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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For The Fiscal Year Ended December 31, 2009ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                        to                
        .


Commission File No. 0-19700

AMYLIN PHARMACEUTICALS, INC.(Exact Name of Registrant as Specified in its Charter)

Delaware(State or other jurisdiction of
incorporation or organization)

33-0266089(I.R.S. Employer
Identification No.)9360 Towne Centre Drive
San Diego, California(Address of principal executive offices)

92121(Zip Code)


Registrant's
telephone number, including area code:(858) 552-2200

Securities
registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of each Exchange on Which RegisteredCommon Stock, $.001 par value

The NASDAQ Stock Market, LLC


Securities
registered pursuant to Section 12(g) of the Act:

NONE

(Title of Class)

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ý    No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o    No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes o    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý

Accelerated filer o

Non-accelerated filer o (Do not check if a
smaller reporting company)

Smaller reporting company o


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

The aggregate market value of the common stock of the registrant as of June 30, 2009 held by non-affiliates was $645,730,218.

The
number of shares outstanding of the registrant's common stock was 142,951,264 as of February 16, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Definitive Proxy Statement to be filed with the Securities and Exchange Commission (the "Commission") pursuant to
Regulation 14A in connection with the 2010 Annual Meeting of Stockholders to be held on April 29, 2010 are incorporated herein by reference into Part III of this Annual Report.
Such Definitive Proxy Statement will be filed with the Commission not later than 120 days after December 31, 2009.



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You should read the following together with the more detailed information regarding our company, our common stock and our financial statements and notes to those
statements appearing elsewhere in this document or incorporated by reference. The Securities and Exchange Commission, or SEC, allows us to "incorporate by reference" information that we file with the
SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this annual report on
Form 10-K.

Except for the historical information contained herein, this annual report on Form 10-K and the information incorporated by reference contains
forward-looking statements that involve risks and uncertainties. These statements include projections about our accounting and finances, plans and objectives for the future, future operating and
economic performance and other statements regarding future performance. These statements are not guarantees of future performance or events. Our actual results may differ materially from those
discussed here. Factors that could cause or contribute to such differences are described in Part I, Item 1A, entitled "Risk Factors," as well as those discussed in Part II,
Item 7, entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere throughout this annual report on Form 10-K and in any
other documents incorporated by reference into this annual report on Form 10-K. We disclaim any obligation to update any forward-looking statement.

PART I

Item 1.Business

Business Overview

We are a biopharmaceutical company committed to improving the lives of people with diabetes, obesity and other diseases through the
discovery, development and commercialization of innovative medicines. We are marketing two first-in-class medicines to treat diabetes, BYETTA® (exenatide) injection
and SYMLIN® (pramlintide acetate) injection and we are currently seeking approval for exenatide once weekly, an investigational sustained-release medication for type 2 diabetes that
is administered only once a week.

In
2009 we executed on key opportunities for the company including:



BYETTA
is the first approved medicine in a class of compounds called glucagon-like peptide-1 (GLP-1) receptor agonists. In October 2009, the FDA
approved an expanded indication to include BYETTA as a first-line, stand-alone medication (monotherapy) along with diet and exercise to improve glycemic control in adults with
type 2 diabetes and changes to the BYETTA label to incorporate updated safety language. Previously BYETTA was approved as an adjunctive therapy to improve glycemic control in patients with
type 2 diabetes who have not achieved adequate glycemic control by using metformin, a sulfonylurea and/or a thiazolidinediene (TZD), three common oral therapies for

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type 2
diabetes. We believe the expanded monotherapy indication and label update present new opportunities for the BYETTA brand. Net product sales of BYETTA were $667.6 million in 2009,
$678.5 million in 2008 and $636.0 million in 2007.

We
have an agreement with Eli Lilly and Company, or Lilly, for the global development and commercialization of exenatide. This agreement includes BYETTA and other formulations of
exenatide such as exenatide once weekly. Under the terms of the agreement, operating profits from products sold in the United States are shared equally between Lilly and us, and Lilly will pay us
royalties for product sales outside of the United States. Lilly has primary responsibility for developing and commercializing BYETTA outside of the United States, including any sustained release
formulations of exenatide such as exenatide once weekly. By the end of 2009, BYETTA was commercially launched in approximately 60 countries worldwide.

SYMLIN
is the first and only approved medicine in a class of compounds called amylinomimetics. It is approved as an adjunctive therapy to improve glycemic control in patients with either
type 2 or type 1 diabetes who are treated with mealtime insulin but who have not achieved adequate glycemic control. We own 100% of the global rights to SYMLIN and in 2010 we plan to
explore partnering SYMLIN outside of the United States. Net product sales of SYMLIN were $86.4 million in 2009, $86.8 million in 2008 and $65.5 million in 2007.

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 our managed care
organization. Lilly co-promotes BYETTA in the United States. In May 2009, we announced a restructuring of our sales force, a new sales approach within the diabetes market and merged our
then-existing primary care and specialty sales forces into a single organization that brings a specialty approach to endocrinologists and diabetes-focused primary care physicians. This new
sales force is focused on targeting those doctors that write the majority of prescriptions for branded diabetes therapies. The restructuring of our sales force reduced our total number of sales
representatives by approximately 200.

In
addition to our marketed products, we are working with Lilly and Alkermes, Inc., or Alkermes, to develop exenatide once weekly. In May 2009, we submitted an NDA for exenatide
once weekly to the FDA. The FDA filed the NDA submission in July 2009 and the application has a ten-month review period. Clinical components of the NDA included results from our
DURATION-1 study which tested the superiority of exenatide once weekly as compared to BYETTA and a meta-analysis across controlled clinical studies of three months or greater
from the BYETTA database which showed no increased risk of cardiovascular events associated with exenatide use. Components of the NDA submission supporting product manufacturing included analyses of
data from patients in our ongoing extension of the DURATION-1 study who used exenatide once weekly produced at our Ohio manufacturing facility to demonstrate comparability of the intended
commercial product with that used during development. The FDA conducted a pre-approval inspection of this facility and has made a number of observations which we believe are addressable.

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 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 (Januvia®) or pioglitazone (Actos®). In DURATION-3, exenatide once weekly demonstrated
superior glucose control with weight loss and with less hypoglycemia compared to insulin glargine (Lantus®). In December 2009, we announced results from DURATION-5, a
head-to-head study comparing exenatide once weekly to BYETTA. In DURATION-5, patients taking exenatide once weekly experienced a statistically superior reduction in
glycated hemoglobin (A1C) compared to BYETTA.

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In
2010, we will continue to focus on building a superior profile for exenatide once weekly by conducting additional clinical trials that will compare exenatide once weekly against
competing products. For example, we expect to report results from our DURATION-4 study in late 2010 comparing exenatide once weekly with metformin, sitagliptin or pioglitazone and we have
initiated
DURATION-6 comparing exenatide once weekly with liraglutide (Victoza®). In addition, we expect to start our EXSCEL study in the first quarter of 2010, to demonstrate exenatide
once weekly's effect on cardiovascular endpoints. We plan to continue making strategic investments in the exenatide franchise including the development of an exenatide once weekly pen delivery system,
an exenatide suspension formulation and potential noninvasive delivery systems including transdermal and nasal.

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 Treatment of Obesity, or INTO, strategy. In October 2009, we entered into a worldwide exclusive license, development and commercialization agreement with Takeda to co-develop
and commercialize pharmaceutical products for the treatment of obesity and related indications. The agreement includes products to be developed from our product pipeline, including
pramlintide/metreleptin, which is a compound currently in phase 2 development for the treatment of obesity. We recently announced results of a 52-week phase 2 study of this
compound and, based on those results, we and Takeda plan to advance pramlintide/metreleptin toward phase 3 development.

We
maintain an active discovery research program focused on novel peptide and protein therapeutics. We have also entered into a number of strategic alliances and business initiatives
that support our expansion into new therapeutic areas.

Our
principal executive offices are located at 9360 Towne Centre Drive, San Diego, CA 92121, and our telephone number is (858) 552-2200. We were incorporated in
Delaware in September 1987. We maintain a website atwww.amylin.com. The reference to our worldwide web address does not constitute incorporation by
reference into this report of any of the information contained on our website.

Our
periodic and current reports that we file with the SEC are available free of charge on our website atwww.amylin.comas soon as
reasonably practicable after we have electronically filed them with, or furnished them to, the SEC.

Diabetes

Diabetes is a major worldwide health problem and is the fifth leading cause of death by disease in the United States. Diabetes is a
complex, metabolic disorder of carbohydrate, fat and protein metabolism, primarily resulting from the failure of pancreatic beta cells to produce sufficient insulin to match the demands for insulin in
the body. Insulin is a hormone that plays a central role in helping the body process, convert and store energy from glucose. Another important hormone in glucose regulation is glucagon which is
released from the alpha-cells of the pancreas. Its
action opposes insulin by increasing glucose appearance in the bloodstream. With the discovery of incretin hormones, GLP-1, gastric inhibitory peptide and the pancreatic hormone amylin, it
is now understood that several organs and hormones play a role in maintaining glucose balance in the body. In individuals with diabetes, the relative shortage of insulin impairs the ability of glucose
to enter and fuel the body's cells and, as a result, glucose builds up in the bloodstream causing hyperglycemia (high blood sugar). Prolonged elevation of blood glucose may result in damage to the
kidney, retina and nervesand may lead to kidney failure, permanent nerve damage, blindness and amputation. High glucose also increases the risk of cardiovascular disease. Conversely, too
much insulin in the bloodstream can cause hypoglycemia (low blood sugar). Individuals who manage their diabetes with insulin or other oral antidiabetic medication are especially vulnerable to swings
of high to low blood sugar level and the risk of very low blood sugar which, if left untreated, can be fatal.

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It
is estimated that over 240 million people worldwide have diabetes. Of that population, it is estimated that approximately 90-95% have type 2 diabetes,
previously known as adult-onset diabetes, and the remainder have type 1 diabetes, previously known as juvenile-onset diabetes. In the United States alone, there are approximately
23.6 million people, or 7.8% of the population, with diabetes. Only 17.9 million of these people have been diagnosed, while 5.7 million people with diabetes have not been
diagnosed. From 1980 through 2007, newly diagnosed cases of diabetes among Americans aged 18-79 nearly tripled. In addition, there are currently approximately 57 million people in
the United States with pre-diabetes, a condition that raises the risk of developing type 2 diabetes, heart disease and stroke. People with pre-diabetes have blood
glucose levels higher than normal but not high enough to establish a diagnosis of diabetes.

Long-term
control of blood glucose is known to limit the risk of developing diabetes-related retinal, renal and neurologic complications. A1C is the most widely used measure
of long-term blood glucose control. A1C level is a recognized indicator of an individual's average blood glucose concentrations over the preceding three- to four-month period.
Lower A1C levels indicate better average blood glucose control, with values in people without diabetes usually being less than 6%. The ADA suggests that people with diabetes should aim for an A1C
value that is lower than 7%. It is estimated that more than half of Americans being treated for diabetes are failing to achieve recommended blood glucose levels and, according to research studies
conducted in the United States and abroad, these patients would significantly benefit from improved glycemic control. Additionally, aggressive use of insulin and some oral medications to reduce
glucose levels can be associated with an increased risk of hypoglycemia and weight gain. Consequently, there has long been a need to develop new treatment strategies that safely improve glucose
control, improve the overall health profile of patients with diabetes and reduce the risk of complications.

In
2008, findings from various long-term clinical trials, including the 10-year follow up of the UK Prospective Diabetes Study and the "Action to Control
Cardiovascular Risk in Diabetes," or ACCORD, trial suggested that it is important to treat patients
with less advanced diabetes earlier. These studies also suggest that it is important to lower blood glucose without weight gain, associated cardiovascular risk and hypoglycemia which are often
associated with older diabetes therapies. The cardiovascular outcomes of these studies suggest that blood glucose control strategies employing weight conscious therapies will be increasingly valued.

For
people suffering from diabetes, poor control of blood glucose levels has been shown to result in severe long-term complications. For instance, the United States Centers
for Disease Control, or CDC, has stated that complications due to diabetes include:



Obesity
is common in patients with type 2 diabetes and weight control is a major problem for many patients with both type 1 and type 2 diabetes. In fact, more than
80% of people with type 2 diabetes are overweight. Weight gain is particularly common in those using insulin and certain oral medications as part of their treatment regimen. In addition,
patients with diabetes frequently have wide fluctuations in blood sugar following meals. These fluctuations in blood sugar can significantly affect a

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patient's
quality of life. Blood glucose fluctuations, weight gain and diabetes complications may each contribute to substantial disability, reduced quality of life, reduced productivity in the
workplace, increased pain and suffering and premature death. Obesity increases the risk of cardiovascular disease 44% in people with type 2 diabetes and cardiovascular death accounts for three
quarters of all deaths among people with diabetes. In fact, the risk of coronary heart disease, cardiovascular disease and death are significantly increased in the overweight population and to an even
greater extent in obese patients with type 2 diabetes.

In
2005, we introduced two new treatment options for the management of diabetes, BYETTA and SYMLIN. BYETTA offers patients with inadequate glycemic control the opportunity to better
control their blood glucose levels and lose weight. SYMLIN offers patients with inadequate glycemic control using mealtime insulin a treatment option that can both improve glucose control and result
in weight loss. These novel first-in-class medicines provide new options in disease management and glucose control to millions of people suffering with diabetes.

Marketed Products



BYETTA is the first approved medicine in a new class of compounds called incretin mimetics, or GLP-1 receptor agonists. We
began selling BYETTA in the United States in June 2005 as an add-on therapy to improve glycemic control in patients with type 2 diabetes who have not achieved adequate glycemic
control and who are taking metformin and/or a sulfonylurea, two common oral therapies for type 2 diabetes. In December 2006, the FDA approved an additional use for BYETTA as an
add-on therapy to improve glycemic control in people with type 2 diabetes who have not achieved adequate glycemic control by using a TZD. In October 2009, the FDA approved an
expanded indication for BYETTA as a first-line, stand-alone medication (monotherapy) along with diet and exercise to improve
glycemic control in adults with type 2 diabetes. 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.

We
estimate the number of people in the United States currently using metformin, sulfonylurea and/or a TZD to be approximately 8.3 million and the number of people using diet and
exercise to be approximately 3 million. More than half of all diabetes patients using oral medications are believed to have an A1C higher than the ADA's recommendation of less than 7% and the
vast majority of these patients could be candidates for BYETTA.

BYETTA
provides glucose control by augmenting the body's natural physiologic processes, allowing the body to respond to blood glucose changes as they occur. BYETTA directly affects the
beta cells' responses to elevated glucose by enhancing insulin secretion; this effect dissipates as glucose levels approach the normal range. BYETTA also restores first-phase insulin response, an
effect which is evident following the initial dose. BYETTA is administered twice a day by using a fixed dose injection, and requires no dose adjustments due to changes in meal size or composition,
exercise or other variables. No additional glucose monitoring is required with BYETTA therapy.

The
most common adverse effect of BYETTA is mild to moderate nausea, which tends to dissipate with time. Mild to moderate hypoglycemia has also been observed, primarily when used in
conjunction with a sulfonylurea, agents that are known to cause hypoglycemia.

In
August 2008, the FDA updated a prior alert for BYETTA referencing pancreatitis. Prescriptions for BYETTA declined in the second half of 2008 and into 2009. In October 2009, the FDA
approved changes to the BYETTA label to incorporate updated safety information, including pancreatitis-related

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safety
language and an expansion of existing language regarding use of BYETTA in patients with renal impairment. We continue to work to better understand the relationship between BYETTA and
pancreatitis described in some spontaneously reported cases. In keeping with our focus on patient safety, we continue to pursue our drug safety program that includes thorough investigation of
individual spontaneous case reports along with clinical and epidemiologic studies. Within the detection limits of an initial epidemiology study which we provided to the FDA, we have not observed an
increased incidence of pancreatitis associated with BYETTA compared to other treatments for diabetes and thus believe a definite causal relationship between BYETTA and pancreatitis has not been
proven.

By
the end of 2009, we had a field sales force of approximately 390 individuals who target those doctors that write the majority of BYETTA and SYMLIN prescriptions. Together with the
Lilly field
organization, our goal is to provide education, through both one-on-one interactions and educational programs, to ensure that physicians understand BYETTA, including its
mechanisms of action, potential benefits, identify appropriate patients and provide important use considerations. We have refined our marketing efforts to remind both endocrinologists and primary care
physicians of BYETTA's unique benefits of glucose control with weight loss. Primary care physicians write approximately 70% of diabetes prescriptions in the United States. Additionally, we have access
to health care plan reimbursement for BYETTA at approximately 80% coverage nationally on tier 2, which requires a relatively low co-payment from patients who are covered under such
plans.

We
continue to support initiatives to facilitate the successful initiation of therapy by primary care physicians. This effort includes: increased patient educational material for health
care providers to distribute in their offices; a network of approximately 400 diabetes educators to work with physicians and their patients within their local communities; direct support to patients
through the BYETTA Easy Start Line, which provides a toll-free number that allows patients to contact trained medical professionals to better understand the benefits of BYETTA therapy and
to get assistance starting and using the BYETTA pen; a pharmacy support component partnering with managed care plans designed specifically to assist with patient refills; and an enhanced BYETTA
website. We believe this support is helpful to patients who may be on their first injectable therapy and to primary care providers who may be less accustomed to treating patients with an injectable
product earlier in the disease cycle and who have fewer resources in their offices.

Lilly
co-promotes BYETTA in the United States with us and has primary responsibility for developing and commercializing BYETTA outside the United States, including any
sustained-release formulations such as exenatide once weekly. By the end of 2009 BYETTA was launched in approximately 60 countries worldwide.



Concurrent with BYETTA's initial approval, the FDA issued an approvable letter for BYETTA when used as a stand-alone therapy
(monotherapy) for people with type 2 diabetes. In October 2009, the FDA approved an expanded indication for BYETTA as a first-line, stand-alone therapy along with diet and exercise
to improve glycemic control in adults with type 2 diabetes.

In
June 2009, we announced results from a meta-analysis of cardiovascular, or CV, events that showed no increased risk of CV events associated with BYETTA injection use
compared to a pooled comparator group treated with either placebo or insulin. This analysis applied the principles that were described in the FDA's guidance for evaluating CV risk in type 2
diabetes agents. In the meta-analysis of 12 completed, randomized, controlled clinical trials of 12-52 weeks, the unadjusted rate at which patients experienced at least
one CV event was 2.0 percent for BYETTA and 2.6 percent for the comparator group. The relative risk between BYETTA and the comparator group was 0.69 with a 95 percent confidence
interval of 0.46-1.03. To determine if there are favorable cardiovascular effects of exenatide treatment, we and Lilly recently initiated a large cardiovascular outcomes trial with a

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superiority
design that will evaluate the effects of exenatide once weekly on major cardiovascular events, compared to standard of care with traditional antidiabetes medications.



SYMLIN is the first and only approved medicine in a new class of compounds called amylinomimetics. We began selling SYMLIN in the
United States in April 2005 as adjunctive therapy to mealtime insulin to treat diabetes. Other than insulin and insulin analogues, SYMLIN is the first FDA-approved medication addressing
glucose control for patients with type 1 diabetes since the discovery of insulin over 80 years ago. SYMLIN is indicated for use in people treated with insulin alone or, in the case of
patients with type 2 diabetes, treated with insulin with or without one or more oral medications to help improve blood glucose control.

SYMLIN
works with insulin to smooth out the peaks in blood glucose levels to give patients more stable blood glucose levels after meals and throughout the day. SYMLIN also lowers the A1C
levels of most patients beyond what insulin alone can achieve. SYMLIN induces satiety, which leads to eating less and weight loss in most patients. In addition, because SYMLIN works with insulin to
control blood sugar, patients often need less insulin to achieve desired blood sugar levels after meals.

SYMLIN
is used with insulin and has been associated with an increased risk of insulin-induced severe hypoglycemia. The risk can be reduced by appropriate patient selection, careful
patient instruction and insulin dose adjustments. Other adverse effects commonly observed are primarily gastrointestinal, including nausea, which decrease over time in most patients.

Our
SYMLIN marketing is focused on a target physician population of approximately 20,000, with a goal of educating these physicians on SYMLIN, including its mechanisms of action,
potential benefits, use considerations and appropriate patient selection for initiating SYMLIN therapy. These physicians
write approximately 36% of all insulin prescriptions in the United States. In January 2008, we launched the SymlinPen® 120 and the SymlinPen® 60 pen-injector
devices for administering SYMLIN which currently represent nearly 75 percent of all new SYMLIN prescriptions. These pre-filled pen-injector devices feature fixed dosing
to improve mealtime glucose control and can be stored at room temperature not to exceed 86 degrees F (30 degrees C) after first use. We continue to educate physicians about the SymlinPen and
believe the SymlinPen enables patients to more easily deliver proper dosing than using a vial and syringe and improves the convenience of administering SYMLIN. Since introduction of the SymlinPen in
2008, usage has grown substantially relative to vial and syringe usage, and now represents the majority of sales and prescriptions. By the end of 2010, we will cease manufacturing and distributing the
Symlin vial. Our near-term goal for SYMLIN is to grow SYMLIN prescriptions by highlighting how the product addresses the key unmet needs of patients using mealtime insulin.



We have late-stage and early-stage development programs in the therapeutic areas of diabetes and obesity. Our years of
research in diabetes and deep understanding of peptide hormonestheir physiology, functionality and impact on the diseaseare being leveraged to develop potential treatments
for obesity. The metabolic components of these diseases are linked in numerous ways, which are reflected in the impact each has on the other.

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Diabetes



Exenatide once weekly is our late stage development program in diabetes. Exenatide is the active ingredient in BYETTA and is combined
with proprietary technology developed by us and our partner, Alkermes, to provide a sustained release delivery of exenatide. The combination of potency and the glucose-dependent mechanism of action
inherent in exenatide makes it well suited to development of a once weekly formulation. We have an agreement with Alkermes to assist us in the development, manufacture and commercialization of
exenatide once weekly and this program is included in our collaboration agreement with Lilly. We are aggressively working with Lilly and Alkermes to develop exenatide once weekly and to bring it to
market as soon as possible.

In
October 2007, we announced positive results of our DURATION-1 pivotal comparator study comparing treatment with exenatide once weekly to treatment with BYETTA over a
30-week period. The study enrolled 295 patients not achieving adequate glucose control either with use of diet and exercise or with use of oral glucose-lowering agents. Exenatide once
weekly showed a statistically significant improvement in A1C of approximately 1.9% from baseline, compared to an improvement of approximately 1.5% for BYETTA. Approximately three out of four subjects
treated with exenatide once weekly achieved an A1C of 7% or less.

After
30 weeks of treatment, both exenatide once weekly and BYETTA treatment resulted in an average weight loss of approximately eight pounds. Nearly 90% of subjects in both
groups completed the study. There were no major or severe hypoglycemia events regardless of background therapy. As expected, based on prior BYETTA studies, minor hypoglycemia with exenatide once
weekly use was limited to subjects using background sulfonylurea therapy. Exenatide once weekly was associated with approximately 30% less nausea than twice-daily BYETTA. Approximately one out of five
subjects receiving exenatide once weekly reported treatment-related nausea during the 30-week study. In both groups nausea was predominately mild and transient.

In
June 2008, we announced additional results of our 30-week DURATION-1 study. In addition to showing improvements in A1C, type 2 diabetes patients treated
with exenatide once weekly experienced the following effects on several cardiovascular risk factors: a reduction of total cholesterol 11.9 mg/dL from a baseline of 173 mg/dL; a reduction of LDL of 4.9
mg/dL from a baseline 91.6 mg/dL; and a reduction of HDL of 0.9 mg/dL from a baseline of 43.9 mg/dL.

Also
in June 2008, we announced results from a 52-week open-label clinical study that showed the durable efficacy of exenatide once weekly. In this extension of
our 30-week DURATION-1 study, patients either remained on exenatide once weekly or switched from BYETTA to exenatide once weekly for an additional 22 weeks. Patients
taking exenatide once weekly over the course of one year sustained a similar improvement in glucose control of 2.0% lower A1C and lower fasting plasma glucose from baseline compared to those receiving
treatment for 30 weeks who achieved 1.9% lower A1C from baseline.

This
52-week study also showed that patients who switched from BYETTA after 30 weeks to exenatide once weekly experienced additional improvements in A1C and fasting
plasma glucose. Following the 30-week comparison period, patients who continued on exenatide once weekly showed sustained improvements in A1C and fasting plasma glucose while patients who
switched from BYETTA to exenatide once weekly had further improvements in glycemic control that were consistent with those patients receiving exenatide once weekly for 52 weeks.
Seventy-two percent of patients treated with exenatide once weekly achieved an endpoint A1C of 7% or less and 54% achieved an A1C of 6.5% or less. In patients who switched from BYETTA to
exenatide once weekly, 75% of patients achieved an endpoint A1C of 7% or less and 53% achieved an A1C of 6.5% or less. Exenatide once weekly was associated with an average weight loss of 9.5 pounds
over 52 weeks. Exenatide once weekly was well

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tolerated
during the first 30 weeks and the following 22-week, open-ended treatment period with overall tolerability improving over the course of the study. No major
hypoglycemia events regardless of background therapy were observed with exenatide once weekly. Cases of minor hypoglycemia with exenatide once weekly and BYETTA use were limited to patients using
background sulfonylurea therapy. In both groups, nausea was predominately mild and transient and occurred less frequently in exenatide once weekly patients.

In
May 2009, we submitted an NDA for exenatide once weekly to the FDA. The FDA filed the NDA submission in July 2009 and the application has a ten-month review period.
Clinical components of the NDA included results from our DURATION-1 study which tested the superiority of exenatide once weekly as compared to BYETTA and a meta-analysis across
controlled clinical studies of three months or greater from the BYETTA database which showed no increased risk of cardiovascular events associated with exenatide use. Components of the NDA submission
supporting product manufacturing included analyses of data from patients in our ongoing extension of the DURATION-1 study who used exenatide once weekly produced at our Ohio manufacturing
facility to demonstrate comparability of the intended commercial product with that used during development.

In
June 2009, we announced additional long-term, interim results from the DURATION-1 study that showed sustained glucose control with weight loss, as well as
improvements in systolic blood pressure and triglycerides, through two years of treatment with exenatide once weekly. In the controlled portion of the open-label study, patients received
exenatide once weekly or BYETTA injection for 30 weeks, followed by 74 weeks of treatment with exenatide once weekly for all patients during an open-ended assessment period.
Significant reductions in A1C of 1.7 percent and fasting plasma glucose of 40 mg/dL were maintained after two years of treatment. Sixty-five percent of patients achieved an A1C of
7% or less. Body weight was significantly reduced, with patients losing an average of 5.8 pounds. Serum lipid profiles were significantly improved, and there was a significant reduction in systolic
blood pressure. Nausea was the most common event during the 30-week treatment period and decreased over time, occurring in 12% of patients during the 74-week assessment period
when all patients were receiving exenatide once weekly. No severe hypoglycemia was observed.

In
March 2009, we announced results from DURATION-2, a 26-week clinical study designed to compare exenatide once weekly to maximum doses of sitagliptin and
pioglitazone, two commonly prescribed oral diabetes medications, in 491 patients with type 2 diabetes taking stable doses of metformin. After completing 26 weeks of treatment, evaluable
patients randomized to exenatide once weekly experienced a statistically significant reduction in A1C of 1.7 percentage points from baseline, compared to a reduction of 1.0 percentage
point for sitagliptin and 1.4 percentage points for pioglitazone. Treatment with exenatide once weekly also produced statistically significant differences in weight, with weight loss of 6.2
pounds at 26 weeks, compared with a loss of 1.9 pounds for sitagliptin, and a weight gain of 7.4 pounds for pioglitazone. The most frequently reported adverse events among exenatide once weekly
and sitagliptin users were nausea and diarrhea. Upper respiratory tract infection and peripheral edema were the most frequently reported events by patients receiving pioglitazone. There was no major
hypoglycemia in any treatment group.

In
July 2009, we announced results from DURATION-3, a clinical trial designed to compare patients randomized to either exenatide once weekly or Lantus (insulin glargine).
Patients randomized to exenatide once weekly experienced a statistically significant superior reduction in A1C of 1.5 percentage points from baseline, compared to a reduction of
1.3 percentage points for Lantus after completing 26 weeks of treatment. At the end of the study, patients treated with exenatide once weekly achieved a mean A1C of 6.8% compared with a
mean A1C of 7.0% in those treated with Lantus. Treatment with exenatide once weekly also produced significant differences in weight, with a mean weight loss of 5.8 pounds at 26 weeks, compared
with a mean weight gain of 3.1 pounds for Lantus. In addition, although patients treated with exenatide once weekly experienced a greater reduction in blood glucose than those treated with Lantus,
they also reported significantly fewer episodes of confirmed

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hypoglycemia.
Reported adverse events were upper respiratory infection, including nasopharyngitis, in both treatment arms, as well as gastrointestinal events, including nausea, in the exenatide once
weekly treatment group.

In
December 2009, we announced results from DURATION-5, a head-to-head study comparing exenatide once weekly to BYETTA. After 24 weeks of
treatment, patients taking exenatide once weekly experienced a statistically superior reduction in A1C of 1.6 percentage points from baseline, compared to a reduction of 0.9 percentage
points for BYETTA. Patients treated with exenatide once weekly achieved a mean A1C of 7.1% compared with a mean A1C of 7.7% in those treated with BYETTA. Both treatment groups achieved statistically
significant weight loss by the end of the study, with an average loss of 5.1 pounds for patients taking exenatide once weekly and 3.0 pounds for patients taking BYETTA. These findings are consistent
with the results of other studies comparing exenatide once weekly with BYETTA. Consistent with previous DURATION trials, the most frequently reported adverse event in both groups was nausea. There
were no major hypoglycemic events. Cases of minor hypoglycemia in both groups were limited to patients using background sulfonylurea therapy.

In
the fourth quarter of 2008, we initiated our DURATION-4 superiority trial comparing exenatide once weekly as a stand-alone therapy to metformin, a TZD or a dipeptidyl
peptidase type IV (DPP-IV) inhibitor and expect to complete this study in 2010. In early 2010, we also initiated DURATION-6, a superiority trial that will be designed to
compare exenatide once weekly with liraglutide and expect to complete this study in 2011.

