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Amylin Pharmaceuticals 10-K 2011

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PART IV
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, 2010

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 ý    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, 2010 held by non-affiliates was $1,333,136,896.

          The number of shares outstanding of the registrant's common stock was 144,429,396 as of February 18, 2011.

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 2011 Annual Meeting of Stockholders to be held on May 24, 2011 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, 2010.


        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 metabolic 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 BYDUREON™ (exenatide extended-release for injectable suspension), an investigational sustained-release medication for type 2 diabetes that is administered only once a week.

        In 2010 and early 2011, we executed on key initiatives for the company including:

    initiated the required thorough QT, or tQT, study to support the regulatory application for BYDUREON and expect to submit our response to the United States Food and Drug Administration's, or FDA, second BYDUREON complete response letter in the second half of 2011;

    submitted a supplemental New Drug Application, or sNDA, to the FDA for the expanded use of BYETTA as an add-on therapy to basal insulin;

    submitted the initial sections of a rolling submission for a Biologics License Application, or BLA, to the FDA for the use of metreleptin to treat diabetes and/or hypertriglyceridemia (high levels of triglycerides in the bloodstream) in patients with lipodystrophy;

    announced results from DURATION-4, a head-to-head study that compared BYDUREON monotherapy to Januvia® (sitagliptin), Actos® (pioglitazone HCI) or metformin. Results demonstrated that BYDUREON efficacy and tolerability profile extended to monotherapy treatment;

    initiated the DURATION-6 clinical study, a head-to-head comparison of BYDUREON to Victoza® (liraglutide), a glucagon-like peptide-1, or GLP-1, analog , with results expected in the first half of 2011;

    initiated our EXSCEL (Exenatide Study of Cardiovascular Event Lowering) cardiovascular outcomes study for BYDUREON, with results expected in approximately 2016; and

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    announced, with our partner Takeda Pharmaceutical Company Limited, or Takeda, that we will advance the combination treatment of pramlintide/metreleptin for obesity toward phase 3 development.

        In 2011 we will continue our efforts to expand the indication for BYETTA and target new market segments for this product. We also plan to work toward increasing patient awareness and adherence of SYMLIN. In the near-term, we will continue to work with the FDA to gain approval for BYDUREON and will continue our efforts to build a superior profile for BYDUREON by completing the DURATION-6 clinical trial mentioned above. We also plan to continue making strategic investments in the exenatide franchise including the development of a BYDUREON pen delivery system and an exenatide suspension formulation that could enable monthly administration of exenatide.

        Our long-term growth strategy is focused on making prudent investment decisions based on positive clinical data to advance our obesity program, including the development of pramlintide/ metreleptin, a combination therapy for the treatment of obesity which we and our obesity partner, Takeda, are currently advancing toward phase 3 development. We are also developing metreleptin as a treatment for lipodystrophy, a very rare metabolic condition. Because lipodystrophy affects a very small number of patients, metreleptin for the treatment for lipodystrophy has received orphan drug designation by the FDA. With this accompanying fast-track and priority-review designation, we believe that metreleptin could be available to lipodystrophy patients as soon as 2012.

        We maintain an active discovery research program focused on novel peptide and protein therapeutics. We have also entered into strategic alliances and business initiatives aimed at exploring the utility of peptides in new therapeutic areas, including our strategic relationship with Biocon, Limited, or Biocon, to develop pharmaceutical products, including AC165198, which comes from our phybrid technology platform. We and Biocon plan to submit an investigational new drug application, or IND, and commence a phase 1 study for AC165198 by the end of 2011.

        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 sixth 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

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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.

        It is estimated that over 285 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 25.8 million people, or 8.3% of the population, with diabetes. Nearly 20 million of these people have been diagnosed, while more than 5.0 million people with diabetes have not been diagnosed. From 1980 through 2009, newly diagnosed cases of diabetes among Americans aged 18-79 more than tripled. In addition, there are currently approximately 79 million adults aged 20 years or older 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 and hypoglycemia which are often associated with older diabetes therapies. The cardiovascular outcomes data of these studies suggest that blood glucose control strategies employing therapies that do not promote weight gain or hypoglycemia may become 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, 85% of people with type 2 diabetes are overweight and 55% are considered obese. Weight gain is particularly common in those using insulin

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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 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. It is estimated that obesity increases the risk of cardiovascular disease in people with type 2 diabetes and cardiovascular death accounts for approximately 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 type 2 diabetes patients with inadequate glycemic control the opportunity to better control their blood glucose levels and lose weight. SYMLIN offers type 2 diabetes 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 class of compounds called glucagon-like peptide-1 (GLP-1) receptor agonists. It is approved as a first-line, stand-alone medication (monotherapy) along with diet and exercise to improve glycemic control in adults with type 2 diabetes. BYETTA is also 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 type 2 diabetes. We recently submitted a sNDA to the FDA for expanded use of BYETTA as an add-on to basal insulin and expect a response from the FDA in 2011. 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. Net product sales of BYETTA were $559.3 million in 2010, $667.6 million in 2009 and $678.5 million in 2008.

        We estimate the number of people in the United States currently using metformin, sulfonylurea and/or a TZD to be approximately 10 million and the number of people using diet and exercise to be approximately 2.2 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, but this was 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 have declined since the first half of 2008. In October 2009, the FDA approved changes to

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the BYETTA label to incorporate updated safety information, including pancreatitis-related 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 2010, we had a field sales force of approximately 380 individuals who target those doctors that write the majority of BYETTA and SYMLIN prescriptions. Together with the field organization of our exenatide collaboration partner, Eli Lilly and Company, or Lilly, 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 By Your Side Program, 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 a 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.

        We have a collaboration agreement with Lilly for the global development and commercialization of exenatide. 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 BYDUREON. In late 2010, Lilly obtained approval to market BYETTA in Japan, and by the end of 2010, BYETTA was launched in approximately 70 countries worldwide.

        In December 2010, we submitted an sNDA to the FDA for the expanded use of BYETTA as an add-on therapy to basal insulin for adults with type 2 diabetes who are not achieving adequate glycemic control. We expect to receive a response from the FDA regarding our sNDA by the end of 2011. The sNDA is based on a double-blind, placebo-controlled clinical study evaluating BYETTA added to Lantus® (insulin glargine) which showed many otherwise hard-to-treat patients with type 2 diabetes achieved A1C control without weight gain or increasing their risk of hypoglycemia. A total of 261 patients receiving insulin glargine, with or without oral agents, were randomized to receive BYETTA or placebo in addition to aggressive insulin titration. After 30 weeks of treatment, A1C on average decreased by 1.7 percentage points in patients adding BYETTA, compared with a decrease of 1.0 percentage point in patients receiving placebo with their insulin alone. Both treatment groups showed lower fasting plasma glucose concentrations; however, after morning and evening meals, when

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BYETTA was administered, postprandial glucose control was significantly improved with BYETTA compared to placebo. On average, weight decreased by four pounds in patients adding BYETTA, compared with an increase of two pounds in patients treated with insulin alone. The greater improvement in A1C with BYETTA was not accompanied by an increase in hypoglycemia, compared to placebo. Nausea was the most common adverse event during the 30-week treatment period and decreased over time.

        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. We own 100% of the global rights to SYMLIN which had net product sales of $91.8 million in 2010, $86.4 million in 2009 and $86.8 million in 2008.

        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 21,000, 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 40% of all insulin prescriptions in the United States. In 2008, we launched the SymlinPen® 120 and the SymlinPen® 60 pen-injector devices for administering SYMLIN. 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 have ceased 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 and increase awareness of SYMLIN's potential benefits to these patients.

Research and Development

Product Pipeline Programs

        We have late-stage and early-stage development programs in the therapeutic areas of metabolic diseases. 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 and rare forms of lipodystrophy. 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

    BYDUREON™ (exenatide extended-release for injectable suspension)

        BYDUREON is our late stage development program in diabetes. BYDUREON combines exenatide, the active ingredient in BYETTA, with proprietary technology developed by us and our partner, Alkermes, Inc., or 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 BYDUREON and this program is included in our collaboration agreement with Lilly. We are aggressively working with Lilly and Alkermes to develop BYDUREON and to bring it to market as soon as possible.

        In May 2009, we submitted a New Drug Application, or NDA, for BYDUREON to the FDA and in March 2010 we received a complete response letter from the FDA regarding the NDA. The key components of the complete response letter related primarily to finalization of product labeling with an accompanying Risk Evaluation and Mitigation Strategy, or REMS, and clarification of proprietary manufacturing process. The complete response letter did not contain any requests for additional pre-clinical or clinical trials. We filed our response to the complete response letter in April 2010 and in May 2010 the FDA notified us that they had assigned a new Prescription Drug User Fee Act, or PDUFA, target action date of October 22, 2010.

        On October 18, 2010, we received a second complete response letter from the FDA for BYDUREON in which the FDA requested a tQT study designed to evaluate exposures of exenatide higher than typical therapeutic levels achieved with BYDUREON administration. A tQT study is intended to determine whether a drug has an adverse pharmacologic effect on cardiac repolarization, as assessed by QT/QTc prolongation. In January 2011, we received written feedback from the FDA indicating approval of the tQT study design and we initiated the study in February 2011. In addition, the FDA has requested the results of our DURATION-5 study, a head-to-head study comparing BYDUREON to BYETTA that was completed in the fourth quarter of 2009, to evaluate the efficacy, and the labeling of the safety and effectiveness of the commercial formulation of BYDUREON. Our goal is to complete the tQT study and submit a reply to the FDA's second complete response letter in the second half of 2011. Based on the requirements for additional data, we believe this will likely be considered a Class 2 resubmission requiring a six-month FDA review.

        In October 2007, we announced positive results from our DURATION-1 pivotal comparator study comparing treatment with BYDUREON to treatment with BYETTA over a 30-week period. BYDUREON showed a statistically significant improvement in A1C of approximately 1.9% from baseline, compared to an improvement of approximately 1.5% for BYETTA. In June 2008, we announced results from the extension phase of DURATION-1 showing durable efficacy of BYDUREON over 52-weeks. In this extension phase, patients either remained on BYDUREON or switched from BYETTA to BYDUREON for an additional 22 weeks. Patients taking BYDUREON 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.

        In March 2009 and July 2009, we announced positive results from our DURATION-2 and DURATION-3 studies, respectively, the second and third in a series of six such studies designed to test the superiority of BYDUREON compared to other diabetes therapies. In DURATION-2, BYDUREON demonstrated superior glucose control with weight loss and no increase in hypoglycemia compared to maximum doses of Januvia® or Actos®. In DURATION-3, BYDUREON 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 BYDUREON to BYETTA. In DURATION-5, patients taking BYDUREON experienced a

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statistically superior reduction in A1C compared to BYETTA. In June 2010, we announced results from our DURATION-4 study, a head-to-head study that compared BYDUREON monotherapy to Januvia®, Actos® or metformin. Results from DURATION-4 demonstrated that BYDUREON efficacy and tolerability profile extended to monotherapy treatment. In early 2010, we initiated our DURATION-6 clinical study, a head-to-head comparison of BYDUREON to Victoza®. We expect to report the results of this study in the first half of 2011.

