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Lilly (Eli) & Co (LEL)

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Thursday 21 October, 2004

Lilly (Eli) & Co

LLY - Announces 3rd Qtr Earnings and More


Date: October 21, 2004
                      

For Release: Immediately

Refer to: (317) 276-2506 - Phil Belt

(317) 276-5795 - Terra Fox


Lilly Announces Third-Quarter Earnings Per Share of $.69; Company Also Details 
                           Restructuring Activities                            

   Changes in Various Functional Areas Designed to Increase Productivity of    
                                 Organization                                  

Eli Lilly and Company (NYSE: LLY) today announced financial results for the
third quarter of 2004.  The company also announced several actions designed to
increase the productivity of the company, to address current challenges in the
marketplace, and to leverage prior investments in the company's product
portfolio.  The actions affect primarily operations in research and
development, manufacturing, and sales and marketing components, and will have
an impact on both infrastructure and personnel.   These decisions are integral
parts of the company's ongoing efforts to implement a highly productive
innovation-based strategy that will address challenges in the current business
environment as well as provide sustainable earnings growth.

Restructuring

The restructuring activities described below will result in the elimination of
approximately 1,000 positions, of which 575 relate to changes in the sales and
marketing component that were announced last week.  The individuals affected by
the eliminated positions will be given the opportunity to fill other open
positions in the company.  Each affected employee will also have the option to
elect a voluntary severance package. 

Said Sidney Taurel, chairman, president and chief executive officer for Lilly,
'We have taken these actions at this time for two reasons.  First, they will
help us offset the short-term challenges created by the performance of Zyprexa®
in the U.S. without compromising future growth prospects.  Second, and much
more important, these actions are part of a strategic mindset that will allow
us to successfully compete in the long-term.  Specifically, we are now in an
environment in which the increasing dissatisfaction with pharmaceutical prices
compels us to relentlessly identify and eliminate any inefficiency in our
business.  Therefore, as we move forward, we will be committed to increasing
productivity and wisely reducing our cost structure.  Today's announcements
represent an example of this ongoing commitment.  These activities will
generate an estimated net savings in the range of $150 million in 2005, with
annual savings thereafter expected to be even larger.  These cost savings will
be accomplished by natural attrition, the results of a previously announced
hiring freeze, employees who accept voluntary severance packages, and modest
savings from asset impairments.'

Research and Development

Lilly will focus its research efforts on the therapeutic areas of neuroscience,
endocrine, oncology and cardiovascular and will discontinue its efforts in
inflammation.  This will allow Lilly to become increasingly focused in its
research and will allow for the positioning of a critical mass of scientific
talent and investment in therapeutic areas where the company has the greatest
likelihood of continuing its strong record of innovation. 

In addition to the narrowing of therapeutic focus, Lilly will close its RTP
Laboratory site in Research Triangle Park, North Carolina.  This site has
historically been the company's center of excellence for high-throughput
screening and combinatorial chemistry, but much of that technology has evolved
such that these operations can be more efficiently performed in existing
facilities in Indianapolis.

Manufacturing

The company will also streamline some of its manufacturing operations. 
Specifically, the mission of the company's Clinton, Indiana, manufacturing site
will be narrowed to make products solely for the Elanco Animal Health
business.  The portion of that site that currently produces human
pharmaceutical products will stop operation.

The company will discontinue its plans to produce the bulk active ingredient
for Xigris® at the company's Indianapolis operations.  Although the company
remains committed to this important life-saving product, it has determined that
its manufacturing partner, Lonza Biologics plc, has enough capacity to supply
anticipated Xigris demand for the foreseeable future.

Sales and Marketing

As announced last week, the company is making some changes to the sales and
marketing component.  The company will close all its district and regional
sales offices throughout the United States, and these operations will now be
managed from home-based offices.  This change, which is consistent with
standard industry practice, will provide cost savings.  In addition, the
company will reorganize its U.S. sales force to create an organization that
better meets customer needs as well as maximizes sales potential.  This
rebalancing of sales territories will allow the company to make better use of
existing resources. The company will also streamline some of its sales and
marketing support activities as well as its field-based operations that support
the company's medical function.