Given
the positive effects on cardiovascular surrogate outcomes observed with exenatide, the encouraging data from the ACCORD trial, which indicates decreased cardiovascular events with
BYETTA, and the current regulatory interest in cardiovascular outcomes, we and Lilly have announced that we intend to initiate in 2010, a large cardiovascular outcomes trial with a superiority design
that will evaluate the effects of exenatide once weekly on major cardiovascular events, compared to standard of care with traditional antidiabetes medications. This study will give us the opportunity
to demonstrate the effect of exenatide once weekly on cardiovascular outcomes and other end points of interest to our stakeholders. We do not believe this study will be a requirement for exenatide
once weekly approval. We expect results from this study to be available in 2016.

In
May 2009, we and Lilly announced an agreement to develop, manufacture and market exenatide once weekly in a dual chamber cartridge pen configuration. We believe this design will
enable patients to mix and administer exenatide once weekly from a pre-filled pen device instead of the syringe and vial currently used in clinical trials and planned as our initial launch
configuration. We and Lilly are evaluating the pharmacokinetics, tolerability and safety of an exenatide suspension formulation for once weekly and once monthly dosing that would eliminate the need to
reconstitute the product prior to use. We are also evaluating non-invasive formulations of exenatide including transdermal and nasal delivery systems.

Obesity

Obesity is a chronic condition that affects millions of people and is linked to increased health risk of several medical conditions
including type 2 diabetes, high blood pressure, heart disease, stroke, osteoarthritis, sleep disorders and several types of cancers. Obesity is also rapidly becoming a major health problem in
all industrialized nations and many developing countries. According to NAASO (The Obesity Society), obesity is the second leading cause of preventable death in the United States. It is estimated that
66% of the adult population in the United States is overweight and nearly 60 million adult Americans are considered obese. It is also estimated that the total direct and indirect costs
attributed to overweight and obesity health issues exceed $100 billion in the United States each year.

Genetic,
metabolic, psychological and environmental factors can all contribute to obesity. Obesity is measured by Body Mass Index, or BMI, a mathematical formula using a person's height
and weight.

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BMI
is calculated by dividing a person's weight in kilograms by the person's height in meters squared. A person with a BMI between 25 and 29.9 is considered overweight. A person with a BMI of 30 or
more is considered obese, and a person with a BMI of 40 or more is considered severely obese. Current treatments for obesity include diet, exercise, drug therapy and surgery.

The
National Heart, Lung and Blood Institute and the World Health Organization have issued evidence-based guidelines for the identification, evaluation and treatment of obesity.
Non-pharmacological treatment modalities (dietary modifications, behavioral interventions and increased physical activity) are considered the cornerstone of clinical obesity management. If
lifestyle changes do not promote weight loss after six months, pharmacotherapy is considered helpful for eligible high-risk patients. Only two pharmacological agents are currently approved
for the long-term treatment of obesity in the United States. Bariatric surgery is considered an option only for patients with severe obesity and serious co-morbid conditions.

The
National Institutes of Health, Surgeon General and FDA recognize a large unmet medical need for safe and efficacious therapies to prevent the debilitating metabolic diseases and
mortality associated with obesity.

Integrated Neurohormonal Therapy for Obesity (INTO)

Since 2006, we have been executing an obesity strategy to assess the safety and efficacy of multiple neurohormones used in combination
to treat obesity. We refer to this strategy as Integrated Neurohormonal Therapy for Obesity, or INTO. Our INTO strategy is based on combination therapies and as part of this program we are studying
combinations of peptide and protein hormones.

Three
molecular franchises are the primary focus of our INTO strategy: amylin and, in particular, pramlintide, its synthetic version (a first generation amylinomimetic); leptin, and in
particular, metreleptin, its recombinant version, a protein hormone produced from the fat cell that plays a fundamental role in metabolism; and PYY 3-36, and in particular, a
second-generation Y-family analog molecule, that is secreted by the gut and provides a satiety signal in the post-meal period.

In
October 2009, we entered into a worldwide exclusive license, development and commercialization agreement with Takeda to co-develop and commercialize pharmaceutical
products for the treatment of obesity and related indications. The agreement includes products to be developed from our pipeline, including pramlintide/metreleptin combination therapy, which is a
compound currently in phase 2 for the treatment of obesity and discussed in more detail below. The agreement also includes additional compounds from our and Takeda's obesity research programs.
We will be responsible for executing development activities for potential products through phase 2 for regulatory approval in the United States. Takeda will lead development activities beyond
phase 2 in the United States and all development activities outside the United States.



Pramlintide plays an important role in our current INTO strategy. Pramlintide has been studied extensively in people with and without
diabetes and is the active ingredient in SYMLIN. In February 2006, we reported results from a 16-week Phase 2 dose-ranging study with pramlintide in obese subjects.
After completing 16 weeks of treatment with pramlintide in addition to lifestyle intervention, subjects on average experienced an 8.4
to 13.4 pound weight loss from baseline, compared to a 6.2 pound weight loss with placebo plus lifestyle intervention.

Pramlintide
was well tolerated and showed progressive weight loss at doses up to 360 mcg. No new safety signals were observed in this study, which included higher doses than those
previously studied in obese subjects. There was clear evidence of a dose response for the twice-daily regimens. Consistent with previous observations, the most common adverse effect was mild nausea.
Weight loss in subjects

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who
did not experience nausea was similar to that seen in the overall study population. In October 2006, we reported results from a continuation of this study that demonstrated that patients
completing 52 weeks of pramlintide therapy experienced a 7-8% mean body weight reduction, depending upon the dose they received, compared to a 1% reduction in patients receiving
placebo.

We
have conducted clinical studies using pramlintide in combination with leptin and with PYY 3-36. The proof-of-concept pramlintide and
metreleptin study, which we discuss below, investigated the synergy of pramlintide and metreleptin found in preclinical studies.



Metreleptin is the second compound we are studying in connection with our INTO program. Metreleptin is the recombinant form of human
leptin, a naturally occurring protein hormone secreted by fat cells. Leptin plays a key role in metabolism through multiple metabolic actions and appears to act primarily at the level of the
hypothalamus to regulate food intake and energy expenditure. Leptin's roles in the treatment of obesity and lipodystrophy have been extensively studied, and the lead molecules have a strong safety
profile. Humans suffering from lipodystrophy, a disease characterized by loss of body fat and consequent metabolic disorders (insulin resistance, hyperglycemia, and dyslipidemia), are rendered
incapable of secreting sufficient amounts of leptin due to the loss of fat cell mass. We plan to file an NDA with the FDA for the treatment of lipodystrophy with leptin in 2010.

In
early 2006, we acquired the exclusive rights to the leptin molecular franchise and program (including metreleptin) from Amgen, Inc., or Amgen. Under the terms of the license
agreement, we may make potential future payments related to development and regulatory milestones and will pay royalties on any product sales. Our license includes exclusive rights to the leptin
intellectual property developed by Amgen as well as intellectual property Amgen originally licensed from Rockefeller University.



Y-family agonists (such as PYY 3-36) are a third compound we are studying in connection with our INTO
program. We are developing second generation Y-family mimetics that could be more potent and efficacious as drug candidates, but have been utilizing the native form of
PYY 3-36 for the investigation of potential treatments of obesity. Independent researchers have reported a reduction in food intake in humans using PYY 3-36. In
November 2007, we announced data from a 14-day safety and tolerability Phase 1 clinical trial showing that PYY 3-36 when used in combination with pramlintide was
well-tolerated. We also announced that this combination was well-tolerated with dose escalation. We intend to focus our future development of the second generation
Y-family mimetic either alone or in combination with a second generation amylinomimetic.



In November 2007, we announced results from a 24-week proof-of-concept study with pramlintide and
metreleptin combination treatment in overweight or obese subjects. At the end of the study, the combination treatment reduced body weight on average 12.7%, significantly more than treatment with
pramlintide alone (8.4%). Subjects treated with pramlintide/metreleptin lost an average of 25 pounds from the beginning of the study compared with an average of 17 pounds for subjects treated
with pramlintide alone. Subjects receiving pramlintide/metreleptin continued to lose weight through the end of the study compared to those treated with pramlintide alone, whose weight loss had
stabilized towards the end of the study. At the beginning of the study, the average weight of study participants was approximately 205 pounds. Consistent with previous clinical experience with
pramlintide/metreleptin as single agents, the most common side effects seen with combination treatment were injection site adverse events and nausea, which were mostly mild to moderate and transient
in nature.

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In
July 2009, we announced results from a 28-week dose-ranging study of pramlintide/metreleptin combination treatment in overweight and obese patients. This
phase 2 study characterized patients who responded best to treatment and also provided important information to inform dose selection. At 28 weeks, evaluable patients with a BMI less
than 35 kg/m2 and treated with the highest pramilintide/metreleptin doses experienced significantly more weight loss on average (11%
weight loss; 22 pounds) than those receiving placebo (1.8% weight loss; 4 pounds) or either agent alone (approximately 5% weight loss; 10 pounds). Consistent with the physiologic role of leptin in
regulating body fat, the weight loss in these patients was predominantly due to a reduction in fat mass (approximately 18 of the 22 pounds lost).

In
February 2010, we and Takeda announced that, based on positive results from a 52-week extension of this study, the pramlintide/metreleptin combination treatment for
obesity will advance toward phase 3 development. Results from the 52-week extension showed the pramlintide/metreleptin combination met the key target criteria of sustained,
double-digit weight loss without evidence of cardiovascular or neuropsychiatric safety signals. Patients treated with placebo during the 52-week extension regained almost all of their
weight. Consistent with the results at 28 weeks, the most robust efficacy was seen in patients with a BMI less than 35 kg/m2.

The
combination therapy was well tolerated at 52 weeks, and no cardiovascular or neuropsychiatric (such as anxiety or depression) safety signals were observed. Consistent with
previous clinical experience, the most common side effects seen at 28 weeks were injection site adverse events and nausea, which were mostly mild or moderate and transient in nature. The
occurrence of these side effects was much lower during the extension phase of the study.

Research Activities

A key element of our strategy is to develop first-in-class compounds for treating metabolic diseases. To
achieve this goal, we are exploring hormones with multiple mechanisms of action that will potentially lead to products that have utility in treatment of more than one disease with the potential for
many product forms. To do so, we take an integrated and biological, rather than a target-driven, approach to research. Our research is centered on peptide hormones that play an important metabolic
role, and which we consider more likely to have an acceptable safety profile because these hormones exist naturally in the human body. Our development path begins with identifying a particular peptide
and then determining if it is a circulating hormone, a substance that travels through the bloodstream to affect bodily functions. We then attempt to understand the hormone's functionality and
potential impact on a disease. Rather than starting with a known biology and targeting molecules to modify, enhance or block it, our scientists are discovering the biology of previously unknown
peptides and uncovering utility that could potentially translate into a new human therapy. The conventional development process commonly used in the pharmaceutical industry emphasizes utilizing
isolated cells or molecular targets to advance drug discovery. Our approach to research calls for our scientists to quickly move toin vivotesting
using highly predictive animal models that allow us to design subsequent information-rich clinical trials in humans.

Based
on a premise that every peptide hormone has a utilityand a potential therapeutic benefitwe have developed a proprietary and continually growing peptide
hormone
library we call PHORMOL. PHORMOL encompasses an extensive panel of potentially valuable biologics that have been taken from nature, including human peptides not previously described. All
of these have been synthesized to create a rich source of compounds for ongoing research in their functionality, utility and potential value in treating a range of human diseases.

We
are also developing capabilities in delivery system research and development, focused on product presentations that enhance clinical outcomes and patient convenience. Delivery systems
are selected on the basis of technical feasibility, regulatory acceptance and market preference. They include

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injectable
sustained-release formulations such as salt complexes, lipids, biodegradable polymer and gel systems, as well as non-injectable systems such as nasal sprays, oral and
transdermal systems. We are also using our resources to optimize pharmaceutical properties of peptide drugs to develop new peptide hormone analogs that may be more amenable to alternative forms of
delivery.

We
currently have approximately 370 full-time employees dedicated to our research and development activities. In the years ended December 31, 2009, 2008 and 2007, we
incurred research and development expense of $185.1 million, $222.6 million and $216.3 million, respectively.

Strategic Relationships



We entered into a collaboration agreement with Lilly in 2002 for the global development and commercialization of exenatide, including
the twice-daily version, BYETTA, and sustained-release formulations, such as exenatide once weekly. Under the terms of the agreement, Lilly made initial payments to us, and purchased approximately
1.6 million shares of our common stock. In addition, Lilly has made milestone payments to us upon the achievement of development milestones for BYETTA and exenatide once weekly and commercial
milestones for BYETTA. Lilly is also obligated to make additional future commercial milestone payments to us of up to $80 million contingent upon the commercial launch of exenatide, including
BYETTA in Japan and exenatide once weekly in the U.S., Europe and Japan. Under our co-promotion arrangement with Lilly, the parties use approximately equal efforts to
co-promote BYETTA within the United States and have agreed to use approximately equal efforts to co-promote
sustained-release formulations of exenatide within the United States. Lilly is responsible for commercialization efforts outside the United States. We share exenatide United States development and
commercialization costs with Lilly equally and we pay Lilly 50% of the operating profits from the sale of products in the United States. Our collaboration agreement may be terminated by Lilly at any
time on one years' notice.

In
late 2006, BYETTA was approved in the EU and, by the end of 2009, was commercially launched in approximately 60 countries worldwide. Lilly will pay us tiered royalties based upon the
annual gross margin for all exenatide product sales, including any sustained-release formulations, outside of the United States. Royalty payments for exenatide product sales outside the United States
will commence after a one-time cumulative gross margin threshold has been met. Lilly is responsible for 100% of the costs related to development of BYETTA and exenatide once weekly for
sale outside of the United States. Lilly is also responsible for 100% of the costs related to commercialization of all exenatide products for sale outside the United States. We record all United
States BYETTA product revenues and Lilly records all BYETTA product revenues from outside the United States.

In
October 2008, we entered into an Exenatide Once Weekly Supply Agreement with Lilly pursuant to which we will supply commercial quantities of exenatide once weekly for sale in the
United States, if approved by the FDA. In addition, if Lilly receives approval to market the product in jurisdictions outside the Unites States, we will be required to manufacture the product intended
for commercial sale by Lilly in those jurisdictions. We have also entered into a loan agreement with Lilly pursuant to which Lilly will make a $165 million unsecured line of credit available to
us that we can draw upon from time to time, at our option, until June 30, 2011, with maturity no later than June 30, 2014.

In
April 2009, we and Lilly amended our collaboration agreement to clarify allocation and reimbursement procedures of certain shared expenses under the agreement. We also agreed to adopt
a set of guidelines to govern the working relationship of an integrated medical, development and commercial team for exenatide comprised of Amylin and Lilly employees to be located in San Diego,
referred to as Exenatide One.

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In
May 2009, we and Lilly entered into a cost allocation agreement which amended the exenatide development and commercialization cost-sharing provisions contained in our
collaboration agreement. Under the terms of the cost allocation agreement, Lilly will be responsible for 53% of shared exenatide global development and commercialization expenses that generate utility
in the United States and outside the United States, including global manufacturing development expenses. We will be responsible for 47% of these expenses. Lilly will also assume 100% of all exenatide
development expenses that generate utility predominately outside the United States. Under the previous cost-sharing arrangement, Amylin was responsible for 20% of these expenses. The
royalty structure for exenatide revenues generated outside the United States was also modified to
reflect Lilly's revised expense burden, with a reduction in Lilly's royalty payments to us. Under the cost allocation agreement, we and Lilly will continue to share equally all exenatide development
and commercialization expenses that generate utility predominately in the United States.

In
May 2009, we and Lilly entered into a joint supply agreement for an exenatide once weekly pen device. In connection with our collaboration agreement, we and Lilly have agreed to
develop a dual chamber cartridge pen configuration for the delivery of exenatide once weekly. The exenatide once weekly pen will be manufactured at our Ohio manufacturing facility. Under the terms of
the supply agreement, the initial cost of the capital investment will be allocated 60% to Lilly and 40% to us and the development costs of the pen will be allocated 53% to Lilly and 47% to us.



In October 2009, we entered into a worldwide exclusive license, development and commercialization agreement with Takeda to
co-develop and commercialize pharmaceutical products for the treatment of obesity and related indications. The agreement includes products to be developed from our pipeline, including
pramlintide/metreleptin combination treatment. The agreement also includes additional compounds from our and Takeda's obesity research programs. Takeda will be responsible for commercializing the
products in and outside the United States and will be responsible for all commercialization costs associated with the products.

We
received a one-time up-front payment of $75 million from Takeda upon entering into the agreement and we are eligible to receive additional payments upon
achieving certain development, commercialization and sales-based milestones. The agreement also provides for future tiered, double-digit royalty payments to us based on global product sales. We will
be responsible for executing development activities for potential products through phase 2 for regulatory approval in the United States. Takeda will lead development activities beyond
phase 2 in the United States and all development activities outside the United States. Generally, we will be responsible for 20% of the development costs associated with obtaining approval for
products in the United States and Takeda will be responsible for 80% of such United States development costs. Takeda will also be responsible for 100% of development costs associated with obtaining
approval for products outside the United States.



In addition to Lilly and Takeda, we have established strategic relationships with other companies and we continue to assess additional
opportunities for strategic relationships or in-licensing opportunities. For example, we formed a joint venture with PsychoGenics, Inc. called Psylin Neurosciences, Inc., or
Psylin, a company focused on the discovery and development of peptide hormones for treatment of psychiatric disorders. In the second quarter of 2009, Psylin announced that it had initiated development
of a novel compound for the treatment of depression. In September 2009, we announced that we entered into an exclusive agreement with Biocon, Limited, or Biocon, to jointly develop, manufacture and
commercialize a novel peptide therapeutic for the potential treatment of diabetes. We will share development costs with Biocon on a specific program that came from our "Phybrid" technology platform. A
Phybrid is a peptide hybrid molecule that combines the

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pharmacological
effects of two peptide hormones into a single molecular entity. Under the terms of the agreement, we will provide expertise in peptide hormone development, particularly in the area of
phybrid technology, as well as metabolic disease therapeutics. Biocon will use its expertise in recombinant microbial expression to manufacture the compound and also leverage its experience in
preclinical and clinical development of diabetes products.

Sales, Marketing and Distribution

We have built a sales and marketing organization that focuses on healthcare providers, managed healthcare organizations, wholesalers
and pharmacies, government purchasers and other third-party payors. Our field organization also includes our managed care organization. Lilly co-promotes BYETTA in the United States.

In
May 2009, we announced a new sales approach within the diabetes market and merged our then-existing primary care and specialty sales forces into a single organization that
brings a specialty approach to endocrinologists and diabetes-focused primary care physicians. This new sales force, comprised of approximately 390 people, is focused on targeting those doctors that
write the majority of prescriptions for branded diabetes therapies. Our field force calls on endocrinologists and other physicians who have large diabetes care practices and other healthcare
professionals who support their practices. Members of our sales and marketing team have extensive industry experience from a wide range of large and small companies and have substantial experience in
the field of diabetes, as well as in launching and marketing pharmaceutical products.

We
utilize common pharmaceutical company practices to market our products. We call on individual physicians and other healthcare professionals and other organizations and individuals
involved in the prescribing, purchasing and/or distributing of human medicines. We also provide professional symposia through our extensive medical education programs. Our medical education events are
conducted live, via satellite or telephone and through web-based, interactive programs. We will continue to focus on medical education efforts for both BYETTA and SYMLIN through thousands
of programs across the United States organized by our medical affairs and external professional education organizations. We train physicians and other healthcare professionals as speakers, so that
they can in turn teach their peers about how best to incorporate BYETTA or SYMLIN into their patients' diabetes treatment regimens.

We
provide customer service and other related programs for our products, such as disease and product-specific websites, insurance research services, a customer service call center and
order, delivery and fulfillment services. We have programs in the United States that provide qualified uninsured and underinsured patients with our products at no charge.

We
sell BYETTA and SYMLIN to wholesale distributors who in turn sell to retail pharmacies and government entities. Decisions made by these wholesalers and their customers regarding the
levels of inventory they hold, and thus the amount of BYETTA and SYMLIN they purchase, may affect the level of our product sales in any particular period.

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Manufacturing

We have selected manufacturers that we believe comply with current Good Manufacturing Practices, or cGMP, and other regulatory
standards. Manufactured product is used commercially following established registration procedures and after applicable regulatory approvals have been granted. We have established a quality control
and quality assurance program, including a set of standard operating procedures, analytical methods and specifications, designed to ensure that our products and product candidates are manufactured in
accordance with applicable regulations. We require that our contract manufacturers adhere to cGMP, except for products and product candidates for toxicology and animal studies, which we require to be
manufactured in accordance with current Good Laboratory Practices, or cGLP.

Although
some materials for our drug products are currently available from a single-source or a limited number of qualified sources, we attempt to acquire an adequate inventory of such
materials, establish alternative sources and/or negotiate long-term supply arrangements. We believe we do not have any significant issues obtaining suppliers; however, we cannot be certain
that we will continue to be able to obtain long-term supplies of our manufacturing materials.



We obtain exenatide, the active ingredient contained in BYETTA, from Bachem, Inc., or Bachem, and Mallinckrodt, Inc., or
Mallinckrodt, pursuant to agreements with each company. We have agreements with Wockhardt UK (Holdings) Ltd., or Wockhardt, and Baxter Pharmaceutical Solutions LLC, a subsidiary of
Baxter, Inc., or Baxter, to supply us the dosage form of
exenatide in cartridges. We have an agreement with Lilly to supply pens for delivery of BYETTA in cartridges.



We obtain pramlintide acetate, the active ingredient contained in SYMLIN, from Bachem and Lonza Ltd., or Lonza, pursuant to
agreements with each company. We have a contract with Baxter for the dosage form of SYMLIN in vials. We also have an agreement with Wockhardt for the dosage form of SYMLIN in cartridges. We have an
agreement with Ypsomed AG to supply pen components for the delivery of SYMLIN in cartridges. We also have an agreement with Sharp Corporation for the assembly of the SYMLIN pen components and
cartridges.



Under the terms of our development and license agreement with Alkermes, we are responsible for manufacturing the dosing formulation of
exenatide once weekly for commercial sale and will pay Alkermes milestone payments upon achievement of development milestones and royalties ranging in the mid single digits on sales of exenatide once
weekly. To date, we have paid an aggregate of $6 million, and issued warrants to purchase 75,000 shares of our common stock, as development milestone payments to Alkermes under the agreement.
If all future milestones are achieved, we may be obligated to pay Alkermes an aggregate of $14 million in additional milestone payments. Alkermes has transferred to us its technology for
manufacturing exenatide once weekly and is supplying us with the polymer materials required for the commercial manufacture of exenatide once weekly. The development and license agreement terminates on
the later of 10 years from first commercial sale of product under the agreement or the expiration or invalidation of certain Alkermes patents covering such products. In addition, we can
terminate the agreement at will upon 180 days written notice to Alkermes, and Alkermes can terminate the agreement pursuant to standard bankruptcy and liquidation provisions. Both parties can
terminate the agreement pursuant to uncured material breach of contract terms.

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We
obtain bulk exenatide, the active ingredient in exenatide once weekly, from Lonza and Mallinckrodt and we obtain pre-filled diluent syringes for exenatide once weekly from
Vetter Pharma-Fertigung GmbH & Co. KG pursuant to long-term agreements with each
company. We have built and are operating a facility in West Chester, Ohio to manufacture exenatide once weekly. The FDA has inspected this facility for the manufacturing of exenatide once weekly and
has made a number of observations which we believe are addressable.

Competition

The biotechnology and pharmaceutical industries are highly competitive. There are many pharmaceutical companies, biotechnology
companies, public and private universities and research organizations actively engaged in the research and development of products that may be similar to the products in our portfolio. A number of our
largest competitors, including AstraZeneca, Bristol-Myers Squibb Company, GlaxoSmithKline, Lilly, Merck & Co., Novartis AG, Pfizer, Sanofi-Aventis, Roche and Takeda are pursuing the
development of or are marketing pharmaceuticals that target the same diseases that we are targeting, and it is probable that the number of companies seeking to develop products and therapies for the
treatment of diabetes, obesity and other metabolic disorders will increase. Recently, Novo Nordisk obtained approval of a GLP-1 receptor agonist to treat type 2 diabetes that it
intends to launch this year. Many of these companies and other existing or potential competitors have substantially greater financial, technical and human resources than we do and may be better
equipped to develop, manufacture and market products. These companies may develop and introduce products and processes competitive with or superior to ours. In addition, other technologies or products
may be developed that have an entirely different approach or means of accomplishing the intended purposes of our products, which might render our technology and products noncompetitive or obsolete.
For example, all of our current drug products are injectable, and may have to compete with therapies that do not require injection. We cannot be certain that we will be able to compete successfully.

SYMLIN
is the only non-insulin-based drug product approved for improving blood glucose control in people with type 1 diabetes. Further, insulin and oral medications
are often insufficient for many people with type 2 diabetes to achieve satisfactory glucose and weight control. BYETTA or SYMLIN may be complementary to, or competitive with, these other
medications.

BYETTA
and SYMLIN must compete with established therapies for market share. In addition, many companies are pursuing the development of novel pharmaceuticals that target diabetes. These
companies may develop and introduce products competitive with or superior to BYETTA or SYMLIN. Such competitive products and potential products include:



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There
is substantial competition in the discovery and development of treatments for obesity, as well as emerging prescription and over-the-counter treatments for
this condition. Current treatments for obesity include dietary therapy, physical activity, drug therapy and surgery. Hoffmann-LaRoche and Abbott Laboratories already market oral medicines for the
treatment of obesity. Glaxo Smith Kline now markets "over the counter" a former prescription product (orlistat-Alli) for treatment of obesity. In addition, a number of other pharmaceutical
companies are developing new potential therapeutics and there have been two recent NDA filings for therapeutic agents to treat obesity.

Patents, Proprietary Rights, and Licenses

We believe that patents and other proprietary rights are important to our business. Our policy is to file patent applications to
protect technology, inventions and improvements that may be important to the development of our business. We also rely upon trade secrets, know-how, continuing technological innovations
and licensing opportunities to develop and maintain our competitive position. We plan to enforce our issued patents and our rights to proprietary information and technology. We review third-party
patents and patent applications, both to refine our own patent strategy and to identify useful licensing opportunities.

We
have a number of patents, patent applications and rights to patents related to our compounds, products and technology, but we cannot be certain that issued patents will be enforceable
or provide adequate protection or that pending patent applications will result in issued patents. We have also filed foreign counterparts to many of these issued patents and applications.

We
may obtain patents for our compounds many years before we obtain marketing approval for them. Because patents have a limited life, which may begin to run prior to the commercial sale
of the related product, the commercial value of the patent may be limited. However, we may be able to apply for patent term extensions to compensate in part for delays in obtaining marketing approval.
For example, in the United States a patent term extension of 1,586 days has been granted for SYMLIN, resulting in a patent expiration date of March 16, 2019, and a patent term extension
of 1,287 days has been granted for BYETTA, resulting in a patent expiration date of December 1, 2016. Similar patent term extensions may be available for other products that we are
developing, but we cannot be certain we will obtain them.

Included
within our exenatide patent portfolio are issued patents for:



These
patents expire between 2016 and 2020. We do not have a composition of matter patent for the exenatide molecule.

Included
within our pramlintide patent portfolio are issued patents for:



These
patents expire between 2011 and 2019.

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Our
SYMLIN and BYETTA products are subject to the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, which provides data
exclusivity for a certain period of time. Beginning one year before expiration of the data exclusivity period, the Hatch-Waxman Act allows generic manufacturers to file Abbreviated New Drug
Applications, or ANDAs, requesting the FDA's approval of generic versions of previously-approved products. For example, generic pharmaceutical manufacturers could file an ANDA for SYMLIN as of March
2009 and for BYETTA as of April 2009. If an ANDA is filed for one of our approved products prior to expiration of the patents covering those products, it could result in our initiating patent
infringement litigation to enforce our rights.

With
respect to our drug candidates, we have patents and patent applications pending, or have licensed patents and patent applications, relevant to the development and commercialization
of such drug candidates. Generally, our policy is to file foreign counterpart applications in countries with significant pharmaceutical markets.

It
is important that we do not infringe patents or proprietary rights of others and that we do not violate the agreements that grant proprietary rights to us. If we do infringe patents
or violate these agreements, we could be prevented from developing or selling products or from using the processes covered by those patents or agreements, or we could be required to obtain a license
from the third party allowing us to use their technology. We cannot be certain that, if required, we could obtain a license to any third-party technology or that we could obtain one at a reasonable
cost. If we were not able to obtain a required license, we could be adversely affected. Because patent applications are confidential for at least some period of time, there may be pending patent
applications from which patents will eventually issue and prevent us from developing or selling certain products unless we can obtain a license to use the patented technology.

Patents
relating to pharmaceutical, biopharmaceutical and biotechnology products, compounds and processes such as those that cover our existing products, compounds and processes and
those that we will likely file in the future do not always provide complete or adequate protection. Future litigation or proceedings initiated by the United States Patent and Trademark Office
regarding the enforcement or validity of our existing patents or any future patents could invalidate our patents or substantially reduce their protection. In addition, statutory or regulatory changes
may adversely affect our ability to obtain protection or enforce our patents. Furthermore, our pending patent applications and patent applications filed by our collaborative partners may not result in
the issuance of any patents or may result in patents that do not provide adequate protection. As a result, we may not be able to prevent third parties from developing the same compounds and products
that we have developed or are developing. In addition, we do not have patent protection or we may not be able to enforce our patents in certain countries. As a result, manufacturers may be able to
sell generic versions of our products in those countries.

We
also rely on unpatented trade secrets and improvements, unpatented internal know-how and technological innovation. We protect these rights mainly through confidentiality
agreements with our corporate partners, employees, consultants and vendors. These agreements provide that all confidential information developed or made known to an individual during the course of
their relationship with us will be kept confidential and will not be used or disclosed to third parties except in specified circumstances. In the case of employees, the agreements provide that all
inventions made by the individual while employed by us will be our exclusive property. We cannot be certain that these parties will comply with these confidentiality agreements, that we have adequate
remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered by our competitors. Under some of our research and development agreements, inventions
discovered in certain cases become jointly owned by us and our corporate partner and in other cases become the exclusive property of one of us. It can be difficult to determine who owns a particular
invention and disputes could arise regarding those inventions.