        At the end of 2010, we published data from a retrospective, real-world analysis of over 400,000 type 2 diabetes patient outcomes which showed that BYETTA was associated with a 14-20% reduction in the risk of cardiovascular events. Given the positive effects on cardiovascular outcomes observed with exenatide in this study, the beneficial effects observed in clinical trials of exenatide on markers of cardiovascular risk, and the current regulatory interest in cardiovascular outcomes, in 2010 we and Lilly initiated our EXSCEL cardiovascular outcomes trial with a superiority design that will evaluate the effects of BYDUREON 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 BYDUREON on cardiovascular outcomes and other end points of interest to our stakeholders. We do not believe this study will be a requirement for BYDUREON approval. We expect results from this study to be available in 2016.

        We and Lilly are developing BYDUREON in a dual chamber cartridge pen configuration. We believe this design will enhance the convenience for patients, allowing them to mix and administer BYDUREON from a pre-filled pen device. We and Lilly are also evaluating the efficacy, pharmacokinetics, tolerability and safety of an exenatide suspension formulation that would eliminate the need to reconstitute the product prior to use. We are currently conducting a phase 2 study to evaluate the potential for the use of this exenatide suspension formulation for once monthly treatment in patients with type 2 diabetes and expect data from this study in the first half of 2011.

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 72 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. This epidemic is not limited to the United States, but represents a major global health concern. According to the World Health Organization, or WHO, in 2008 an estimated 1.5 billion adults worldwide were overweight and more than 400 million were obese, and by 2015 the number of overweight adults is projected to surpass 2.3 billion, of which more than 700 million will be obese. The obesity epidemic is not restricted to industrialized societies. In developing countries, it is estimated that over 115 million people suffer from obesity-related health problems and this number is on the rise.

        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. 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.

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        The National Heart, Lung and Blood Institute and the WHO 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. There is currently only one pharmacological agent 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.

Obesity Development Program

        Since 2006, we have been executing an obesity strategy to assess the safety and efficacy of multiple neurohormones used in combination to treat obesity. Our obesity strategy is based on combination therapies and as part of this program we are studying combinations of peptide and protein hormones. Two molecular franchises are the primary focus of our obesity development program: amylin and, in particular, pramlintide (a synthetic amylin analog), and leptin, and in particular, metreleptin (a recombinant leptin analog).

        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 product candidate 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 obesity development program. 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 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.

        Metreleptin is the second compound we are studying in connection with our obesity development program. Metreleptin is a recombinant analog of human leptin, a naturally occurring protein hormone

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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. 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.

        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.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.

        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 pramlintide/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. 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 lower during the extension phase of the study.

Rare Forms of Lipodystrophy

        Lipodystrophy is a group of very rare disorders that is characterized by generalized or partial loss of adipose tissue (that can be inherited or acquired) and leptin deficiency. Lipodystrophy is often associated with metabolic abnormalities (e.g. hypertriglyceridemia, insulin resistance, and/or diabetes) that can result in life-threatening co-morbidities such as acute pancreatitis, steatohepatitis, and/or accelerated atherosclerosis. These metabolic abnormalities are often difficult to control even with high doses of currently available diabetes and lipid-lowering therapies. Not only are these treatments

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rendered less effective by the profound, refractory nature of the metabolic abnormalities, they also do little to correct the pathophysiological mechanisms underlying the development of such abnormalities. Patients with lipodystrophy can experience substantial morbidity and premature mortality. Thus, there is a significant unmet medical need for a therapy that effectively improves the metabolic disorders in these patients.

        Because of the loss of adipose tissue in lipodystrophy, levels of the adipocyte-secreted hormone leptin are very low in patients suffering from this disease. Clinical studies have shown that metreleptin is a unique potential therapy for patients with lipodystrophy because it addresses key pathophysiological defects underlying the condition. Metreleptin treatment in patients with inherited or acquired lipodystrophy results in substantial and clinically meaningful improvements in fasting plasma glucose and A1C due to improved insulin sensitivity as well as marked improvements in hypertriglyceridemia.

        In December 2010, we submitted to the FDA the clinical and non-clinical sections of a rolling BLA for metreleptin as a treatment for lipodystrophy. We plan to submit the chemistry, manufacturing and controls section of the BLA to the FDA by the end of 2011. Because lipodystrophy affects a very small number of patients, metreleptin for the treatment for lipodystrophy has received orphan drug designation by the FDA. With this fast-track and priority-review designation, we believe that metreleptin could be available to lipodystrophy patients as soon as 2012.

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. One of our research strategies is to identify a particular peptide and then determine 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.

        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 injectable sustained-release formulations such as salt complexes, lipids, biodegradable polymer and gel systems, as well as non-invasive drug delivery 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 300 full-time employees dedicated to our research and development activities. In the years ended December 31, 2010, 2009 and 2008, we incurred research and development expense of $171.3 million, $185.1 million and $222.6 million, respectively.

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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 BYDUREON. 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 BYDUREON and commercial milestones for BYETTA. Lilly is also obligated to make additional future commercial milestone payments to us of up to $70 million contingent upon the commercial launch of BYDUREON 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 generally 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 in late 2010, BYETTA was approved in Japan. By the end of 2010, BYETTA was commercially launched in approximately 70 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. We expect to receive royalty payments from Lilly for exenatide product sales outside the United States 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 BYDUREON 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 BYDUREON 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.

        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

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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 a BYDUREON 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 BYDUREON. The BYDUREON 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 the 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, in September 2009, we entered into an exclusive agreement with Biocon to jointly develop, manufacture and commercialize pharmaceutical products, including AC165198, a novel peptide therapeutic for the potential treatment of diabetes. We will share development costs with Biocon of this program which came from our "Phybrid" technology platform. A Phybrid is a peptide hybrid molecule that combines the 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. We and Biocon plan to submit an IND and commence a phase 1 study for AC165198 by the end of 2011.

Sales, Marketing and Distribution

        We have built a sales and marketing organization that focuses on healthcare providers, managed healthcare organizations, hospitals, wholesalers and pharmacies, government purchasers and other third-party payors. Our field organization also includes our managed care organization.

        Our field force brings a specialty approach to endocrinologists and diabetes-focused primary care physicians and is focused on targeting those doctors that write the majority of prescriptions for branded

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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.

Manufacturing

        We have selected manufacturers that we believe comply with current Good Manufacturing Practices, or cGMP, and other applicable regulatory standards. Manufactured product is used commercially following established registration procedures and after applicable regulatory approvals have been granted by various international regulatory entities. 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 the applicable regulations. We require that our contract manufacturers adhere to cGMPs appropriate to the clinical or pre-clinical phase of manufacturing.

        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.

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        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 an agreement with Wockhardt to supply the dosage form of SYMLIN in cartridges and an agreement with Ypsomed AG to supply SYMLIN pen components. We also have an agreement with Sharp Corporation for the assembly of the SYMLIN pen.

    BYDUREON Manufacturing

        Under the terms of our development and license agreement with Alkermes, we are responsible for manufacturing the dosing formulation of BYDUREON 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 BYDUREON. 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 BYDUREON and is supplying us with the polymer materials required for the commercial manufacture of BYDUREON. 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.

        We obtain bulk exenatide, the active ingredient in BYDUREON, from Lonza and Mallinckrodt and we obtain pre-filled diluent syringes for BYDUREON 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 BYDUREON.

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. For example, in 2010, Novo Nordisk obtained approval of and commercially launched a GLP-1 receptor agonist to treat type 2 diabetes. 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

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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.

        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 obesity therapeutics.

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.

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        Included within our exenatide patent portfolio are issued patents for:

    pharmaceutical compositions containing exenatide;

    modulating gastric emptying;

    inhibiting glucagon secretion;

    stimulating insulin release to treat diabetes; 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;

    pharmaceutical compositions containing amylin agonists, including pharmaceutical compositions containing pramlintide; and

    methods for treating diabetes and related conditions using amylin agonists.

        These patents expire between 2011 and 2019.

        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

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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.

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.

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        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 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, 2010, we had approximately 1,400 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.

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Executive Officers

        The names of our executive officers and certain information about them as of February 15, 2011 are set forth below:

Name
  Age   Position
Daniel M. Bradbury     49   President, Chief Executive Officer and Director
Mark G. Foletta     50   Senior Vice President, Finance and Chief Financial Officer
Mark J. Gergen     48   Senior Vice President, Corporate Development
Orville G. Kolterman, M.D.      63   Senior Vice President, Chief Medical Officer
Harry J. Leonhardt     54   Vice President, Legal, Corporate Governance and Secretary
Marcea Bland Lloyd     62   Senior Vice President, Government and Corporate Affairs, and General Counsel
Roger Marchetti     52   Senior Vice President, Human Resources and Information Management
Paul G. Marshall     51   Senior Vice President, Operations
Vincent P. Mihalik     60   Senior Vice President, Sales and Marketing and Chief Commercial Officer
Lloyd A. Rowland     54   Vice President, Chief Compliance Officer
Christian Weyer, M.D.      41   Senior Vice President, Research and Development

        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 and the University of Miami's Diabetes Research Institute 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 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

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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, Chief Medical Officer since June 2010 and previously served as Senior Vice President, Research and Development from June 2008 to June 2010. He 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.

        Mr. Leonhardt has served as our Vice President, Legal, Corporate Governance and Secretary since June 2010 and served as Vice President Legal, Deputy General Counsel from October 2008 to June 2010. He previously served as our Vice President, Chief Intellectual Property Counsel since September 2007. Prior to joining us, Mr. Leonhardt served as Senior Vice President, General Counsel and Corporate Secretary of Senomyx, Inc. from September 2003 to September 2007. From February 2001 to September 2003 Mr. Leonhardt was Executive Vice President, General Counsel and Corporate Secretary of Genoptix, Inc. and from July 1996 to November 2000 he served as Vice President and then Senior Vice President, General Counsel and Corporate Secretary of Nanogen, Inc. From January 1990 through June 1996 Mr. Leonhardt served in various legal and management capacities at Allergan, Inc. Prior to that Mr. Leonhardt was an attorney with Lyon & Lyon LLP in Los Angeles where he represented a number of pharmaceutical, biotechnology and consumer products companies. He also serves as a Special Master through the California State Bar. Mr. Leonhardt received a B.S. in Pharmacy from the University of the Sciences and a J.D. from the University of Southern California School of Law.

        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 from February 2007 to June 2008. 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

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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 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 & Touche). 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, Chief Compliance Officer since June 2010. He previously served as Vice President, Governance and Compliance, Secretary, and Chief Compliance Officer from February 2007 to June 2010 and as 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.