Restructuring and Asset Impairments Charge

The restructuring activities will be substantially completed by March 31,
2005.  However, certain activities may require additional time for completion
throughout 2005.  The estimated costs associated with the various activities
will consist of voluntary severance expenses, asset impairment and other
charges aggregating $320 million to $420 million (pretax), substantially all of
which is expected to be reported in the fourth quarter of 2004.   The estimated
non-cash charges total approximately $250 million to $320 million and consist
of asset impairments, which primarily relate to Xigris manufacturing equipment
in Indianapolis, human pharmaceutical manufacturing buildings and equipment at
Clinton, and RTP Laboratory building and equipment.  The estimated cash
expenditures total approximately $70 million to $100 million and consist
primarily of voluntary severance payments as well as lease termination
payments. 

Financial Results

Third-Quarter Highlights

Sales increased 4 percent, to $3.280 billion. 

Newer products ­­- Alimta®, Cialis®, Cymbalta®, Forteo®, Strattera®, Symbyaxä,
Xigris and Yentreve® - contributed $390.1 million to third-quarter sales and
accounted for 12 percent of total sales, compared with 6 percent of total sales
in the third quarter of last year. 

Net income increased 6 percent, to $755.2 million, and diluted earnings per
share increased 5 percent, to $.69.

Pharmaceutical Product Sales Highlights                                              
                                                                                     
(Dollars in    Third Quarter     % Change Over/      Year-to-Date     % Change Over/ 
millions)                            (Under)                             (Under)     
                                                                                     
               2004      2003         2003          2004      2003         2003      
                                                                                     
Zyprexa      $1,023.7  $1,127.6             (9)%  $3,334.3  $3,131.4               6%
                                                                                     
Diabetes     580.2     588.7                (1)%  1,936.2   1,862.4                4%
Care                                                                                 
Products                                                                             
                                                                                     
Gemzar®      312.7     250.6                 25%  885.0     739.1                 20%
                                                                                     
Evista®      246.1     240.0                  3%  755.4     677.4                 12%
                                                                                     

Significant Events Over the Last Three Months

The U.S. Food and Drug Administration (FDA) approved Cymbalta, a balanced and
potent selective serotonin and norepinephrine reuptake inhibitor (SSNRI), for
the treatment of major depression.  This breakthrough antidepressant, which
treats both the emotional and painful physical symptoms of depression, was
launched in the U.S. in late August. 

In September, Cymbalta received its second U.S. approval and became the first 
FDA-approved treatment for pain caused by diabetic peripheral neuropathy. This
approval came after a six-month priority review. 

The Committee for Medicinal Products in Human Use (CHMP) of the European
Medicines Agency (EMEA) issued a positive opinion recommending approval of
Cymbalta for the treatment of major depressive episodes. The European
Commission is expected to grant marketing authorization by early 2005.

The European Commission granted marketing authorization throughout the European
Union for Yentreve, the first pharmaceutical widely approved for the treatment
of moderate to severe stress urinary incontinence (SUI) in women. Yentreve was
launched in Germany, Denmark, Finland, Sweden and the United Kingdom in
mid-September and is anticipated to launch in additional European countries in
the near future.

Lilly and Boehringer Ingelheim submitted a complete response to the FDA and
anticipate U.S. approval for duloxetine for stress urinary incontinence in the
first half of 2005.

In August, the FDA granted accelerated approval for Alimta for the second-line
treatment of non-small cell lung cancer.  This represents Alimta's second U.S.
approval, following its February approval for the treatment of malignant
pleural mesothelioma.

In September, Alimta was granted marketing authorization by the European
Commission for both the treatment of malignant pleural mesothelioma and as a
second-line treatment for non-small cell lung cancer.  Alimta will be launched
in several European countries later this year, with additional European markets
launching in 2005. 

In August, Lilly announced that upon product approval it would disclose the
results of all clinical trials for which Lilly is a sponsor via a publicly
available registry, by the end of the fourth quarter of this year.  The
registry will include results of all Phase I through Phase IV clinical trials
of Lilly's marketed products conducted anywhere in the world.  Additionally,
the company will begin posting the initiation of all Phase III and Phase IV
clinical trials via the registry. 

