UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

OR

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

Commission File Number: 0-19700

AMYLIN PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware	33-0266089
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
9360 Towne Centre Drive San Diego, California	92121
(Address of principal executive offices)	(Zip code)

(858) 552-2200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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  x    No  ¨

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  x    No  ¨

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding on October 21, 2011
Common Stock, $.001 par value	146,283,002

AMYLIN PHARMACEUTICALS, INC.

TABLE OF CONTENTS

COVER PAGE

TABLE OF CONTENTS		2
PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements	3
	Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010	3
	Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010 (unaudited)	4
	Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2011 and 2010 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	32
ITEM 4.	Controls and Procedures	32
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	34
ITEM 1A.	Risk Factors	34
ITEM 6.	Exhibits	49
SIGNATURE		50

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

AMYLIN PHARMACEUTICALS, INC.

Consolidated Balance Sheets

(in thousands, except per share data)

	September 30, 2011			December 31, 2010
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	107,397		$	164,521
Short-term investments		338,429			278,142
Restricted cash		15,000			15,000
Accounts receivable, net		50,853			54,645
Inventories, net		107,345			118,629
Other current assets		39,978			45,458
Total current assets		659,002			676,395
Property, plant and equipment, net		825,205			811,745
Other long-term assets		32,385			43,289
	$	1,516,592		$	1,531,429
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	21,534		$	23,920
Accrued compensation		49,642			43,231
Payable to collaborative partner		47,602			42,060
Restructuring liability, current portion		5,922			6,532
Deferred revenue, current portion		7,500			7,500
Short-term deferred credit		12,657			—
Convertible senior notes, current portion		—			200,000
Other current liabilities		97,428			78,352
Total current liabilities		242,285			401,595
Deferred revenue, net of current portion		53,125			58,750
Long-term deferred credit		109,179			125,000
Deferred collaborative profit sharing		103,834			87,848
Restructuring liability, net of current portion		26,242			28,764
Loan payable to collaborative partner		165,000			—
Convertible senior notes		488,964			468,697
Other long-term obligations, net of current portion		15,487			17,292
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.001 par value, 7,500 shares authorized, none issued and outstanding at September 30, 2011 and December 31, 2010		—			—
Common stock, $.001 par value, 450,000 shares authorized, 146,203 and 144,100 issued and outstanding at September 30, 2011 and December 31, 2010, respectively		146			144
Additional paid-in capital		2,496,280			2,444,266
Accumulated deficit		(2,182,108	)		(2,100,180	)
Accumulated other comprehensive loss		(1,842	)		(747	)
Total stockholders’ equity		312,476			343,483
	$	1,516,592		$	1,531,429

See accompanying notes to consolidated financial statements.

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AMYLIN PHARMACEUTICALS, INC.

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Revenues:
Net product sales	$	155,075		$	154,026		$	460,703		$	488,798
Revenues under collaborative agreements		19,889			2,075			25,040			5,825
Total revenues		174,964			156,101			485,743			494,623
Costs and expenses:
Cost of goods sold		11,671			12,680			36,058			47,644
Selling, general and administrative		63,059			70,019			192,901			214,331
Research and development		46,560			51,155			133,544			145,574
Collaborative profit sharing		58,959			61,249			179,462			194,056
Restructuring		2,499			6,028			5,483			9,452
Total costs and expenses		182,748			201,131			547,448			611,057
Operating loss		(7,784	)		(45,030	)		(61,705	)		(116,434	)
Interest and other expense, net		(5,412	)		(5,702	)		(20,223	)		(16,697	)
Net loss	$	(13,196	)	$	(50,732	)	$	(81,928	)	$	(133,131	)
Net loss per share, basic and diluted	$	(0.09	)	$	(0.35	)	$	(0.56	)	$	(0.93	)
Shares used in computing net loss per share, basic and diluted		145,987			143,763			145,545			143,354

See accompanying notes to consolidated financial statements.

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AMYLIN PHARMACEUTICALS, INC.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine months ended September 30,
	2011			2010
Operating activities:
Net loss	$	(81,928	)	$	(133,131	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Depreciation and amortization		36,866			42,443
Accretion of debt discount and amortization of debt issuance costs		11,263			9,143
Employee stock-based compensation		23,277			27,234
Stock-settled compensation accruals		12,915			15,631
Restructuring		645			833
Deferred revenue		(8,789	)		(5,625	)
Other non-cash expenses		4,213			4,060
Changes in operating assets and liabilities:
Accounts receivable		3,792			8,131
Inventories		12,215			8,313
Other current assets		7,716			13,526
Accounts payable and accrued liabilities		16,690			(13,823	)
Accrued compensation		13,909			(24,307	)
Payable to collaborative partner		5,542			(19,108	)
Deferred collaborative profit sharing		15,986			27,053
Restructuring liabilities		(3,132	)		(897	)
Other assets and liabilities, net		(2,219	)		(3,061	)
Net cash flows provided by (used for) operating activities		68,961			(43,585	)
Investing activities:
Purchases of short-term investments		(458,771	)		(423,592	)
Sales and maturities of short-term investments		398,403			589,222
Purchases of property, plant and equipment		(41,306	)		(75,560	)
Increase (decrease) in other long-term assets		2,295			(1,476	)
Net cash flows (used for) provided by investing activities		(99,379	)		88,594
Financing activities:
Issuance of common stock, net		8,294			15,233
Proceeds from loan payable to our collaborative partner		165,000			—
Repayment of convertible senior notes		(200,000	)		—
Repayment of notes payable		—			(23,437	)
Net cash flows used for financing activities		(26,706	)		(8,204	)
Change in cash and cash equivalents		(57,124	)		36,805
Cash and cash equivalents at beginning of period		164,521			120,825
Cash and cash equivalents at end of period	$	107,397		$	157,630
Supplemental disclosure of cash flow information:
Property, plant and equipment additions in other current liabilities	$	—		$	572
Receivable arising from sale of property, plant and equipment	$	—		$	6,500
Non-cash dispositions of property, plant and equipment	$	296		$	0
Non-cash interest capitalized to property, plant and equipment	$	10,452		$	11,626
Non-cash financing activities:
Shares contributed as employer 401(k) match	$	3,956		$	3,851
Shares contributed to employee stock ownership plan	$	16,456		$	15,848

See accompanying notes to consolidated financial statements.

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AMYLIN PHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements

September 30, 2011

(unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

The information contained herein has been prepared in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X. The information as of September 30, 2011, and for the three and nine months ended September 30, 2011 and 2010, is unaudited. In the opinion of management, the information reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for a full year. The balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements at that date, but does not include all information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For more complete financial information, these financial statements should be read in conjunction with the audited consolidated financial statements included in Amylin Pharmaceuticals, Inc.’s (referred to as we, us or Amylin) Annual Report on Form 10-K for the year ended December 31, 2010.

The accompanying consolidated financial statements for the three and nine months ended September 30, 2010 contain a reclassification of certain infrastructure costs from selling, general and administrative expense to research and development expense to conform to the current year presentation.

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. Beginning in January 2011, drug manufacturers provide a discount of 50 percent of the patient’s cost of branded prescription drugs for Medicare Part D participants who are in the “donut hole” (the coverage gap in Medicare prescription drug coverage). Our rebate allowance includes an accrual for our estimated share of the donut hole costs associated with product sales made through September 30, 2011 and was calculated using historical Part D utilization information provided by the Center for Medicare and Medicaid Services and third party market research data. The rebate allowance provided each quarter will vary depending upon estimated utilization rates.

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

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Company, or Lilly, which include manufacture of product for sale in the United States, responsibility for establishing pricing in the United States, distribution, ownership of product inventory and credit risk from customers.

Revenues Under Collaborative Agreements

Revenues under collaborative agreements consist of the amortization of product and technology license fees, milestone payments and royalties 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. Royalty revenue is earned on annual gross margins for all exenatide products sold outside of the United States and is recorded based upon gross margins for such sales.

Collaborative Profit-Sharing

Collaborative profit-sharing represents Lilly’s 50% share of the gross margin for BYETTA sales in the United States (see Note 6).

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 $1.6 million and $1.0 million at September 30, 2011 and December 31, 2010, respectively.

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. In addition, effective for interim and annual periods beginning after December 15, 2010, this standard requires additional disclosure and requires an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than as one net amount. As this accounting standard only requires enhanced disclosure, and because we do not have any Level 3 fair value measurements, the adoption of this standard did not impact our financial position or results of operations.

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 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 considerations that market participants would use in pricing.

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There have been no transfers of assets or liabilities between the fair value measurement classifications.

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

	Fair value measurements as of September 30, 2011
	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	107,397	$	107,397	$	0	$	0
Short-term investments		338,429		338,429		0		0
Restricted cash		15,000		15,000		0		0
Deferred compensation plan assets		7,393		7,393		0		0
	$	468,219	$	468,219	$	0	$	0
Liabilities:
Deferred compensation plan liabilities	$	7,393	$	7,393	$	0	$	0
	$	7,393	$	7,393	$	0	$	0

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 expenses and facilities costs. Reimbursements for 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.

Per Share Data

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):

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Antidilutive options and awards to purchase common stock		331		1,798		429		1,656
Antidilutive shares underlying convertible senior notes		9,416		15,238		11,655		15,238
		9,747		17,036		12,084		16,894

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.

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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-based awards granted to our employees over the requisite employee service period, which is generally the vesting period.

