and Takeda plan to advance pramlintide/metreleptin toward phase 3 development.

        We maintain an active discovery research program focused on novel peptide and protein therapeutics. We have also entered into a number of strategic alliances and business initiatives that support our expansion into new therapeutic areas.

        Our principal executive offices are located at 9360 Towne Centre Drive, San Diego, CA 92121, and our telephone number is (858) 552-2200. We were incorporated in Delaware in September 1987. We maintain a website at www.amylin.com. The reference to our worldwide web address does not constitute incorporation by reference into this report of any of the information contained on our website.

        Our periodic and current reports that we file with the SEC are available free of charge on our website at www.amylin.com as soon as reasonably practicable after we have electronically filed them with, or furnished them to, the SEC.

Diabetes

        Diabetes is a major worldwide health problem and is the fifth leading cause of death by disease in the United States. Diabetes is a complex, metabolic disorder of carbohydrate, fat and protein metabolism, primarily resulting from the failure of pancreatic beta cells to produce sufficient insulin to match the demands for insulin in the body. Insulin is a hormone that plays a central role in helping the body process, convert and store energy from glucose. Another important hormone in glucose regulation is glucagon which is released from the alpha-cells of the pancreas. Its action opposes insulin by increasing glucose appearance in the bloodstream. With the discovery of incretin hormones, GLP-1, gastric inhibitory peptide and the pancreatic hormone amylin, it is now understood that several organs and hormones play a role in maintaining glucose balance in the body. In individuals with diabetes, the relative shortage of insulin impairs the ability of glucose to enter and fuel the body's cells and, as a result, glucose builds up in the bloodstream causing hyperglycemia (high blood sugar). Prolonged elevation of blood glucose may result in damage to the kidney, retina and nerves—and may lead to kidney failure, permanent nerve damage, blindness and amputation. High glucose also increases the risk of cardiovascular disease. Conversely, too much insulin in the bloodstream can cause hypoglycemia (low blood sugar). Individuals who manage their diabetes with insulin or other oral antidiabetic medication are especially vulnerable to swings of high to low blood sugar level and the risk of very low blood sugar which, if left untreated, can be fatal.

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        It is estimated that over 240 million people worldwide have diabetes. Of that population, it is estimated that approximately 90-95% have type 2 diabetes, previously known as adult-onset diabetes, and the remainder have type 1 diabetes, previously known as juvenile-onset diabetes. In the United States alone, there are approximately 23.6 million people, or 7.8% of the population, with diabetes. Only 17.9 million of these people have been diagnosed, while 5.7 million people with diabetes have not been diagnosed. From 1980 through 2007, newly diagnosed cases of diabetes among Americans aged 18-79 nearly tripled. In addition, there are currently approximately 57 million people in the United States with pre-diabetes, a condition that raises the risk of developing type 2 diabetes, heart disease and stroke. People with pre-diabetes have blood glucose levels higher than normal but not high enough to establish a diagnosis of diabetes.

        Long-term control of blood glucose is known to limit the risk of developing diabetes-related retinal, renal and neurologic complications. A1C is the most widely used measure of long-term blood glucose control. A1C level is a recognized indicator of an individual's average blood glucose concentrations over the preceding three- to four-month period. Lower A1C levels indicate better average blood glucose control, with values in people without diabetes usually being less than 6%. The ADA suggests that people with diabetes should aim for an A1C value that is lower than 7%. It is estimated that more than half of Americans being treated for diabetes are failing to achieve recommended blood glucose levels and, according to research studies conducted in the United States and abroad, these patients would significantly benefit from improved glycemic control. Additionally, aggressive use of insulin and some oral medications to reduce glucose levels can be associated with an increased risk of hypoglycemia and weight gain. Consequently, there has long been a need to develop new treatment strategies that safely improve glucose control, improve the overall health profile of patients with diabetes and reduce the risk of complications.

        In 2008, findings from various long-term clinical trials, including the 10-year follow up of the UK Prospective Diabetes Study and the "Action to Control Cardiovascular Risk in Diabetes," or ACCORD, trial suggested that it is important to treat patients with less advanced diabetes earlier. These studies also suggest that it is important to lower blood glucose without weight gain, associated cardiovascular risk and hypoglycemia which are often associated with older diabetes therapies. The cardiovascular outcomes of these studies suggest that blood glucose control strategies employing weight conscious therapies will be increasingly valued.

        For people suffering from diabetes, poor control of blood glucose levels has been shown to result in severe long-term complications. For instance, the United States Centers for Disease Control, or CDC, has stated that complications due to diabetes include:

    heart disease and stroke;

    high blood pressure;

    blindness due to retinopathy, a condition manifested by damage to the retina;

    nephropathy, or kidney disease;

    neuropathy, a condition where there is damage to the nervous system;

    amputations due to peripheral vascular disease; and

    periodontal disease.

        Obesity is common in patients with type 2 diabetes and weight control is a major problem for many patients with both type 1 and type 2 diabetes. In fact, more than 80% of people with type 2 diabetes are overweight. Weight gain is particularly common in those using insulin and certain oral medications as part of their treatment regimen. In addition, patients with diabetes frequently have wide fluctuations in blood sugar following meals. These fluctuations in blood sugar can significantly affect a

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patient's quality of life. Blood glucose fluctuations, weight gain and diabetes complications may each contribute to substantial disability, reduced quality of life, reduced productivity in the workplace, increased pain and suffering and premature death. Obesity increases the risk of cardiovascular disease 44% in people with type 2 diabetes and cardiovascular death accounts for three quarters of all deaths among people with diabetes. In fact, the risk of coronary heart disease, cardiovascular disease and death are significantly increased in the overweight population and to an even greater extent in obese patients with type 2 diabetes.

        In 2005, we introduced two new treatment options for the management of diabetes, BYETTA and SYMLIN. BYETTA offers patients with inadequate glycemic control the opportunity to better control their blood glucose levels and lose weight. SYMLIN offers patients with inadequate glycemic control using mealtime insulin a treatment option that can both improve glucose control and result in weight loss. These novel first-in-class medicines provide new options in disease management and glucose control to millions of people suffering with diabetes.

Marketed Products

        BYETTA is the first approved medicine in a new class of compounds called incretin mimetics, or GLP-1 receptor agonists. We began selling BYETTA in the United States in June 2005 as an add-on therapy to improve glycemic control in patients with type 2 diabetes who have not achieved adequate glycemic control and who are taking metformin and/or a sulfonylurea, two common oral therapies for type 2 diabetes. In December 2006, the FDA approved an additional use for BYETTA as an add-on therapy to improve glycemic control in people with type 2 diabetes who have not achieved adequate glycemic control by using a TZD. In October 2009, the FDA approved an expanded indication for BYETTA as a first-line, stand-alone medication (monotherapy) along with diet and exercise to improve glycemic control in adults with type 2 diabetes. The type 2 diabetes treatment guidelines of the American Diabetes Association, or ADA, the European Association for the Study of Diabetes, or EASD, and the American Association of Clinical Endocrinologists, or AACE, include the GLP-1 receptor agonist class, which includes BYETTA, as a secondary treatment option for type 2 diabetes patients.

        We estimate the number of people in the United States currently using metformin, sulfonylurea and/or a TZD to be approximately 8.3 million and the number of people using diet and exercise to be approximately 3 million. More than half of all diabetes patients using oral medications are believed to have an A1C higher than the ADA's recommendation of less than 7% and the vast majority of these patients could be candidates for BYETTA.

        BYETTA provides glucose control by augmenting the body's natural physiologic processes, allowing the body to respond to blood glucose changes as they occur. BYETTA directly affects the beta cells' responses to elevated glucose by enhancing insulin secretion; this effect dissipates as glucose levels approach the normal range. BYETTA also restores first-phase insulin response, an effect which is evident following the initial dose. BYETTA is administered twice a day by using a fixed dose injection, and requires no dose adjustments due to changes in meal size or composition, exercise or other variables. No additional glucose monitoring is required with BYETTA therapy.

        The most common adverse effect of BYETTA is mild to moderate nausea, which tends to dissipate with time. Mild to moderate hypoglycemia has also been observed, primarily when used in conjunction with a sulfonylurea, agents that are known to cause hypoglycemia.

        In August 2008, the FDA updated a prior alert for BYETTA referencing pancreatitis. Prescriptions for BYETTA declined in the second half of 2008 and into 2009. In October 2009, the FDA approved changes to the BYETTA label to incorporate updated safety information, including pancreatitis-related

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safety language and an expansion of existing language regarding use of BYETTA in patients with renal impairment. We continue to work to better understand the relationship between BYETTA and pancreatitis described in some spontaneously reported cases. In keeping with our focus on patient safety, we continue to pursue our drug safety program that includes thorough investigation of individual spontaneous case reports along with clinical and epidemiologic studies. Within the detection limits of an initial epidemiology study which we provided to the FDA, we have not observed an increased incidence of pancreatitis associated with BYETTA compared to other treatments for diabetes and thus believe a definite causal relationship between BYETTA and pancreatitis has not been proven.

        By the end of 2009, we had a field sales force of approximately 390 individuals who target those doctors that write the majority of BYETTA and SYMLIN prescriptions. Together with the Lilly field organization, our goal is to provide education, through both one-on-one interactions and educational programs, to ensure that physicians understand BYETTA, including its mechanisms of action, potential benefits, identify appropriate patients and provide important use considerations. We have refined our marketing efforts to remind both endocrinologists and primary care physicians of BYETTA's unique benefits of glucose control with weight loss. Primary care physicians write approximately 70% of diabetes prescriptions in the United States. Additionally, we have access to health care plan reimbursement for BYETTA at approximately 80% coverage nationally on tier 2, which requires a relatively low co-payment from patients who are covered under such plans.

        We continue to support initiatives to facilitate the successful initiation of therapy by primary care physicians. This effort includes: increased patient educational material for health care providers to distribute in their offices; a network of approximately 400 diabetes educators to work with physicians and their patients within their local communities; direct support to patients through the BYETTA Easy Start Line, which provides a toll-free number that allows patients to contact trained medical professionals to better understand the benefits of BYETTA therapy and to get assistance starting and using the BYETTA pen; a pharmacy support component partnering with managed care plans designed specifically to assist with patient refills; and an enhanced BYETTA website. We believe this support is helpful to patients who may be on their first injectable therapy and to primary care providers who may be less accustomed to treating patients with an injectable product earlier in the disease cycle and who have fewer resources in their offices.

        Lilly co-promotes BYETTA in the United States with us and has primary responsibility for developing and commercializing BYETTA outside the United States, including any sustained-release formulations such as exenatide once weekly. By the end of 2009 BYETTA was launched in approximately 60 countries worldwide.

        Concurrent with BYETTA's initial approval, the FDA issued an approvable letter for BYETTA when used as a stand-alone therapy (monotherapy) for people with type 2 diabetes. In October 2009, the FDA approved an expanded indication for BYETTA as a first-line, stand-alone therapy along with diet and exercise to improve glycemic control in adults with type 2 diabetes.

        In June 2009, we announced results from a meta-analysis of cardiovascular, or CV, events that showed no increased risk of CV events associated with BYETTA injection use compared to a pooled comparator group treated with either placebo or insulin. This analysis applied the principles that were described in the FDA's guidance for evaluating CV risk in type 2 diabetes agents. In the meta-analysis of 12 completed, randomized, controlled clinical trials of 12-52 weeks, the unadjusted rate at which patients experienced at least one CV event was 2.0 percent for BYETTA and 2.6 percent for the comparator group. The relative risk between BYETTA and the comparator group was 0.69 with a 95 percent confidence interval of 0.46-1.03. To determine if there are favorable cardiovascular effects of exenatide treatment, we and Lilly recently initiated a large cardiovascular outcomes trial with a

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superiority design that will evaluate the effects of exenatide once weekly on major cardiovascular events, compared to standard of care with traditional antidiabetes medications.

        SYMLIN is the first and only approved medicine in a new class of compounds called amylinomimetics. We began selling SYMLIN in the United States in April 2005 as adjunctive therapy to mealtime insulin to treat diabetes. Other than insulin and insulin analogues, SYMLIN is the first FDA-approved medication addressing glucose control for patients with type 1 diabetes since the discovery of insulin over 80 years ago. SYMLIN is indicated for use in people treated with insulin alone or, in the case of patients with type 2 diabetes, treated with insulin with or without one or more oral medications to help improve blood glucose control.

        SYMLIN works with insulin to smooth out the peaks in blood glucose levels to give patients more stable blood glucose levels after meals and throughout the day. SYMLIN also lowers the A1C levels of most patients beyond what insulin alone can achieve. SYMLIN induces satiety, which leads to eating less and weight loss in most patients. In addition, because SYMLIN works with insulin to control blood sugar, patients often need less insulin to achieve desired blood sugar levels after meals.

        SYMLIN is used with insulin and has been associated with an increased risk of insulin-induced severe hypoglycemia. The risk can be reduced by appropriate patient selection, careful patient instruction and insulin dose adjustments. Other adverse effects commonly observed are primarily gastrointestinal, including nausea, which decrease over time in most patients.

        Our SYMLIN marketing is focused on a target physician population of approximately 20,000, with a goal of educating these physicians on SYMLIN, including its mechanisms of action, potential benefits, use considerations and appropriate patient selection for initiating SYMLIN therapy. These physicians write approximately 36% of all insulin prescriptions in the United States. In January 2008, we launched the SymlinPen® 120 and the SymlinPen® 60 pen-injector devices for administering SYMLIN which currently represent nearly 75 percent of all new SYMLIN prescriptions. These pre-filled pen-injector devices feature fixed dosing to improve mealtime glucose control and can be stored at room temperature not to exceed 86 degrees F (30 degrees C) after first use. We continue to educate physicians about the SymlinPen and believe the SymlinPen enables patients to more easily deliver proper dosing than using a vial and syringe and improves the convenience of administering SYMLIN. Since introduction of the SymlinPen in 2008, usage has grown substantially relative to vial and syringe usage, and now represents the majority of sales and prescriptions. By the end of 2010, we will cease manufacturing and distributing the Symlin vial. Our near-term goal for SYMLIN is to grow SYMLIN prescriptions by highlighting how the product addresses the key unmet needs of patients using mealtime insulin.

        We have late-stage and early-stage development programs in the therapeutic areas of diabetes and obesity. Our years of research in diabetes and deep understanding of peptide hormones—their physiology, functionality and impact on the disease—are being leveraged to develop potential treatments for obesity. The metabolic components of these diseases are linked in numerous ways, which are reflected in the impact each has on the other.

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Diabetes

        Exenatide once weekly is our late stage development program in diabetes. Exenatide is the active ingredient in BYETTA and is combined with proprietary technology developed by us and our partner, Alkermes, to provide a sustained release delivery of exenatide. The combination of potency and the glucose-dependent mechanism of action inherent in exenatide makes it well suited to development of a once weekly formulation. We have an agreement with Alkermes to assist us in the development, manufacture and commercialization of exenatide once weekly and this program is included in our collaboration agreement with Lilly. We are aggressively working with Lilly and Alkermes to develop exenatide once weekly and to bring it to market as soon as possible.

        In October 2007, we announced positive results of our DURATION-1 pivotal comparator study comparing treatment with exenatide once weekly to treatment with BYETTA over a 30-week period. The study enrolled 295 patients not achieving adequate glucose control either with use of diet and exercise or with use of oral glucose-lowering agents. Exenatide once weekly showed a statistically significant improvement in A1C of approximately 1.9% from baseline, compared to an improvement of approximately 1.5% for BYETTA. Approximately three out of four subjects treated with exenatide once weekly achieved an A1C of 7% or less.

        After 30 weeks of treatment, both exenatide once weekly and BYETTA treatment resulted in an average weight loss of approximately eight pounds. Nearly 90% of subjects in both groups completed the study. There were no major or severe hypoglycemia events regardless of background therapy. As expected, based on prior BYETTA studies, minor hypoglycemia with exenatide once weekly use was limited to subjects using background sulfonylurea therapy. Exenatide once weekly was associated with approximately 30% less nausea than twice-daily BYETTA. Approximately one out of five subjects receiving exenatide once weekly reported treatment-related nausea during the 30-week study. In both groups nausea was predominately mild and transient.

        In June 2008, we announced additional results of our 30-week DURATION-1 study. In addition to showing improvements in A1C, type 2 diabetes patients treated with exenatide once weekly experienced the following effects on several cardiovascular risk factors: a reduction of total cholesterol 11.9 mg/dL from a baseline of 173 mg/dL; a reduction of LDL of 4.9 mg/dL from a baseline 91.6 mg/dL; and a reduction of HDL of 0.9 mg/dL from a baseline of 43.9 mg/dL.

        Also in June 2008, we announced results from a 52-week open-label clinical study that showed the durable efficacy of exenatide once weekly. In this extension of our 30-week DURATION-1 study, patients either remained on exenatide once weekly or switched from BYETTA to exenatide once weekly for an additional 22 weeks. Patients taking exenatide once weekly over the course of one year sustained a similar improvement in glucose control of 2.0% lower A1C and lower fasting plasma glucose from baseline compared to those receiving treatment for 30 weeks who achieved 1.9% lower A1C from baseline.

        This 52-week study also showed that patients who switched from BYETTA after 30 weeks to exenatide once weekly experienced additional improvements in A1C and fasting plasma glucose. Following the 30-week comparison period, patients who continued on exenatide once weekly showed sustained improvements in A1C and fasting plasma glucose while patients who switched from BYETTA to exenatide once weekly had further improvements in glycemic control that were consistent with those patients receiving exenatide once weekly for 52 weeks. Seventy-two percent of patients treated with exenatide once weekly achieved an endpoint A1C of 7% or less and 54% achieved an A1C of 6.5% or less. In patients who switched from BYETTA to exenatide once weekly, 75% of patients achieved an endpoint A1C of 7% or less and 53% achieved an A1C of 6.5% or less. Exenatide once weekly was associated with an average weight loss of 9.5 pounds over 52 weeks. Exenatide once weekly was well

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tolerated during the first 30 weeks and the following 22-week, open-ended treatment period with overall tolerability improving over the course of the study. No major hypoglycemia events regardless of background therapy were observed with exenatide once weekly. Cases of minor hypoglycemia with exenatide once weekly and BYETTA use were limited to patients using background sulfonylurea therapy. In both groups, nausea was predominately mild and transient and occurred less frequently in exenatide once weekly patients.

        In May 2009, we submitted an NDA for exenatide once weekly to the FDA. The FDA filed the NDA submission in July 2009 and the application has a ten-month review period. Clinical components of the NDA included results from our DURATION-1 study which tested the superiority of exenatide once weekly as compared to BYETTA and a meta-analysis across controlled clinical studies of three months or greater from the BYETTA database which showed no increased risk of cardiovascular events associated with exenatide use. Components of the NDA submission supporting product manufacturing included analyses of data from patients in our ongoing extension of the DURATION-1 study who used exenatide once weekly produced at our Ohio manufacturing facility to demonstrate comparability of the intended commercial product with that used during development.

        In June 2009, we announced additional long-term, interim results from the DURATION-1 study that showed sustained glucose control with weight loss, as well as improvements in systolic blood pressure and triglycerides, through two years of treatment with exenatide once weekly. In the controlled portion of the open-label study, patients received exenatide once weekly or BYETTA injection for 30 weeks, followed by 74 weeks of treatment with exenatide once weekly for all patients during an open-ended assessment period. Significant reductions in A1C of 1.7 percent and fasting plasma glucose of 40 mg/dL were maintained after two years of treatment. Sixty-five percent of patients achieved an A1C of 7% or less. Body weight was significantly reduced, with patients losing an average of 5.8 pounds. Serum lipid profiles were significantly improved, and there was a significant reduction in systolic blood pressure. Nausea was the most common event during the 30-week treatment period and decreased over time, occurring in 12% of patients during the 74-week assessment period when all patients were receiving exenatide once weekly. No severe hypoglycemia was observed.

        In March 2009, we announced results from DURATION-2, a 26-week clinical study designed to compare exenatide once weekly to maximum doses of sitagliptin and pioglitazone, two commonly prescribed oral diabetes medications, in 491 patients with type 2 diabetes taking stable doses of metformin. After completing 26 weeks of treatment, evaluable patients randomized to exenatide once weekly experienced a statistically significant reduction in A1C of 1.7 percentage points from baseline, compared to a reduction of 1.0 percentage point for sitagliptin and 1.4 percentage points for pioglitazone. Treatment with exenatide once weekly also produced statistically significant differences in weight, with weight loss of 6.2 pounds at 26 weeks, compared with a loss of 1.9 pounds for sitagliptin, and a weight gain of 7.4 pounds for pioglitazone. The most frequently reported adverse events among exenatide once weekly and sitagliptin users were nausea and diarrhea. Upper respiratory tract infection and peripheral edema were the most frequently reported events by patients receiving pioglitazone. There was no major hypoglycemia in any treatment group.

        In July 2009, we announced results from DURATION-3, a clinical trial designed to compare patients randomized to either exenatide once weekly or Lantus (insulin glargine). Patients randomized to exenatide once weekly experienced a statistically significant superior reduction in A1C of 1.5 percentage points from baseline, compared to a reduction of 1.3 percentage points for Lantus after completing 26 weeks of treatment. At the end of the study, patients treated with exenatide once weekly achieved a mean A1C of 6.8% compared with a mean A1C of 7.0% in those treated with Lantus. Treatment with exenatide once weekly also produced significant differences in weight, with a mean weight loss of 5.8 pounds at 26 weeks, compared with a mean weight gain of 3.1 pounds for Lantus. In addition, although patients treated with exenatide once weekly experienced a greater reduction in blood glucose than those treated with Lantus, they also reported significantly fewer episodes of confirmed

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hypoglycemia. Reported adverse events were upper respiratory infection, including nasopharyngitis, in both treatment arms, as well as gastrointestinal events, including nausea, in the exenatide once weekly treatment group.

        In December 2009, we announced results from DURATION-5, a head-to-head study comparing exenatide once weekly to BYETTA. After 24 weeks of treatment, patients taking exenatide once weekly experienced a statistically superior reduction in A1C of 1.6 percentage points from baseline, compared to a reduction of 0.9 percentage points for BYETTA. Patients treated with exenatide once weekly achieved a mean A1C of 7.1% compared with a mean A1C of 7.7% in those treated with BYETTA. Both treatment groups achieved statistically significant weight loss by the end of the study, with an average loss of 5.1 pounds for patients taking exenatide once weekly and 3.0 pounds for patients taking BYETTA. These findings are consistent with the results of other studies comparing exenatide once weekly with BYETTA. Consistent with previous DURATION trials, the most frequently reported adverse event in both groups was nausea. There were no major hypoglycemic events. Cases of minor hypoglycemia in both groups were limited to patients using background sulfonylurea therapy.

        In the fourth quarter of 2008, we initiated our DURATION-4 superiority trial comparing exenatide once weekly as a stand-alone therapy to metformin, a TZD or a dipeptidyl peptidase type IV (DPP-IV) inhibitor and expect to complete this study in 2010. In early 2010, we also initiated DURATION-6, a superiority trial that will be designed to compare exenatide once weekly with liraglutide and expect to complete this study in 2011.

        Given the positive effects on cardiovascular surrogate outcomes observed with exenatide, the encouraging data from the ACCORD trial, which indicates decreased cardiovascular events with BYETTA, and the current regulatory interest in cardiovascular outcomes, we and Lilly have announced that we intend to initiate in 2010, a large cardiovascular outcomes trial with a superiority design that will evaluate the effects of exenatide once weekly on major cardiovascular events, compared to standard of care with traditional antidiabetes medications. This study will give us the opportunity to demonstrate the effect of exenatide once weekly on cardiovascular outcomes and other end points of interest to our stakeholders. We do not believe this study will be a requirement for exenatide once weekly approval. We expect results from this study to be available in 2016.

        In May 2009, we and Lilly announced an agreement to develop, manufacture and market exenatide once weekly in a dual chamber cartridge pen configuration. We believe this design will enable patients to mix and administer exenatide once weekly from a pre-filled pen device instead of the syringe and vial currently used in clinical trials and planned as our initial launch configuration. We and Lilly are evaluating the pharmacokinetics, tolerability and safety of an exenatide suspension formulation for once weekly and once monthly dosing that would eliminate the need to reconstitute the product prior to use. We are also evaluating non-invasive formulations of exenatide including transdermal and nasal delivery systems.

Obesity

        Obesity is a chronic condition that affects millions of people and is linked to increased health risk of several medical conditions including type 2 diabetes, high blood pressure, heart disease, stroke, osteoarthritis, sleep disorders and several types of cancers. Obesity is also rapidly becoming a major health problem in all industrialized nations and many developing countries. According to NAASO (The Obesity Society), obesity is the second leading cause of preventable death in the United States. It is estimated that 66% of the adult population in the United States is overweight and nearly 60 million adult Americans are considered obese. It is also estimated that the total direct and indirect costs attributed to overweight and obesity health issues exceed $100 billion in the United States each year.

        Genetic, metabolic, psychological and environmental factors can all contribute to obesity. Obesity is measured by Body Mass Index, or BMI, a mathematical formula using a person's height and weight.

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BMI is calculated by dividing a person's weight in kilograms by the person's height in meters squared. A person with a BMI between 25 and 29.9 is considered overweight. A person with a BMI of 30 or more is considered obese, and a person with a BMI of 40 or more is considered severely obese. Current treatments for obesity include diet, exercise, drug therapy and surgery.