'Our third-quarter financial results were negatively affected by Zyprexa's
performance in the U.S.,' said Taurel. 'However, increased productivity
combined with the industry's best new product flow positions Lilly well to
deliver sustainable sales and earnings growth.  During this quarter alone,
Lilly received six approvals in the U.S. and Europe related to Cymbalta,
Yentreve and Alimta, and we are very pleased with the initial performance of
these products.  We expect to continue to build our newer product sales base
with the addition next year of duloxetine for stress urinary incontinence and
exenatide for type 2 diabetes in the U.S.' 

Third-Quarter Results

Worldwide sales for the quarter were $3.280 billion, an increase of 4 percent
compared with the third quarter of 2003. Worldwide sales volume increased 1
percent, while selling prices and exchange rates increased sales by 1 percent
and 2 percent, respectively.  

Gross margins as a percent of sales decreased by 3.1 percentage points, to 75.3
percent.  This decrease was due to investment in the company's manufacturing
technical capabilities and capacity and the impact of foreign exchange rates.

Overall, marketing and administrative expenses decreased 1 percent, to $951.9
million.  This decrease was primarily attributable to ongoing marketing
cost-containment measures, offset partially by increased selling expenses in
support of the new and anticipated product launches, the impact of foreign
exchange rates, and increased incentive compensation and benefits expense.  In
addition, marketing and administrative expenses would have increased 6 percent
if not for reimbursement from collaboration partners for marketing and selling
expenses incurred related to new product launches.  A majority of the
reimbursements are ongoing. Research and development expenses were $654.8
million, or 20 percent of sales.  Compared with the third quarter of 2003,
research and development expenses increased 15 percent, primarily due to
increased clinical trial and development expenses, increased incentive
compensation and benefits expense, and reduced third-party reimbursements for
research activities. 

Operating income decreased 7 percent, to $863.6 million, due primarily to the
impact of cost of goods sold and research and development expenses increasing
at a rate greater than sales.  Net other income increased $120 million
primarily due to income related to the outlicense of legacy products outside
the U.S., milestones from collaborations on the duloxetine molecule, and other
miscellaneous income.

Net income and diluted earnings per share for the third quarter increased 6
percent and 5 percent, to $755.2 million and $.69, respectively.  The decrease
in operating income was offset by higher net other income.

Zyprexa

In the third quarter of 2004, Zyprexa sales totaled $1.024 billion, a 9 percent
decrease over the third quarter of 2003.

U.S. sales of Zyprexa decreased 22 percent, to $557.3 million, driven by a
decline in underlying demand due to continued competitive pressures and by
wholesaler destocking in the third quarter of 2004 and wholesaler stocking
during the third quarter of last year.   The company expects Zyprexa sales in
the U.S. to decline in the fourth quarter of 2004, compared with the fourth
quarter of 2003.

Zyprexa sales in international markets increased 12 percent, to $466.4 million,
driven by volume growth in a number of major markets outside the U.S.  Zyprexa
international sales growth also benefited from the impact of foreign exchange
rates. Excluding the impact of exchange rates, sales of Zyprexa outside the
U.S. increased by 6 percent in the third quarter.  The company expects a
stronger international growth rate for Zyprexa in the fourth quarter of 2004. 

For the full year 2004, the company expects some growth in worldwide Zyprexa
sales.

Diabetes Care Products

Diabetes care revenue, composed primarily of Humalog®, Humulin® and Actos®,
decreased 1 percent, to $580.2 million, compared with the third quarter of
2003.  Diabetes care revenue decreased 8 percent in the U.S., to $314.9
million, due primarily to continued competitive pressures in the insulins
market.  Diabetes care revenue outside the U.S. increased 7 percent, to $265.3
million. 

Worldwide Humalog sales were $264.6 million, an increase of 10 percent compared
with the third quarter of 2003.  Worldwide Humulin sales decreased 8 percent,
to $243.7 million.  Actos generated $58.3 million of revenue for Lilly in the
third quarter, a decrease of 13 percent.  As previously disclosed, since
Lilly's share of revenue from the agreement with Takeda will vary
quarter-to-quarter based on contract terms, Actos revenue will not necessarily
track with product sales.  As a result, it is difficult to make quarterly
comparisons for Actos revenue. 