Total estimated stock-based compensation was as follows (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Selling, general and administrative expenses	$	4,983	$	4,606	$	15,762	$	18,027
Research and development expenses		2,427		2,424		7,515		9,207
	$	7,410	$	7,030	$	23,277	$	27,234

Non-cash stock-based compensation expense during the three and nine month periods ended September 30, 2011 and 2010 related to stock-based awards consisting of stock options, time and performance based restricted stock units and employee stock purchase rights. At September 30, 2011, total unrecognized estimated compensation cost related to non-vested stock-based awards granted prior to that date was $44.2 million, which is expected to be recognized over a weighted-average period of 2.1 years. We issued 0.3 million shares upon the exercise of stock options in the nine months ended September 30, 2011.

In addition to the stock-based compensation discussed above, we also recorded expense associated with our Employee Stock Ownership Plan, or ESOP, and our 401(k) plan. The breakdown of non-cash ESOP and 401(k) expense by operating statement classification is presented below (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Selling, general and administrative expenses	$	2,569	$	2,403	$	7,633	$	8,860
Research and development expenses		1,764		1,618		5,282		6,771
	$	4,333	$	4,021	$	12,915	$	15,631

Consolidation

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

Recently Issued Accounting Pronouncements

Effective January 1, 2011 we adopted newly issued authoritative guidance that amends existing revenue recognition accounting pronouncements related to multiple-deliverable revenue arrangements. The new guidance provides accounting principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated, and how the consideration should be allocated. This guidance expands the methods under which a company can establish the fair value of undelivered products and services and provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. The adoption of this standard did not have an impact on our financial position or results of operations.

Effective January 1, 2011 we adopted newly issued authoritative guidance related to the application of the milestone method of revenue recognition to research or development arrangements. Under this guidance management may recognize revenue contingent upon the achievement of a milestone in its entirety, in the period

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in which the milestone is achieved, only if the milestone meets all the criteria within the guidance to be considered substantive. This guidance is effective on a prospective basis. In the past our milestones have met the criteria for being substantive and, as such, we have recognized revenue in the period in which the milestone was achieved. We expect future milestones will continue to be substantive, therefore we do not expect the adoption of this standard to have a material impact on our results of operations.

Effective January 1, 2011 we adopted newly issued authoritative guidance that addresses questions concerning how pharmaceutical manufacturers should recognize and classify in their income statements fees mandated by the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Acts, or the Acts. The Acts impose an annual fee on the pharmaceutical manufacturing industry for each calendar year beginning on or after January 1, 2011. An entity’s portion of the fee is payable no later than September 30 of the applicable calendar year and is not tax deductible. The annual fee ranges from $2.5 billion in 2011 to $4.1 billion in 2018 for all affected entities in total, a portion of which will be allocated to individual entities on the basis of the amount of their branded prescription drug sales for the preceding year as a percentage of the industry’s branded prescription drug sales for the same period. An entity’s portion of the annual fee becomes payable to the U.S. Treasury once a pharmaceutical manufacturing entity has a gross receipt from branded prescription drug sales to any specified government program. The new authoritative guidance requires a company to accrue a liability and corresponding deferred cost for the annual fee and to amortize the deferred cost to operating expenses over the calendar year that it is payable using a straight-line method of allocation. The adoption of this standard did not have a material impact on our financial position or results of operations.

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2. Short-term Investments

Our short-term investments, consisting principally of debt securities, are classified as available-for-sale and are stated at fair value based upon observed market prices (Level 1 in the fair value hierarchy). Unrealized holding gains or losses on these securities are included in other comprehensive loss. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. For investments in mortgage-backed securities, amortization of premiums and accretion of discounts are recognized in interest income using the interest method, adjusted for anticipated prepayments as applicable. Estimates of expected cash flows are updated periodically and changes are recognized in the calculated effective yield prospectively as appropriate. Such amortization is included in interest income. Realized gains and losses are included in interest income and declines in value judged to be other-than-temporary on available-for-sale securities are included in impairment loss on investments, a component of other expense. 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. The following is a summary of short-term investments as of September 30, 2011 and December 31, 2010 (in thousands):

	Available-for-Sale Securities
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
September 30, 2011
U.S. Treasury securities	$	62,131	$	3	$	(5	)	$	62,129
Obligations of U.S. Government-sponsored enterprises		73,984		342		(99	)		74,227
Corporate debt securities		199,814		739		(189	)		200,364
Asset backed securities		1,710		—		(1	)		1,709
Total	$	337,639	$	1,084	$	(294	)	$	338,429
December 31, 2010
U.S. Treasury securities	$	46,234	$	4	$	—		$	46,238
Obligations of U.S. Government-sponsored enterprises		37,826		191		(50	)		37,967
Corporate debt securities		191,680		743		(23	)		192,400
Asset backed securities		1,531		6		—			1,537
Total	$	277,271	$	944	$	(73	)	$	278,142

Contractual maturities of short-term investments at September 30, 2011 were as follows (in thousands):

	Fair Value
Due within 1 year	$	247,370
After 1 but within 5 years		74,468
After 5 but within 10 years		—
After 10 years		16,591
Total	$	338,429

For purposes of these maturity classifications, the final maturity date is used for securities not due at a single maturity date. Securities not due at a single maturity date include mortgage-backed securities, which are included in Obligations of U.S Government-sponsored enterprises in the table above, and asset-backed securities.

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The following table shows the gross unrealized losses and fair value of our investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2011 (in thousands):

	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities	$	23,341	$	(5	)	$	—	$	—		$	23,341	$	(5	)
Obligations of U.S Government-sponsored enterprises		46,142		(62	)		5,223		(37	)		51,365		(99	)
Corporate debt securities		71,324		(189	)		—		—			71,324		(189	)
Asset backed securities		569		(1	)		—		—			569		(1	)
	$	141,376	$	(257	)	$	5,223	$	(37	)	$	146,599	$	(294	)

Our investments had gross unrealized losses of $0.3 million and $0.1 million for September 30, 2011 and December 31, 2010, respectively. The unrealized losses on our investments in marketable securities are due in most instances to the increased volatility in the markets impacting the classes of securities we invest in and not deterioration in credit ratings. Our investments have a short effective duration, and since we have the ability and intent not to sell these investments until a recovery of fair value, which may be maturity, we do not consider these investments to be other-than-temporarily impaired at September 30, 2011.

3. Inventories

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. As of September 30, 2011, there was no valuation allowance for potential excess or obsolete material; as of December 31, 2010 the valuation allowance equaled $1.4 million. Cost is determined by the first-in, first-out method. Raw materials consist of bulk drug material for BYETTA, SYMLIN and BYDUREON. Work-in-process inventories consist of in-process BYETTA cartridges and in-process SYMLIN cartridges. Finished goods inventories consist of both BYETTA and SYMLIN drug product in a disposable pen/cartridge delivery system.

We expense costs relating to the purchase and production of pre-approval inventories as research and development expense in the period incurred until such time as we believe future commercialization is probable and future economic benefit is expected to be realized.

Inventories, net consist of the following (in thousands):

	September 30, 2011		December 31, 2010
Raw materials	$	77,383	$	90,183
Work-in-process		22,201		19,051
Finished goods		7,761		9,395
	$	107,345	$	118,629

Included in raw materials inventories as of September 30, 2011 and December 31, 2010 is $21.2 million and $23.3 million, respectively, 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.

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4. Other Current Assets

Other current assets consist of the following (in thousands):

	September 30, 2011		December 31, 2010
Prepaid expenses	$	15,725	$	16,272
Receivable from collaborative partner		14,633		16,628
Other non-trade receivables		2,227		4,003
Other current assets		7,393		8,555
	$	39,978	$	45,458

5. Other Current Liabilities

Other current liabilities consist of the following (in thousands):

	September 30, 2011		December 31, 2010
Accrued rebates	$	46,077	$	41,094
Accrued expenses		43,346		30,603
Other current liabilities		8,005		6,655
	$	97,428	$	78,352

6. Collaborative Agreements

We have entered into various collaborative agreements which provide us with rights to develop, produce and market products using certain know-how, technology and patent rights maintained by our collaborative partners. Terms of the various collaboration agreements may require us to make and/or receive milestone payments upon the achievement of certain product research and development objectives and pay and/or receive royalties on future sales, if any, of commercial products resulting from the collaboration.

Amounts due to or from our collaborative partners related to development activities are generally reflected as an increase to or a reduction of research and development expenses and amounts due to or from our collaborative partners related to sharing of commercialization expenses are generally reflected as an increase to or reduction of selling, general and administrative expenses. Milestone payments and up-front payments received are generally reflected as collaborative revenue as discussed above in Note 1, and milestone payments and up-front payments made are generally recorded as research and development expenses if the payments relate to drug candidates that have not yet received regulatory approval. Milestone payments and up-front payments that we make related to approved drugs (of which there have been none to date) will generally be capitalized and amortized to cost of goods sold over the economic life of the product. Royalties received are generally reflected as collaborative revenues and royalties paid are generally reflected as cost of goods sold.

For collaborations with commercialized products, if we are the principal we record revenue and the corresponding operating costs in their respective line items within our statement of operations based on the nature of the shared expenses. If we are not the principal (which is the case for our sales of exenatide products to Lilly for sale outside the United States), we record operating costs as a reduction of revenue. The principal is the party who is responsible for delivering the product or service to the customer, has latitude with establishing price and has the risks and rewards of providing product or service to the customer, including inventory and credit risk.

Collaboration with Eli Lilly and Company

In September 2002, we and Lilly entered into a Collaboration Agreement for the global development and commercialization of exenatide, or the Lilly Agreement. The Lilly Agreement was amended in 2006 and in 2009.