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Government Regulation

Regulation by governmental authorities in the United States and foreign countries is a significant factor in the development,
manufacture and marketing of pharmaceutical products. All of our potential products will require regulatory approval by governmental agencies prior to commercialization. In particular, human
therapeutic products are subject to rigorous preclinical testing and clinical trials and other pre-market approval requirements by the FDA and regulatory authorities in foreign countries.
Various federal, state and foreign statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of such products.

A
number of steps must be taken before a pharmaceutical agent may be marketed in the United States. First, the pharmaceutical agent must undergo preclinical testing. Preclinical tests
include laboratory evaluation of product chemistry and animal studies to assess the potential safety and activity of the product candidate and its formulations. The results of these studies must be
submitted to the FDA as part of an investigational new drug application, or IND, which must be reviewed by the FDA before a proposed clinical trial can begin. Typically, clinical trials involve a
three-phase process. In Phase 1, clinical trials are conducted with a small number of healthy volunteers to determine the early safety and tolerability profile and the pattern of drug
distribution and metabolism. In Phase 2, clinical trials are conducted with groups of patients afflicted with a specified disease in order to determine preliminary efficacy, dosing regimens and
expanded evidence of safety. In Phase 3, large-scale, multi-center, adequate and well-controlled comparative clinical trials are conducted with patients afflicted with a target
disease in order to provide enough data for the statistical proof of
efficacy and safety required by the FDA and others. The results of the preclinical testing and clinical trials for a pharmaceutical product are then submitted to the FDA in the form of an NDA for
approval to commence commercial sales. In responding to an NDA, the FDA may grant marketing approval, request additional information, or deny the application if it determines that the application does
not satisfy its regulatory approval criteria. Once a drug is approved for marketing in the United States, the FDA requires ongoing safety monitoring to ascertain any undiscovered issues related to
"real-world" use of the drug. The expanded patient exposure once a drug is introduced to the marketplace can reveal new risks (as well as new benefits) that were not detectable during
clinical testing.

Among
the conditions for NDA approval is the requirement that the prospective manufacturer's quality control and manufacturing procedures conform to cGMP. In complying with cGMP,
manufacturers must continue to expend time, money and effort in the area of production, quality control, and quality assurance to ensure full technical compliance. Manufacturing facilities are subject
to periodic inspections by the FDA to ensure compliance.

We
are also subject to various federal, state, and local laws, regulations and recommendations relating to safe working conditions; laboratory and manufacturing practices; the
experimental use of animals; and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our
research.

The
activities required before a pharmaceutical agent may be marketed in the EU are dictated by the International Conference on Harmonization and are generally similar to those
established in the United States. Approval of new drugs across the EU relies on either the mutual recognition or decentralized approval procedure of the European Medicines Agency. Under the
centralized procedure, the marketing application is referred for review to two review teams, each representing one of the member countries. Each reviewer then forwards an early assessment to the
Committee for Medicinal Products for Human Use, or CHMP, for discussion and preparation of an initial consolidated assessment report, including a list of questions requesting clarification as well as
additional information. This step initiates a series of dialogues, meetings and other communications among the CHMP, the two review teams and the applicant, leading in turn to clarification, education
and refinement of the original assessment reports. Ultimately, a decision is reached to either grant marketing approval or

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deny
the application if it is determined that the application does not satisfy the regulatory approval criteria. The clinical testing, manufacture and sale of pharmaceutical products outside of the
United States and the EU are subject to regulatory approvals by other jurisdictions which may be more or less rigorous than those required by the United States or the EU.

Employees

As of December 31, 2009, we had approximately 1,500 full-time employees. A significant number of our management and
professional employees have had experience with pharmaceutical, biotechnology or medical product companies. We believe that we have been highly successful in attracting skilled and experienced
personnel. None of our employees are covered by collective bargaining agreements and we consider relations with our employees to be good.

Executive Officers

The names of our executive officers and certain information about them as of February 15, 2010 are set forth below:

Name

Age

PositionDaniel M. Bradbury


48

President, Chief Executive Officer and DirectorMark G. Foletta


49

Senior Vice President, Finance and Chief Financial OfficerMark J. Gergen


47

Senior Vice President, Corporate DevelopmentOrville G. Kolterman, M.D.


62

Senior Vice President, Research and DevelopmentMarcea Bland Lloyd


61

Senior Vice President, Government and Corporate Affairs, and General CounselRoger Marchetti


51

Senior Vice President, Human Resources and Information ManagementPaul G. Marshall


50

Senior Vice President, OperationsVincent P. Mihalik


59

Senior Vice President, Sales and Marketing and Chief Commercial OfficerLloyd A. Rowland


53

Vice President, Governance and Compliance, and Corporate Secretary


Mr. Bradburyhas been our Chief Executive Officer since March 2007, serving as President since June 2006 and as Chief Operating
Officer since June 2003. He has served as a director since June 2006 and serves on the Finance Committee. He previously served as Executive Vice President from June 2000
until June 2003. He joined Amylin in 1994 and has held officer-level positions in Corporate Development and Marketing during that time. Prior to joining Amylin, Mr. Bradbury spent ten years at
SmithKline Beecham Pharmaceuticals, where he held a number of sales and marketing positions. He is a member of the board of directors of Illumina, Inc. He also serves on the RAND Health Board
of Advisors and as a board member for PhRMA, BIOCOM, the Keck Graduate Institute's Board of Trustees and the San Diego Regional Economic Development Corporation. Mr. Bradbury is a member of the
Royal Pharmaceutical Society of Great Britain and serves on the UCSD Rady School of Management's Advisory Council and the University of Miami's Innovation Corporate Advisory Council. He received a
Bachelor of Pharmacy from Nottingham University and a Diploma in Management Studies from Harrow and Ealing Colleges of Higher Education.


Mr. Folettahas served as Senior Vice President, Finance and Chief Financial Officer since March 2006 and he previously served as
Vice President, Finance and Chief Financial Officer from March 2000 to March 2006. Mr. Foletta previously served as a Principal of Triton Group Management, Inc. from 1997 to 2000. From
1986 to 1997, Mr. Foletta held a number of management positions with Intermark, Inc. and Triton Group Ltd., the most recent of which was Senior Vice President, Chief

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Financial
Officer and Corporate Secretary. From 1982 to 1986, Mr. Foletta was with Ernst & Young, most recently serving as an Audit Manager. He is a director of Anadys
Pharmaceuticals, Inc. Mr. Foletta received a B.A. in Business Economics from the University of California, Santa Barbara. He is a Certified Public Accountant and a member of the
Financial Executives Institute.

Mr. Gergenhas served as Senior Vice President, Corporate Development since August 2006 and previously served as Vice President of
Business Development from May 2005 to August 2006. Prior to joining us, Mr. Gergen was an independent consultant to biotech and medical technology companies for strategy, financing and
corporate development. From 2003 to 2005, Mr. Gergen was Executive Vice President at CardioNet, Inc. He held various positions at Advanced Tissue Sciences, Inc. from 2000 to 2003
most recently as Chief Restructuring Officer and Acting CEO. He also served as Senior Vice President, Chief Financial and Development Officer, and Vice President, Development, General Counsel and
Secretary. From 1999 to 2000, Mr. Gergen was employed at Premier, Inc. and from 1994 to 1999 he held various positions with Medtronic, Inc. From 1990 to 1994 he held various legal
and corporate development positions at Jostens, Inc. and from 1986 to 1990, he practiced law at various law firms. Mr. Gergen serves on the Board of Directors of a privately held
company. Mr. Gergen received a
B.A. in Administration from Minot State University and a J.D. from the University of Minnesota Law School.

Dr. Koltermanhas served as Senior Vice President, Research and Development since June 2008 and previously served as Senior Vice
President, Development from March 2008 to May 2008. He also served as Senior Vice President, Clinical and Regulatory Affairs from August 2005 to March 2008, Senior Vice President, Clinical Affairs
from February 1997 to August 2005, Vice President, Medical Affairs from 1993 to 1997, and Director, Medical Affairs from 1992 to 1993. From 1983 to 1992, he was Program Director of the General
Clinical Research Center and Medical Director of the Diabetes Center, at the University of California, San Diego Medical Center. Since 1989, he has been Adjunct Professor of Medicine at the University
of California, San Diego. From 1978 to 1983, he was Assistant Professor of Medicine in the Endocrinology and Metabolism Division at the University of Colorado School of Medicine, Denver. He was a
member of the Diabetes Control and Complications Trial Study Group and presently serves as a member of the Epidemiology of Diabetes Intervention and Complications Study. He is also a
past-president of the California Affiliate of the American Diabetes Association. Dr. Kolterman received his M.D. from Stanford University School of Medicine.

Ms. Lloydhas served as our Senior Vice President, Government & Corporate Affairs and General Counsel since June 2008 and
Senior Vice President, Legal and Corporate Affairs, and General Counsel since February 2007. Prior to joining us, Ms. Lloyd served as Group Senior Vice President, Chief Administrative Officer,
General Counsel and Secretary of VHA Inc. from November 2004 to February 2007. Previously, she served as VHA's General Counsel and Secretary from May 1999 to November 2004. From 1993 to April
1999, Ms. Lloyd was Vice President and Assistant General Counsel of Medtronic Inc. and served as Medtronic's Assistant General Counsel from 1991 to 1993. From 1978 to 1991,
Ms. Lloyd held various legal positions with Medtronic. Prior to joining Medtronic, Ms. Lloyd served as counsel to Pillsbury Company and Montgomery Ward & Co. and she taught
Business Law at the University of Minnesota Business School. Ms. Lloyd is immediate past Chairperson of the Executive Leadership Foundation, a member of the board of directors for California
Healthcare Institute and is an associate of the Women Business Leaders of the United States Health Care Industry Foundation. She received a B.S./B.A. from Knox College and a J.D. from Northwestern
University.

Mr. Marchettihas served as our Senior Vice President, Human Resources and Information Management since July 2007 and previously
served as Senior Vice President, Human Resources and Corporate Services from October 2005 to July 2007. Prior to joining us, he served as Vice President, Human Resources for Guidant Corporation from
July 2002 to October 2005. Prior to this role, he served as Vice President, Finance and Information Systems, Guidant Europe, Middle East, Africa, and Canada, since the beginning of 2001. From 1999
through 2000, he served as Vice President, Human

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Resources
for Guidant's Vascular Intervention group, and served as Guidant's Corporate Controller and Chief Accounting Officer from 1994 to 1999. He joined Eli Lilly and Company's Medical Devices and
Diagnostics division in 1988. In 1992, he became Financial Manager of Lilly's pharmaceutical manufacturing operations in Indianapolis. From 1980 to 1986, he was with Touche Ross & Co.
(currently
Deloitte). He received a B.S. from LaSalle University in Philadelphia and his M.B.A. from the Ross School of Business at the University of Michigan. He is a Certified Public Accountant.

Mr. Marshallhas served as Senior Vice President, Operations since December 2008. He previously served as Vice President Operations
from December 2006 to December 2008. Prior to joining us, he was Vice President of Corporate Manufacturing at Amgen, Inc. From 2002 to 2005, Mr. Marshall served as President of
Manufacturing at Recombinant Proteins at the Bioscience Division of Baxter International. From 1999 to 2002, he was Site Head of the Baxter International Thousand Oaks facility. He joined Creative
BioMolecules in 1992, first as Head of Process Development and Clinical Manufacturing and then as Head of Operations. From 1988 to 1992, Mr. Marshall held various management positions with
Welgen Manufacturing Partnership (now Amgen, Rhode Island), Repligen Corporation and Damon Biotech. Mr. Marshall received a B.S. and an M.S. in Biology from the University of Massachusetts at
Dartmouth and completed three years of post-graduate work concentrating in hematology and coagulation research at Brown University.

Mr. Mihalikhas served as Senior Vice President, Sales and Marketing and Chief Commercial Officer since January 2009.
Mr. Mihalik has over 30 years of experience across multiple commercial roles. Before joining us, Mr. Mihalik served as Vice President of Global Brand Development Diabetes and
Endocrine Platform Team Leader for Lilly since 2004. Previously, he was Business Unit Head of Diabetes Care for Lilly U.S. from 2001 to 2004. From 1990 to 2001 he served in various senior management
positions at other healthcare companies including Senior Vice President and General Manager for Lab Systems and Molecular Biochemical at Roche Diagnostics Corporation, President, Diabetes Care North
America at Boehringer Mannheim Group and President, Scientific Products Biomedical and General Manager, Pandex Diagnostic Research and Development Center for Baxter Healthcare Inc. He has a
B.S. degree in Biology from The Pennsylvania State University and completed the Northwestern University Masters in Management-Executive Program.

Mr. Rowlandhas served as our Vice President, Governance and Compliance, Secretary, and Chief Compliance Officer since February
2007. He previously served as our Vice President, Legal, Secretary and General Counsel from September 2001 to February 2007. Prior to joining us, Mr. Rowland served in various positions at
Alliance Pharmaceutical Corp., including as Vice President, General Counsel and Secretary, beginning in 1993. Earlier, Mr. Rowland served as Vice President and Senior Counsel, Finance and
Securities, at Imperial Savings Association for four years. For the previous eight years, he was engaged in the private practice of corporate law with the San Diego, California law firm of Gray, Cary,
Ames & Fry, and the Houston, Texas law firm of Bracewell & Patterson. He received a J.D. from Emory University.

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Item 1A.Risk Factors

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

Except for the historical information contained herein or incorporated by reference, this annual report on
Form 10-K and the information incorporated by reference contains forward-looking statements that involve risks and uncertainties. These statements include projections about our
accounting and finances, plans and objectives for the future, future operating and economic performance and other statements regarding future performance. These statements are not guarantees of future
performance or events. Our actual results may differ materially from those discussed here. Factors that could cause or contribute to differences in our actual results include those discussed in the
following section, as well as those discussed in Part II, Item 7 entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere throughout
this annual report on Form 10-K and in any other documents incorporated by reference into this report. You should consider carefully the following risk factors, together with all of
the other information included or incorporated in this annual report on Form 10-K. Each of these risk factors, either alone or taken together, could adversely affect our business,
operating results and financial condition, as well as adversely affect the value of an investment in our common stock. There may be additional risks that we do not presently know of or that we
currently believe are immaterial which could also impair our business and financial position.

We have a history of operating losses, anticipate future losses and may never become profitable.

We have experienced significant operating losses since our inception in 1987, including losses of $186.2 million in 2009,
$321.9 million in 2008 and $216.5 million in 2007. As of December 31, 2009, we had an accumulated deficit of approximately $1.9 billion. The extent of our future losses and
the timing of potential profitability are uncertain, and we may never achieve profitable operations. We have been engaged in discovering and developing drugs since inception, which has required, and
will continue to require, significant research and development expenditures. We derived substantially all of our revenues prior to 2005 from development funding, fees and milestone payments under
collaborative agreements and from interest income. BYETTA and SYMLIN may not be as commercially successful as we expect and we may not succeed in commercializing any of our other drug candidates. We
may incur substantial operating losses for at least the next few years. These losses, among other things, have had and will have an adverse effect on our stockholders' equity and working capital. Even
if we become profitable, we may not remain profitable.

We began selling, marketing and distributing our first products, BYETTA and SYMLIN, in 2005 and we will depend heavily on the success of those products and, if approved,
exenatide once weekly, in the marketplace.

Prior to the launch of BYETTA and SYMLIN in 2005, we had never sold or marketed our own products. Our ability to generate product
revenue for the next few years will depend solely on the success of these products and, if approved, exenatide once weekly. The ability of BYETTA, SYMLIN and, if approved, exenatide once weekly to
generate revenue at the levels we expect will depend on many factors, including the following:



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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. 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.

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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 commercialize our products, including BYETTA and SYMLIN, and continue to
develop our drug candidates, including exenatide once weekly, 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 commercialize our products or conduct clinical trials, risks of reliance on the third-party for regulatory compliance and quality assurance, third-party refusal
to supply on a long-term basis, or at all, the possibility of breach of the manufacturing agreement by the third-party and the possibility of termination or non-renewal of the
agreement by the third-party, based on its business priorities, at a time that is costly or inconvenient for us. In addition, reliance on single-source suppliers subjects us to the risk of price
increases by these suppliers which could negatively impact our operating margins. If any of these risks occur, our product supply will be interrupted resulting in lost or delayed revenues and delayed
clinical trials. Our reliance on third-party manufacturers for the production of our two commercial products is described in more detail below.

We
rely on Bachem and Mallinckrodt to manufacture our long-term commercial supply of bulk exenatide, the active ingredient in BYETTA. In addition, we rely on single-source
manufacturers for some of our raw materials used by Bachem and Mallinckrodt to produce bulk exenatide. We also rely on Wockhardt and Baxter to manufacture the dosage form of BYETTA in cartridges. We
are further dependent upon Lilly to supply pens for delivery of BYETTA in cartridges.

We
rely on Bachem and Lonza to manufacture our commercial supply of bulk pramlintide acetate, the active ingredient contained in SYMLIN. In addition, we rely on Baxter to manufacture the
dosage form of SYMLIN in vials. 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.

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Our
manufacturers have produced BYETTA and SYMLIN for commercial use for approximately five years, however, unforeseeable risks related to environmental, economic, technical or other
issues may be encountered as we, together with our manufacturers, continue to develop familiarity and experience with regard to manufacturing our products. Furthermore, we and the other manufacturers
used for our drug candidates may not be able to produce supplies in commercial quantities if our drug candidates are approved. While we believe that business relations between us and our manufacturers
are generally good, we cannot predict whether any of the manufacturers that we may use will meet our requirements for quality, quantity or timeliness for the manufacture of bulk exenatide or
pramlintide acetate, dosage form of BYETTA or SYMLIN, or pens. Therefore, we may not be able to obtain necessary supplies of products with acceptable quality, on acceptable terms or in sufficient
quantities, if at all. Our dependence on third parties for the manufacture of products may also reduce our gross profit margins and our ability to develop and deliver products in a timely manner.

In
order to manufacture exenatide once weekly on a commercial scale we must complete final validation of the manufacturing process and obtain approval for our manufacturing facility from
the FDA. We have never established, validated, and operated a manufacturing facility and cannot assure you that we will be able to successfully establish or operate such a facility in a timely or
economical
manner, or at all. The FDA has inspected our manufacturing facility and has made a number of observations which we believe are addressable. However, we cannot be assured that these observations will
be adequately addressed in a timely manner or at all. 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 exenatide once weekly 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
exenatide once weekly. We also will need to obtain sufficient supplies of diluent, solvents, devices, packaging and other components necessary for commercial manufacture of exenatide once weekly. If
exenatide once weekly is approved, we will be dependent upon Mallinckrodt and Lonza to manufacture our long-term commercial supply of bulk exenatide, the active ingredient in exenatide
once weekly, and upon single suppliers to produce components for packaging exenatide once weekly.

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, there are a number of health
care reform proposals under consideration by the Federal government and 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. 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.

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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, and it is possible that the number of companies seeking to develop products and therapies for the
treatment of diabetes, obesity and other metabolic disorders will increase. Many of our competitors have substantially greater financial, technical, sales force, human and other resources than we do
and may be better equipped to develop, manufacture and market technologically superior products. In addition, many of these competitors have significantly greater experience than we do in undertaking
preclinical testing and human clinical studies of new pharmaceutical products and in obtaining regulatory approvals of human therapeutic products. Accordingly, our competitors may succeed in obtaining
FDA approval for superior products. Furthermore, now that we have received FDA approval for BYETTA and SYMLIN, we may also be competing against other companies with respect to our manufacturing and
product distribution efficiency and sales and marketing capabilities, areas in which we have limited or no experience as an organization.

Our
target patient population for BYETTA includes people with diabetes who have not achieved adequate glycemic control with diet and exercise or by using metformin, sulfonylurea and/or a
TZD, three common oral therapies for type 2 diabetes. Our target population for SYMLIN includes people with either type 2 or type 1 diabetes whose therapy includes multiple
mealtime insulin injections daily. Other products are currently in development or exist in the market that may compete directly with the products that we are developing or marketing. Various other
products are available or in development to treat type 2 diabetes, including:



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.

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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:



Any
of the following could delay the completion of our ongoing and planned clinical studies:



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
exenatide once weekly.

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 exenatide once weekly. We entered into this collaboration in order
to:



30

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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 exenatide once weekly
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 exenatide once weekly 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 exenatide once weekly, we would have to seek additional sources for
funding and may have to delay, reduce or eliminate one or more of our commercialization and development programs for these compounds. If Lilly does not successfully commercialize BYETTA outside the
United States, we may receive limited or no revenues from them. In addition, we are dependent on Alkermes to successfully develop and transfer to us its technology for manufacturing exenatide once
weekly. If Alkermes' technology is not successfully developed to effectively deliver exenatide in a sustained release
formulation, or Alkermes does not devote sufficient resources to the collaboration, our efforts to develop sustained release formulations of exenatide could be delayed or curtailed.

If our patents are determined to be unenforceable or if we are unable to obtain new patents based on current patent applications or for future inventions, we may not be able
to prevent others from using our intellectual property. If we are unable to obtain licenses to third party patent rights for required technologies, we could be adversely affected.

We own or hold exclusive rights to many issued United States patents and pending United States patent applications related to the
development and commercialization of exenatide, including BYETTA and exenatide once weekly, SYMLIN and our other drug candidates. These patents and applications cover
composition-of-matter, medical indications, methods of use, formulations and other inventive results. We have issued and pending applications for formulations of BYETTA and
exenatide once weekly, 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

31

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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 exenatide once weekly, in the United States or foreign countries on a timely basis,
or at all.

Our drug candidates, including exenatide once weekly, are subject to extensive government regulations related to development, clinical
trials, manufacturing and commercialization. The process of obtaining FDA and other regulatory approvals is costly, time-consuming, uncertain and subject to unanticipated delays.
Regulatory authorities may refuse to approve an application for approval of a drug candidate if they believe that applicable regulatory criteria are not satisfied. Regulatory authorities may also
require additional testing for safety and efficacy. Moreover, if the FDA grants regulatory approval of a product, the approval may be limited to specific indications or limited with respect to its
distribution, and expanded or additional indications for approved drugs may not be approved, which could limit our revenues. Foreign regulatory authorities may apply similar limitations or may refuse
to grant any approval. Unexpected changes to the FDA or foreign regulatory approval process could also delay or prevent the approval of our drug candidates.

The
data collected from our clinical trials may not be sufficient to support approval of our drug candidates or additional or expanded indications by the FDA or any foreign regulatory
authorities. Biotechnology stock prices have declined significantly in certain instances where companies have failed to meet expectations with respect to FDA approval or the timing for FDA approval.
If the FDA's or
any foreign regulatory authority's response is delayed or not favorable for any of our drug candidates, including exenatide once weekly, 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 preapproval inspection. Any failure or delay in obtaining these approvals could prohibit or delay us or any of our business partners from 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 and our business will be
adversely affected.

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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
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:



We are subject to "fraud and abuse" and similar laws and regulations, and a failure to comply with such regulations or prevail in any litigation related to noncompliance
could harm our business.

Upon approval of BYETTA and SYMLIN by the FDA, we became subject to various health care "fraud and abuse" laws, such as the Federal
False Claims Act, the federal anti-kickback statute and other state and federal laws and regulations. Pharmaceutical companies have faced lawsuits and investigations pertaining to
violations of these laws and regulations. We cannot guarantee that measures that we have taken to prevent such violations, including our corporate compliance program, will protect us from future
violations, lawsuits or investigations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant
impact on our business, including the imposition of significant fines or other sanctions.

Our financial results will fluctuate, and these fluctuations may cause our stock price to fall.

Forecasting future revenues is difficult, especially since we launched our first products in 2005 and the level of market acceptance of
these products may change rapidly. In addition, our customer base is highly concentrated with four customers accounting for most of our net product sales. Fluctuations in the buying patterns of these
customers, which may result from seasonality, wholesaler buying decisions or other factors outside of our control, could significantly affect the level of our net sales on a period to period basis. As
a result, it is reasonably likely that our financial results will fluctuate to an extent

33

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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:



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:



We
may also be required to use our cash to pay principal and interest on outstanding debt, including a term loan with a current balance of approximately $93.8 million due in 2010,
referred to as the Term Loan, and $775 million in outstanding principal amount of convertible senior notes, of which $200 million is due in 2011, referred to as the 2004 Notes, and
$575 million is due in 2014, referred to as the 2007 Notes.

If
we require additional financing in the future, we cannot assure you that it will be available to us on favorable terms, or at all. Although we have previously been successful in
obtaining financing through our debt and equity securities offerings, there can be no assurance that we will be able to so in the future, especially given the current adverse economic and credit
conditions.

Our investments in marketable debt securities are subject to credit and market risks that may adversely affect their fair value.

We maintain a portfolio of investments in marketable debt securities which are recorded at fair value. Although we have established
investment guidelines relative to diversification and maturity with the objective of maintaining safety of principal and liquidity, credit rating agencies may reduce the credit rating of our
individual holdings which could adversely affect their value. Lower credit quality

34

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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. On March 4, 2009, the Supreme Court held inWyeth v. Levinethat federal law does not preempt state product liability
claims involving pharmaceuticals. We are currently involved in fifty-three product liability cases which have been brought by individuals who have used BYETTA and generally seek compensatory and
punitive damages for alleged injuries, consisting primarily of pancreatitis, and in a few cases wrongful death. We have also been notified of other claims of individuals who have not filed suit.
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 currently
have limited product liability insurance coverage. We cannot assure you that our insurance will provide adequate coverage against potential liabilities.

Our ability to enter into and maintain third-party relationships is important to our successful development and commercialization of BYETTA, SYMLIN and our other drug
candidates and to our potential profitability.

With respect to sales, marketing and distribution outside the United States, we will be substantially dependent on Lilly for activities
relating to BYETTA and sustained-release formulations of BYETTA, including exenatide once weekly. 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, exenatide once weekly, Lilly is co-promoting within the United States. If Lilly ceased commercializing BYETTA or, if approved,
exenatide once weekly, for any reason, we would likely need to either enter into a marketing and distribution arrangement with a third party for those products or significantly increase our internal
sales and commercialization infrastructure.

With
respect to our obesity product candidates, we will generally be dependent upon Takeda for development activities beyond phase 2 for approval in the United States and all
development activities outside the United States. We will also be dependent upon Takeda for commercializing approved products that result from our co-development activities, if any, in and
outside the United States. If Takeda were to terminate our collaboration with them, we would likely need to find a third party collaborator to continue developing our obesity program, which we may be
unable to do.

We
may not be able to enter into marketing and distribution arrangements or find a corporate partner for SYMLIN or our other drug candidates as we deem necessary. If we are not able to
enter into a marketing or distribution arrangement or find a corporate partner who can provide support for commercialization of our drug candidates as we deem necessary, we may not be able to
successfully perform these marketing or distribution activities. Moreover, any new marketer or distributor or corporate partner for our drug candidates, including Lilly and Takeda, with whom we choose
to contract may not establish adequate sales and distribution capabilities or gain market acceptance for our products, if any.

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We have a significant amount of indebtedness. We may not be able to make payments on our indebtedness, and we may incur additional indebtedness in the future, which could
adversely affect our operations.

In April 2004, we issued $200 million of the 2004 Notes and in June 2007, we issued $575 million of the 2007 Notes. In
December 2007, we entered into the $125 million Term Loan, of which $93.8 million is currently outstanding and due in 2010. Our ability to make payments on our debt, including the 2004
and 2007 Notes and the Term 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 2004 and 2007 Notes and the Term 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 or repay the Term Loan upon an event of default.

Holders of the 2004 and 2007 Notes may require us to redeem all or any portion of their notes upon the occurrence of certain designated
events which generally involve a change in control of our company. The lenders under the Term Loan may require us to repay outstanding principal and accrued interest due under the Term Loan upon the
occurrence of an event of default, which could include, among other things, nonpayment of principle and interest, violation of covenants and a change in control. We may not have sufficient cash funds
to redeem the 2004 and 2007 Notes upon a designated event or repay the Term Loan upon an event of default. We may elect, subject to certain conditions, to pay the redemption price for the 2004 Notes
in our common stock or a combination of cash and our common stock. We may be unable to satisfy the requisite conditions to enable us to pay some or all of the redemption price for the 2004 Notes in
our common stock. If we are prohibited from redeeming the 2004 or 2007 Notes, we could seek consent from our lenders to redeem the 2004 or 2007 notes. If we are unable to obtain their consent, we
could attempt to refinance the 2004 or 2007 Notes. If we were unable to obtain a consent or refinance, we would be prohibited from redeeming the 2004 or 2007 Notes. If we were unable to redeem the
2004 or 2007 Notes upon a designated event, it would result in an event of default under the indentures governing the 2004 or 2007 Notes. An event of default under the indentures could result in a
further event of default under our other then-existing debt, including the Term Loan. In addition, the occurrence of a designated event may be an event of default under our other debt.
Further, an event of default under the Term Loan could result in an event of default under the indentures governing the 2004 or 2007 Notes.

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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, scientific and other personnel and consultants will also be critical to our 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

37

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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.

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:



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 48% of our common stock.

As of December 31, 2009, executive officers, directors and holders of 5% or more of our outstanding common stock, in the
aggregate, owned or controlled approximately 48% 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.

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Substantial future sales of our common stock by us or our existing stockholders or the conversion of our convertible senior notes to common stock could cause the trading
price of our common stock to fall.

Sales by existing stockholders of a large number of shares of our common stock in the public market or the perception that additional
sales could occur could cause the trading price of our common stock to drop. Likewise, the issuance of shares of common stock upon conversion of our convertible notes or redemption of our convertible
notes upon a designated event, or upon additional convertible debt or equity financings or other share issuances by us, including shares issued in connection with potential future strategic alliances,
could adversely affect the trading price of our common stock. Our convertible notes are currently convertible into a total of up to 15.2 million shares. In addition, the existence of these
notes may encourage short selling of our common stock by market participants.