Gemzar

Gemzar had sales totaling $312.7 million for the quarter, an increase of 25
percent from the third quarter of 2003.  Gemzar sales in the U.S. increased 25
percent, to $152.3 million, due primarily to wholesaler destocking in the third
quarter of last year as well as the approval of the metastatic breast cancer
indication in the second quarter of 2004.  Sales outside the U.S. increased 25
percent, to $160.4 million. 

Evista

Evista sales were $246.1 million, a 3 percent increase compared with the third
quarter of 2003.  U.S. sales of Evista decreased 3 percent, to $169.2 million,
driven by a decline in underlying demand due to continued competitive
pressures.  Sales outside the United States increased 16 percent, to $76.9
million.  

Animal Health

Worldwide sales of animal health products in the third quarter were $185.4
million, an increase of 6 percent compared with the third quarter of 2003. 

Newer Products

Xigris

Sales of Xigris, the first available pharmaceutical treatment for severe
sepsis, were $49.3 million, an increase of 30 percent compared with the third
quarter of 2003.  U.S. sales of Xigris increased 21 percent, to $29.9 million,
while sales outside the United States increased 48 percent, to $19.4 million.  

Forteo

Third-quarter sales of Forteo, a new treatment for severe osteoporosis, were
$58.1 million, a sequential decrease compared with sales of $65.3 million in
the second quarter of 2004.  In the third quarter of 2004, U.S. sales of Forteo
were $47.6 million and sales outside the U.S. were $10.5 million. Underlying
prescription volume for Forteo has sequentially increased.  However, Forteo
sales have sequentially declined due to U.S. wholesaler destocking in the third
quarter of 2004. 

Strattera

During the third quarter of 2004, Strattera, the only non-stimulant medicine
approved for the treatment of ADHD in children, adolescents and adults,
generated $163.6 million of sales, a 51 percent increase over sales of $108.0
million in the third quarter of 2003, but down sequentially compared with sales
of $178.6 million in the second quarter of 2004.  Underlying prescription
volume for Strattera has sequentially increased.  However, Strattera sales have
sequentially declined due to U.S. wholesaler destocking in the third quarter of
2004. 

Cialis

Total worldwide sales of Cialis, a new treatment for erectile dysfunction
marketed by Lilly ICOS LLC, were $154.1 million, a sequential increase compared
with second-quarter 2004 worldwide sales of $137.2 million.  The $154.1 million
of worldwide Cialis sales in the third quarter of 2004 comprises $31.1 million
of sales in Lilly territories, which is reported in Lilly's revenue, and $123.0
million of sales in the joint venture territories.  Within the joint venture
territories, the U.S. sales of Cialis were $70.2 million in the third quarter.

Symbyax

Symbyax, which was launched during the first quarter of 2004 in the U.S. for
the treatment of bipolar depression, had sales of $13.5 million in the third
quarter, compared with sales of $7.9 million in the second quarter of 2004. 

Alimta

The company is very pleased with the early sales results for Alimta, which was
launched in the U.S. during the first quarter of 2004 for the treatment of
malignant pleural mesothelioma and approved during August for second-line
treatment of non-small cell lung cancer. Third-quarter sales of $40.0 million
increased sequentially compared with second-quarter 2004 sales of $17.8
million.  

Cymbalta

Launched in the U.S. in late August for the treatment of depression and in
September for the treatment of diabetic peripheral neuropathic pain, Cymbalta
generated $32.5 million in sales, predominately due to initial wholesaler
stocking.  The company is very encouraged by early prescription trends for
Cymbalta, which are above the company's expectations.  The company is also
pleased with the trial rates among both primary care physicians and
psychiatrists and by the amount of use of Cymbalta as a first-line therapy in a
competitive antidepressant market.

Year-to-Date Results

For the first nine months of the year, worldwide sales increased 12 percent, to
$10.214 billion, compared with sales for the same period in 2003.  Net income
was flat and diluted earnings per share for the first nine months decreased 1
percent, to $1.813 billion and $1.66, respectively, compared with results for
the first nine months in 2003.  Excluding the charges shown below, adjusted net
income and diluted earnings per share for the first nine months increased 9
percent and 8 percent, respectively, to $2.257 billion and $2.07, compared with
the same period in the prior year.  The adjusted earnings growth was driven by
sales growth and net other income offset partially by cost of goods sold and
research and development expenses increasing at a rate greater than sales.
Refer to the tables titled 'Operating Results' and 'Operating Results -
Adjusted' attached to this press release for a reconciliation of reported to
adjusted operating income and net income. 

