Summary Of Significant Accounting Policies (Policy)

6 Months Ended

Jun. 30, 2012

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 June 30, 2012, and for the six months ended June 30, 2012 and 2011, 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, 2011 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, 2011.

Revenue Recognition

Net Product Sales

We sell BYDUREON^TM(exenatide extended-release for injectable suspension) and BYETTA^TM(exenatide) injection for the treatment of type 2 diabetes and SYMLIN^TM(pramlintide acetate) injection for the treatment of type 1 and type 2 diabetes primarily to wholesale distributors, who, in turn, sell to retail pharmacies and government entities. Product sales are recognized when delivery of the products has occurred, title has passed to the customer, the selling price is fixed or determinable, collectability is reasonably assured and we have no further obligations. We record product sales net of allowances for product returns, rebates, wholesaler chargebacks, wholesaler discounts and prescription vouchers at the time of sale and report product sales net of such allowances. We must make significant judgments in determining these allowances. If actual results differ from our estimates, we will be required to make adjustments to these allowances in the future.

We record all United States BYDUREON, BYETTA and SYMLIN product sales. With respect to BYETTA, under our former collaborative agreement with Lilly for the six months ended June 30, 2011 we determined that we were qualified as a principal based on our responsibilities under our contracts with Lilly which included 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. As further described in Note 6, as a result of our November 2011 Settlement and Termination Agreement with Lilly, the Termination Agreement, full responsibility for the commercialization of exenatide in the U.S. was transferred to Amylin effective November 30, 2011.

Revenues Under Collaborative Agreements

Revenues under collaborative agreements consist of the amortization of product and technology license fees, milestone payments earned 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 U.S. and is recorded based upon gross margins for such sales.

Collaborative Profit-Sharing

Collaborative profit-sharing relates to our former collaborative agreement with Lilly and represents Lilly’s 50% share of the gross margin for BYETTA sales in the United States. As further described in Note 6, as a result of the Termination Agreement, full responsibility for the commercialization of exenatide in the U.S. was transferred to Amylin effective November 30, 2011, therefore we no longer record collaborative profit-sharing in connection with sales of exenatide products in the United States.

Accounts Receivable

Trade accounts receivable are recorded net of allowances for cash discounts for prompt payment, doubtful accounts, product returns and chargebacks. Allowances for rebate discounts and distribution fees are included in other current liabilities in the accompanying consolidated balance sheets. Estimates for allowances for doubtful accounts are determined based on existing contractual obligations, historical payment patterns and individual customer circumstances. The allowance for doubtful accounts was $0.2 million and $2.1 million at June 30, 2012 and December 31, 2011, respectively.

Fair Value Measurements

We have certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.

The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or 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.

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 as of June 30, 2012 and December 31, 2011 (in thousands):



	Fair value measurements as of
	June 30, 2012
	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	95,237	$	40,850	$	54,387	$	—
Short-term investments
Certificate of deposit	3,000		3,000		—		—
Obligations of U.S. Government-sponsored enterprises	38,608		—		38,608		—
Corporate debt securities	78,228		—		78,228		—
Commercial paper	113,287		—		113,287		—
Restricted cash	10,673		10,673		—		—
Deferred compensation plan assets	9,950		2,485		7,465		—
Embedded derivative (2)	1,188		—		—		1,188
	$	350,171	$	57,008	$	291,975	$	1,188
Liabilities:
Deferred compensation plan liabilities	$	9,950	$	2,485	$	7,465	$	—
Loss protection liability carried at fair value (3)	50,566		—		—		50,566
	$	60,516	$	2,485	$	7,465	$	50,566

	Fair value measurements as of
	December 31, 2011
	Total		Level 1 (1)		Level 2 (1)		Level 3
Assets:
Cash and cash equivalents	$	99,859	$	61,850	$	38,009	$	—
Short-term investments
Obligations of U.S. Government-sponsored enterprises	40,872		—		40,872		—
Corporate debt securities	63,334		—		63,334		—
Restricted cash	10,519		10,519		—		—
Deferred compensation plan assets	8,192		990		7,202		—
Embedded derivative (2)	7,691		—		—		7,691
	$	230,467	$	73,359	$	149,417	$	7,691
Liabilities:
Deferred compensation plan liabilities	$	8,192	$	990	$	7,202	$	—
Loss protection liability carried at fair value (3)	46,419		—		—		46,419
	$	54,611	$	990	$	7,202	$	46,419

(1) During 2012, the company changed how it categorizes amounts within the fair value hierarchy and thus, certain amounts now reported as Level 2 fair value instruments at June 30, 2012 were previously shown as Level 1 and have been reclassified.