        Dr. Weyer has served as Senior Vice President, Research and Development since June 2010, and previously served as Vice President, Medical Development from September 2009 to June 2010. He previously served as Vice President of Corporate Development for Diabetes and Obesity from August 2008 to September 2009. Dr. Weyer has held leadership positions in Research, Clinical Development, Corporate Development, and Medical Affairs since joining Amylin in January 2001. Prior to joining us, Dr. Weyer was a Visiting Fellow with the National Institutes of Health, NIDDK, in Phoenix, AZ, from 1997-2000, where he conducted clinical research on the pathophysiology of obesity and type 2 diabetes

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in Pima Indians. He received his MD and clinical training at the Department of Metabolic Disorders, WHO Collaborating Center for Diabetes Treatment and Prevention, at the University of Düsseldorf, Germany. Dr. Weyer also holds a postdoctoral master's degree in advanced clinical research from the University of California, San Diego, and currently serves on the program's advisory board.

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 $152.3 million in 2010, $186.3 million in 2009 and $321.9 million in 2008. As of December 31, 2010, we had an accumulated deficit of approximately $2.1 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, BYDUREON, 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, BYDUREON. The ability of BYETTA, SYMLIN and, if approved, BYDUREON 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 BYDUREON and the timing of the commercial launch of BYDUREON, if approved;

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    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;

    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. In addition, since BYETTA was introduced, we have received other reports of adverse events, including rare reports of acute renal failure in patients using BYETTA, and in pre-clinical studies of BYDUREON, observations were made of C-cell tumors in animals. Although direct relationships have not been established, it may be difficult to rule out any particular direct relationship at any point in time for these or other reports of adverse events or observations that may be made. 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.

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        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.

         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 supply our products, including BYETTA and SYMLIN, and continue to develop our drug candidates, including BYDUREON, 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 supply or 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. 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

25



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.

        Our manufacturers have produced BYETTA and SYMLIN for commercial use for approximately six 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 BYDUREON on a commercial scale we must obtain approval for our manufacturing facility from the FDA or the European Medicines Agency, or EMA. 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 and the EMA have inspected our manufacturing facility and have made a number of observations all of which we believe have been addressed. 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 BYDUREON 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 BYDUREON. We also will need to obtain sufficient supplies of diluent, solvents, devices, packaging and other components necessary for commercial manufacture of BYDUREON. If BYDUREON is approved, we will be dependent upon Mallinckrodt and Lonza to manufacture our long-term commercial supply of bulk exenatide, the active ingredient in BYDUREON, and upon single suppliers to produce components for packaging BYDUREON.

         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, the Federal government recently passed health care reform legislation. Many of the details regarding the implementation of this legislation have yet to be determined and implementation may ultimately adversely affect our business. Further, 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

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SYMLIN or any other products we discover and develop, including BYDUREON. 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.

         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. For example, in 2010, Novo Nordisk obtained approval of and commercially launched a GLP-1 receptor agonist to treat type 2 diabetes. In addition, Lilly is developing a GLP-1 receptor agonist to treat type 2 diabetes and has announced a global alliance with Boehringer Ingelheim to jointly develop and commercialize a portfolio of diabetes compounds. 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;

    insulin sensitizers, including PPARs;

    alpha-glucosidase inhibitors; and

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

         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 BYDUREON 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, BYDUREON or an exenatide suspension formulation; 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 BYDUREON.

        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

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develop sustained-release formulations of BYETTA, including BYDUREON. 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, if approved, BYDUREON.

        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 BYDUREON 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 BYDUREON 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 BYDUREON, 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 BYDUREON. 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 BYDUREON, 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 BYDUREON, 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

29



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 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 BYDUREON, in the United States or foreign countries on a timely basis, or at all.

        Our drug candidates, including BYDUREON, 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 BYDUREON, 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 inspections. Any corrective actions we may need to take as a result of regulatory inspections could cause us or any of our business partners to delay 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, our manufacturing facility could become impaired, and our business will be adversely affected.

30



         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

31



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 BYDUREON;

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

    Development of BYDUREON and other pipeline candidates;

    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 $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 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.

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         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. As of December 31, 2010, we were involved in approximately 96 separate 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. We currently have limited product liability insurance coverage for existing claims and any future related claims and we expect to be largely self-insured for any future product liability risks that are not covered by existing insurance. 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 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 BYDUREON, if approved. 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, BYDUREON, Lilly is co-promoting within the United States. If Lilly ceased commercializing BYETTA or, if approved, BYDUREON, 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.

         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. Our ability to make payments on our debt, including the 2004 and 2007 Notes, will

33



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 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.

        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. We may not have sufficient cash funds to redeem the 2004 and 2007 Notes upon a designated event. 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. In addition, the occurrence of a designated event may be an event of default under our other debt.

         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, manufacturing, scientific and other personnel and consultants will also be critical to our success. We may not be able to attract and retain these personnel

34



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 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.

35



         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 43% of our common stock.

        As of December 31, 2010, executive officers, directors and holders of approximately 5% or more of our outstanding common stock, in the aggregate, owned or controlled approximately 43% 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.

         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.

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         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, 2009, the high and low sales price of our common stock varied significantly, as shown in the following table:

 
  High   Low  

Year ending December 31, 2011

             

First Quarter (through February 18, 2011)

  $ 16.65   $ 13.97  

Year ending December 31, 2010

             

Fourth Quarter

  $ 21.95   $ 9.51  

Third Quarter

  $ 22.09   $ 17.81  

Second Quarter

  $ 24.21   $ 14.85  

First Quarter

  $ 23.93   $ 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  

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 BYDUREON;

    our ability to validate our Ohio manufacturing facility and the commercial manufacturing process for BYDUREON;

    developments in our relationships with current or future collaborative partners;

    our ability to successfully execute our commercialization strategies;

    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.

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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, 2010, we had leases for approximately 610,000 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 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 BYDUREON, 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. As of December 31, 2010, we and Lilly were involved in approximately 96 separate product liability cases involving approximately 404 plaintiffs in various courts in the United States. Approximately 61 plaintiffs who previously filed cases have subsequently dismissed their cases or claims without prejudice. 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, 2010

             

Fourth Quarter

  $ 21.95   $ 9.51  

Third Quarter

  $ 22.09   $ 17.81  

Second Quarter

  $ 24.21   $ 14.85  

First Quarter

  $ 23.93   $ 14.13  

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  

        The last reported sale price of our common stock on The NASDAQ Global Market on February 18, 2011 was $16.28. As of February 18, 2011, there were approximately 574 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 Composite Total Return Index, or the NASDAQ-Composite, 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-Composite tracks the aggregate price performance of equity securities of companies traded on the NASDAQ National Market. The NASDAQ-Pharmaceutical tracks the aggregate price performance of equity securities of pharmaceutical companies traded on the NASDAQ National Market.


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

         GRAPHIC


*
$100 invested on 12/31/05 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.

 
  12/05   12/06   12/07   12/08   12/09   12/10  

Amylin Pharmaceuticals, Inc

    100.00     90.36     92.69     27.18     35.55     36.85  

NASDAQ Composite

    100.00     111.74     124.67     73.77     107.12     125.93  

NASDAQ Pharmaceutical

    100.00     101.61     94.58     87.40     95.29     101.44  

40


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  
 
  2010   2009   2008   2007   2006  
 
  (in thousands, except for per share amounts)
 

Consolidated Statements of Operations Data:

                               

Net product sales

  $ 651,113   $ 753,993   $ 765,342   $ 701,450   $ 474,038  

Revenues under collaborative agreements

    17,700     4,426     4,286     19,286     4,286  
                       

Total revenues

    668,813     758,419     769,628     720,736     478,324  

Costs and expenses:

                               

Cost of goods sold

    61,687     82,999     91,596     65,457     50,073  

Selling, general and administrative

    288,650     343,864     395,112     390,982     281,950  

Research and development

    171,312     185,062     222,614     216,339     189,502  

Collaborative profit-sharing

    257,127     302,861     302,600     290,934     194,191  

Restructuring

    16,780     16,980     54,926          
                       

Total costs and expenses

    795,556     931,766     1,066,848     963,712     715,716  

Make-whole payment on debt redemption

                    (7,875 )

Net interest and other (expense) income

    (25,372 )   (11,532 )   (9,778 )   26,490     26,411  

Loss on impairment of investments

    (198 )   (1,377 )   (14,943 )        
                       

Net loss

    (152,313 )   (186,256 )   (321,941 )   (216,486 )   (218,856 )
                       

Net loss per share—basic and diluted

  $ (1.06 ) $ (1.32 ) $ (2.35 ) $ (1.63 ) $ (1.78 )
                       

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

    143,525     140,702     137,006     132,621     122,647  

Consolidated Balance Sheets Data:

                               

Cash, cash equivalents and short-term investments

  $ 442,663   $ 667,769   $ 816,838   $ 1,130,415   $ 767,331  

Working capital

  $ 274,800   $ 541,313   $ 722,290   $ 1,049,024   $ 702,930  

Total assets

  $ 1,531,429   $ 1,726,419   $ 1,727,053   $ 1,774,430   $ 1,060,386  

Long-term obligations, excluding current portion

  $ 786,351   $ 938,516   $ 893,998   $ 759,388   $ 221,208  

Accumulated deficit

  $ (2,100,180 ) $ (1,947,867 ) $ (1,761,611 ) $ (1,439,670 ) $ (1,223,184 )

Total stockholders' equity

  $ 343,483   $ 422,534   $ 519,277   $ 727,757   $ 635,291  

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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 metabolic diseases through the discovery, development and commercialization of innovative medicines. We are marketing two first-in-class medicines to treat diabetes, both launched in 2005, BYETTA® (exenatide) injection and SYMLIN® (pramlintide acetate) injection and we are currently seeking approval for BYDUREON™ (exenatide extended-release for injectable suspension), an investigational sustained-release medication for type 2 diabetes that is administered only once a week.

        In 2010 and early 2011, we executed on key initiatives for the company including:

    initiated the required thorough QT, or tQT, study to support the regulatory application for BYDUREON and expect to submit our response to the United States Food and Drug Administration's, or FDA, second BYDUREON complete response letter in the second half of 2011;

    submitted a supplemental New Drug Application, or sNDA, to the FDA for the expanded use of BYETTA as an add-on therapy to basal insulin;

    submitted the initial sections of a rolling submission for a Biologics License Application, or BLA, to the FDA for the use of metreleptin to treat diabetes and/or hypertriglyceridemia (high levels of triglycerides in the bloodstream) in patients with rare forms of lipodystrophy;

    announced results from DURATION-4, a head-to-head study that compared BYDUREON monotherapy to Januvia® (sitagliptin), Actos® (pioglitazone HCI) or metformin. Results demonstrated that BYDUREON efficacy and tolerability profile extended to monotherapy treatment;

    initiated our DURATION-6 clinical study, a head-to-head comparison of BYDUREON to Victoza® (liraglutide), a glucaon-like peptide-1analog, with results expected in the first half of 2011;

    initiated our EXSCEL (Exenatide Study of Cardiovascular Event Lowering) cardiovascular outcomes study for BYDUREON, with results expected in 2016; and

    announced, with our partner Takeda Pharmaceuticals, Inc. or Takeda, that we will advance the combination treatment of pramlintide/metreleptin for obesity toward phase 3 development.