Reconciliation of Reported to Adjusted     Year-to-Date % Change Over
Year-to-Date Earnings per Share                           /(Under)   
                                                                     
                                           2004   2003       2003    
                                                                     
E.P.S. (as reported, diluted)              $1.66  $1.68      (1%)    
                                                                     
Add back charges: (a)                                                
                                                                     
   Acquired in-process R&D related to      .33      -                
                                                                     
      AME acquisition                                                
                                                                     
   Asset impairments, restructuring and    .08    .23                
 other special charges                                               
                                                                     
E.P.S. (adjusted and diluted)              $2.07  $1.91       8%     
                                                                     

(a) Refer to the tables titled 'Operating Results - Adjusted' attached to this
press release for further description of these charges.

Financial Expectations for the Fourth Quarter and Full Year 2004

The company expects adjusted earnings per share of $.73 to $.75 for the fourth
quarter of 2004 and adjusted earnings per share of $2.80 to $2.82 for the full
year 2004.  The full-year earnings guidance excludes the $.33 per share charge
for acquired in-process research and development related to the AME acquisition
that was incurred in the first quarter and the $.08 per share charge for asset
impairments that was incurred in the second quarter. 

In addition, the company's earnings guidance for the fourth quarter and full
year excludes future material, unusual items.  As discussed in detail earlier
in this press release, in the fourth quarter of 2004 the company will incur
restructuring and asset impairment charges, which are not included in the above
guidance, in the estimated amount of $.19 to $.24 per share.  If these charges
were not excluded, then the reported earnings-per-share guidance for fourth
quarter and full year 2004 would be $.49 to $.56 per share and $2.15 to $2.22
per share, respectively. 

The company expects sales growth in the low single digits for the fourth
quarter of 2004, resulting in 9 to 10 percent sales growth for the full year
2004. While the weaker revenue trend may persist into the first half of 2005,
the company anticipates accelerating overall revenue growth during the second
half of 2005 based on the strength of the newer products. 

For the fourth quarter and full year of 2004, the company expects gross margins
as a percent of sales to be in line with gross margins as a percent of sales
for the first nine months of 2004. The company anticipates marketing and
administrative expenses to decline in the fourth quarter, resulting in annual
market and administrative expense growth in the low single digits.  Research
and development expenses are expected to grow in the single digits in the
fourth quarter of 2004 and in the mid-teens for the full year 2004.  The
company expects a modest contribution of other income (i.e. net other income
less interest expense) in the fourth quarter of 2004 and approximately $220
million to $250 million for the full year 2004. 

The reported tax rate is expected to increase slightly due to the
nondeductibility of the acquired in-process research and development charge
related to the AME acquisition. If the American Jobs Creation Act of 2004,
which includes an incentive for companies to reinvest their foreign earnings in
the United States, were signed by the President of the United States in the
fourth quarter of 2004, the company would anticipate accruing tax on the
eligible overseas earnings expected to be repatriated to the United States in
2005.  Any such additional tax is not included in the above guidance. The tax
impact of the American Jobs Creation Act on the company remains under
consideration.

Webcast of Conference Call

As previously announced, investors and the general public can access a live
webcast of the third-quarter 2004 earnings conference call through a link on
Lilly's website at www.lilly.com. The conference call will be held today from
10 a.m. to 11 a.m. EDT and will be available for replay via the website through
November 18, 2004.

Lilly, a leading innovation-driven corporation, is developing a growing
portfolio of first-in-class and best-in-class pharmaceutical products by
applying the latest research from its own worldwide laboratories and from
collaborations with eminent scientific organizations. Headquartered in
Indianapolis, Ind., Lilly provides answers - through medicines and information
- for some of the world's most urgent medical needs.  Additional information
about Lilly is available at www.lilly.com.

