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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission File Number 1-6351
ELI LILLY AND COMPANY
An Indiana Corporation I.R.S. Employer Number 35-0470950
Address: Lilly Corporate Center, Indianapolis, Indiana 46285
Telephone number, including area code: (317) 276-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name Of Each Exchange
Title Of Each Class On Which Registered
------------------- -------------------
Common Stock New York and Pacific Stock Exchanges
Preferred Stock Purchase Rights New York and Pacific Stock Exchanges
8-1/8% Notes Due December 1, 2001 New York Stock Exchange
8-3/8% Notes Due December 1, 2006 New York Stock Exchange
6.57% Notes Due January 1, 2016 New York Stock Exchange
6.77% Notes Due January 1, 2036 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
Aggregate market value of voting stock of the Registrant held by non-affiliates
as of February 9, 1996 (Common Stock): $28,175,758,490
Number of shares of common stock outstanding as of February 9, 1996:
552,471,515
Portions of the following documents have been incorporated by reference into
this report:
Document Parts Into Which Incorporated
-------- -----------------------------
Registrant's Annual Report to Shareholders Parts I, II, and IV
for fiscal year ended December 31, 1995
Registrant's Proxy Statement dated March 4, 1996 Part III
PART I
Item 1. BUSINESS
Eli Lilly and Company was incorporated in 1901 under the laws of Indiana to
succeed to the drug manufacturing business founded in Indianapolis, Indiana,
in 1876 by Colonel Eli Lilly. The Company*, including its subsidiaries, is
engaged in the discovery, development, manufacture, and sale of products and
the provision of services in one industry segment--Life Sciences. Products
are manufactured or distributed through owned or leased facilities in the
United States, Puerto Rico, and 29 other countries, in 19 of which the Company
owns or has an interest in manufacturing facilities. Its products are sold in
approximately 150 countries. Through its PCS Health Systems subsidiary, the
Company provides health care management services in the United States.
Most of the Company's products were discovered or developed through the
Company's research and development activities, and the success of the
Company's business depends to a great extent on the continued introduction of
new products resulting from these research and development activities.
Research efforts are primarily directed toward the discovery of products to
diagnose and treat diseases in human beings and animals and to increase the
efficiency of animal food production.
RECENT DEVELOPMENTS
Divestiture of Medical Device and Diagnostics Businesses
In 1995 and early 1996, the Company completed the divestiture of its
Medical Device and Diagnostics ("MDD") businesses. On September 25, 1995,
the Company distributed its approximately 80% ownership interest in Guidant
Corporation (a holding company comprising five of the MDD companies) to
holders of Lilly common stock through a splitoff ---an exchange offer whereby
Lilly shareholders were given the opportunity to exchange Lilly shares for
Guidant shares. In January 1996, the Company completed the disposition of the
last remaining MDD company, Hybritech Incorporated, to Beckman Instruments,
Inc.
Acquisition of Integrated Medical Systems, Inc.
In December 1995, the Company acquired Integrated Medical Systems, Inc.,
which develops and operates physician-focused medical communication networks.
For further information regarding the business of Integrated Medical Systems,
see "Health Care Management Services" below.
FINANCIAL INFORMATION RELATING TO INDUSTRY
SEGMENTS AND CLASSES OF PRODUCTS
Financial information relating to industry segments and classes of
products, set forth in the Company's 1995 Annual Report at pages 26-27 under
"Review of Operations--Segment Information" (pages 13-14 of Exhibit 13 to
this Form 10-K), is incorporated herein by reference.
- ------
*The terms "Company" and "Registrant" are used interchangeably herein to
refer to Eli Lilly and Company or to Eli Lilly and Company and its
consolidated subsidiaries, as the context requires.
1
Due to several factors, including the introduction of new products by the
Company and other manufacturers, the relative contribution of any particular
Company product to consolidated net sales is not necessarily constant from
year to year, and its contribution to net income is not necessarily the same
as its contribution to consolidated net sales.