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

The market prices for securities of biopharmaceutical and biotechnology companies, including our common stock, have historically been
highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the quarterly operating performance of these biopharmaceutical and
biotechnology companies. Since January 1, 2008, the high and low sales price of our common stock varied significantly, as shown in the following table:

High

LowYear ending December 31, 2010First Quarter (through February 16, 2010)

$
19.99

$
14.13Year ending December 31, 2009Fourth Quarter

$
15.63

$
11.01Third Quarter

$
15.69

$
11.73Second Quarter

$
14.30

$
8.56First Quarter

$
14.13

$
7.89Year ended December 31, 2008Fourth Quarter

$
20.47

$
5.50Third Quarter

$
35.00

$
18.55Second Quarter

$
33.22

$
25.30First Quarter

$
37.38

$
23.75


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:



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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.

Item 1B.Unresolved Staff Comments

None.

Item 2.Properties

Our primary administrative offices and research laboratories are located in San Diego, California. As of December 31, 2009, we
had leases for approximately 647,000 square feet of office and laboratory space. Our leases on a majority of these properties expire between 2015 and 2019. We have also entered into
short-term leases and other agreements for small offices in Beachwood, Ohio, Laguna Niguel, California and Washington, D.C.

Our
wholly-owned subsidiary, Amylin Ohio LLC, owns two buildings and 44.4 acres of land in West Chester, Ohio. The buildings, once built out for the manufacture of exenatide once
weekly, will have approximately 565,000 square feet of manufacturing and office space.

Item 3.Legal Proceedings

From time to time in the ordinary course of business, we become involved in various lawsuits, claims and proceedings relating to the
conduct of our business, including those pertaining to product liability, patent infringement and employment claims. Since August 2008, we and Lilly have been named as defendants in 55 separate
product liability cases involving approximately 340 plaintiffs in various courts in the United States. These cases have been brought by individuals who allege they have used BYETTA. They generally
seek compensatory and punitive damages for alleged injuries, consisting primarily of pancreatitis, and in some cases, wrongful death. Most of the cases are pending in California state court, where the
Judicial Council has granted our petition for a "coordinated proceeding" for all California state court cases alleging harm allegedly as a result of BYETTA use. We also have received notice from
plaintiff's counsel of additional claims by individuals who have not filed suit. While we cannot reasonably predict the outcome of any lawsuit, claim or proceeding, we and Lilly intend to vigorously
defend these matters. However, if we are unsuccessful in our defense, these matters could result in a material adverse impact to our financial position and results of operations.

Item 4.Submission of Matters to a Vote of Security Holders

None.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on The NASDAQ Global Market under the symbol "AMLN." The following table sets forth, for the periods
indicated, the reported high and low sales price per share of our common stock on The NASDAQ Global Market:

High

LowYear Ended December 31, 2009Fourth Quarter

$
15.63

$
11.01Third Quarter

$
15.69

$
11.73Second Quarter

$
14.30

$
8.56First Quarter

$
14.13

$
7.89Year Ended December 31, 2008Fourth Quarter

$
20.47

$
5.50Third Quarter

$
35.00

$
18.55Second Quarter

$
33.22

$
25.30First Quarter

$
37.38

$
23.75


The
last reported sale price of our common stock on The NASDAQ Global Market on February 16, 2010 was $18.15. As of February 16, 2010, there were approximately 605
shareholders of record of our common stock.

We
have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings for funding operations and, therefore, do not anticipate paying
any cash dividends in the foreseeable future.

For
information concerning prior stockholder approval of and other matters relating to our equity incentive plans, see "Equity Compensation Plan Information" under Item 12 in this
annual report on Form 10-K.

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PERFORMANCE MEASUREMENT COMPARISON

The material in this section is not "soliciting material," is not deemed "filed" with the Securities and
Exchange Commission, and is not to be incorporated by reference into any filing of Amylin under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended.

The
following graph compares total stockholder returns of Amylin for the past five years to two indices: the NASDAQ CRSP Total Return Index for the NASDAQ Stock Market (U.S. companies),
or the NASDAQ-US, and the NASDAQ Pharmaceutical Index, or the NASDAQ-Pharmaceutical. The total return for our common stock and for each index assumes the reinvestment of dividends,
although dividends have never been declared on our common stock, and is based on the returns of the component companies weighted according to their capitalizations as of the end of each monthly
period. The NASDAQ-US tracks the aggregate price performance of equity securities of U.S. companies traded on the NASDAQ National Market System, or the NMS. The NASDAQ-Pharmaceutical
tracks the aggregate price performance of equity securities of pharmaceutical companies traded on the NMS.

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

GRAPHIC

42

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Item 6.Selected Financial Data

Please read the following selected financial data in conjunction with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and related notes included elsewhere in this annual report on Form 10-K.

Years Ended December 312009

2008

2007

2006

2005(in thousands, except for per share amounts)Consolidated Statements of Operations Data:Net product sales

$
753,993

$
765,342

$
701,450

$
474,038

$
86,713Revenues under collaborative agreements(1)


4,426


4,286


19,286


4,286


39,285Total revenues


758,419


769,628


720,736


478,324


125,998Costs and expenses:Cost of goods sold


82,999


91,596


65,457


50,073


14,784Selling, general and administrative(3)


343,864


395,112


390,982


281,950


171,520Research and development(1)(4)


185,062


222,614


216,339


189,502


117,652Collaborative profit-sharing


302,861


302,600


290,934


194,191


31,359Restructuring(5)


16,980


54,926








Total costs and expenses


931,766


1,066,848


963,712


715,716


335,315Make-whole payment on debt redemption











(7,875
)

Net interest and other (expense) income(2)


(11,532
)

(9,778
)

26,490


26,411


2,485Loss on impairment of investments


(1,377
)

(14,943
)







Net loss


(186,256
)

(321,941
)

(216,486
)

(218,856
)

(206,832
)Net loss per sharebasic and diluted

$
(1.32
)
$
(2.35
)
$
(1.63
)
$
(1.78
)
$
(1.96
)Shares used in calculating net loss per sharebasic and diluted


140,702


137,006


132,621


122,647


105,532Consolidated Balance Sheets Data:Cash, cash equivalents and short-term investments

$
667,769

$
816,838

$
1,130,415

$
767,331

$
443,423Working capital

$
541,313

$
722,290

$
1,049,024

$
702,930

$
415,134Total assets

$
1,726,419

$
1,727,053

$
1,774,430

$
1,060,386

$
566,962Long-term obligations, excluding current portion(2)

$
938,516

$
893,998

$
759,388

$
221,208

$
399,112Accumulated deficit(2)

$
(1,947,867
)
$
(1,761,611
)
$
(1,439,670
)
$
(1,223,184
)
$
(1,004,328
)Total stockholders' equity(2)

$
422,534

$
519,277

$
727,757

$
635,291

$
69,264


(1)The
selected financial data presented herein have been revised to conform to the current presentation with regard to our change in method of accounting for
reimbursed research and development costs under collaborative arrangements, as described in Note 1-Summary of Significant Accounting Policies in the Notes to Consolidated Financial
Statements presented beginning with page F-6. Accordingly, previously reported revenues under collaborative arrangements and research and development expense have been reduced by
$70.5 million, $60.3 million, $32.5 million and $14.5 million for each of the years ended December 31, 2008, 2007, 2006 and 2005, respectively.(2)Adjusted
for the required retroactive adoption of authoritative guidance related to convertible debt instruments that may be settled in cash upon conversion
(see Note 1 of the Notes to Consolidated Financial Statements). Specifically, net interest and other income (expense) and accumulated deficit for the years ended December 31, 2008 and
2007 have been increased by $6.5 million and $5.4 million, respectively; long-term obligations, excluding current portion for the years ended December 31, 2008 and
2007 was reduced by $154.0 million and $174.7 million, respectively and total stockholders' equity was increased by $168.4 million and $174.9 million for the years ended
December 31, 2008 and 2007, respectively.(3)Selling,
general and administrative expenses for the years ended December 31, 2009, 2008, 2007 and 2006 include approximately $28.4 million,
$34.0 million, $35.4 million and $29.0 million, respectively, of employee stock-based compensation expense under the fair value method of accounting for stock-based compensation
arrangements.(4)Research
and development expenses for the years ended December 31, 2009, 2008, 2007 and 2006 include approximately $15.4 million,
$21.1 million, $23.6 million and $22.9 million, respectively, of employee stock-based compensation expense under the fair value method of accounting for stock-based compensation
arrangements.(5)Restructuring
charge for the years ended December 31, 2009 and 2008 included $0 and $0.8 million of employee stock-based compensation expense
under the fair value method of accounting for stock-based compensation arrangements.


43

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Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a biopharmaceutical company committed to improving the lives of people with diabetes, obesity and other diseases through the
discovery, development and commercialization of innovative medicines. We are marketing two first-in-class medicines to treat diabetes, BYETTA and SYMLIN and we are currently
seeking approval for exenatide once weekly, an investigational sustained-release medication for type 2 diabetes that is administered only once a week.

In
2009, we executed on key opportunities for the company including:



BYETTA
is the first approved medicine in a class of compounds called GLP-1 receptor agonists. In October 2009, the FDA approved an expanded indication to include BYETTA as a
first-line, stand-alone medication (monotherapy) along with diet and exercise to improve glycemic control in adults with type 2 diabetes and changes to the BYETTA label to
incorporate updated safety language. Previously BYETTA was 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 TZD, three common oral therapies for type 2 diabetes. We believe the expanded monotherapy indication and label update present new
opportunities for the BYETTA brand. Net product sales of BYETTA were $667.6 million in 2009, $678.5 million in 2008 and $636.0 million in 2007.

We
have an agreement with Lilly for the global development and commercialization of exenatide. This agreement includes BYETTA and other formulations of exenatide such as exenatide once
weekly. Under the terms of the agreement, operating profits from products sold in the United States are shared equally between Lilly and us, and Lilly will pay us royalties for product sales outside
of the United States. Lilly has primary responsibility for developing and commercializing BYETTA outside of the United States, including any sustained release formulations of exenatide such as
exenatide once weekly. By the end of 2009, BYETTA was commercially launched in approximately 60 countries worldwide.

SYMLIN
is the first and only approved medicine in a class of compounds called amylinomimetics. It is approved as an adjunctive therapy to improve glycemic control in patients with either
type 2 or type 1 diabetes who is treated with mealtime insulin but who have not achieved adequate glycemic control. We own 100% of the global rights to SYMLIN and in 2010 we plan to
explore partnering SYMLIN outside of the United States. Net product sales of SYMLIN were $86.4 million in 2009, $86.8 million in 2008 and $65.5 million in 2007.

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 our managed care

44

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organization.
Lilly co-promotes BYETTA in the United States. In May 2009, we announced a restructuring of our sales force, a new sales approach within the diabetes market and merged our
then-existing primary care and specialty sales forces into a single organization that brings a specialty approach to endocrinologists and diabetes-focused primary care physicians. This new
sales force is focused on targeting those doctors that write the majority of prescriptions for branded diabetes therapies. The restructuring of our sales force reduced our total number of sales
representatives by approximately 200.

In
addition to our marketed products, we are working with Lilly and Alkermes to develop exenatide once weekly. In May 2009, we announced that we submitted an NDA for exenatide once
weekly to the FDA. The FDA filed the NDA submission in July 2009 and the application has a ten-month review period. Clinical components of the NDA included results from our
DURATION-1 study which tested the superiority of exenatide once weekly as compared to BYETTA and a meta-analysis across controlled clinical studies of three months or greater
from the BYETTA database which showed no increased risk of cardiovascular events associated with exenatide use. Components of the NDA submission supporting product manufacturing included analyses of
data from patients in our ongoing extension of the DURATION-1 study who used exenatide once weekly produced at our Ohio manufacturing facility to demonstrate comparability of the intended
commercial product with that used during development. The FDA conducted a pre-approval inspection of this facility and has made a number of observations which we believe are addressable.

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 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. In December 2009, we announced results from DURATION-5, a head-to-head study comparing exenatide once weekly to
BYETTA. In DURATION-5, patients taking exenatide once weekly experienced a statistically superior reduction in A1C compared to BYETTA.

In
2010, we will continue to focus on building a superior profile for exenatide once weekly by conducting additional clinical trials that will compare exenatide once weekly against
competing products. For example, we expect to report results from our DURATION-4 study in 2010 comparing exenatide once weekly with metformin, sitagliptin or pioglitazone and we have
initiated DURATION-6 comparing exenatide once weekly with liraglutide. In addition, we initiated our EXSCEL study in the first quarter of 2010, to demonstrate exenatide once weekly's
effect on cardiovascular endpoints. We plan to continue making strategic investments in the exenatide franchise including the development of an exenatide once weekly pen delivery system, an exenatide
suspension formulation and potential noninvasive delivery systems including transdermal and nasal.

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 Treatment of Obesity, or INTO, strategy. In October 2009, we entered into a worldwide exclusive license, development and commercialization agreement with Takeda to co-develop
and commercialize pharmaceutical products for the treatment of obesity and related indications. The agreement includes products to be developed from our product pipeline, including
pramlintide/metreleptin, which are compounds currently in phase 2 development for the treatment of obesity. We recently announced results of a 52-week phase 2 study of this
compound and, based on those results, we and Takeda plan to advance pramlintide/metreleptin toward phase 3 development.

45

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We
maintain an active discovery research program focused on novel peptide and protein therapeutics. We have also entered into a number of strategic alliances and business initiatives
that support our expansion into new therapeutic areas.

Since
our inception in September 1987, we have devoted substantially all of our resources to our research and development programs and, more recently, to the commercialization of our
products. All of our revenues prior to May 2005 were derived from milestones and amortization of up-front payments under our exenatide collaboration agreement with Lilly, previous SYMLIN
collaborative agreements, and previous co-promotion agreements. During the second quarter of 2005, we began to derive revenues from product sales of BYETTA and SYMLIN. At
December 31, 2009, our accumulated deficit was approximately $1.9 billion.

At
December 31, 2009, we had $667.8 million in cash, cash equivalents and short-term investments. Additionally we have $165 million available to us
pursuant to a credit facility with Lilly. Although we have yet to consistently generate positive operating cash flows, we intend to improve our operating results and reduce our use of cash for
operating activities in order to achieve our goal to be operating cash flow positive on a sustainable basis by the end of 2010 and to achieve operating
profitability by the end of 2011. 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.

Recent Developments

Diabetes

BYETTA



Exenatide Once Weekly



46

---



SYMLIN



Obesity programs



Financial and Operational



Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including
those related to revenue recognition, stock-based compensation, inventory costs, research and development expenses and income taxes. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We
believe the following critical accounting policies affect the significant judgments and estimates used in the preparation of our consolidated financial statements (see Note 1
to our consolidated financial statements on page F-6).

Revenue Recognition

We recognize revenue from the sale of our products, license fees and milestones earned.

Net Product Sales

We sell BYETTA and SYMLIN primarily to wholesale distributors, who in turn, sell to retail pharmacies and government entities.
Decisions made by these wholesalers and their customers regarding the levels of inventory they hold, and thus the amount of BYETTA and SYMLIN they purchase, may materially affect the level of our
product sales in any particular period. We recognize revenue from the sale of our products when delivery has occurred, title has transferred to the customer, the selling price is fixed or
determinable, collectability is reasonably assured and we have no further obligations. We record product sales net of allowances for product returns, rebates and wholesaler chargebacks, wholesaler
discounts and prescription vouchers. We are required to make significant judgments and estimates in determining some of these allowances. If actual results differ from our estimates, we will be
required to make adjustments to these allowances in the future.

47

---





We do not offer our wholesale customers a general right of return. However, we will accept returns of products that are damaged or
defective when received by the wholesale customer or for any unopened product during the period beginning six months prior to and up to 12 months subsequent to its expiration date. Product
returned is generally not resalable as our products require refrigeration. We refund the sales price for product returns in cash or credit to our customers. We estimate product returns based on our
historical returns experience and record an allowance for estimated returns at the time of sale. Additionally, we consider several other factors in our estimation process including our internal sales
forecasts, the expiration dates of product shipped and third party data to assist us in monitoring estimated channel inventory levels and prescription trends. Actual returns could exceed our
historical experience and our estimates of expected future returns due to factors such as wholesaler and retailer stocking patterns and inventory levels and/or competitive changes. To date actual
returns have not differed materially from our estimates.



Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program and contracted discounts with commercial
payors. Rebates are amounts owed after the final dispensing of the product by a pharmacy to a benefit plan participant and are based upon contractual agreements or legal requirements with private
sector and public sector (e.g. Medicaid) benefit providers. The allowance for rebates is based on contractual discount rates, expected utilization under each contract and our estimate of the
amount of inventory in the distribution channel that will become subject to such rebates. Our estimates for expected utilization for rebates are based on historical rebate claims and to a lesser
extent third party market research data. Rebates are generally invoiced and paid quarterly in arrears so that our accrual consists of an estimate of the amount expected to be incurred for the current
quarter's activity, plus an accrual for prior quarters' unpaid rebates and an accrual for inventory in the distribution channel.

We
recorded an allowance related to the Department of Defense's (DOD) Tricare Retail Pharmacy program pursuant to a final rule that was issued in March 2009 and became effective on
May 26, 2009. The final rule clarified the DOD's interpretation of the National Defense Authorization Act of 2008, or NDAA, signed into law on January 28, 2008. The final rule changed
the process by which rebate obligations for the Tricare Retail Pharmacy program are created such that a contractual agreement is no longer required and that obligation to pay such rebates emanates
from the NDAA itself.

Wholesaler
chargebacks are discounts that occur when contracted customers purchase directly from an intermediary wholesale purchaser. Contracted customers, which currently consist
primarily of Federal government entities purchasing off the Federal Supply Schedule, generally purchase the product at its contracted price, plus a mark-up from the wholesaler. The
wholesaler, in-turn, charges back to us the difference between the price initially paid by the wholesaler and the contracted price paid to the wholesaler by the customer. The allowance for
wholesaler chargebacks is based on expected utilization of these programs and reported wholesaler inventory levels. Actual rebates and wholesaler chargebacks could exceed historical experience and our
estimates of future participation in these programs. To date, actual rebate claims and wholesaler chargebacks have not differed materially from our estimates.



Wholesaler discounts consist of prompt payment discounts and distribution service fees. We offer all of our wholesale customers a 2%
prompt-pay discount within the first 30 days after the date of the invoice. Distribution service fees arise from contractual agreements with certain of our wholesale customers for
distribution services they provide to us and are generally a fixed percentage of their

48

---



purchases
of our products in a given period. Prompt payment discounts and distribution service fees are recorded as a reduction to gross sales in the period the sales occur. The allowance for
wholesaler discounts is based upon actual data of product sales to wholesale customers and not on estimates.



Prescription vouchers result in amounts owed to pharmacies that have redeemed vouchers for a free prescription. We provide prescription
vouchers to physicians, who in turn distribute them to patients. Patients may redeem a voucher at a pharmacy for a free prescription. We reimburse the pharmacy for the price it paid the wholesaler for
the medicine and record this reimbursement as a reduction to gross sales. The allowance for prescription vouchers is based on the number of unredeemed vouchers in circulation, and the estimated
utilization rate. The estimated utilization rate is based on our historical utilization rates experience with prescription vouchers. The allowance for prescription vouchers could exceed historical
experience and our estimates of future utilization rates. To date, actual prescription voucher utilization has not differed materially from our estimates.

Revenues under collaborative agreements

Revenues under collaborative agreements consist of the amortization of product and technology license fees and milestone payments
earned. Upfront product and technology license fees under multiple-element arrangements are deferred and recognized over the period of such services or performance if such arrangements require
on-going services or performance. Non-refundable amounts received for substantive milestones are recognized upon achievement of the milestone. Any amounts received prior to
satisfying our revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated balance sheets.

Valuation of Stock-Based Compensation

We account for stock-based compensation to employees in accordance with the fair value method of accounting for stock-based
compensation arrangements which requires us to expense the estimated fair value of non-cash, stock-based payments to employees.

We
estimate the fair value of stock-based payments to employees using the Black-Scholes model. This estimate is affected by our stock price as well as assumptions regarding a number of
inputs that require us to make significant estimates and judgments. These inputs include the expected volatility of our stock price, the expected term of employee stock options, the
risk-free interest rate, expected dividends and expected forfeiture rate.

We
estimate volatility based upon the historical volatility of our common stock for a period corresponding to the expected term of our employee stock options and the implied volatility
of market-traded options on our common stock with various maturities between six months and two years. The determination to use implied volatility in addition to historical volatility was based upon
the availability of data related to actively traded options on our common stock and our assessment that the addition of implied volatility is more representative of future stock price trends than
historical volatility alone.

The
expected life of our employee stock options represents the weighted-average period of time that options granted are expected to be outstanding in consideration of historical exercise
patterns and the assumption that all outstanding options will be exercised at the mid-point of the then current date and their maximum contractual term.

The
risk-free interest rates are based on the yield curve of United States Treasury strip securities in effect at the time of grant for periods corresponding with the
expected life of our employee stock options. We have never paid dividends and do not anticipate doing so for the foreseeable future.

49

---



Accordingly,
we have assumed no dividend yield for purposes of estimating the fair value of our stock-based payments to employees.

Stock-based
compensation expense recognized is based on awards ultimately expected to vest, and therefore is reduced by expected forfeitures. We estimate forfeitures based upon
historical forfeiture rates, and will adjust our estimate of forfeitures if actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be
recognized through a cumulative adjustment in the period of the change and will also impact the amount of stock-based compensation expense in future periods.

If
factors underlying the above assumptions change in future periods, the associated estimated non-cash, stock-based compensation expense that we record may differ
significantly from what we have recorded in the current period.

Research and Development Expenses

Research and development costs are expensed as incurred and include: salaries, benefits, bonus, stock-based compensation, license fees,
milestone payments due under license agreements, costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials and delivery devices; and associated
overhead and facilities costs. Reimbursed research and development costs under collaborative arrangements are recorded as a reduction to research and development expenses and are recognized in the
period in which the related costs are incurred. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors.
Invoicing from third-party contractors for services performed can lag several months. We accrue the costs of services rendered in connection with third-party contractor activities based on our
estimate of management fees, site management and monitoring costs and data management costs. Differences between actual clinical trial costs from estimated clinical trial costs have historically not
been material and are adjusted for in the period in which they become known.

Income Taxes

We have net deferred tax assets relating primarily to net operating loss carryforwards and research and development tax credit
carryforwards. Subject to certain limitations, these deferred tax assets may be used to offset taxable income in future periods. Since we have been unprofitable since inception and the likelihood of
future profitability is not assured, we have established a valuation allowance for most of these net deferred tax assets in our consolidated balance sheets at December 31, 2009 and 2008. If we
determine that we are able to realize a portion or all of these deferred tax assets in the future, we will record an adjustment to increase their recorded value and a corresponding adjustment to
increase income or additional paid in capital, as appropriate, in that same period.

We
recognize the impact of a tax position in our financial statements only if it is more likely than not that the tax position will be sustained upon examination by taxing authorities,
based on the technical merits of the position. We provide estimates for unrecognized tax benefits which relate primarily to issues common among corporations in our industry. We apply a variety of
methodologies in making these estimates which include advice from industry and subject experts, evaluation of public actions taken by the Internal Revenue Service and other taxing authorities, as well
as our own industry experience. If our estimates are not representative of actual outcomes, our results could be materially impacted.

Inventories and Related Reserves

Inventories consist of raw materials, work-in-process and finished goods for SYMLIN and BYETTA. We maintain
inventory reserves primarily for production failures and potential product expiration. The manufacturing processes for our products are complex. Deviations in the manufacturing

50

---



process
may result in production failures and additional inventory reserves. Obsolete inventory due to expiration may also result in additional inventory reserves. In estimating inventory obsolescence
reserves, we analyze the shelf life, expiration dates and internal sales forecasts, each on a product-by-product basis. We expense costs relating to the purchase and production
of pre-approval inventories as research and development expense in the period incurred until such time as we believe future commercialization is probable and future economic benefit is
expected to be recognized. There were no pre-approval inventories capitalized as of December 31, 2009 or 2008.

Convertible Senior Notes

During 2009, we adopted new authoritative guidance that significantly impacts the accounting for our convertible senior notes issued in
June 2007 by requiring us to account separately for the liability and equity components of the notes. The liability component is measured so the effective interest expense associated with the notes
reflects the issuer's borrowing rate at the date of issuance for similar debt instruments without the conversion feature. The difference between the cash proceeds associated with the notes and this
estimated fair value is recorded as a debt discount and amortized to interest expense over the life of the notes.

Determining
the fair value of the liability component requires the use of accounting estimates and assumptions. These estimates and assumptions are judgmental in nature and could have a
significant impact on the determination of the liability component and, in effect, the associated interest expense. According to the guidance, the carrying amount of the liability component is
determined by measuring the fair value of a similar liability that does not have an associated equity component. If no similar liabilities exist, estimates of fair value are primarily determined using
assumptions that market participants would use in pricing the liability component, including market interest rates, credit standing, yield curves and volatilities.

Recently Issued Accounting Pronouncements

For a discussion of recently issued accounting pronouncements, refer to the section titled "Recently Issued
Accounting Standards"within Note 1.Summary of Significant Accounting Policiesto our Consolidated Financial Statements.

Results of Operations

Net Product Sales

Net product sales for the years ended December 31, 2009, 2008 and 2007 were $754.0 million, $765.3 million and
$701.5 million, respectively, and consisted of sales of BYETTA and SYMLIN, less allowances for product returns, rebates and wholesaler chargebacks, wholesaler discounts, and prescription
vouchers.

The
following table provides information regarding net product sales (in millions):

Year ended December 31,2009

2008

2007BYETTA

$
667.6

$
678.5

$
636.0SYMLIN


86.4


86.8


65.5$
754.0

$
765.3

$
701.5


51

---



The decrease in net product sales for BYETTA for the year ended December 31, 2009 as compared to the same period in 2008 primarily reflects decreased prescription demand following
an August 2008 FDA update on a prior alert referencing pancreatitis and an allowance for rebates related to the U.S. Department of Defense's (DOD) Tricare Retail Pharmacy Program discussed below.
These decreases are partially offset by higher prices in the year ended December 31, 2009 compared to the same period in 2008.

The
slight decrease in net product sales for SYMLIN for the year ended December 31, 2009 compared to the same period in 2008 primarily reflects higher prices offset by a reserve
for the DOD's Tricare Retail Pharmacy program discussed below, and a reduction in prescription demand.

We
recorded an allowance related to the DOD's Tricare Retail Pharmacy program pursuant to a final rule that was issued in March 2009, and became effective May 26, 2009. The final
rule clarified the DOD's interpretation of the national Defense Authorization Act of 2008, or NDAA, signed into law on January 28, 2008. The final rule changed the process by which rebate
obligations for the Tricare Retail Pharmacy program are created such that a contractual agreement is no longer required and that obligation to pay such rebates emanates from the NDAA itself. In
consideration of this final rule we recorded an allowance of $8.2 million for such rebates for the year ended December 31, 2009, of which $4.8 million represents a retroactive
rebate assessment for sales made during 2008.

The
increase in net product sales for BYETTA and SYMLIN for the year ended December 31, 2008 as compared to the same period in 2007 primarily reflect continued growth in patient
demand and the impact of price increases.

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, economic factors and other environmental factors.

Revenues under Collaborative Agreements

The following table summarizes the components of revenues under collaborative agreements for the years ended December 31, 2009,
2008 and 2007 (in millions):

Year ended
December 31,2009

2008

2007Amortization of up-front payments

$
4.4

$
4.3

$
4.3Recognition of milestone payments








15.0$
4.4

$
4.3

$
19.3


During
the year ended December 31, 2009 amortization of up-front payments consists of amounts earned pursuant to our exenatide collaboration agreement with Lilly and
our obesity collaboration with Takeda. For the years ended December 31, 2008 and 2007, substantially all of the revenue recorded in these periods consists of amounts earned pursuant to our
exenatide collaboration agreement with Lilly and consists primarily of the continued amortization of up-front payments and milestone payments.

Amortization
of up front payments is largely unchanged for the three years ended December 31, 2009, 2008 and 2007. During 2009 the amortization of up-front payments
relates to up-front payments received in connection with our Lilly collaboration, for which amortization ended in 2009, and our collaboration with Takeda, for which amortization began in
late 2009. During 2008 and 2007 the entire amount of amortization of up-front payments relates to our collaboration agreement with Lilly. There were no milestone payments in 2009 or 2008,
compared to $15 million in milestone payments in 2007 earned primarily upon Lilly's launch of BYETTA in the European Union.

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In
future periods, we expect that revenues under collaborative agreements will consist of possible future milestone payments, including $40 million conditioned upon the launch of
exenatide once weekly in the United States and continued amortization of the $75 million of the up-front payment received from Takeda upon signing of our collaboration agreement in
2009. This up-front payment is being amortized ratably over a ten year period representing the estimated development period of the compounds subject to the Takeda collaboration agreement.
Following the commercial launch of exenatide once-weekly, revenue from collaboration agreements will also include amortization of a portion of the $125 million cash payment received
in connection with the exenatide once weekly supply agreement discussed above. The receipt and recognition as revenue of future substantive milestone payments is subject to the achievement of
performance requirements underlying such milestone payments.

Cost of Goods Sold

Cost of goods sold was $83.0 million, representing a gross margin of 89%, $91.6 million, representing a gross margin of
88%, and $65.5 million, representing a gross margin of 91%, for the years ended December 31, 2009, 2008 and 2007, respectively. Cost of goods sold is comprised primarily of manufacturing
costs associated with BYETTA and SYMLIN sales during the period. The increase in gross margin in 2009, as compared to 2008, primarily reflects higher net sales prices and lower unit costs for BYETTA
driven by reduced inventory reserves and efficiencies driven by our reduced cost structure. The decrease in gross margin in 2008, as compared to 2007, primarily reflects increased production costs for
BYETTA due to lower production volumes, increases in inventory reserves and product mix, including the introduction of the SymlinPen, partially offset by higher net sales prices per unit for BYETTA
and SYMLIN. Annual fluctuations in gross margins may be influenced by production volumes, product mix, pricing and the level of sales allowances.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $343.9 million, $395.1 million and $391.0 million in the years
ended December 31, 2009, 2008 and 2007, respectively.

The
$51.2 million decrease in 2009 compared to 2008 reflects our reduced cost structure following our recent restructurings. The $4.1 million increase in 2008 compared to
2007 reflects slight increases in promotional spending for BYETTA and SYMLIN and business infrastructure.