(2) The embedded derivative is associated with the promissory note related to the Revenue Sharing Obligation, or RSO, issued in connection with the Termination Agreement (see Note 6). The embedded derivative represents embedded options which would allow Amylin to discharge all or a portion of the obligation under certain circumstances (see Note 8 for the terms of the RSO). The fair value of the embedded derivative is calculated using a probability weighted expected return method, or PWERM. Significant inputs to the valuation include the following:


•	Management's estimates of total revenue of exenatide products over the period in which the RSO is to be repaid;


•	A variety of scenarios under which management estimated the probability that BYDUREON^TM (exenatide for extended-release injectable suspension) would be approved by the U.S. Food and Drug Administration , or the FDA, prior to June 30, 2014;


•	A variety of scenarios under which all exenatide products would be removed from certain geographic markets for safety or efficacy reasons and remain unsalable for four consecutive years.

(3) The loss protection liability arose in connection with the Termination Agreement (see Note 6) and relates to payments required to be made prior to the final transfer of the markets outside the United States from Lilly to Amylin. The maximum that could be paid under the loss protection liability is $60.0 million over the period January 1, 2012 through December 31, 2013. The fair value of the loss protection liability is calculated using a PWERM. Significant inputs to the valuation include the following:


•	Financial projections for markets outside the United States, or the OUS markets, which were provided to Amylin's management by Lilly;


•	A variety of scenarios under which management estimated the extent to which these financial projections would be achieved, and the resulting payouts of the amounts that could be made for the twelve months ended December 31, 2012 and 2013.

The greatest drivers of variability in this liability are the estimated losses subject to the guarantee and variations in the discount rates used in the valuation.

The following table presents a reconciliation of the assets and liabilities measured at fair value on a quarterly basis using significant unobservable inputs (Level 3) from January 1, 2012 to June 30, 2012 (in thousands):



	Three Months Ended June 30,					Six Months Ended June 30,
	2012			2011		2012			2011
Assets:
Embedded derivative:
Beginning of period balance:	$	2,441		$	—	$	7,691		$	—
Adjustment to fair value charged to interest and other expense, net	(1,253		)	—		(6,503		)	—
End of period balance:	$	1,188		$	—	$	1,188		$	—


	Three Months Ended June 30,					Six Months Ended June 30,
	2012			2011		2012			2011
Liabilities:
Loss protection liability carried at fair value:
Beginning of period balance:	$	50,366		$	—	$	46,419		$	—
Adjustment to fair value charged to operating expense	200			—		4,147			—
Balance at June 30, 2012	$	50,566		$	—	$	50,566		$	—

As mentioned in the notes to the fair value tables above, the RSO contains provisions whereby Amylin's obligation under the RSO could change or be discharged. These provisions represent options embedded within the RSO and are recorded as embedded derivative assets. The fair value adjustments related to the embedded derivative asset recorded during the three months ended June 30, 2012 represents the change in the fair value of the embedded option that would allow Amylin to discharge all or a portion of the RSO obligation in the event that all exenatide products were removed from certain geographic markets for safety or efficacy reasons and remain unsalable for four consecutive years. The fair value adjustment related to the embedded derivative recorded during the six months ended June 30, 2012 represents both the aforementioned adjustment for the three month period as well as a decline in the fair value of the embedded option that relates to BYDUREON approval. Specifically, in the event Amylin did not receive FDA approval of BYDUREON by June 30, 2014, the RSO could have been fully discharged. As FDA approval of BYDUREON was received on January 27, 2012, the option to discharge the RSO obligation is no longer available to us, therefore the value of the related embedded option was reduced to zero.

The fair value adjustment related to the loss protection liability arose from our quarterly assessment of the fair value of the estimated loss protection we would be likely to pay to Lilly under this obligation and the fair value adjustments recorded for both the three and six month periods ended June 30, 2012 are primarily related to changes in the discount rate based on the contractual timing of the payment.

Research And Development Expenses

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. Reimbursed research and development costs under collaborative arrangements are recorded as a reduction to research and development expenses and are recognized in the period in which the related costs are incurred. Clinical trial costs, including costs associated with third-party contractors, are a significant component of research and development expenses. Invoicing from third-party contractors for services performed can lag several months. We accrue the costs of services rendered in connection with such activities based on our estimate of management fees, site management and monitoring costs and data management costs. Actual clinical trial costs may differ from estimates and are adjusted in the period in which they become known.

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 June 30,		Six months ended June 30,
	2012	2011	2012	2011
Antidilutive options and awards to purchase common stock	3,636	441	2,649	491
Antidilutive shares underlying convertible senior notes	9,416	10,375	9,416	12,793
	13,052	10,816	12,065	13,284

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.

Accounting For Stock-Based Compensation

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.

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

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income ” (ASU 2011-05). This newly issued accounting standard (1) eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity; (2) requires the consecutive presentation of the statement of net income and other comprehensive income; and (3) requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income nor do the amendments affect how earnings per share is calculated or presented. In December 2011, the FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 , which defers the requirement within ASU 2011-05 to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. During the deferral, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect prior to the issuance of ASU 2011-05. We adopted both ASUs effective January 1, 2012. The adoption of this new guidance did not have a material impact on our financial statements.

In May 2011, the FASB issued ASU No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements". The guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, the guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. We adopted this ASU effective January 1, 2012. The adoption of this new guidance did not have a material impact on our financial statements.