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 diseases through the discovery, development and commercialization of innovative medicines. We have developed and gained approval for two first-in-class medicines to treat diabetes, BYETTA® (exenatide) injection and SYMLIN® (pramlintide acetate) injection, both of which were commercially launched in the United States during the second quarter of 2005. BYETTA was approved in the European Union, or EU, in 2006 and our collaboration partner, Eli Lilly and Company, or Lilly, has commercially launched BYETTA in 60 countries as of September 30, 2009. Our near-term business strategy is to create value for patients and our stockholders by capitalizing on market drivers, such as the recent inclusion by the American Diabetes Association, or ADA, of BYETTA as the only new addition to their treatment guidelines. Our focus remains on increasing BYETTA and SYMLIN revenue, preparing for the successful launch of exenatide once weekly, if approved, continuing to significantly improve operating results and progressing toward sustainable positive operating cash flow by the end of 2010. Our long-term strategy is focused on making prudent investment decisions based on strong clinical data to advance our obesity program. In October 2009, the American Association of Clinical Endocrinologists (AACE) and the American College of Endocrinology (ACE) also approved new treatment guidelines with the inclusion of BYETTA for the successful treatment of patients with type 2 diabetes.

BYETTA is the first and only approved medicine in a new class of compounds called glucagon-like peptide-1, or GLP-1, receptor agonists. We began selling BYETTA in the United States in June 2005. BYETTA has been approved in the United States for the treatment of patients with type 2 diabetes who have not achieved adequate glycemic control and are using metformin, a sulfonylurea and/or a thiazolidinediene, or TZD, three common oral therapies for type 2 diabetes. In October 2009, the FDA approved an expanded indication for BYETTA as a stand-alone medication (monotherapy) along with diet and exercise to improve glycemic control in adults with type 2 diabetes. The FDA also approved changes to the BYETTA label to incorporate updated safety information, including pancreatitis-related safety language and an expansion of existing language regarding use of BYETTA in patients with renal impairment. In October 2008, the ADA and the European Association for the Study of Diabetes, or EASD, updated their type 2 diabetes treatment guidelines, placing the GLP-1 receptor agonist class, of which BYETTA is the only approved product, as a secondary treatment option for type 2 diabetes patients. Prescriptions declined in the second half of 2008. During that time period we committed our field resources to educating the medical community on the facts about BYETTA, pancreatitis and the product's safety profile. We believe the decline in BYETTA prescriptions and demand for the product continued to stabilize during the quarter ended September 30, 2009. Net product sales of BYETTA were $171.1 million and $179.9 million for the three months ended September 30, 2009 and 2008, respectively, and $503.9 million and $515.9 million for the nine months ended September 30, 2009 and 2008, respectively.

We have an agreement with Lilly for the global development and commercialization of exenatide. This agreement includes BYETTA and any sustained-release formulations of exenatide such as exenatide once weekly, our once weekly formulation of exenatide for the treatment of type 2 diabetes. Under the terms of the agreement, operating profits from products sold in the United States are shared equally between Lilly and us. The 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 will commence after a one-time cumulative gross margin threshold amount has been met. We expect royalty payments to commence in 2010. Lilly is responsible for 100% of the costs related to development of exenatide once weekly and twice-daily BYETTA for sale outside of the United States. Lilly is responsible for commercialization and all of the costs related to commercialization of all exenatide products for sale outside of the United States.

In the second quarter of 2009, we entered into several agreements with Lilly that will enable us to improve the operational effectiveness and efficiency of our collaboration agreement. In April 2009, we and Lilly announced the restructuring of our exenatide operations in order to improve alliance effectiveness, increase financial and operational efficiencies and maximize the value of BYETTA and exenatide once weekly. In May 2009, we and Lilly entered into a cost allocation agreement which amends the exenatide development and commercialization cost-sharing provisions contained in the collaboration agreement.

SYMLIN is the first and only approved medicine in a new class of compounds called amylinomimetics. We began selling SYMLIN in the United States in April 2005. Symlin is approved in the United States for the treatment of patients with either type 1 or type 2 diabetes who are treated with mealtime insulin but who have not achieved adequate glycemic control. In early 2008, we commercially launched the SymlinPen® 120 and SymlinPen® 60 pen injector devices in the United States. These pre-filled pen-injector devices feature simple, fixed dosing to improve mealtime glucose control. Net product sales of SYMLIN were $21.8 million and $21.5 million for the three months ended September 30, 2009 and 2008, respectively, and $65.8 million and $64.5 million for the nine months ended September 30, 2009 and 2008, respectively.