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The Lilly Agreement includes BYETTA, our twice-daily formulation of exenatide for the treatment of type 2 diabetes, and any sustained release formulations of exenatide such as BYDUREON, our once-weekly formulation of exenatide for the treatment of type 2 diabetes currently in development in the United States. Under the terms of the Lilly Agreement, operating profits from products sold in the United States are shared equally between us and Lilly. The Lilly Agreement provides for tiered royalties payable to us by Lilly based upon the annual gross margin for all exenatide product sales, including any long-acting release formulations, outside of the United States. Royalty payments for exenatide product sales outside of the United States commenced during the second quarter of 2011 upon the achievement of a one-time cumulative gross margin threshold amount. Lilly is responsible for 53% of shared exenatide global development and commercialization expenses that generate utility both in the United States and outside the United States; we are responsible for 47% of these expenses. Lilly is responsible for 100% of all exenatide development and commercialization expenses that generate utility predominantly outside of the United States.

Lilly also agreed to make additional future milestone payments contingent upon the commercial launch of exenatide in selected territories throughout the world, including both twice-daily and sustained release formulations. From the inception of the agreement, the total commercial milestone payments earned and recorded as revenue through September 30, 2011 totaled $65 million, of which $15 million was earned upon the July 2011 launch of BYDUREON in the European Union. Remaining potential milestone payments of $55 million relate to the commercial launch of BYDUREON, if approved, in selected territories throughout the world, including $40 million for the launch in the United States and $15 million for a launch in Japan.

In December 2005, our wholly-owned subsidiary, Amylin Ohio, LLC, purchased an existing building and land to house our BYDUREON manufacturing facility in Ohio and we are responsible for all costs and expenses associated with the design, construction, validation and utilization of the facility. At September 30, 2011 we had capitalized $637.7 million associated with the construction and validation of the facility. As discussed below, through September 30, 2011 we have incurred $204.9 million in capital expenditures associated with a BYDUREON pen device, which will be funded 60% by Lilly and 40% by us. Through September 30, 2011, the total combined capital expenditures for the manufacturing facility and pen device is $842.6 million.

In October 2008, we and Lilly entered into an Exenatide Once Weekly Supply Agreement, or the Supply Agreement, pursuant to which we will supply commercial quantities of BYDUREON for sale in the United States, if approved by the FDA. In addition, we manufacture the product for commercial sale by Lilly in jurisdictions outside the United States. Under the terms of the Supply Agreement, Lilly made a cash payment of $125 million to us, which represents an amount to compensate us for the estimated past and future cost of carrying Lilly’s share of the capital investment made in our manufacturing facility in Ohio. Lilly’s share of the capital investment would have otherwise been charged to them when we allocated product costs to them for products manufactured at the facility through our existing cost sharing arrangement. In addition to this cash payment, we will recover Lilly’s share of the capital investment in the facility through an allocation of depreciation expense in cost of goods as discussed below. Under the terms of the Supply Agreement, we have agreed not to charge Lilly for its share of the interest costs capitalized to the facility or any future financing cost that may be related to financing the facility. The $125 million payment is comprised of the following two components:

• A reimbursement to us of Lilly’s share of interest costs capitalized to the facility, which amount to $50 million. These interest costs are being credited to Lilly in the form of a reduction of the cost of goods sold for BYDUREON as incurred under the Supply Agreement. The deferred credit associated with this balance is being amortized to collaborative profit sharing over the estimated life of the underlying assets, or approximately 11 years.

• Deferred collaborative revenue for services we will provide to Lilly under the Supply Agreement, which amounts to $75 million, and is being amortized to revenues under collaborative agreements ratably over the estimated economic useful life of the BYDUREON product of approximately 10 years.

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As a result of the BYDUREON launch in the United Kingdom in July 2011, we began amortizing both components of the deferred credit during the three months ended September 30, 2011. The following table summarizes the components of the deferred credit as of September 30, 2011 and December 31, 2010:

	September 30, 2011						December 31, 2010
	Current		Long-term		Total		Current		Long-term		Total
Deferred credit-capitalized interest portion	$	4,762	$	44,048	$	48,810	$	—	$	44,500	$	44,500
Deferred collaborative revenue portion		7,895		65,131		73,026		—		80,500		80,500
Total	$	12,657	$	109,179	$	121,836	$	—	$	125,000	$	125,000

In the event the BYDUREON manufacturing facility is impaired, Lilly is entitled to receive a credit for a portion of the $125 million payment which will be applied against Lilly’s share of the impairment charge. Under the terms of the Supply Agreement, the amount of the credit to which Lilly would be entitled declines over time and equals $48.1 million as of September 30, 2011. The $125 million payment is otherwise not refundable to Lilly.

In addition to the $125 million cash payment, we will recover Lilly’s share of the initial capital investment in the facility through an allocation of depreciation to cost of goods sold in accordance with the Lilly Agreement. Subsequent capital investments, including those for the BYDUREON pen device, are subject to separate cost sharing terms, as described below. We retain ownership of the facility and Lilly’s share of the capital investment to be recovered through the sharing of cost of goods sold is initially estimated to be 55% subject to adjustment based upon the allocation of the proportion of product supplied for sale in the United States, the cost of which is shared equally by the parties, and the proportion of product supplied for sale outside of the United States, the cost of which is paid for 100% by Lilly.

In May 2009, we and Lilly entered into a joint supply agreement for a BYDUREON pen device. We and Lilly agreed to collaborate in the development, manufacturing and marketing of BYDUREON in a dual chamber cartridge pen device. We and Lilly will share the capital and development costs of the pen and have agreed that the estimated cost of the total capital investment will be allocated 60% to Lilly and 40% to us, with Lilly funding its share as the capital expenditures are incurred. Through September 30, 2011, we have incurred $204.9 million in capital expenditures associated with the BYDUREON pen device, which amount is included in construction in progress. We have billed Lilly $103.8 million for these expenditures, of which $99.7 million has been received by us. Capital reimbursements from Lilly, which are included in deferred collaborative profit-sharing in the accompanying consolidated balance sheet, are being deferred and will be amortized to collaborative profit sharing for Lilly’s share of the depreciation included in cost of goods sold for the BYDUREON pen device, as incurred.

From time to time disputes arise between Lilly and us due to differing interpretations of certain provisions related to cost sharing and other matters contained in our various agreements. We generally record expense for such disputed amounts in the period the transaction occurs. If the dispute is resolved in our favor in a subsequent period, we account for favorable results as a gain contingency and recognize such amounts in future earnings as they are realized. As of September 30, 2011 the payable to collaborative partner includes amounts that could potentially be recognized in future periods as gain contingencies in the event of an outcome favorable to Amylin. In October 2008, we and Lilly also entered into a loan agreement pursuant to which Lilly made available to us a $165 million unsecured line of credit. In May 2011 we drew $165 million from this facility, referred to as the Lilly Loan. The interest rate on the Lilly Loan is fixed at 5.51% and is due and payable quarterly in arrears on the first business day of each quarter. All outstanding principal, together with all accrued and unpaid interest, is due and payable on May 23, 2014. As of September 30, 2011 the principal balance due on the Lilly Loan is $165 million.

On May 13, 2011, we filed a lawsuit against Lilly in the United States District Court for the Southern District of California alleging, among other things, that Lilly is engaging in anticompetitive activity and breaching its strategic alliance agreements with us to maximize commercialization of exenatide. Additional information concerning the lawsuit can be found in Note 13.

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The following is a summary of activity related to our collaboration with Lilly and the location in the consolidated statements of operations (in thousands):

Activity	Classification within Consolidated Statements of Operations	Three Months Ended				Nine months Ended
		September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
Royalty revenue	Revenues under collaborative agreements	$	1,040	$	0	$	2,441	$	0
Milestone revenue and amortization of up-front payments	Revenues under collaborative agreements	$	16,974	$	0	$	16,974	$	0
Gross margin cost-sharing, net of amortization of up-front payments	Collaborative profit sharing	$	58,959	$	61,249	$	179,462	$	194,056
Development expense cost-sharing payments received from Lilly for BYETTA and BYDUREON development expense	Reduction of research and development expense	$	16,684	$	22,523	$	51,872	$	51,152
Cost-sharing payments received from Lilly for shared sales force expenses, marketing expenses and other commercial or operational support	Reduction of selling, general and administrative expense	$	3,592	$	4,061	$	9,229	$	21,873

Collaboration with Alkermes, Inc.

In May 2000 we entered into a development and license agreement with Alkermes Controlled Therapeutics, Inc. II, or Alkermes, a subsidiary of Alkermes, Inc., a company specializing in the development of products based on proprietary drug delivery technologies. The development and license agreement, or the Alkermes Agreement, was amended in 2005 and provides for Alkermes to assist us in the development, manufacture and commercialization of BYDUREON. Under the terms of the Alkermes Agreement, Alkermes has transferred to us its technology for manufacturing BYDUREON. We are responsible for manufacturing BYDUREON for commercial sale. In exchange, Alkermes is entitled to receive funding for research and development and may earn future milestone payments upon achieving specified development and commercialization goals. Alkermes will also receive royalties on any future product sales.

In addition to the Alkermes Agreement, Alkermes is supplying us with the polymer materials required for the commercial manufacture of BYDUREON under a Supply Agreement dated December 29, 2007.