        The National Heart, Lung and Blood Institute and the World Health Organization have issued evidence-based guidelines for the identification, evaluation and treatment of obesity. Non-pharmacological treatment modalities (dietary modifications, behavioral interventions and increased physical activity) are considered the cornerstone of clinical obesity management. If lifestyle changes do not promote weight loss after six months, pharmacotherapy is considered helpful for eligible high-risk patients. Only two pharmacological agents are currently approved for the long-term treatment of obesity in the United States. Bariatric surgery is considered an option only for patients with severe obesity and serious co-morbid conditions.

        The National Institutes of Health, Surgeon General and FDA recognize a large unmet medical need for safe and efficacious therapies to prevent the debilitating metabolic diseases and mortality associated with obesity.

Integrated Neurohormonal Therapy for Obesity (INTO)

        Since 2006, we have been executing an obesity strategy to assess the safety and efficacy of multiple neurohormones used in combination to treat obesity. We refer to this strategy as Integrated Neurohormonal Therapy for Obesity, or INTO. Our INTO strategy is based on combination therapies and as part of this program we are studying combinations of peptide and protein hormones.

        Three molecular franchises are the primary focus of our INTO strategy: amylin and, in particular, pramlintide, its synthetic version (a first generation amylinomimetic); leptin, and in particular, metreleptin, its recombinant version, a protein hormone produced from the fat cell that plays a fundamental role in metabolism; and PYY 3-36, and in particular, a second-generation Y-family analog molecule, that is secreted by the gut and provides a satiety signal in the post-meal period.

        In October 2009, we entered into a worldwide exclusive license, development and commercialization agreement with Takeda to co-develop and commercialize pharmaceutical products for the treatment of obesity and related indications. The agreement includes products to be developed from our pipeline, including pramlintide/metreleptin combination therapy, which is a compound currently in phase 2 for the treatment of obesity and discussed in more detail below. The agreement also includes additional compounds from our and Takeda's obesity research programs. We will be responsible for executing development activities for potential products through phase 2 for regulatory approval in the United States. Takeda will lead development activities beyond phase 2 in the United States and all development activities outside the United States.

        Pramlintide plays an important role in our current INTO strategy. Pramlintide has been studied extensively in people with and without diabetes and is the active ingredient in SYMLIN. In February 2006, we reported results from a 16-week Phase 2 dose-ranging study with pramlintide in obese subjects. After completing 16 weeks of treatment with pramlintide in addition to lifestyle intervention, subjects on average experienced an 8.4 to 13.4 pound weight loss from baseline, compared to a 6.2 pound weight loss with placebo plus lifestyle intervention.

        Pramlintide was well tolerated and showed progressive weight loss at doses up to 360 mcg. No new safety signals were observed in this study, which included higher doses than those previously studied in obese subjects. There was clear evidence of a dose response for the twice-daily regimens. Consistent with previous observations, the most common adverse effect was mild nausea. Weight loss in subjects

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who did not experience nausea was similar to that seen in the overall study population. In October 2006, we reported results from a continuation of this study that demonstrated that patients completing 52 weeks of pramlintide therapy experienced a 7-8% mean body weight reduction, depending upon the dose they received, compared to a 1% reduction in patients receiving placebo.

        We have conducted clinical studies using pramlintide in combination with leptin and with PYY 3-36. The proof-of-concept pramlintide and metreleptin study, which we discuss below, investigated the synergy of pramlintide and metreleptin found in preclinical studies.

        Metreleptin is the second compound we are studying in connection with our INTO program. Metreleptin is the recombinant form of human leptin, a naturally occurring protein hormone secreted by fat cells. Leptin plays a key role in metabolism through multiple metabolic actions and appears to act primarily at the level of the hypothalamus to regulate food intake and energy expenditure. Leptin's roles in the treatment of obesity and lipodystrophy have been extensively studied, and the lead molecules have a strong safety profile. Humans suffering from lipodystrophy, a disease characterized by loss of body fat and consequent metabolic disorders (insulin resistance, hyperglycemia, and dyslipidemia), are rendered incapable of secreting sufficient amounts of leptin due to the loss of fat cell mass. We plan to file an NDA with the FDA for the treatment of lipodystrophy with leptin in 2010.

        In early 2006, we acquired the exclusive rights to the leptin molecular franchise and program (including metreleptin) from Amgen, Inc., or Amgen. Under the terms of the license agreement, we may make potential future payments related to development and regulatory milestones and will pay royalties on any product sales. Our license includes exclusive rights to the leptin intellectual property developed by Amgen as well as intellectual property Amgen originally licensed from Rockefeller University.

        Y-family agonists (such as PYY 3-36) are a third compound we are studying in connection with our INTO program. We are developing second generation Y-family mimetics that could be more potent and efficacious as drug candidates, but have been utilizing the native form of PYY 3-36 for the investigation of potential treatments of obesity. Independent researchers have reported a reduction in food intake in humans using PYY 3-36. In November 2007, we announced data from a 14-day safety and tolerability Phase 1 clinical trial showing that PYY 3-36 when used in combination with pramlintide was well-tolerated. We also announced that this combination was well-tolerated with dose escalation. We intend to focus our future development of the second generation Y-family mimetic either alone or in combination with a second generation amylinomimetic.

        In November 2007, we announced results from a 24-week proof-of-concept study with pramlintide and metreleptin combination treatment in overweight or obese subjects. At the end of the study, the combination treatment reduced body weight on average 12.7%, significantly more than treatment with pramlintide alone (8.4%). Subjects treated with pramlintide/metreleptin lost an average of 25 pounds from the beginning of the study compared with an average of 17 pounds for subjects treated with pramlintide alone. Subjects receiving pramlintide/metreleptin continued to lose weight through the end of the study compared to those treated with pramlintide alone, whose weight loss had stabilized towards the end of the study. At the beginning of the study, the average weight of study participants was approximately 205 pounds. Consistent with previous clinical experience with pramlintide/metreleptin as single agents, the most common side effects seen with combination treatment were injection site adverse events and nausea, which were mostly mild to moderate and transient in nature.

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        In July 2009, we announced results from a 28-week dose-ranging study of pramlintide/metreleptin combination treatment in overweight and obese patients. This phase 2 study characterized patients who responded best to treatment and also provided important information to inform dose selection. At 28 weeks, evaluable patients with a BMI less than 35 kg/m2 and treated with the highest pramilintide/metreleptin doses experienced significantly more weight loss on average (11% weight loss; 22 pounds) than those receiving placebo (1.8% weight loss; 4 pounds) or either agent alone (approximately 5% weight loss; 10 pounds). Consistent with the physiologic role of leptin in regulating body fat, the weight loss in these patients was predominantly due to a reduction in fat mass (approximately 18 of the 22 pounds lost).

        In February 2010, we and Takeda announced that, based on positive results from a 52-week extension of this study, the pramlintide/metreleptin combination treatment for obesity will advance toward phase 3 development. Results from the 52-week extension showed the pramlintide/metreleptin combination met the key target criteria of sustained, double-digit weight loss without evidence of cardiovascular or neuropsychiatric safety signals. Patients treated with placebo during the 52-week extension regained almost all of their weight. Consistent with the results at 28 weeks, the most robust efficacy was seen in patients with a BMI less than 35 kg/m2.

        The combination therapy was well tolerated at 52 weeks, and no cardiovascular or neuropsychiatric (such as anxiety or depression) safety signals were observed. Consistent with previous clinical experience, the most common side effects seen at 28 weeks were injection site adverse events and nausea, which were mostly mild or moderate and transient in nature. The occurrence of these side effects was much lower during the extension phase of the study.

Research Activities

        A key element of our strategy is to develop first-in-class compounds for treating metabolic diseases. To achieve this goal, we are exploring hormones with multiple mechanisms of action that will potentially lead to products that have utility in treatment of more than one disease with the potential for many product forms. To do so, we take an integrated and biological, rather than a target-driven, approach to research. Our research is centered on peptide hormones that play an important metabolic role, and which we consider more likely to have an acceptable safety profile because these hormones exist naturally in the human body. Our development path begins with identifying a particular peptide and then determining if it is a circulating hormone, a substance that travels through the bloodstream to affect bodily functions. We then attempt to understand the hormone's functionality and potential impact on a disease. Rather than starting with a known biology and targeting molecules to modify, enhance or block it, our scientists are discovering the biology of previously unknown peptides and uncovering utility that could potentially translate into a new human therapy. The conventional development process commonly used in the pharmaceutical industry emphasizes utilizing isolated cells or molecular targets to advance drug discovery. Our approach to research calls for our scientists to quickly move to in vivo testing using highly predictive animal models that allow us to design subsequent information-rich clinical trials in humans.

        Based on a premise that every peptide hormone has a utility—and a potential therapeutic benefit—we have developed a proprietary and continually growing peptide hormone library we call PHORMOL™. PHORMOL encompasses an extensive panel of potentially valuable biologics that have been taken from nature, including human peptides not previously described. All of these have been synthesized to create a rich source of compounds for ongoing research in their functionality, utility and potential value in treating a range of human diseases.

        We are also developing capabilities in delivery system research and development, focused on product presentations that enhance clinical outcomes and patient convenience. Delivery systems are selected on the basis of technical feasibility, regulatory acceptance and market preference. They include

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injectable sustained-release formulations such as salt complexes, lipids, biodegradable polymer and gel systems, as well as non-injectable systems such as nasal sprays, oral and transdermal systems. We are also using our resources to optimize pharmaceutical properties of peptide drugs to develop new peptide hormone analogs that may be more amenable to alternative forms of delivery.

        We currently have approximately 370 full-time employees dedicated to our research and development activities. In the years ended December 31, 2009, 2008 and 2007, we incurred research and development expense of $185.1 million, $222.6 million and $216.3 million, respectively.

Strategic Relationships

        We entered into a collaboration agreement with Lilly in 2002 for the global development and commercialization of exenatide, including the twice-daily version, BYETTA, and sustained-release formulations, such as exenatide once weekly. Under the terms of the agreement, Lilly made initial payments to us, and purchased approximately 1.6 million shares of our common stock. In addition, Lilly has made milestone payments to us upon the achievement of development milestones for BYETTA and exenatide once weekly and commercial milestones for BYETTA. Lilly is also obligated to make additional future commercial milestone payments to us of up to $80 million contingent upon the commercial launch of exenatide, including BYETTA in Japan and exenatide once weekly in the U.S., Europe and Japan. Under our co-promotion arrangement with Lilly, the parties use approximately equal efforts to co-promote BYETTA within the United States and have agreed to use approximately equal efforts to co-promote sustained-release formulations of exenatide within the United States. Lilly is responsible for commercialization efforts outside the United States. We share exenatide United States development and commercialization costs with Lilly equally and we pay Lilly 50% of the operating profits from the sale of products in the United States. Our collaboration agreement may be terminated by Lilly at any time on one years' notice.

        In late 2006, BYETTA was approved in the EU and, by the end of 2009, was commercially launched in approximately 60 countries worldwide. Lilly will pay us tiered royalties based upon the annual gross margin for all exenatide product sales, including any sustained-release formulations, outside of the United States. Royalty payments for exenatide product sales outside the United States will commence after a one-time cumulative gross margin threshold has been met. Lilly is responsible for 100% of the costs related to development of BYETTA and exenatide once weekly for sale outside of the United States. Lilly is also responsible for 100% of the costs related to commercialization of all exenatide products for sale outside the United States. We record all United States BYETTA product revenues and Lilly records all BYETTA product revenues from outside the United States.

        In October 2008, we entered into an Exenatide Once Weekly Supply Agreement with Lilly pursuant to which we will supply commercial quantities of exenatide once weekly for sale in the United States, if approved by the FDA. In addition, if Lilly receives approval to market the product in jurisdictions outside the Unites States, we will be required to manufacture the product intended for commercial sale by Lilly in those jurisdictions. We have also entered into a loan agreement with Lilly pursuant to which Lilly will make a $165 million unsecured line of credit available to us that we can draw upon from time to time, at our option, until June 30, 2011, with maturity no later than June 30, 2014.

        In April 2009, we and Lilly amended our collaboration agreement to clarify allocation and reimbursement procedures of certain shared expenses under the agreement. We also agreed to adopt a set of guidelines to govern the working relationship of an integrated medical, development and commercial team for exenatide comprised of Amylin and Lilly employees to be located in San Diego, referred to as Exenatide One.

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        In May 2009, we and Lilly entered into a cost allocation agreement which amended the exenatide development and commercialization cost-sharing provisions contained in our collaboration agreement. Under the terms of the cost allocation agreement, Lilly will be responsible for 53% of shared exenatide global development and commercialization expenses that generate utility in the United States and outside the United States, including global manufacturing development expenses. We will be responsible for 47% of these expenses. Lilly will also assume 100% of all exenatide development expenses that generate utility predominately outside the United States. Under the previous cost-sharing arrangement, Amylin was responsible for 20% of these expenses. The royalty structure for exenatide revenues generated outside the United States was also modified to reflect Lilly's revised expense burden, with a reduction in Lilly's royalty payments to us. Under the cost allocation agreement, we and Lilly will continue to share equally all exenatide development and commercialization expenses that generate utility predominately in the United States.

        In May 2009, we and Lilly entered into a joint supply agreement for an exenatide once weekly pen device. In connection with our collaboration agreement, we and Lilly have agreed to develop a dual chamber cartridge pen configuration for the delivery of exenatide once weekly. The exenatide once weekly pen will be manufactured at our Ohio manufacturing facility. Under the terms of the supply agreement, the initial cost of the capital investment will be allocated 60% to Lilly and 40% to us and the development costs of the pen will be allocated 53% to Lilly and 47% to us.

        In October 2009, we entered into a worldwide exclusive license, development and commercialization agreement with Takeda to co-develop and commercialize pharmaceutical products for the treatment of obesity and related indications. The agreement includes products to be developed from our pipeline, including pramlintide/metreleptin combination treatment. The agreement also includes additional compounds from our and Takeda's obesity research programs. Takeda will be responsible for commercializing the products in and outside the United States and will be responsible for all commercialization costs associated with the products.

        We received a one-time up-front payment of $75 million from Takeda upon entering into the agreement and we are eligible to receive additional payments upon achieving certain development, commercialization and sales-based milestones. The agreement also provides for future tiered, double-digit royalty payments to us based on global product sales. We will be responsible for executing development activities for potential products through phase 2 for regulatory approval in the United States. Takeda will lead development activities beyond phase 2 in the United States and all development activities outside the United States. Generally, we will be responsible for 20% of the development costs associated with obtaining approval for products in the United States and Takeda will be responsible for 80% of such United States development costs. Takeda will also be responsible for 100% of development costs associated with obtaining approval for products outside the United States.

        In addition to Lilly and Takeda, we have established strategic relationships with other companies and we continue to assess additional opportunities for strategic relationships or in-licensing opportunities. For example, we formed a joint venture with PsychoGenics, Inc. called Psylin Neurosciences, Inc., or Psylin, a company focused on the discovery and development of peptide hormones for treatment of psychiatric disorders. In the second quarter of 2009, Psylin announced that it had initiated development of a novel compound for the treatment of depression. In September 2009, we announced that we entered into an exclusive agreement with Biocon, Limited, or Biocon, to jointly develop, manufacture and commercialize a novel peptide therapeutic for the potential treatment of diabetes. We will share development costs with Biocon on a specific program that came from our "Phybrid" technology platform. A Phybrid is a peptide hybrid molecule that combines the

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pharmacological effects of two peptide hormones into a single molecular entity. Under the terms of the agreement, we will provide expertise in peptide hormone development, particularly in the area of phybrid technology, as well as metabolic disease therapeutics. Biocon will use its expertise in recombinant microbial expression to manufacture the compound and also leverage its experience in preclinical and clinical development of diabetes products.

Sales, Marketing and Distribution

        We have built a sales and marketing organization that focuses on healthcare providers, managed healthcare organizations, wholesalers and pharmacies, government purchasers and other third-party payors. Our field organization also includes our managed care organization. Lilly co-promotes BYETTA in the United States.

        In May 2009, we announced a new sales approach within the diabetes market and merged our then-existing primary care and specialty sales forces into a single organization that brings a specialty approach to endocrinologists and diabetes-focused primary care physicians. This new sales force, comprised of approximately 390 people, is focused on targeting those doctors that write the majority of prescriptions for branded diabetes therapies. Our field force calls on endocrinologists and other physicians who have large diabetes care practices and other healthcare professionals who support their practices. Members of our sales and marketing team have extensive industry experience from a wide range of large and small companies and have substantial experience in the field of diabetes, as well as in launching and marketing pharmaceutical products.

        We utilize common pharmaceutical company practices to market our products. We call on individual physicians and other healthcare professionals and other organizations and individuals involved in the prescribing, purchasing and/or distributing of human medicines. We also provide professional symposia through our extensive medical education programs. Our medical education events are conducted live, via satellite or telephone and through web-based, interactive programs. We will continue to focus on medical education efforts for both BYETTA and SYMLIN through thousands of programs across the United States organized by our medical affairs and external professional education organizations. We train physicians and other healthcare professionals as speakers, so that they can in turn teach their peers about how best to incorporate BYETTA or SYMLIN into their patients' diabetes treatment regimens.

        We provide customer service and other related programs for our products, such as disease and product-specific websites, insurance research services, a customer service call center and order, delivery and fulfillment services. We have programs in the United States that provide qualified uninsured and underinsured patients with our products at no charge.

        We sell BYETTA and SYMLIN to wholesale distributors who in turn sell to retail pharmacies and government entities. Decisions made by these wholesalers and their customers regarding the levels of inventory they hold, and thus the amount of BYETTA and SYMLIN they purchase, may affect the level of our product sales in any particular period.

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Manufacturing

        We have selected manufacturers that we believe comply with current Good Manufacturing Practices, or cGMP, and other regulatory standards. Manufactured product is used commercially following established registration procedures and after applicable regulatory approvals have been granted. We have established a quality control and quality assurance program, including a set of standard operating procedures, analytical methods and specifications, designed to ensure that our products and product candidates are manufactured in accordance with applicable regulations. We require that our contract manufacturers adhere to cGMP, except for products and product candidates for toxicology and animal studies, which we require to be manufactured in accordance with current Good Laboratory Practices, or cGLP.

        Although some materials for our drug products are currently available from a single-source or a limited number of qualified sources, we attempt to acquire an adequate inventory of such materials, establish alternative sources and/or negotiate long-term supply arrangements. We believe we do not have any significant issues obtaining suppliers; however, we cannot be certain that we will continue to be able to obtain long-term supplies of our manufacturing materials.

        We obtain exenatide, the active ingredient contained in BYETTA, from Bachem, Inc., or Bachem, and Mallinckrodt, Inc., or Mallinckrodt, pursuant to agreements with each company. We have agreements with Wockhardt UK (Holdings) Ltd., or Wockhardt, and Baxter Pharmaceutical Solutions LLC, a subsidiary of Baxter, Inc., or Baxter, to supply us the dosage form of exenatide in cartridges. We have an agreement with Lilly to supply pens for delivery of BYETTA in cartridges.

        We obtain pramlintide acetate, the active ingredient contained in SYMLIN, from Bachem and Lonza Ltd., or Lonza, pursuant to agreements with each company. We have a contract with Baxter for the dosage form of SYMLIN in vials. We also have an agreement with Wockhardt for the dosage form of SYMLIN in cartridges. We have an agreement with Ypsomed AG to supply pen components for the delivery of SYMLIN in cartridges. We also have an agreement with Sharp Corporation for the assembly of the SYMLIN pen components and cartridges.

        Under the terms of our development and license agreement with Alkermes, we are responsible for manufacturing the dosing formulation of exenatide once weekly for commercial sale and will pay Alkermes milestone payments upon achievement of development milestones and royalties ranging in the mid single digits on sales of exenatide once weekly. To date, we have paid an aggregate of $6 million, and issued warrants to purchase 75,000 shares of our common stock, as development milestone payments to Alkermes under the agreement. If all future milestones are achieved, we may be obligated to pay Alkermes an aggregate of $14 million in additional milestone payments. Alkermes has transferred to us its technology for manufacturing exenatide once weekly and is supplying us with the polymer materials required for the commercial manufacture of exenatide once weekly. The development and license agreement terminates on the later of 10 years from first commercial sale of product under the agreement or the expiration or invalidation of certain Alkermes patents covering such products. In addition, we can terminate the agreement at will upon 180 days written notice to Alkermes, and Alkermes can terminate the agreement pursuant to standard bankruptcy and liquidation provisions. Both parties can terminate the agreement pursuant to uncured material breach of contract terms.

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        We obtain bulk exenatide, the active ingredient in exenatide once weekly, from Lonza and Mallinckrodt and we obtain pre-filled diluent syringes for exenatide once weekly from Vetter Pharma-Fertigung GmbH & Co. KG pursuant to long-term agreements with each company. We have built and are operating a facility in West Chester, Ohio to manufacture exenatide once weekly. The FDA has inspected this facility for the manufacturing of exenatide once weekly and has made a number of observations which we believe are addressable.

Competition

        The biotechnology and pharmaceutical industries are highly competitive. There are many pharmaceutical companies, biotechnology companies, public and private universities and research organizations actively engaged in the research and development of products that may be similar to the products in our portfolio. A number of our largest competitors, including AstraZeneca, Bristol-Myers Squibb Company, GlaxoSmithKline, Lilly, Merck & Co., Novartis AG, Pfizer, Sanofi-Aventis, Roche and Takeda are pursuing the development of or are marketing pharmaceuticals that target the same diseases that we are targeting, and it is probable that the number of companies seeking to develop products and therapies for the treatment of diabetes, obesity and other metabolic disorders will increase. Recently, Novo Nordisk obtained approval of a GLP-1 receptor agonist to treat type 2 diabetes that it intends to launch this year. Many of these companies and other existing or potential competitors have substantially greater financial, technical and human resources than we do and may be better equipped to develop, manufacture and market products. These companies may develop and introduce products and processes competitive with or superior to ours. In addition, other technologies or products may be developed that have an entirely different approach or means of accomplishing the intended purposes of our products, which might render our technology and products noncompetitive or obsolete. For example, all of our current drug products are injectable, and may have to compete with therapies that do not require injection. We cannot be certain that we will be able to compete successfully.

        SYMLIN is the only non-insulin-based drug product approved for improving blood glucose control in people with type 1 diabetes. Further, insulin and oral medications are often insufficient for many people with type 2 diabetes to achieve satisfactory glucose and weight control. BYETTA or SYMLIN may be complementary to, or competitive with, these other medications.

        BYETTA and SYMLIN must compete with established therapies for market share. In addition, many companies are pursuing the development of novel pharmaceuticals that target diabetes. These companies may develop and introduce products competitive with or superior to BYETTA or SYMLIN. Such competitive products and potential products include:

    sulfonylureas;

    metformin;

    insulins (injectable and inhaled versions);

    TZDs;

    glinides;

    DPP-IV inhibitors;

    incretin mimetics/GLP-1 receptor agonists;

    insulin sensitizers, including PPARs;

    alpha-glucosidase inhibitors; and

    sodium-glucose transporter-2 (SGLT-2) inhibitors.

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        There is substantial competition in the discovery and development of treatments for obesity, as well as emerging prescription and over-the-counter treatments for this condition. Current treatments for obesity include dietary therapy, physical activity, drug therapy and surgery. Hoffmann-LaRoche and Abbott Laboratories already market oral medicines for the treatment of obesity. Glaxo Smith Kline now markets "over the counter" a former prescription product (orlistat-Alli) for treatment of obesity. In addition, a number of other pharmaceutical companies are developing new potential therapeutics and there have been two recent NDA filings for therapeutic agents to treat obesity.

Patents, Proprietary Rights, and Licenses

        We believe that patents and other proprietary rights are important to our business. Our policy is to file patent applications to protect technology, inventions and improvements that may be important to the development of our business. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position. We plan to enforce our issued patents and our rights to proprietary information and technology. We review third-party patents and patent applications, both to refine our own patent strategy and to identify useful licensing opportunities.

        We have a number of patents, patent applications and rights to patents related to our compounds, products and technology, but we cannot be certain that issued patents will be enforceable or provide adequate protection or that pending patent applications will result in issued patents. We have also filed foreign counterparts to many of these issued patents and applications.

        We may obtain patents for our compounds many years before we obtain marketing approval for them. Because patents have a limited life, which may begin to run prior to the commercial sale of the related product, the commercial value of the patent may be limited. However, we may be able to apply for patent term extensions to compensate in part for delays in obtaining marketing approval. For example, in the United States a patent term extension of 1,586 days has been granted for SYMLIN, resulting in a patent expiration date of March 16, 2019, and a patent term extension of 1,287 days has been granted for BYETTA, resulting in a patent expiration date of December 1, 2016. Similar patent term extensions may be available for other products that we are developing, but we cannot be certain we will obtain them.

        Included within our exenatide patent portfolio are issued patents for:

    pharmaceutical compositions containing exenatide;

    modulating gastric emptying;

    inhibiting glucagon secretion;

    stimulating insulin release; and

    reducing food intake.

        These patents expire between 2016 and 2020. We do not have a composition of matter patent for the exenatide molecule.