        BYETTA is the first approved medicine in a class of compounds called glucagon-like peptide-1 (GLP-1) receptor agonists. It is approved as a first-line, stand-alone medication (monotherapy) along with diet and exercise to improve glycemic control in adults with type 2 diabetes. BYETTA is also 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 type 2 diabetes. We recently submitted a sNDA to the FDA for expanded use of BYETTA as an add-on to basal insulin and expect a response from the FDA in 2011. Net product sales of BYETTA were $559.3 million in 2010, $667.6 million in 2009 and $678.5 million in 2008.

        We have an agreement with our partner 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 BYDUREON. 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 co-promotes BYETTA in the United States and has primary responsibility for developing and commercializing BYETTA outside of the

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United States, including any sustained release formulations of exenatide such as BYDUREON. By the end of 2010, BYETTA was commercially launched in approximately 70 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, which had net product sales of $91.8 million in 2010, $86.4 million in 2009 and $86.8 million in 2008.

        We have a field force of approximately 380 people dedicated to marketing BYETTA and SYMLIN in the United States. Our field force includes our specialty sales force and our managed care organization which brings a specialty approach to endocrinologists and diabetes-focused primary care physicians and is focused on targeting those doctors that write the majority of prescriptions for branded diabetes therapies.

        In addition to our marketed products, we are working with Lilly and Alkermes, Inc., or Alkermes, to develop BYDUREON. In May 2009, we submitted an NDA for BYDUREON to the FDA and in March 2010 we received a complete response letter from the FDA regarding the NDA. The key components of the complete response letter related primarily to finalization of product labeling with an accompanying Risk Evaluation and Mitigation Strategy, or REMS, and clarification of proprietary manufacturing processes. The complete response letter did not contain any requests for additional pre-clinical or clinical trials. We filed our response to the complete response letter in April 2010 and in May 2010 the FDA notified us that they had assigned a new Prescription Drug User Fee Act, or PDUFA, target action date of October 22, 2010.

        On October 18, 2010, we received a second complete response letter from the FDA for BYDUREON in which the agency requested a tQT study designed to evaluate exposures of exenatide higher than typical therapeutic levels of BYDUREON. A tQT study is intended to determine whether a drug has an adverse pharmacologic effect on cardiac repolarization, as detected by QT/QTc prolongation. In January 2011, we received written feedback from the FDA indicating approval of the tQT study design and initiated the study in February 2011. In addition, the FDA has requested the results of our DURATION-5 study, a head-to-head study comparing BYDUREON to BYETTA that was completed in the fourth quarter of 2009, to evaluate the efficacy, and the labeling of the safety and effectiveness of the commercial formulation of BYDUREON. Our goal is to complete the tQT study and submit a reply to the FDA's second complete response letter in the second half of 2011. Based on the requirements for additional data, we believe this will likely be considered a Class 2 resubmission requiring a six-month FDA review.

        In 2011, we will continue our efforts to expand the indication for BYETTA and target new market segments for this product. We also plan to work toward increasing patient awareness and adherence of SYMLIN. We continue to work with the FDA to gain approval for BYDUREON and plan to submit our response to the FDA's second complete response letter in the second half of 2011. We will also continue to focus on building a superior profile for BYDUREON by completing an additional clinical trial that will compare BYDUREON with Victoza® with results of this study expected in the first half of 2011. In addition, we have initiated our EXSCEL study to demonstrate BYDUREON's effect on cardiovascular endpoints with results of this study expected in 2016. We also plan to continue making strategic investments in the exenatide franchise including the development of a BYDUREON pen delivery system and an exenatide suspension formulation that could enable monthly administration of exenatide.

        Our long-term growth strategy is focused on making prudent investment decisions based on strong clinical data to advance our obesity program including the development of pramlintide/metreleptin, a combination therapy for the treatment of obesity which we and our obesity partner, Takeda, are advancing toward phase 3 development. We are also developing metreleptin as a treatment for

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lipodystrophy, a very rare metabolic condition. We plan to submit the chemistry, manufacturing and controls section of the BLA to the FDA by the end of 2011. Because severe lipodystrophy affects a very small number of patients, metreleptin for the treatment for lipodystrophy has received orphan drug designation by the FDA. With this fast-track and priority-review designation, we believe that metreleptin could be available to lipodystrophy patients as soon as 2012.

        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, including our strategic relationship with Biocon, Limited, or Biocon, to develop pharmaceutical products, including AC165198, which comes from our phybrid technology platform. We and Biocon plan to submit an investigational new drug application, or IND, and commence a phase 1 study for AC165198 by the end of 2011.

        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, 2010, our accumulated deficit was approximately $2.1 billion.

        At December 31, 2010, we had $442.7 million in cash, cash equivalents and short-term investments and $15 million of restricted cash. 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 continue to improve our operating results and reduce our use of cash for operating activities in 2011 compared to 2010. 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.

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 as earned.

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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.

        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.

        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.

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        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 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

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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. 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, 2010 and 2009. 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.

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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 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 for which the sole use is pre-approval products 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. With respect to capitalization of unapproved product candidates, we produce inventory in preparation for the launch of the product and in amounts sufficient to support forecasted initial market demand. Typically, capitalization of such inventory does not begin until the product candidate is considered to have a high probability of regulatory approval. This generally will occur only after we have submitted an NDA to the FDA, and only if our assessment of the status of the regulatory review has led us to conclude there is a high probability of receiving regulatory approval. If we are aware of any specific risks or contingencies that are likely to impact the regulatory approval process or if there are any specific issues identified during our research and development process relating to safety, efficacy or manufacturing of the product candidate, we would not capitalize the related inventory.

        We manage the levels of inventory at each stage of the manufacturing process to optimize the shelf life of the inventory and avoid product expiration issues relative to anticipated market demand following launch. On a quarterly basis, we evaluate all inventory, including inventory capitalized for which regulatory approval has not yet been obtained, to determine if any lower of cost or market adjustment is required. As our evaluation relates to pre-approval inventory, we consider several factors including expected timing of FDA approval, projected sales volume, expiration dates of the inventory and estimated selling price. Projected sales volume is based on several factors including market research, sales of similar products and competition in the market. Estimated sales price is based on the price of existing products sold for the same indications, market research and expected market demand.

        Once we have capitalized inventory for a product candidate that is not yet approved, we will monitor, on a quarterly basis, the status of such candidate within the regulatory approval process. We could be required to expense previously capitalized costs related to pre-approval inventory upon a change in our judgment of future commercialization and future economic benefit expected to be recognized, due to a denial or delay of approval by the FDA, a delay in the timeline for commercialization or other potential factors.

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.

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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, 2010, 2009 and 2008 were $651.1 million, $754.0 million and $765.3 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,  
 
  2010   2009   2008  

BYETTA

  $ 559.3   $ 667.6   $ 678.5  

SYMLIN

    91.8     86.4     86.8  
               

  $ 651.1   $ 754.0   $ 765.3  
               

        The decrease in net product sales for BYETTA for the year ended December 31, 2010 as compared to the same period in 2009 primarily reflects reduced prescription demand due to new entrants to the market, partially offset by higher prices.

        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 increase in net product sales for SYMLIN for the year ended December 31, 2010 compared to the same period in 2009 primarily reflects higher prices, partially offset by reduced prescription demand.

        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.

        In 2009 a final rule related to the DOD's Tricare Retail Pharmacy program was issued clarifying the DOD's interpretation of the national Defense Authorization Act of 2008, or NDAA. 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 allowances of $5.6 million and $8.2 million for such rebates for the years ended December 31, 2010 and 2009, respectively. Included in the $8.2 million allowance recorded in 2009 is $4.8 million which represents a retroactive rebate assessment for sales made during 2008.

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        Sales of our products in future periods may be impacted by numerous factors, including potential competition, the potential approval of additional products including BYDUREON, 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, 2010, 2009 and 2008 (in millions):

 
  Year ended
December 31,
 
 
  2010   2009   2008  

Amortization of up-front payments

  $ 7.5   $ 4.4   $ 4.3  

Recognition of milestone payments

    10.2          
               

  $ 17.7   $ 4.4   $ 4.3  
               

        Amortization of up-front payments increased for the year ended December 31, 2010 compared to the same period of 2009 due primarily to amounts earned pursuant to our obesity collaboration with Takeda. For the year ended December 31, 2010, amortization of up-front payments consists entirely of amounts earned pursuant to our obesity collaboration with Takeda, while amortization of up-front payments for the year ended December 31, 2009 consists of amounts earned pursuant to our collaboration with Lilly, for which amortization ended in 2009, and our collaboration with Takeda, for which amortization began in late 2009. During the year ended December 31, 2008 amortization of up-front payments consists of amounts earned pursuant to our collaboration with Lilly.

        Milestone payments for the year ended December 31, 2010 consisted primarily of a $10.0 million milestone earned as a result of Lilly's launch of BYETTA in Japan in late 2010. There were no milestone payments in 2009 or 2008.

        In future periods, we expect that revenues under collaborative agreements will consist of continued amortization of the $75 million 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. Additionally, beginning in 2011 we expect to begin to earn royalties on product sales of BYETTA and/or BYDUREON, if approved, outside of the United States.

Cost of Goods Sold

        Cost of goods sold was $61.7 million, representing a gross margin of 91%, $83.0 million, representing a gross margin of 89%, and $91.6 million, representing a gross margin of 88%, for the years ended December 31, 2010, 2009 and 2008, 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 2010, as compared to 2009, primarily reflects higher net sales prices partially offset by slightly higher per unit costs. 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. 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 $288.7 million, $343.9 million and $395.1 million in the years ended December 31, 2010, 2009 and 2008, respectively.

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        The $55.2 million decrease in 2010 compared to 2009 primarily reflects lower sales force and business infrastructure expenses following a 2009 restructuring of our sales force, and continued efforts to drive efficiencies in our cost structure. The $51.2 million decrease in 2009 compared to 2008 reflects our reduced cost structure following restructurings that occurred in late 2008 and in mid-2009.

        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, amounts due to or from Lilly related to sharing of these expenses are reflected as an increase to or a reduction of selling, general and administrative expenses, as appropriate.

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. 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 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, 2010, 2009 and 2008 (in millions):

 
  Year ended December 31,  
 
  2010   2009(1)   2008(1)  

Diabetes(2)

  $ 96.9   $ 87.0   $ 83.3  

Obesity(3)

    12.9     26.0     55.3  

Research and early-stage programs

    21.2     24.8     30.4  

Indirect costs

    40.3     47.3     53.6  
               

  $ 171.3   $ 185.1   $ 222.6  
               

(1)
Research and development expenses for the years ended December 31, 2009 and 2008 have been revised to conform with the current presentation.