PRODUCTS AND SERVICES
Pharmaceutical Products
Pharmaceutical products include
Central-nervous-system agents, including the antidepressant agent
ProzacR, a selective serotonin reuptake inhibitor, indicated for the treatment
of depression and, in many countries, for bulimia and obsessive-compulsive
disorder; the analgesic Darvocet-NR 100, which is indicated for the relief of
mild-to-moderate pain; and PermaxR, a treatment for Parkinson's disease;
Anti-infectives, including the oral cephalosporin antibiotics CeclorR
(cefaclor), KeflexR, and KeftabR, used in the treatment of a wide range of
bacterial infections; the oral carbacephem antibiotic LorabidR, used to treat
a variety of infections; the oral macrolide antibiotic DynabacR; the
injectable cephalosporin antibiotics MandolR, TazidimeR, KefuroxR, and
KefzolR, used to treat a wide range of infections in the hospital setting;
NebcinR, an injectable aminoglycoside antibiotic used in hospitals to treat
various infections caused by staphylococci and Gram-negative bacteria; and
VancocinR HCl, an injectable antibiotic used primarily to treat staphylococcal
infections;
Endocrine products, including HumulinR, human insulin produced through
recombinant DNA technology; IletinR, animal-source insulin in its various
pharmaceutical forms; HumatropeR, human growth hormone produced by recombinant
DNA technology; and Humalog(TM), a rapid-acting injectable human insulin
analog of recombinant DNA origin, cleared for marketing in certain overseas
countries;
An antiulcer agent, AxidR, an H2 antagonist, indicated for the treatment
of active duodenal ulcer, for maintenance therapy for duodenal ulcer patients
after healing of an active duodenal ulcer, and for reflux esophagitis;
Oncolytic agents, including OncovinR, indicated for treatment of acute
leukemia and, in combination with other oncolytic agents, for treatment of
several different types of advanced cancers; VelbanR, used in a variety of
malignant neoplastic conditions; GemzarR, cleared for marketing in several
overseas countries for treatment of non-small cell lung cancer and pancreatic
cancer; and EldisineR, indicated for treatment of acute childhood leukemia
resistant to other drugs; and
Additional pharmaceuticals, including cardiovascular therapy products,
principally ReoPro(TM) and DobutrexR; hematinics; sedatives; and vitamins.
Animal Health Products
Animal health products include TylanR, an antibiotic used to control
certain diseases in cattle, swine, and poultry and to improve feed efficiency
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and growth; RumensinR, a cattle feed additive that improves feed efficiency
and growth; CompudoseR, a controlled-release implant that improves feed
efficiency and growth in cattle; CobanR, MontebanR and MaxibanR, anticoccidial
agents for use in poultry; ApralanR, an antibiotic used to control enteric
infections in calves and swine; MicotilR, an antibiotic used to treat bovine
respiratory disease; and other products for livestock and poultry.
Health Care Management Services
PCS provides computer-based prescription drug claims processing, pharmacy
benefit design, administration and management services, and disease-management
services to health plan sponsors, including insurance companies, third-party
administrators, self-insured employers, health maintenance organizations, and
Blue Cross/Blue Shield organizations that underwrite or administer
prescription benefit plans. PCS helps these customers manage prescription
benefit costs by providing drug utilization reviews, clinically-based
formularies, generic substitution programs, and disease-management programs.
RECAPR, PCS's on-line prescription claims management system, is linked with
over 95% of retail pharmacies in the U.S. Integrated Medical Systems operates
physician-based on-line electronic communication networks, called IMS MEDACOMR
networks, that deliver clinical, administrative, and financial information to
hospitals, payers/managed-care plans, laboratories, pharmacies, and
physicians. Outside the United States the Company is developing pharmacy
benefits management and disease-management programs in several countries,
including Canada, the Netherlands, South Africa, and the United Kingdom.