        Included within our pramlintide patent portfolio are issued patents for:

    pramlintide and other amylin agonist analogues invented by our researchers;

    amylin agonist pharmaceutical compositions, including compositions containing pramlintide; and

    methods for treating diabetes and related conditions using amylin agonists.

        These patents expire between 2011 and 2019.

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        Our SYMLIN and BYETTA products are subject to the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, which provides data exclusivity for a certain period of time. Beginning one year before expiration of the data exclusivity period, the Hatch-Waxman Act allows generic manufacturers to file Abbreviated New Drug Applications, or ANDAs, requesting the FDA's approval of generic versions of previously-approved products. For example, generic pharmaceutical manufacturers could file an ANDA for SYMLIN as of March 2009 and for BYETTA as of April 2009. If an ANDA is filed for one of our approved products prior to expiration of the patents covering those products, it could result in our initiating patent infringement litigation to enforce our rights.

        With respect to our drug candidates, we have patents and patent applications pending, or have licensed patents and patent applications, relevant to the development and commercialization of such drug candidates. Generally, our policy is to file foreign counterpart applications in countries with significant pharmaceutical markets.

        It is important that we do not infringe patents or proprietary rights of others and that we do not violate the agreements that grant proprietary rights to us. If we do infringe patents or violate these agreements, we could be prevented from developing or selling products or from using the processes covered by those patents or agreements, or we could be required to obtain a license from the third party allowing us to use their technology. We cannot be certain that, if required, we could obtain a license to any third-party technology or that we could obtain one at a reasonable cost. If we were not able to obtain a required license, we could be adversely affected. Because patent applications are confidential for at least some period of time, there may be pending patent applications from which patents will eventually issue and prevent us from developing or selling certain products unless we can obtain a license to use the patented technology.

        Patents relating to pharmaceutical, biopharmaceutical and biotechnology products, compounds and processes such as those that cover our existing products, compounds and processes and those that we will likely file in the future do not always provide complete or adequate protection. Future litigation or proceedings initiated by the United States Patent and Trademark Office regarding the enforcement or validity of our existing patents or any future patents could invalidate our patents or substantially reduce their protection. In addition, statutory or regulatory changes may adversely affect our ability to obtain protection or enforce our patents. Furthermore, our pending patent applications and patent applications filed by our collaborative partners may not result in the issuance of any patents or may result in patents that do not provide adequate protection. As a result, we may not be able to prevent third parties from developing the same compounds and products that we have developed or are developing. In addition, we do not have patent protection or we may not be able to enforce our patents in certain countries. As a result, manufacturers may be able to sell generic versions of our products in those countries.

        We also rely on unpatented trade secrets and improvements, unpatented internal know-how and technological innovation. We protect these rights mainly through confidentiality agreements with our corporate partners, employees, consultants and vendors. These agreements provide that all confidential information developed or made known to an individual during the course of their relationship with us will be kept confidential and will not be used or disclosed to third parties except in specified circumstances. In the case of employees, the agreements provide that all inventions made by the individual while employed by us will be our exclusive property. We cannot be certain that these parties will comply with these confidentiality agreements, that we have adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered by our competitors. Under some of our research and development agreements, inventions discovered in certain cases become jointly owned by us and our corporate partner and in other cases become the exclusive property of one of us. It can be difficult to determine who owns a particular invention and disputes could arise regarding those inventions.

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Government Regulation

        Regulation by governmental authorities in the United States and foreign countries is a significant factor in the development, manufacture and marketing of pharmaceutical products. All of our potential products will require regulatory approval by governmental agencies prior to commercialization. In particular, human therapeutic products are subject to rigorous preclinical testing and clinical trials and other pre-market approval requirements by the FDA and regulatory authorities in foreign countries. Various federal, state and foreign statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of such products.

        A number of steps must be taken before a pharmaceutical agent may be marketed in the United States. First, the pharmaceutical agent must undergo preclinical testing. Preclinical tests include laboratory evaluation of product chemistry and animal studies to assess the potential safety and activity of the product candidate and its formulations. The results of these studies must be submitted to the FDA as part of an investigational new drug application, or IND, which must be reviewed by the FDA before a proposed clinical trial can begin. Typically, clinical trials involve a three-phase process. In Phase 1, clinical trials are conducted with a small number of healthy volunteers to determine the early safety and tolerability profile and the pattern of drug distribution and metabolism. In Phase 2, clinical trials are conducted with groups of patients afflicted with a specified disease in order to determine preliminary efficacy, dosing regimens and expanded evidence of safety. In Phase 3, large-scale, multi-center, adequate and well-controlled comparative clinical trials are conducted with patients afflicted with a target disease in order to provide enough data for the statistical proof of efficacy and safety required by the FDA and others. The results of the preclinical testing and clinical trials for a pharmaceutical product are then submitted to the FDA in the form of an NDA for approval to commence commercial sales. In responding to an NDA, the FDA may grant marketing approval, request additional information, or deny the application if it determines that the application does not satisfy its regulatory approval criteria. Once a drug is approved for marketing in the United States, the FDA requires ongoing safety monitoring to ascertain any undiscovered issues related to "real-world" use of the drug. The expanded patient exposure once a drug is introduced to the marketplace can reveal new risks (as well as new benefits) that were not detectable during clinical testing.

        Among the conditions for NDA approval is the requirement that the prospective manufacturer's quality control and manufacturing procedures conform to cGMP. In complying with cGMP, manufacturers must continue to expend time, money and effort in the area of production, quality control, and quality assurance to ensure full technical compliance. Manufacturing facilities are subject to periodic inspections by the FDA to ensure compliance.

        We are also subject to various federal, state, and local laws, regulations and recommendations relating to safe working conditions; laboratory and manufacturing practices; the experimental use of animals; and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our research.

        The activities required before a pharmaceutical agent may be marketed in the EU are dictated by the International Conference on Harmonization and are generally similar to those established in the United States. Approval of new drugs across the EU relies on either the mutual recognition or decentralized approval procedure of the European Medicines Agency. Under the centralized procedure, the marketing application is referred for review to two review teams, each representing one of the member countries. Each reviewer then forwards an early assessment to the Committee for Medicinal Products for Human Use, or CHMP, for discussion and preparation of an initial consolidated assessment report, including a list of questions requesting clarification as well as additional information. This step initiates a series of dialogues, meetings and other communications among the CHMP, the two review teams and the applicant, leading in turn to clarification, education and refinement of the original assessment reports. Ultimately, a decision is reached to either grant marketing approval or

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deny the application if it is determined that the application does not satisfy the regulatory approval criteria. The clinical testing, manufacture and sale of pharmaceutical products outside of the United States and the EU are subject to regulatory approvals by other jurisdictions which may be more or less rigorous than those required by the United States or the EU.

Employees

        As of December 31, 2009, we had approximately 1,500 full-time employees. A significant number of our management and professional employees have had experience with pharmaceutical, biotechnology or medical product companies. We believe that we have been highly successful in attracting skilled and experienced personnel. None of our employees are covered by collective bargaining agreements and we consider relations with our employees to be good.

Executive Officers

        The names of our executive officers and certain information about them as of February 15, 2010 are set forth below:

Name
  Age   Position

Daniel M. Bradbury

    48   President, Chief Executive Officer and Director

Mark G. Foletta

    49   Senior Vice President, Finance and Chief Financial Officer

Mark J. Gergen

    47   Senior Vice President, Corporate Development

Orville G. Kolterman, M.D. 

    62   Senior Vice President, Research and Development

Marcea Bland Lloyd

    61   Senior Vice President, Government and Corporate Affairs, and General Counsel

Roger Marchetti

    51   Senior Vice President, Human Resources and Information Management

Paul G. Marshall

    50   Senior Vice President, Operations

Vincent P. Mihalik

    59   Senior Vice President, Sales and Marketing and Chief Commercial Officer

Lloyd A. Rowland

    53   Vice President, Governance and Compliance, and Corporate Secretary

        Mr. Bradbury has been our Chief Executive Officer since March 2007, serving as President since June 2006 and as Chief Operating Officer since June 2003. He has served as a director since June 2006 and serves on the Finance Committee. He previously served as Executive Vice President from June 2000 until June 2003. He joined Amylin in 1994 and has held officer-level positions in Corporate Development and Marketing during that time. Prior to joining Amylin, Mr. Bradbury spent ten years at SmithKline Beecham Pharmaceuticals, where he held a number of sales and marketing positions. He is a member of the board of directors of Illumina, Inc. He also serves on the RAND Health Board of Advisors and as a board member for PhRMA, BIOCOM, the Keck Graduate Institute's Board of Trustees and the San Diego Regional Economic Development Corporation. Mr. Bradbury is a member of the Royal Pharmaceutical Society of Great Britain and serves on the UCSD Rady School of Management's Advisory Council and the University of Miami's Innovation Corporate Advisory Council. He received a Bachelor of Pharmacy from Nottingham University and a Diploma in Management Studies from Harrow and Ealing Colleges of Higher Education.

        Mr. Foletta has served as Senior Vice President, Finance and Chief Financial Officer since March 2006 and he previously served as Vice President, Finance and Chief Financial Officer from March 2000 to March 2006. Mr. Foletta previously served as a Principal of Triton Group Management, Inc. from 1997 to 2000. From 1986 to 1997, Mr. Foletta held a number of management positions with Intermark, Inc. and Triton Group Ltd., the most recent of which was Senior Vice President, Chief

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Financial Officer and Corporate Secretary. From 1982 to 1986, Mr. Foletta was with Ernst & Young, most recently serving as an Audit Manager. He is a director of Anadys Pharmaceuticals, Inc. Mr. Foletta received a B.A. in Business Economics from the University of California, Santa Barbara. He is a Certified Public Accountant and a member of the Financial Executives Institute.

        Mr. Gergen has served as Senior Vice President, Corporate Development since August 2006 and previously served as Vice President of Business Development from May 2005 to August 2006. Prior to joining us, Mr. Gergen was an independent consultant to biotech and medical technology companies for strategy, financing and corporate development. From 2003 to 2005, Mr. Gergen was Executive Vice President at CardioNet, Inc. He held various positions at Advanced Tissue Sciences, Inc. from 2000 to 2003 most recently as Chief Restructuring Officer and Acting CEO. He also served as Senior Vice President, Chief Financial and Development Officer, and Vice President, Development, General Counsel and Secretary. From 1999 to 2000, Mr. Gergen was employed at Premier, Inc. and from 1994 to 1999 he held various positions with Medtronic, Inc. From 1990 to 1994 he held various legal and corporate development positions at Jostens, Inc. and from 1986 to 1990, he practiced law at various law firms. Mr. Gergen serves on the Board of Directors of a privately held company. Mr. Gergen received a B.A. in Administration from Minot State University and a J.D. from the University of Minnesota Law School.

        Dr. Kolterman has served as Senior Vice President, Research and Development since June 2008 and previously served as Senior Vice President, Development from March 2008 to May 2008. He also served as Senior Vice President, Clinical and Regulatory Affairs from August 2005 to March 2008, Senior Vice President, Clinical Affairs from February 1997 to August 2005, Vice President, Medical Affairs from 1993 to 1997, and Director, Medical Affairs from 1992 to 1993. From 1983 to 1992, he was Program Director of the General Clinical Research Center and Medical Director of the Diabetes Center, at the University of California, San Diego Medical Center. Since 1989, he has been Adjunct Professor of Medicine at the University of California, San Diego. From 1978 to 1983, he was Assistant Professor of Medicine in the Endocrinology and Metabolism Division at the University of Colorado School of Medicine, Denver. He was a member of the Diabetes Control and Complications Trial Study Group and presently serves as a member of the Epidemiology of Diabetes Intervention and Complications Study. He is also a past-president of the California Affiliate of the American Diabetes Association. Dr. Kolterman received his M.D. from Stanford University School of Medicine.

        Ms. Lloyd has served as our Senior Vice President, Government & Corporate Affairs and General Counsel since June 2008 and Senior Vice President, Legal and Corporate Affairs, and General Counsel since February 2007. Prior to joining us, Ms. Lloyd served as Group Senior Vice President, Chief Administrative Officer, General Counsel and Secretary of VHA Inc. from November 2004 to February 2007. Previously, she served as VHA's General Counsel and Secretary from May 1999 to November 2004. From 1993 to April 1999, Ms. Lloyd was Vice President and Assistant General Counsel of Medtronic Inc. and served as Medtronic's Assistant General Counsel from 1991 to 1993. From 1978 to 1991, Ms. Lloyd held various legal positions with Medtronic. Prior to joining Medtronic, Ms. Lloyd served as counsel to Pillsbury Company and Montgomery Ward & Co. and she taught Business Law at the University of Minnesota Business School. Ms. Lloyd is immediate past Chairperson of the Executive Leadership Foundation, a member of the board of directors for California Healthcare Institute and is an associate of the Women Business Leaders of the United States Health Care Industry Foundation. She received a B.S./B.A. from Knox College and a J.D. from Northwestern University.

        Mr. Marchetti has served as our Senior Vice President, Human Resources and Information Management since July 2007 and previously served as Senior Vice President, Human Resources and Corporate Services from October 2005 to July 2007. Prior to joining us, he served as Vice President, Human Resources for Guidant Corporation from July 2002 to October 2005. Prior to this role, he served as Vice President, Finance and Information Systems, Guidant Europe, Middle East, Africa, and Canada, since the beginning of 2001. From 1999 through 2000, he served as Vice President, Human

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Resources for Guidant's Vascular Intervention group, and served as Guidant's Corporate Controller and Chief Accounting Officer from 1994 to 1999. He joined Eli Lilly and Company's Medical Devices and Diagnostics division in 1988. In 1992, he became Financial Manager of Lilly's pharmaceutical manufacturing operations in Indianapolis. From 1980 to 1986, he was with Touche Ross & Co. (currently Deloitte). He received a B.S. from LaSalle University in Philadelphia and his M.B.A. from the Ross School of Business at the University of Michigan. He is a Certified Public Accountant.

        Mr. Marshall has served as Senior Vice President, Operations since December 2008. He previously served as Vice President Operations from December 2006 to December 2008. Prior to joining us, he was Vice President of Corporate Manufacturing at Amgen, Inc. From 2002 to 2005, Mr. Marshall served as President of Manufacturing at Recombinant Proteins at the Bioscience Division of Baxter International. From 1999 to 2002, he was Site Head of the Baxter International Thousand Oaks facility. He joined Creative BioMolecules in 1992, first as Head of Process Development and Clinical Manufacturing and then as Head of Operations. From 1988 to 1992, Mr. Marshall held various management positions with Welgen Manufacturing Partnership (now Amgen, Rhode Island), Repligen Corporation and Damon Biotech. Mr. Marshall received a B.S. and an M.S. in Biology from the University of Massachusetts at Dartmouth and completed three years of post-graduate work concentrating in hematology and coagulation research at Brown University.

        Mr. Mihalik has served as Senior Vice President, Sales and Marketing and Chief Commercial Officer since January 2009. Mr. Mihalik has over 30 years of experience across multiple commercial roles. Before joining us, Mr. Mihalik served as Vice President of Global Brand Development Diabetes and Endocrine Platform Team Leader for Lilly since 2004. Previously, he was Business Unit Head of Diabetes Care for Lilly U.S. from 2001 to 2004. From 1990 to 2001 he served in various senior management positions at other healthcare companies including Senior Vice President and General Manager for Lab Systems and Molecular Biochemical at Roche Diagnostics Corporation, President, Diabetes Care North America at Boehringer Mannheim Group and President, Scientific Products Biomedical and General Manager, Pandex Diagnostic Research and Development Center for Baxter Healthcare Inc. He has a B.S. degree in Biology from The Pennsylvania State University and completed the Northwestern University Masters in Management-Executive Program.

        Mr. Rowland has served as our Vice President, Governance and Compliance, Secretary, and Chief Compliance Officer since February 2007. He previously served as our Vice President, Legal, Secretary and General Counsel from September 2001 to February 2007. Prior to joining us, Mr. Rowland served in various positions at Alliance Pharmaceutical Corp., including as Vice President, General Counsel and Secretary, beginning in 1993. Earlier, Mr. Rowland served as Vice President and Senior Counsel, Finance and Securities, at Imperial Savings Association for four years. For the previous eight years, he was engaged in the private practice of corporate law with the San Diego, California law firm of Gray, Cary, Ames & Fry, and the Houston, Texas law firm of Bracewell & Patterson. He received a J.D. from Emory University.

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Item 1A.    Risk Factors

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

        Except for the historical information contained herein or incorporated by reference, this annual report on Form 10-K and the information incorporated by reference contains forward-looking statements that involve risks and uncertainties. These statements include projections about our accounting and finances, plans and objectives for the future, future operating and economic performance and other statements regarding future performance. These statements are not guarantees of future performance or events. Our actual results may differ materially from those discussed here. Factors that could cause or contribute to differences in our actual results include those discussed in the following section, as well as those discussed in Part II, Item 7 entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere throughout this annual report on Form 10-K and in any other documents incorporated by reference into this report. You should consider carefully the following risk factors, together with all of the other information included or incorporated in this annual report on Form 10-K. Each of these risk factors, either alone or taken together, could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our common stock. There may be additional risks that we do not presently know of or that we currently believe are immaterial which could also impair our business and financial position.

         We have a history of operating losses, anticipate future losses and may never become profitable.

        We have experienced significant operating losses since our inception in 1987, including losses of $186.2 million in 2009, $321.9 million in 2008 and $216.5 million in 2007. As of December 31, 2009, we had an accumulated deficit of approximately $1.9 billion. The extent of our future losses and the timing of potential profitability are uncertain, and we may never achieve profitable operations. We have been engaged in discovering and developing drugs since inception, which has required, and will continue to require, significant research and development expenditures. We derived substantially all of our revenues prior to 2005 from development funding, fees and milestone payments under collaborative agreements and from interest income. BYETTA and SYMLIN may not be as commercially successful as we expect and we may not succeed in commercializing any of our other drug candidates. We may incur substantial operating losses for at least the next few years. These losses, among other things, have had and will have an adverse effect on our stockholders' equity and working capital. Even if we become profitable, we may not remain profitable.

         We began selling, marketing and distributing our first products, BYETTA and SYMLIN, in 2005 and we will depend heavily on the success of those products and, if approved, exenatide once weekly, in the marketplace.

        Prior to the launch of BYETTA and SYMLIN in 2005, we had never sold or marketed our own products. Our ability to generate product revenue for the next few years will depend solely on the success of these products and, if approved, exenatide once weekly. The ability of BYETTA, SYMLIN and, if approved, exenatide once weekly to generate revenue at the levels we expect will depend on many factors, including the following:

    the ability of patients in the current uncertain economic climate to be able to afford our medications or obtain health care coverage that covers our products;

    our ability to obtain approval for exenatide once weekly and the timing of the commercial launch of exenatide once weekly, if approved;

    acceptance of and ongoing satisfaction with these first-in-class medicines in the United States and foreign markets by the medical community, patients receiving therapy and third party payers;

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    a satisfactory efficacy and safety profile as demonstrated in a broad patient population;

    successfully expanding and sustaining manufacturing capacity to meet demand;

    safety concerns in the marketplace for diabetes therapies;

    the competitive landscape for approved and developing therapies that will compete with the products; and

    our ability to expand the indications for which we can market the products.

         If we encounter safety issues with BYETTA or SYMLIN or any other drugs we market or fail to comply with extensive continuing regulations enforced by domestic and foreign regulatory authorities, it could cause us to discontinue marketing those drugs, reduce our revenues and harm our ability to generate future revenues, which would negatively impact our financial position.

        BYETTA and SYMLIN, in addition to any other of our drug candidates that may be approved by the FDA, will be subject to continual review by the FDA, and we cannot assure you that newly discovered or developed safety issues will not arise. With the use of any of our marketed drugs by a wide patient population, serious adverse events may occur from time to time that initially do not appear to relate to the drug itself, and only if the specific event occurs with some regularity over a period of time does the drug become suspect as having a causal relationship to the adverse event. Some patients taking BYETTA have reported developing pancreatitis. We are working to better understand the relationship between BYETTA and pancreatitis described in some spontaneously reported cases. In keeping with our focus on patient safety, we continue to pursue our drug safety program that includes thorough investigation of individual spontaneous case reports along with clinical and epidemiologic studies. Within the detection limits of an initial epidemiology study which we provided to the FDA, we have not observed an increased incidence of pancreatitis associated with BYETTA compared to other treatments for diabetes and thus believe a definite causal relationship between BYETTA and pancreatitis has not been proved. Any safety issues could cause us to suspend or cease marketing of our approved products, cause us to modify how we market our approved products, subject us to substantial liabilities, and adversely affect our revenues and financial condition.

        Moreover, the marketing of our approved products will be subject to extensive regulatory requirements administered by the FDA and other regulatory bodies, including adverse event reporting requirements and the FDA's general prohibition against promoting products for unapproved uses. The manufacturing facilities for our approved products are also subject to continual review and periodic inspection and approval of manufacturing modifications. Manufacturing facilities that manufacture drug products for the United States market, whether they are located inside or outside the United States, are subject to biennial inspections by the FDA and must comply with the FDA's current good manufacturing practice, or cGMP, regulations. The FDA stringently applies regulatory standards for manufacturing. Failure to comply with any of these post-approval requirements can, among other things, result in warning letters, product seizures, recalls, fines, injunctions, suspensions or revocations of marketing licenses, operating restrictions and criminal prosecutions. Any of these enforcement actions, any unanticipated changes in existing regulatory requirements or the adoption of new requirements, or any safety issues that arise with any approved products, could adversely affect our ability to market products and generate revenues and thus adversely affect our ability to continue our business.

        The manufacturers of our products and drug candidates also are subject to numerous federal, state, local and foreign laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and hazardous substance disposal. In the future, our manufacturers may incur significant costs to comply with those laws and regulations, which could increase our manufacturing costs and reduce our ability to operate profitably.

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         We currently do not manufacture our own drug products or some of our drug candidates and may not be able to obtain adequate supplies, which could cause delays, subject us to product shortages, or reduce product sales.

        The manufacturing of sufficient quantities of newly-approved drug products and drug candidates is a time-consuming and complex process. We currently have no manufacturing capabilities for our two marketed drug products. In order to successfully commercialize our products, including BYETTA and SYMLIN, and continue to develop our drug candidates, including exenatide once weekly, we rely on various third parties to provide the necessary manufacturing.

        There are a limited number of manufacturers that operate under the FDA's cGMP regulations capable of manufacturing for us. In addition, there are a limited number of bulk drug substance suppliers, cartridge manufacturers and disposable pen manufacturers. If we are not able to arrange for and maintain third-party manufacturing on commercially reasonable terms, or we lose one of our sole source suppliers used for our existing products or for some components of our manufacturing processes for our products or drug candidates, we may not be able to market our products or complete development of our drug candidates on a timely basis, if at all.

        Reliance on third-party suppliers limits our ability to control certain aspects of the manufacturing process and therefore exposes us to a variety of significant risks, including, but not limited to, risks to our ability to commercialize our products or conduct clinical trials, risks of reliance on the third-party for regulatory compliance and quality assurance, third-party refusal to supply on a long-term basis, or at all, the possibility of breach of the manufacturing agreement by the third-party and the possibility of termination or non-renewal of the agreement by the third-party, based on its business priorities, at a time that is costly or inconvenient for us. In addition, reliance on single-source suppliers subjects us to the risk of price increases by these suppliers which could negatively impact our operating margins. If any of these risks occur, our product supply will be interrupted resulting in lost or delayed revenues and delayed clinical trials. Our reliance on third-party manufacturers for the production of our two commercial products is described in more detail below.

        We rely on Bachem and Mallinckrodt to manufacture our long-term commercial supply of bulk exenatide, the active ingredient in BYETTA. In addition, we rely on single-source manufacturers for some of our raw materials used by Bachem and Mallinckrodt to produce bulk exenatide. We also rely on Wockhardt and Baxter to manufacture the dosage form of BYETTA in cartridges. We are further dependent upon Lilly to supply pens for delivery of BYETTA in cartridges.

        We rely on Bachem and Lonza to manufacture our commercial supply of bulk pramlintide acetate, the active ingredient contained in SYMLIN. In addition, we rely on Baxter to manufacture the dosage form of SYMLIN in vials. We rely on Wockhardt for the dosage form of SYMLIN in cartridges and Ypsomed AG to manufacture the components for the SYMLIN disposable pen. We also rely on Sharp Corporation for the assembly of the SYMLIN pen.

        If any of our existing or future manufacturers cease to manufacture or are otherwise unable to timely deliver sufficient quantities of BYETTA or SYMLIN, in either bulk or dosage form, or other product components, including pens for the delivery of these products, it could disrupt our ability to market our products, subject us to product shortages, reduce product sales and/or reduce our profit margins. Any delay or disruption in the manufacturing of bulk product, the dosage form of our products or other product components, including pens for delivery of our products, could also harm our reputation in the medical and patient communities. In addition, we may need to engage additional manufacturers so that we will be able to continue our commercialization and development efforts for these products or drug candidates. The cost and time to establish these new manufacturing facilities would be substantial.