51


(2)
Research and development expenses for our diabetes program consist primarily of costs associated with BYETTA and BYDUREON which are shared by Lilly pursuant to our collaboration agreement. Cost-sharing payments received from Lilly are recorded as a reduction to research and development and were $72.6 million, $66.6 million and $69.3 million for the years ended December 31, 2010, 2009 and 2008.

(3)
Research and development expenses for our obesity program include costs associated with our collaboration agreement with Takeda. Cost-sharing payments received from Takeda are recorded as a reduction to research and development and were $16.7 million, $1.5 million and $0 for the years ended December 31, 2010, 2009 and 2008.

        Research and development expenses decreased to $171.3 for the year ended December 31, 2010 from $185.1 million for the year ended December 31, 2009. The $13.8 million decrease primarily reflects decreased development expenses for our obesity programs, driven by development expense cost-sharing with Takeda. The decrease in obesity development expenses is partially offset by increased BYDUREON expenses associated with manufacturing readiness, a cardiovascular outcomes study and development activities for the exenatide suspension formulation.

        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 BYDUREON.

Collaborative Profit-Sharing

        Collaborative profit-sharing was $257.1 million, $302.9 million and $302.6 million for the years ended December 31, 2010, 2009 and 2008, respectively, and consists of Lilly's 50% share of the gross margin for BYETTA sales in the United States.

Restructuring

        During the year ended December 31, 2010 we reduced our workforce by approximately 60 employees, or the 2010 Restructuring, and recorded restructuring charges of $16.8 million consisting of employee separation costs, facilities-related charges, asset impairment charges and other direct incremental charges.

        In 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 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. In connection with the 2008 Restructuring, we recorded restructuring charges of $54.9 million which are comprised of employee separation costs, facility related charges, asset impairment charges and other direct incremental charges.

        The facilities related charges recorded in each of the three years ended December 31, 2010 consist of expenses related to facility leases for exited facilities, including impairments of related tenant improvements.

52


        The following table sets forth the components of the restructuring charges recognized for the years ended December 31, 2010, 2009 and 2008 (in millions):

 
  Year ended
December 31,
 
 
  2010   2009   2008  

Facility related charges

  $ 5.8   $ 5.6   $ 31.3  

Employee separation costs

    3.1     10.9     13.9  

Asset impairments

    7.4         8.8  

Other restructuring charges

    0.5     0.5     0.9  
               

  $ 16.8   $ 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, 2010, 2009 and 2008.

Interest and Other Expense, net

        The following table provides information regarding our interest and other expense, net (in millions):

 
  Year ended December 31,  
 
  2010   2009   2008  

Interest and other income

  $ 2.7   $ 7.7   $ 26.6  

Interest and other expense

    (28.1 )   (19.3 )   (36.3 )

Loss on impairment of investments

    (0.2 )   (1.4 )   (14.9 )
               

Total interest and other expense, net

  $ (25.6 ) $ (12.8 ) $ (24.6 )
               

        Interest and other income consist primarily of interest income from investment of cash and investments. The decrease in 2010 compared to 2009 primarily reflects lower average investment balances and lower interest rates in 2010 as compared to 2009. The decrease in 2009 compared to 2008 primarily reflects lower average investment balances and lower interest rates in 2009 compared to 2008.

        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 instrument and include interest payments and the amortization of debt issuance costs. The increase in 2010 compared to 2009 primarily reflects a decrease in interest capitalized on our Ohio manufacturing facility in 2010. 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.

        We recognized a loss on impairment of investments of $0.2 million for the year ended December 31, 2010. The loss represents credit-related losses associated with one security in our portfolio and was based upon the amortized cost basis and the observed market prices for the security. At December 31, 2010, gross unrealized losses on our short-term investments were $0.1 million, all of which we determined to be temporary.

        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.

53


        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. During the year ended December 31, 2008 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, 2010 was $152.3 million compared to $186.3 million in 2009 and $321.9 million in 2008. The decrease in our net loss in 2010 compared to 2009 primarily reflects the decreased expenses partially offset by the decreased net product sales discussed above. The decrease in our net loss in 2009 compared to 2008 primarily reflects the decreased expenses discussed above.

        We may incur operating losses for the next few years. 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 BYDUREON, 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 BYDUREON, 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 SYMLIN development expenses through earlier collaboration agreements, and since the second quarter of 2005, through product sales of BYETTA and SYMLIN.

        At December 31, 2010, we had $442.7 million in cash, cash equivalents and short-term investments, compared to $667.8 million at December 31, 2009 and we have $165 million of cash available to us pursuant to the loan agreement with Lilly discussed below. We have debt maturities of $200 million in the second quarter of 2011. We have demonstrated strong financial discipline over the last few years and we are committed to continuing to manage our expenses closely in-line with expected revenues. We will continue to aggressively manage our expenses to minimize the amount of cash we use for operating activities. 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 do so in the future.

        Our operating activities used cash of $38.7 million, provided cash of $19.9 million and used cash of $19.5 million for the years ended December 31, 2010, 2009 and 2008, respectively. Our cash used by our operating activities for the year ended December 31, 2010 includes a net loss of $152.3 million, $122.4 million of which is comprised of non-cash items consisting primarily of stock-based compensation, depreciation and amortization and restructuring charges. Cash provided by operating

54



activities in the year ended December 31, 2009 included an up-front payment of $75.0 million from Takeda in connection with our collaboration with them and cash used by operations in the year ended December 31, 2008 reflects an up-front payment of $125.0 million from Lilly in connection with our collaboration with them.

        Our primary uses of cash for our operating activities for the year ended December 31, 2010 includes uses of cash due to decreases in accounts payable and accrued liabilities, accrued compensation and payable to collaborative partner of $25.0 million, $27.8 million and $7.6 million, respectively. The decrease in accounts payable and accrued liabilities primarily reflects lower expense levels for the year ended December 31, 2010 compared to the same period of 2009. The decrease in accrued compensation reflects lower incentive compensation due to the decision to not pay the discretionary corporate bonus for the year ended December 31, 2010. The decrease in the payable to the collaborative partner reflects a reduced net payable to Lilly which resulted from higher cost-sharing payments due from Lilly as well as lower collaborative profit sharing due to Lilly. The higher cost sharing payments due from Lilly were caused by increased development expenses for BYDUREON, and the lower collaborative profit sharing is the result of lower BYETTA sales and gross profit in the twelve months ended December 31, 2010.

        Our primary sources of cash for our operating activities for the year ended December 31, 2010 includes sources of cash due to an increase in deferred collaborative profit sharing of $33.3 million, and decreases in inventories, accounts receivable and other current assets of $9.3 million, $6.1 million and $5.4 million, respectively. 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 BYDUREON pen device. The decrease in inventories primarily reflects reductions in raw materials, work-in-process and finished goods inventory due to the timing and volume of production for BYETTA and SYMLIN. As indicated in Note 3 to the consolidated Financial Statements, inventories as of December 31, 2010 includes $28.2 million of raw materials specific to BYDUREON which amount is entirely comprised of exenatide, the active pharmaceutical ingredient for BYDUREON. As of December 31, 2010, the exenatide balance was recorded in other current assets because exenatide for BYDUREON can also be used to manufacture BYETTA. We are currently manufacturing BYDUREON to support Lilly's requirements for launches outside of the United States. Lilly expects an action by the European Medicines Agency in the first half of 2011. The decrease in accounts receivable is primarily due to lower product sales. The decrease in other current assets is due to declines in prepaid expenses. 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 provided cash of $159.7 million in the year ended December 31, 2010 and used cash of $116.1 million and $182.2 million in the years ended December 31, 2009 and 2008, 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 $91.1 million in 2010 from $152.1 million in 2009, and decreased to $152.1 in 2009 from $295.1 million in 2008. The decrease in 2010 was as expected and primarily reflects a reduction of costs associated with our manufacturing facility for BYDUREON, offset by costs incurred in connection with the BYDUREON 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, 2010, we have incurred $163.7 million in capital expenditures associated with the BYDUREON pen device and incurred total combined capital expenditures for the manufacturing facility and the pen device of $785.1 million. We have billed Lilly $87.8 million for its share of expenditures for the pen device, of which $86.5 million has been received to date, $38.3 million of which was received during 2010 and is included in cash used for operating activities as discussed above. We expect that our capital expenditures will continue to decrease in 2011 and will be principally

55



focused on strategically investing in exenatide life cycle management, of which Lilly shares in 60% of the costs. We will continue to evaluate potential additional investments in our Ohio manufacturing facility during the product life cycle for BYDUREON, if approved.

        Financing activities used cash of $77.3 million and $20.3 million in the years ended December 31, 2010 and 2009, respectively, and provided cash of $16.7 million in the year ended December 31, 2008. Financing activities in 2010 include $93.8 million in scheduled repayments of our note payable, which was paid in full during the year, offset by proceeds from the exercise of stock options and proceeds from employee stock purchase plan. Financing activities in 2009 include $31.3 million in 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.

        At December 31, 2010, 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 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, 2010 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 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.

        In December 2007, we entered into a $140 million credit agreement which provided for a $125 million term loan and a $15 million revolving credit facility. The revolving credit facility also provided for the issuance of letters of credit and foreign exchange hedging up to the $15 million borrowing limit. In connection with the 2007 credit agreement we entered into an interest rate swap agreement which resulted in a fixed interest rate of 5.717% under the term loan and expired in December 2010. In December 2010 we paid the term loan in full and terminated the revolving credit facility. As of December 31, 2010 we had $10.5 million of letters of credit outstanding which are secured by $15 million of restricted cash pursuant to a Line of Credit and Cash Collateral Agreement entered into in December 2010.

56


        The following table summarizes our contractual obligations and maturity dates as of December 31, 2010 (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

    60,375     17,250     34,500     8,625      

Inventory purchase obligations

    77,074     53,491     23,583          

Construction contracts

    26,200     21,400     4,800          

Operating leases

    194,175     27,535     56,378     50,038     60,224  
                       

Total(1)

  $ 1,132,824   $ 319,676   $ 119,261   $ 633,663   $ 60,224  
                       

(1)
Excludes long-term obligation of $8.5 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 $7.0 million associated with licensing agreements in the next 12 months. Additional milestones of up to approximately $174.5 million could be paid over the next two to seven 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 successfully moving 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 BYDUREON, 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 BYDUREON, if approved; costs associated with the operation of our BYDUREON 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.

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

57



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, 2010 was approximately $200 million and $502 million, respectively. 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, 2010.

        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.

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, 2010. The effectiveness of our internal control over financial reporting as of December 31, 2010 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.

58



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, 2010, 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, 2010, based on the COSO criteria.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Amylin Pharmaceuticals, Inc. as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2010 of Amylin Pharmaceuticals, Inc. and our report dated February 25, 2011 expressed an unqualified opinion thereon.