Collaboration with Takeda Pharmaceutical Company, Ltd

On October 30, 2009, we and Takeda Pharmaceutical Company Limited, or Takeda, entered into a License, Development and Commercialization Agreement, or the Takeda Agreement, pursuant to which the companies will co-develop and commercialize pharmaceutical products containing compounds specified in the Takeda Agreement for the treatment of human indications including, but not limited to, (i) weight management and/or obesity, (ii) glycemic control and (iii) cardiovascular disease. We received a one-time, nonrefundable cash payment of $75 million from Takeda in connection with the execution of the Takeda Agreement. We recorded

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the up-front payment as deferred revenue in our consolidated balance sheets and will recognize the revenue over the estimated development period of ten years. As of September 30, 2011 deferred revenue associated with the Takeda collaboration equaled $60.6 million, of which $53.1 million is classified as long-term.

The companies initially selected the combination treatment of pramlintide/metreleptin for advancement toward Phase 3 development. In August 2011, we and Takeda announced that we are discontinuing the development of pramlintide/metreleptin for the treatment of obesity and will continue to evaluate other assets as potential candidates for the treatment of obesity and related indications under the terms of the Takeda Agreement.

The following is a summary of activity related to the Takeda Agreement and the location in the consolidated statements of operations (in thousands):

Activity	Classification  within Consolidated Statements of Operations	Three Months Ended September 30,				Nine months Ended September 30,
		2011		2010		2011		2010
Amortization of up-front payments	Revenues under collaborative agreements	$	1,875	$	1,875	$	5,625	$	5,625
Cost-sharing payments due from Takeda for shared development expenses	Reduction of research and development expense	$	10,191	$	3,992	$	17,181	$	10,175

The cost sharing payment due from Takeda for the three months ended September 30, 2011 includes reimbursement for Takeda’s share of a one- time contract termination charge associated with the aforementioned discontinuation of the pramlintide/metreleptin program for obesity.

7. Restructuring

During the three and nine months ended September 30, 2011 we recorded restructuring charges of $2.5 and $5.5 million, respectively. The charges for the three months ended September 30, 2011 consist of facilities-related charges and employee separation costs and the charges for the nine months ended September 30, 2011 consist primarily of employee separation costs, asset impairments net of recoveries for asset disposals. The following summarizes the components of the restructuring charges for the three and nine months ended September 30, 2011 (in thousands):

	Three months ended September 30, 2011								Nine months ended September 30, 2011
	Accruals			Non-cash     items		Total			Accruals			Non-cash     items		Total
Facilities related charges	$	2,306		$	—	$	2,306		$	2,344		$	—	$	2,344
Employee separation costs		163			—		163			2,853			—		2,853
Asset impairments		(1	)		—		(1	)		(399	)		645		246
Other restructuring charges		31			—		31			40			—		40
	$	2,499		$	—	$	2,499		$	4,838		$	645	$	5,483

The facilities-related charges recorded during the three months ended September 30, 2011 relate to a reassessment of current market conditions pertaining to our existing lease loss liability.

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The following table sets forth activity in the restructuring liability for recent restructuring activities for the nine months ended September 30, 2011, which is comprised of employee separation costs and facilities-related charges (in thousands):

	Employee separation costs			Facilities related charges			Other restructuring charges			Total
Balance at December 31, 2010	$	—		$	35,296		$	—		$	35,296
Accruals (credit)		2,853			2,344			(359	)		4,838
Payments		(2,853	)		(7,949	)		359			(10,443	)
Accretion of sub-lease expense		—			2,473			—			2,473
Balance at September 30, 2011	$	—		$	32,164		$	—		$	32,164

We are continuing to assess our facility requirements for our San Diego campus as a result of this and our prior restructurings and could record additional facilities-related charges over the next several quarters.

8. Comprehensive Loss

Comprehensive loss includes net loss and unrealized gains and losses on investments. We disclose the accumulated balance of other comprehensive loss as a separate component of stockholders’ equity. For the three and nine months ended September 30, 2011 and 2010, comprehensive loss consisted of (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Net loss	$	(13,196	)	$	(50,732	)	$	(81,928	)	$	(133,131	)
Other comprehensive loss(1):
Net unrealized (loss) gain on investments		(1,347	)		754			(1,095	)		1,170
Comprehensive loss	$	(14,543	)	$	(49,978	)	$	(83,023	)	$	(131,961	)

(1) Other comprehensive loss as of September 30, 2011 and December 31, 2010 includes unrealized losses, net of tax effect, on investments underlying our 2001 Non-Qualified Deferred Compensation Plan of $2.3 million and $1.3 million, respectively, and unrealized gains, net of tax effect, on our short-term investments of $0.5 million and $0.6 million as of September 30, 2011 and December 31, 2010, respectively.

9. Convertible Senior Notes

The following table summarizes the principal amount of the liability component, the unamortized discount and the net carrying amount of our convertible senior notes (in thousands):

	September 30, 2011			December 31, 2010
2004 Notes—Due April 15, 2011
Principal amount	$	—		$	200,000
2007 Notes—Due June 15, 2014
Principal amount	$	575,000		$	575,000
Unamortized debt discount		(86,036	)		(106,303	)
Net carrying amount		488,964			468,697
Total convertible senior notes, net		488,964			668,697
Less current portion		—			(200,000	)
Non-current portion	$	488,964		$	468,697

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In April 2004, we issued an aggregate principal amount of $200 million of 2.5% convertible senior notes in a private placement, referred to as the 2004 Notes. The 2004 Notes matured and were repaid in full on April 15, 2011.

In June 2007, we issued notes with an aggregate principal amount of $575 million in a private placement, which are due June 15, 2014, referred to as the 2007 Notes. The 2007 Notes are senior unsecured obligations and rank equally with all other existing and future senior unsecured debt. The 2007 Notes bear interest at 3.0% per year, payable in cash semi-annually, and are initially convertible into a total of up to 9.4 million shares of common stock at a conversion price of $61.07 per share, subject to the customary adjustment for stock dividends and other dilutive transactions. We may not redeem the 2007 Notes prior to maturity. In addition, if a “fundamental change” (as defined in the associated indenture agreement) occurs prior to the maturity date, we will in some cases increase the conversion rate for a holder of notes that elects to convert its notes in connection with such fundamental change. The maximum conversion rate is 22.9252 ($43.62 per share), which would result in a maximum issuance of 13.2 million shares of common stock if all holders converted at the maximum conversion rate. The principal amount of the 2007 Notes exceeds the current if-converted value.

The 2007 Notes will be convertible into shares of our common stock unless we elect net-share settlement. If we elect net-share settlement, we will satisfy the accreted value of the obligation in cash and will satisfy the excess of conversion value over the accreted value in shares of our common stock based on a daily conversion value, determined in accordance with the associated indenture agreement, calculated on a proportionate basis for each day of the relevant 20-day observation period. Holders may convert the 2007 Notes only in the following circumstances and to the following extent: (1) during the five business-day period after any five consecutive trading day period (the measurement period) in which the trading price per note for each day of such measurement period was less than 97% of the product of the last reported sale price of our common stock and the conversion rate on each such day; (2) during any calendar quarter after the calendar quarter ending March 31, 2007, if the last reported sale price of our common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter; (3) upon the occurrence of specified events; and (4) the 2007 Notes will be convertible at any time on or after April 15, 2014 through the scheduled trading day immediately preceding the maturity date.

Subject to certain exceptions, if we undergo a “designated event” (as defined in the associated indenture agreement) including a “fundamental change,” such as if a majority of our Board of Directors ceases to be composed of the existing directors or other individuals approved by a majority of the existing directors, holders of the 2007 Notes will, for the duration of the notes, have the option to require us to repurchase all or any portion of their 2007 Notes. The designated event repurchase price will be 100% of the principal amount of the 2007 Notes to be purchased plus any accrued interest up to but excluding the relevant repurchase date. We will pay cash for all notes so repurchased. The 2007 Notes have been registered under the Securities Act of 1933, as amended, to permit registered resale of the 2007 Notes and of the common stock issuable upon conversion of the 2007 Notes. The 2007 Notes pay interest in cash, semi-annually in arrears on June 15 and December 15 of each year, which began on December 15, 2007.

The fair value of the 2007 Notes, determined by observed market prices, was $511.8 million and $501.7 million at September 30, 2011 and December 31, 2010, respectively. Since we have the option to elect net-share settlement upon conversion of the 2007 Notes, we account for the 2007 Notes in accordance with the authoritative guidance for accounting for convertible debt instruments that may be settled in cash upon conversion.

The carrying amount of the equity component of the 2007 Notes was $180.3 million at September 30, 2011 and December 31, 2010. At September 30, 2011, the unamortized balance of the debt discount will be amortized over the remaining life of the 2007 Notes, or approximately three years. The effective interest rate on the net carrying value of the 2007 Notes was 9.3% for both the three and nine months ended September 30, 2011 and 2010.

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The following table summarizes the interest expense we capitalized associated with construction in progress for the three and nine months ended September 30, 2011 and 2010 (in thousands):

	Three months  ended September 30,				Nine months  ended September 30,
	2011		2010		2011		2010
Coupon interest expense	$	3,076	$	3,007	$	7,060	$	9,448
Non-cash interest from debt discount		4,222		3,768		10,452		11,626
Total capitalized interest	$	7,298	$	6,775	$	17,512	$	21,074

10. Stockholders’ Equity

In March 2011, we contributed approximately 1.0 million newly issued shares of our common stock, valued at $15.03 per share, to our ESOP for amounts earned by participants during the year ended December 31, 2010.

In February 2011, we contributed approximately 0.2 million newly issued shares of our common stock, valued at $16.23 per share, to our 401(k) plan for amounts earned by participants during the year ended December 31, 2010.