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        Our manufacturers have produced BYETTA and SYMLIN for commercial use for approximately five years, however, unforeseeable risks related to environmental, economic, technical or other issues may be encountered as we, together with our manufacturers, continue to develop familiarity and experience with regard to manufacturing our products. Furthermore, we and the other manufacturers used for our drug candidates may not be able to produce supplies in commercial quantities if our drug candidates are approved. While we believe that business relations between us and our manufacturers are generally good, we cannot predict whether any of the manufacturers that we may use will meet our requirements for quality, quantity or timeliness for the manufacture of bulk exenatide or pramlintide acetate, dosage form of BYETTA or SYMLIN, or pens. Therefore, we may not be able to obtain necessary supplies of products with acceptable quality, on acceptable terms or in sufficient quantities, if at all. Our dependence on third parties for the manufacture of products may also reduce our gross profit margins and our ability to develop and deliver products in a timely manner.

        In order to manufacture exenatide once weekly on a commercial scale we must complete final validation of the manufacturing process and obtain approval for our manufacturing facility from the FDA. We have never established, validated, and operated a manufacturing facility and cannot assure you that we will be able to successfully establish or operate such a facility in a timely or economical manner, or at all. The FDA has inspected our manufacturing facility and has made a number of observations which we believe are addressable. However, we cannot be assured that these observations will be adequately addressed in a timely manner or at all. Although we are working diligently to qualify the commercial-scale manufacturing process at this facility, we cannot be assured that we will be able to demonstrate comparability of product manufactured at development scale and product manufactured at commercial scale. If we are unable to demonstrate comparability of product, we may not be able to commercially launch exenatide once weekly in a timely manner or at all. In addition, we are dependent on Alkermes to supply us with commercial quantities of the polymer required to manufacture exenatide once weekly. We also will need to obtain sufficient supplies of diluent, solvents, devices, packaging and other components necessary for commercial manufacture of exenatide once weekly. If exenatide once weekly is approved, we will be dependent upon Mallinckrodt and Lonza to manufacture our long-term commercial supply of bulk exenatide, the active ingredient in exenatide once weekly, and upon single suppliers to produce components for packaging exenatide once weekly.

         Our ability to generate revenues will be diminished if we fail to obtain acceptable prices or an adequate level of reimbursement for our products from third-party payers.

        The continuing efforts of government, private health insurers and other third-party payers to contain or reduce the costs of health care through various means, including efforts to increase the amount of patient co-pay obligations, may limit our commercial opportunity. In the United States, there are a number of health care reform proposals under consideration by the Federal government and we expect that there will continue to be a number of federal and state proposals to implement government control over the pricing of prescription pharmaceuticals. In addition, increasing emphasis on managed care in the United States will continue to put pressure on the rate of adoption and pricing of pharmaceutical products.

        Significant uncertainty exists as to the reimbursement status of health care products. Third-party payers, including Medicare, are challenging the prices charged for medical products and services. Government and other third-party payers increasingly are attempting to contain health care costs by limiting both coverage and the level of reimbursement for new drugs and by refusing to provide coverage for uses of approved products for disease indications for which the FDA has not granted labeling approval. Third-party insurance coverage may not be available to patients for BYETTA and/or SYMLIN or any other products we discover and develop. If government and other third-party payers do not provide adequate coverage and reimbursement levels for our products, the market acceptance of these products may be reduced.

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         Competition in the biotechnology and pharmaceutical industries may result in competing products, superior marketing of other products and lower revenues or profits for us.

        There are many companies that are seeking to develop products and therapies for the treatment of diabetes and other metabolic disorders. Our competitors include multinational pharmaceutical and chemical companies, specialized biotechnology firms and universities and other research institutions. A number of our largest competitors, including AstraZeneca, Bristol-Myers Squibb, GlaxoSmithKline, Lilly, Merck & Co., Novartis, Novo Nordisk, Pfizer, Sanofi-Aventis, Roche and Takeda, are pursuing the development or marketing of pharmaceuticals that target the same diseases that we are targeting, and it is possible that the number of companies seeking to develop products and therapies for the treatment of diabetes, obesity and other metabolic disorders will increase. Many of our competitors have substantially greater financial, technical, sales force, human and other resources than we do and may be better equipped to develop, manufacture and market technologically superior products. In addition, many of these competitors have significantly greater experience than we do in undertaking preclinical testing and human clinical studies of new pharmaceutical products and in obtaining regulatory approvals of human therapeutic products. Accordingly, our competitors may succeed in obtaining FDA approval for superior products. Furthermore, now that we have received FDA approval for BYETTA and SYMLIN, we may also be competing against other companies with respect to our manufacturing and product distribution efficiency and sales and marketing capabilities, areas in which we have limited or no experience as an organization.

        Our target patient population for BYETTA includes people with diabetes who have not achieved adequate glycemic control with diet and exercise or by using metformin, sulfonylurea and/or a TZD, three common oral therapies for type 2 diabetes. Our target population for SYMLIN includes people with either type 2 or type 1 diabetes whose therapy includes multiple mealtime insulin injections daily. Other products are currently in development or exist in the market that may compete directly with the products that we are developing or marketing. Various other products are available or in development to treat type 2 diabetes, including:

    sulfonylureas;

    metformin;

    insulins, including injectable and inhaled versions;

    TZDs;

    glinides;

    DPP-IV inhibitors;

    incretin/GLP-1 receptor agonists;

    PPARs; and

    alpha-glucosidase inhibitors.

        In addition, several companies are developing various approaches, including alternative delivery methods, to improve treatments for type 1 and type 2 diabetes. We cannot predict whether our products will have sufficient advantages to cause health care professionals to adopt them over other products or that our products will offer an economically feasible alternative to other products. Our products could become obsolete before we recover expenses incurred in developing these products.

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         Delays in the conduct or completion of our clinical trials, the analysis of the data from our clinical trials or our manufacturing scale-up activities may result in delays in our planned filings for regulatory approvals of our products, and may adversely affect our ability to enter into new collaborative arrangements.

        We cannot predict whether we will encounter problems with any of our completed, ongoing or planned clinical studies that will cause us to delay or suspend our ongoing and planned clinical studies, delay the analysis of data from our completed or ongoing clinical studies or perform additional clinical studies prior to receiving necessary regulatory approvals. We also cannot predict whether we will encounter delays or an inability to create manufacturing processes for drug candidates that allow us to produce drug product in sufficient quantities to be economical, otherwise known as manufacturing scale-up.

        If the results of our ongoing or planned clinical studies for our drug candidates are not available when we expect or if we encounter any delay in the analysis of data from our clinical studies or if we encounter delays in our ability to scale-up our manufacturing processes:

    we may be unable to complete our development programs for exenatide once weekly or our obesity clinical trials;

    we may have to delay or terminate our planned filings for regulatory approval;

    we may not have the financial resources to continue research and development of any of our drug candidates; and

    we may not be able to enter into, if we chose to do so, any additional collaborative arrangements.

        Any of the following could delay the completion of our ongoing and planned clinical studies:

    ongoing discussions with the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;

    delays in enrolling volunteers;

    lower than anticipated retention rate of volunteers in a clinical trial;

    negative results of clinical studies;

    insufficient supply or deficient quality of drug candidate materials or other materials necessary for the performance of clinical trials;

    our inability to reach agreement with Lilly regarding the scope, design, conduct or costs of clinical trials with respect to BYETTA, exenatide once weekly, nasal exenatide or transdermal exenatide; or

    serious side effects experienced by study participants relating to a drug candidate.

         We are substantially dependent on our collaboration with Lilly for the development and commercialization of BYETTA and dependent on Lilly and Alkermes for the development of exenatide once weekly.

        We have entered into a collaborative arrangement with Lilly, who currently markets diabetes therapies and is developing additional diabetes drug candidates, to commercialize BYETTA and further develop sustained-release formulations of BYETTA, including exenatide once weekly. We entered into this collaboration in order to:

    fund some of our research and development activities;

    assist us in seeking and obtaining regulatory approvals; and

    assist us in the successful commercialization of BYETTA and exenatide once weekly.

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        In general, we cannot control the amount and timing of resources that Lilly may devote to our collaboration. If Lilly fails to assist in the further development of exenatide once weekly or the commercialization of BYETTA, or if Lilly's efforts are not effective, our business may be negatively affected. We are relying on Lilly to obtain regulatory approvals for and successfully commercialize BYETTA and exenatide once weekly outside the United States. Our collaboration with Lilly may not continue or result in additional successfully commercialized drugs. Lilly can terminate our collaboration at any time upon twelve months' notice. If Lilly ceased funding and/or developing and commercializing BYETTA or exenatide once weekly, we would have to seek additional sources for funding and may have to delay, reduce or eliminate one or more of our commercialization and development programs for these compounds. If Lilly does not successfully commercialize BYETTA outside the United States, we may receive limited or no revenues from them. In addition, we are dependent on Alkermes to successfully develop and transfer to us its technology for manufacturing exenatide once weekly. If Alkermes' technology is not successfully developed to effectively deliver exenatide in a sustained release formulation, or Alkermes does not devote sufficient resources to the collaboration, our efforts to develop sustained release formulations of exenatide could be delayed or curtailed.

         If our patents are determined to be unenforceable or if we are unable to obtain new patents based on current patent applications or for future inventions, we may not be able to prevent others from using our intellectual property. If we are unable to obtain licenses to third party patent rights for required technologies, we could be adversely affected.

        We own or hold exclusive rights to many issued United States patents and pending United States patent applications related to the development and commercialization of exenatide, including BYETTA and exenatide once weekly, SYMLIN and our other drug candidates. These patents and applications cover composition-of-matter, medical indications, methods of use, formulations and other inventive results. We have issued and pending applications for formulations of BYETTA and exenatide once weekly, but we do not have a composition-of-matter patent covering exenatide. We also own or hold exclusive rights to various foreign patent applications that correspond to issued United States patents or pending United States patent applications.

        Our success will depend in part on our ability to obtain patent protection for our products and drug candidates and technologies both in the United States and other countries. We cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us. Alternatively, a third party may successfully challenge or circumvent our patents. Our rights under any issued patents may not provide us with sufficient protection against competitive products or otherwise cover commercially valuable products or processes. For example, our SYMLIN and BYETTA products are subject to the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the "Hatch-Waxman Act," which provides data exclusivity for a certain period of time. Beginning one year before expiration of the data exclusivity period, the Hatch-Waxman Act allows generic manufacturers to file Abbreviated New Drug Applications, or ANDAs, requesting the FDA's approval of generic versions of previously-approved products. For example, generic pharmaceutical manufacturers could file an ANDA for SYMLIN as of March 2009 and for BYETTA as of April 2009. If an ANDA is filed for one of our approved products prior to expiration of the patents covering those products, it could result in our initiating patent infringement litigation to enforce our rights. We can provide no assurances that we would prevail in such an action or in any challenge related to our patent rights.

        In addition, because patent applications in the United States are maintained, in general, in secrecy for 18 months after the filing of the applications, and publication of discoveries in the scientific or patent literature often lag behind actual discoveries, we cannot be sure that the inventors of subject matter covered by our patents and patent applications were the first to invent or the first to file patent applications for these inventions. Third parties have filed, and in the future are likely to file, patent

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applications on inventions similar to ours. From time-to-time we have participated in, and in the future are likely to participate in, interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, which could result in a loss of our patent position. We have also participated in, and in the future are likely to participate in, opposition proceedings against our patents in other jurisdictions, such as Europe and Australia. Furthermore, we may not have identified all United States and foreign patents that pose a risk of infringement.

        We also rely upon licensing opportunities for some of our technologies. We cannot be certain that we will not lose our rights to certain patented technologies under existing licenses or that we will be able to obtain a license to any required third-party technology. If we lose our licensed technology rights or if we are not able to obtain a required license, we could be adversely affected.

         We may be unable to obtain regulatory clearance to market our drug candidates, including exenatide once weekly, in the United States or foreign countries on a timely basis, or at all.

        Our drug candidates, including exenatide once weekly, are subject to extensive government regulations related to development, clinical trials, manufacturing and commercialization. The process of obtaining FDA and other regulatory approvals is costly, time-consuming, uncertain and subject to unanticipated delays. Regulatory authorities may refuse to approve an application for approval of a drug candidate if they believe that applicable regulatory criteria are not satisfied. Regulatory authorities may also require additional testing for safety and efficacy. Moreover, if the FDA grants regulatory approval of a product, the approval may be limited to specific indications or limited with respect to its distribution, and expanded or additional indications for approved drugs may not be approved, which could limit our revenues. Foreign regulatory authorities may apply similar limitations or may refuse to grant any approval. Unexpected changes to the FDA or foreign regulatory approval process could also delay or prevent the approval of our drug candidates.

        The data collected from our clinical trials may not be sufficient to support approval of our drug candidates or additional or expanded indications by the FDA or any foreign regulatory authorities. Biotechnology stock prices have declined significantly in certain instances where companies have failed to meet expectations with respect to FDA approval or the timing for FDA approval. If the FDA's or any foreign regulatory authority's response is delayed or not favorable for any of our drug candidates, including exenatide once weekly, our stock price could decline significantly.

        Moreover, manufacturing facilities operated by us or by the third-party manufacturers with whom we may contract to manufacture our unapproved drug candidates may not pass an FDA or other regulatory authority preapproval inspection. Any failure or delay in obtaining these approvals could prohibit or delay us or any of our business partners from marketing these drug candidates.

        Consequently, even if we believe that preclinical and clinical data are sufficient to support regulatory approval for our drug candidates, the FDA and foreign regulatory authorities may not ultimately approve our drug candidates for commercial sale in any jurisdiction. If our drug candidates are not approved, our ability to generate revenues may be limited and our business will be adversely affected.

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         Litigation regarding patents and other proprietary rights may be expensive, cause delays in bringing products to market and harm our ability to operate.

        Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties and preventing others from infringing our patents. Challenges by pharmaceutical companies against the patents of competitors are common. Legal standards relating to the validity of patents covering pharmaceutical and biotechnological inventions and the scope of claims made under these patents are still developing. As a result, our ability to obtain and enforce patents is uncertain and involves complex legal and factual questions. Third parties may challenge, in courts or through patent office proceedings, or infringe upon, existing or future patents. In the event that a third party challenges a patent, a court or patent office may invalidate the patent or determine that the patent is not enforceable. Proceedings involving our patents or patent applications or those of others could result in adverse decisions about:

    the patentability of our inventions, products and drug candidates; and/or

    the enforceability, validity or scope of protection offered by our patents.

        The manufacture, use or sale of any of our products or drug candidates may infringe on the patent rights of others. If we are unable to avoid infringement of the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to successfully defend an infringement action or have infringing patents declared invalid, we may:

    incur substantial monetary damages;

    encounter significant delays in bringing our drug candidates to market; and/or

    be precluded from participating in the manufacture, use or sale of our products or drug candidates or methods of treatment requiring licenses.

         We are subject to "fraud and abuse" and similar laws and regulations, and a failure to comply with such regulations or prevail in any litigation related to noncompliance could harm our business.

        Upon approval of BYETTA and SYMLIN by the FDA, we became subject to various health care "fraud and abuse" laws, such as the Federal False Claims Act, the federal anti-kickback statute and other state and federal laws and regulations. Pharmaceutical companies have faced lawsuits and investigations pertaining to violations of these laws and regulations. We cannot guarantee that measures that we have taken to prevent such violations, including our corporate compliance program, will protect us from future violations, lawsuits or investigations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

         Our financial results will fluctuate, and these fluctuations may cause our stock price to fall.

        Forecasting future revenues is difficult, especially since we launched our first products in 2005 and the level of market acceptance of these products may change rapidly. In addition, our customer base is highly concentrated with four customers accounting for most of our net product sales. Fluctuations in the buying patterns of these customers, which may result from seasonality, wholesaler buying decisions or other factors outside of our control, could significantly affect the level of our net sales on a period to period basis. As a result, it is reasonably likely that our financial results will fluctuate to an extent

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that may not meet with market expectations and that also may adversely affect our stock price. There are a number of other factors that could cause our financial results to fluctuate unexpectedly, including:

    product sales;

    cost of product sales;

    achievement and timing of research and development milestones;

    collaboration revenues;

    cost and timing of clinical trials, regulatory approvals and product launches;

    marketing and other expenses;

    manufacturing or supply issues; and

    potential acquisitions of businesses and technologies and our ability to successfully integrate any such acquisitions into our existing business.

         We may require additional financing in the future, which may not be available to us on favorable terms, or at all.

        We intend to use our available cash for:

    Commercialization of BYETTA and SYMLIN and, if approved, the launch and commercialization of exenatide once weekly;

    Establishment of additional manufacturing sources, including our Ohio manufacturing facility;

    Development of exenatide once weekly and other pipeline candidates;

    Executing our INTO strategy;

    Our other research and development activities;

    Other operating expenses;

    Potential acquisitions or investments in complementary technologies or businesses; and

    Other general corporate purposes.

        We may also be required to use our cash to pay principal and interest on outstanding debt, including a term loan with a current balance of approximately $93.8 million due in 2010, referred to as the Term Loan, and $775 million in outstanding principal amount of convertible senior notes, of which $200 million is due in 2011, referred to as the 2004 Notes, and $575 million is due in 2014, referred to as the 2007 Notes.

        If we require additional financing in the future, we cannot assure you that it will be available to us on favorable terms, or at all. Although we have previously been successful in obtaining financing through our debt and equity securities offerings, there can be no assurance that we will be able to so in the future, especially given the current adverse economic and credit conditions.

         Our investments in marketable debt securities are subject to credit and market risks that may adversely affect their fair value.

        We maintain a portfolio of investments in marketable debt securities which are recorded at fair value. Although we have established investment guidelines relative to diversification and maturity with the objective of maintaining safety of principal and liquidity, credit rating agencies may reduce the credit rating of our individual holdings which could adversely affect their value. Lower credit quality

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and other market events, such as increases in interest rates, and further deterioration in the credit markets may have an adverse effect on the fair value of our investment holdings and cash position.

         Our business has a substantial risk of product liability claims, and insurance may not be adequate to cover these claims.

        Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing and marketing of human therapeutic products. On March 4, 2009, the Supreme Court held in Wyeth v. Levine that federal law does not preempt state product liability claims involving pharmaceuticals. We are currently involved in fifty-three product liability cases which have been brought by individuals who have used BYETTA and generally seek compensatory and punitive damages for alleged injuries, consisting primarily of pancreatitis, and in a few cases wrongful death. We have also been notified of other claims of individuals who have not filed suit. Product liability claims could result in the imposition of substantial defense costs and liability on us, a recall of products, or a change in the indications for which they may be used. We currently have limited product liability insurance coverage. We cannot assure you that our insurance will provide adequate coverage against potential liabilities.

         Our ability to enter into and maintain third-party relationships is important to our successful development and commercialization of BYETTA, SYMLIN and our other drug candidates and to our potential profitability.

        With respect to sales, marketing and distribution outside the United States, we will be substantially dependent on Lilly for activities relating to BYETTA and sustained-release formulations of BYETTA, including exenatide once weekly. We believe that we will likely need to enter into marketing and distribution arrangements with third parties for, or find a corporate partner who can provide support for, the development and commercialization of SYMLIN or our other drug candidates outside the United States. We may also enter into arrangements with third parties for the commercialization of SYMLIN or any of our other drug candidates within the United States.

        With respect to BYETTA and, if approved, exenatide once weekly, Lilly is co-promoting within the United States. If Lilly ceased commercializing BYETTA or, if approved, exenatide once weekly, for any reason, we would likely need to either enter into a marketing and distribution arrangement with a third party for those products or significantly increase our internal sales and commercialization infrastructure.

        With respect to our obesity product candidates, we will generally be dependent upon Takeda for development activities beyond phase 2 for approval in the United States and all development activities outside the United States. We will also be dependent upon Takeda for commercializing approved products that result from our co-development activities, if any, in and outside the United States. If Takeda were to terminate our collaboration with them, we would likely need to find a third party collaborator to continue developing our obesity program, which we may be unable to do.

        We may not be able to enter into marketing and distribution arrangements or find a corporate partner for SYMLIN or our other drug candidates as we deem necessary. If we are not able to enter into a marketing or distribution arrangement or find a corporate partner who can provide support for commercialization of our drug candidates as we deem necessary, we may not be able to successfully perform these marketing or distribution activities. Moreover, any new marketer or distributor or corporate partner for our drug candidates, including Lilly and Takeda, with whom we choose to contract may not establish adequate sales and distribution capabilities or gain market acceptance for our products, if any.

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         We have a significant amount of indebtedness. We may not be able to make payments on our indebtedness, and we may incur additional indebtedness in the future, which could adversely affect our operations.

        In April 2004, we issued $200 million of the 2004 Notes and in June 2007, we issued $575 million of the 2007 Notes. In December 2007, we entered into the $125 million Term Loan, of which $93.8 million is currently outstanding and due in 2010. Our ability to make payments on our debt, including the 2004 and 2007 Notes and the Term Loan, will depend on our future operating performance and ability to generate cash and may also depend on our ability to obtain additional debt or equity financing. During four of the last five years, our operating cash flows were negative and insufficient to cover our fixed costs. We may need to use our cash to pay principal and interest on our debt, thereby reducing the funds available to fund our research and development programs, strategic initiatives and working capital requirements. Our ability to generate sufficient operating cash flow to service our indebtedness, including the 2004 and 2007 Notes and the Term Loan, and fund our operating requirements will depend on our ability, alone or with others, to successfully develop, manufacture, obtain required regulatory approvals for and market our drug candidates, as well as other factors, including general economic, financial, competitive, legislative and regulatory conditions, some of which are beyond our control. Our debt service obligations increase our vulnerabilities to competitive pressures because many of our competitors are less leveraged than we are. If we are unable to generate sufficient operating cash flow to service our indebtedness and fund our operating requirements, we may be forced to reduce or defer our development programs, sell assets or seek additional debt or equity financing, which may not be available to us on satisfactory terms or at all. Our level of indebtedness may make us more vulnerable to economic or industry downturns. If we incur new indebtedness, the risks relating to our business and our ability to service our indebtedness will intensify.

         We may be required to redeem our convertible senior notes upon a designated event or repay the Term Loan upon an event of default.

        Holders of the 2004 and 2007 Notes may require us to redeem all or any portion of their notes upon the occurrence of certain designated events which generally involve a change in control of our company. The lenders under the Term Loan may require us to repay outstanding principal and accrued interest due under the Term Loan upon the occurrence of an event of default, which could include, among other things, nonpayment of principle and interest, violation of covenants and a change in control. We may not have sufficient cash funds to redeem the 2004 and 2007 Notes upon a designated event or repay the Term Loan upon an event of default. We may elect, subject to certain conditions, to pay the redemption price for the 2004 Notes in our common stock or a combination of cash and our common stock. We may be unable to satisfy the requisite conditions to enable us to pay some or all of the redemption price for the 2004 Notes in our common stock. If we are prohibited from redeeming the 2004 or 2007 Notes, we could seek consent from our lenders to redeem the 2004 or 2007 notes. If we are unable to obtain their consent, we could attempt to refinance the 2004 or 2007 Notes. If we were unable to obtain a consent or refinance, we would be prohibited from redeeming the 2004 or 2007 Notes. If we were unable to redeem the 2004 or 2007 Notes upon a designated event, it would result in an event of default under the indentures governing the 2004 or 2007 Notes. An event of default under the indentures could result in a further event of default under our other then-existing debt, including the Term Loan. In addition, the occurrence of a designated event may be an event of default under our other debt. Further, an event of default under the Term Loan could result in an event of default under the indentures governing the 2004 or 2007 Notes.

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         If our research and development programs fail to result in additional drug candidates, the growth of our business could be impaired.

        Certain of our research and development programs for drug candidates are at an early stage and will require significant research, development, preclinical and clinical testing, manufacturing scale-up activities, regulatory approval and/or commitments of resources before commercialization. We cannot predict whether our research will lead to the discovery of any additional drug candidates that could generate additional revenues for us.

         Our future success depends on our chief executive officer, and other key executives and our ability to attract, retain and motivate qualified personnel.

        We are highly dependent on our chief executive officer, and the other principal members of our executive and scientific teams. The unexpected loss of the services of any of these persons might impede the achievement of our research, development and commercialization objectives. Recruiting and retaining qualified sales, marketing, regulatory, scientific and other personnel and consultants will also be critical to our success. We may not be able to attract and retain these personnel and consultants on acceptable terms given the competition between numerous pharmaceutical and biotechnology companies. We do not maintain "key person" insurance on any of our employees.

         We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

        In order to protect our proprietary technology and processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, manufacturers, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information.

        Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

         Our research and development activities and planned manufacturing activities involve the use of hazardous materials, which subject us to regulation, related costs and delays and potential liabilities.

        Our research and development and our planned manufacturing activities involve the controlled use of hazardous materials, chemicals and various radioactive compounds. Although we believe that our research and development safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. In addition, as part of the development of our planned manufacturing activities, we will need to develop additional safety procedures for the handling and disposing of hazardous materials. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate any of these laws or regulations.

         We are exposed to potential risks from legislation requiring companies to evaluate internal control over financial reporting.

        The Sarbanes-Oxley Act requires that we report annually on the effectiveness of our internal control over financial reporting. Among other things, we must perform systems and processes

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evaluation and testing. We must also conduct an assessment of our internal control to allow management to report on, and our independent registered public accounting firm to attest to, our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In connection with our Section 404 compliance efforts, we have incurred or expended, and expect to continue to incur or expend, substantial accounting and other expenses and significant management time and resources. We have implemented certain remediation activities resulting from our ongoing assessment of internal control over financial reporting. Our future assessment, or the future assessments by our independent registered public accounting firm, may reveal material weaknesses in our internal control. If material weaknesses are identified in the future we would be required to conclude that our internal control over financial reporting is ineffective and we could be subject to sanctions or investigations by the Securities and Exchange Commission, the NASDAQ Stock Market or other regulatory authorities, which would require additional financial and management resources and could adversely affect the market price of our common stock.