    /s/ Ernst & Young LLP

San Diego, California
February 25, 2011

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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 2011 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 2011 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 2011 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 2011 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 2011 annual meeting of stockholders.

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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-42  

        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.

(3)

 

 

3.2

 

Fourth Amended and Restated Bylaws of the Registrant.

(7)

 

 

3.3

 

Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant.

(25)

 

 

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.

(9)

 

 

4.2

 

Rights Agreement, dated June 17, 2002, between the Registrant and American Stock Transfer & Trust Company.

(9)

 

 

4.3

 

Certificate of Designation of Series A Junior Participating Preferred Stock.

(14)

 

 

4.4

 

First Amendment to Rights Agreement, dated December 13, 2002, between the Registrant and American Stock Transfer & Trust Company.

(6)

 

 

4.5

 

Indenture, dated as of April 6, 2004, between Registrant and J.P. Morgan Trust Company, National Association (as Trustee).

(6)

 

 

4.6

 

Form of 2.50% Convertible Senior Note due 2011.

(24)

 

 

4.7

 

Indenture, dated as of June 8, 2007, between Registrant and The Bank of New York Trust Company, N.A. (as Trustee).

(1)

 

 

10.1

 

Form of Indemnity Agreement entered into between the Registrant and its directors and officers.†

(29)

 

 

10.2

 

Registrant's Amended and Restated 2001Employee Stock Purchase Plan.†

(28)

 

 

10.3

 

Registrant's Non-Employee Directors' Stock Option Plan (the "Directors' Plan").†

61


Exhibit
Footnote
  Exhibit
Number
   
(4)(2)     10.4   Patent and Technology License Agreement, Consulting Agreement and Nonstatutory Stock Option Agreement, dated October 1, 1996, between the Registrant and Dr. John Eng.

(5)

 

 

10.5

 

Registrant's Directors' Deferred Compensation Plan.†

(31)

 

 

10.6

 

Registrant's Directors' Plan Stock Option Agreement, as amended.†

(8)(2)

 

 

10.7

 

Development and License Agreement, dated May 15, 2000, between the Registrant and Alkermes Controlled Therapeutics II, Inc.

(27)

 

 

10.8

 

Registrant's Amended and Restated Officer Change in Control Severance Benefit Plan.†

(20)

 

 

10.9

 

Registrant's Amended and Restated 2001 Equity Incentive Plan.†

(10)(2)

 

 

10.10

 

Collaboration Agreement, dated September 19, 2002, between the Registrant and Eli Lilly and Company.

(10)(2)

 

 

10.11

 

U.S. Co-Promotion Agreement, dated September 19, 2002, between the Registrant and Eli Lilly and Company.

(12)(2)

 

 

10.12

 

Device Development and Manufacturing Agreement, dated July 1, 2003, between Registrant and Eli Lilly and Company.

(11)

 

 

10.13

 

Form of Registrant's 2001 Equity Incentive Plan Officer Stock Option Agreement, as amended.†

(11)

 

 

10.14

 

Form of Registrant's 2001 Equity Incentive Plan Stock Option Agreement, as amended.†

(13)(2)

 

 

10.15

 

Manufacturing Agreement, dated May 12, 2003, between Registrant and UCB S.A.

(15)(2)

 

 

10.16

 

Exenatide Manufacturing Agreement, dated October 1, 2003, between Registrant and Mallinckrodt Inc.

(15)(2)

 

 

10.17

 

Commercial Supply Agreement, for Exenatide dated December 23, 2003, between Registrant and Bachem, Inc.

(16)(2)

 

 

10.18

 

Commercial Supply Agreement, dated February 14, 2005 between Registrant and Baxter Pharmaceutical Solutions LLC.

(16)(2)

 

 

10.19

 

Commercial Supply Agreement, dated March 2, 2005 between Registrant and Baxter Pharmaceutical Solutions LLC.

 

 

 

10.20

 

Summary Description of Registrant's Named Executive Officer Oral At-Will Employment Agreements.†

(17)

 

 

10.21

 

Description of Registrant's Executive Cash Bonus Plan.†

(19)(2)

 

 

10.22

 

Amendment to Development and License Agreement, dated October 24, 2005, between Registrant and Alkermes Controlled Therapeutics II.

(18)(2)

 

 

10.23

 

Commercial Supply Agreement, dated June 28, 2005, between Registrant and Bachem, Inc.

(21)(2)

 

 

10.24

 

Commercial Supply Agreement, dated October 12, 2006 between Registrant and Wockhardt UK (Holdings) Ltd.

62


Exhibit
Footnote
  Exhibit
Number
   
(21)(2)     10.25   Amendment to Collaboration Agreement, dated October 31, 2006 between Registrant and Eli Lilly and Company.

(22)

 

 

10.26

 

Employment Agreement, dated March 7, 2007, by and between Registrant and Daniel M. Bradbury.†

 

 

 

10.27

 

Registrant's 2001 Non-Qualified Deferred Compensation Plan.†

(26)

 

 

10.28

 

First Amendment to Exenatide Manufacturing Agreement, dated January 6, 2006, between Registrant and Mallinckrodt Inc.

(26)(2)

 

 

10.29

 

Amended and Restated Commercial Supply Agreement, dated April 1, 2008, between Registrant and Wockhardt UK (Holdings) Ltd.

(26)(2)

 

 

10.30

 

Addendum to U.S. Co-Promotion Agreement, dated May 8, 2008, between Registrant and Eli Lilly and Company

(26)(2)

 

 

10.31

 

Third Amendment to Supply Agreement, dated January 1, 2008, between Registrant and Mallinckrodt Inc.

(3)

 

 

10.32

 

Amendment to Employment Agreement, dated December 3, 2008, between Registrant and Daniel M. Bradbury†

(27)(2)

 

 

10.33

 

Exenatide Once Weekly Supply Agreement, dated October 16, 2008, between Registrant and Eli Lilly and Company

(27)

 

 

10.34

 

Loan Agreement, dated October 16, 2008, between Registrant and Eli Lilly and Company

(27)(2)

 

 

10.35

 

Amendment to Commercial Supply Agreement, dated December 8, 2008, between Registrant and Baxter Pharmaceutical Solutions LLC

(27)(2)

 

 

10.36

 

Amendment to the Amended and Restated Commercial Supply Agreement, dated January 23, 2009, between Registrant and Wockhardt UK (Holdings) Ltd.

(28)

 

 

10.37

 

Amendment, dated April 9, 2009, to Collaboration Agreement between Registrant and Eli Lilly and Company

(29)

 

 

10.38

 

Registrant's 2009 Equity Incentive Plan†

(29)

 

 

10.39

 

Registrant's 2009 Equity Incentive Plan Officer Stock Option Agreement†

(29)

 

 

10.40

 

Registrant's 2009 Equity Incentive Plan Stock Option Agreement†

(30)(2)

 

 

10.41

 

Cost Allocation Agreement, dated May 4, 2009, between Registrant and Eli Lilly and Company

(30)(2)

 

 

10.42

 

Exenatide Once Weekly Supply Agreement, dated May 11, 2009, between Registrant and Eli Lilly and Company

(31)(2)

 

 

10.43

 

License, Development and Commercialization Agreement, dated October 30, 2009, between Registrant and Takeda Pharmaceutical Company Limited

(31)(2)

 

 

10.44

 

Side Letter Agreement, dated October 30, 2009, between Registrant and Takeda Pharmaceutical Company Limited

(32)

 

 

10.45

 

Registrant's 2009 Equity Incentive Plan Restricted Stock Unit Award Agreement†

(32)(2)

 

 

10.46

 

Amendment to Exenatide Manufacturing Agreement, dated January 8, 2010, between Registrant and Mallinckrodt Inc.

63


Exhibit
Footnote
  Exhibit
Number
   
(32)(2)     10.47   Amendment to Commercial Supply Agreement, dated February 11, 2010, between Registrant and Baxter Pharmaceutical Solutions LLC

(33)

 

 

10.48

 

Amendment to Development and License Agreement, dated July 13, 2006, between Registrant and Alkermes Controlled Therapeutics Inc. II

(34)

 

 

10.49

 

Second Amendment to Commercial Supply Agreement, dated April 29, 2010, for Exenatide between Registrant and Bachem Inc.

(34)(2)

 

 

10.50

 

Third Amendment to Commercial Supply Agreement, dated September 20, 2010, for Exenatide between Registrant and Bachem Inc.

 

 

 

10.51

 

Registrant's Form of Restricted Stock Award Agreement†

 

 

 

10.52

 

Second Amendment to Amended and Restated Commercial Supply Agreement, dated November 1, 2010, between Registrant and Wockhardt UK (Holdings) Ltd.*

 

 

 

21.1

 

Subsidiaries of Registrant.

 

 

 

23.1

 

Consent of Independent Registered Public Accounting Firm.

 

 

 

24.1

 

Power of Attorney. Reference is made to page 67.

 

 

 

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.

 

 

 

101

 

The following financial statements and footnotes from the Amylin Pharmaceuticals, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2010 are formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Stockholders' Equity; (iv) Consolidated Statements of Cash Flows; (v) the notes to the consolidated financial statements (tagged as blocks of text) and (vi) Schedule II: Valuation Accounts (tagged as blocks of text).

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 on Form 8-K dated December 8, 2008, and incorporated herein by reference.

(4)
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.

64


(5)
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.

(6)
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.

(7)
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.

(8)
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.

(9)
Filed as an exhibit on Form 8-K dated June 18, 2002, and incorporated herein by reference.

(10)
Filed as an exhibit on Form 8-K dated October 3, 2002, and incorporated herein by reference.

(11)
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.

(12)
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.

(13)
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.

(14)
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.

(15)
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.

(16)
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.

(17)
Filed on Form 8-K dated December 3, 2010, and incorporated herein by reference.

(18)
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.

(19)
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.

(20)
Filed as an exhibit on Form 8-K dated May 30, 2008 and incorporated herein by reference.

(21)
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.

(22)
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.

(23)
Filed as an exhibit on Form 8-K dated May 29, 2007, and incorporated herein by reference.

(24)
Filed as an exhibit on Form 8-K dated June 8, 2007, and incorporated herein by reference.

(25)
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.

(26)
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.

(27)
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.

65


(28)
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.

(29)
Filed as an exhibit on Form 8-K dated June 10, 2009, and incorporated herein by reference.

(30)
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.

(31)
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, and incorporated herein by reference.

(32)
Filed as an exhibit to Registrant's Quarterly report on form 10-Q for the quarter ended March 31, 2010, and incorporated herein by reference.

(33)
Filed as an exhibit to Registrant's Quarterly report on form 10-Q for the quarter ended June 30, 2010, and incorporated herein by reference.

(34)
Filed as an exhibit to Registrant's Quarterly report on form 10-Q for the quarter ended September 30, 2010, and incorporated herein by reference.


Note on trademarks used in this report:

        Amylin®, BYETTA® and SYMLIN® and BYDUREON™ are 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.