11. Commitments and Contingencies

We have committed to make potential future milestone payments to third parties as part of in-licensing and development programs primarily related to research and development agreements. Potential future payments generally become due and payable only upon the achievement of certain developmental, regulatory and/or commercial milestones, such as achievement of regulatory approval, successful development and commercialization of products, and subsequent product sales. Because the achievement of these milestones is neither probable nor reasonably estimable, we have not recorded a liability on the balance sheet for any such contingencies.

As of September 30, 2011, if all such milestones are successfully achieved, the potential future milestone and other contingency payments we could be required to make under certain contractual agreements are approximately $93.8 million in aggregate, of which $7.8 million are expected to be paid within the next 12 months.

We have committed to make future minimum payments to third parties for certain inventories in the normal course of business. The minimum purchase commitments total approximately $87.1 million as of September 30, 2011, of which $37.8 million relate to BYDUREON.

As of September 30, 2011, commitments associated with capital investments on the BYDUREON pen device are $8.4 million.

In December 2010, we entered into a Line of Credit and Cash Collateral Agreement with Bank of America, N.A., or Bank of America, which provides for the issuance of letters of credit and foreign exchange hedging up to the $15 million borrowing limit, and under which we agreed to deliver cash collateral to Bank of America in the amount of $15 million, which is reported as restricted cash on the accompanying consolidated balance sheets. As of September 30, 2011 we had issued $10.5 million of standby letters of credit, primarily in connection with office leases.

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12. Interest and other expense, net

For the three and nine months ended September 30, 2011 and 2010, interest and other expense, net is comprised of the following (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Interest and other income	$	854		$	833		$	1,536		$	2,017
Interest and other expense		(6,266	)		(6,337	)		(21,759	)		(18,516	)
Loss on impairment of investments		—			(198	)		—			(198	)
Total interest and other expense, net	$	(5,412	)	$	(5,702	)	$	(20,223	)	$	(16,697	)

13. Litigation

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 September 30, 2011, we and Lilly were involved in product liability cases involving plaintiffs in various courts in the United States. Certain of 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, alleged 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. These matters are at an early stage and, as a result, we cannot reasonably estimate potential losses, if any, at this time. 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.

Lilly Lawsuit

On May 13, 2011, we filed a lawsuit against Lilly in the United States District Court for the Southern District of California titled Amylin Pharmaceuticals, Inc. v. Eli Lilly & Company (Case No. 11CV1061 JLS (NLS)) alleging, among other things, that Lilly is engaging in anticompetitive activity and breaching its strategic alliance agreements with us to maximize commercialization of exenatide. In our complaint we allege that Lilly is engaging in improper, unlawful and anticompetitive conduct in the implementation of its global alliance agreement with Boehringer Ingelheim GmbH, or BI, to jointly develop and commercialize BI’s linagliptin product, which we believe competes directly with Amylin’s exenatide products. In the lawsuit, we seek permanent injunctive relief to prevent Lilly from continuing to use the same sales force to sell both exenatide and BI’s competitive linagliptin. We are also seeking, among other things, compensatory, punitive and exemplary damages and that Lilly’s actions be adjudged to be (i) in violation of federal and state antitrust and unfair competition laws, (ii) in breach of our strategic alliance agreements with Lilly and (iii) in breach of the covenant of good faith and fair dealing under such strategic alliance agreements. Motions are pending on various matters which we expect will be heard later in 2011.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Except for the historical information herein, the discussion in this quarterly report on Form 10-Q 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 under the caption “Cautionary Factors That May Affect Future Results,” as well as those discussed elsewhere in this quarterly report on Form 10-Q or in our other public disclosures. You should consider carefully those cautionary factors, together with all of the other information included in this quarterly report on Form 10-Q. Each of the cautionary 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 are not presently aware of or that we currently believe are immaterial which could also impair our business and financial position. We disclaim any obligation to update these forward-looking statements.

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 in the United States for BYDUREON^TM (exenatide extended-release for injectable suspension), an investigational sustained-release medication for type 2 diabetes that is administered only once a week. BYDUREON was approved in the European Union in June 2011 and launched in the United Kingdom and Germany during the third quarter of 2011.

In October, 2011 the FDA approved BYETTA as an add-on therapy to insulin glargine, with or without metformin and/or a thiazolidinedione (TZD), in conjunction with diet and exercise for adults with type 2 diabetes who are not achieving adequate glycemic control on insulin glargine alone. This will allow us to target a new market segment for BYETTA. We also plan to work toward increasing patient awareness and adherence of SYMLIN. We are continuing to work with the U.S. Food and Drug Administration, or FDA, to gain approval for BYDUREON. 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.

Highlights for the three months ended September 30, 2011 and recent activities include:

Exenatide

• Announced that the FDA approved BYETTA as an add-on therapy to insulin glargine, with or without metformin and/or a thiazolidinedione (TZD), in conjunction with diet and exercise for adults with type 2 diabetes who are not achieving adequate glycemic control on insulin glargine alone.

• Submitted a reply to a complete response letter by the U.S. Food and Drug Administration (FDA) regarding BYDUREON™ (exenatide extended-release for injectable suspension), which included results from a thorough QT study that showed exenatide, at and above therapeutic levels, did not prolong the corrected QT interval in healthy individuals,

• Announced that the FDA assigned a new Prescription Drug User Fee Act (PDUFA) action date of January 28, 2012 for BYDUREON.

• Presented efficacy and safety data at the European Association for the Study of Diabetes (EASD) Annual Meeting from the DURATION-3 and -4 trials. The studies demonstrated that patients treated with BYDUREON experienced significant improvements in select cardiovascular risk factors,

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including improvements in composite endpoints related to body weight, abnormal blood pressure and abnormal lipid levels, in comparison to patients who received commonly prescribed diabetes treatments.

Obesity Program

• In August 2011, announced with our partner Takeda that we are discontinuing the development of pramlintide/metreleptin for the treatment of obesity and will continue to evaluate other assets with Takeda as potential candidates for the treatment of obesity and related indications under the terms of our collaboration agreement with Takeda.

BYDUREON

We are working with Lilly and Alkermes, Inc., or Alkermes, to develop BYDUREON, an investigational sustained-release medication for type 2 diabetes that is administered once a week. In October 2010 we received a second complete response letter from the FDA 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. We initiated the study in February 2011 and in July 2011 we announced that the study met the pre-specified primary endpoint, demonstrating that exenatide at and above therapeutic levels did not prolong the corrected QT (QTc) interval in healthy individuals. Further, the study found no relationship between QTc interval and plasma exenatide concentrations. In addition, the FDA has requested the results of the 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. On July 28, 2011 we submitted a reply to the FDA’s second complete response letter and on August 10, 2011 we announced that the FDA assigned a new Prescription Drug User Fee Act (PDUFA) action date of January 28, 2012 for BYDUREON.

We have a collaboration agreement with Lilly for the global development and commercialization of exenatide. Pursuant to this agreement, Lilly will co-promote BYDUREON in the United States with us, if approved, and has primary responsibility for developing and commercializing BYDUREON outside the United States. In June 2011, Lilly announced that the European Commission granted marketing authorization to BYDUREON in the European Union for the treatment of type 2 diabetes in combination with certain oral therapies. As of September 30, 2011, BYDUREON was commercially launched in several European countries.

BYETTA and SYMLIN

BYETTA is the first approved medicine in a class of compounds called (GLP-1) receptor agonists. It is approved as a first-line, stand-alone medication, or 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, or TZD, three common oral therapies for type 2 diabetes. In October, 2011 the FDA approved BYETTA as an add-on therapy to insulin glargine, with or without metformin and/or a thiazolidinedione (TZD), in conjunction with diet and exercise for adults with type 2 diabetes who are not achieving adequate glycemic control on insulin glargine alone.

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 $128.1 million and $132.4 million for the three months ended September 30, 2011 and 2010, respectively, and $385.1 million and $422.9 million for the nine months ended September 30, 2011 and 2010, respectively.

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Pursuant to our collaboration agreement with Lilly, Lilly co-promotes BYETTA in the United States with us and has primary responsibility for developing and commercializing BYETTA outside the United States. As of September 30, 2011, BYETTA was commercially launched in over 70 countries worldwide, including the United States.

SYMLIN is the first and only approved medicine in a class of compounds called amylinomimetics. We began selling SYMLIN in the United States in April 2005 as an 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 $27.0 million and $21.6 million for the three months ended September 30, 2011 and 2010, respectively, and $75.6 million and $65.9 million for the nine months ended September 30, 2011 and 2010, respectively.

As of September 30, 2011 we had a field sales force of approximately 360 individuals who target those doctors that write the majority of BYETTA and SYMLIN prescriptions. Together with the field organization of our exenatide collaboration partner, 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 and potential benefits, identify appropriate patients and provide important use considerations. Primary care physicians write approximately 70% of diabetes prescriptions in the United States. Additionally, we have access to health care plan reimbursement of BYETTA at approximately 80% coverage nationally on tier 2, which requires a relatively low co-payment from patients who are covered under such plans.

Other Exenatide Development Programs

We continue to make 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. We expect to launch a BYDUREON pen delivery system by the end of 2012 or in early 2013. We are in the process of having regulatory interactions that will inform the design of pivotal studies for both the weekly and monthly exenatide formulations.