         We have implemented anti-takeover provisions that could discourage or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and as a result our management may become entrenched and hard to replace.

        Provisions in our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. These provisions include:

    allowing our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors;

    allowing our board of directors to issue, without stockholder approval, up to 5.5 million shares of preferred stock with terms set by the board of directors;

    limiting the ability of holders of our outstanding common stock to call a special meeting of our stockholders; and

    preventing stockholders from taking actions by written consent and requiring all stockholder actions to be taken at a meeting of our stockholders.

        Each of these provisions, as well as selected provisions of Delaware law, could discourage potential takeover attempts, could adversely affect the trading price of our securities and could cause our management to become entrenched and hard to replace. In addition to provisions in our charter documents and under Delaware law, an acquisition of our company could be made more difficult by our employee benefits plans and our employee change in control severance plan, under which, in connection with a change in control and termination of employment, stock options held by our employees may become vested and our officers may receive severance benefits. We also have implemented a stockholder rights plan, also called a poison pill, which could make it uneconomical for a third party to acquire us on a hostile basis.

         Our executive officers, directors and major stockholders control approximately 48% of our common stock.

        As of December 31, 2009, executive officers, directors and holders of 5% or more of our outstanding common stock, in the aggregate, owned or controlled approximately 48% of our outstanding common stock. As a result, these stockholders are able to influence all matters requiring approval by our stockholders, including the election of directors and the approval of corporate transactions. This concentration of ownership may also delay, deter or prevent a change in control of our company and may make some transactions more difficult or impossible to complete without the support of these stockholders.

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         Substantial future sales of our common stock by us or our existing stockholders or the conversion of our convertible senior notes to common stock could cause the trading price of our common stock to fall.

        Sales by existing stockholders of a large number of shares of our common stock in the public market or the perception that additional sales could occur could cause the trading price of our common stock to drop. Likewise, the issuance of shares of common stock upon conversion of our convertible notes or redemption of our convertible notes upon a designated event, or upon additional convertible debt or equity financings or other share issuances by us, including shares issued in connection with potential future strategic alliances, could adversely affect the trading price of our common stock. Our convertible notes are currently convertible into a total of up to 15.2 million shares. In addition, the existence of these notes may encourage short selling of our common stock by market participants.

         Significant volatility in the market price for our common stock could expose us to litigation risk.

        The market prices for securities of biopharmaceutical and biotechnology companies, including our common stock, have historically been highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the quarterly operating performance of these biopharmaceutical and biotechnology companies. Since January 1, 2008, the high and low sales price of our common stock varied significantly, as shown in the following table:

 
  High   Low  

Year ending December 31, 2010

             

First Quarter (through February 16, 2010)

  $ 19.99   $ 14.13  

Year ending December 31, 2009

             

Fourth Quarter

  $ 15.63   $ 11.01  

Third Quarter

  $ 15.69   $ 11.73  

Second Quarter

  $ 14.30   $ 8.56  

First Quarter

  $ 14.13   $ 7.89  

Year ended December 31, 2008

             

Fourth Quarter

  $ 20.47   $ 5.50  

Third Quarter

  $ 35.00   $ 18.55  

Second Quarter

  $ 33.22   $ 25.30  

First Quarter

  $ 37.38   $ 23.75  

        Given the uncertainty of our future funding, whether BYETTA and SYMLIN will meet our expectations, and the regulatory approval of our other drug candidates, we may continue to experience volatility in our stock price for the foreseeable future. In addition, the following factors may significantly affect the market price of our common stock:

    our financial results and/or fluctuations in our financial results;

    safety issues with BYETTA, SYMLIN or our product candidates;

    clinical study results;

    determinations by regulatory authorities with respect to our drug candidates, including exenatide once weekly;

    our ability to validate our Ohio manufacturing facility and the commercial manufacturing process for exenatide once weekly;

    developments in our relationships with current or future collaborative partners;

    our ability to successfully execute our commercialization strategies;

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    developments in our relationships with third-party manufacturers of our products and other parties who provide services to us;

    technological innovations or new commercial therapeutic products by us or our competitors;

    developments in patent or other proprietary rights; and

    governmental policy or regulation, including with respect to pricing and reimbursement.

Broad market and industry factors also may materially adversely affect the market price of our common stock, regardless of our actual operating performance. Periods of volatility in the market price of our common stock expose us to securities class-action litigation, and we may be the target of such litigation as a result of market price volatility in the future.

Item 1B.    Unresolved Staff Comments

        None.

Item 2.    Properties

        Our primary administrative offices and research laboratories are located in San Diego, California. As of December 31, 2009, we had leases for approximately 647,000 square feet of office and laboratory space. Our leases on a majority of these properties expire between 2015 and 2019. We have also entered into short-term leases and other agreements for small offices in Beachwood, Ohio, Laguna Niguel, California and Washington, D.C.

        Our wholly-owned subsidiary, Amylin Ohio LLC, owns two buildings and 44.4 acres of land in West Chester, Ohio. The buildings, once built out for the manufacture of exenatide once weekly, will have approximately 565,000 square feet of manufacturing and office space.

Item 3.    Legal Proceedings

        From time to time in the ordinary course of business, we become involved in various lawsuits, claims and proceedings relating to the conduct of our business, including those pertaining to product liability, patent infringement and employment claims. Since August 2008, we and Lilly have been named as defendants in 55 separate product liability cases involving approximately 340 plaintiffs in various courts in the United States. These cases have been brought by individuals who allege they have used BYETTA. They generally seek compensatory and punitive damages for alleged injuries, consisting primarily of pancreatitis, and in some cases, wrongful death. Most of the cases are pending in California state court, where the Judicial Council has granted our petition for a "coordinated proceeding" for all California state court cases alleging harm allegedly as a result of BYETTA use. We also have received notice from plaintiff's counsel of additional claims by individuals who have not filed suit. While we cannot reasonably predict the outcome of any lawsuit, claim or proceeding, we and Lilly intend to vigorously defend these matters. However, if we are unsuccessful in our defense, these matters could result in a material adverse impact to our financial position and results of operations.

Item 4.    Submission of Matters to a Vote of Security Holders

        None.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        Our common stock is traded on The NASDAQ Global Market under the symbol "AMLN." The following table sets forth, for the periods indicated, the reported high and low sales price per share of our common stock on The NASDAQ Global Market:

 
  High   Low  

Year Ended December 31, 2009

             

Fourth Quarter

  $ 15.63   $ 11.01  

Third Quarter

  $ 15.69   $ 11.73  

Second Quarter

  $ 14.30   $ 8.56  

First Quarter

  $ 14.13   $ 7.89  

Year Ended December 31, 2008

             

Fourth Quarter

  $ 20.47   $ 5.50  

Third Quarter

  $ 35.00   $ 18.55  

Second Quarter

  $ 33.22   $ 25.30  

First Quarter

  $ 37.38   $ 23.75  

        The last reported sale price of our common stock on The NASDAQ Global Market on February 16, 2010 was $18.15. As of February 16, 2010, there were approximately 605 shareholders of record of our common stock.

        We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings for funding operations and, therefore, do not anticipate paying any cash dividends in the foreseeable future.

        For information concerning prior stockholder approval of and other matters relating to our equity incentive plans, see "Equity Compensation Plan Information" under Item 12 in this annual report on Form 10-K.

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PERFORMANCE MEASUREMENT COMPARISON

        The material in this section is not "soliciting material," is not deemed "filed" with the Securities and Exchange Commission, and is not to be incorporated by reference into any filing of Amylin under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

        The following graph compares total stockholder returns of Amylin for the past five years to two indices: the NASDAQ CRSP Total Return Index for the NASDAQ Stock Market (U.S. companies), or the NASDAQ-US, and the NASDAQ Pharmaceutical Index, or the NASDAQ-Pharmaceutical. The total return for our common stock and for each index assumes the reinvestment of dividends, although dividends have never been declared on our common stock, and is based on the returns of the component companies weighted according to their capitalizations as of the end of each monthly period. The NASDAQ-US tracks the aggregate price performance of equity securities of U.S. companies traded on the NASDAQ National Market System, or the NMS. The NASDAQ-Pharmaceutical tracks the aggregate price performance of equity securities of pharmaceutical companies traded on the NMS.


COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Amylin Pharmaceuticals, Inc., The NASDAQ Composite Index
And The NASDAQ Pharmaceutical Index

GRAPHIC

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Item 6.    Selected Financial Data

        Please read the following selected financial data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related notes included elsewhere in this annual report on Form 10-K.

 
  Years Ended December 31  
 
  2009   2008   2007   2006   2005  
 
  (in thousands, except for per share amounts)
 

Consolidated Statements of Operations Data:

                               

Net product sales

  $ 753,993   $ 765,342   $ 701,450   $ 474,038   $ 86,713  

Revenues under collaborative agreements(1)

    4,426     4,286     19,286     4,286     39,285  
                       

Total revenues

    758,419     769,628     720,736     478,324     125,998  

Costs and expenses:

                               

Cost of goods sold

    82,999     91,596     65,457     50,073     14,784  

Selling, general and administrative(3)

    343,864     395,112     390,982     281,950     171,520  

Research and development(1)(4)

    185,062     222,614     216,339     189,502     117,652  

Collaborative profit-sharing

    302,861     302,600     290,934     194,191     31,359  

Restructuring(5)

    16,980     54,926              
                       

Total costs and expenses

    931,766     1,066,848     963,712     715,716     335,315  

Make-whole payment on debt redemption

                (7,875 )    

Net interest and other (expense) income(2)

    (11,532 )   (9,778 )   26,490     26,411     2,485  

Loss on impairment of investments

    (1,377 )   (14,943 )            
                       

Net loss

    (186,256 )   (321,941 )   (216,486 )   (218,856 )   (206,832 )
                       

Net loss per share—basic and diluted

  $ (1.32 ) $ (2.35 ) $ (1.63 ) $ (1.78 ) $ (1.96 )
                       

Shares used in calculating net loss per share—basic and diluted

    140,702     137,006     132,621     122,647     105,532  

Consolidated Balance Sheets Data:

                               

Cash, cash equivalents and short-term investments

  $ 667,769   $ 816,838   $ 1,130,415   $ 767,331   $ 443,423  

Working capital

  $ 541,313   $ 722,290   $ 1,049,024   $ 702,930   $ 415,134  

Total assets

  $ 1,726,419   $ 1,727,053   $ 1,774,430   $ 1,060,386   $ 566,962  

Long-term obligations, excluding current portion(2)

  $ 938,516   $ 893,998   $ 759,388   $ 221,208   $ 399,112  

Accumulated deficit(2)

  $ (1,947,867 ) $ (1,761,611 ) $ (1,439,670 ) $ (1,223,184 ) $ (1,004,328 )

Total stockholders' equity(2)

  $ 422,534   $ 519,277   $ 727,757   $ 635,291   $ 69,264  

(1)
The selected financial data presented herein have been revised to conform to the current presentation with regard to our change in method of accounting for reimbursed research and development costs under collaborative arrangements, as described in Note 1-Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements presented beginning with page F-6. Accordingly, previously reported revenues under collaborative arrangements and research and development expense have been reduced by $70.5 million, $60.3 million, $32.5 million and $14.5 million for each of the years ended December 31, 2008, 2007, 2006 and 2005, respectively.

(2)
Adjusted for the required retroactive adoption of authoritative guidance related to convertible debt instruments that may be settled in cash upon conversion (see Note 1 of the Notes to Consolidated Financial Statements). Specifically, net interest and other income (expense) and accumulated deficit for the years ended December 31, 2008 and 2007 have been increased by $6.5 million and $5.4 million, respectively; long-term obligations, excluding current portion for the years ended December 31, 2008 and 2007 was reduced by $154.0 million and $174.7 million, respectively and total stockholders' equity was increased by $168.4 million and $174.9 million for the years ended December 31, 2008 and 2007, respectively.

(3)
Selling, general and administrative expenses for the years ended December 31, 2009, 2008, 2007 and 2006 include approximately $28.4 million, $34.0 million, $35.4 million and $29.0 million, respectively, of employee stock-based compensation expense under the fair value method of accounting for stock-based compensation arrangements.

(4)
Research and development expenses for the years ended December 31, 2009, 2008, 2007 and 2006 include approximately $15.4 million, $21.1 million, $23.6 million and $22.9 million, respectively, of employee stock-based compensation expense under the fair value method of accounting for stock-based compensation arrangements.

(5)
Restructuring charge for the years ended December 31, 2009 and 2008 included $0 and $0.8 million of employee stock-based compensation expense under the fair value method of accounting for stock-based compensation arrangements.

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

        We are a biopharmaceutical company committed to improving the lives of people with diabetes, obesity and other diseases through the discovery, development and commercialization of innovative medicines. We are marketing two first-in-class medicines to treat diabetes, BYETTA and SYMLIN and we are currently seeking approval for exenatide once weekly, an investigational sustained-release medication for type 2 diabetes that is administered only once a week.

        In 2009, we executed on key opportunities for the company including:

    gaining approval for an expanded indication of BYETTA as a first-line, stand alone medication (monotherapy) along with diet and exercise;

    finalized BYETTA label updates;

    submitted an NDA, for exenatide once weekly and executed our DURATION clinical program designed to demonstrate superiority of exenatide once weekly compared to other diabetes medications;

    completed two obesity clinical trials and entered into a collaboration to develop obesity therapies with Takeda; and

    improved our operating results and believe we are on track to achieve our stated goal of becoming operating cash flow positive on a sustainable basis by the end of 2010 and achieving operating profitability by the end of 2011.

        BYETTA is the first approved medicine in a class of compounds called GLP-1 receptor agonists. In October 2009, the FDA approved an expanded indication to include BYETTA as a first-line, stand-alone medication (monotherapy) along with diet and exercise to improve glycemic control in adults with type 2 diabetes and changes to the BYETTA label to incorporate updated safety language. Previously BYETTA was approved as an adjunctive therapy to improve glycemic control in patients with type 2 diabetes who have not achieved adequate glycemic control by using metformin, a sulfonylurea and/or a TZD, three common oral therapies for type 2 diabetes. We believe the expanded monotherapy indication and label update present new opportunities for the BYETTA brand. Net product sales of BYETTA were $667.6 million in 2009, $678.5 million in 2008 and $636.0 million in 2007.

        We have an agreement with Lilly for the global development and commercialization of exenatide. This agreement includes BYETTA and other formulations of exenatide such as exenatide once weekly. Under the terms of the agreement, operating profits from products sold in the United States are shared equally between Lilly and us, and Lilly will pay us royalties for product sales outside of the United States. Lilly has primary responsibility for developing and commercializing BYETTA outside of the United States, including any sustained release formulations of exenatide such as exenatide once weekly. By the end of 2009, BYETTA was commercially launched in approximately 60 countries worldwide.

        SYMLIN is the first and only approved medicine in a class of compounds called amylinomimetics. It is approved as an adjunctive therapy to improve glycemic control in patients with either type 2 or type 1 diabetes who is treated with mealtime insulin but who have not achieved adequate glycemic control. We own 100% of the global rights to SYMLIN and in 2010 we plan to explore partnering SYMLIN outside of the United States. Net product sales of SYMLIN were $86.4 million in 2009, $86.8 million in 2008 and $65.5 million in 2007.

        We have a field force of approximately 390 people dedicated to marketing BYETTA and SYMLIN in the United States. Our field force includes our specialty sales force and our managed care

44



organization. Lilly co-promotes BYETTA in the United States. In May 2009, we announced a restructuring of our sales force, a new sales approach within the diabetes market and merged our then-existing primary care and specialty sales forces into a single organization that brings a specialty approach to endocrinologists and diabetes-focused primary care physicians. This new sales force is focused on targeting those doctors that write the majority of prescriptions for branded diabetes therapies. The restructuring of our sales force reduced our total number of sales representatives by approximately 200.

        In addition to our marketed products, we are working with Lilly and Alkermes to develop exenatide once weekly. In May 2009, we announced that we submitted an NDA for exenatide once weekly to the FDA. The FDA filed the NDA submission in July 2009 and the application has a ten-month review period. Clinical components of the NDA included results from our DURATION-1 study which tested the superiority of exenatide once weekly as compared to BYETTA and a meta-analysis across controlled clinical studies of three months or greater from the BYETTA database which showed no increased risk of cardiovascular events associated with exenatide use. Components of the NDA submission supporting product manufacturing included analyses of data from patients in our ongoing extension of the DURATION-1 study who used exenatide once weekly produced at our Ohio manufacturing facility to demonstrate comparability of the intended commercial product with that used during development. The FDA conducted a pre-approval inspection of this facility and has made a number of observations which we believe are addressable.

        In March 2009 and July 2009, we announced positive results from DURATION-2 and DURATION-3, respectively, the second and third in a series of six such studies designed to test the superiority of exenatide once weekly compared to other diabetes therapies. In DURATION-2, exenatide once weekly demonstrated superior glucose control with weight loss and no increase in hypoglycemia compared to maximum doses of sitagliptin or pioglitazone. In DURATION-3, exenatide once weekly demonstrated superior glucose control with weight loss and with less hypoglycemia compared to insulin glargine. In December 2009, we announced results from DURATION-5, a head-to-head study comparing exenatide once weekly to BYETTA. In DURATION-5, patients taking exenatide once weekly experienced a statistically superior reduction in A1C compared to BYETTA.

        In 2010, we will continue to focus on building a superior profile for exenatide once weekly by conducting additional clinical trials that will compare exenatide once weekly against competing products. For example, we expect to report results from our DURATION-4 study in 2010 comparing exenatide once weekly with metformin, sitagliptin or pioglitazone and we have initiated DURATION-6 comparing exenatide once weekly with liraglutide. In addition, we initiated our EXSCEL study in the first quarter of 2010, to demonstrate exenatide once weekly's effect on cardiovascular endpoints. We plan to continue making strategic investments in the exenatide franchise including the development of an exenatide once weekly pen delivery system, an exenatide suspension formulation and potential noninvasive delivery systems including transdermal and nasal.

        Our long-term growth strategy is focused on making prudent investment decisions based on strong clinical data to advance our obesity program and includes our Integrated Neurohormonal Treatment of Obesity, or INTO, strategy. In October 2009, we entered into a worldwide exclusive license, development and commercialization agreement with Takeda to co-develop and commercialize pharmaceutical products for the treatment of obesity and related indications. The agreement includes products to be developed from our product pipeline, including pramlintide/metreleptin, which are compounds currently in phase 2 development for the treatment of obesity. We recently announced results of a 52-week phase 2 study of this compound and, based on those results, we and Takeda plan to advance pramlintide/metreleptin toward phase 3 development.

45


        We maintain an active discovery research program focused on novel peptide and protein therapeutics. We have also entered into a number of strategic alliances and business initiatives that support our expansion into new therapeutic areas.

        Since our inception in September 1987, we have devoted substantially all of our resources to our research and development programs and, more recently, to the commercialization of our products. All of our revenues prior to May 2005 were derived from milestones and amortization of up-front payments under our exenatide collaboration agreement with Lilly, previous SYMLIN collaborative agreements, and previous co-promotion agreements. During the second quarter of 2005, we began to derive revenues from product sales of BYETTA and SYMLIN. At December 31, 2009, our accumulated deficit was approximately $1.9 billion.

        At December 31, 2009, we had $667.8 million in cash, cash equivalents and short-term investments. Additionally we have $165 million available to us pursuant to a credit facility with Lilly. Although we have yet to consistently generate positive operating cash flows, we intend to improve our operating results and reduce our use of cash for operating activities in order to achieve our goal to be operating cash flow positive on a sustainable basis by the end of 2010 and to achieve operating profitability by the end of 2011. Refer to the discussions under the headings "Liquidity and Capital Resources" below and "Cautionary Factors That May Affect Future Results" in Part I, Item 1A for further discussion regarding our anticipated future capital requirements.

Recent Developments

Diabetes

BYETTA

    Received approval in October 2009 for the expanded indication of BYETTA injection as a first-line, stand-alone treatment (monotherapy) for type 2 diabetes.

    Announced results from a meta-analysis of CV events that showed no increased risk of CV events associated with BYETTA injection use compared to a pooled comparator group treated with either placebo or insulin.

Exenatide Once Weekly

    Announced results from the first head-to-head comparative effectiveness study, DURATION-2, that demonstrated exenatide once weekly provided superior glucose control, with weight loss, compared to maximum doses of Januvia or Actos(R) (pioglitazone).

    Submitted an NDA for exenatide once weekly. The application was accepted for review by the FDA in early July 2009 and the application has a ten-month review period.

    Announced results from a second head-to-head comparative effectiveness study, DURATION-3, that demonstrated exenatide once weekly provided superior glucose control over Lantus (insulin glargine) injection. Treatment with exenatide once weekly also led to statistically significant improvements in body weight, with reduced incidence of confirmed hypoglycemia.

    Signed a joint supply agreement with Lilly to develop a pen device for exenatide weekly that will enable patients to mix and administer the medicine in a pre-filled pen device, instead of the syringe and vial currently used in clinical trials.

    Communicated positive results from the DURATION-5 study that showed exenatide once weekly provided superior glucose control compared to BYETTA.

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SYMLIN

    Presented data that showed the use of mealtime SYMLIN improved glucose control, treatment satisfaction and quality of life for patients with type 2 diabetes.

Obesity programs

    Announced a worldwide exclusive license, development and commercialization agreement with Takeda to co-develop and commercialize pharmaceutical products for the treatment of obesity and related indications.

Financial and Operational

    Merged Amylin's existing primary care and specialty sales forces into a single organization that will bring a specialty approach to endocrinologists and diabetes-focused primary care physicians, ultimately improving the quality and frequency of our interactions with core prescribers.

    Significantly improved operating results compared to 2009 and remain on track to achieve our stated goal of sustainable positive operating cash flows by the end of 2010 and operating profitability by the end of 2011.

Critical Accounting Policies and Estimates

        Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, stock-based compensation, inventory costs, research and development expenses and income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

        We believe the following critical accounting policies affect the significant judgments and estimates used in the preparation of our consolidated financial statements (see Note 1 to our consolidated financial statements on page F-6).

Revenue Recognition

        We recognize revenue from the sale of our products, license fees and milestones earned.

Net Product Sales

        We sell BYETTA and SYMLIN primarily to wholesale distributors, who in turn, sell to retail pharmacies and government entities. Decisions made by these wholesalers and their customers regarding the levels of inventory they hold, and thus the amount of BYETTA and SYMLIN they purchase, may materially affect the level of our product sales in any particular period. We recognize revenue from the sale of our products when delivery has occurred, title has transferred to the customer, the selling price is fixed or determinable, collectability is reasonably assured and we have no further obligations. We record product sales net of allowances for product returns, rebates and wholesaler chargebacks, wholesaler discounts and prescription vouchers. We are required to make significant judgments and estimates in determining some of these allowances. If actual results differ from our estimates, we will be required to make adjustments to these allowances in the future.

47


        We do not offer our wholesale customers a general right of return. However, we will accept returns of products that are damaged or defective when received by the wholesale customer or for any unopened product during the period beginning six months prior to and up to 12 months subsequent to its expiration date. Product returned is generally not resalable as our products require refrigeration. We refund the sales price for product returns in cash or credit to our customers. We estimate product returns based on our historical returns experience and record an allowance for estimated returns at the time of sale. Additionally, we consider several other factors in our estimation process including our internal sales forecasts, the expiration dates of product shipped and third party data to assist us in monitoring estimated channel inventory levels and prescription trends. Actual returns could exceed our historical experience and our estimates of expected future returns due to factors such as wholesaler and retailer stocking patterns and inventory levels and/or competitive changes. To date actual returns have not differed materially from our estimates.

        Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program and contracted discounts with commercial payors. Rebates are amounts owed after the final dispensing of the product by a pharmacy to a benefit plan participant and are based upon contractual agreements or legal requirements with private sector and public sector (e.g. Medicaid) benefit providers. The allowance for rebates is based on contractual discount rates, expected utilization under each contract and our estimate of the amount of inventory in the distribution channel that will become subject to such rebates. Our estimates for expected utilization for rebates are based on historical rebate claims and to a lesser extent third party market research data. Rebates are generally invoiced and paid quarterly in arrears so that our accrual consists of an estimate of the amount expected to be incurred for the current quarter's activity, plus an accrual for prior quarters' unpaid rebates and an accrual for inventory in the distribution channel.

        We recorded an allowance related to the Department of Defense's (DOD) Tricare Retail Pharmacy program pursuant to a final rule that was issued in March 2009 and became effective on May 26, 2009. The final rule clarified the DOD's interpretation of the National Defense Authorization Act of 2008, or NDAA, signed into law on January 28, 2008. The final rule changed the process by which rebate obligations for the Tricare Retail Pharmacy program are created such that a contractual agreement is no longer required and that obligation to pay such rebates emanates from the NDAA itself.