66



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 25, 2011

 

 

 

 

 

 

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 25, 2011

/s/ MARK G. FOLETTA

Mark G. Foletta

 

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

 

February 25, 2011

/s/ PAULO F. COSTA

Paulo F. Costa

 

Chairman of the Board

 

February 25, 2011

/s/ ADRIAN ADAMS

Adrian Adams

 

Director

 

February 25, 2011

67


Signatures
 
Title
 
Date

 

 

 

 

 
/s/ TERESA BECK

Teresa Beck
  Director   February 25, 2011

/s/ M. KATHLEEN BEHRENS

M. Kathleen Behrens

 

Director

 

February 25, 2011

/s/ PAUL N. CLARK

Paul N. Clark

 

Director

 

February 25, 2011

 

Alexander J. Denner

 

Director

 

 

/s/ KARIN EASTHAM

Karin Eastham

 

Director

 

February 25, 2011

/s/ JAMES R. GAVIN III, M.D., PHD.

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

 

Director

 

February 25, 2011

/s/ JAY S. SKYLER, M.D.

Jay S. Skyler, M.D., MACP

 

Director

 

February 25, 2011

/s/ JOSEPH P. SULLIVAN

Joseph P. Sullivan

 

Director

 

February 25, 2011

68


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, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2010. 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, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, 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.

        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, 2010, 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 25, 2011 expressed an unqualified opinion thereon.

                        /S/ Ernst & Young LLP

San Diego, California
February 25, 2011

F-1



AMYLIN PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 
  December 31,  
 
  2010   2009  

ASSETS

             

Current assets:

             
 

Cash and cash equivalents

  $ 164,521   $ 120,825  
 

Short-term investments

    278,142     546,944  
 

Restricted cash

    15,000      
 

Accounts receivable, net

    54,645     60,732  
 

Inventories, net

    118,629     99,700  
 

Other current assets

    45,458     78,481  
           

Total current assets

    676,395     906,682  

Property, plant and equipment, net

    811,745     780,058  

Debt issuance costs

    5,715     8,742  

Other long-term assets

    37,574     30,937  
           

  $ 1,531,429   $ 1,726,419  
           

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current liabilities:

             
 

Accounts payable

  $ 23,920   $ 39,146  
 

Accrued compensation

    43,231     70,961  
 

Payable to collaborative partner

    42,060     49,645  
 

Restructuring liability, current portion

    6,532     9,204  
 

Note payable, current portion

        93,750  
 

Deferred revenue, current portion

    7,500     7,500  
 

Convertible senior notes, current portion

    200,000      
 

Other current liabilities

    78,352     95,163  
           

Total current liabilities

    401,595     365,369  

Deferred revenue, net of current portion

    58,750     66,250  

Long-term deferred credit

    125,000     125,000  

Deferred collaborative profit-sharing

    87,848     54,570  

Restructuring liability, net of current portion

    28,764     22,776  

Convertible senior notes, net of current portion

    468,697     643,762  

Other long-term obligations, net of current portion

    17,292     26,158  

Commitments and contingencies

             

Stockholders' equity:

             
 

Preferred stock, $.001 par value, 7,500 shares authorized, none issued and outstanding at December 31, 2010 and 2009

         
 

Common stock, $.001 par value, 450,000 shares authorized, 144,100 and 141,747 issued and outstanding at December 31, 2010 and 2009

    144     142  
 

Additional paid-in capital

    2,444,266     2,371,939  
 

Accumulated deficit

    (2,100,180 )   (1,947,867 )
 

Accumulated other comprehensive loss

    (747 )   (1,680 )
           

Total stockholders' equity

    343,483     422,534  
           

  $ 1,531,429   $ 1,726,419  
           

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,  
 
  2010   2009   2008  

Revenues:

                   
 

Net product sales

  $ 651,113   $ 753,993   $ 765,342  
 

Revenues under collaborative agreements

    17,700     4,426     4,286  
               

Total revenues

    668,813     758,419     769,628  

Costs and expenses:

                   
 

Cost of goods sold

    61,687     82,999     91,596  
 

Selling, general and administrative

    288,650     343,864     395,112  
 

Research and development

    171,312     185,062     222,614  
 

Collaborative profit-sharing

    257,127     302,861     302,600  
 

Restructuring

    16,780     16,980     54,926  
               

Total costs and expenses

    795,556     931,766     1,066,848  
               

Operating loss

    (126,743 )   (173,347 )   (297,220 )

Interest and other income

    2,698     7,768     26,561  

Interest and other expense

    (28,070 )   (19,300 )   (36,339 )

Loss on impairment of investments

    (198 )   (1,377 )   (14,943 )
               

Net loss

  $ (152,313 ) $ (186,256 ) $ (321,941 )
               

Net loss per share—basic and diluted

  $ (1.06 ) $ (1.32 ) $ (2.35 )
               

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

    143,525     140,702     137,006  
               

See accompanying notes to consolidated financial statements.

F-3



AMYLIN PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the years ended December 31, 2010, 2009 and 2008

(in thousands)

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

Balance at December 31, 2007

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

Comprehensive loss:

                                     

Net loss

                (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  
                           

Comprehensive loss:

                                     

Net loss

                (152,313 )       (152,313 )

Unrealized gain on available-for-sale securities

                    933     933  
                                     

Comprehensive loss

                                  (151,380 )

Issuance of common stock upon exercise of options, net

    701         9,182             9,182  

Issuance of common stock for other employee benefit plans

    772     1     11,168             11,169  

Issuance of common stock for employee stock ownership plan

    880     1     15,848             15,849  

Employee stock-based compensation

            36,022             36,022  

Non-employee stock-based compensation

            107             107  
                           

Balance at December 31, 2010

    144,100   $ 144   $ 2,444,266   $ (2,100,180 ) $ (747 ) $ 343,483  
                           

See accompanying notes to consolidated financial statements.

F-4



AMYLIN PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 
  Years ended December 31,  
 
  2010   2009   2008  

Operating activities:

                   

Net loss

  $ (152,313 ) $ (186,256 ) $ (321,941 )

Adjustments to reconcile net loss to net cash (used for) provided by operating activities:

                   
 

Depreciation and amortization

    57,335     38,197     29,552  
 

Amortization of debt discount and debt issuance costs

    13,579     8,209     10,332  
 

Benefit plan compensation settled in stock

    19,735     20,161     25,097  
 

Employee stock-based compensation

    36,022     43,762     55,115  
 

Amortization of deferred revenue

    (7,500 )   (4,336 )   (4,286 )
 

Loss on impairment of investments

    198     1,377     14,943  
 

Restructuring

    769     494     2,426  
 

Other non-cash expenses

    6,212     10,548     5,718  

Changes in operating assets and liabilities:

                   
 

Accounts receivable

    6,087     1,637     11,210  
 

Inventories

    9,255     16,123     (15,609 )
 

Other current assets

    5,353     (35,749 )   (13,005 )
 

Long-term prepaid assets

    (811 )   (8,754 )    
 

Accounts payable and accrued liabilities

    (25,021 )   5,574     8,641  
 

Accrued compensation

    (27,765 )   11,009     4,900  
 

Payable to collaborative partner

    (7,585 )   (10,825 )   (5,646 )
 

Deferred revenue

        75,000      
 

Long-term deferred credit

            125,000  
 

Deferred collaborative profit-sharing

    33,278     54,570      
 

Restructuring liability

    3,316     (15,252 )   53,795  
 

Other assets and liabilities, net

    (8,867 )   (5,566 )   (5,752 )
               

Net cash (used for) provided by operating activities

    (38,723 )   19,923     (19,510 )

Investing activities:

                   

Purchases of short-term investments

    (573,626 )   (794,008 )   (1,015,811 )

Sales and maturities of short-term investments

    841,296     832,900     1,132,017  

Increase to restricted cash

    (15,000 )        

Purchases of property, plant and equipment

    (91,132 )   (152,051 )   (295,060 )

Increase in other long-term assets

    (1,869 )   (2,913 )   (3,299 )
               

Net cash provided by (used for) investing activities

    159,669     (116,072 )   (182,153 )

Financing activities:

                   

Proceeds from issuance of common stock, net

    16,500     10,961     16,694  

Repayment of notes payable

    (93,750 )   (31,250 )    
               

Net cash (used for) provided by financing activities

    (77,250 )   (20,289 )   16,694  
               

Increase (decrease) in cash and cash equivalents

    43,696     (116,438 )   (184,969 )

Cash and cash equivalents at beginning of year

    120,825     237,263     422,232  
               

Cash and cash equivalents at end of year

  $ 164,521   $ 120,825   $ 237,263  
               

Supplemental disclosures of cash flow information:

                   

Interest paid, net of interest capitalized

  $ 15,483   $ 13,218   $ 17,701  

Interest capitalized

  $ 25,904   $ 33,280   $ 25,766  

Non-cash interest capitalized to property, plant and equipment

  $ 14,383   $ 17,676   $ 13,455  

Receivable arising from sale of property, plant and equipment

  $ 6,500   $   $  

Non-cash dispositions of property, plant and equipment

  $ 7,398   $   $ 8,796  

Property, plant and equipment additions in other current liabilities

  $ 513   $ 10,123   $ 6,057  

Non-cash financing activities:

                   

Issuance of common stock upon milestone conversion

  $   $   $ 30,000  

Shares contributed as employer 401(k) match

  $ 3,851   $ 5,105   $ 4,284  

Shares contributed to employee stock ownership plan

  $ 15,848   $ 20,250   $ 16,996  

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.

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.

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.

        In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA) as amended by the Health Care and Education Reconciliation Act. There are a number of provisions in the new legislation that will impact the pharmaceutical industry through increased discounts and an expansion of government funded insurance programs. The provisions become effective over time, however, certain provisions became effective in the first quarter of 2010. These provisions are related to increased Medicaid discounts, an increase in the population of patients eligible for Medicaid discounts, and the expansion of the 340(B) Public Health Services drug pricing program, which provides outpatient drugs at reduced rates, to include additional hospitals, clinics and healthcare centers. These new provisions did not have a material impact on our results for year ended December 31, 2010. We continue to evaluate this legislation to determine its impact on our business and future financial results. We expect the financial impact of the new legislation to grow over time.

        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

F-6



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

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.

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 BYDUREON™ (exenatide for extended release injectable suspension), our once-weekly formulation of exenatide for the proposed treatment of type 2 diabetes. Lilly's funding is provided at various cost sharing percentages depending upon whether the

F-7



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)


product is to be utilized in the United States or outside the United States. Lilly co-promotes products with us in the United States, is responsible for commercializing products 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, or Takeda, for the development and commercialization of pharmaceutical products for obesity and related indications. Under this agreement Takeda provides funding for development and will provide funding for 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 2010 and 95% of the accounts receivable balance at December 31, 2010. 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, 2010, 2009 and 2008 were $651.1 million, $754.0 million and $765.3 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 by product (in millions):

 
  Year ended December 31,  
 
  2010   2009   2008  

BYETTA

  $ 559.3   $ 667.6   $ 678.5  

SYMLIN

    91.8     86.4     86.8  
               

  $ 651.1   $ 754.0   $ 765.3  
               

        Four of our customers each accounted for more than 10% of total net product sales for the year ended December 31, 2010. Three of our customers each accounted for more than 10% of total net product sales for the years ended December 31, 2009 and 2008. The following table summarizes the

F-8



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)


percent of our total net product sales that were attributed to each of these four customers (as a % of net product sales):

 
  Year ended
December 31,
 
 
  2010   2009   2008  

McKesson Corporation

    36 %   38 %   38 %

Cardinal Health, Inc. 