This press release contains forward-looking statements that are based on
management's current expectations, but actual results may differ materially due
to various factors.  There are significant risks and uncertainties in
pharmaceutical research and development. There can be no guarantees with
respect to pipeline products that the products will receive the necessary
clinical and manufacturing regulatory approvals or that they will prove to be
commercially successful. There can be no guarantee that the restructuring
activities described here will achieve the results anticipated by the company. 
The company's results may also be affected by such factors as competitive
developments affecting current growth products; rate of sales growth of
recently launched products; the timing of anticipated regulatory approvals and
launches of new products; other regulatory developments and government
investigations; patent disputes and other litigation involving current and
future products (including the outcome of the Zyprexa patent litigation that
was tried in front of the federal district court in Indianapolis in January and
February 2004); the impact of governmental actions regarding pricing,
importation, and reimbursement for pharmaceuticals; changes in tax law; and the
impact of exchange rates.  For additional information about the factors that
affect the company's business, please see Exhibit 99 to the company's latest
Form 10-Q filed August 2004.  The company undertakes no duty to update
forward-looking statements.

                        #              #              #                        

                                                                                 

Actos® (pioglitazone hydrochloride, Takeda), Takeda

Alimta® (pemetrexed, Lilly)

Cialis® (tadalafil, ICOS), Lilly ICOS LLC

Cymbalta® (duloxetine hydrochloride, Lilly)

Evista® (raloxifene hydrochloride, Lilly)

Forteo® (teriparatide of recombinant DNA origin injection, Lilly)

Gemzar® (gemcitabine hydrochloride, Lilly)

Humalog® (insulin lispro injection of recombinant DNA origin, Lilly)

Humatrope® (somatropin of recombinant DNA origin, Lilly)

Humulin® (human insulin of recombinant DNA origin, Lilly)

Prozac® (fluoxetine hydrochloride, Dista)

ReoPro® (abciximab, Centocor), Lilly

Strattera® (atomoxetine hydrochloride, Lilly)

Symbyaxä (olanzapine fluoxetine combination, or OFC, Lilly)

Xigris® (drotrecogin alfa (activated), Lilly)

Yentreve® (duloxetine hydrochloride, Lilly)

Zyprexa® (olanzapine, Lilly)


Eli Lilly and Company                                                               
                                                                                    
Operating Results  (Unaudited)                                                      
                                                                                    
(Dollars in millions, except per share data)                                        
                                                                                    
                                     Three Months Ended        Nine Months Ended    
                                                                                    
                                        September 30              September 30      
                                                                                    
                                     2004         2003         2004         2003    
                                                                                    
Net sales                         $ 3,280.4    $ 3,139.4    $ 10,213.6   $ 9,117.0  
                                                                                    
Cost of sales                       810.1        679.3        2,358.2      1,943.6  
                                                                                    
Research and development            654.8        568.1        1,985.6      1,640.2  
                                                                                    
Marketing and administrative        951.9        963.4        3,186.0      2,921.2  
                                                                                    
Acquired in-process research        -            -            362.3        -        
and development                                                                     
                                                                                    
Asset impairments,                  -            -            108.9        353.9    
restructuring, and other special                                                    
charges                                                                             
                                                                                    
Operating income                    863.6        928.6        2,212.6      2,258.1  
                                                                                    
Interest expense                    (18.5)       (15.8)       (35.3)       (51.2)   
                                                                                    
Other income - net                  123.1        3.1          244.6        90.8     
                                                                                    
Income before income taxes          968.2        915.9        2,421.9      2,297.7  
                                                                                    
Income taxes                        213.0        201.5        609.4        484.1    
                                                                                    
Net income                        $ 755.2      $ 714.4      $ 1,812.5    $ 1,813.6  
                                                                                    
Earnings per share - basic        $ 0.70       $ 0.66       $ 1.67       $ 1.68     
                                                                                    
Earnings per share - diluted      $ 0.69       $ 0.66       $ 1.66       $ 1.68     
                                                                                    
Dividends paid per share          $ 0.355      $ 0.335      $ 1.065      $ 1.005    
                                                                                    
Weighted-average shares             1,084,809    1,076,276    1,082,983    1,076,382
outstanding (thousands) – basic                                                     
                                                                                    
Weighted-average shares             1,089,227    1,081,815    1,088,924    1,082,023
outstanding (thousands) -                                                           
diluted                                                                             
                                                                                    


Eli Lilly and Company                                                               
                                                                                    
Operating Results  - Adjusted (Unaudited)                                           
                                                                                    