        Wholesaler chargebacks are discounts that occur when contracted customers purchase directly from an intermediary wholesale purchaser. Contracted customers, which currently consist primarily of Federal government entities purchasing off the Federal Supply Schedule, generally purchase the product at its contracted price, plus a mark-up from the wholesaler. The wholesaler, in-turn, charges back to us the difference between the price initially paid by the wholesaler and the contracted price paid to the wholesaler by the customer. The allowance for wholesaler chargebacks is based on expected utilization of these programs and reported wholesaler inventory levels. Actual rebates and wholesaler chargebacks could exceed historical experience and our estimates of future participation in these programs. To date, actual rebate claims and wholesaler chargebacks have not differed materially from our estimates.

        Wholesaler discounts consist of prompt payment discounts and distribution service fees. We offer all of our wholesale customers a 2% prompt-pay discount within the first 30 days after the date of the invoice. Distribution service fees arise from contractual agreements with certain of our wholesale customers for distribution services they provide to us and are generally a fixed percentage of their

48


purchases of our products in a given period. Prompt payment discounts and distribution service fees are recorded as a reduction to gross sales in the period the sales occur. The allowance for wholesaler discounts is based upon actual data of product sales to wholesale customers and not on estimates.

        Prescription vouchers result in amounts owed to pharmacies that have redeemed vouchers for a free prescription. We provide prescription vouchers to physicians, who in turn distribute them to patients. Patients may redeem a voucher at a pharmacy for a free prescription. We reimburse the pharmacy for the price it paid the wholesaler for the medicine and record this reimbursement as a reduction to gross sales. The allowance for prescription vouchers is based on the number of unredeemed vouchers in circulation, and the estimated utilization rate. The estimated utilization rate is based on our historical utilization rates experience with prescription vouchers. The allowance for prescription vouchers could exceed historical experience and our estimates of future utilization rates. To date, actual prescription voucher utilization has not differed materially from our estimates.

Revenues under collaborative agreements

        Revenues under collaborative agreements consist of the amortization of product and technology license fees and milestone payments earned. Upfront product and technology license fees under multiple-element arrangements are deferred and recognized over the period of such services or performance if such arrangements require on-going services or performance. Non-refundable amounts received for substantive milestones are recognized upon achievement of the milestone. Any amounts received prior to satisfying our revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated balance sheets.

Valuation of Stock-Based Compensation

        We account for stock-based compensation to employees in accordance with the fair value method of accounting for stock-based compensation arrangements which requires us to expense the estimated fair value of non-cash, stock-based payments to employees.

        We estimate the fair value of stock-based payments to employees using the Black-Scholes model. This estimate is affected by our stock price as well as assumptions regarding a number of inputs that require us to make significant estimates and judgments. These inputs include the expected volatility of our stock price, the expected term of employee stock options, the risk-free interest rate, expected dividends and expected forfeiture rate.

        We estimate volatility based upon the historical volatility of our common stock for a period corresponding to the expected term of our employee stock options and the implied volatility of market-traded options on our common stock with various maturities between six months and two years. The determination to use implied volatility in addition to historical volatility was based upon the availability of data related to actively traded options on our common stock and our assessment that the addition of implied volatility is more representative of future stock price trends than historical volatility alone.

        The expected life of our employee stock options represents the weighted-average period of time that options granted are expected to be outstanding in consideration of historical exercise patterns and the assumption that all outstanding options will be exercised at the mid-point of the then current date and their maximum contractual term.

        The risk-free interest rates are based on the yield curve of United States Treasury strip securities in effect at the time of grant for periods corresponding with the expected life of our employee stock options. We have never paid dividends and do not anticipate doing so for the foreseeable future.

49



Accordingly, we have assumed no dividend yield for purposes of estimating the fair value of our stock-based payments to employees.

        Stock-based compensation expense recognized is based on awards ultimately expected to vest, and therefore is reduced by expected forfeitures. We estimate forfeitures based upon historical forfeiture rates, and will adjust our estimate of forfeitures if actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative adjustment in the period of the change and will also impact the amount of stock-based compensation expense in future periods.

        If factors underlying the above assumptions change in future periods, the associated estimated non-cash, stock-based compensation expense that we record may differ significantly from what we have recorded in the current period.

Research and Development Expenses

        Research and development costs are expensed as incurred and include: salaries, benefits, bonus, stock-based compensation, license fees, milestone payments due under license agreements, costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials and delivery devices; and associated overhead and facilities costs. Reimbursed research and development costs under collaborative arrangements are recorded as a reduction to research and development expenses and are recognized in the period in which the related costs are incurred. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. Invoicing from third-party contractors for services performed can lag several months. We accrue the costs of services rendered in connection with third-party contractor activities based on our estimate of management fees, site management and monitoring costs and data management costs. Differences between actual clinical trial costs from estimated clinical trial costs have historically not been material and are adjusted for in the period in which they become known.

Income Taxes

        We have net deferred tax assets relating primarily to net operating loss carryforwards and research and development tax credit carryforwards. Subject to certain limitations, these deferred tax assets may be used to offset taxable income in future periods. Since we have been unprofitable since inception and the likelihood of future profitability is not assured, we have established a valuation allowance for most of these net deferred tax assets in our consolidated balance sheets at December 31, 2009 and 2008. If we determine that we are able to realize a portion or all of these deferred tax assets in the future, we will record an adjustment to increase their recorded value and a corresponding adjustment to increase income or additional paid in capital, as appropriate, in that same period.

        We recognize the impact of a tax position in our financial statements only if it is more likely than not that the tax position will be sustained upon examination by taxing authorities, based on the technical merits of the position. We provide estimates for unrecognized tax benefits which relate primarily to issues common among corporations in our industry. We apply a variety of methodologies in making these estimates which include advice from industry and subject experts, evaluation of public actions taken by the Internal Revenue Service and other taxing authorities, as well as our own industry experience. If our estimates are not representative of actual outcomes, our results could be materially impacted.

Inventories and Related Reserves

        Inventories consist of raw materials, work-in-process and finished goods for SYMLIN and BYETTA. We maintain inventory reserves primarily for production failures and potential product expiration. The manufacturing processes for our products are complex. Deviations in the manufacturing

50



process may result in production failures and additional inventory reserves. Obsolete inventory due to expiration may also result in additional inventory reserves. In estimating inventory obsolescence reserves, we analyze the shelf life, expiration dates and internal sales forecasts, each on a product-by-product basis. We expense costs relating to the purchase and production of pre-approval inventories as research and development expense in the period incurred until such time as we believe future commercialization is probable and future economic benefit is expected to be recognized. There were no pre-approval inventories capitalized as of December 31, 2009 or 2008.

Convertible Senior Notes

        During 2009, we adopted new authoritative guidance that significantly impacts the accounting for our convertible senior notes issued in June 2007 by requiring us to account separately for the liability and equity components of the notes. The liability component is measured so the effective interest expense associated with the notes reflects the issuer's borrowing rate at the date of issuance for similar debt instruments without the conversion feature. The difference between the cash proceeds associated with the notes and this estimated fair value is recorded as a debt discount and amortized to interest expense over the life of the notes.

        Determining the fair value of the liability component requires the use of accounting estimates and assumptions. These estimates and assumptions are judgmental in nature and could have a significant impact on the determination of the liability component and, in effect, the associated interest expense. According to the guidance, the carrying amount of the liability component is determined by measuring the fair value of a similar liability that does not have an associated equity component. If no similar liabilities exist, estimates of fair value are primarily determined using assumptions that market participants would use in pricing the liability component, including market interest rates, credit standing, yield curves and volatilities.

Recently Issued Accounting Pronouncements

        For a discussion of recently issued accounting pronouncements, refer to the section titled "Recently Issued Accounting Standards" within Note 1. Summary of Significant Accounting Policies to our Consolidated Financial Statements.

Results of Operations

Net Product Sales

        Net product sales for the years ended December 31, 2009, 2008 and 2007 were $754.0 million, $765.3 million and $701.5 million, respectively, and consisted of sales of BYETTA and SYMLIN, less allowances for product returns, rebates and wholesaler chargebacks, wholesaler discounts, and prescription vouchers.

        The following table provides information regarding net product sales (in millions):

 
  Year ended December 31,  
 
  2009   2008   2007  

BYETTA

  $ 667.6   $ 678.5   $ 636.0  

SYMLIN

    86.4     86.8     65.5  
               

  $ 754.0   $ 765.3   $ 701.5  
               

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        The decrease in net product sales for BYETTA for the year ended December 31, 2009 as compared to the same period in 2008 primarily reflects decreased prescription demand following an August 2008 FDA update on a prior alert referencing pancreatitis and an allowance for rebates related to the U.S. Department of Defense's (DOD) Tricare Retail Pharmacy Program discussed below. These decreases are partially offset by higher prices in the year ended December 31, 2009 compared to the same period in 2008.

        The slight decrease in net product sales for SYMLIN for the year ended December 31, 2009 compared to the same period in 2008 primarily reflects higher prices offset by a reserve for the DOD's Tricare Retail Pharmacy program discussed below, and a reduction in prescription demand.

        We recorded an allowance related to the DOD's Tricare Retail Pharmacy program pursuant to a final rule that was issued in March 2009, and became effective May 26, 2009. The final rule clarified the DOD's interpretation of the national Defense Authorization Act of 2008, or NDAA, signed into law on January 28, 2008. The final rule changed the process by which rebate obligations for the Tricare Retail Pharmacy program are created such that a contractual agreement is no longer required and that obligation to pay such rebates emanates from the NDAA itself. In consideration of this final rule we recorded an allowance of $8.2 million for such rebates for the year ended December 31, 2009, of which $4.8 million represents a retroactive rebate assessment for sales made during 2008.

        The increase in net product sales for BYETTA and SYMLIN for the year ended December 31, 2008 as compared to the same period in 2007 primarily reflect continued growth in patient demand and the impact of price increases.

        Sales of our products in future periods may be impacted by numerous factors, including potential competition, the potential approval of additional products including exenatide once weekly, regulatory matters, economic factors and other environmental factors.

Revenues under Collaborative Agreements

        The following table summarizes the components of revenues under collaborative agreements for the years ended December 31, 2009, 2008 and 2007 (in millions):

 
  Year ended
December 31,
 
 
  2009   2008   2007  

Amortization of up-front payments

  $ 4.4   $ 4.3   $ 4.3  

Recognition of milestone payments

            15.0  
               

  $ 4.4   $ 4.3   $ 19.3  
               

        During the year ended December 31, 2009 amortization of up-front payments consists of amounts earned pursuant to our exenatide collaboration agreement with Lilly and our obesity collaboration with Takeda. For the years ended December 31, 2008 and 2007, substantially all of the revenue recorded in these periods consists of amounts earned pursuant to our exenatide collaboration agreement with Lilly and consists primarily of the continued amortization of up-front payments and milestone payments.

        Amortization of up front payments is largely unchanged for the three years ended December 31, 2009, 2008 and 2007. During 2009 the amortization of up-front payments relates to up-front payments received in connection with our Lilly collaboration, for which amortization ended in 2009, and our collaboration with Takeda, for which amortization began in late 2009. During 2008 and 2007 the entire amount of amortization of up-front payments relates to our collaboration agreement with Lilly. There were no milestone payments in 2009 or 2008, compared to $15 million in milestone payments in 2007 earned primarily upon Lilly's launch of BYETTA in the European Union.

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        In future periods, we expect that revenues under collaborative agreements will consist of possible future milestone payments, including $40 million conditioned upon the launch of exenatide once weekly in the United States and continued amortization of the $75 million of the up-front payment received from Takeda upon signing of our collaboration agreement in 2009. This up-front payment is being amortized ratably over a ten year period representing the estimated development period of the compounds subject to the Takeda collaboration agreement. Following the commercial launch of exenatide once-weekly, revenue from collaboration agreements will also include amortization of a portion of the $125 million cash payment received in connection with the exenatide once weekly supply agreement discussed above. The receipt and recognition as revenue of future substantive milestone payments is subject to the achievement of performance requirements underlying such milestone payments.

Cost of Goods Sold

        Cost of goods sold was $83.0 million, representing a gross margin of 89%, $91.6 million, representing a gross margin of 88%, and $65.5 million, representing a gross margin of 91%, for the years ended December 31, 2009, 2008 and 2007, respectively. Cost of goods sold is comprised primarily of manufacturing costs associated with BYETTA and SYMLIN sales during the period. The increase in gross margin in 2009, as compared to 2008, primarily reflects higher net sales prices and lower unit costs for BYETTA driven by reduced inventory reserves and efficiencies driven by our reduced cost structure. The decrease in gross margin in 2008, as compared to 2007, primarily reflects increased production costs for BYETTA due to lower production volumes, increases in inventory reserves and product mix, including the introduction of the SymlinPen, partially offset by higher net sales prices per unit for BYETTA and SYMLIN. Annual fluctuations in gross margins may be influenced by production volumes, product mix, pricing and the level of sales allowances.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses were $343.9 million, $395.1 million and $391.0 million in the years ended December 31, 2009, 2008 and 2007, respectively.

        The $51.2 million decrease in 2009 compared to 2008 reflects our reduced cost structure following our recent restructurings. The $4.1 million increase in 2008 compared to 2007 reflects slight increases in promotional spending for BYETTA and SYMLIN and business infrastructure.

        We, along with Lilly, are jointly responsible for the co-promotion of BYETTA within the United States, and share equally in sales force costs and external marketing expenses. Accordingly, our selling, general and administrative expenses include our 50% share of these costs in the United States.

Research and Development Expenses

        Currently, our research and development efforts are focused on programs for the treatment of diabetes and obesity in various stages of development. From inception through 1998, we devoted substantially all of our research and development efforts to SYMLIN. Beginning in 1999, our research and development costs started to include costs for our other drug candidates, primarily BYETTA and exenatide once weekly. In 2004 we initiated our program for the treatment of obesity with pramlintide and in 2006 we commenced our INTO clinical research program for obesity.

        The drug development process in the United States includes a series of steps defined by the FDA. The process begins with discovery and preclinical evaluation leading up to the submission of an IND to the FDA, which allows for the initiation of the clinical evaluation of a potential drug candidate in humans. Clinical evaluation is typically comprised of three phases of study: Phase 1, Phase 2 and Phase 3. Generally, the majority of a drug candidate's total development costs are incurred during Phase 3, which consists of trials that are typically both the longest and largest conducted during the

53



drug development process. Successful completion of Phase 3 clinical testing is followed by the submission of an NDA to the FDA for marketing approval. It is not uncommon for the FDA to request additional data following its review of an NDA, which can significantly increase the drug development timeline and expenses. Following initial regulatory approval for a drug candidate, companies generally initiate additional clinical trials aimed at expanding product labeling and market potential.

        The timing and costs to complete the successful development of any of our drug candidates are highly uncertain, and therefore difficult to estimate.

        Our research and development costs are comprised of salaries and bonuses, benefits, non-cash stock-based compensation, license fees, milestones under license agreements, costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials and delivery devices; and associated overhead expenses and facilities costs. Reimbursed research and development costs under collaborative arrangements are recorded as a reduction to research and development costs. We charge direct internal and external program costs to the respective development programs. We also incur indirect costs that are not allocated to specific programs because such costs benefit multiple development programs and allow us to increase our pharmaceutical development capabilities. These consist primarily of facilities costs and other internal shared resources related to the development and maintenance of systems and processes applicable to all of our programs.

        The following table sets forth information regarding our research and development expenses for our major projects for the years ended December 31, 2009, 2008 and 2007 (in millions):

 
  Year ended December 31,  
 
  2009   2008(1)   2007(1)  

Diabetes(1)

  $ 92.3   $ 83.3   $ 89.9  

Obesity

    26.0     55.3     51.5  

Research and early-stage programs

    24.8     30.4     29.3  

Indirect costs

    42.0     53.6     45.6  
               

  $ 185.1   $ 222.6   $ 216.3  
               

(1)
Research and development expenses consist primarily of costs associated with BYETTA and exenatide once weekly which are shared by Lilly pursuant to our collaboration agreement. Research and development expenses by major project have been revised to conform to the current presentation with regard to our change in method of accounting for reimbursed research and development costs under collaborative arrangements (see Note 1, "Summary of Significant Accounting Policies" in the notes to the consolidated financial statements).

        Research and development expenses decreased to $185.1 million for the year ended December 31, 2009 from $222.6 million for the year ended December 31, 2008. The $37.5 million decrease primarily reflects our reduced cost structure and decreased development expenses for our obesity programs following recently completed clinical trials, partially offset by increased costs for our diabetes programs associated with manufacturing readiness activities at our Ohio manufacturing facility for exenatide once weekly.

        Research and development expenses increased to $222.6 million for the year ended December 31, 2008 from $216.3 million for the year ended December 31, 2007. The $6.3 million increase primarily reflects continued investments in exenatide once weekly, including manufacturing scale up at our Ohio manufacturing facility and costs associated with the ongoing DURATION clinical trials discussed above under the heading "Overview", and continued investment in our obesity development programs,

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including costs associated with the ongoing Phase 2B study evaluating pramlintide and metreleptin discussed above.

Collaborative Profit-Sharing

        Collaborative profit-sharing was $302.9 million, $302.6 million and $290.9 million for the years ended December 31, 2009, 2008 and 2007, respectively, and consists of Lilly's 50% share of the gross margin for BYETTA sales in the United States.

Restructuring

        In May 2009, we announced a restructuring of our sales force to merge our existing primary care and specialty sales forces into a single organization, or the 2009 Restructuring. The 2009 Restructuring reduced the total number of Amylin sales representatives by approximately 200 employees. We recorded restructuring charges of $17.0 million during the year ended December 31, 2009 consisting of employee separation costs and facilities related charges.

        In November 2008, we announced a strategic restructuring and workforce reduction, or the 2008 Restructuring, that reduced the size of our San Diego workforce by approximately 25%, or 330 employees. The goal of the 2008 Restructuring was to better align our cost structure with anticipated revenues and is part of our business plan to become operating cash flow positive on a sustainable basis by the end of 2010.

        In addition, we also consolidated our San Diego facilities and have sub-leased or intend to sub-lease vacated facilities. In connection with the 2008 Restructuring, we recorded a charge of $54.9 million for the year ended December 31, 2008. This charge consists primarily of expenses related to facility leases for exited facilities, including impairments of related tenant improvements and employee separation benefits. During the fourth quarter of 2009 we revised the estimated losses associated with the facility leases we ceased using in 2008 based upon recently executed sub-lease agreements and a related reassessment of current market conditions and recorded an additional loss of $5.6 million.

        The following table sets forth the components of the restructuring charges recognized for the years ended December 31, 2009 and 2008 (in millions):

 
  Year ended
December 31,
 
 
  2009   2008  

Facility related charges

  $ 5.6   $ 31.3  

Employee separation costs

    10.9     13.9  

Asset impairments

        8.8  

Other restructuring charges

    0.5     0.9  
           

  $ 17.0   $ 54.9  
           

        We have substantially completed all of the above activities included in the restructuring plan and all costs associated with the restructurings were incurred during the years ended December 31, 2009 and 2008.

Interest and Other Income and Expense

        Interest and other income consist primarily of interest income from investment of cash and investments. Interest and other income was $7.8 million in 2009, $26.6 million in 2008 and $47.0 million in 2007. The decrease in 2009 compared to 2008 primarily reflects lower average investment balances

55



and lower interest rates in 2009 compared to 2008. The decrease in 2008 compared to 2007 primarily reflects lower average investment balances and lower interest rates in 2008 as compared to 2007.

        Interest and other expense consist primarily of interest expense resulting from our long-term debt obligations and mark-to-market gains and losses on derivative financial instruments and includes interest payments and the amortization of debt issuance costs. Interest and other expense was $19.3 million in 2009, $36.3 million in 2008 and $20.5 million in 2007. The decrease in 2009 compared to 2008 primarily reflects an increase in interest capitalized to our Ohio manufacturing facility and 2009 mark-to-market gains on derivative financial instruments which, in 2008, were mark-to-market losses. The increase in 2008 compared to 2007 primarily reflects additional interest expense for our 2007 notes and $125 million long-term note payable entered into in December 2007.

Loss on Impairment of Investments

        We recognized a loss on impairment of investments of $1.4 million for the year ended December 31, 2009. The loss represents credit-related losses associated with two securities in our portfolio and was based upon the amortized cost basis and the observed market prices for the securities. At December 31, 2009, gross unrealized losses on our short-term investments were $1.1 million, all of which we determined to be temporary.

        We recognized a loss on impairment of investments of $14.9 million for the year ended December 31, 2008. This primarily represents a recognized $9.0 million other-than-temporary impairment loss on an equity investment in a privately held entity based upon our assessment of the entity's financial and technical performance and the entity's ability to raise additional capital in significantly deteriorated financial markets to fund ongoing operations. We also recognized a $5.9 million other-than-temporary impairment loss on a corporate debt security in our investment portfolio based upon our assessment of the impact of bankruptcy proceedings of the issuer on the recoverability of our investment.

Net Loss

        Our net loss for the year ended December 31, 2009 was $186.3 million compared to $321.9 million in 2008 and $216.5 million in 2007. The decrease in our net loss in 2009 compared to 2008 primarily reflects the decreased expenses discussed above. The increase in our net loss in 2008 compared to 2007 primarily reflects the increased expenses, including the restructuring charge, partially offset by the increased net product sales discussed above.

        We may incur operating losses for the next few years. In November 2008, we announced the 2008 Restructuring and our business plan to become operating cash flow positive on a sustainable basis by the end of 2010, and in May 2009 we announced the 2009 Restructuring. However, our ability to reach profitability in the future will be heavily dependent upon the amount of product sales that we achieve for BYETTA, SYMLIN and exenatide once weekly, if approved. Our ability to achieve profitability in the future will also depend on our ability to control our operating expenses, including ongoing expenses associated with the continued commercialization of BYETTA and SYMLIN, costs associated with the development and commercialization of exenatide once weekly, if approved, and expenses associated with our research and development programs, including our obesity and our early-stage development programs and related support infrastructure. Our operating results may fluctuate from quarter to quarter as a result of differences in the timing of expenses incurred and revenues recognized.

Liquidity and Capital Resources

        Since our inception, we have financed our operations primarily through public sales and private placements of our common and preferred stock, debt financings, payments received pursuant to our exenatide collaboration with Lilly and our obesity collaboration with Takeda, reimbursement of

56



SYMLIN development expenses through earlier collaboration agreements, and since the second quarter of 2005, through product sales of BYETTA and SYMLIN.

        At December 31, 2009, we had $667.8 million in cash, cash equivalents and short-term investments, compared to $816.8 million at December 31, 2008 and we have $165 million of cash available to us pursuant to the loan agreement with Lilly discussed below. In November 2008, we implemented the 2008 Restructuring and in May 2009, we implemented the 2009 Restructuring. As a result of these restructurings, and other efforts to gain efficiencies in our business, we substantially improved our operating results in 2009 and believe we are on track to achieve our stated goals of positive operating cash flows by the end of 2010 and operating profitability by the end of 2011. Our use of cash for capital expenditures decreased in 2009 compared to 2008 driven by lower capital spending for our manufacturing facility for exenatide once weekly located in Ohio, partially offset by additional capital expenditures for the development of a pen device for exenatide once weekly. Our current business plan does not contemplate a need to raise additional funds from outside sources, however, we may evaluate opportunities to refinance existing indebtedness from time to time. If we require additional financing in the future, we cannot assure you that it will be available to us on favorable terms, or at all. Although we have previously been successful in obtaining financing through our debt and equity securities offerings, there can be no assurance that we will be able to so in the future, especially given the current adverse economic and credit conditions.

        Our operating activities provided cash of $19.9 million in the year ended December 31, 2009 and we used cash of $19.5 million and $125.2 million for our operating activities in the years ended December 31, 2008 and 2007, respectively. Our cash provided by our operating activities for the year ended December 31, 2009 includes $119.7 million of non-cash expenses, consisting primarily of stock-based compensation, depreciation and amortization.

        Our primary uses of cash for our operating activities includes uses of cash due to increases in other current assets of $35.7 million, a decrease in restructuring liabilities of $14.8 million and a decrease in payable to collaborative partner of $10.8 million. The increase in other current assets primarily reflects prepayments for raw material inventory. The decrease in restructuring liabilities reflects payment of employee separation costs associated with our restructuring at the end of 2008 and rental payments on vacated facilities that we are actively seeking to sublease. These restructuring payments are offset by an increase in the liability resulting from expenses associated with the 2009 Restructuring. The decrease in payable to collaborative partner primarily reflects a reduced net payable to Lilly due to higher cost-sharing payments due from Lilly due to increased development expenses for exenatide once weekly in the fourth quarter of 2009 compared to the same period in 2008.

        Our primary sources of cash for our operating activities includes sources of cash due to increases in deferred revenue and deferred collaborative profit sharing of $70.7 million and $54.6 million, respectively and a decrease in inventories of $16.1 million. The increase in deferred revenue reflects the $75 million up-front payment we received in connection with the Takeda obesity collaboration net of related amortization. The increase in deferred collaborative profit-sharing reflects payments due to us from Lilly for its 60% share of the capital expenditures we have made for the exenatide once weekly pen device. The decrease in inventories primarily reflects reduction in finished goods due to the timing and volume of production for BYETTA and SYMLIN. Working capital changes may fluctuate from quarter to quarter due to timing of inventory and other current asset purchases and the timing of payment of accounts payable, accrued compensation and other current liabilities.