Lipodystrohpy and obesity

In December 2010, we submitted to the FDA the clinical and non-clinical sections of a rolling Biologics License Application, or BLA, for the use of metreleptin to treat diabetes and/or hypertriglyceridemia in pediatric and adult patients with inherited or acquired lipodystrophy. We plan to submit the chemistry, manufacturing and controls section of the BLA to the FDA in the first half of 2012. Because lipodystrophy affects a very small number of patients, metreleptin as a treatment for lipodystrophy has received orphan drug designation by the FDA. If we receive fast-track and priority-review designation, we believe this could translate to a PDUFA action date by the end of 2012.

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 compounds from our and Takeda’s obesity research programs. We are 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. The companies initially selected the combination treatment of pramlintide/metreleptin for advancement toward Phase 3 development. In August 2011, we and Takeda announced that we are discontinuing the development of pramlintide/metreleptin for the treatment of obesity and will continue to evaluate other assets as potential candidates for the treatment of obesity and related indications under the terms of the Takeda Agreement.

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Research and Development

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, a product candidate based on our Phybrid technology platform. We and Biocon plan to submit an investigational new drug application, or IND, for AC165198 by the end of 2011 followed by initiation of a phase 1 study.

Overview Summary

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 fees and expense reimbursements 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 September 30, 2011, our accumulated deficit was approximately $2.2 billion.

At September 30, 2011, we had approximately $445.8 million in cash, cash equivalents and short-term investments and $15 million of restricted cash. 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.

Application of Critical Accounting Policies

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, our actual results may differ significantly from our estimates.

There were no significant changes in critical accounting policies from those at December 31, 2010. The financial information as of September 30, 2011 should be read in conjunction with the financial statements for the year ended December 31, 2010, contained in our annual report on Form 10-K filed on February 25, 2011.

For a further discussion of our critical accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K filed on February 25, 2011.

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Results of Operations

Comparison of three and nine months ended September 30, 2011 to three and nine months ended September 30, 2010

Net Product Sales

Net product sales consist of shipments of BYETTA and SYMLIN, less allowances for product returns, rebates, wholesaler chargebacks, wholesaler discounts and prescription vouchers. The following table provides information regarding net product sales (in millions):

	Three months ended September 30,				Increase/ (Decrease)			Nine months ended September 30,				Increase/ (Decrease)
	2011		2010					2011		2010
BYETTA	$	128.1	$	132.4	$	(4.3	)	$	385.1	$	422.9	$	(37.8	)
SYMLIN		27.0		21.6		5.4			75.6		65.9		9.7
		155.1		154.0	$	1.1		$	460.7	$	488.8	$	(28.1	)

The decrease in net product sales for BYETTA in the current period primarily reflects reduced prescription demand due to new entrants to the market, partially offset by the net impact of pricing actions. The increase in net product sales for SYMLIN in the current period reflects the net impact of price actions, partially offset by reduced prescription demand.

Sales of our products in future periods may be impacted by numerous factors, including current and potential competition, the potential approval of additional products including BYDUREON, regulatory matters, legislative changes, economic factors and other environmental factors. In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, or 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. Beginning in January 2011, drug manufacturers provide a discount of 50 percent of the patient’s cost of branded prescription drugs for Medicare Part D participants who are in the “donut hole” (the coverage gap in Medicare prescription drug coverage). Our rebate allowance includes an accrual for our estimated share of the donut hole costs associated with product sales made through September 30, 2011 and was calculated using historical Part D utilization information provided by the Center for Medicare and Medicaid Services and third party market research data. The rebate allowance provided each quarter will vary depending upon estimated utilization rates.

Revenues Under Collaborative Agreements

The following table summarizes the components of revenues under collaborative agreements for the three and nine months ended September 30, 2011 and 2010 (in millions):

	Three months ended September 30,				Increase/ (Decrease)		Nine months ended September 30,				Increase/ (Decrease)
	2011		2010				2011		2010
Amortization of up-front payments and royalty revenues	$	4.9	$	1.9	$	3.0	$	10.0	$	5.6	$	4.4
Recognition of milestone payments		15.0		0.2		14.8		15.0		0.2		14.8
	$	19.9		2.1	$	17.8	$	25.0	$	5.8	$	19.2

For the three and nine months ended September 30, 2011 the amortization of the up-front payments and royalty revenues consist of the amortization of the up-front payment we received from Takeda and royalty revenues from sales of exenatide outside the United States . For the three and nine months ended September 30,

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2010 the amortization of the up-front payments and royalty revenues consist of only the amortization of the up-front payment we received from Takeda. At the end of the first quarter of 2011, the cumulative gross margin threshold for sales of exenatide outside the United States was achieved; therefore we did not record royalties during the same periods of 2010. The royalties are based on the gross profits of exenatide sales outside the United States and are tiered. Milestone payments for the three and nine months ended September 30, 2011 consist of a $15.0 million milestone payment in connection with Lilly’s July 2011 launch of BYDUREON in the European Union.

For the year ended December 31, 2011 we expect to recognize $7.5 million of collaborative revenue in connection with the ratable amortization of the up-front payment we received from Takeda. We expect the total amount of royalty revenues earned in 2011 will be less than $5 million.

Costs and Expenses

The following table provides information regarding our costs and expenses (in millions):

	Three months ended September 30,						Increase/ (Decrease)			Nine months ended September 30,						Increase/ (Decrease)
	2011			2010						2011			2010
Cost of Goods Sold	$	11.7		$	12.7		$	(1.0	)	$	36.1		$	47.6		$	(11.5	)
Gross margin %		92	%		92	%					92	%		90	%
Selling, general and administrative	$	63.1		$	70.0		$	(6.9	)	$	192.9		$	214.3		$	(21.4	)
Research and development	$	46.6		$	51.2		$	(4.6	)	$	133.5		$	145.6		$	(12.1	)
Collaborative profit sharing	$	59.0		$	61.2		$	(2.2	)	$	179.5		$	194.1		$	(14.6	)
Restructuring	$	2.5		$	6.0		$	(3.5	)	$	5.5		$	9.5		$	(4.0	)

Cost of Goods Sold

Cost of goods sold is comprised primarily of manufacturing costs associated with BYETTA and SYMLIN sales during the period. The gross margin for the three month period ended September 30, 2011 remained unchanged from the same period in 2010. The gross margin for the nine month period ended September 30, 2011 improved compared to the same period in 2010 and reflects higher net sales prices and lower unit costs driven by operating efficiencies and production volumes. For the remainder of 2011 we expect our gross margins for BYETTA and SYMLIN to be at least 90%. Quarterly fluctuations in gross margins may be influenced by product mix, pricing and the level of sales allowances.

Selling, General and Administrative Expenses

The decrease in selling, general and administrative expenses for both the three and nine months ended September 30, 2011 compared to the same periods in 2010 primarily reflects lower expenses associated with BYDUREON pre-launch activities and reduced business infrastructure spending resulting from continued efforts to drive efficiencies in the business, partially offset by increased legal expenses incurred in connection with the Lilly litigation as discussed below.

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 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

Our research and development costs are comprised of salaries and bonuses, benefits and non-cash stock-based compensation; license fees, milestones under license agreements and costs paid to third-party contractors to perform research, conduct clinical trials and develop drug materials and delivery devices; and associated

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overhead expenses 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. 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.

Our research and development efforts are focused on diabetes, obesity and other diseases. We also maintain an active discovery research program. In diabetes we are developing BYDUREON for approval in the United States. In obesity, we are evaluating certain assets with our partner Takeda as potential candidates for the treatment of obesity and related indications under the terms of our collaboration agreement with Takeda.

The following table provides information regarding our research and development expenses for our major projects (in millions):

	Three months ended September 30,				Increase/ (Decrease)			Nine months ended September 30,				Increase/ (Decrease)
	2011		2010(1)					2011		2010(1)
Diabetes(2)	$	20.9	$	29.9	$	(9.0	)	$	66.7	$	77.4	$	(10.7	)
Obesity and related indications		11.6		4.6		7.0			24.0		10.6		13.4
Research and early-stage programs		4.1		3.8		0.3			11.6		17.4		(5.8	)
Indirect costs		10.0		12.9		(2.9	)		31.2		40.2		(9.0	)
Total research and development expenses	$	46.6	$	51.2	$	(4.6	)	$	133.5	$	145.6	$	(12.1	)

(1) Research and development expenses by project for the three and nine months ended September 30, 2010 have been revised to conform to the current year presentation.

(2) Research and development expenses for our diabetes programs 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 costs. Cost-sharing payments from Lilly for BYETTA and BYDUREON development expenses were $16.7 million and $22.5 million for the three months ended September 30, 2011 and 2010, respectively and were $51.9 million and $51.2 million for the nine months ended September 30, 2011 and 2010, respectively.

The decrease in research and development expenses for the both the three and nine months ended September 30, 2011 as compared to the same periods in 2010 largely reflects our ongoing efforts to reduce our infrastructure costs. The decreased spending for our diabetes program for both the three and nine months ended September 30, 2011 compared to the same periods of 2010 was due to reduced spending for BYDUREON pre-launch inventory manufacturing. For the nine months ended September 30, 2011, the decreased spending for BYDUREON pre-launch inventory manufacturing was partially offset by increased spending on our BYDUREON cardiovascular outcomes study (EXSCEL). The increased spending on programs for obesity and related indications for both the three and nine months ended September 30, 2011 compared to the same periods of the prior year related to spending on our lipodystrophy development program and a one- time contract termination charge associated with the third quarter discontinuation of the pramlintide/metreleptin program for obesity. The decreased spending for our research and early-stage programs for the nine months ended September 30, 2011 compared to the same period of 2010, as well as the decreased in spending for our indirect costs for both the three and nine months ended September 30, 2011 compared to the same periods of 2010, reflect our ongoing efforts to manage our expenses.