(Dollars in millions, except per share data)                                        
                                                                                    
                                     Three Months Ended        Nine Months Ended    
                                                                                    
                                        September 30              September 30      
                                                                                    
                                     2004         2003       2004 (a)     2003 (b)  
                                                                                    
Net sales                         $ 3,280.4    $ 3,139.4    $ 10,213.6   $ 9,117.0  
                                                                                    
Cost of sales                       810.1        679.3        2,358.2      1,943.6  
                                                                                    
Research and development            654.8        568.1        1,985.6      1,640.2  
                                                                                    
Marketing and administrative        951.9        963.4        3,186.0      2,921.2  
                                                                                    
Operating income                    863.6        928.6        2,683.8      2,612.0  
                                                                                    
Interest expense                    (18.5)       (15.8)       (35.3)       (51.2)   
                                                                                    
Other income - net                  123.1        3.1          244.6        90.8     
                                                                                    
Income before income taxes          968.2        915.9        2,893.1      2,651.6  
                                                                                    
Income taxes                        213.0        201.5        636.5        583.3    
                                                                                    
Net income                        $ 755.2      $ 714.4      $ 2,256.6    $ 2,068.2  
                                                                                    
Earnings per share - basic        $ 0.70       $ 0.66       $ 2.08       $ 1.92     
                                                                                    
Earnings per share - diluted      $ 0.69       $ 0.66       $ 2.07       $ 1.91     
                                                                                    
Dividends paid per share          $ 0.355      $ 0.335      $ 1.065      $ 1.005    
                                                                                    
Weighted-average shares             1,084,809    1,076,276    1,082,983    1,076,382
outstanding (thousands) – basic                                                     
                                                                                    
Weighted-average shares             1,089,227    1,081,815    1,088,924    1,082,023
outstanding (thousands) -                                                           
diluted                                                                             
                                                                                    

(a)       The 2004 year-to-date amounts are adjusted to exclude a $108.9
million (pretax) second-quarter charge, or $.08 per share (after-tax), for
asset impairments related to manufacturing and research and development and a
$362.3 million first-quarter charge, or $.33 per share (no tax benefit), for
acquired in–process research and development related to the Applied Molecular
Evolution acquisition.

(b)       The 2003 year-to-date amounts are adjusted to exclude $353.9 million
(pretax) first-quarter charges, or     $.23 per share (after-tax), as follows:
(1) $114.6 million (pretax), or $.07 per share (after-tax), for asset
impairments, primarily manufacturing assets; (2) $186.8 million (pretax), or
$.13 per share (after-tax), for asset impairments and other charges related
primarily to the company's common stock ownership and loan agreements with Isis
Pharmaceuticals, Inc.; and (3) $52.5 million (pretax), or $.03 per share
(after-tax), for severance-related and other charges in order to streamline the
company's infrastructure.


Eli Lilly and Company                                                                                
                                                                                                     
Major Pharmaceutical Product Sales and Revenues (Unaudited)                                          
                                                                                                     
(Dollars in millions)                                                                                
                                                                                                     
                                                   % Change        Nine Months Ended       % Change  
                                                                                                     
                             Third Quarter       Over/(Under)        September 30        Over/(Under)
                                                                                                     
                             2004       2003         2003           2004         2003        2003    
                                                                                                     
Zyprexa                   $1,023.7    $1,127.6           ( 9%)  $ 3,334.3      $3,131.4            6%
                                                                                                     
Gemzar                    312.7       250.6                25%  885.0          739.1              20%
                                                                                                     
Humalog                   264.6       240.2                10%  817.1          743.1              10%
                                                                                                     
Evista                    246.1       240.0                 3%  755.4          677.4              12%
                                                                                                     
Humulin                   243.7       264.5              ( 8%)  752.5          761.0            ( 1%)
                                                                                                     
Strattera                 163.6       108.0                51%  483.3          237.7             103%
                                                                                                     
Prozac® family            141.0       154.2              ( 9%)  435.9          479.2            ( 9%)
                                                                                                     
Actos                     58.3        67.1               (13%)  324.0          316.6               2%
                                                                                                     
Humatrope                 103.6       93.5                 11%  308.4          268.9              15%
                                                                                                     