        Our investing activities used cash of $116.1 million, $182.2 million and $296.1 million in the years ended December 31, 2009, 2008 and 2007, respectively. Investing activities in all three years consisted primarily of purchases and sales of short-term investments and purchases of property, plant and equipment. Purchases of property, plant and equipment decreased to $152.1 million in 2009 from $295.1 million in 2008. The decrease in 2009 was as expected and primarily reflects a reduction of costs

57



associated with our manufacturing facility for exenatide once weekly, offset by costs incurred in connection with the exenatide once weekly pen device. The initial capital investment for the pen is expected to be $216.0 million over the next few years, which will be funded 60% by Lilly and 40% by us. Through December 31, 2009, we have incurred $97.7 million in capital expenditures associated with the exenatide once weekly pen device. We have billed Lilly $54.6 million for its share of these expenditures, of which $46.6 million has been received to date, and is included in cash used for operating activities as discussed above. Purchases of property, plant and equipment increased to $295.1 in 2008 from $268.7 million in 2007. The increases in 2008 primarily reflect costs associated with our manufacturing facility for exenatide once weekly and, to a lesser extent, purchases of tenant improvements, computer software, office equipment and scientific equipment to support our growth. We expect that our capital expenditures will continue to decrease in 2010 and will be principally focused on strategically investing in exenatide life cycle management, of which Lilly shares in 60% of the costs. Through December 31, 2009, we capitalized $701.9 million associated with the construction of this facility, including $97.7 million for the exenatide once weekly pen device discussed above. Capital expenditures for our Ohio facility also include costs associated with the construction of the facility, purchase and installation of equipment and capitalized labor and materials required to validate the facility. We will continue to evaluate potential additional investments in our Ohio manufacturing facility during the product life cycle for exenatide once weekly.

        Financing activities used cash of $20.3 million in the year ended December 31, 2009 and provided cash of $16.7 million and $776.9 million in the years ended December 31, 2008 and 2007, respectively. Financing activities in 2009 include repayments of our note payable partially offset by proceeds from the exercise of stock options and proceeds from our employee stock purchase plan. Financing activities in 2008 include proceeds from the exercise of stock options and proceeds from our employee stock purchase plan. Financing activities for 2007 included proceeds from the exercise of stock options, proceeds from our employee stock purchase plan and $559 million in net proceeds from the issuance of the 2007 Notes.

        At December 31, 2009, we had $200 million in aggregate principal amount of the 2004 Notes due April 15, 2011 and $575 million of the 2007 Notes due June 15, 2014 outstanding. The 2004 Notes are currently convertible into a total of up to 5.8 million shares of our common stock at approximately $34.35 per share and are not redeemable at our option. The 2007 Notes are currently convertible into a total of up to 9.4 million shares of our common stock at approximately $61.07 per share and are not redeemable at our option.

        In December 2007, we entered into a $140 million credit agreement. The credit agreement provides for a $125 million term loan and a $15 million revolving credit facility. The revolving credit facility also provides for the issuance of letters of credit and foreign exchange hedging up to the $15 million borrowing limit. At December 31, 2009 we had an outstanding balance of $93.8 million under the term loan, all of which is due in 2010, and had issued $8.9 million of standby letters of credit under the revolving credit facility. Both loans have a final maturity date of December 21, 2010. Interest on the term loan is payable quarterly in arrears at a rate equal to 1.75% above the London Interbank Offered Rate, or LIBOR, of either one, two, three or six months LIBOR term at our election. We have entered into an interest rate swap agreement which resulted in a fixed interest rate of 5.717% under the term loan. The interest rate on the credit facility is LIBOR plus 1.0% or the Bank of America prime rate, at our election.

        In October 2008, we entered into a loan agreement with Lilly pursuant to which Lilly made available to us a $165 million unsecured line of credit that we can draw upon from time to time until June 30, 2011. As of December 31, 2009 we had not drawn upon this line of credit. Any interest due under this credit facility will bear interest at the five-day average three-month LIBOR rate immediately prior to the date of the advance plus 5.25% and shall be due and payable quarterly in arrears on the first business day of each quarter. All outstanding principal, together with all accrued and unpaid

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interest, shall be due and payable the earlier of 36 months following the date on which the loan commitment is fully advanced or June 30, 2014.

        The following table summarizes our contractual obligations and maturity dates as of December 31, 2009 (in thousands).

 
  Payments Due by Period  
Contractual Obligations
  Total   Less
than 1
year
  1 - 3
years
  3 - 5
years
  More than 5
years
 

Long-term convertible debt

  $ 775,000   $   $ 200,000   $ 575,000   $  

Interest on long-term convertible debt

    85,125     22,250     37,000     25,875      

Long-term note payable

    93,750     93,750              

Interest on long-term note payable, net of swap transactions(1)

    4,690     4,690              

Inventory purchase obligations(2)

    104,195     54,168     40,468     9,559      

Construction contracts

    48,820     24,780     24,040          

Operating leases

    187,535     23,234     48,220     50,786     65,295  
                       

Total(3)

  $ 1,299,115   $ 222,872   $ 349,728   $ 661,220   $ 65,295  
                       

(1)
The interest payments shown were calculated using a rate of 5.717%, the net rate from the term loan and interest rate swap, on the outstanding principal balance of the term loan.

(2)
Includes $26.1 million of outstanding purchase orders, cancelable by us upon 30 days' written notice, subject to reimbursement of costs incurred through the date of cancellation. Also includes $37.6 million of commitments for exenatide once weekly that are contingent upon FDA approval of exenatide once weekly.

(3)
Excludes long-term obligation of $6.7 million related to deferred compensation, the payment of which is subject to elections made by participants that are subject to change.

        In addition, under certain license and collaboration agreements we are required to pay royalties and/or milestone payments upon the successful development and commercialization of related products. We expect to make development milestone payments up to $9.5 million associated with licensing agreements in the next 12 months. Additional milestones of up to approximately $250.5 million could be paid over the next two to fifteen years if development and commercialization of all our early stage programs continue and are successful. The majority of these milestones relate to potential future regulatory approvals and subsequent sales thresholds. Given the inherent risk in pharmaceutical development, it is highly unlikely that we will ultimately make all of these milestone payments; however, we would consider these payments as positive because they would signify that the related products are moving successfully through development and commercialization.

        Our future capital requirements will depend on many factors, including: the amount of product sales we and Lilly achieve for BYETTA and exenatide once weekly, if approved, net of profit sharing payments to Lilly, and product sales for SYMLIN; costs associated with the continued commercialization of BYETTA and SYMLIN and the commercialization of exenatide once weekly, if approved; costs associated with the operation of our exenatide once weekly manufacturing facility; costs of potential licenses or acquisitions; the potential need to repay existing indebtedness; our ability to receive or need to make milestone payments; our ability, and the extent to which we establish collaborative arrangements for SYMLIN or any of our product candidates; progress in our research and development programs and the magnitude of these programs; costs involved in preparing, filing, prosecuting, maintaining, enforcing or defending our patents; competing technological and market developments; and costs of manufacturing, including costs associated with establishing our own manufacturing capabilities or obtaining and validating additional manufacturers of our products; and scale-up costs for our drug candidates.

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Off-Balance Sheet Arrangements

        We do not have any off-balance sheet arrangements that are currently or reasonably likely to be material to our consolidated financial position or results of operations.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

        We invest our excess cash primarily in United States Government securities, asset-backed securities, and debt instruments of financial institutions and corporations with investment-grade credit ratings. These instruments have various short-term maturities. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions in any material fashion. Accordingly, we believe that, while the instruments held are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive investments. Our debt is not subject to significant swings in valuation as interest rates on our debt are fixed. The fair value of our 2004 Notes and 2007 Notes at December 31, 2009 was approximately $192 million and $453 million, respectively. We have entered into an interest rate swap in connection with our $125 million term loan. The fair value of the interest rate swap at December 31, 2009 was a liability of $2.8 million. A hypothetical 1% adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of our financial instruments that are exposed to changes in interest rates.

Item 8.    Financial Statements and Supplementary Data

        The financial statements and supplemental data required by this item are set forth at the pages indicated in Part IV, Item 15(a)(1) of this annual report.

Item 9.    Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

        None.

Item 9A.    Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

        Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2009.

        Our management does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all potential error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, or misstatements due to error, if any, within the Company have been detected. While we believe that our disclosure controls and procedures and internal control over financial reporting are and have been effective, we intend to continue to examine and refine our disclosure controls and procedures and internal control over financial reporting and to monitor ongoing developments in these areas.

60


Management's Report on Internal Control Over Financial Reporting

        Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2009. The effectiveness of our internal control over financial reporting as of December 31, 2009 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

Changes in Internal Control Over Financial Reporting

        There has been no change in our internal control over financial reporting in our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

61


Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

The Board of Directors and Stockholders of Amylin Pharmaceuticals, Inc.

        We have audited Amylin Pharmaceuticals, Inc.'s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Amylin Pharmaceuticals, Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, Amylin Pharmaceuticals, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the COSO criteria.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of Amylin Pharmaceuticals, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2009 of Amylin Pharmaceuticals, Inc. and our report dated February 26, 2010 expressed an unqualified opinion thereon.

                        /s/ Ernst & Young LLP

San Diego, California
February 26, 2010

62



PART III

Item 9B.    Other Information

        None.

Item 10.    Directors, Executive Officers and Corporate Governance

        The information required by this item with respect to directors is incorporated by reference from the information under the captions "Election of Directors," "Section 16(a) Beneficial Ownership Reporting Compliance," and "Code of Business Conduct and Ethics" contained in the proxy statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2010 annual meeting of stockholders. The information required by this item with respect to executive officers appears under Part I of this annual report on Form 10-K under the caption "Business—Executive Officers."

Item 11.    Executive Compensation

        The information required by this item is incorporated by reference to the information under the captions "Compensation of Directors," "Executive Compensation," "Report of the Compensation Committee of the Board of Directors on Executive Compensation," and "Compensation Committee Interlocks and Insider Participation" contained in the proxy statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2010 annual meeting of stockholders.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

        The information required by this item is incorporated by reference to the information under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" contained in the proxy statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2010 annual meeting of stockholders.

Item 13.    Certain Relationships and Related Transactions, and Director Independence

        The information required by this item is incorporated by reference to the information under the captions "Election of Directors" and "Certain Transactions" contained in the proxy statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2010 annual meeting of stockholders.

Item 14.    Principal Accountant Fees and Services

        The information required by this item is incorporated by reference to the information under the caption contained in "Ratification of Selection of Independent Registered Public Accounting Firm" contained in the proxy statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2010 annual meeting of stockholders.

63



PART IV

Item 15.    Exhibits and Financial Statement Schedules

(a)(1) Index to Consolidated Financial Statements

        The financial statements required by this item are submitted in a separate section beginning on page F-1 of this annual report.

(a)(2) Financial Statement Schedules: The following Schedule is filed as part of this annual report on Form 10-K:

 
  Page Number

II. Valuation Accounts

  F-44

        All other schedules have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the Consolidated Financial Statements or notes thereto.

(a)(3) Index to Exhibits—See Item 15(b) below.

(b)
Exhibits

Exhibit
Footnote
  Exhibit
Number
   
  (1)     3.1   Amended and Restated Certificate of Incorporation of the Registrant.
  (4)     3.2   Fourth Amended and Restated Bylaws of the Registrant.
  (9)     3.3   Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant.
  (29)     3.4   Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant.
        4.1   Reference is made to Exhibits 3.1 - 3.4.
  (13)(2)     4.2   Registration Rights Agreement dated September 19, 2002, between the Registrant and Eli Lilly and Company.
  (12)     4.3   Rights Agreement dated June 17, 2002, between the Registrant and American Stock Transfer & Trust Company.
  (12)     4.4   Certificate of Designation of Series A Junior Participating Preferred Stock.
  (18)     4.5   First Amendment to Rights Agreement dated December 13, 2002, between the Registrant and American Stock Transfer & Trust Company.
  (7)     4.6   Indenture, dated as of April 6, 2004, between Registrant and J.P. Morgan Trust Company, National Association (as Trustee).
  (7)     4.7   Form of 2.50% Convertible Senior Note due 2011.
  (28)     4.8   Indenture, dated as of June 8, 2007, between Registrant and The Bank of New York Trust Company, N.A. (as Trustee).
  (28)     4.9   Registration Rights Agreement, dated as of June 8, 2007, among Registrant, Goldman Sachs & Co. and Morgan Stanley & Co. Incorporated.
  (1)     10.1   Form of Indemnity Agreement entered into between the Registrant and its directors and officers.†
  (10)     10.2   Registrant's 1991 Stock Option Plan, as amended.†
  (3)     10.3   Form of Incentive Stock Option Agreement under the 1991 Stock Option Plan.†
  (1)     10.4   Form of Supplemental Stock Option Agreement under the 1991 Stock Option Plan.†
  (1)     10.5   Form of Supplemental Stock Option Agreement not granted under the 1991 Stock Option Plan with related schedule.†

64


Exhibit
Footnote
  Exhibit
Number
   
  (34)     10.6   Registrant's Amended and Restated 2001Employee Stock Purchase Plan.†
  (33)     10.7   Registrant's Non-Employee Directors' Stock Option Plan (the "Directors' Plan").†
  (5)(2)     10.8   Patent and Technology License Agreement, Consulting Agreement and Nonstatutory Stock Option Agreement dated October 1, 1996, between the Registrant and Dr. John Eng.
  (6)     10.9   Registrant's Directors' Deferred Compensation Plan.†
        10.10   Registrant's Directors' Plan Stock Option Agreement, as amended.†
  (8)     10.11   Special Form of Incentive Stock Option Agreement the 1991 Stock Option Plan of the Registrant.†
  (11)(2)     10.12   Development and License Agreement dated May 15, 2000, between the Registrant and Alkermes Controlled Therapeutics II, Inc.
  (32)     10.13   Registrant's Amended and Restated Officer Change in Control Severance Benefit Plan.†
  (24)     10.14   Registrant's Amended and Restated 2001 Equity Incentive Plan.†
  (13)(2)     10.15   Collaboration Agreement dated September 19, 2002, between the Registrant and Eli Lilly and Company.
  (13)(2)     10.16   U.S. Co-Promotion Agreement dated September 19, 2002, between the Registrant and Eli Lilly and Company.
  (13)     10.17   Milestone Conversion Agreement dated September 19, 2002, between the Registrant and Eli Lilly and Company.
  (16)(2)     10.18   Device Development and Manufacturing Agreement dated July 1, 2003, between Registrant and Eli Lilly and Company.
  (15)     10.19   Form of Registrant's 2001 Equity Incentive Plan Officer Stock Option Agreement, as amended.†
  (15)     10.20   Form of Registrant's 2001 Equity Incentive Plan Stock Option Agreement, as amended.†
  (17)(2)     10.21   Manufacturing Agreement dated May 12, 2003, between Registrant and UCB S.A.
  (19)(2)     10.22   Exenatide Manufacturing Agreement dated October 1, 2003, between Registrant and Mallinckrodt Inc.
  (19)(2)     10.23   Commercial Supply Agreement for Exenatide dated December 23, 2003, between Registrant and Bachem, Inc.
  (20)(2)     10.24   Commercial Supply Agreement dated February 14, 2005 between Registrant and Baxter Pharmaceutical Solutions LLC.
  (20)(2)     10.25   Commercial Supply Agreement dated March 2, 2005 between Registrant and Baxter Pharmaceutical Solutions LLC.
        10.26   Summary Description of Registrant's Named Executive Officer Oral At-Will Employment Agreements.†
  (21)     10.27   Description of Registrant's Executive Cash Bonus Plan.†
  (23)(2)     10.28   Amendment to Development and License Agreement dated October 24, 2005, between Registrant and Alkermes Controlled Therapeutics II.
  (22)(2)     10.29   Commercial Supply Agreement dated June 28, 2005, between Registrant and Bachem, Inc.
  (25)(2)     10.30   Commercial Supply Agreement dated October 12, 2006 between Registrant and Wockhardt UK (Holdings) Ltd.
  (25)(2)     10.31   Amendment to Collaboration Agreement dated October 31, 2006 between Registrant and Eli Lilly and Company.

65


Exhibit
Footnote
  Exhibit
Number
   
  (26)     10.32   Employment Agreement, dated March 7, 2007, by and between Registrant and Daniel M. Bradbury.†
  (30)     10.33   Registrant's 2001 Non-Qualified Deferred Compensation Plan.†
  (30)     10.34   Credit Agreement, dated as of December 21, 2007, among Registrant, The Bank of America, N.A. (as Administrative Agent) and the other lenders set forth therein.
  (31)     10.35   First Amendment to Exenatide Manufacturing Agreement dated January 6, 2006, between Registrant and Mallinckrodt Inc.
  (31)(2)     10.36   Amended and Restated Commercial Supply Agreement dated April 1, 2008, between Registrant and Wockhardt UK (Holdings) Ltd.
  (31)(2)     10.37   Addendum to U.S. Co-Promotion Agreement dated May 8, 2008, between Registrant and Eli Lilly and Company
  (31)(2)     10.38   Third Amendment to Supply Agreement dated January 1, 2008, between Registrant and Mallinckrodt Inc.
  (4)     10.39   Amendment to Employment Agreement dated December 3, 2008, between Registrant and Daniel M. Bradbury†
  (32)(2)     10.40   Exenatide Once Weekly Supply Agreement, dated October 16, 2008, between Registrant and Eli Lilly and Company
  (32)     10.41   Loan Agreement dated October 16, 2008, between Registrant and Eli Lilly and Company
  (32)     10.42   First Amendment to Credit Agreement, dated October 27, 2008, among Registrant, the Bank of America, N.A. (as Administrative Agent) and other lenders set forth therein
  (32)(2)     10.43   Amendment to Commercial Supply Agreement dated December 8, 2008, between Registrant and Baxter Pharmaceutical Solutions LLC
  (32)(2)     10.44   Amendment to the Amended and Restated Commercial Supply Agreement dated January 23, 2009, between Registrant and Wockhardt UK (Holdings) Ltd.
  (33)     10.45   Amendment, dated April 9, 2009, to Collaboration Agreement between Registrant and Eli Lilly and Company
  (34)     10.46   Registrant's 2009 Equity Incentive Plan†
  (34)     10.47   Registrant's 2009 Equity Incentive Plan Officer Stock Option Agreement†
  (34)     10.48   Registrant's 2009 Equity Incentive Plan Stock Option Agreement†
  (35)(2)     10.49   Cost Allocation Agreement, dated May 4, 2009, between Registrant and Eli Lilly and Company
  (35)     10.50   Second Amendment, dated May 6, 2009, to Credit Agreement among Registrant, Bank of America N.A., as Administrative Agent, and certain lenders thereto
  (35)(2)     10.51   Exenatide Once Weekly Supply Agreement, dated May 11, 2009, between Registrant and Eli Lilly and Company
        10.52   License, Development and Commercialization Agreement, dated October 30, 2009, between Registrant and Takeda Pharmaceutical Company Limited*
        10.53   Side Letter Agreement, dated October 30, 2009, between Registrant and Takeda Pharmaceutical Company Limited*
        10.54   Third Amendment, dated December 18, 2009, to Credit Agreement among Registrant, Bank of America N.A., as Administrative Agent, and certain lenders thereto
        18   Letter from Independent Registered Public Accounting Firm related to change in accounting principle.
        21.1   Subsidiaries of Registrant.
        23.1   Consent of Independent Registered Public Accounting Firm.

66


Exhibit
Footnote
  Exhibit
Number
   
        24.1   Power of Attorney. Reference is made to page 71.
        31.1   Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
        31.2   Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
        32.1   Certifications Pursuant to U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002.

Indicates management or compensatory plan or arrangement required to be identified pursuant to Item 15(c).

*
Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

(1)
Filed as an exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-44195) or amendments thereto and incorporated herein by reference.

(2)
Confidential Treatment has been granted by the Securities and Exchange Commission with respect to portions of this agreement.

(3)
Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference.

(4)
Filed as an exhibit on Form 8-K dated December 8, 2008, and incorporated herein by reference.

(5)
Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference.

(6)
Filed as an exhibit to the Registrant's Registration Statement on Form S-8 (No. 333-61660) or amendments thereto and incorporated herein by reference.

(7)
Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, and incorporated herein by reference.

(8)
Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, and incorporated herein by reference.

(9)
Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, and incorporated herein by reference.

(10)
Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, and incorporated herein by reference.

(11)
Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference.

(12)
Filed as an exhibit on Form 8-K dated June 18, 2002, and incorporated herein by reference.

(13)
Filed as an exhibit on Form 8-K dated October 3, 2002, and incorporated herein by reference.

(14)
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001, and incorporated herein by reference.

(15)
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, and incorporated herein by reference.

67


(16)
Filed as an exhibit to Amendment 1 to Registrant's Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2003, and incorporated herein by reference.

(17)
Filed as an exhibit to Amendment 1 to Registrant's Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2003, and incorporated herein by reference.

(18)
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference.

(19)
Filed as an exhibit to Amendment 1 to Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2003, and incorporated herein by reference.

(20)
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2004, and incorporated herein by reference.

(21)
Filed on Form 8-K dated February 5, 2010, and incorporated herein by reference.

(22)
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference.

(23)
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and incorporated herein by reference.

(24)
Filed as an exhibit on Form 8-K dated May 30, 2008 and incorporated herein by reference.

(25)
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and incorporated herein by reference.

(26)
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, and incorporated herein by reference.

(27)
Filed as an exhibit on Form 8-K dated May 29, 2007, and incorporated herein by reference.

(28)
Filed as an exhibit on Form 8-K dated June 8, 2007, and incorporated herein by reference.

(29)
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, and incorporated herein by reference.

(30)
Filed as an exhibit to Registrant's Annual report on Form 10-K for the fiscal year ended December 31, 2007, and incorporated herein by reference.

(31)
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, and incorporated herein by reference.

(32)
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and incorporated herein by reference.

(33)
Filed as an exhibit to Registrant's Quarterly report on form 10-Q for the quarter ended March 31, 2009, and incorporated herein by reference.

(34)
Filed as an exhibit on Form 8-K dated June 10, 2009, and incorporated herein by reference.

(35)
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, and incorporated herein by reference.

    Note on trademarks used in this report:
    Amylin, BYETTA and SYMLIN are registered trademarks of Amylin Pharmaceuticals, Inc. Other brands, names and trademarks contained in this Annual Report on Form 10-K are the property of their respective owners.

68



SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

    AMYLIN PHARMACEUTICALS, INC.

Date: February 26, 2010

 

 

 

 

 

 

By:

 

/s/ DANIEL M. BRADBURY

Daniel M. Bradbury,
President and Chief Executive Officer


POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Daniel M. Bradbury and Mark G. Foletta, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments to this Report, and any other documents in connection therewith, and to file the same, with all exhibits thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his substitute or substituted, may lawfully do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures
 
Title
 
Date

 

 

 

 

 
/s/ DANIEL M. BRADBURY

Daniel M. Bradbury
  President and Chief Executive Officer(Principal Executive Officer)   February 26, 2010

/s/ MARK G. FOLETTA

Mark G. Foletta

 

Senior Vice President, Finance and Chief Financial Officer(Principal Financial and Accounting Officer)

 

February 26, 2010

/s/ PAULO F. COSTA

Paulo F. Costa

 

Chairman of the Board

 

February 26, 2010

/s/ ADRIAN ADAMS

Adrian Adams

 

Director

 

February 26, 2010

69


Signatures
 
Title
 
Date

 

 

 

 

 
/s/ STEVEN R. ALTMAN

Steven R. Altman
  Director   February 26, 2010

/s/ TERESA BECK

Teresa Beck

 

Director

 

February 26, 2010

/s/ M. KATHLEEN BEHRENS

M. Kathleen Behrens

 

Director

 

February 26, 2010

/s/ PAUL N. CLARK

Paul N. Clark

 

Director

 

February 26, 2010

  

Alexander J. Denner

 

Director

 

 

/s/ KARIN EASTHAM

Karin Eastham

 

Director

 

February 26, 2010

/s/ JAMES R. GAVIN III, M.D., PHD.

James R. Gavin III, M.D., PhD.

 

Director

 

February 26, 2010

/s/ JAY S. SKYLER, M.D.

Jay S. Skyler, M.D., MACP

 

Director

 

February 26, 2010

/s/ JOSEPH P. SULLIVAN

Joseph P. Sullivan

 

Director

 

February 26, 2010

70


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Amylin Pharmaceuticals, Inc.

        We have audited the accompanying consolidated balance sheets of Amylin Pharmaceuticals, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2009. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Amylin Pharmaceuticals, Inc., at December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

        As discussed in Note 1 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1) (codified in FASB ASC Topic 470, Debt with Conversions and Other Options) effective as of January 1, 2009 and also changed the classification of reimbursements of research and development expenses under collaborative arrangements from revenue under collaborative arrangements to research and development expense. The Company has retroactively adjusted all periods presented in the consolidated financial statements for these changes.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Amylin Pharmaceuticals, Inc's internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2010 expressed an unqualified opinion thereon.