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

Currently, our research and development efforts are focused on programs for the treatment of diabetes and obesity in various stages of
development. From inception through 1998, we devoted substantially all of our research and development efforts to SYMLIN. Beginning in 1999, our research and development costs started to include costs
for our other drug candidates, primarily BYETTA and exenatide once weekly. In 2004 we initiated our program for the treatment of obesity with pramlintide and in 2006 we commenced our INTO clinical
research program for obesity.

The
drug development process in the United States includes a series of steps defined by the FDA. The process begins with discovery and preclinical evaluation leading up to the submission
of an IND to the FDA, which allows for the initiation of the clinical evaluation of a potential drug candidate in humans. Clinical evaluation is typically comprised of three phases of study:
Phase 1, Phase 2 and Phase 3. Generally, the majority of a drug candidate's total development costs are incurred during Phase 3, which consists of trials that are typically
both the longest and largest conducted during the

53

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drug
development process. Successful completion of Phase 3 clinical testing is followed by the submission of an NDA to the FDA for marketing approval. It is not uncommon for the FDA to request
additional data following its review of an NDA, which can significantly increase the drug development timeline and expenses. Following initial regulatory approval for a drug candidate, companies
generally initiate additional clinical trials aimed at expanding product labeling and market potential.

The
timing and costs to complete the successful development of any of our drug candidates are highly uncertain, and therefore difficult to estimate.

Our
research and development costs are comprised of salaries and bonuses, benefits, non-cash stock-based compensation, license fees, milestones under license agreements,
costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials and delivery devices; and associated overhead expenses and facilities costs. Reimbursed
research and development costs under collaborative arrangements are recorded as a reduction to research and development costs. We charge direct internal and external program costs to the respective
development programs. We also incur indirect costs that are not allocated to specific programs because such costs benefit multiple development programs and allow us to increase our pharmaceutical
development capabilities. These consist primarily of facilities costs and other internal shared resources related to the development and maintenance of systems and processes applicable to all of our
programs.

The
following table sets forth information regarding our research and development expenses for our major projects for the years ended December 31, 2009, 2008 and 2007 (in
millions):

Year ended December 31,2009

2008(1)

2007(1)Diabetes(1)

$
92.3

$
83.3

$
89.9Obesity


26.0


55.3


51.5Research and early-stage programs


24.8


30.4


29.3Indirect costs


42.0


53.6


45.6$
185.1

$
222.6

$
216.3


(1)Research
and development expenses consist primarily of costs associated with BYETTA and exenatide once weekly which are shared by Lilly pursuant to our
collaboration agreement. Research and development expenses by major project have been revised to conform to the current presentation with regard to our change in method of accounting for reimbursed
research and development costs under collaborative arrangements (see Note 1, "Summary of Significant Accounting Policies" in the notes to the consolidated financial statements).


Research
and development expenses decreased to $185.1 million for the year ended December 31, 2009 from $222.6 million for the year ended December 31, 2008.
The $37.5 million decrease primarily reflects our reduced cost structure and decreased development expenses for our obesity programs following recently completed clinical trials, partially
offset by increased costs for our diabetes programs associated with manufacturing readiness activities at our Ohio manufacturing facility for exenatide once weekly.

Research
and development expenses increased to $222.6 million for the year ended December 31, 2008 from $216.3 million for the year ended December 31, 2007.
The $6.3 million increase primarily reflects continued investments in exenatide once weekly, including manufacturing scale up at our Ohio manufacturing facility and costs associated with the
ongoing DURATION clinical trials discussed above under the heading "Overview", and continued investment in our obesity development programs,

54

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including
costs associated with the ongoing Phase 2B study evaluating pramlintide and metreleptin discussed above.

Collaborative Profit-Sharing

Collaborative profit-sharing was $302.9 million, $302.6 million and $290.9 million for the years ended
December 31, 2009, 2008 and 2007, respectively, and consists of Lilly's 50% share of the gross margin for BYETTA sales in the United States.

Restructuring

In May 2009, we announced a restructuring of our sales force to merge our existing primary care and specialty sales forces into a
single organization, or the 2009
Restructuring. The 2009 Restructuring reduced the total number of Amylin sales representatives by approximately 200 employees. We recorded restructuring charges of $17.0 million during the year
ended December 31, 2009 consisting of employee separation costs and facilities related charges.

In
November 2008, we announced a strategic restructuring and workforce reduction, or the 2008 Restructuring, that reduced the size of our San Diego workforce by approximately 25%, or 330
employees. The goal of the 2008 Restructuring was to better align our cost structure with anticipated revenues and is part of our business plan to become operating cash flow positive on a sustainable
basis by the end of 2010.

In
addition, we also consolidated our San Diego facilities and have sub-leased or intend to sub-lease vacated facilities. In connection with the 2008
Restructuring, we recorded a charge of $54.9 million for the year ended December 31, 2008. This charge consists primarily of expenses related to facility leases for exited facilities,
including impairments of related tenant improvements and employee separation benefits. During the fourth quarter of 2009 we revised the estimated losses associated with the facility leases we ceased
using in 2008 based upon recently executed sub-lease agreements and a related reassessment of current market conditions and recorded an additional loss of $5.6 million.

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

Year ended
December 31,2009

2008Facility related charges

$
5.6

$
31.3Employee separation costs


10.9


13.9Asset impairments





8.8Other restructuring charges


0.5


0.9$
17.0

$
54.9


We
have substantially completed all of the above activities included in the restructuring plan and all costs associated with the restructurings were incurred during the years ended
December 31, 2009 and 2008.

Interest and Other Income and Expense

Interest and other income consist primarily of interest income from investment of cash and investments. Interest and other income was
$7.8 million in 2009, $26.6 million in 2008 and $47.0 million in 2007. The decrease in 2009 compared to 2008 primarily reflects lower average investment balances

55

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and
lower interest rates in 2009 compared to 2008. The decrease in 2008 compared to 2007 primarily reflects lower average investment balances and lower interest rates in 2008 as compared to 2007.

Interest
and other expense consist primarily of interest expense resulting from our long-term debt obligations and mark-to-market gains and losses on
derivative financial instruments and includes interest payments and the amortization of debt issuance costs. Interest and other expense was $19.3 million in 2009, $36.3 million in 2008
and $20.5 million in 2007. The decrease in 2009 compared to 2008 primarily reflects an increase in interest capitalized to our Ohio manufacturing facility and 2009
mark-to-market gains on derivative financial instruments which, in 2008, were mark-to-market losses. The increase in 2008 compared to 2007 primarily
reflects additional interest expense for our 2007 notes and $125 million long-term note payable entered into in December 2007.

Loss on Impairment of Investments

We recognized a loss on impairment of investments of $1.4 million for the year ended December 31, 2009. The loss
represents credit-related losses associated with two securities in our portfolio and was based upon the amortized cost basis and the observed market prices for the securities. At December 31,
2009, gross unrealized losses on our short-term investments were $1.1 million, all of which we determined to be temporary.

We
recognized a loss on impairment of investments of $14.9 million for the year ended December 31, 2008. This primarily represents a recognized $9.0 million
other-than-temporary impairment loss on an equity investment in a privately held entity based upon our assessment of the entity's financial and technical performance and the
entity's ability to raise additional capital in significantly deteriorated financial markets to fund ongoing operations. We also recognized a $5.9 million
other-than-temporary impairment loss on a corporate debt security in our
investment portfolio based upon our assessment of the impact of bankruptcy proceedings of the issuer on the recoverability of our investment.

Net Loss

Our net loss for the year ended December 31, 2009 was $186.3 million compared to $321.9 million in 2008 and
$216.5 million in 2007. The decrease in our net loss in 2009 compared to 2008 primarily reflects the decreased expenses discussed above. The increase in our net loss in 2008 compared to 2007
primarily reflects the increased expenses, including the restructuring charge, partially offset by the increased net product sales discussed above.

We
may incur operating losses for the next few years. In November 2008, we announced the 2008 Restructuring and our business plan to become operating cash flow positive on a sustainable
basis by the end of 2010, and in May 2009 we announced the 2009 Restructuring. However, our ability to reach profitability in the future will be heavily dependent upon the amount of product sales that
we achieve for BYETTA, SYMLIN and exenatide once weekly, if approved. Our ability to achieve profitability in the future will also depend on our ability to control our operating expenses, including
ongoing expenses associated with the continued commercialization of BYETTA and SYMLIN, costs associated with the development and commercialization of exenatide once weekly, if approved, and expenses
associated with our research and development programs, including our obesity and our early-stage development programs and related support infrastructure. Our operating results may fluctuate from
quarter to quarter as a result of differences in the timing of expenses incurred and revenues recognized.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through public sales and private placements of our common and preferred
stock, debt financings, payments received pursuant to our exenatide collaboration with Lilly and our obesity collaboration with Takeda, reimbursement of

56

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SYMLIN
development expenses through earlier collaboration agreements, and since the second quarter of 2005, through product sales of BYETTA and SYMLIN.

At
December 31, 2009, we had $667.8 million in cash, cash equivalents and short-term investments, compared to $816.8 million at December 31, 2008
and we have $165 million of cash available to us pursuant to the loan agreement with Lilly discussed below. In November 2008, we implemented the 2008 Restructuring and in May 2009, we
implemented the 2009 Restructuring. As a result of these restructurings, and other efforts to gain efficiencies in our business, we substantially improved our operating results in 2009 and believe we
are on track to achieve our stated goals of positive operating cash flows by the end of 2010 and operating profitability by the end of 2011. Our use of cash for capital expenditures decreased in 2009
compared to 2008 driven by lower capital spending for our manufacturing facility for exenatide once weekly located in Ohio, partially offset by additional capital expenditures for the development of a
pen device for exenatide once weekly. Our current business plan does not contemplate a need to raise additional funds from outside sources, however, we may evaluate opportunities to refinance existing
indebtedness from time to time. If we require additional financing in the future, we cannot assure you that it will be available to us on favorable terms, or at all. Although we have previously been
successful in obtaining financing through our debt and equity securities offerings, there can be no assurance that we will be able to so in the future, especially given the current adverse economic
and credit conditions.

Our
operating activities provided cash of $19.9 million in the year ended December 31, 2009 and we used cash of $19.5 million and $125.2 million for our
operating activities in the years ended December 31, 2008 and 2007, respectively. Our cash provided by our operating activities for the year ended December 31, 2009 includes
$119.7 million of non-cash expenses, consisting primarily of stock-based compensation, depreciation and amortization.

Our
primary uses of cash for our operating activities includes uses of cash due to increases in other current assets of $35.7 million, a decrease in restructuring liabilities of
$14.8 million and a decrease in payable to collaborative partner of $10.8 million. The increase in other current assets primarily reflects prepayments for raw material inventory. The
decrease in restructuring liabilities reflects payment of employee separation costs associated with our restructuring at the end of 2008 and rental payments on vacated facilities that we are actively
seeking to sublease. These restructuring payments are offset by an increase in the liability resulting from expenses associated with the 2009 Restructuring. The decrease in payable to collaborative
partner primarily reflects a reduced net payable to Lilly due to higher cost-sharing payments due from Lilly due to increased development expenses for exenatide once weekly in the fourth
quarter of 2009 compared to the same period in 2008.

Our
primary sources of cash for our operating activities includes sources of cash due to increases in deferred revenue and deferred collaborative profit sharing of $70.7 million
and $54.6 million, respectively and a decrease in inventories of $16.1 million. The increase in deferred revenue reflects the $75 million up-front payment we received
in connection with the Takeda obesity collaboration net of related amortization. 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 exenatide once weekly pen device. The decrease in inventories primarily reflects reduction in finished goods due to the timing and volume of production for
BYETTA and SYMLIN. Working capital changes may fluctuate from quarter to quarter due to timing of inventory and other current asset purchases and the timing of payment of accounts payable, accrued
compensation and other current liabilities.

Our
investing activities used cash of $116.1 million, $182.2 million and $296.1 million in the years ended December 31, 2009, 2008 and 2007, respectively.
Investing activities in all three years consisted primarily of purchases and sales of short-term investments and purchases of property, plant and equipment. Purchases of property, plant
and equipment decreased to $152.1 million in 2009 from $295.1 million in 2008. The decrease in 2009 was as expected and primarily reflects a reduction of costs

57

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associated
with our manufacturing facility for exenatide once weekly, offset by costs incurred in connection with the exenatide once weekly pen device. The initial capital investment for the pen is
expected to be $216.0 million over the next few years, which will be funded 60% by Lilly and 40% by us. Through December 31, 2009, we have incurred $97.7 million in capital
expenditures associated with the exenatide once weekly pen device. We have billed Lilly $54.6 million for its share of these expenditures, of which $46.6 million has been received to
date, and is included in cash used for operating activities as discussed above. Purchases of property, plant and equipment increased to $295.1 in 2008 from $268.7 million in 2007. The increases
in 2008 primarily reflect costs associated with our manufacturing facility for exenatide once weekly and, to a lesser extent, purchases of tenant improvements, computer software, office equipment and
scientific equipment to support our growth. We expect that our capital expenditures will continue to decrease in 2010 and will be principally focused on strategically investing in exenatide life cycle
management, of which Lilly shares in 60% of the costs. Through December 31, 2009, we capitalized $701.9 million associated with the construction of this facility, including
$97.7 million for the exenatide once weekly pen device discussed above. Capital expenditures for our Ohio facility also include costs associated with the construction of the facility, purchase
and installation of equipment and capitalized labor and materials required to validate the facility. We will continue to evaluate potential additional investments in our Ohio manufacturing facility
during the product life cycle for exenatide once weekly.

Financing
activities used cash of $20.3 million in the year ended December 31, 2009 and provided cash of $16.7 million and $776.9 million in the years ended
December 31, 2008 and 2007, respectively. Financing activities in 2009 include repayments of our note payable partially offset by proceeds from the exercise of stock options and proceeds from
our employee stock purchase plan. Financing activities in 2008 include proceeds from the exercise of stock options and proceeds from our employee stock purchase plan. Financing activities for 2007
included proceeds from the exercise of stock options, proceeds from our employee stock purchase plan and $559 million in net proceeds from the issuance of the 2007 Notes.

At
December 31, 2009, we had $200 million in aggregate principal amount of the 2004 Notes due April 15, 2011 and $575 million of the 2007 Notes due
June 15, 2014 outstanding. The 2004 Notes are currently convertible into a total of up to 5.8 million shares of our common stock at approximately $34.35 per share and are not redeemable
at our option. The 2007 Notes are currently convertible into a total of up to 9.4 million shares of our common stock at approximately $61.07 per share and are not redeemable at our option.

In
December 2007, we entered into a $140 million credit agreement. The credit agreement provides for a $125 million term loan and a $15 million revolving credit
facility. The revolving credit facility also
provides for the issuance of letters of credit and foreign exchange hedging up to the $15 million borrowing limit. At December 31, 2009 we had an outstanding balance of
$93.8 million under the term loan, all of which is due in 2010, and had issued $8.9 million of standby letters of credit under the revolving credit facility. Both loans have a final
maturity date of December 21, 2010. Interest on the term loan is payable quarterly in arrears at a rate equal to 1.75% above the London Interbank Offered Rate, or LIBOR, of either one, two,
three or six months LIBOR term at our election. We have entered into an interest rate swap agreement which resulted in a fixed interest rate of 5.717% under the term loan. The interest rate on the
credit facility is LIBOR plus 1.0% or the Bank of America prime rate, at our election.

In
October 2008, we entered into a loan agreement with Lilly pursuant to which Lilly made available to us a $165 million unsecured line of credit that we can draw upon from time
to time until June 30, 2011. As of December 31, 2009 we had not drawn upon this line of credit. Any interest due under this credit facility will bear interest at the five-day
average three-month LIBOR rate immediately prior to the date of the advance plus 5.25% and shall be due and payable quarterly in arrears on the first business day of each quarter. All outstanding
principal, together with all accrued and unpaid

58

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interest,
shall be due and payable the earlier of 36 months following the date on which the loan commitment is fully advanced or June 30, 2014.

The
following table summarizes our contractual obligations and maturity dates as of December 31, 2009 (in thousands).

Payments Due by PeriodContractual Obligations

Total

Less
than 1
year

1 - 3
years

3 - 5
years

More than 5
yearsLong-term convertible debt

$
775,000

$


$
200,000

$
575,000

$
Interest on long-term convertible debt


85,125


22,250


37,000


25,875


Long-term note payable


93,750


93,750








Interest on long-term note payable, net of swap transactions(1)


4,690


4,690








Inventory purchase obligations(2)


104,195


54,168


40,468


9,559


Construction contracts


48,820


24,780


24,040





Operating leases


187,535


23,234


48,220


50,786


65,295Total(3)

$
1,299,115

$
222,872

$
349,728

$
661,220

$
65,295


(1)The
interest payments shown were calculated using a rate of 5.717%, the net rate from the term loan and interest rate swap, on the outstanding principal
balance of the term loan.(2)Includes
$26.1 million of outstanding purchase orders, cancelable by us upon 30 days' written notice, subject to reimbursement of costs
incurred through the date of cancellation. Also includes $37.6 million of commitments for exenatide once weekly that are contingent upon FDA approval of exenatide once weekly.(3)Excludes
long-term obligation of $6.7 million related to deferred compensation, the payment of which is subject to elections made by
participants that are subject to change.


In
addition, under certain license and collaboration agreements we are required to pay royalties and/or milestone payments upon the successful development and commercialization of
related products. We expect to make development milestone payments up to $9.5 million associated with licensing agreements in the next 12 months. Additional milestones of up to
approximately $250.5 million could be paid over the next two to fifteen years if development and commercialization of all our early stage programs continue and are successful. The majority of
these milestones relate to potential future regulatory approvals and subsequent sales thresholds. Given the inherent risk in pharmaceutical development, it is highly unlikely that we will ultimately
make all of these milestone payments; however, we would consider these payments as positive because they would signify that the related products are moving successfully through development and
commercialization.

Our
future capital requirements will depend on many factors, including: the amount of product sales we and Lilly achieve for BYETTA and exenatide once weekly, if approved, net of profit
sharing payments to Lilly, and product sales for SYMLIN; costs associated with the continued commercialization of BYETTA and SYMLIN and the commercialization of exenatide once weekly, if approved;
costs associated with the operation of our exenatide once weekly 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.

59

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that are currently or reasonably likely to be material to our
consolidated financial position or results of operations.

Item 7A.Quantitative and Qualitative Disclosures about Market Risk

We invest our excess cash primarily in United States Government securities, asset-backed securities, and debt instruments of financial
institutions and corporations with investment-grade credit ratings. These instruments have various short-term maturities. We do not utilize derivative financial instruments, derivative
commodity instruments or other market risk sensitive instruments, positions or transactions in any material fashion. Accordingly, we believe that, while the instruments held are subject to changes in
the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity
prices or other market changes that affect market risk sensitive investments. Our debt is not subject to significant swings in valuation as interest rates on our debt are fixed. The fair value of our
2004 Notes and 2007 Notes at December 31, 2009 was approximately $192 million and $453 million, respectively. We have entered into an interest rate swap in connection with our
$125 million term loan. The fair value of the interest rate swap at December 31, 2009 was a liability of $2.8 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 8.Financial Statements and Supplementary Data

The financial statements and supplemental data required by this item are set forth at the pages indicated in Part IV,
Item 15(a)(1) of this annual report.

Item 9.Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended, or the Exchange Act. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of
December 31, 2009.

Our
management does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all potential error and fraud. A control system,
no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, or misstatements due to error, if any, within the Company have been detected. While we
believe that our disclosure controls and procedures and internal control over financial reporting are and have been effective, we intend to continue to examine and refine our disclosure controls and
procedures and internal control over financial reporting and to monitor ongoing developments in these areas.

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Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework inInternal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal ControlIntegrated
Framework, our management concluded that our internal control over financial reporting was effective as of
December 31, 2009. The effectiveness of our internal control over financial reporting as of December 31, 2009 has been audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in their report which is included herein.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting in our most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

The
Board of Directors and Stockholders of Amylin Pharmaceuticals, Inc.

We
have audited Amylin Pharmaceuticals, Inc.'s internal control over financial reporting as of December 31, 2009, based on criteria established
in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Amylin Pharmaceuticals, Inc.'s
management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our
audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, Amylin Pharmaceuticals, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the
COSO criteria.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of Amylin
Pharmaceuticals, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 2009 of Amylin Pharmaceuticals, Inc. and our report dated February 26, 2010 expressed an unqualified opinion thereon.



San
Diego, California
February 26, 2010

62

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PART III

Item 9B.Other Information

None.

Item 10.Directors, Executive Officers and Corporate Governance

The
information required by this item with respect to directors is incorporated by reference from the information under the captions "Election of Directors,"
"Section 16(a) Beneficial Ownership Reporting Compliance," and "Code of Business Conduct and Ethics" contained in the proxy statement to be filed with the SEC pursuant to Regulation 14A
in connection with our 2010 annual meeting of stockholders. The information required by this item with respect to executive officers appears under Part I of this annual report on
Form 10-K under the caption "BusinessExecutive Officers."

Item 11.Executive Compensation

The
information required by this item is incorporated by reference to the information under the captions "Compensation of Directors," "Executive Compensation,"
"Report of the Compensation Committee of the Board of Directors on Executive Compensation," and "Compensation Committee Interlocks and Insider Participation" contained in the proxy statement to be
filed with the SEC pursuant to Regulation 14A in connection with our 2010 annual meeting of stockholders.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The
information required by this item is incorporated by reference to the information under the captions "Security Ownership of Certain Beneficial Owners and
Management" and "Equity Compensation Plan Information" contained in the proxy statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2010 annual meeting of
stockholders.

Item 13.Certain Relationships and Related Transactions, and Director Independence

The
information required by this item is incorporated by reference to the information under the captions "Election of Directors" and "Certain Transactions"
contained in the proxy statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2010 annual meeting of stockholders.

Item 14.Principal Accountant Fees and Services

The
information required by this item is incorporated by reference to the information under the caption contained in "Ratification of Selection of Independent
Registered Public Accounting Firm" contained in the proxy statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2010 annual meeting of stockholders.

63

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PART IV

Item 15.Exhibits and Financial Statement Schedules

(a)(1)Index to Consolidated Financial Statements

The
financial statements required by this item are submitted in a separate section beginning on page F-1 of this annual report.

(a)(2) Financial Statement Schedules:The following Schedule is filed as part of this annual report on Form 10-K:

Page NumberII. Valuation Accounts

F-44


All
other schedules have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the Consolidated Financial
Statements or notes thereto.

(a)(3) Index to ExhibitsSee Item 15(b) below.

Exhibit
Footnote

Exhibit
Number(1)


3.1

Amended and Restated Certificate of Incorporation of the Registrant.(4)


3.2

Fourth Amended and Restated Bylaws of the Registrant.(9)


3.3

Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant.(29)


3.4

Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant.4.1

Reference is made to Exhibits 3.1 - 3.4.(13)(2)


4.2

Registration Rights Agreement dated September 19, 2002, between the Registrant and Eli Lilly and Company.(12)


4.3

Rights Agreement dated June 17, 2002, between the Registrant and American Stock Transfer & Trust Company.(12)


4.4

Certificate of Designation of Series A Junior Participating Preferred Stock.(18)


4.5

First Amendment to Rights Agreement dated December 13, 2002, between the Registrant and American Stock Transfer & Trust Company.(7)


4.6

Indenture, dated as of April 6, 2004, between Registrant and J.P. Morgan Trust Company, National Association (as Trustee).(7)


4.7

Form of 2.50% Convertible Senior Note due 2011.(28)


4.8

Indenture, dated as of June 8, 2007, between Registrant and The Bank of New York Trust Company, N.A. (as Trustee).(28)


4.9

Registration Rights Agreement, dated as of June 8, 2007, among Registrant, Goldman Sachs & Co. and Morgan Stanley & Co. Incorporated.(1)


10.1

Form of Indemnity Agreement entered into between the Registrant and its directors and officers.(10)


10.2

Registrant's 1991 Stock Option Plan, as amended.(3)


10.3

Form of Incentive Stock Option Agreement under the 1991 Stock Option Plan.(1)


10.4

Form of Supplemental Stock Option Agreement under the 1991 Stock Option Plan.(1)


10.5

Form of Supplemental Stock Option Agreement not granted under the 1991 Stock Option Plan with related schedule.


64

---



Exhibit
Footnote

Exhibit
Number(34)


10.6

Registrant's Amended and Restated 2001Employee Stock Purchase Plan.(33)


10.7

Registrant's Non-Employee Directors' Stock Option Plan (the "Directors' Plan").(5)(2)


10.8

Patent and Technology License Agreement, Consulting Agreement and Nonstatutory Stock Option Agreement dated October 1, 1996, between the Registrant and Dr. John Eng.(6)


10.9

Registrant's Directors' Deferred Compensation Plan.10.10

Registrant's Directors' Plan Stock Option Agreement, as amended.(8)


10.11

Special Form of Incentive Stock Option Agreement the 1991 Stock Option Plan of the Registrant.(11)(2)


10.12

Development and License Agreement dated May 15, 2000, between the Registrant and Alkermes Controlled Therapeutics II, Inc.(32)


10.13

Registrant's Amended and Restated Officer Change in Control Severance Benefit Plan.(24)


10.14

Registrant's Amended and Restated 2001 Equity Incentive Plan.(13)(2)


10.15

Collaboration Agreement dated September 19, 2002, between the Registrant and Eli Lilly and Company.(13)(2)


10.16

U.S. Co-Promotion Agreement dated September 19, 2002, between the Registrant and Eli Lilly and Company.(13)


10.17

Milestone Conversion Agreement dated September 19, 2002, between the Registrant and Eli Lilly and Company.(16)(2)


10.18

Device Development and Manufacturing Agreement dated July 1, 2003, between Registrant and Eli Lilly and Company.(15)


10.19

Form of Registrant's 2001 Equity Incentive Plan Officer Stock Option Agreement, as amended.(15)


10.20

Form of Registrant's 2001 Equity Incentive Plan Stock Option Agreement, as amended.(17)(2)


10.21

Manufacturing Agreement dated May 12, 2003, between Registrant and UCB S.A.(19)(2)


10.22

Exenatide Manufacturing Agreement dated October 1, 2003, between Registrant and Mallinckrodt Inc.(19)(2)


10.23

Commercial Supply Agreement for Exenatide dated December 23, 2003, between Registrant and Bachem, Inc.(20)(2)


10.24

Commercial Supply Agreement dated February 14, 2005 between Registrant and Baxter Pharmaceutical Solutions LLC.(20)(2)


10.25

Commercial Supply Agreement dated March 2, 2005 between Registrant and Baxter Pharmaceutical Solutions LLC.10.26

Summary Description of Registrant's Named Executive Officer Oral At-Will Employment Agreements.(21)


10.27

Description of Registrant's Executive Cash Bonus Plan.(23)(2)


10.28

Amendment to Development and License Agreement dated October 24, 2005, between Registrant and Alkermes Controlled Therapeutics II.(22)(2)


10.29

Commercial Supply Agreement dated June 28, 2005, between Registrant and Bachem, Inc.(25)(2)


10.30

Commercial Supply Agreement dated October 12, 2006 between Registrant and Wockhardt UK (Holdings) Ltd.(25)(2)


10.31

Amendment to Collaboration Agreement dated October 31, 2006 between Registrant and Eli Lilly and Company.


65

---



Exhibit
Footnote

Exhibit
Number(26)


10.32

Employment Agreement, dated March 7, 2007, by and between Registrant and Daniel M. Bradbury.(30)


10.33

Registrant's 2001 Non-Qualified Deferred Compensation Plan.(30)


10.34

Credit Agreement, dated as of December 21, 2007, among Registrant, The Bank of America, N.A. (as Administrative Agent) and the other lenders set forth therein.(31)


10.35

First Amendment to Exenatide Manufacturing Agreement dated January 6, 2006, between Registrant and Mallinckrodt Inc.(31)(2)


10.36

Amended and Restated Commercial Supply Agreement dated April 1, 2008, between Registrant and Wockhardt UK (Holdings) Ltd.(31)(2)


10.37

Addendum to U.S. Co-Promotion Agreement dated May 8, 2008, between Registrant and Eli Lilly and Company(31)(2)


10.38

Third Amendment to Supply Agreement dated January 1, 2008, between Registrant and Mallinckrodt Inc.(4)


10.39

Amendment to Employment Agreement dated December 3, 2008, between Registrant and Daniel M. Bradbury(32)(2)


10.40

Exenatide Once Weekly Supply Agreement, dated October 16, 2008, between Registrant and Eli Lilly and Company(32)


10.41

Loan Agreement dated October 16, 2008, between Registrant and Eli Lilly and Company(32)


10.42

First Amendment to Credit Agreement, dated October 27, 2008, among Registrant, the Bank of America, N.A. (as Administrative Agent) and other lenders set forth therein(32)(2)


10.43

Amendment to Commercial Supply Agreement dated December 8, 2008, between Registrant and Baxter Pharmaceutical Solutions LLC(32)(2)


10.44

Amendment to the Amended and Restated Commercial Supply Agreement dated January 23, 2009, between Registrant and Wockhardt UK (Holdings) Ltd.(33)


10.45

Amendment, dated April 9, 2009, to Collaboration Agreement between Registrant and Eli Lilly and Company(34)


10.46

Registrant's 2009 Equity Incentive Plan(34)


10.47

Registrant's 2009 Equity Incentive Plan Officer Stock Option Agreement(34)


10.48

Registrant's 2009 Equity Incentive Plan Stock Option Agreement(35)(2)


10.49

Cost Allocation Agreement, dated May 4, 2009, between Registrant and Eli Lilly and Company(35)


10.50

Second Amendment, dated May 6, 2009, to Credit Agreement among Registrant, Bank of America N.A., as Administrative Agent, and certain lenders thereto(35)(2)


10.51

Exenatide Once Weekly Supply Agreement, dated May 11, 2009, between Registrant and Eli Lilly and Company10.52

License, Development and Commercialization Agreement, dated October 30, 2009, between Registrant and Takeda Pharmaceutical Company Limited*10.53

Side Letter Agreement, dated October 30, 2009, between Registrant and Takeda Pharmaceutical Company Limited*10.54

Third Amendment, dated December 18, 2009, to Credit Agreement among Registrant, Bank of America N.A., as Administrative Agent, and certain lenders thereto18

Letter from Independent Registered Public Accounting Firm related to change in accounting principle.21.1

Subsidiaries of Registrant.23.1

Consent of Independent Registered Public Accounting Firm.