    35 %   35 %   36 %

Medco Health Solutions

    14 %   12 %   12 %

Amerisourcebergen Drug Corporation

    10 %   * %   * %

*
Less than 10%

        We invest our excess cash in accordance with our investment policy; our investments include U.S. Government securities, securities of agencies sponsored by the U.S. Government, asset-backed securities, mortgage-backed securities, debt instruments of financial institutions and corporations with investment-grade credit ratings. We mitigate credit risk by maintaining a well diversified portfolio and limiting the amount of investment exposure as to institution, maturity and investment type. 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 December 31, 2009.

Restricted Cash

        Restricted cash relates to cash that is pledged as collateral for letters of credit issued by us, primarily in connection with office leases, pursuant to a Line of Credit and Cash Collateral Agreement entered into in December 2010.

Fair Value Measurements

        In January 2010, we adopted a newly issued accounting standard which requires additional disclosure about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and nonrecurring Level 2 and Level 3 measurements. As this newly issued accounting standard only requires enhanced disclosure, the adoption of this standard did not impact our financial position or results of operations. In addition, effective for interim and annual periods beginning after December 15, 2010, this standard will require additional disclosure and require an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than as one net amount.

        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

F-9



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

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 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.

        The following table summarizes the assets and liabilities measured at fair value on a recurring basis (in thousands):

 
  Fair value measurements as of
December 31, 2010
 
 
  Total   Level 1   Level 2   Level 3  

Assets:

                         
 

Cash and cash equivalents

  $ 164,521   $ 164,521   $   $  
 

Short-term investments

    278,142     278,142              
 

Restricted cash

    15,000     15,000          
 

Deferred compensation plan assets

    8,520     8,520          
                   

  $ 466,183   $ 466,183   $   $  
                   

Liabilities:

                         
 

Deferred compensation plan liabilities

  $ 8,520   $ 8,520          
                   

  $ 8,520   $ 8,520   $   $  
                   

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 in equity, net of related tax effects. 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.

F-10



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

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 $1.0 million and $0.7 million at December 31, 2010 and 2009, respectively.

Inventories, net

        Inventories are stated at the lower of cost or market (net realizable value) and net of a valuation allowance for potential excess or obsolete material of $1.4 million and $0.3 million at December 31, 2010 and December 31, 2009, respectively. Cost is determined by the first-in, first-out method.

        Raw materials consist of bulk drug material for BYETTA, SYMLIN and BYDUREON. As indicated in Note 3, as of December 31, 2010 raw materials inventories includes $28.2 million of exenatide, the active pharmaceutical ingredient, or API, which we plan to use to manufacture BYDUREON. We expect that exenatide for BYDUREON could also be used to manufacture BYETTA, subject to certain regulatory requirements.

        Work-in-process inventories consist of in-process BYETTA cartridges and in-process SYMLIN cartridges. Finished goods inventories consist of BYETTA drug product in a disposable pen/cartridge delivery system and finished SYMLIN drug product in a disposable pen/cartridge delivery system.

        We expense costs relating to the purchase and production of pre-approval inventories for which the sole use is pre-approval products 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 realized.

Property, Plant and Equipment

        Property, plant and equipment is recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

Land improvements

  10 years

Laboratory equipment

  5 to 10 years

Leasehold improvements

  Lesser of the lease term or the useful life

Production equipment

  10 years

Office equipment, furniture and computer software

  3 to 5 years

Buildings

  5 to 40 years

        We recorded depreciation expense of $57.3 million, $37.8 million, and $29.2 million in the years ended December 31, 2010, 2009 and 2008, respectively.

        Interest costs incurred during the construction of major capital projects are capitalized until the underlying asset is ready for its intended use, at which point the interest cost is amortized as depreciation expense over the estimated useful life of the asset.

F-11



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

        FDA validation costs, which to date relate to our manufacturing facility for BYDUREON, are capitalized as part of the effort required to acquire and construct long-lived assets, including readying them for their initial intended use, and are amortized over the estimated useful life of the asset.

        We record impairment losses on property, plant and equipment used in operations when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. We are subject to regulatory requirements with respect to our currently approved products and product candidates that can result in us not obtaining approval for product candidates in development or even discontinuance of the ability to sell our existing products. Therefore, we must regularly evaluate our ability to realize assets associated with our products and product candidates, including our BYDUREON manufacturing facility. As of December 31, 2010 there are no indicators of impairment associated with such assets. We also record assets to be disposed of at the lower of their carrying amount or fair value less cost to sell. For the years ended December 31, 2010, 2009 and 2008, we recorded $7.4 million, $0 and $8.8 million, respectively, in asset impairments related to impaired leasehold improvements associated with facility leases we will no longer use in our operations as part of our restructuring discussed in Note 5. While we have a history of operating and cash flow losses, we believe the expected future cash flows to be received support the carrying value of our long-lived assets and accordingly, we have not recognized any material impairment losses as of December 31, 2010, other than the impaired leasehold improvements noted above.

Investments in Unconsolidated Entities

        We use the equity method of accounting for investments in other companies that are not controlled by us and in which our interest is generally between 20% and 50% of the voting shares or we have significant influence over the entity, or both. Our share of the income or losses of these entities is included in interest and other expense, and the investments, which have a net book value of $2.3 million and $3.2 million at December 31, 2010 and December 31, 2009, respectively, are included in other long-term assets. We recorded $3.4 million, $4.0 million and $4.5 million of equity method investee losses during the years ended December 31, 2010, 2009 and 2008, respectively. During the year ended December 31, 2010 we recognized an impairment loss of $1.7 million on one of our equity method investments. There were no such impairments during the year ended December 31, 2009. During the year ended December 31, 2008 we recognized an impairment loss of $9.0 million on a different equity method investment. In each case, we recognized the impairment loss after assessing the financial and technical performance of the entity in which the investment was made as well as the entity's ability to raise additional capital in significantly deteriorated financial markets to fund ongoing operations.

Patents

        We have filed a number of patent applications with the United States Patent and Trademark Office and in foreign countries. Certain legal and related costs incurred in connection with pending patent applications have been capitalized. Costs related to successful patent applications are amortized over the lesser of the remaining useful life of the related technology or the remaining patent life, commencing on the date the patent is issued. Gross capitalized patent costs were approximately $6.6 million and $5.9 million at December 31, 2010 and 2009, respectively. Accumulated amortization was approximately $3.6 million and $3.1 million at December 31, 2010 and 2009, respectively. Patents

F-12



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)


are classified as other long-term assets in the accompanying consolidated balance sheets. We recorded patent amortization expense of $0.5 million, $0.4 million and $0.4 million in the years ended December 31, 2010, 2009 and 2008, respectively. Capitalized costs related to patent applications are expensed as a selling, general and administrative expense in the period during which a determination not to pursue such applications is made. Such expenses were not material in the years ended December 31, 2010, 2009 and 2008, respectively.

Net Loss Per Share

        Basic and diluted net loss applicable to common stock per share is computed using the weighted average number of common shares outstanding during the period. Shares used in calculating basic and diluted net loss per common share exclude the following common share equivalents (in thousands):

 
  Years ended
December 31,
 
 
  2010   2009   2008  

Antidilutive options to purchase common stock

    1,432     209     2,957  

Antidilutive shares underlying convertible senior notes

    15,238     15,238     15,238  
               

    16,670     15,447     18,195  
               

        In future periods, if we report net income and the common share equivalents for our convertible senior notes are dilutive, the common stock equivalents will be included in the weighted average shares computation and interest expense related to the notes will be added back to net income to calculate diluted earnings per share.

Derivative Financial Instruments

        We mitigate certain financial exposures, including currency risk and interest rate risk, through a controlled program of risk management that includes the use of derivative financial instruments. Derivatives are recorded on the balance sheet at fair value, with changes in value being recorded in interest and other income and interest and other expense. We have determined that our derivative financial instruments are defined as Level 2 in the fair value hierarchy. We recognized unrealized gains on derivative financial instruments of $2.8 million and $1.9 million for the years ended December 31, 2010 and 2009, respectively, and unrealized losses on derivative financial instruments of $4.9 million for the year ended December 31, 2008. As of December 31, 2010 we did not have any derivative financial instruments and as of December 31, 2009, the fair value of our derivative financial instruments was a

F-13



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)


net liability of $2.9 million, The fair value and balance sheet classification of our derivative financial instruments as of December 31, 2009 is summarized in the table below (in thousands):

 
  December 31, 2009
 
  Fair Value   Balance sheet
location

Foreign currency derivative contracts

  $ 100   Other current liabilities

Interest rate derivative contract (Note 8)

    2,813   Other long-term
obligations, net of
current portion
         

  $ 2,913    
         

Comprehensive Loss

        Comprehensive loss includes net loss and unrealized gains and losses on investments net of related tax effects. We disclose the accumulated balance of other comprehensive loss as a separate component of stockholder's equity.

Accounting for Stock-Based Compensation

        We utilize the fair value method of accounting for stock-based compensation arrangements. Accordingly, we expense the estimated fair value of non-cash stock awards granted to our employees, including the effect of estimated forfeitures, over the requisite employee service period, which is generally the vesting period. The fair value method of accounting applies to awards granted subsequent to January 1, 2006, the date the fair value method of accounting for stock-based compensation arrangements became effective, and to awards that were outstanding on the effective date and subsequently modified or cancelled. Estimated non-cash compensation expense for awards outstanding as of January 1, 2006 was recognized over the remaining service period of the award (which ended in 2009) using the compensation cost calculated for pro-forma disclosure purposes under the former guidance.

        We use the Black-Scholes model to estimate the fair value of non-cash, stock-based payments granted to employees. The assumptions used for the specified reporting periods and the resulting

F-14



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

estimates of weighted-average estimated fair value per share of options granted and employee stock purchase rights during those periods are as follows:

 
  Years ended December 31,  
 
  2010   2009   2008  

Volatility—Stock option plans

    60.9 %   80.9 %   46.5 %

Volatility—Employee stock purchase rights

    49.6 %   97.9 %   56.8 %

Expected life in years—Stock option plans

    4.2     4.3     4.2  

Expected life in years—Employee stock purchase rights

    0.5     0.5     0.5  

Risk-free interest rate—Stock option plans

    2.7 %   1.6 %   3.4 %