In May 2009, we announced a restructuring of our sales force that merged our existing primary care and specialty sales forces into a single specialty sales organization. This new sales force will be focused on targeting those doctors that write the majority of BYETTA and SYMLIN prescriptions. This sales-force restructuring reduced our total number of sales representatives by approximately 200 employees. We incurred restructuring charges of $11.4 million during the nine months ended September 30, 2009. Following this restructuring we have a field force of approximately 390 people dedicated to marketing BYETTA and SYMLIN in the United States. Our field force includes our specialty sales force, and managed care and government affairs organizations. Lilly co-promotes BYETTA in the United States.

In addition to our marketed products, we are working with Lilly and Alkermes, Inc. to develop exenatide once weekly. We are also working with Parsons, Inc. on the construction of a manufacturing facility for exenatide once weekly in Ohio. We substantially completed the construction of this facility in 2008. We are now manufacturing exenatide once weekly at commercial scale in this facility and using this material in clinical trials. In March 2009, we reported that analysis of data from the ongoing extension of our DURATION-1 study designed to provide the data required to demonstrate comparability of commercial and development drug lots to support theregulatory submission of exenatide once weekly have been successfully completed and are part of the NDA submitted to FDA in May 2009. The FDA filed the NDA submission in July 2009 and the application has a ten month review period. In March 2009, we also announced that a meta-analysis of primary cardiovascular events across controlled clinical studies of three months or greater, from the BYETTA database, showed no increased risk of cardiovascular events associated with exenatide use and that these findings will be used to support the cardiovascular safety of exenatide once weekly.

In March 2009 and July 2009, we announced positive results from DURATION-2 and DURATION-3, respectively, the second and third in a series of six of such studies designed to test the superiority of exenatide once weekly compared to other diabetes therapies. In DURATION-2 exenatide once weekly demonstrated superior glucose control with weight loss and no increase in hypoglycemia compared to maximum doses of sitagliptin or pioglitazone. In DURATION-3 exenatide once weekly demonstrated superior glucose control with weight loss and with less hypoglycemia compared to insulin glargine. During the remainder of 2009, we remain focused on building a superior profile for exenatide once weekly by conducting clinical studies that compare exenatide once weekly against competing products. The objective of these studies is to support the launch of exenatide once weekly and demonstrate superiority and the transformational nature of our exenatide once weekly therapy.

In November 2008, we announced a strategic restructuring and workforce reduction that reduced the size of our San Diego workforce by approximately 25%, or 330 employees. The goal of the restructuring was to better align our cost structure with anticipated revenues and is part of our business plan to achieve positive operating cash flow by the end of 2010. Additionally, in May 2009, we announced the restructuring of our sales force as discussed above. We continue to believe we have the appropriate resources to market BYETTA and SYMLIN, bring exenatide once weekly to market as soon as possible, and continue to advance our obesity programs.

Our long-term growth strategy is focused on making prudent investment decisions based on strong clinical data to advance our obesity program and includes our Integrated Neurohormonal Therapies for Obesity strategy. In July 2009, we announced positive results from a 28-week dose-ranging study of pramlintide/metreleptin, a combination treatment comprising pramlintide, an analog of the natural hormone amylin, and metreleptin, an analog of the natural hormone leptin, in overweight and obese patients. This Phase 2 study successfully characterized patients who responded best to treatment and also provided important information to inform dose selection. In 2009, we plan to continue the development of a potential obesity medicine that is a combination of pramlintide and metreleptin and the development of a second generation amylinomimetic, now known as davalintide (formerly known as AC2307). Davalintide is now in a Phase 2 clinical study and we expect to report data from this study by the end of 2009.

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 other indications. The agreement includes

pramlintide/metreleptin, davalintide and additional compounds from both companies' obesity research programs. We will receive a one-time up-front payment of $75 million from Takeda and, in relation to the compounds under the agreement, are eligible to receive additional payments upon achieving certain development, commercialization and sales-based milestones that could exceed $1 billion. The agreement also provides for us to receive future tiered, double-digit royalty payments based on global product sales.