66

---



Exhibit
Footnote

Exhibit
Number24.1

Power of Attorney. Reference is made to page 71.31.1

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.31.2

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.32.1

Certifications Pursuant to U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002.


Indicates
management or compensatory plan or arrangement required to be identified pursuant to Item 15(c).*Confidential
treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.(1)Filed
as an exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-44195) or amendments thereto and
incorporated herein by reference.(2)Confidential
Treatment has been granted by the Securities and Exchange Commission with respect to portions of this agreement.(3)Filed
as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated
herein by reference.(4)Filed
as an exhibit on Form 8-K dated December 8, 2008, and incorporated herein by reference.(5)Filed
as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated
herein by reference.(6)Filed
as an exhibit to the Registrant's Registration Statement on Form S-8 (No. 333-61660) or amendments thereto and
incorporated herein by reference.(7)Filed
as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, and incorporated
herein by reference.(8)Filed
as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, and incorporated
herein by reference.(9)Filed
as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, and incorporated
herein by reference.(10)Filed
as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, and incorporated
herein by reference.(11)Filed
as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, and incorporated
herein by reference.(12)Filed
as an exhibit on Form 8-K dated June 18, 2002, and incorporated herein by reference.(13)Filed
as an exhibit on Form 8-K dated October 3, 2002, and incorporated herein by reference.(14)Filed
as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001, and incorporated
herein by reference.(15)Filed
as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, and incorporated
herein by reference.


67

---



(16)Filed
as an exhibit to Amendment 1 to Registrant's Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2003, and
incorporated herein by reference.(17)Filed
as an exhibit to Amendment 1 to Registrant's Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2003, and
incorporated herein by reference.(18)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.(19)Filed
as an exhibit to Amendment 1 to Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2003, and
incorporated herein by reference.(20)Filed
as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2004, and incorporated
herein by reference.(21)Filed
on Form 8-K dated February 5, 2010, and incorporated herein by reference.(22)Filed
as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by
reference.(23)Filed
as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and incorporated
herein by reference.(24)Filed
as an exhibit on Form 8-K dated May 30, 2008 and incorporated herein by reference.(25)Filed
as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and incorporated
herein by reference.(26)Filed
as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, and incorporated herein
by reference.(27)Filed
as an exhibit on Form 8-K dated May 29, 2007, and incorporated herein by reference.(28)Filed
as an exhibit on Form 8-K dated June 8, 2007, and incorporated herein by reference.(29)Filed
as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, and incorporated herein by
reference.(30)Filed
as an exhibit to Registrant's Annual report on Form 10-K for the fiscal year ended December 31, 2007, and incorporated
herein by reference.(31)Filed
as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, and incorporated herein by
reference.(32)Filed
as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and incorporated
herein by reference.(33)Filed
as an exhibit to Registrant's Quarterly report on form 10-Q for the quarter ended March 31, 2009, and incorporated herein
by reference.(34)Filed
as an exhibit on Form 8-K dated June 10, 2009, and incorporated herein by reference.(35)Filed
as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, and incorporated herein by
reference. Note
on trademarks used in this report:
Amylin, BYETTA and SYMLIN are registered trademarks of Amylin Pharmaceuticals, Inc. Other brands, names and trademarks contained in this Annual Report on Form 10-K are the property of
their respective owners.


68

---





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.

AMYLIN PHARMACEUTICALS, INC.Date: February 26, 2010By:

/s/ DANIEL M. BRADBURY Daniel M. Bradbury, President and Chief Executive Officer


POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Daniel M. Bradbury and Mark
G. Foletta, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her
name, place, and stead, in any and all capacities, to sign any and all amendments to this Report, and any other documents in connection therewith, and to file the same, with all exhibits thereto, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them or their or his substitute or substituted, may lawfully do or cause to be done by virtue hereof.

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

Signatures

Title

Date/s/ DANIEL M. BRADBURY Daniel M. Bradbury

President and Chief Executive Officer(Principal Executive Officer)

February 26, 2010/s/ MARK G. FOLETTA Mark G. Foletta

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

February 26, 2010/s/ PAULO F. COSTA Paulo F. Costa

Chairman of the Board

February 26, 2010/s/ ADRIAN ADAMS Adrian Adams

Director

February 26, 2010


69

---



Signatures

Title

Date/s/ STEVEN R. ALTMAN Steven R. Altman

Director

February 26, 2010/s/ TERESA BECK Teresa Beck

Director

February 26, 2010/s/ M. KATHLEEN BEHRENS M. Kathleen Behrens

Director

February 26, 2010/s/ PAUL N. CLARK Paul N. Clark

Director

February 26, 2010Alexander J. Denner

Director/s/ KARIN EASTHAM Karin Eastham

Director

February 26, 2010/s/ JAMES R. GAVIN III, M.D., PHD. James R. Gavin III, M.D., PhD.

Director

February 26, 2010/s/ JAY S. SKYLER, M.D. Jay S. Skyler, M.D., MACP

Director

February 26, 2010/s/ JOSEPH P. SULLIVAN Joseph P. Sullivan

Director

February 26, 2010


70

---





INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Report of Independent Registered Public Accounting Firm


F-1Consolidated Balance Sheets as of December 31, 2009 and 2008


F-2Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007


F-3Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2009, 2008 and 2007


F-4Consolidated Statements of Cash Flows for the years ended December 31, 2009,
 2008 and 2007


F-5Notes to Consolidated Financial Statements


F-6Schedule II: Valuation Accounts


F-44


---





Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders of Amylin Pharmaceuticals, Inc.

We
have audited the accompanying consolidated balance sheets of Amylin Pharmaceuticals, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2009. Our audits also included the financial statement schedule listed in the Index
at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Amylin Pharmaceuticals, Inc., at
December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S.
generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth
therein.

As
discussed in Note 1 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in
Cash Upon Conversion (Including Partial Cash Settlement)(FSP
APB 14-1) (codified in FASB ASC Topic 470,Debt with Conversions and Other Options) effective as of January 1, 2009 and also
changed the classification of reimbursements of research and development expenses under collaborative arrangements from revenue under collaborative arrangements to research and development expense.
The Company has retroactively adjusted all periods presented in the consolidated financial statements for these changes.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Amylin Pharmaceuticals, Inc's internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 26, 2010 expressed an unqualified opinion thereon.

/S/ Ernst & Young LLP


San
Diego, California
February 26, 2010

F-1

---





AMYLIN PHARMACEUTICALS, INC.        CONSOLIDATED BALANCE SHEETS        (in thousands, except per share data)

December 31,2009

2008(1)ASSETSCurrent assets:Cash and cash equivalents

$
120,825

$
237,263Short-term investments


546,944


579,575Accounts receivable, net


60,732


62,369Inventories, net


99,700


115,823Other current assets


78,481


41,038Total current assets


906,682


1,036,068Property, plant and equipment, net


780,058


655,444Debt issuance costs


8,742


11,786Other long-term assets


30,937


23,755$
1,726,419

$
1,727,053LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
39,146

$
39,467Accrued compensation


70,961


65,145Payable to collaborative partner


49,645


60,470Restructuring liability, current portion


9,204


24,235Notes payable, current portion


93,750


31,250Deferred revenue, current portion


7,500


3,086Other current liabilities


95,163


90,125Total current liabilities


365,369


313,778Deferred revenue, net of current portion


66,250


Long-term deferred credit


125,000


125,000Deferred collaborative profit-sharing


54,570


Restructuring liability, net of current portion


22,776


22,503Notes payable, net of current portion





93,750Convertible senior notes, net


643,762


621,021Other long-term obligations, net of current portion


26,158


31,724Commitments and contingenciesStockholders' equity:Preferred stock, $.001 par value, 7,500 shares authorized, none issued and outstanding at December 31, 2009 and 2008





Common stock, $.001 par value, 450,000 shares authorized, 141,747 and 137,623 issued and outstanding at December 31, 2009 and 2008


142


138Additional paid-in capital


2,371,939


2,291,762Accumulated deficit


(1,947,867
)

(1,761,611
)Accumulated other comprehensive loss


(1,680
)

(11,012
)Total stockholders' equity


422,534


519,277$
1,726,419

$
1,727,053


(1)Adjusted
for the required retroactive adoption of authoritative guidance related to convertible debt instruments that may be settled in cash upon conversion
(Note 1).


See accompanying notes to consolidated financial statements.

F-2

---





AMYLIN PHARMACEUTICALS, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share data)

Year ended December 31,2009

2008(1)

2007(1)Revenues:Net product sales

$
753,993

$
765,342

$
701,450Revenues under collaborative agreements


4,426


4,286


19,286Total revenues


758,419


769,628


720,736Costs and expenses:Cost of goods sold


82,999


91,596


65,457Selling, general and administrative


343,864


395,112


390,982Research and development


185,062


222,614


216,339Collaborative profit-sharing


302,861


302,600


290,934Restructuring


16,980


54,926


Total costs and expenses


931,766


1,066,848


963,712Operating loss


(173,347
)

(297,220
)

(242,976
)Interest and other income


7,768


26,561


46,969Interest and other expense


(19,300
)

(36,339
)

(20,479
)Loss on impairment of investments


(1,377
)

(14,943
)

Net loss

$
(186,256
)
$
(321,941
)
$
(216,486
)Net loss per sharebasic and diluted

$
(1.32
)
$
(2.35
)
$
(1.63
)Shares used in computing net loss per share, basic and diluted


140,702


137,006


132,621


(1)Adjusted
for the required retroactive adoption of authoritative guidance related to convertible debt instruments that may be settled in cash upon conversion
and the change in our method of accounting for reimbursed research and development costs under collaborative arrangements (Note 1).


See
accompanying notes to consolidated financial statements.

F-3

---





AMYLIN PHARMACEUTICALS, INC.        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        For the years ended December 31, 2009, 2008 and 2007        (in thousands)

Common stock





Accumulated
other
comprehensive
(loss) incomeAdditional
paid-in capital

Accumulated
deficit

Total
stockholders'
equityShares

AmountBalance at December 31, 2006


130,458

$
130

$
1,857,194

$
(1,223,184
)
$
1,151

$
635,291Comprehensive loss:Net loss(1)











(216,486
)




(216,486
)Unrealized loss on available-for-sale securities














(1,601
)

(1,601
)Comprehensive loss

















(218,087
)Issuance of common stock upon exercise of options, net


2,547


3


37,396








37,399Issuance of common stock upon exercise of warrants


1,604


2


18,370








18,372Issuance of common stock for other employee benefit plans


435





14,735








14,735Employee stock-based compensation








59,064








59,064Non-employee stock-based compensation








694








694Net debt discount recorded as a result of the required retroactive adoption of authoritative guidance related to convertible debt instruments that may be
settled in cash upon conversion(1)








180,289








180,289Balance at December 31, 2007


135,044


135


2,167,742


(1,439,670
)

(450
)

727,757Comprehensive loss:Net loss(1)











(321,941
)




(321,941
)Unrealized loss on available-for-sale securities














(10,562
)

(10,562
)Comprehensive loss

















(332,503
)Issuance of common stock upon exercise of options, net


528





7,260








7,260Issuance of common stock upon milestone conversion


790


1


29,999








30,000Issuance of common stock for other employee benefit plans


578


1


13,717








13,718Issuance of common stock for employee stock ownership plan


683


1


16,995








16,996Employee stock-based compensation








55,901








55,901Non-employee stock-based compensation








148








148Balance at December 31, 2008


137,623


138


2,291,762


(1,761,611
)

(11,012
)

519,277Comprehensive loss:Net loss











(186,256
)




(186,256
)Unrealized gain on available-for-sale securities














9,332


9,332Comprehensive loss

















(176,924
)Issuance of common stock upon exercise of options, net


599


1


4,556








4,557Issuance of common stock for other employee benefit plans


1,280


1


11,508








11,509Issuance of common stock for employee stock ownership plan


2,245


2


20,248








20,250Employee stock-based compensation








43,762








43,762Non-employee stock-based compensation








103








103Balance at December 31, 2009


141,747

$
142

$
2,371,939

$
(1,947,867
)
$
(1,680
)
$
422,534


(1)Adjusted
for the required retroactive adoption of authoritative guidance related to convertible debt instruments that may be settled in cash upon conversion
(Note 1).


See accompanying notes to consolidated financial statements.

F-4

---





AMYLIN PHARMACEUTICALS, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands)

Years ended December 31,2009

2008(1)

2007(1)Operating activities:Net loss

$
(186,256
)
$
(321,941
)
$
(216,486
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


38,197


29,552


19,329Amortization of debt discount and debt issuance costs


8,209


10,332


7,584Stock-settled compensation accruals


20,161


25,097


21,696Employee stock-based compensation


43,762


55,115


59,064Loss on impairment of investments


1,377


14,943


Restructuring (including $0 and $786 of employee stock-based compensation unpaid at December 31, 2009 and 2008, respectively)





9,483


Other non-cash expenses


10,548


5,718


3,028Changes in operating assets and liabilities:Accounts receivable, net


1,637


11,210


(15,490
)Inventories, net


16,123


(15,609
)

(40,915
)Other current assets


(35,749
)

(13,005
)

(10,016
)Long-term prepaid assets


(8,754
)




Accounts payable and accrued liabilities


5,574


8,641


28,101Accrued compensation


11,009


4,900


1,300Payable to collaborative partner


(10,825
)

(5,646
)

13,778Deferred revenue


70,664


(4,286
)

(4,286
)Long-term deferred credit





125,000


Deferred collaborative profit-sharing


54,570





Restructuring liabilities


(14,758
)

46,738


Other assets and liabilities, net


(5,566
)

(5,752
)

8,153Net cash provided by (used for) operating activities


19,923


(19,510
)

(125,160
)Investing activities:Purchases of short-term investments


(794,008
)

(1,015,811
)

(392,155
)Sales and maturities of short-term investments


832,900


1,132,017


383,076Purchases of property, plant and equipment


(152,051
)

(295,060
)

(268,674
)Increase in other long-term assets


(2,913
)

(3,299
)

(18,348
)Net cash used for investing activities


(116,072
)

(182,153
)

(296,101
)Financing activities:Proceeds from issuance of common stock, net


10,961


16,694


64,687Proceeds from issuance of convertible debt, net








558,670Proceeds from long-term note payable








123,496Proceeds from contingent share settled obligation








30,000Repayment of notes payable


(31,250
)




Net cash (used for) provided by financing activities


(20,289
)

16,694


776,853(Decrease) increase in cash and cash equivalents


(116,438
)

(184,969
)

355,592Cash and cash equivalents at beginning of year


237,263


422,232


66,640Cash and cash equivalents at end of year

$
120,825

$
237,263

$
422,232Supplemental disclosures of cash flow information:Interest paid, net of interest capitalized

$
13,218

$
17,701

$
9,477Interest capitalized

$
33,280

$
25,766

$
9,049Property, plant and equipment additions in other current liabilities at year end

$
10,123

$
6,057

$
15,559Non-cash financing activities:Issuance of common stock upon milestone conversion

$


$
30,000

$
Shares contributed as employer 401(k) match

$
5,105

$
4,284

$
5,819Issuance of common stock for employee stock ownership plan

$
20,250

$
16,996

$



(1)Adjusted
for the required retroactive adoption of authoritative guidance related to convertible debt instruments that may be settled in cash upon conversion
(Note 1).


See accompanying notes to consolidated financial statements.

F-5

---





AMYLIN PHARMACEUTICALS, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Organization

Amylin Pharmaceuticals, Inc. (referred to as we, us, or Amylin) is a biopharmaceutical company engaged in the discovery,
development and commercialization of drug candidates for the treatment of diabetes, obesity and other diseases. We were incorporated in Delaware on September 29, 1987.

Basis of Presentation

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

In
June 2009, the FASB issued authoritative guidance that provides for the FASB Accounting Standards Codification TM (the "Codification") to become the single official
source of authoritative, non-governmental U.S. generally accepted accounting principles (GAAP). The Codification did not change GAAP but reorganizes the literature and is effective for
interim and annual periods ending after September 15, 2009. These consolidated financial statements and notes to consolidated financials statements have been conformed to the presentation
required by the Codification.

Change in Accounting Policy

During the fourth quarter of 2009, we changed our method of accounting for reimbursed research and development costs under
collaborative arrangements from reporting them as revenue to reporting them as a reduction to research and development costs. We believe this method is consistent with industry practice for companies
whose primary focus is the commercialization of pharmaceutical products. This change in accounting had no effect on operating loss or net loss.

Consistent
with the accounting guidance addressing accounting changes and error corrections, the effect of the change in accounting method has been made retroactive to the beginning of
the earliest period presented with the accompanying 2009 consolidated financial statements. Our unaudited historical quarterly financial data presented in Note 13 has been adjusted to reflect
the period-specific effects of applying the new method.

The
following tables summarize the impact of the change in accounting for reimbursed research and development costs on the consolidated statements of operations for the years ended
December 31, 2008 and December 31, 2007. Only the line items affected by the change in accounting are reflected in the tables below (in thousands):

Year ended
December 31, 2008

Year ended
December 31, 2007As originally
reported

As adjusted

As originally
reported

As adjustedRevenues under collaborative agreements

$
74,767

$
4,286

$
79,547

$
19,286Research and development

$
293,095

$
222,614

$
276,600

$
216,339


F-6

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

Adoption of New Accounting Guidance for Convertible Debt Instruments that may be Settled in Cash upon Conversion

Effective January 1, 2009, we adopted the new authoritative guidance for accounting for convertible debt instruments that may be
settled in cash upon conversion (including partial cash settlement). The new guidance requires that the liability and equity components of convertible debt instruments that may be settled in cash upon
conversion shall be separately accounted
for in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The carrying amount of the liability component of the
convertible debt instrument is determined by measuring the fair value of a similar liability that does not have an associated equity component. The carrying value of the equity component is determined
by deducting the fair value of the liability component from the initial proceeds ascribed to the convertible debt instrument as a whole. Related transaction costs are allocated to the liability and
equity components in proportion to the allocation of proceeds and accounted for as debt issuance costs and equity issuance costs, respectively. The excess of the principal amount of the liability
component over its carrying amount is amortized to interest expense using the interest method. The new guidance is applied retrospectively to the years ended December 31, 2008 and 2007. The
$575 million Senior Convertible Notes issued in June 2007 (the 2007 Notes) are within the scope of the new guidance because we have the option to elect net-share settlement upon
conversion. The $200 million Convertible Senior Notes issued in 2004 (the 2004 Notes) are not within the scope of the new guidance as they may only be settled in shares of our common stock upon
conversion.

Upon
adoption, we recorded a cumulative debt discount on the 2007 Notes of $185.6 million at inception, and an increase of $180.3 million to stockholders' equity
representing the gross value of the equity component of $185.6 million net of allocated transaction costs of $5.3 million. The debt discount is being amortized to interest expense over
the term of the 2007 Notes, net of interest capitalized. There was no cumulative effect on accumulated deficit of the change in accounting principle as of January 1, 2007 as the 2007 Notes were
not issued until June 2007. As required by the provisions of the new guidance we are retroactively adjusting our 2007 and 2008 financial statements.

Our
net loss for the year ended December 31, 2009 of $186.3 million, or $1.32 per share, includes $4.3 million, or $0.03 per share, of incremental interest and other
expense due to the adoption of the new guidance.

The
following table sets forth the effect of the retroactive adjustment of the applicable line items within the accompanying consolidated balance sheet as of December 31, 2008 (in
thousands):

As previously
reported

Implementation
adjustments

As adjustedProperty, plant and equipment, net

$
636,922

$
18,522

$
655,444Debt issuance costs

$
15,884

$
(4,098
)
$
11,786Convertible senior notes

$
775,000

$
(153,979
)
$
621,021Additional paid-in capital

$
2,111,473

$
180,289

$
2,291,762Accumulated deficit

$
(1,749,725
)
$
(11,886
)
$
(1,761,611
)


F-7

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

The
following tables set forth the effect of the retroactive adjustment of the applicable line items within the accompanying consolidated statement of operations for the twelve months
ended December 31, 2008 and 2007 (in thousands, except per share amounts):

Year ended December 31, 2008As previously
reported

Implementation
adjustments

As adjustedInterest and other expense

$
(29,803
)
$
(6,536
)
$
(36,339
)Net loss

$
(315,405
)
$
(6,536
)
$
(321,941
)Net loss per share

$
(2.30
)
$
(0.05
)
$
(2.35
)




Year ended December 31, 2007As previously
reported

Implementation
adjustments

As adjustedInterest and other expense

$
(15,129
)
$
(5,350
)
$
(20,479
)Net loss

$
(211,136
)
$
(5,350
)
$
(216,486
)Net loss per share

$
(1.59
)
$
(0.04
)
$
(1.63
)


The
following tables set forth the effect of the retroactive adjustment of the applicable line items within the accompanying consolidated statement of cash flows for the twelve months
ended December 31, 2008 and 2007 (in thousands):

Year ended December 31, 2008As previously
reported

Implementation
adjustments

As adjustedNet loss

$
(315,405
)
$
(6,536
)
$
(321,941
)Amortization of debt discount and debt issuance costs

$
3,796

$
6,536

$
10,332




Year ended December 31, 2007As previously
reported

Implementation
adjustments

As adjustedNet loss

$
(211,136
)
$
(5,350
)
$
(216,486
)Amortization of debt discount and debt issuance costs

$
2,234

$
5,350

$
7,584


Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-8

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

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. We recorded an allowance related to the Department of Defense's (DOD) Tricare Retail Pharmacy program pursuant to a final rule that was issued in March 2009 and became
effective on May 26, 2009. The final rule clarified the DOD's interpretation of the National Defense Authorization Act of 2008, or NDAA, signed into law on January 28, 2008. The final
rule changed the process by which rebate obligations for the Tricare Retail Pharmacy program are created such that a contractual agreement is no longer required and that obligation to pay such rebates
emanates from the NDAA itself. In consideration of this final rule we recorded an allowance of $8.2 million for such rebates in the twelve months ended December 31, 2009, of which
$4.8 million represents a retroactive rebate assessment for sales made during 2008.

We
record all United States BYETTA and SYMLIN product sales. With respect to BYETTA, we have determined that we are qualified as a principal based on our responsibilities under our
contracts with Eli Lilly and Company, or Lilly, which include manufacture of product for sale in the United States, responsibility for establishing pricing in the United States, distribution,
ownership of product inventory and credit risk from customers.

Revenues Under Collaborative Agreements

Revenues under collaborative agreements consist of the amortization of product and technology license fees and milestone payments
earned. Upfront product and technology license fees under multiple-element arrangements are deferred and recognized over the period of such services or performance if such arrangements require
on-going services or performance.
Non-refundable amounts received for substantive milestones are recognized upon achievement of the milestone. Any amounts received prior to satisfying these revenue recognition criteria are
recorded as deferred revenue.

Collaborative Profit-Sharing

Collaborative profit-sharing represents Lilly's 50% share of the gross margin for BYETTA sales in the United States (see
Note 4).

Shipping and Handling Costs

Shipping and handling costs incurred for product shipments are included in cost of goods sold in the accompanying consolidated
statements of operations.

F-9

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

Research and Development Expenses

Research and development costs are expensed as incurred and include salaries and bonuses, benefits, non-cash stock-based
compensation, license fees, milestone payments due under license agreements, costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials and delivery
devices; and associated overhead and facilities costs. Reimbursed research and development costs under collaborative arrangements are recorded as a reduction to research and development expenses and
are recognized in the period in which the related costs are incurred. Clinical trial costs, including costs associated with third-party contractors, are a significant component of research and
development expenses. Invoicing from third- party contractors for services performed can lag several months. We accrue the costs of services rendered in connection with such activities based on our
estimate of management fees, site management and monitoring costs, and data management costs. Actual clinical trial costs may differ from estimates and are adjusted in the period in which they become
known.

Concentrations of Risk

We rely on third-party manufacturers for the production of our products and drug candidates. If our third-party manufacturers are
unable to continue manufacturing our products and/or drug candidates, or if we lose one of our sole source suppliers used in our manufacturing processes, we may not be able to meet market demand for
our products and could be materially and adversely affected.

We
have a collaboration agreement with Lilly under which Lilly provides funding for development and commercialization expenses for BYETTA and exenatide once weekly at various cost
sharing percentages depending upon whether the product is to be utilized in the United States or outside the United States. Lilly co-promotes the product with us in the United States, is
responsible for commercializing the product outside the United States and manufactures pen devices for the administration of BYETTA. See Note 4 for more detailed information regarding this
collaboration. If Lilly is unable to perform these activities we may be unable to meet market demand for our products and could be materially and adversely affected.

We
have a collaboration agreement with Takeda Pharmaceutical Company Limited (Takeda) for the development and commercialization of pharmaceutical products for obesity and related
indications. Under this agreement Takeda will provide funding for development and commercialization expenses. If Takeda is unable to perform these activities or were to terminate our collaboration
with them, we would likely need to find a third party collaborator to continue developing our obesity program, which we may be unable to do.

We
are also subject to credit risk from our accounts receivable related to product sales. We sell our products in the United States primarily to wholesale distributors. Our top four
customers represented approximately 95% of net product sales in 2009 and 94% of the accounts receivable balance at December 31, 2009. We evaluate the credit worthiness of our customers and
generally do not require collateral. We have not experienced any material losses on uncollectible accounts receivable to date.

Net
product sales for the years ended December 31, 2009, 2008 and 2007 were $754.0 million, $765.3 million and $701.5 million, respectively, and consisted of
sales of BYETTA and SYMLIN, less allowances for product returns, rebates and wholesaler chargebacks, wholesaler discounts, and prescription vouchers.

F-10

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

The following table provides information regarding net product sales by product (in millions):

Year ended December 31,2009

2008

2007BYETTA

$
667.6

$
678.5

$
636.0SYMLIN


86.4


86.8


65.5$
754.0

$
765.3

$
701.5


Three
of our customers each accounted for more than 10% of total net product sales for the years ended December 31, 2009 and 2008 and two of our customers each accounted for more
than 10% of total net product sales for the year ended December 31, 2007. The following table summarizes the percent of our total net product sales that were attributed to each of these three
customers (as a % of net product sales):

Year ended
December 31,2009

2008

2007McKesson Corporation


38
%

38
%

40
%Cardinal Health, Inc.


35
%

36
%

35
%Medco Health Solutions


12
%

12
%

*


*Less
than 10%


We
invest our excess cash in U.S. Government securities, securities of agencies sponsored by the U.S. Government, asset-backed securities, mortgage-backed securities, and debt
instruments of financial institutions and corporations with investment-grade credit ratings. We have established guidelines relative to diversification and maturities that maintain safety and
liquidity. The primary goal of these
guidelines is to safeguard principal and they are periodically reviewed. These guidelines prohibit investments in auction rate securities. Financial instruments that potentially subject us to
significant credit risk consist principally of cash equivalents and short-term investments.

Cash and Cash Equivalents

We consider instruments with a maturity date of less than 90 days from the date of purchase to be cash equivalents. Cash and
cash equivalents include cash collateral for derivative financial instruments of $3.5 million at both December 31, 2009 and 2008, respectively.

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 the 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

F-11

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

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;
andLevel 3

Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its
own assumptions about the assumptions that market participants would use in pricing.


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. 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.

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 $0.7 million and
$0.6 million at December 31, 2009 and 2008, respectively.

Inventories, net

Inventories are stated at the lower of cost (FIFO) or market and net of a valuation allowance for potential excess and/or obsolete
material of $0.3 million and $5.1 million at December 31, 2009 and December 31, 2008, respectively. Raw materials consist of bulk drug material for BYETTA and SYMLIN.
Work-in-process inventories consist of in-process BYETTA cartridges, in-process SYMLIN cartridges and in-process SYMLIN vials. Finished
goods inventories consist of BYETTA drug product

F-12

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

in
a disposable pen/cartridge delivery system, finished SYMLIN drug product in vials for syringe administration and finished SYMLIN drug product in a disposable pen/cartridge delivery system.

We
expense costs relating to the purchase and production of pre-approval inventories as research and development expense in the period incurred until such time as we believe
future commercialization is probable and future economic benefit is expected to be recognized. As of December 31, 2009 and 2008 we have not capitalized any costs associated with
pre-launch inventory for exenatide once weekly.

Property, plant and Equipment

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

Land improvements

Lesser of the lease term or the useful lifeLaboratory equipment

5 to 10 yearsLeasehold improvements

Lesser of the lease term or the useful lifeProduction equipment

10 yearsOffice equipment, furniture and computer software

3 to 5 yearsBuildings

15 to 40 years


We
recorded depreciation expense of $37.8 million, $29.2 million, and $19.0 million in the years ended December 31, 2009, 2008 and 2007, respectively.

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

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

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

F-13

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

Computer Software Costs for Internal Use

We capitalize costs of computer software developed or obtained for internal use. Capitalized computer software costs are amortized as
depreciation expense on a straight-line basis over the estimated useful life of software, generally three years.

Investments in Unconsolidated Entities

We use the equity method of accounting for investments in other companies that are not controlled by us and in which our interest is
generally between 20% and 50% of the voting shares or we have significant influence over the entity, or both. Our share of the income or losses of these entities is included in interest and other
expense, and the investments, which have a net book value of $3.2 million and $4.7 million at December 31, 2009 and December 31, 2008, respectively, are included in other
long-term assets. We recorded $4.0 million, $4.5 million and $1.8 million of equity method investee losses during the years ended December 31, 2009, 2008 and
2007, respectively. We recognized an impairment loss of $9.0 million in 2008 on one of our equity method investments after assessing the financial and technical performance of the entity in
which the investment was made as well as the entity's ability to raise additional capital in significantly deteriorated financial markets to fund ongoing operations. There were no such impairments
during the year ended December 31, 2009.