MARKETING
Most of the Company's major products are marketed worldwide. Health care
management services are marketed primarily in the United States, although in
1995 the Company launched pharmacy benefits management and disease-management
initiatives in several other markets.
In the United States, the Company's Pharmaceutical Division distributes
pharmaceutical products principally through approximately 229 wholesale
distributing outlets. Marketing policy is designed to assure immediate
availability of these products to physicians, pharmacies, hospitals, and
appropriate health care professionals throughout the country. Five wholesale
distributing companies in the United States accounted for approximately 11%,
9%, 9%, 7%, and 5% respectively, of consolidated net sales in 1995. No other
distributor accounted for as much as 5% of consolidated net sales. The
Company also makes direct sales of its pharmaceutical products to the United
States government and to other manufacturers, but those direct sales do not
constitute a material portion of consolidated net sales.
The Company's pharmaceutical products are promoted in the United States
under the Lilly and Dista trade names by one hospital and three retail sales
forces employing salaried sales representatives. These sales representatives,
approximately half of whom are registered pharmacists, call upon physicians,
wholesalers, hospitals, managed-care organizations, retail pharmacists, and
other health care professionals. Their efforts are supported by the Company
through advertising in medical and drug journals, distribution of literature
and samples of certain products to physicians, and exhibits for use at medical
meetings. In 1994, the Company created a new sales force dedicated to
diabetes care.
3
In the past few years, large purchasers of pharmaceuticals, such as
managed-care groups and government and long-term care institutions, have begun
to account for an increasing portion of total pharmaceutical purchases in the
United States. The Company has created special sales groups to service
government and long-term care institutions, and expanded its managed-care
sales organization. In response to competitive pressures, the Company has
entered into arrangements with a number of these organizations providing for
discounts or rebates on one or more Company products or other cost-sharing
arrangements. The Company has also entered into agreements with generic
pharmaceutical companies for the promotion, distribution and/or supply of
generic forms of certain brand name products of both Lilly and other
companies.
Outside the United States, pharmaceutical products are promoted primarily
by salaried sales representatives. While the products marketed vary from
country to country, anti-infectives constitute the largest single group in
total sales. Distribution patterns vary from country to country. In recent
years, the Company has significantly expanded its marketing efforts in a
number of overseas markets, including emerging markets in Central and Eastern
Europe, Latin America, Asia and Africa.
Elanco Animal Health, a division of the Company, employs field
salespeople throughout the United States to market animal health products.
Sales are made to wholesale distributors, retailers, feed manufacturers, or
producers in conformance with varying distribution patterns applicable to the
various types of products. The Company also has an extensive sales force
outside the United States to market its animal health products.
RAW MATERIALS
Most of the principal materials used by the Company in manufacturing
operations are chemical, plant, and animal products that are available from
more than one source. Certain raw materials are available or are purchased
principally from only one source. Unavailability of certain materials from
present sources could cause an interruption in production pending
establishment of new sources or, in some cases, implementation of alternative
processes.
Although the major portion of the Company's sales abroad are of products
manufactured wholly or in part abroad, a principal source of active
ingredients for these manufactured products continues to be the Company's
facilities in the United States.
PATENTS AND LICENSES
The Company owns, has applications pending for, or is licensed under, a
substantial number of patents, both in the United States and in other
countries, relating to products, product uses, and manufacturing processes.
There can be no assurance that patents will result from the Company's pending
applications. Moreover, patents relating to particular products, uses, or
processes do not preclude other manufacturers from employing alternative
processes or from successfully marketing substitute products to compete with
the patented products or uses. Patent protection of certain products,
processes, and uses--particularly that relating to Prozac, Axid, and Lorabid-
is considered to be important to the operations of the Company. The United
States compound patent covering Prozac expires in 2001, the Axid compound
patent expires in 2002, and the Lorabid compound patent expires in 2006.
4
The Company also grants licenses under patents and know-how developed by
the Company and manufactures and sells products and uses technology and know-
how under licenses from others. Royalties received by the Company in relation
to licensed pharmaceuticals amounted to approximately $4 million in 1995, and
royalties paid by it in relation to pharmaceuticals amounted to approximately
$109 million in 1995.