Although our efforts will remain primarily focused on our near-term opportunities including BYETTA, SYMLIN, exenatide once weekly and select investments in our obesity programs, we also maintain an active discovery research program focused on novel peptide and protein therapeutics and are actively seeking to in-license additional drug candidates.

We have also made a number of strategic investments and collaborations for the potential development of additional drug candidates.

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 BYETTA 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, 2009, our accumulated deficit was approximately $1.9 billion.

At September 30, 2009, we had $619.7 million in cash, cash equivalents and short-term investments. Additionally we have future availability of an additional $165 million of cash beginning December 1, 2009 pursuant to a credit facility with Lilly. Although we may not generate positive operating cash flows in the near term, we intend to improve our operating results and reduce our use of cash for operating activities to achieve our goal to be operating cash flow positive on a sustainable basis by the end of 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 on-going basis, our actual results may differ significantly from our estimates.

There were no significant changes in critical accounting policies from those at December 31, 2008, other than the adoption of new authoritative guidance related to convertible debt instruments that may be settled in cash upon conversion and which required the estimation of the non-convertible borrowing rate for our 2007 Notes. The financial information as of September 30, 2009 should be read in conjunction with the financial statements for the year ended December 31, 2008, contained in our annual report on Form 10-K filed on February 27, 2009.

For a 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 27, 2009.

Results of Operations

Comparison of Three Months Ended September 30, 2009 to Three Months Ended September 30, 2008

Net Product Sales

Net product sales for the three months ended September 30, 2009 and 2008 were $192.9 million and $201.4 million, respectively, and consisted 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,

            2009         2008
BYETTA   $    171.1    $  179.9
SYMLIN         21.8        21.5
         $    192.9    $  201.4

The decrease in net product sales for BYETTA in the current period primarily reflects a reduction in prescription demand following an August 2008 FDA update to a prior alert referencing pancreatitis, partially offset by higher prices in the three months ended September 30, 2009 compared to the same period in 2008. We believe that prescription demand continued to stabilize in the three months ended September 30, 2009.

Net product sales for SYMLIN in the current period remained largely unchanged from the same period in 2008 due to a reduction in prescription demand partially offset by higher prices in the quarter ended September 30, 2009 compared to the same period in 2008. We believe that with the increased promotion for SYMLIN with our new specialty sales force discussed above, we have an opportunity to increase SYMLIN demand in the near term.

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

Revenues Under Collaborative Agreements

Revenues under collaborative agreements for the three months ended September 30, 2009 were $18.3 million, compared to $17.0 million for the same period in 2008. Substantially all of the revenue recorded in these periods consists of amounts earned pursuant to our BYETTA collaboration agreement with Lilly. The $1.3 million increase in revenues under collaborative agreements in the current quarter compared to the same period in 2008 reflects higher cost-sharing payments from Lilly for exenatide once weekly manufacturing development expenses due to the amended cost sharing provisions contained in our collaboration agreement with Lilly mentioned above. The increase in revenues due to the increased cost-sharing ratio is partially offset by lower development expenses.

The following table summarizes the components of revenues under collaborative agreements for the three months ended September 30, 2009 and 2008 (in millions):

                                       Three months ended
                                         September 30,
                                       2009          2008
Amortization of up-front payments   $      1.0    $      1.1
Cost-sharing payments                     17.3          15.9
                                    $     18.3    $     17.0

In future periods, we expect that revenues under collaborative agreements will consist of ongoing cost-sharing payments from Lilly for sharing of development costs, possible future milestone payments, the amortization of the $75 million cash payment received in connection with the Takeda agreement discussed above and, following the commercial launch of exenatide once weekly, the amortization of a portion of the $125 million cash payment received in connection with the exenatide once weekly supply agreement discussed above. Future cost-sharing revenue recorded will be dependent on the timing, extent and relative proportion of total development costs for the exenatide once weekly and BYETTA development programs incurred by us and by Lilly. The receipt and recognition as revenue of future milestone payments is subject to the achievement of performance requirements underlying such milestone payments.