Patents

We have filed a number of patent applications with the United States Patent and Trademark Office and in foreign countries. Certain
legal and related costs incurred in
connection with pending patent applications have been capitalized. Costs related to successful patent applications are amortized over the lesser of the remaining useful life of the related technology
or the remaining patent life, commencing on the date the patent is issued. Gross capitalized patent costs were approximately $5.9 million and $5.5 million at December 31, 2009 and
2008, respectively. Accumulated amortization was approximately $3.1 million and $2.6 million at December 31, 2009 and 2008, respectively. Patents are classified as other
long-term assets in the accompanying consolidated balance sheets. We recorded patent amortization expense of $0.4 million, $0.4 million and $0.3 million in the years
ended December 31, 2009, 2008 and 2007, respectively. Capitalized costs related to patent applications are expensed as a selling, general and administrative expense in the period during which a
determination not to pursue such applications is made. Such expenses were not material in the years ended December 31, 2009, 2008 and 2007, respectively.

F-14

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

Net Loss Per Share

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

Years ended
December 31,2009

2008

2007Antidilutive options to purchase common stock


209


2,957


6,767Antidilutive shares underlying convertible senior notes


15,238


15,238


11,13615,447


18,195


17,903


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

Derivative Financial Instruments

We mitigate certain financial exposures, including currency risk and interest rate risk, through a controlled program of risk
management that includes the use of derivative financial instruments. Derivatives are recorded on the balance sheet at fair value, with changes in value being recorded in interest and other income and
interest and other expense. The fair value of our derivative financial instruments was a net liability of $2.9 million and $4.8 million at December 31, 2009 and 2008,
respectively. We have determined that our derivative financial instruments are defined as Level 2 in the fair value hierarchy. We recognized unrealized gains on derivative financial instruments
of $1.9 million for the year ended December 31, 2009 and unrealized losses on derivative financial
instruments of $4.9 million and $0.1 million for the years ended December 31, 2008 and 2007, respectively.

The
following table summarizes the fair value and balance sheet classification of our derivative financial instruments (in thousands):

December 31, 2009

December 31, 2008Fair Value

Balance sheet
location

Fair Value

Balance sheet
locationForeign currency derivative contracts

$
(100
)
Other current liabilities

$
160

Other current assetsInterest rate derivative contract (Note 8)


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


(4,991
)
Other long-term obligations, net of current portion$
(2,913
)


$
(4,831
)


F-15

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

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 stockholder's equity.

Accounting for Stock-Based Compensation

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

We
use the Black-Scholes model to estimate the fair value of non-cash, stock-based payments granted to employees. The assumptions used for the specified reporting periods and
the resulting estimates of weighted-average estimated fair value per share of options granted and employee stock purchase rights during those periods are as follows:

Years ended December 31,2009

2008

2007VolatilityStock option plans


80.9
%

46.5
%

44.2
%VolatilityEmployee stock purchase rights


97.9
%

56.8
%

27.9
%Expected life in yearsStock option plans


4.3


4.2


5.4Expected life in yearsEmployee stock purchase rights


0.5


0.5


0.5Risk-free interest rateStock option plans


1.6
%

3.4
%

4.7
%Risk-free interest rateEmployee stock purchase rights


0.4
%

1.9
%

4.9
%Dividend yield



%


%


%Weighted average estimated fair value per share of stock options granted

$
5.73

$
10.43

$
18.01Weighted average estimated fair value per share of employee stock purchase rights granted

$
4.04

$
7.14

$
10.01


We
estimate volatility based upon the historical volatility of our common stock for a period corresponding to the expected term of our employee stock options and the implied volatility
of market-traded options on our common stock with various maturities between six months and two years. The determination to use implied volatility in addition to historical volatility was based upon
the availability of actively traded options on our common stock and our assessment that the addition of implied volatility is more representative of future stock price trends than historical
volatility alone.

The
expected life of our employee stock options represents the weighted-average period of time that options granted are expected to be outstanding in consideration of historical exercise
patterns and the assumption that all outstanding options will be exercised at the mid-point of the then current date and their maximum contractual term.

F-16

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

The
risk-free interest rates are based on the yield curve of U.S. Treasury strip securities in effect at the time of grant for periods corresponding with the expected life of
our employee stock options. We have never paid dividends and do not anticipate doing so for the foreseeable future. Accordingly, we have assumed no dividend yield for purposes of estimating the fair
value of our stock-based payments to employees.

Stock-based
compensation expense recognized is based on awards ultimately expected to vest, and therefore is reduced by expected forfeitures. We estimate forfeitures based upon
historical forfeiture rates, and will adjust our estimate of forfeitures if actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be
recognized through a cumulative adjustment in the period of the change and will also impact the amount of stock-based compensation expense in future periods.

Total
employee non-cash stock-based compensation expense by operating statement classification is presented below (in thousands):

Year ended December 31,2009

2008

2007Selling, general and administrative expenses

$
28,351

$
33,977

$
35,420Research and development expenses


15,411


21,138


23,644Restructuring





786


Total

$
43,762

$
55,901

$
59,064Employee non-cash, stock-based compensation expense per share, basic and diluted

$
0.31

$
0.41

$
0.45


Stock-based
compensation expense capitalized as part of inventory and fixed assets was negligible and did not impact our reported cash flows for the years ended December 31, 2009,
2008 and 2007.

We
also record non-cash expense associated with our Employee Stock Ownership Plan, or ESOP. Total non-cash ESOP expense by operating statement classification is
presented below (in thousands):

Year ended December 31,2009

2008

2007Selling, general and administrative expenses

$
9,359

$
11,267

$
10,022Research and development expenses


6,886


8,529


7,269Restructuring





417


Total

$
16,245

$
20,213

$
17,291


Recently Issued Accounting Standards

In April 2009, the FASB issued a new accounting standard providing guidance for the accounting of assets acquired and liabilities
assumed in a business combination that arise from contingencies. This guidance amends and clarifies previous accounting standards to address application issues regarding the initial recognition and
measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. Due to the fact that this guidance

F-17

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

is
applicable to acquisitions completed after January 1, 2009 and we did not have any business combinations during 2009, the adoption of this standard did not have a material effect on our
financial position, results of operations or cash flows.

In
June 2009, the FASB issued authoritative guidance that prescribes the information that a reporting entity must provide in its financial reports about a transfer of financial assets;
the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor's continuing involvement in transferred financial assets. Specifically, among other
aspects, this standard amends previously issued accounting guidance, modifies the financial-components approach and removes the concept of a qualifying special purpose entity when accounting for
transfers and servicing of financial assets and extinguishments of liabilities, and removes the exception from applying the general accounting principles for the consolidation of variable interest
entities that are qualifying special-purpose entities. This new accounting standard is effective for transfers of financial assets occurring on or after January 1, 2010. The adoption of this
standard will not have an impact on our financial position or results of operations.

In
June 2009, the FASB issued authoritative guidance that amends previously issued accounting guidance for the consolidation of variable interest entities to require an enterprise to
determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity. This amended consolidation guidance for variable interest entities also
replaces the existing quantitative approach for identifying which enterprise should consolidate a variable interest entity, which was based on which enterprise is exposed to a majority of the risks
and rewards, with a qualitative approach, based on which enterprise has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to
absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable
interest entity. Under this revised guidance, more entities may meet the definition of a variable interest entity, and the determination about whether an enterprise should consolidate a variable
interest entity is required to be evaluated continuously. This standard is effective for us for interim and annual periods beginning after January 1, 2010. The adoption of this standard will
not have an impact on our financial position or results of operations.

In
August 2009, the FASB issued new authoritative guidance for the fair value measurement of liabilities when a quoted price in an active market is not available. The new guidance is
effective for reporting periods beginning after August 28, 2009, which means that it became effective for our fourth quarter beginning October 1, 2009. The adoption of this new guidance
did not have a material effect on our financial position, results of operations or cash flows.

In
September 2009, the FASB issued authoritative guidance that provides additional guidance on using the net asset value per share, provided by an investee, when estimating the fair
value of an alternate investment that does not have a readily determinable fair value and enhances the disclosures concerning these investments. Examples of alternate investments that fall within the
scope of this standard include investments in hedge funds and private equity, real estate, and venture capital partnerships. This Standard is effective for interim and annual periods ending after
December 15, 2009. As of December 31, 2009, we do not have any investments that fall within the scope of this new guidance and therefore we do not anticipate that this standard will have
a material impact on our consolidated financial statement disclosures.

F-18

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

In October 2009, the FASB 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 eliminates the requirement to establish the fair value of undelivered products and services and instead 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 new guidance is effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15, 2010. Earlier application is permitted as of the beginning of a fiscal year. We are currently evaluating the potential
impact of this standard on our financial position and results of operations.

2. Investments

The following is a summary of our short-term investments as of December 31, 2009 and 2008 (in thousands):

Available-for-Sale SecuritiesAmortized
Cost

Gross
Unrealized
Gains(1)

Gross
Unrealized
Losses(1)

Estimated
Fair ValueDecember 31, 2009U.S. Treasury securities

$
187,892

$
66

$
(2
)
$
187,956Obligations of U.S. Government-sponsored enterprises


60,280


47


(453
)

59,874Corporate debt securities


278,872


917


(99
)

279,690Asset backed securities


19,963


37


(576
)

19,424Total

$
547,007

$
1,067

$
(1,130
)
$
546,944December 31, 2008U.S. Treasury securities

$
130,193

$
449

$


$
130,642Obligations of U.S. Government-sponsored enterprises


129,197


656


(1,494
)

128,359Corporate debt securities


294,805


175


(4,090
)

290,890Asset backed securities


33,081


4


(3,401
)

29,684Total

$
587,276

$
1,284

$
(8,985
)
$
579,575


(1)Other
comprehensive loss included unrealized losses of $1.6 million and $3.3 million on investments underlying our 2001
Non-Qualified Deferred Compensation Plan at December 31, 2009 and 2008, respectively.


The
gross realized gains on sales of available-for-sale securities totaled approximately $0.7 million, $2.6 million and $1.1 million and the
gross realized losses totaled $0.6 million, $4.6 million and $0.8 million for the years ended December 31, 2009, 2008 and 2007, respectively.

F-19

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Investments (Continued)

Contractual
maturities of short-term investments at December 31, 2009 were as follows (in thousands):

Fair ValueDue within 1 year

$
465,263After 1 but within 5 years


53,224After 5 but within 10 years


1,437After 10 years


27,020Total

$
546,944


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.

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 December 31, 2009 (in thousands):

Less than 12 Months

12 Months or Greater

TotalFair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
LossesU.S. Treasury securities

$
10,635

$
(2
)
$


$


$
10,635

$
(2
)Obligations of U.S Government-sponsored enterprises


17,166


(118
)

17,629


(335
)

34,795


(453
)Corporate debt securities


25,420


(42
)

12,498


(57
)

37,918


(99
)Asset backed securities


2,560


(52
)

15,567


(524
)

18,127


(576
)Mortgage-backed securities

















$
55,781

$
(214
)
$
45,694

$
(916
)
$
101,475

$
(1,130
)


During
the year ended December 31, 2009 we recognized a $1.4 million other-than-temporary impairment loss for credit-related losses associated with
two securities in our portfolio. The impairment loss was based upon the difference between the amortized cost basis and the observed market prices for the securities. During the year ended
December 31, 2008 we recognized a $5.9 million other-than-temporary impairment loss on an investment in a corporate debt security based upon an assessment of the
impact of bankruptcy proceedings of the debt issuer on the recoverability of our investment. The unrealized losses on our remaining investments are due to the increased volatility in the markets
impacting the classes of securities we invest in and are not due to a 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 December 31,
2009.

F-20

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Other Financial Information

Inventories consist of the following (in thousands):

At December 31,2009

2008Raw materials

$
67,446

$
74,140Work-in process


18,335


21,382Finished goods


13,919


20,301$
99,700

$
115,823


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

At December 31,2009

2008Prepaid expenses

$
58,032

$
30,335Interest and other receivables


13,740


3,681Other current assets


6,709


7,022$
78,481

$
41,038


Property,
plant and equipment consist of the following (in thousands):

At December 31,2009

2008Land and land improvements

$
12,196

$
11,876Laboratory equipment


57,354


34,275Leasehold improvements


71,969


71,379Production equipment


78,605


13,610Office equipment, furniture and computer software


88,369


82,852Buildings


154,860


51,278Construction in progress


436,959


474,125900,312


739,395Less accumulated depreciation and amortization


(120,254
)

(83,951
)$
780,058

$
655,444


Construction
in progress includes costs associated with our manufacturing facility for exenatide once weekly, which is currently under construction in Ohio (see Note 4) and costs
associated with the exenatide once weekly pen device. During 2009 we placed into service bulk manufacturing components. Construction in progress as of December 31, 2008 has been adjusted to
include additional capitalized interest of $18.5 million as a result of the required retroactive adoption of authoritative guidance related to convertible debt instruments that may be settled
in cash upon conversion (Note 1).

F-21

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Other Financial Information (Continued)

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

At December 31,2009

2007Accrued rebate discounts

$
40,735

$
28,575Accrued expenses


34,789


43,482Other current liabilities


19,639


18,068$
95,163

$
90,125


4. 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.

Effective
January 1, 2009, we implemented new authoritative guidance related to accounting for collaborative arrangements. The new guidance requires that certain transactions
between collaborators be recorded in the income statement on either a gross or net basis, depending on the characteristics of the collaboration relationship, and provides for enhanced disclosure of
collaborative relationships. We evaluated our collaborative agreements for proper statement of operations classification based on the nature of the underlying activity. If payments to and from our
collaborative partners are not within the scope of other authoritative accounting literature, the statement of operations classification for the payments is based on a reasonable, rational analogy to
authoritative accounting literature that is applied in a consistent manner. Amounts due from our collaborative partners related to development activities are generally reflected as a reduction of
research and development expenses and amounts due to our collaborative partners related to sharing of commercialization expenses are generally reflected as 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 made 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 (of which there have been none to date) will generally be reflected as collaborative revenues and royalties paid are generally reflected as cost of goods sold.
The adoption of the new guidance related to accounting for collaborative arrangements did not affect our financial position or results of operations.

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, 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.

F-22

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Collaborative Agreements (Continued)

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
(the "agreement"). The agreement was amended in 2006 and in 2009.

This
agreement includes BYETTA and any sustained release formulations of exenatide such as once weekly exenatide, 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 us and Lilly. In 2005, we received United States Food and Drug
Administration (FDA) approval for the twice-daily formulation of exenatide, which is marketed in the United States under the trade name BYETTA. 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. Lilly is responsible for 100% of the costs related to
development of exenatide once weekly and BYETTA for sale outside of the United States. Lilly is responsible for 100% of the costs related to commercialization of all exenatide products for sale
outside of the United States.

At
signing, Lilly made initial non-refundable payments to us totaling $80 million, of which $50 million was amortized to revenues under collaborative agreements
prior to 2004. The remaining $30 million was amortized to revenues ratably over a seven-year period which ended in 2009 and represented our estimate of the period of our performance
of significant development activities under the agreement.

In
addition to these up-front payments, Lilly agreed to make future milestone payments of up to $85 million upon the achievement of certain development milestones,
including milestones relating to both twice daily and sustained release formulations of exenatide such as exenatide once weekly, of which $75 million have been paid through December 31,
2009. No additional development milestones may be earned under the collaboration agreement. In December 2007, we received milestone payments of $30 million associated with the results of a
thirty week comparator study of exenatide once weekly and BYETTA in patients with type 2 diabetes. Since the New Drug Application filing for exenatide once weekly did not occur by
December 31, 2007, Lilly was entitled to convert the milestones into shares of our common stock at a conversion price equal to the immediately preceding twenty day average closing market price
of our common stock on December 31, 2007. In February 2008 Lilly elected to convert the milestones into common stock and received 0.8 million shares of our common stock at a conversion
price equal to $37.9535.

Lilly
also agreed to make additional future milestone payments of up to $130 million contingent upon the commercial launch of exenatide in selected territories throughout the
world, including both twice-daily and sustained release formulations, of which $40 million have been paid and recorded as revenue through December 31, 2009. Remaining milestones relate
primarily to the commercial launch of exenatide once weekly in selected territories throughout the world, including $40 million for the launch in the United States.

In
October 2008, we and Lilly entered into an Exenatide Once Weekly Supply Agreement (the "supply agreement") pursuant to which we will supply commercial quantities of exenatide once
weekly for sale in the United States, if approved by the United States Food and Drug Administration, or FDA.

F-23

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Collaborative Agreements (Continued)

In
addition, if Lilly receives approval to market the product in jurisdictions outside the United States, we will be required to manufacture the product intended for commercial sale by Lilly in those
jurisdictions.

Under
the terms of the exenatide once weekly 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, that otherwise would have been included in the cost of product produced at the facility
and charged to Lilly through our arrangements with them. 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 Lilly's share of the interest costs capitalized to the facility or any
future financing cost that may be related to financing the facility. Accordingly we have determined that a portion of the $125 million payment, amounting to $37.7 million at
December 31, 2009, represents a reimbursement to us of Lilly's share of interest costs capitalized to the facility that will be credited to Lilly for its share of the capitalized interest
included in the cost of goods sold for exenatide once weekly as incurred. We have concluded that any excess amount represents deferred collaborative revenue for services to be provided to Lilly under
the supply agreement that will be amortized ratably over the economic useful life of the exenatide once weekly product following its commercial launch. The ultimate allocation of the
$125 million payment, which is classified as a long-term deferred credit in the accompanying Consolidated Balance Sheets at December 31, 2009, will be dependent upon the
total amount of interest costs capitalized to the facility when it is placed in service. Under certain circumstances, including upon an impairment of the exenatide once weekly manufacturing facility,
Lilly may receive a credit for the unearned portion of the $125 million payment which will be applied against Lilly's share of the impairment charge. The $125 million payment is not
refundable to Lilly if exenatide once weekly does not receive regulatory approval unless such non-approval results in an impairment as discussed above.

In
addition to the $125 million cash payment, we will recover Lilly's share of the over $500 million initial capital investment in the facility through an allocation of
depreciation to cost of goods sold in accordance with the collaboration agreement. Subsequent capital investments, including those for the exenatide once weekly 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
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 that we can draw upon from
time to time
beginning on December 1, 2009 and ending on June 30, 2011. Any interest due under the credit facility will bear interest at the five-day average three-month LIBOR rate
immediately prior to the date of the advance plus 5.25% and shall be due and payable quarterly in arrears on the first business day of each quarter. All outstanding principal, together with all
accrued and unpaid interest shall be due and payable the earlier of 36 months following the date on which the loan commitment is fully advanced or June 30, 2014. As of
December 31, 2009 we have not drawn upon this credit facility.

F-24

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Collaborative Agreements (Continued)

In
April 2009, we and Lilly announced the restructuring of the exenatide operations in order to improve alliance effectiveness, increase financial and operational efficiencies and
maximize the value of BYETTA and exenatide once weekly. Additionally, we and Lilly amended our collaboration agreement to require one year's notice should Lilly terminate the agreement without cause.
Previously, the agreement required nine-month's notice. In addition, we and Lilly also agreed that internal marketing costs, which were previously not shared, are now shared within the
alliance.

In
May 2009, we and Lilly entered into a Cost Allocation Agreement (the "cost allocation agreement") which amends the exenatide development and commercialization cost-sharing
provisions contained in the companies' Collaboration Agreement and Exenatide Once Weekly Supply Agreement, or the Agreements.

Under
the terms of the Cost Allocation Agreement, the following changes will be applied with respect to the cost-sharing provisions of the Agreements retroactively as of
January 1, 2009:



The
companies will continue to equally share all exenatide development and commercialization expenses that generate utility predominately in the United States.

In
May 2009, we and Lilly entered into a joint supply agreement for an exenatide once weekly pen device. We and Lilly agreed to cooperate in the development, manufacturing and marketing
of exenatide once weekly in a dual chamber cartridge pen configuration. We and Lilly will share the capital and development costs of the pen, including the estimated total capital investment of
approximately $216 million which is expected to be incurred over the next few years. We and Lilly 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 December 31, 2009, we have incurred $97.7 million in capital expenditures associated
with the exenatide once weekly pen, which amount is included in construction in progress. We have billed Lilly $54.6 million for these expenditures, of which $46.6 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 exenatide once weekly pen device as incurred.

F-25

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Collaborative Agreements (Continued)

The following table summarizes the milestones received during the years ended December 31, 2009, 2008 and 2007 and the manner of recognition in the accompanying consolidated
financial statements:

Amount

Year
Received

Milestone event

Manner of recognition

Type$5 million


2007

Results of clinical study comparing BYETTA to insulin-glargine.

Recognized as revenue under collaborative agreements upon receipt.

Development$10 million


2007

Commercial launch of BYETTA in the EU.

Recognized as revenue under collaborative agreements upon commercial launch of BYETTA in 2007.

Commercial$30 million


2007

Completion of Phase 3 trial for once weekly exenatide.

Deferred upon receipt until stock conversion rights contingency finalized.(1)

Development


(1)In
February 2008, Lilly elected to convert these milestones into shares of our common stock.


We
recorded revenue under this collaborative agreement of $3.1 million, $4.3 million and $19.3 million in the years ended December 31, 2009, 2008 and 2007,
respectively. We recorded $66.6 million, $69.3 million and $60.3 million of cost-sharing payments due from Lilly for the twelve months ended December 31, 2009,
2008 and 2007, respectively, related to the sharing of BYETTA and exenatide once weekly development expenses, which are included as a reduction of research and development expenses in the accompanying
consolidated statements of operations. We recorded expense of $5.3 million, $2.5 million and $22.0 million for the twelve months ended December 31, 2009, 2008 and 2007,
respectively, for amounts due to Lilly for shared sales force expenses, marketing expenses and other commercial support, which are included in selling, general and administrative expenses.

Collaboration with Alkermes, Inc.

In May 2000, we signed an agreement with Alkermes, Inc., a company specializing in the development of products based on
proprietary drug delivery technologies, for the development, manufacture and commercialization of an injectable long-acting formulation of exenatide, or exenatide once weekly.

Under
the terms of the agreement, Alkermes has granted us an exclusive, worldwide license to its Medisorb® technology for the development and commercialization of injectable
sustained release formulations of exendins, such as exenatide, and other related compounds that we may develop. In exchange, Alkermes receives 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
October 2005, we and Alkermes Controlled Therapeutics II, a wholly owned subsidiary of Alkermes, Inc., entered into an Amendment to Development and License Agreement (the

F-26

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AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Collaborative Agreements (Continued)

"Amendment"),
which amends the Development and License Agreement between the parties dated May 15, 2000. Under the terms of the Amendment, we will be responsible for manufacturing for
commercial sale the once weekly dosing formulation of exenatide once weekly, if approved. The royalty to be paid from us to Alkermes for commercial sales of exenatide once weekly was adjusted to
reflect the new manufacturing arrangement.

In
December 2005, our wholly-owned subsidiary, Amylin Ohio LLC, purchased an existing building and land to house our 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 December 31, 2009 we had capitalized $701.9 million associated with the
construction and validation of this facility, including $97.7 million in capital expenditures associated with the exenatide once weekly pen device.

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 development agreement, pursuant to which the companies will co-develop and commercialize pharmaceutical products containing compounds specified in the
development 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 development agreement. We recorded 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 December 31, 2009
deferred revenue associated with the Takeda collaboration equaled $73.8 million, of which $66.3 is classified as long-term.

We
will also receive certain payments upon the achievement of milestone events including: (i) up to $200 million for achieving development milestones with respect to two
specific products and up to $50 million for achieving development milestones with respect to any additional products; (ii) up to $140 million per product for achieving commercial
milestones related to the first sale of a product in various territories; and (iii) up to $800 million per product for the achievement of certain sales based milestones. Takeda will also
pay us double digit tiered royalties based on total annual sales of products.

We
will be responsible for executing all development activities for each product through the completion of all phase 2 clinical trials of such products for the purpose of
obtaining regulatory approval in the United States. We will also be responsible for certain third party royalties. Takeda will be responsible for the execution of all other development activities for
the purpose of obtaining regulatory approval in and outside the United States. Throughout the term of the development agreement, Takeda will generally be responsible for 80% of the development costs
associated with obtaining approval for the products in the United States and we will be responsible for 20% of such costs, except for certain clinical safety trial costs for which we will have
additional cost-sharing responsibility. Takeda will be responsible for 100% of all development costs associated with obtaining approval for the products outside the United States.

Takeda
will be responsible for commercializing the products in and outside the United States and will be responsible for all commercialization costs associated with the products. We will
have the option to co-commercialize the first 2 approved products containing different clinically active ingredients and any follow-on products containing the identical
ingredients. The development agreement will terminate at Takeda's election or upon the expiration of all Takeda payment obligations to Amylin.

F-27

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AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Collaborative Agreements (Continued)

Either
party may terminate the agreement for cause, including the commencement of insolvency, bankruptcy, reorganization or other similar proceeding by a party or if the other party
breaches any material provision of the development agreement including breaches of payment or commercially reasonable efforts obligations. Further, either party may terminate the development agreement
for safety issues or failure to obtain any necessary third party license.

We
recorded revenue under this collaborative agreement of $1.3 million for the amortization of the up-front payment. We recorded $1.5 million of
cost-sharing payments due from Takeda for the twelve months ended December 31, 2009, which are included as a reduction of research and development expenses in the accompanying
consolidated statements of operations.

Other Collaborations

In connection with our strategic equity investments, we have entered into collaborative agreements with certain of our equity method
investees. We received research and development cost-sharing reimbursements under these collaborative agreements of $2.5 million, $1.2 million and $0.7 million in the
years ended December 31, 2009, 2008 and 2007, respectively. The cost sharing reimbursements were recorded as a reduction to research and development costs.

5. Restructuring

On November 10, 2008, we announced a corporate restructuring, or the 2008 Restructuring that reduced our San Diego work force by approximately 25 percent or 330 employees.
In connection with the 2008 Restructuring, we recorded restructuring charges of $54.9 million which are reported as a separate line item in the accompanying Consolidated Statement of Operations
for the year ended December 31, 2008.

In
May 2009, we announced a restructuring of our sales force to merge our existing primary care and specialty sales forces into a single organization or the 2009 Restructuring. The 2009
Restructuring reduced the total number of Amylin sales representatives by approximately 200 employees. We recorded restructuring charges of $17.0 million during the year ended
December 31, 2009 consisting of employee separation costs and facilities related charges.

F-28

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AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Restructuring (Continued)

The
following table summarizes the components of the restructuring charges (in thousands):

Year ended December 31,Accruals

Non-cash items

Total2008 ActivityFacilities related charges

$
38,447

$
(7,156
)
$
31,291Employee separation costs


13,118


786


13,904Asset impairments





8,796


8,796Other restructuring charges


935





935Balance as of December 31, 2008:

$
52,500

$
2,426

$
54,9262009 ActivityFacilities related charges


5,391


213


5,604Employee separation costs


10,629


281


10,910Other restructuring charges


466





466Balance as of December 31, 2009:

$
16,486

$
494

$
16,980


Facility
related charges consist of estimated losses associated with certain facility leases in our San Diego campus which we no longer use in our operations and which we ceased using in
the quarter ended December 31, 2008. These losses represent the remaining lease payments and other costs due under the lease and costs associated with obtaining sub-leases, net of
sub-lease income under executed sub-leases. To the extent sub-leases have not yet been signed, we assumed reasonably expected sub-lease income which we
determined based upon our assessment of market conditions for similar rental properties in our geographic area, both of which are discounted at a credit-adjusted risk-free rate of 10%.
During the year ended December 31, 2009 we revised the estimated losses associated with the facility leases we ceased using in 2008 based upon recently executed sub-lease agreements
and a related reassessment of current market conditions and recorded an additional loss of $5.6 million, bringing the total facilities related charges for the two years ended
December 31, 2009 to $36.9 million. As of the year ended December 31, 2009, the estimated losses associated with the facilities with executed sub-leases accounted for
approximately $19.9 million of the total facility related charges of $36.9 million. We expect to incur approximately $11.4 million of accretion expense over the remaining term of
the leases, which have expiration dates from 2015 to 2018.

Employee
separation costs for the 2008 Restructuring consist primarily of salaries and benefits earned during the minimum notification period prescribed by law and severance costs
associated with the reduction in our workforce. Employee separation costs for the 2009 Restructuring consist primarily of severance costs. Asset impairments primarily relate to impaired leasehold
improvements associated with the facility leases discussed above. Other restructuring charges consist of incremental direct costs associated with the 2008 and 2009 Restructuring.

F-29

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AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Restructuring (Continued)

The
following table sets forth activity in the restructuring liability (in thousands):

Employee
separation costs

Facilities
related charges

Other restructuring
charges

TotalBalance at December 31, 2007

$


$


$


$
Accruals


13,118


38,447


935


52,500Payments


(4,827
)




(935
)

(5,762
)Balance at December 31, 2008

$
8,291

$
38,447

$


$
46,738Accruals


10,629


5,391


466


16,486Payments


(18,920
)

(14,826
)

(466
)

(34,212
)Accretion of sub-lease expense





2,968





2,968Balance at December 31, 2009

$


$
31,980

$


$
31,980


We
have substantially completed all of the activities included in the restructuring plans for both 2008 and 2009. All of the costs associated with the 2008 and 2009 Restructurings were
incurred during the years ended December 31, 2009 and 2008.

6. Commitments and Contingencies

Lease Commitments

We lease our facilities under operating leases, with various terms, the majority of which expire between 2015 and 2019. The minimum
annual rent on our facilities is subject to increases based on stated rental adjustment terms of certain leases, taxes, insurance and operating costs. For financial reporting purposes, rent expense is
recognized on a straight-line basis over the term of the leases. Accordingly, rent expense recognized in excess of rent paid is reflected as deferred rent. Deferred rent totaled
$8.7 million and $8.3 million at December 31, 2009 and 2008, respectively, of which $7.9 million and $7.6 million is included in other long-term
obligations, net of current portion in the accompanying Consolidated Balance Sheets at December 31, 2009 and 2008, respectively. Certain of our facility leases contain incentives in the form of
reimbursement from the landlord for a portion of the costs of leasehold improvements we have incurred. These incentives are recognized as a reduction of rental expense on a straight-line
basis over the term of the respective leases. Unamortized leasehold improvement incentives totaled $9.0 million for both years ended December 31, 2009 and 2008, of which
$7.8 million and $7.9 million is included in other long-term obligations, net of current portion in the accompanying consolidated balance sheets at December 31, 2009
and 2008, respectively.

We
lease vehicles for our field force under operating leases, with lease terms up to four years, of which the first year is non-cancellable. Minimum future payments for the
non-cancellable term of these leases are $0.1 million at December 31, 2009.