COMPETITION
The Company's pharmaceutical products compete with products manufactured
by numerous other companies in highly competitive markets in the United States
and throughout the world. The Company's animal health products compete on a
worldwide basis with products of pharmaceutical, chemical, and other companies
that operate animal health divisions or subsidiaries. PCS faces strong
competition from other pharmacy benefit management companies and claims
processors in the United States. For certain accounts, PCS competes with some
retail pharmacy chains, mail order programs and organized groups of
independent pharmacists.
Important competitive factors include price and demonstrated cost-
effectiveness, product characteristics and dependability, service, and
research and development of new products and processes. The introduction of
new products and processes by competitors with therapeutic or cost advantages
can result in progressive price reductions or decreased volume of sales of
competing products, or both. New products introduced with patent protection
usually must compete with other products already on the market at the time of
introduction or products developed by competitors after introduction.
Manufacturers of generic products typically invest far less in research and
development than research-based pharmaceutical companies and accordingly are
able to price their products significantly lower than branded products.
Therefore, upon patent expiration, branded products often face intense price
competition from generic forms of the product. In many countries patent
protection is weak or nonexistent. The Company believes its long-term
competitive position is dependent upon the success of its research and
development endeavors in discovering and developing innovative, cost-effective
products, together with increased productivity resulting from improved
manufacturing methods, marketing efforts, and the provision of value-added
services to its customers. There can be no assurance that the Company's
research and development efforts will result in commercially successful
products or that products manufactured or processes used by the Company will
not become outmoded from time to time as a result of products or processes
developed by its competitors.
GOVERNMENTAL REGULATION
The Company's operations have for many years been subject to extensive
regulation by the federal government, to some extent by state governments, and
in varying degrees by foreign governments. The Federal Food, Drug, and
Cosmetic Act, other federal statutes and regulations, various state statutes
and regulations, and laws and regulations of foreign governments govern
testing, approval, production, labeling, distribution, post-market
surveillance, advertising, promotion, and in some instances, pricing, of most
of the Company's products. The lengthy process of laboratory testing,
clinical testing, data analysis and regulatory review necessary for required
governmental approvals is extremely costly and can significantly delay product
introductions in a given market. In addition, the Company's operations are
subject to complex federal, state, local, and foreign environmental and
occupational safety laws and regulations. It is anticipated that compliance
with regulations affecting the manufacture and sale of current products and
5
the introduction of new products will continue to require substantial
scientific and technical effort, time, and expense and significant capital
investment.
In the United States, health care reform was not debated extensively at
the federal level in 1995 and the Company does not expect major federal health
care reform legislation to be adopted in the near future. However, various
health care reform and pharmaceutical reimbursement measures are being
considered in a number of states. Outside the United States, changes in
health care delivery and pharmaceutical reimbursement are occurring to varying
degrees which in some cases may adversely affect pharmaceutical industry
revenues. The Company is unable to predict the extent to which its business
may be affected by these or other future legislative and regulatory
developments.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are responsible for the
discovery or development of most of the products offered by the Company today.
Its commitment to research and development dates back more than 100 years.
The Company invests heavily in research and development, which management
believes is critical to long-term competitiveness in the pharmaceutical
industry. The growth in research and development expenditures and personnel
over the past several years demonstrates both the continued vitality of the
Company's commitment and the increasing costs and complexity of bringing new
products to the market. At the end of 1995, approximately 4,800 people,
including a substantial number who are physicians or scientists holding
graduate or postgraduate degrees or highly skilled technical personnel, were
engaged in pharmaceutical and animal health research and development
activities. The Company expended $755.0 million on these research and
development activities in 1993, $838.7 million in 1994, and $1,042.3 million
in 1995.