    /S/ Ernst & Young LLP

San Diego, California
February 26, 2010

F-1



AMYLIN PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 
  December 31,  
 
  2009   2008(1)  

ASSETS

             

Current assets:

             
 

Cash and cash equivalents

  $ 120,825   $ 237,263  
 

Short-term investments

    546,944     579,575  
 

Accounts receivable, net

    60,732     62,369  
 

Inventories, net

    99,700     115,823  
 

Other current assets

    78,481     41,038  
           

Total current assets

    906,682     1,036,068  

Property, plant and equipment, net

    780,058     655,444  

Debt issuance costs

    8,742     11,786  

Other long-term assets

    30,937     23,755  
           

  $ 1,726,419   $ 1,727,053  
           

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current liabilities:

             
 

Accounts payable

  $ 39,146   $ 39,467  
 

Accrued compensation

    70,961     65,145  
 

Payable to collaborative partner

    49,645     60,470  
 

Restructuring liability, current portion

    9,204     24,235  
 

Notes payable, current portion

    93,750     31,250  
 

Deferred revenue, current portion

    7,500     3,086  
 

Other current liabilities

    95,163     90,125  
           

Total current liabilities

    365,369     313,778  

Deferred revenue, net of current portion

    66,250      

Long-term deferred credit

    125,000     125,000  

Deferred collaborative profit-sharing

    54,570      

Restructuring liability, net of current portion

    22,776     22,503  

Notes payable, net of current portion

        93,750  

Convertible senior notes, net

    643,762     621,021  

Other long-term obligations, net of current portion

    26,158     31,724  

Commitments and contingencies

             

Stockholders' equity:

             
 

Preferred stock, $.001 par value, 7,500 shares authorized, none issued and outstanding at December 31, 2009 and 2008

         
 

Common stock, $.001 par value, 450,000 shares authorized, 141,747 and 137,623 issued and outstanding at December 31, 2009 and 2008

    142     138  
 

Additional paid-in capital

    2,371,939     2,291,762  
 

Accumulated deficit

    (1,947,867 )   (1,761,611 )
 

Accumulated other comprehensive loss

    (1,680 )   (11,012 )
           

Total stockholders' equity

    422,534     519,277  
           

  $ 1,726,419   $ 1,727,053  
           

(1)
Adjusted for the required retroactive adoption of authoritative guidance related to convertible debt instruments that may be settled in cash upon conversion (Note 1).

See accompanying notes to consolidated financial statements.

F-2



AMYLIN PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 
  Year ended December 31,  
 
  2009   2008(1)   2007(1)  

Revenues:

                   
 

Net product sales

  $ 753,993   $ 765,342   $ 701,450  
 

Revenues under collaborative agreements

    4,426     4,286     19,286  
               

Total revenues

    758,419     769,628     720,736  

Costs and expenses:

                   
 

Cost of goods sold

    82,999     91,596     65,457  
 

Selling, general and administrative

    343,864     395,112     390,982  
 

Research and development

    185,062     222,614     216,339  
 

Collaborative profit-sharing

    302,861     302,600     290,934  
 

Restructuring

    16,980     54,926      
               

Total costs and expenses

    931,766     1,066,848     963,712  
               

Operating loss

    (173,347 )   (297,220 )   (242,976 )

Interest and other income

    7,768     26,561     46,969  

Interest and other expense

    (19,300 )   (36,339 )   (20,479 )

Loss on impairment of investments

    (1,377 )   (14,943 )    
               

Net loss

  $ (186,256 ) $ (321,941 ) $ (216,486 )
               

Net loss per share—basic and diluted

  $ (1.32 ) $ (2.35 ) $ (1.63 )
               

Shares used in computing net loss per share, basic and diluted

    140,702     137,006     132,621  
               

(1)
Adjusted for the required retroactive adoption of authoritative guidance related to convertible debt instruments that may be settled in cash upon conversion and the change in our method of accounting for reimbursed research and development costs under collaborative arrangements (Note 1).

See accompanying notes to consolidated financial statements.

F-3



AMYLIN PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the years ended December 31, 2009, 2008 and 2007

(in thousands)

 
  Common stock    
   
  Accumulated
other
comprehensive
(loss) income
   
 
 
  Additional
paid-in capital
  Accumulated
deficit
  Total
stockholders'
equity
 
 
  Shares   Amount  

Balance at December 31, 2006

    130,458   $ 130   $ 1,857,194   $ (1,223,184 ) $ 1,151   $ 635,291  

Comprehensive loss:

                                     

Net loss(1)

                (216,486 )       (216,486 )

Unrealized loss on available-for-sale securities

                    (1,601 )   (1,601 )
                                     

Comprehensive loss

                                  (218,087 )

Issuance of common stock upon exercise of options, net

    2,547     3     37,396             37,399  

Issuance of common stock upon exercise of warrants

    1,604     2     18,370             18,372  

Issuance of common stock for other employee benefit plans

    435         14,735             14,735  

Employee stock-based compensation

            59,064             59,064  

Non-employee stock-based compensation

            694             694  

Net debt discount recorded as a result of the required retroactive adoption of authoritative guidance related to convertible debt instruments that may be settled in cash upon conversion(1)

            180,289             180,289  
                           

Balance at December 31, 2007

    135,044     135     2,167,742     (1,439,670 )   (450 )   727,757  

Comprehensive loss:

                                     

Net loss(1)

                (321,941 )       (321,941 )

Unrealized loss on available-for-sale securities

                    (10,562 )   (10,562 )
                                     

Comprehensive loss

                                  (332,503 )

Issuance of common stock upon exercise of options, net

    528         7,260             7,260  

Issuance of common stock upon milestone conversion

    790     1     29,999             30,000  

Issuance of common stock for other employee benefit plans

    578     1     13,717             13,718  

Issuance of common stock for employee stock ownership plan

    683     1     16,995             16,996  

Employee stock-based compensation

            55,901             55,901  

Non-employee stock-based compensation

            148             148  
                           

Balance at December 31, 2008

    137,623     138     2,291,762     (1,761,611 )   (11,012 )   519,277  
                           

Comprehensive loss:

                                     

Net loss

                (186,256 )       (186,256 )

Unrealized gain on available-for-sale securities

                    9,332     9,332  
                                     

Comprehensive loss

                                  (176,924 )

Issuance of common stock upon exercise of options, net

    599     1     4,556             4,557  

Issuance of common stock for other employee benefit plans

    1,280     1     11,508             11,509  

Issuance of common stock for employee stock ownership plan

    2,245     2     20,248             20,250  

Employee stock-based compensation

            43,762             43,762  

Non-employee stock-based compensation

            103             103  
                           

Balance at December 31, 2009

    141,747   $ 142   $ 2,371,939   $ (1,947,867 ) $ (1,680 ) $ 422,534  
                           

(1)
Adjusted for the required retroactive adoption of authoritative guidance related to convertible debt instruments that may be settled in cash upon conversion (Note 1).

See accompanying notes to consolidated financial statements.

F-4



AMYLIN PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 
  Years ended December 31,  
 
  2009   2008(1)   2007(1)  

Operating activities:

                   

Net loss

  $ (186,256 ) $ (321,941 ) $ (216,486 )

Adjustments to reconcile net loss to net cash used in operating activities:

                   
 

Depreciation and amortization

    38,197     29,552     19,329  
 

Amortization of debt discount and debt issuance costs

    8,209     10,332     7,584  
 

Stock-settled compensation accruals

    20,161     25,097     21,696  
 

Employee stock-based compensation

    43,762     55,115     59,064  
 

Loss on impairment of investments

    1,377     14,943      
 

Restructuring (including $0 and $786 of employee stock-based compensation unpaid at December 31, 2009 and 2008, respectively)

        9,483      
 

Other non-cash expenses

    10,548     5,718     3,028  

Changes in operating assets and liabilities:

                   
 

Accounts receivable, net

    1,637     11,210     (15,490 )
 

Inventories, net

    16,123     (15,609 )   (40,915 )
 

Other current assets

    (35,749 )   (13,005 )   (10,016 )
 

Long-term prepaid assets

    (8,754 )        
 

Accounts payable and accrued liabilities

    5,574     8,641     28,101  
 

Accrued compensation

    11,009     4,900     1,300  
 

Payable to collaborative partner

    (10,825 )   (5,646 )   13,778  
 

Deferred revenue

    70,664     (4,286 )   (4,286 )
 

Long-term deferred credit

        125,000      
 

Deferred collaborative profit-sharing

    54,570          
 

Restructuring liabilities

    (14,758 )   46,738      
 

Other assets and liabilities, net

    (5,566 )   (5,752 )   8,153  
               

Net cash provided by (used for) operating activities

    19,923     (19,510 )   (125,160 )

Investing activities:

                   

Purchases of short-term investments

    (794,008 )   (1,015,811 )   (392,155 )

Sales and maturities of short-term investments

    832,900     1,132,017     383,076  

Purchases of property, plant and equipment

    (152,051 )   (295,060 )   (268,674 )

Increase in other long-term assets

    (2,913 )   (3,299 )   (18,348 )
               

Net cash used for investing activities

    (116,072 )   (182,153 )   (296,101 )

Financing activities:

                   

Proceeds from issuance of common stock, net

    10,961     16,694     64,687  

Proceeds from issuance of convertible debt, net

            558,670  

Proceeds from long-term note payable

            123,496  

Proceeds from contingent share settled obligation

            30,000  

Repayment of notes payable

    (31,250 )        
               

Net cash (used for) provided by financing activities

    (20,289 )   16,694     776,853  
               

(Decrease) increase in cash and cash equivalents

    (116,438 )   (184,969 )   355,592  

Cash and cash equivalents at beginning of year

    237,263     422,232     66,640  
               

Cash and cash equivalents at end of year

  $ 120,825   $ 237,263   $ 422,232  
               

Supplemental disclosures of cash flow information:

                   

Interest paid, net of interest capitalized

  $ 13,218   $ 17,701   $ 9,477  

Interest capitalized

  $ 33,280   $ 25,766   $ 9,049  

Property, plant and equipment additions in other current liabilities at year end

  $ 10,123   $ 6,057   $ 15,559  

Non-cash financing activities:

                   

Issuance of common stock upon milestone conversion

  $   $ 30,000   $  

Shares contributed as employer 401(k) match

  $ 5,105   $ 4,284   $ 5,819  

Issuance of common stock for employee stock ownership plan

  $ 20,250   $ 16,996   $  

(1)
Adjusted for the required retroactive adoption of authoritative guidance related to convertible debt instruments that may be settled in cash upon conversion (Note 1).

See accompanying notes to consolidated financial statements.

F-5



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Organization

        Amylin Pharmaceuticals, Inc. (referred to as we, us, or Amylin) is a biopharmaceutical company engaged in the discovery, development and commercialization of drug candidates for the treatment of diabetes, obesity and other diseases. We were incorporated in Delaware on September 29, 1987.

Basis of Presentation

        Our consolidated financial statements include the accounts of our wholly owned subsidiaries, Amylin Ohio, LLC, and Amylin Investments, LLC. All significant intercompany transactions and balances have been eliminated in consolidation.

        In June 2009, the FASB issued authoritative guidance that provides for the FASB Accounting Standards Codification TM (the "Codification") to become the single official source of authoritative, non-governmental U.S. generally accepted accounting principles (GAAP). The Codification did not change GAAP but reorganizes the literature and is effective for interim and annual periods ending after September 15, 2009. These consolidated financial statements and notes to consolidated financials statements have been conformed to the presentation required by the Codification.

Change in Accounting Policy

        During the fourth quarter of 2009, we changed our method of accounting for reimbursed research and development costs under collaborative arrangements from reporting them as revenue to reporting them as a reduction to research and development costs. We believe this method is consistent with industry practice for companies whose primary focus is the commercialization of pharmaceutical products. This change in accounting had no effect on operating loss or net loss.

        Consistent with the accounting guidance addressing accounting changes and error corrections, the effect of the change in accounting method has been made retroactive to the beginning of the earliest period presented with the accompanying 2009 consolidated financial statements. Our unaudited historical quarterly financial data presented in Note 13 has been adjusted to reflect the period-specific effects of applying the new method.

        The following tables summarize the impact of the change in accounting for reimbursed research and development costs on the consolidated statements of operations for the years ended December 31, 2008 and December 31, 2007. Only the line items affected by the change in accounting are reflected in the tables below (in thousands):

 
  Year ended
December 31, 2008
  Year ended
December 31, 2007
 
 
  As originally
reported
  As adjusted   As originally
reported
  As adjusted  

Revenues under collaborative agreements

  $ 74,767   $ 4,286   $ 79,547   $ 19,286  

Research and development

  $ 293,095   $ 222,614   $ 276,600   $ 216,339  

F-6



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

Adoption of New Accounting Guidance for Convertible Debt Instruments that may be Settled in Cash upon Conversion

        Effective January 1, 2009, we adopted the new authoritative guidance for accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). The new guidance requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion shall be separately accounted for in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The carrying amount of the liability component of the convertible debt instrument is determined by measuring the fair value of a similar liability that does not have an associated equity component. The carrying value of the equity component is determined by deducting the fair value of the liability component from the initial proceeds ascribed to the convertible debt instrument as a whole. Related transaction costs are allocated to the liability and equity components in proportion to the allocation of proceeds and accounted for as debt issuance costs and equity issuance costs, respectively. The excess of the principal amount of the liability component over its carrying amount is amortized to interest expense using the interest method. The new guidance is applied retrospectively to the years ended December 31, 2008 and 2007. The $575 million Senior Convertible Notes issued in June 2007 (the 2007 Notes) are within the scope of the new guidance because we have the option to elect net-share settlement upon conversion. The $200 million Convertible Senior Notes issued in 2004 (the 2004 Notes) are not within the scope of the new guidance as they may only be settled in shares of our common stock upon conversion.

        Upon adoption, we recorded a cumulative debt discount on the 2007 Notes of $185.6 million at inception, and an increase of $180.3 million to stockholders' equity representing the gross value of the equity component of $185.6 million net of allocated transaction costs of $5.3 million. The debt discount is being amortized to interest expense over the term of the 2007 Notes, net of interest capitalized. There was no cumulative effect on accumulated deficit of the change in accounting principle as of January 1, 2007 as the 2007 Notes were not issued until June 2007. As required by the provisions of the new guidance we are retroactively adjusting our 2007 and 2008 financial statements.

        Our net loss for the year ended December 31, 2009 of $186.3 million, or $1.32 per share, includes $4.3 million, or $0.03 per share, of incremental interest and other expense due to the adoption of the new guidance.

        The following table sets forth the effect of the retroactive adjustment of the applicable line items within the accompanying consolidated balance sheet as of December 31, 2008 (in thousands):

 
  As previously
reported
  Implementation
adjustments
  As adjusted  

Property, plant and equipment, net

  $ 636,922   $ 18,522   $ 655,444  

Debt issuance costs

  $ 15,884   $ (4,098 ) $ 11,786  

Convertible senior notes

  $ 775,000   $ (153,979 ) $ 621,021  

Additional paid-in capital

  $ 2,111,473   $ 180,289   $ 2,291,762  

Accumulated deficit

  $ (1,749,725 ) $ (11,886 ) $ (1,761,611 )

F-7



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

        The following tables set forth the effect of the retroactive adjustment of the applicable line items within the accompanying consolidated statement of operations for the twelve months ended December 31, 2008 and 2007 (in thousands, except per share amounts):

 
  Year ended December 31, 2008  
 
  As previously
reported
  Implementation
adjustments
  As adjusted  

Interest and other expense

  $ (29,803 ) $ (6,536 ) $ (36,339 )

Net loss

  $ (315,405 ) $ (6,536 ) $ (321,941 )

Net loss per share

  $ (2.30 ) $ (0.05 ) $ (2.35 )

 

 
  Year ended December 31, 2007  
 
  As previously
reported
  Implementation
adjustments
  As adjusted  

Interest and other expense

  $ (15,129 ) $ (5,350 ) $ (20,479 )

Net loss

  $ (211,136 ) $ (5,350 ) $ (216,486 )

Net loss per share

  $ (1.59 ) $ (0.04 ) $ (1.63 )

        The following tables set forth the effect of the retroactive adjustment of the applicable line items within the accompanying consolidated statement of cash flows for the twelve months ended December 31, 2008 and 2007 (in thousands):

 
  Year ended December 31, 2008  
 
  As previously
reported
  Implementation
adjustments
  As adjusted  

Net loss

  $ (315,405 ) $ (6,536 ) $ (321,941 )

Amortization of debt discount and debt issuance costs

  $ 3,796   $ 6,536   $ 10,332  

 

 
  Year ended December 31, 2007  
 
  As previously
reported
  Implementation
adjustments
  As adjusted  

Net loss

  $ (211,136 ) $ (5,350 ) $ (216,486 )

Amortization of debt discount and debt issuance costs

  $ 2,234   $ 5,350   $ 7,584  

Use of Estimates

        The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-8



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

Revenue Recognition

Net Product Sales

        We sell BYETTA® (exenatide) injection for the treatment of type 2 diabetes and SYMLIN® (pramlintide acetate) injection for the treatment of type 1 and type 2 diabetes primarily to wholesale distributors, who, in turn, sell to retail pharmacies and government entities. Product sales are recognized when delivery of the products has occurred, title has passed to the customer, the selling price is fixed or determinable, collectability is reasonably assured and we have no further obligations. We record product sales net of allowances for product returns, rebates, wholesaler chargebacks, wholesaler discounts, and prescription vouchers at the time of sale and report product sales net of such allowances. We must make significant judgments in determining these allowances. If actual results differ from our estimates, we will be required to make adjustments to these allowances in the future. We recorded an allowance related to the Department of Defense's (DOD) Tricare Retail Pharmacy program pursuant to a final rule that was issued in March 2009 and became effective on May 26, 2009. The final rule clarified the DOD's interpretation of the National Defense Authorization Act of 2008, or NDAA, signed into law on January 28, 2008. The final rule changed the process by which rebate obligations for the Tricare Retail Pharmacy program are created such that a contractual agreement is no longer required and that obligation to pay such rebates emanates from the NDAA itself. In consideration of this final rule we recorded an allowance of $8.2 million for such rebates in the twelve months ended December 31, 2009, of which $4.8 million represents a retroactive rebate assessment for sales made during 2008.

        We record all United States BYETTA and SYMLIN product sales. With respect to BYETTA, we have determined that we are qualified as a principal based on our responsibilities under our contracts with Eli Lilly and Company, or Lilly, which include manufacture of product for sale in the United States, responsibility for establishing pricing in the United States, distribution, ownership of product inventory and credit risk from customers.

Revenues Under Collaborative Agreements

        Revenues under collaborative agreements consist of the amortization of product and technology license fees and milestone payments earned. Upfront product and technology license fees under multiple-element arrangements are deferred and recognized over the period of such services or performance if such arrangements require on-going services or performance. Non-refundable amounts received for substantive milestones are recognized upon achievement of the milestone. Any amounts received prior to satisfying these revenue recognition criteria are recorded as deferred revenue.

Collaborative Profit-Sharing

        Collaborative profit-sharing represents Lilly's 50% share of the gross margin for BYETTA sales in the United States (see Note 4).

Shipping and Handling Costs

        Shipping and handling costs incurred for product shipments are included in cost of goods sold in the accompanying consolidated statements of operations.

F-9



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

Research and Development Expenses

        Research and development costs are expensed as incurred and include salaries and bonuses, benefits, non-cash stock-based compensation, license fees, milestone payments due under license agreements, costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials and delivery devices; and associated overhead and facilities costs. Reimbursed research and development costs under collaborative arrangements are recorded as a reduction to research and development expenses and are recognized in the period in which the related costs are incurred. Clinical trial costs, including costs associated with third-party contractors, are a significant component of research and development expenses. Invoicing from third- party contractors for services performed can lag several months. We accrue the costs of services rendered in connection with such activities based on our estimate of management fees, site management and monitoring costs, and data management costs. Actual clinical trial costs may differ from estimates and are adjusted in the period in which they become known.

Concentrations of Risk

        We rely on third-party manufacturers for the production of our products and drug candidates. If our third-party manufacturers are unable to continue manufacturing our products and/or drug candidates, or if we lose one of our sole source suppliers used in our manufacturing processes, we may not be able to meet market demand for our products and could be materially and adversely affected.

        We have a collaboration agreement with Lilly under which Lilly provides funding for development and commercialization expenses for BYETTA and exenatide once weekly at various cost sharing percentages depending upon whether the product is to be utilized in the United States or outside the United States. Lilly co-promotes the product with us in the United States, is responsible for commercializing the product outside the United States and manufactures pen devices for the administration of BYETTA. See Note 4 for more detailed information regarding this collaboration. If Lilly is unable to perform these activities we may be unable to meet market demand for our products and could be materially and adversely affected.

        We have a collaboration agreement with Takeda Pharmaceutical Company Limited (Takeda) for the development and commercialization of pharmaceutical products for obesity and related indications. Under this agreement Takeda will provide funding for development and commercialization expenses. If Takeda is unable to perform these activities or were to terminate our collaboration with them, we would likely need to find a third party collaborator to continue developing our obesity program, which we may be unable to do.

        We are also subject to credit risk from our accounts receivable related to product sales. We sell our products in the United States primarily to wholesale distributors. Our top four customers represented approximately 95% of net product sales in 2009 and 94% of the accounts receivable balance at December 31, 2009. We evaluate the credit worthiness of our customers and generally do not require collateral. We have not experienced any material losses on uncollectible accounts receivable to date.

        Net product sales for the years ended December 31, 2009, 2008 and 2007 were $754.0 million, $765.3 million and $701.5 million, respectively, and consisted of sales of BYETTA and SYMLIN, less allowances for product returns, rebates and wholesaler chargebacks, wholesaler discounts, and prescription vouchers.

F-10



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

        The following table provides information regarding net product sales by product (in millions):

 
  Year ended December 31,  
 
  2009   2008   2007  

BYETTA

  $ 667.6   $ 678.5   $ 636.0  

SYMLIN

    86.4     86.8     65.5  
               

  $ 754.0   $ 765.3   $ 701.5  
               

        Three of our customers each accounted for more than 10% of total net product sales for the years ended December 31, 2009 and 2008 and two of our customers each accounted for more than 10% of total net product sales for the year ended December 31, 2007. The following table summarizes the percent of our total net product sales that were attributed to each of these three customers (as a % of net product sales):

 
  Year ended
December 31,
 
 
  2009   2008   2007  

McKesson Corporation

    38 %   38 %   40 %

Cardinal Health, Inc. 

    35 %   36 %   35 %

Medco Health Solutions

    12 %   12 %   *  

*
Less than 10%

        We invest our excess cash in U.S. Government securities, securities of agencies sponsored by the U.S. Government, asset-backed securities, mortgage-backed securities, and debt instruments of financial institutions and corporations with investment-grade credit ratings. We have established guidelines relative to diversification and maturities that maintain safety and liquidity. The primary goal of these guidelines is to safeguard principal and they are periodically reviewed. These guidelines prohibit investments in auction rate securities. Financial instruments that potentially subject us to significant credit risk consist principally of cash equivalents and short-term investments.

Cash and Cash Equivalents

        We consider instruments with a maturity date of less than 90 days from the date of purchase to be cash equivalents. Cash and cash equivalents include cash collateral for derivative financial instruments of $3.5 million at both December 31, 2009 and 2008, respectively.

Fair Value Measurements

        The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal

F-11



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)


market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance prioritizes the inputs used in measuring fair value into the following hierarchy:

Level 1

  Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2

 

Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and

Level 3

 

Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

Short-Term Investments

        Our short-term investments, consisting principally of debt securities, are classified as available-for-sale and are stated at fair value based upon observed market prices (Level 1 in the fair value hierarchy). Unrealized holding gains or losses on these securities are included in other comprehensive loss. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. For investments in mortgage-backed securities, amortization of premiums and accretion of discounts are recognized in interest income using the interest method, adjusted for anticipated prepayments as applicable. Estimates of expected cash flows are updated periodically and changes are recognized in the calculated effective yield prospectively as appropriate. Such amortization is included in interest income. Realized gains and losses are included in interest income and declines in value judged to be other-than-temporary on available-for-sale securities are included in impairment loss on investments. In assessing potential impairment of our short-term investments, we evaluate the impact of interest rates, potential prepayments on mortgage-backed securities, changes in credit quality, the length of time and extent to which the market value has been less than cost, and our intent and ability not to sell the security in order to allow for an anticipated recovery in fair value. The cost of securities sold is based on the specific-identification method.

Accounts Receivable

        Trade accounts receivable are recorded net of allowances for cash discounts for prompt payment, doubtful accounts, product returns and chargebacks. Allowances for rebate discounts and distribution fees are included in other current liabilities in the accompanying consolidated balance sheets. Estimates for allowances for doubtful accounts are determined based on existing contractual obligations, historical payment patterns and individual customer circumstances. The allowance for doubtful accounts was $0.7 million and $0.6 million at December 31, 2009 and 2008, respectively.

Inventories, net

        Inventories are stated at the lower of cost (FIFO) or market and net of a valuation allowance for potential excess and/or obsolete material of $0.3 million and $5.1 million at December 31, 2009 and December 31, 2008, respectively. Raw materials consist of bulk drug material for BYETTA and SYMLIN. Work-in-process inventories consist of in-process BYETTA cartridges, in-process SYMLIN cartridges and in-process SYMLIN vials. Finished goods inventories consist of BYETTA drug product

F-12



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)


in a disposable pen/cartridge delivery system, finished SYMLIN drug product in vials for syringe administration and finished SYMLIN drug product in a disposable pen/cartridge delivery system.

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