ReoPro                    89.8        88.2                  2%  285.3          275.8               3%
                                                                                                     


Eli Lilly and Company                                                                     September     December 31,
                                                                                          30, 2004          2003    
Consolidated Balance Sheet                                                                                          
                                                                                                                    
(Dollars in millions)                                                                     (Unaudited)               
                                                                                                                    
ASSETS                                                                                                              
                                                                                                                    
CURRENT ASSETS                                                                                                      
                                                                                                                    
   Cash and cash equivalents........................................                      $ 2,577.4     $ 2,756.3   
                                                                                                                    
   Short-term investments............................................                       1,596.9       957.0     
                                                                                                                    
   Accounts receivable, net of allowances                                                   1,913.1       1,864.9   
for doubtful amounts of $62.8 (2004) and $69.3 (2003)                                                               
...................................................................                                                 
                                                                                                                    
   Other receivables......................................................                  429.7         477.6     
                                                                                                                    
   Inventories................................................................              2,092.0       1,963.0   
                                                                                                                    
   Deferred income taxes..............................................                      643.6         500.6     
                                                                                                                    
   Prepaid expenses......................................................                   333.0         249.5     
                                                                                                                    
   TOTAL CURRENT ASSETS.................................                                    9,585.7       8,768.9   
                                                                                                                    
OTHER ASSETS                                                                                                        
                                                                                                                    
   Prepaid pension........................................................                  1,873.6       1,613.3   
                                                                                                                    
   Investments..............................................................                3,665.3       3,374.6   
                                                                                                                    
   Sundry......................................................................             1,578.4       1,392.5   
                                                                                                                    
                                                                                            7,117.3       6,380.4   
                                                                                                                    
PROPERTY AND EQUIPMENT                                                                                              
                                                                                                                    
   Land, buildings, equipment, and                                                          12,191.2      11,068.0  
construction-in-progress.................................................................                           
                                                                                                                    
   Less allowances for depreciation..............................                           4,708.3       4,529.0   
                                                                                                                    
                                                                                            7,482.9       6,539.0   
                                                                                                                    
                                                                                          $ 24,185.9    $ 21,688.3  
                                                                                                                    
LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                
                                                                                                                    
CURRENT LIABILITIES                                                                                                 
                                                                                                                    
   Short-term borrowings.............................................                     $ 1,668.6     $ 196.5     
                                                                                                                    
   Accounts payable.....................................................                    680.4         875.9     
                                                                                                                    
   Employee compensation..........................................                          466.1         387.4     
                                                                                                                    
   Dividends payable....................................................                    -             398.3     
                                                                                                                    
   Income taxes payable...............................................                      1,874.4       1,749.8   
                                                                                                                    
   Other liabilities.........................................................               1,852.4       1,952.9   
                                                                                                                    
   TOTAL CURRENT LIABILITIES........................                                        6,541.9       5,560.8   
                                                                                                                    
LONG-TERM DEBT.................................................                             4,510.5       4,687.8   
                                                                                                                    
OTHER NONCURRENT LIABILITIES..................                                              1,823.5       1,674.9   
                                                                                                                    
                                                                                            6,334.0       6,362.7   
                                                                                                                    
COMMITMENTS AND CONTINGENCIES..........                                                     -             -         
                                                                                                                    
SHAREHOLDERS' EQUITY                                                                                                
                                                                                                                    
   Common stock.........................................................                    707.6         702.3     
                                                                                                                    
   Additional paid-in capital.........................................                      3,093.3       2,610.0   
                                                                                                                    
   Retained earnings......................................................                  10,526.9      9,470.4   
                                                                                                                    
   Employee benefit trust.............................................                      (2,635.0)     (2,635.0) 
                                                                                                                    
   Deferred costs-ESOP...............................................                       (114.7)       (118.6)   
                                                                                                                    
   Accumulated other comprehensive loss...................                                  (164.9)       (160.1)   
                                                                                                                    
                                                                                            11,413.2      9,869.0   
                                                                                                                    
   Less cost of common stock in treasury....................                                103.2         104.2     
                                                                                                                    
                                                                                            11,310.0      9,764.8   
                                                                                                                    
                                                                                          $ 24,185.9    $ 21,688.3