The Company's research is concerned primarily with the effects of
synthetic chemicals and natural products on biological systems. The results
of that research are applied to the development of products for use by or on
humans and animals, and for other uses. Major effort is devoted to
pharmaceutical products. The Company concentrates its pharmaceutical research
and development efforts in five therapeutic categories: central nervous
system and related diseases; endocrine diseases, including diabetes and
osteoporosis; infectious diseases; cancer; and cardiovascular diseases. The
Company is engaged in biotechnology research programs involving recombinant
DNA, protein research, and genomics (the development of therapeutics through
identification of disease-causing genes and their cellular function).
In addition to the research activities carried on in the Company's own
laboratories, the Company sponsors and underwrites the cost of research and
development by independent organizations, including educational institutions
and research-based human health care companies, and contracts with others for
the performance of research in their facilities. It utilizes the services of
physicians, hospitals, medical schools, and other research organizations in
the United States and numerous other countries to establish through clinical
evidence the safety and effectiveness of new products. The Company's
business-development groups actively seek out opportunities to invest in
external research and technologies that hold the promise to complement and
strengthen the Company's own research efforts in the five chosen therapeutic
categories. Such investments can take many forms, including licensing
arrangements, co-development and co-marketing agreements, and outright
acquisitions.
6
Extensive work is also conducted in the animal sciences, including animal
nutrition and physiology and veterinary medicine. Certain of the Company's
research and development activities relating to pharmaceutical products may be
applicable to animal health products. An example is the search for agents
that will cure infectious disease.
QUALITY ASSURANCE
The Company's success depends in great measure upon customer confidence
in the quality of the Company's products and in the integrity of the data that
support their safety and effectiveness. The quality of the Company's products
arises from the total commitment to quality in all parts of the Company,
including research and development, purchasing, facilities planning,
manufacturing, and distribution. Quality-assurance procedures have been
developed relating to the quality and integrity of the Company's scientific
information and production processes.
Control of production processes involves rigid specifications for
ingredients, equipment, facilities, manufacturing methods, packaging
materials, and labeling. Control tests are made at various stages of
production processes and on the final product to assure that the product meets
all regulatory requirements and the Company's standards. These tests may
involve chemical and physical chemical analyses, microbiological testing,
testing in animals, or a combination of these tests. Additional assurance of
quality is provided by a corporate quality-assurance group that monitors
existing pharmaceutical and animal health manufacturing procedures and systems
in the parent company, subsidiaries, and affiliates.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the
executive officers of the Company. All but three of the executive officers
have been employed by the Company in executive or managerial positions during
the last five years. Randall L. Tobias became Chairman of the Board and Chief
Executive Officer in June 1993. He had served as Vice Chairman of the Board
of AT&T from 1986 until he assumed his present position. He has been a member
of the Board of Directors of the Company since 1986. Charles E. Golden joined
the Company as Executive Vice President and Chief Financial Officer and was
elected to the Board of Directors on March 4, 1996. He previously had held a
number of executive positions with General Motors Corporation ("GM")
including Vice President of GM and Chairman and Managing Director of Vauxhall
Motors Limited, a GM subsidiary in the United Kingdom, from 1993 to 1996, Vice
President and Treasurer from 1992 to 1993, and Treasurer from 1989 to 1992.
Thomas Trainer joined the Company in January 1995. Since 1991 he had served
as Vice President and Chief Information Officer of Reebok International Ltd.
Prior to joining Reebok, he was Senior Vice President of Operations of A.C.
Nielson Co.
Except as indicated in the following table, the term of office for each
executive officer indicated herein expires on the date of the annual meeting
of the Board of Directors, to be held on April 15, 1996, or on the date his or
her successor is chosen and qualified. No director or executive officer of
the Company has a "Family relationship" with any other director or executive
officer of the Company, as that term is defined for purposes of this
disclosure requirement. There is no understanding between any executive
officer of the Company and any other person pursuant to which the executive
officer was selected.