Cost of Goods Sold

Cost of goods sold was $22.6 million and $23.4 million, for the three months ended September 30, 2009 and 2008, respectively, representing a gross margin of 88% in both periods, and is comprised primarily of manufacturing costs associated with BYETTA and SYMLIN. Quarterly fluctuations in gross margins may be influenced by product mix, pricing and the level of sales allowances.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased to $80.1 million for the three months ended September 30, 2009 from $99.7 million for the same period in 2008. The decrease primarily reflects efficiencies driven by our reduced cost structure following our recent restructurings. We expect that selling, general and administrative expenses for the remainder of 2009 will increase modestly from current levels as we invest to support the planned launch of exenatide once weekly in 2010.

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

Research and Development Expenses

Our research and development costs are comprised of cash compensation, 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. Also included are overhead expenses and facilities costs. We charge direct internal and external program costs to the respective development programs. We also incur indirect costs that are not allocated to specific programs because such costs benefit multiple development programs and allow us to increase our pharmaceutical development capabilities. These consist primarily of facilities costs and other internal shared resources related to the development and maintenance of systems and processes applicable to all of our programs.

Our research and development efforts are focused on diabetes, obesity and other diseases. We also maintain an active discovery research program. In diabetes, we have two approved products, BYETTA and SYMLIN, and we are developing exenatide once weekly, a long-acting release formulation of exenatide, the active pharmaceutical ingredient in BYETTA. In obesity, we have a number of compounds in development for the potential treatment of obesity, which are part of a broader program, which we refer to as INTO: Integrated Neurohormonal Therapies for Obesity. As part of this program, we are currently conducting clinical trials of our drug candidates, or combinations of our drug candidates.

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

                                             Three months ended September 30,
                                       2009           2008         Increase/(Decrease)
Diabetes (1)                        $      27.5    $      37.8    $               (10.3 )
Obesity                                     6.0           14.1                     (8.1 )
Research and early-stage programs           6.0            8.1                     (2.1 )
Indirect costs                             13.2           13.5                     (0.3 )

                                    $      52.7    $      73.5    $               (20.8 )

The $20.8 million decrease in research and development expenses for the three months ended September 30, 2009 compared to the same period in 2008 primarily reflects decreased expenses of $10.3 million for our diabetes programs and decreased expenses of $8.1 million for our obesity development programs. The decrease in expenses for our research and development programs primarily reflects lower development expenses for exenatide once weekly and our obesity programs following the completion of our Duration-2, Duration-3 and pramlintide/leptin clinical trials, as well as efficiencies driven by our reduced cost structure. We expect research and development expenses for the remainder of 2009 to increase from current levels due to costs associated with pre-launch manufacturing activities at our Ohio manufacturing facility for the planned launch of exenatide once weekly in 2010, and the initiation of a cardiovascular outcomes study in the fourth quarter of 2009.

Collaborative Profit Sharing

Collaborative profit sharing was $78.3 million and $80.6 million for the three months ended September 30, 2009 and 2008, respectively, and consists of Lilly's 50% share of the gross margin for BYETTA in the United States.

Interest and Other Income and Expense

Interest and other income consists primarily of interest income from investment of cash and other investments. Interest and other income decreased to $1.4 million for the three months ended September 30, 2009 from $3.3 million for the same period in 2008. The decrease primarily reflects lower average balances available for investment, lower interest rates earned on our short-term investments in the three months ended September 30, 2009 compared to the same period in 2008.

Interest and other expense consists primarily of interest expense resulting from our long-term debt obligations. Interest expense in the three months ended September 30, 2009 consists of interest on our $775 million par value of outstanding convertible senior notes and our $101.6 million of outstanding long-term note payable, the amortization of associated debt issuance costs and recognized gains

and losses associated with recording economic hedge transactions at fair value. Interest and other expense was $5.7 million and $8.6 million for the three months ended September 30, 2009 and 2008, respectively. The decrease in interest and other expense for the three months ended September 30, 2009 primarily reflects an increase in capitalized interest associated with our Ohio manufacturing facility and an increase in recognized gains associated with economic hedge transactions, partially offset by increased non-cash interest expense from the amortization of the debt discount on our 2007 Notes discussed in Note 2 to the accompanying financial statements.

Net Loss

Our net loss for the three months ended September 30, 2009 was $26.7 million compared to a net loss of $79.0 million for the same period in 2008. The decrease in net loss primarily reflects the decreased selling, general and administrative expenses, decreased research and development expenses, decreased . . .