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Collaborative Profit Sharing

Collaborative profit sharing was $59.0 million and $61.2 million for the three months ended September 30, 2011 and 2010, respectively, and $179.5 million and $194.1 million for the nine months ended September 30, 2011 and 2010, respectively, and consists of Lilly’s 50% share of the gross margin for BYETTA in the United States.

Restructuring

The restructuring charges recorded for the three months ended September 30, 2011 and 2010 primarily consist of facilities-related charges, and the restructuring charges recorded for the nine months ended September 30, 2011 and 2010 consist of employee separation costs and facilities-related charges. The facilities-related restructuring charges recorded in the three months ended September 30, 2011 relate to revised estimated losses associated with the San Diego facility leases we ceased using in 2008 based upon recently executed sub-lease agreements and a related reassessment of current market conditions. We are continuing to assess our facility requirements for our San Diego campus and may record additional facilities-related charges over the next several quarters, but cannot quantify the amount at this time.

Interest and Other Expense, net

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

	Three months ended September 30,						Increase/ (Decrease)		Nine months ended September 30,						Increase/ (Decrease)
	2011			2010					2011			2010
Interest and other income	$	0.9		$	0.8		$	0.1	$	1.5		$	2.0		$	(0.5	)
Interest and other expense		(6.3	)		(6.3	)		—		(21.7	)		(18.5	)		(3.2	)
Loss on impairment of investments		—			(0.2	)		0.2		—			(0.2	)		0.2
Total interest and other expense, net	$	(5.4	)	$	(5.7	)	$	0.3	$	(20.2	)	$	(16.7	)	$	(3.5	)

Interest and other income consist primarily of interest income from investment of cash and other investments. Interest and other income in the three months ended September 30, 2011 remained largely unchanged from the same period of 2010. Interest and other income decreased to $1.5 million for the nine months ended September 30, 2011 from $2.0 million for the same period in 2010. The decrease primarily reflects lower average balances available for investment and lower interest rates earned on our short-term investments in the nine months ended September 30, 2011 as compared to the same period in 2010.

Interest and other expense consist primarily of interest expense resulting from our long-term debt obligations and amortization of debt issuance costs, net of amounts capitalized, and foreign exchanges gains and losses. Interest and other expense in the three months ended September 30, 2011 consists of interest on our $575 million par value of outstanding convertible senior notes, interest on our $165 million loan from Lilly and the amortization of associated debt issuance costs. Total interest and other expense, net, for the three months ended September 30, 2011 was largely unchanged from the same period of 2010.

Interest and other expense in the nine months ended September 30, 2011 consists of interest on both the $575 million par value of outstanding convertible senior notes and the $200 million par value of outstanding convertible senior notes that matured and were repaid in April 2011, interest on our $165 million loan from Lilly and the amortization of associated debt issuance costs. During the second quarter of 2011 we drew down $165 million from the Lilly Loan. The increase in interest and other expense for the nine months ended September 30, 2011 primarily reflects a decrease in the interest capitalized to our Ohio manufacturing facility.

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Net Loss

Our net loss for the nine months ended September 30, 2011 was $81.9 million compared to a net loss of $133.1 million for the same period in 2010. The decrease in net loss primarily reflects decreased selling, general and administrative expenses, research and development expenses and collaborative profit-sharing discussed above, partially offset by decreased net product sales. We may incur operating losses for the next few years. Our ability to reach profitability in the future will be heavily dependent upon the level 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 continue 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 in the United States, 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 September 30, 2011, we had approximately $445.8 million in cash, cash equivalents and short-term investments, compared to $442.7 million at December 31, 2010. Our $200 million of 2.5% convertible senior notes were repaid on April 15, 2011 and in May 2011 we drew $165 million from the line of credit available from Lilly described below. 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. We continue to evaluate opportunities to refinance existing indebtedness or raise additional funds. 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 provided cash of $69.0 million and used cash of $43.6 million for our operating activities in the nine months ended September 30, 2011 and 2010, respectively. Our cash provided by operating activities in the nine months ended September 30, 2011 included cash provided due to decreases in inventories and other current assets of $12.2 million and $7.7 million, respectively, and increases in accounts payable and accrued liabilities, accrued compensation and deferred collaborative profit sharing of $16.7 million, $13.9 million and $16.0 million, respectively. The decrease in inventories largely reflects reductions in raw materials and finished goods inventory due to the timing and volume of production for BYETTA and SYMLIN. The decrease in other current assets is largely due to the receipt of a $10 million milestone payment from Lilly resulting from the December 2010 launch of BYETTA in Japan offset by an increase in amounts due to us from our collaborative partner, Takeda, in connection with the obesity program. The increase in accounts payable and accrued liabilities relates to an accrual for a one- time contract termination charge associated with the third quarter discontinuation of the pramlintide/metreleptin program for obesity, as well as an increase in accrued interest on debt due to the timing of interest payments. The increase in accrued compensation is due to accruals for bonuses; our management did not pay the corporate bonus for the year ended December 31, 2010. 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 improvement in operating cash flows for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 is largely due to improvements in cash flows from working capital changes resulting from our efforts to manage our expenses. As we prepare for the United States commercial launch of BYDUREON, if approved, we expect our cash requirements for working capital will increase.

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Our investing activities used cash of $99.4 million and provided cash of $88.6 million for the nine months ended September 30, 2011 and 2010, respectively. Investing activities in both quarters consisted primarily of purchases and sales of short-term investments and purchases of property, plant and equipment, net. Purchases of property, plant and equipment, net decreased to $41.3 million for the nine months ended September 30, 2011 from $75.6 million for the nine months ended September 30, 2010. The decrease in purchases of property reflects a reduction in purchases associated with our BYDUREON manufacturing facility, offset by costs incurred in connection with the BYDUREON pen device. Through September 30, 2011, we had expended $637.7 million associated with the construction of the BYDUREON manufacturing facility, which includes costs associated with the construction of the facility, purchase and installation of equipment and capitalized labor and materials required to validate the facility. The initial capital investment for the pen device is expected to be $216.0 million and is being funded 60% by Lilly and 40% by us. Through September 30, 2011 we have incurred $204.9 million in capital expenditures associated with the pen device and incurred total combined capital expenditures for the manufacturing facility and the pen device of $842.6 million. We have billed Lilly $103.8 million for its share of expenditures for the pen device and have received $99.7 million to date, of which $13.2 million is included in cash used for operating activities as discussed above. Additionally, we expect that our use of cash for capital expenditures will continue to decrease for the remainder of 2011 as compared to 2010 and will be principally focused on strategically investing in exenatide life cycle management, of which Lilly shares 60% of the costs. We will continue to evaluate potential additional investments in our Ohio manufacturing facility during the product lifecycle for BYDUREON, if approved in the United States.

Financing activities used cash of $26.7 million and $8.2 million for the nine months ended September 30, 2011 and 2010, respectively. Financing activities in the nine months ended September 30, 2011 include the repayment of our $200 million of 2.5% convertible senior notes, proceeds of $8.3 million from both the exercise of stock options and employee stock purchases through our employee stock purchase plan and proceeds of $165.0 million from a line of credit from Lilly. 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, and in May 2011 we drew $165 million on this line of credit. Interest due under this credit facility bears interest at 5.51% and is payable quarterly. All outstanding principal, together with all accrued and unpaid interest, are due and payable in May 2014.

Financing activities for the nine months ended September 30, 2010 include $23.4 million in principal payments of our term loan, partially offset by proceeds of $15.2 million from the exercise of stock options and proceeds from our employee stock purchase plan.

As of September 30, 2011 we had $10.5 million of standby 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.

The following table summarizes our contractual obligations and maturity dates as of September 30, 2011 (in thousands):

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Long-term convertible debt	$	575,000	$	—	$	575,000	$		$	—
Interest on long-term convertible debt		51,750		17,250		34,500		—		—
Note payable to collaborative partner		165,000		—		165,000		—		—
Interest on note payable to collaborative partner		24,064		9,090		14,974		—		—
Inventory purchase obligations		87,068		61,806		25,262		—		—
Construction contracts		8,400		8,400		—		—		—
Operating leases		173,946		28,147		57,362		43,570		44,867
Total(1)	$	1,085,228	$	124,693	$	872,098	$	43,570	$	44,867

(1) Excludes long-term obligation of $7.1 million related to deferred compensation, the payment of which is subject to elections made by participants that are subject to change.

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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 $7.9 million associated with licensing agreements in the next 12 months. Additional milestones and other contingency payments of up to approximately $86.0 million could be paid if development and commercialization of all our early stage programs continue and are successful. The significant 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, these payments would signify that the related products are moving successfully through development and commercialization.

Our future capital requirements will depend on many factors, including: the level of product sales we and Lilly achieve for BYETTA and BYDUREON, if approved in the United States, 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 in the United States; 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 3. Quantitative and Qualitative Disclosures about Market Risk

We invest our excess cash primarily in United States Government securities, asset-backed securities, and debt instruments of financial institutions and corporations with investment-grade credit ratings. These instruments have various short-term maturities. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions in any material fashion. Accordingly, we believe that, while the instruments held are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive investments. Our debt is not subject to significant swings in valuation due to changes in interest rates as interest rates on our debt are fixed. The fair value of our 2007 Notes at September 30, 2011 was approximately $511.8 million. A hypothetical 1% adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of our financial instruments that are exposed to changes in interest rates.

