Revenue Recognition Accounting Policy
Eli Lilly recognizes revenue from sales of products at the time title of goods passes to the buyer and the buyer assumes the risks and rewards of ownership. Provisions for returns, discounts, and rebates are established in the same period the related sales are recorded.
Eli Lilly also generates income as a result of collaboration agreements. Revenue from co-promotion services is based upon net sales reported by Eli Lilly's co-promotion partners and, if applicable, the number of sales calls Eli Lilly performs. Initial fees Eli Lilly receives from the partnering of compounds under development where Eli Lilly has continuing involvement are generally amortized through the expected product approval date. Initial fees received from out-licensing agreements that include both the sale of marketing rights to Eli Lilly's commercialized products and a related commitment to supply the products are generally recognized in net product sales over the term of the supply agreement. Eli Lilly immediately recognizes the full amount of developmental milestone payments due upon the achievement of the milestone event if the event is substantive, is objectively determinable, and represents an important point in the development life cycle of the pharmaceutical product. Milestone payments earned by Eli Lilly are generally recorded in other—net, expense. If the payment to Eli Lilly is a commercialization payment that is part of a multiple-element collaborative commercialization arrangement and is a result of the initiation of the commercialization period (e.g., payments triggered by regulatory approval for marketing or launch of the product), Eli Lilly amortizes the payment to income as Eli Lilly performs under the terms of the arrangement.
Royalty revenue from licensees, which is based on third-party sales of licensed products and technology, is recorded as earned in accordance with the contract terms when third-party sales can be reasonably measured and collection of the funds is reasonably assured. This royalty revenue is included in collaboration and other revenue.
Source: Eli Lilly & Co., Annual Report
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