F-30

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AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Commitments and Contingencies (Continued)

Minimum
future annual obligations for facility and vehicle operating leases for years ending after December 31, 2009 are as follows (in thousands):

2010

$
23,2342011


23,7902012


24,4302013


25,0552014


25,731Thereafter


65,295Total minimum lease payments

$
187,535


Rent
expense for the years ended December 31, 2009, 2008 and 2007, was $12.5 million, $18.9 million and $16.2 million, respectively.

Other Commitments

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 December 31, 2009, if all such milestones are successfully achieved, the potential future milestone and other contingency payments due under certain contractual agreements
are approximately $260.0 million in aggregate, of which $9.5 million is expected to be paid over the next twelve months.

We
have committed to make future minimum payments to third parties for certain inventories in the normal course of business. The minimum contractual purchase commitments total
$78.1 million as of December 31, 2009, the majority of which relate to exenatide once weekly and BYETTA, including minimum inventory purchases for exenatide once weekly of
$37.6 million that are contingent upon FDA approval of exenatide once weekly.

As
of December 31, 2009, commitments to complete construction of our exenatide once weekly manufacturing facility in Ohio are $2.7 million and commitments associated with
capital investments on the exenatide once weekly pen device are $46.1 million.

7. Convertible Senior Notes

In April 2004, we issued $200 million aggregate principal amount of 2.5% convertible senior notes due April 15, 2011 in a private placement, referred to as the 2004 Notes.
The 2004 Notes have been registered under the Securities Act of 1933, as amended, or the Securities Act, to permit registered resale of the 2004 Notes and of the common stock issuable upon conversion
of the 2004 Notes. The 2004 Notes bear interest at 2.5% per year, payable in cash semi-annually and are convertible into a total of up to 5.8 million shares of common stock at a
conversion price of $34.35 per share, subject to customary adjustments for stock dividends and other dilutive transactions. We incurred debt issuance

F-31

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AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Convertible Senior Notes (Continued)

costs
of $6.4 million in connection with the issuance of the 2004 Notes, which are being amortized to interest expense over the term of the 2004 Notes and had a net book value of
$1.2 million and $2.1 million at December 31, 2009 and 2008, respectively. Amortization expense associated with these debt issuance costs was approximately $0.9 million for
each of the years ended December 31, 2009, 2008 and 2007. The fair value of the 2004 Notes, determined by observed market prices, was $192.1 million and $150.0 million at
December 31, 2009 and 2008, respectively.

Upon
a change in control, the holders of the 2004 Notes may elect to require us to re-purchase the 2004 Notes. We may elect to pay the purchase price in common stock instead
of cash, or a combination thereof. If paid with common stock the number of shares of common stock a holder will receive will be valued at 95% of the average closing prices of our common stock for the
five-day trading period ending on the third trading day before the purchase date.

In
June 2007, we issued the 2007 Notes in a private placement, which have an aggregate principal amount of $575 million, and are due June 15, 2014. 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. 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 our 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
13.2 million shares of common stock if all holders converted at the maximum conversion rate.

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 experience a "designated event" (as defined in the associated indenture agreement) including a "fundamental change," including if a majority of our
Board of Directors ceases to be composed of a majority 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

F-32

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AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Convertible Senior Notes (Continued)

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. We may not redeem the Notes prior to maturity.

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. Subject to certain limitations, we will be required to pay the holders of the 2007 Notes special interest on the 2007 Notes if we fail to keep such registration statement effective during
specified time periods. 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. We
incurred debt issuance costs of $16.3 million in connection with the issuance of the 2007 Notes. As a result of our adoption of the new accounting guidance for convertible debt instruments
(Note 1), we retrospectively allocated a portion of the debt issuance costs to equity which resulted in total revised debt issuance costs of $11.1 million and recorded a debt discount of
$180.3 million. The debt discount and issuance costs are being amortized to interest expense over the term of the 2007 Notes. The effective interest rate on the net carrying value of the 2007
Notes was 9.3% for year ended December 31, 2009.

The
net book value of debt issuance costs as of December 31, 2009 was $7.0 million. After giving effect to the aforementioned retrospective adjustment, the debt issuance
costs had a net book value of $8.6 million and $10.2 million at December 31, 2008 and 2007, respectively. Amortization expense associated with these debt issuance costs was
$1.6 million for both of the years ended December 31, 2009 and 2008 and $0.9 million for the year ended December 31, 2007. The fair value of the 2007 Notes, determined by
observed market prices, was $453.0 and $260.4 million at December 31, 2009 and 2008 respectively.

As
discussed in Note 1, the 2007 Notes are within the scope of the new authoritative guidance for accounting for convertible debt instruments that may be settled in cash upon
conversion because we have the option to elect net-share settlement upon conversion.

The
carrying amount of the equity component of the 2007 Notes was $180.3 million at both December 31, 2009 and 2008. At December 31, 2009, the unamortized balance of
the debt discount will be amortized over the remaining life of the 2007 Notes, approximately five years.

8. Long-Term Note Payable

In December 2007, we entered into a $140 million credit agreement with Bank of America, N.A., as administrative agent, collateral agent and letter of credit issuer, Silicon Valley
Bank and RBS Asset Finance, Inc., as syndication agents, and Comerica Bank and BMO Capital Markets Financing, Inc., as documentation agents. The credit agreement provides for a
$125 million term loan and a $15 million revolving credit facility. The revolving credit facility also provides for the issuance of letters of credit and foreign exchange hedging up to
the $15 million borrowing limit. At December 31, 2009 we had an outstanding balance of $93.8 million under the term loan and had issued $8.9 million of standby letters of
credit under the revolving credit facility, primarily in connection with office leases.

F-33

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AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Long-Term Note Payable (Continued)

Our domestic subsidiaries, Amylin Ohio LLC and Amylin Investments LLC, are co-borrowers under the credit agreement. The loans under the revolving credit
facility are collateralized by substantially all of our (including the two domestic subsidiaries) assets (other than intellectual property and certain other excluded collateral). The term loan is
repayable on a quarterly basis, with no payments due quarters one through four, 6.25% of the outstanding principal due quarters five through eleven, and 56.25% of the outstanding principal due in
quarter 12. Interest on the term loan will be paid quarterly on the unpaid principal balance at 1.75% above the London Interbank Offered Rate, or LIBOR, based on our election of either one, two,
three, or six months LIBOR term, and payable at the end of the selected interest period but no less frequently than quarterly as of the first business day of the quarter prior to the period in which
the quarterly installment is due. We have elected to use the three month LIBOR, which was 0.25% at December 31, 2009. Interest periods on the revolving credit facility may be either one, two,
three, or six months, and payable at the end of the
selected interest period but no less frequently than quarterly, and the interest rate will be either LIBOR plus 1.0% or the Bank of America prime rate, as selected by us. Both loans have a final
maturity date of December 21, 2010.

The
credit agreement contains certain covenants, including a requirement to maintain minimum unrestricted cash and cash equivalents balances, as defined in the agreement, in excess of
$400 million, below which certain limitations provided for in the agreement become effective. The credit agreement also contains certain events of default including unrestricted cash and cash
equivalents balances, as defined in the agreement, falling below $280 million, nonpayment of principal, interest, fees or other amounts, violation of covenants, inaccuracy of representations
and warranties and default under other indebtedness that would permit the administrative agent to accelerate our outstanding obligations if not cured within applicable grace periods. In addition, the
credit agreement provides for automatic acceleration upon the occurrence of bankruptcy, other insolvency events and a change in control as defined in the credit agreement, including 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. There is an annual commitment fee associated with the
revolving credit facility of 0.25%.

Maturities
of long-term debt for years ending after December 31, 2009 are as follows (in thousands):

2010

$
93,750Thereafter


Total minimum long-term debt payments

$
93,750


We
incurred debt issuance costs of $1.7 million in connection with the credit agreement, which are being amortized to interest expense on a straight-line basis over
the term of the credit agreement and had a net book value of $0.5 million and $1.1 million at December 31, 2009 and 2008, respectively. Amortization expense associated with these
debt issuance costs was $0.6 million for both of the years ended December 31, 2009 and 2008 and $15.3 thousand for the year ended December 31, 2007.

In
connection with the execution of the Term Loan, we entered into an interest rate swap with an initial notional amount of $125 million on December 21, 2007 that has
resulted in a fixed rate of 5.717% and matures on December 21, 2010. We determined that the interest rate swap agreement is defined as Level 2 in the fair value hierarchy. As of, and for
the year ended, December 31 2009 the

F-34

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AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Long-Term Note Payable (Continued)

fair
value of the interest rate swap agreement was a liability of $2.8 million and the recognized gain on the interest rate swap was $2.2 million. As of, and for the year ended,
December 31, 2008 the fair value of the interest rate swap was a liability of $5.0 million and the recognized loss on the interest rate swap was $4.6 million. Recognized gains and
losses on the interest rate swap are included in interest and other expense.

9. Stockholders' Equity

Stock-based Compensation Plans



We have two stock option plans under which we currently grant stock options: the 2009 Equity Incentive Plan, or the 2009 Plan, and the
2003 Non-Employee Directors' Stock Option Plan, or the 2003 Directors' Plan. The 2009 Plan replaced the 2001 Stock Option Plan, or the 2001 Plan. Options granted under the 2001 Plan remain
outstanding until exercised or cancelled. Under the 2003 Directors' Plan, non-qualified stock options and restricted stock may be granted to our non-employee directors. The
2003 Directors' Plan provides for automatic stock option grants to non-employee directors upon their initial appointment or election to our Board of Directors which are issued from shares
authorized under the 2009 Plan.

To
date, stock-based compensation awards under the 2001 Plan, the 2003 Directors' Plan and the 2009 Plan consist primarily of incentive and non-qualified stock options. Stock
options granted under the each of the plans must have an exercise price equal to at least 100% of the fair market value of our common stock on the date of grant and generally vest over four years.
Stock options granted prior to October 10, 2007 have a maximum contractual term of ten years and stock options granted after October 10, 2007 have a maximum contractual term of seven
years. At December 31, 2009, an aggregate of 28.5 million shares were reserved for future issuance under our stock option plans, of which 11.3 million shares were available for
future grants.

A
summary of stock option transactions for all stock option plans is presented below:

Shares
(thousands)

Weighted-Average
Exercise Price

Weighted-
Average
Remaining
Contractual
Term (years)

Aggregate Intrinsic
Value (thousands)Options outstanding at December 31, 2008


18,605

$
27.39Granted


3,687

$
9.39Exercised


(626
)
$
7.83Cancelled/Forfeited


(4,433
)
$
26.60Options outstanding at December 31, 2009


17,233

$
24.45


5.29

$
18,918Options exercisable at December 31, 2009


11,582

$
27.34


4.90

$
2,683Options vested and expected to vest


16,872

$
24.68


5.27

$
17,562


The
total intrinsic value of stock options exercised was $2.8 million, $8.4 million and $72.9 million during the years ended December 31, 2009, 2008 and 2007,
respectively. We received cash from the exercise of stock options of $4.6 million, $7.3 million and $37.4 million during the years ended

F-35

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AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Stockholders' Equity (Continued)

December 31,
2009, 2008 and 2007, respectively. We did not record any tax benefits related to the exercise of employee stock options due to our net loss position. Upon option exercise, we issue
new shares of our common stock.

At
December 31, 2009, total unrecognized estimated non-cash, stock-based compensation expense related to nonvested stock options granted prior to that date was
$49.4 million, with a weighted-average amortization period of 2.1 years. We record non-cash, stock-based compensation expense for options with pro-rata vesting on
a straight-line basis over the awards' vesting period.



Our 2001 Employee Stock Purchase Plan, or the 2001 Purchase Plan, enables participants to contribute up to 15% of their eligible
compensation for the purchase of our common stock at the lower of 85% of the fair market value of our common stock (i) on the employee's enrollment date or (ii) the purchase date. The
terms of any offerings under the 2001 Purchase Plan are established by the Compensation and Human Resources Committee of the Board of Directors. In May
2008, the Compensation and Human Resources Committee approved a series of four consecutive six-month offerings commencing on September 1, 2008. As of December 31, 2009,
1.6 million shares were reserved for future issuance under the 2001 Purchase Plan.

The
total intrinsic value of purchase rights exercised was $1.1 million, $1.7 million and $1.5 million during the years ended December 31, 2009, 2008 and
2007, respectively. At December 31, 2009, total unrecognized non-cash, compensation expense for nonvested purchase rights granted prior to that date was $0.4 million, with a
weighted-average amortization period of 0.2 years.

Shares Reserved for Future Issuance

The following shares of common stock are reserved for future issuance at December 31, 2009 (in thousands):

Stock Option Plans


28,543Employee Stock Purchase Plan


1,605Convertible Senior Notes


15,23845,386


Shareholder Rights Plan

In June 2002, we adopted a Preferred Share Purchase Rights Plan (the "Rights Plan"). The Rights Plan provides for a dividend
distribution of one preferred stock purchase right (a "Right") for each outstanding share of our common stock, par value $0.001 per share, held of record at the close of business on June 28,
2002. The Rights are not currently exercisable. Under certain conditions involving an acquisition or proposed acquisition by any person or group of 15% or more of our common stock, the Rights permit
the holders (other than the 15% holder) to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $0.001 per share (the "Preferred
Shares") at a price of $100 per one one-hundredth of a Preferred Share, subject to adjustment. Each one one-hundredth of a share of Preferred Shares has designations and
powers, preferences and rights and the qualifications, limitations and restrictions which make our value approximately equal to the value of

F-36

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AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Stockholders' Equity (Continued)

one
share of our common stock. Under certain conditions, the Rights are redeemable by our Board of Directors in whole, but not in part, at a price of $0.001 per Right.

10. Benefit Plans

Defined Contribution 401(k) Plan

We have a defined contribution 401(k) plan for the benefit of all eligible employees. Discretionary matching contributions are based on
a percentage of employee contributions and are funded by newly issued shares of our common stock. We recorded expense of $3.9 million, $4.9 million and $4.4 million for matching
contributions in the years ended December 31, 2009, 2008 and 2007, respectively.

Deferred Compensation Plans

In August 1997, we adopted a Non-Employee Directors' Deferred Compensation Plan (the "Directors' Deferral Plan") that
permits participating non-employee directors to elect, on an annual basis, to defer all or a portion of their cash compensation in a deferred stock account, pursuant to which the deferred
fees are credited in the form of phantom shares of our common stock, based on the market price of the stock at the time the fees are earned. Deferred amounts are valued at the fair market value of our
common stock at each reporting date and are included in accrued compensation in the accompanying consolidated balance sheets. Upon termination of service the director's account is settled in either
cash or stock, at our discretion. In connection with this plan we recorded an expense of $0.9 million for the year ended December 31, 2009, a credit of $0.6 million for the year
ended December 31, 2008 and an expense of $0.8 million for the year ended December 31, 2007.

We
adopted a Deferred Compensation Plan in April 2001 which allows officers to defer up to 80% and directors to defer up to 100% of their eligible annual compensation. The trust assets,
consisting of primarily cash, mutual funds and equity securities are recorded at current market prices. The company-owned assets are placed in a "rabbi trust" and are included in other current assets
in the accompanying consolidated balance sheets. The trust assets had a fair value of $6.7 million and $6.5 million at December 31, 2009 and 2008, respectively, including
unrealized losses of approximately $1.6 million and $3.3 million at December 31, 2009 and 2008, respectively. Unrealized gains and losses on the trust assets are included in
accumulated other comprehensive loss in the accompanying consolidated balance sheets. The corresponding liability was $6.7 million and $6.5 million at December 31, 2009 and 2008,
respectively, of which $6.7 million and $6.3 million are included in other long-term liabilities, net of current portion in the accompanying consolidated balance sheets at
December 31, 2009 and 2008, respectively. The current portion of the corresponding liability is included in accrued compensation in the accompanying consolidated balance sheets at
December 31, 2009 and 2008. Total contributions to this plan, consisting solely of compensation deferred by participants, were $1.7 million, $1.7 million and $3.0 million
for the years ended December 31, 2009, 2008 and 2007, respectively.

Employee Stock Ownership Plan

In December 2007, we adopted the Employee Stock Ownership Plan, or ESOP. Active employees who are at least 18 years old and have
met minimum service requirements and are not otherwise disqualified under the terms of the ESOP are eligible to participate. Each participant has an ESOP account into which we make mandatory annual
contributions in the form of shares of our common stock equal to 10% of a participant's plan year eligible compensation. We may make additional

F-37

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AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Benefit Plans (Continued)

discretionary
contributions for any plan year, and total contributions are limited to the lesser of 100% of a participant's plan year eligible compensation and limitations established by the Internal
Revenue Service Code (IRS Code). A participant's eligible compensation primarily includes wages and bonus.

Participants
vest in their accounts over four years of service, at 25% for more than one year of service but less than two years, at 50% for more than two years of service but less than
three years, at 75% for more than three years of service but less than four years, and 100% for more than four years of service. Any forfeitures of non-vested amounts shall be used to
restore any rehired employees who previously forfeited their nonvested balance under certain circumstances, or shall be used to reduce future employer contributions and shall be allocated to the
participant accounts. Distributions generally are made only upon termination of employment and as necessary by regulatory requirements.

Shares
committed to be released or that have been allocated to participant accounts are treated as outstanding shares for calculating earnings per share. The ESOP held 2.7 million
shares at December 31, 2009, of which 0.8 million were unvested and had a fair value of $11.8 million. We recorded ESOP expense of $16.3 million, $19.8 million and
$17.3 million for the years ended December 31, 2009, 2008 and 2007, respectively, for our contribution.

11. 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. Since August 2008, we and Lilly have been named as defendants in 55 separate product liability cases involving approximately 340
plaintiffs in various courts in the United States. These cases have been brought by individuals who allege they have used BYETTA. They generally seek compensatory and punitive damages for alleged
injuries, consisting primarily of pancreatitis, and in some cases, wrongful death. Most of the cases are pending in California state court, where the Judicial Council has granted our petition for a
"coordinated proceeding" for all California state court cases alleging harm allegedly as a result of BYETTA use. We also have received notice from plaintiff's counsel of additional claims by
individuals who have not filed suit. 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 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.

12. Income Taxes

We have net deferred tax assets relating primarily to net operating loss carryforwards and research and development tax credit carryforwards. Subject to certain limitations, these
deferred tax assets may be used to offset taxable income in future periods. Since we have been unprofitable since inception and the likelihood of future profitability is not assured, we have provided
a valuation allowance for most of these deferred tax assets in our consolidated balance sheets at December 31, 2009 and 2008, respectively. If we determine that we are able to realize a portion
or all of these deferred tax assets in the future, we will record an adjustment to increase their recorded value and a corresponding adjustment to increase income or additional paid in capital, as
appropriate, in that same period.

We
recognize the impact of a tax position in our financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on
the technical merits

F-38

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AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Income Taxes (Continued)

of
the position. We provide estimates for unrecognized tax benefits which relate primarily to issues common among corporations in our industry. We apply a variety of methodologies in making these
estimates which include advice from industry and subject experts, evaluation of public actions taken by the Internal Revenue Service and other taxing authorities, as well as our own industry
experience. If our estimates are not representative of actual outcomes, our results could be materially impacted.

The
provision (benefit) for income taxes includes the following (in thousands):

Years ended December 31,2009

2008

2007Current (benefit) provision:Federal

$
(2,027
)
$
(657
)
$
State


34


38


38Foreign





18


30Total current (benefit) provision


(1,993
)

(601
)

68Deferred (benefit) provision:Federal








State


26


26


(1,117
)Foreign








Total deferred (benefit) provision


26


26


(1,117
)Total (benefit) provision

$
(1,967
)
$
(575
)
$
(1,049
)


These
amounts are included in interest and other expense in the accompanying consolidated statements of operations.

The
current Federal income tax benefit reflects refundable research credits and the refund of 2008 alternative minimum taxes from the carryback of the current year loss. The Housing and
Economic Recovery Act of 2008 (P.L. 110-289), enacted on July 30, 2008, and extended through 2009 by the American Recovery and Reinvestment Act of 2009, provides for the
acceleration of a portion of unused pre-2006 research credits and alternative minimum tax credits in lieu of claiming the 50% bonus depreciation allowance enacted in the Economic Stimulus
Act of 2008. Amylin is electing to refund approximately $1.4 million of research credit carryovers in 2009. $1.6 million of accelerated research credits have been reflected in the
current income tax benefit including an additional benefit related to last year's actual refundable credits. A refund of $0.4 million from the carryback of 2009 net operating losses to 2008 has
also been reflected in the current income tax benefit.

The
deferred state income tax benefit in 2007 reflects the Texas margin tax (TMT) credit available to offset future margin taxes over the next 18 years. We estimate that our
future TMT liability will be based on our gross revenues in Texas, rather than our apportioned taxable income. Therefore, it is more likely than not that our TMT credit will be recovered and,
accordingly, we have not established a valuation allowance against this asset.

Deferred
income taxes reflect the temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax
purposes and the net tax effects of net operating loss and credit carryforwards. Significant components of our deferred tax assets as of December 31, 2009 and 2008 are shown below (in
thousands). The components of our deferred tax assets as of December 31, 2008 have been adjusted for the required retroactive adoption

F-39

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AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Income Taxes (Continued)

of
authoritative guidance related to convertible debt instruments that may be settled in cash upon conversion (Note 1). A valuation allowance of $661.7 million was recognized at
December 31, 2009 to offset the deferred tax assets, as realization of such assets has not met the more likely than not threshold required under current accounting guidance. Included in the
gross deferred tax assets below are pre-January 1, 2006 stock option deductions that, when recognized, are estimated to increase additional paid in capital by $21.5 million
(in thousands).

2009

2008Deferred tax assets:Net operating loss carryforwards

$
418,807

$
409,376Research tax credits


59,531


61,839Capitalized research and development expenses


64,650


83,564Accrued expenses


68,164


58,242Deferred revenue


73,417


49,192Stock-based compensation expense


29,667


27,440Other, net





166Total deferred tax assets


714,236


689,819Valuation allowance for deferred tax assets


(661,698
)

(629,600
)Total deferred tax assets after valuation allowance


52,538


60,219Deferred tax liabilities:Convertible debt discount


(48,479
)

(59,128
)Other, net


(2,993
)

Total deferred tax liabilities


(51,472
)

(59,128
)Net deferred tax asset after valuation allowance

$
1,066

$
1,091


The
net deferred tax assets are included in other long-term assets in the accompanying consolidated balance sheets.

Following
is a summary of our Federal net operating loss carryforwards, Federal research tax credit carryforwards and California net operating loss carryforwards at December 31,
2009 (in thousands):

Federal net operating
loss carryforwards

California net
operating loss
carryforwards

Federal research
and development
tax credit
carryforwardsExpiring within one year

$


$


$
636After 1 but within 5 years


717


151,172


2,670After 5 but within 10 years


72,038


395,732


3,405After 10 years


1,147,481


66,131


53,647$
1,220,236

$
613,035

$
60,358


We
experienced changes in control that triggered the limitations of Section 382 of the Internal Revenue Code on our net operating loss carryforwards. The Section 382
limitations were immaterial to our total net operating losses and are reflected in the net operating loss of $1.2 billion presented above.

F-40

---



AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Income Taxes (Continued)

At December 31, 2009, we had Federal net operating loss carryforwards of approximately $1.2 billion, which begin to expire at the end of 2011. We also have California net
operating loss carryforwards of $613.0 million, which begin to expire at the end of 2011, and other state net operating loss carryforwards of approximately $225.0 million, which begin to
expire at the end of 2010. The difference between the Federal and California tax loss carryforwards is attributable to the capitalization of research and development expenses for California tax
purposes, the prior years' limitation on California loss carryforwards and apportionment of losses to other states. We have Federal research tax credit carryforwards of $60.4 million, which
began to expire at the end of 2009, and California research tax credit carryforwards of $29.2 million, which carry forward indefinitely.

The
reconciliation between our effective tax rate and the federal statutory rate is as follows:

Tax rate for the years ended
December 31,2009

2008

2007Federal statutory rate applied to net loss before income tax (benefit) provision


(35.0
)%

(35.0
)%

(35.0
)%State taxes


2.4
%

(1.6
)%

Research and development tax credits


0.1
%

(0.8
)%

(3.0
)%Stock-based compensation


6.4
%

3.1
%

4.2
%Expiring federal net operating losses


5.4
%




Increase in valuation allowance


17.1
%

34.5
%

30.9
%Other


2.6
%

(0.4
)%

2.4
%Effective tax rate


(1.0
)%

(0.2
)%

(0.5
)%


The
state tax effects during 2009 include a 5.4% increase in the effective state tax rate (fully offset by a decrease in valuation allowance) relating to a decrease to certain deferred
tax assets as a result of a California tax law change that was enacted in February 2009. This change allows an elective single sales factor for state apportionment for taxable years beginning on or
after January 1, 2011. We expect to benefit from the California single sales factor election for apportioning income for years 2011 and beyond. As a result of our anticipated election of the
single sales factor, we have re-measured our deferred tax assets taking into account the expected reduced California apportionment factor under the elective single sales factor. The state
tax effects during 2007 include the expiration of state net operating loss carryforwards.

Because
we adopted the provisions of fair value method of accounting for stock-based compensation arrangements effective January 1, 2006, we recognize windfall tax benefits
associated with stock-based compensation directly to stockholders' equity only when realized. Accordingly, deferred tax assets are not recognized for net operating loss carryforwards resulting from
windfall tax benefits occurring from January 1, 2006 onward. A windfall tax benefit occurs when the actual tax benefit realized upon an employee's disposition of a stock-based award exceeds any
existing deferred tax asset associated with the award. At December 31, 2009, deferred tax assets do not include $45 million of excess tax benefits from stock-based compensation.

Income
taxes paid during the years ended December 31, 2009, 2008 and 2007 totaled $43 thousand, $63 thousand and $30 thousand, respectively.

F-41

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AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Income Taxes (Continued)

The
reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the years ended December 31, 2009, 2008 and 2007 is as follows (in thousands):

December 31,2009

2008

2007Reconciliation of unrecognized tax benefits:Unrecognized tax benefits related to reductions in tax losses and credits as of the beginning of the year

$
22,441

$
29,913

$
23,645Increase (decrease) in unrecognized tax benefits related to reductions in tax losses and credits as a result of tax positions taken during a prior
period


2,752


(11,711
)

339Increase in unrecognized tax benefits related to reductions in tax losses and credits as a result of tax positions taken during the current
period


11,112


4,239


5,929Unrecognized tax benefits related to reductions in tax losses and credits as of the end of the year

$
36,305

$
22,441

$
29,913


The
balance of unrecognized tax benefits at December 31, 2009 of $36.3 million are tax benefits that, if recognized, would not affect our effective tax rate as long as they
remain subject to a full valuation allowance. The net effect on the deferred tax assets and corresponding decrease in the valuation allowance at December 31, 2009, 2008 and 2007 resulting from
unrecognized tax benefits is $28.3 million, $15.1 million and $19.4 million, respectively. We have not recognized any accrued interest and penalties related to unrecognized tax
benefits during the years ended December 31, 2009, 2008 and 2007. We are subject to taxation in the United States and various states and foreign jurisdictions. Effectively all of our historical
tax years are subject to examination by the Internal Revenue Service and various state and foreign jurisdictions due to the generation of net operating loss and credit carryforwards. We do not foresee
any material changes to unrecognized tax benefits within the next twelve months. We will elect a treatment for interest and penalties when they occur.

13. Quarterly Financial Data (Unaudited)

The following financial information reflects all normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results of the interim
periods.

F-42

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AMYLIN PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Quarterly Financial Data (Unaudited) (Continued)

Summarized
quarterly data for fiscal 2009 and 2008 are as follows (in thousands, except per share data):

For the quarters endingMarch 31(2)

June 30(2)

September 30(2)

December 31(2)2009:Net product sales

$
179,332

$
197,497

$
192,887

$
184,277Revenues under collaborative agreements


1,070


1,072


1,034


1,250Gross profit from product sales


160,700


173,204


170,263


166,827Restructuring





11,376





5,604Net loss


(46,954
)

(62,372
)

(26,659
)

(50,271
)Basic and diluted net loss per share(1)

$
(0.34
)
$
(0.44
)
$
(0.19
)

(0.35
)2008:Net product sales

$
178,721

$
200,335

$
201,364

$
184,922Revenues under collaborative agreements


1,071


1,072


1,071


1,072Gross profit from product sales


156,697


175,653


177,969


163,427Restructuring











54,926Net loss


(71,099
)

(66,591
)

(79,023
)

(105,228
)Basic and diluted net loss per share(1)


(0.52
)

(0.49
)

(0.58
)

(0.76
)


(1)Net
loss per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly per-share calculations will
not necessarily equal the annual per share calculation.(2)Operating
results have been revised to conform to the current presentation with regard to the Company's change in method of accounting for reimbursed
research and development costs under collaborative arrangements , see Note 1, "Summary of Significant Accounting Policies". Revenues under collaborative arrangements (in thousands) have been
reduced by $17,445, $20,612, $15,927, $16,497, $13,272, $10,803, $17,314, for each of the quarterly periods presented above from the quarter ended March 31, 2008 through the quarter ended
September 30, 2009. There was no change to net loss as a result of this revision.(3)Net
loss and basic and diluted net loss per share for each of the quarterly periods in 2008 have been adjusted for the retroactive adoption of authoritative
guidance related to convertible debt instruments that may be settled in cash upon conversion (Note 1).


F-43

---





Schedule II

AMYLIN PHARMACEUTICALS, INC        Schedule II: Valuation Accounts        (in thousands)

Balance at
beginning
of period

Additions

Deductions

Balance at
end of
periodYear ended December 31, 2009Inventory reserve

$
5,101


1,007


5,811

$
297Accounts receivable allowances(1)

$
15,041


44,783


39,529

$
20,295Year ended December 31, 2008Inventory reserve

$
5,327


7,196


7,422

$
5,101Accounts receivable allowances(1)

$
12,769


34,996


32,724

$
15,041Year ended December 31, 2007Inventory reserve

$
385


7,637


2,695

$
5,327Accounts receivable allowances(1)

$
6,558


27,787


21,576

$
12,769


(1)Allowances
for prompt payment, product returns, doubtful accounts and wholesaler chargebacks.


F-44

---