ITEM 4. Controls and Procedures

As of September 30, 2011, an evaluation was performed under the supervision and with the participation of our management, including our President and Chief Executive Officer (referred to as our CEO) and our Senior Vice President, Finance and Chief Financial Officer (referred to as our CFO), of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective at a reasonable level of assurance as of September 30, 2011.

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Our management does not expect that our disclosure control and procedures or our internal control over financial reporting will prevent all error and all 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, in light of the foregoing we intend to continue to examine and refine our disclosure controls and procedures and internal control over financial reporting.

An evaluation was also performed under the supervision and with the participation of our management, including our CEO and CFO, of any change in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting that occurred during our latest fiscal quarter and that has materially affected, or is reasonably likely to affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. 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 September 30, 2011, we and Lilly were involved in approximately 109 separate product liability cases involving approximately 502 plaintiffs in various courts in the United States. Approximately 70 plaintiffs who previously filed cases have subsequently dismissed their cases or claims without prejudice. Certain of 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, alleged 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.

Lilly Lawsuit

On May 13, 2011, we filed a lawsuit against Lilly in the United States District Court for the Southern District of California titled Amylin Pharmaceuticals, Inc. v. Eli Lilly & Company (Case No. 11CV1061 JLS (NLS)) alleging, among other things, that Lilly is engaging in anticompetitive activity and breaching its strategic alliance agreements with us to maximize commercialization of exenatide. In our complaint we allege that Lilly is engaging in improper, unlawful and anticompetitive conduct in the implementation of its global alliance agreement with Boehringer Ingelheim GmbH, or BI, to jointly develop and commercialize BI’s linagliptin product, which we believe competes directly with Amylin’s exenatide products. In the lawsuit, we seek permanent injunctive relief to prevent Lilly from continuing to use the same sales force to sell both exenatide and BI’s competitive linagliptin. We are also seeking, among other things, compensatory, punitive and exemplary damages and that Lilly’s actions be adjudged to be (i) in violation of federal and state antitrust and unfair competition laws, (ii) in breach of our strategic alliance agreements with Lilly and (iii) in breach of the covenant of good faith and fair dealing under such strategic alliance agreements.

Item 1A. Risk Factors

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

The following sets forth cautionary factors that may affect our future results, including clarifications to the cautionary factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

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 $81.9 million for the nine months ended September 30, 2011, $152.3 million in 2010, $186.3 million in 2009 and $321.9 million in 2008. As of September 30, 2011, we had an accumulated deficit of approximately $2.2 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, SYMLIN and, if approved in the United States,

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BYDUREON 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 in the United States, 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 depends solely on the success of these products and, if approved in the United States, BYDUREON. BYDUREON received marketing authorization from the European Commission in June 2011. The ability of BYETTA, SYMLIN and, if approved in the United States, 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 FDA approval for BYDUREON and the timing of the commercial launch of BYDUREON, if approved in the United States;

• 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

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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.

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.

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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 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.

Amylin’s manufacturing facility has been approved by the EMA for manufacturing BYDUREON for commercial distribution in the European Union. In order to manufacture BYDUREON at full scale, we must obtain approval for our manufacturing facility from the FDA. We cannot assure you that we will be able to successfully establish or operate such a facility in accordance with FDA regulations. The FDA has 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 the United States 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 in the United States, 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.

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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 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 which Lilly has announced includes a SGLT-2 inhibitor and a DPP-IV inhibitor that has recently been approved by the FDA and the European Commission. These products all compete for patients in the diabetes space. 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

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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, for example:

• 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

• 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;

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• 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 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 or BYDUREON 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.

In May 2011, we filed a lawsuit against Lilly in the United States Court for the Southern District of California, alleging, among other things, that Lilly is engaging in anticompetitive activity and breaching its strategic alliance agreements with us to maximize commercialization of exenatide. We cannot predict the outcome of this lawsuit or the impact it will have on our exenatide development and commercialization collaboration with Lilly. Further, we cannot assure you that the lawsuit will produce the results we are seeking.

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

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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 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

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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.

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

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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 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 in the United States, 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 $575 million in outstanding principal amount of convertible senior notes due in 2014, referred to as the 2007 Notes, and $165 million of an unsecured line of credit made available to us from Lilly that is due in 2014, referred to as the Lilly Loan.

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.

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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.

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 September 30, 2011, we were involved in approximately 109 separate product liability cases, certain of which cases have been brought by individuals who allege they have used BYETTA and generally seek compensatory and punitive damages for alleged injuries, consisting primarily of pancreatitis and, in some cases, alleged 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, BYDUREON and any other sustained-release formulations of BYETTA, 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 by the FDA, 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

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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 June 2007, we issued $575 million of the 2007 Notes and in May 2011 we drew $165 million from the Lilly Loan. Our ability to make payments on our debt, including the 2007 Notes and the Lilly Loan will depend on our future operating performance and ability to generate cash and may also depend on our ability to obtain additional debt or equity financing. During four of the last five years, our operating cash flows were negative and insufficient to cover our fixed costs. We may need to use our cash to pay principal and interest on our debt, thereby reducing the funds available to fund our research and development programs, strategic initiatives and working capital requirements. Our ability to generate sufficient operating cash flow to service our indebtedness, including the 2007 Notes and the Lilly Loan and fund our operating requirements will depend on our ability, alone or with others, to successfully develop, manufacture, obtain required regulatory approvals for and market our drug candidates, as well as other factors, including general economic, financial, competitive, legislative and regulatory conditions, some of which are beyond our control. Our debt service obligations increase our vulnerabilities to competitive pressures because many of our competitors are less leveraged than we are. If we are unable to generate sufficient operating cash flow to service our indebtedness and fund our operating requirements, we may be forced to reduce or defer our development programs, sell assets or seek additional debt or equity financing, which may not be available to us on satisfactory terms or at all. Our level of indebtedness may make us more vulnerable to economic or industry downturns. If we incur new indebtedness, the risks relating to our business and our ability to service our indebtedness will intensify.

We may be required to redeem our convertible senior notes upon a designated event.

Holders of the 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 2007 Notes upon a designated event. If we are prohibited from redeeming the 2007 Notes, we could seek consent from our lenders to redeem the 2007 Notes. If we are unable to obtain their consent, we could attempt to refinance the 2007 Notes. If we were unable to obtain a consent or refinance, we would be prohibited from redeeming the 2007 Notes. If we were unable to redeem the 2007 Notes upon a designated event, it would result in an event of default under the indentures governing the 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

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success. We may not be able to attract and retain these personnel and consultants on acceptable terms given the competition between numerous pharmaceutical and biotechnology companies. We do not maintain “key person” insurance on any of our employees.

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

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

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

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

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

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

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

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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 42% of our common stock.

As of September 30, 2011, executive officers, directors and holders of approximately 5% or more of our outstanding common stock, in the aggregate, owned or controlled approximately 42% 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 9.4 million shares. In addition, the existence of these notes may encourage short selling of our common stock by market participants.

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

The market prices for securities of biopharmaceutical and biotechnology companies, including our common stock, have historically been highly volatile, and the market from time to time has experienced significant price

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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
Fourth Quarter (through October 21, 2011)	$	12.09	$	8.03
Third Quarter	$	14.60	$	9.12
Second Quarter	$	14.28	$	11.00
First Quarter	$	16.65	$	10.25
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 6. Exhibits

The following exhibits are included as part of this report:

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation (filed as an exhibit to Registrant’s registration statement on Form S-1 (File No. 333-44195) or amendments thereto and incorporated herein by reference)
3.2	Fourth Amended and Restated Bylaws (filed as an exhibit to Registrant’s Current Report on Form 8-K filed on December 8, 2008 and incorporated herein by reference)
3.3	Certificate of Amendment of Amended and Restated Certificate of Incorporation (filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 and incorporated herein by reference)
3.4	Certificate of Amended and Restated Certificate of Incorporation (filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference)
4.1	Specimen Common Stock Certificate (filed as an exhibit to Registrant’s registration statement on Form S-1 (File No. 333-44195) or amendments thereto and incorporated herein by reference)
4.2	Rights Agreement, dated as of June 17, 2002, between the Registrant and American Stock Transfer & Trust Company (filed as an exhibit to Registrant’s Current Report on Form 8-K filed on June 18, 2002 and incorporated herein by reference)
4.3	First Amendment to Rights Agreement dated December 13, 2002, between the Registrant and American Stock Transfer & Trust Company (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)
4.4	Form of Rights Certificate (filed as an exhibit to Registrant’s Current Report on Form 8-K filed on June 18, 2002 and incorporated herein by reference)
4.5	Certificate of Designation of Series A Junior Participating Preferred Stock (filed as an exhibit to Registrant’s Current Report on Form 8-K filed on June 18, 2002 and incorporated herein by reference)
4.6	Loan Agreement, dated October 16, 2008, between Registrant and Eli Lilly and Company (filed as an exhibit to Registrant’s Annual Report on Form 10-K filed on February 27, 2009 and incorporated herein by reference)
10.1	Amendment to Device Development and Manufacturing Agreement, dated July 8, 2011, between Registrant and Eli Lilly and Company.
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 Sarbanes-Oxley Act of 2002
101	The following financial statements and footnotes from the Amylin Pharmaceuticals, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Cash Flows; and (iv) the notes to the consolidated financial statements

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SIGNATURE

Pursuant to the requirements 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: October 28, 2011	By:	/s/ MARK G. FOLETTA
		Mark G. Foletta,
		Senior Vice President, Finance and Chief Financial Officer (on behalf of the registrant and as the registrant’s principal financial and accounting officer)

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