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NAME AGE OFFICES
----------------------------------------------------------------------
Randall L. Tobias 54 Chairman of the Board and Chief Executive
Officer (since June 1993) and a Director
Sidney Taurel 47 President and Chief Operating Officer (since
February 1996) and a Director
Charles E. Golden 49 Executive Vice President and Chief Financial
Officer (since March 1996) and a Director
August M. Watanabe, M.D. 54 Executive Vice President, Science and
Technology (since February 1996) and
a Director
Mitchell E. Daniels, Jr. 46 President, North American Pharmaceutical
Operations (since April 1993)1
Michael L. Eagle 48 Vice President, Manufacturing (since January
1994)
Brendan P. Fox 52 President, Elanco Animal Health Business Unit
(since January 1991)1
Rebecca O. Goss 48 Vice President and General Counsel (since March
1995)
Michael E. Hanson 48 President, Internal Medicine Business Unit
(since August 1994)1
James A. Harper 48 President, Endocrine Business Unit (since August
1994)1
Pedro P. Granadillo 48 Vice President, Human Resources (since
April 1993)
Gerhard N. Mayr 49 President, European Pharmaceutical Operations
(European, Middle East and African Operations)
(since January 1993)1
Robert N. Postlethwait 47 President, Central Nervous System Business Unit
(since August 1994)1
William R. Ringo 50 President, Infectious Diseases and Generics
Business Unit (since September 1995)1
Gino Santini 39 Vice President, Corporate Strategy and Business
Development (since September 1995)
Thomas Trainer 49 Vice President, Information Technology, and
Chief Information Officer (since January 1995)1
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1 Serves in office until successor is appointed.
8
EMPLOYEES
At the end of 1995, the Company had approximately 26,800 employees,
including approximately 11,500 employees outside the United States. A
substantial number of the Company's employees have long records of continuous
service.
FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS
Financial information relating to foreign and domestic operations, set
forth in the Company's 1995 Annual Report at pages 26-27 under "Review of
Operations--Segment Information" (pages 13-14 of Exhibit 13), is incorporated
herein by reference.
Eli Lilly International Corporation, a subsidiary, coordinates the
Company's manufacture and sale of products outside the United States.
Local restrictions on the transfer of funds from branches and
subsidiaries located abroad (including the availability of dollar exchange)
have not to date been a significant deterrent in the Company's overall
operations abroad. The Company cannot predict what effect these restrictions
or the other risks inherent in foreign operations, including possible
nationalization, might have on its future operations or what other
restrictions may be imposed in the future.
Item 2. PROPERTIES
The Company's principal domestic and international executive offices are
located in Indianapolis. At December 31, 1995, the Company owned 14
production plants and facilities in the United States and Puerto Rico. These
plants and facilities contain an aggregate of approximately 12.2 million
square feet of floor area. Most of the plants and facilities involve
production of both pharmaceutical and animal health products. The Company
also leases sales offices in a number of cities located in the United States
and abroad. PCS owns or leases administrative facilities in Scottsdale,
Arizona, containing an aggregate of approximately 475,000 square feet and
leases administrative space in other cities in the United States. Integrated
Medical Systems leases approximately 84,000 square feet of administrative
space in a number of locations.
The Company has 23 production plants and facilities in 19 countries
outside the United States, containing an aggregate of approximately 4.2
million square feet of floor space. Leased production and warehouse
facilities are utilized in Puerto Rico and 17 countries outside the United
States.
The Company's research and development facilities in the United States
consist of approximately 2.8 million square feet and are located primarily in
Indianapolis and Greenfield, Indiana. Its major research and development
facilities abroad are located in Belgium and the United Kingdom and contain
approximately 435,000 square feet. The Company also owns two tracts of land,
containing an aggregate of approximately 1,700 acres, a portion of which is
used for field studies of products.
The Company believes that none of its properties is subject to any
encumbrance, easement, or other restriction that would detract materially from
its value or impair its use in the operation of the business of the Company.
The buildings owned by the Company are of varying ages and in good condition.
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Item 3. LEGAL PROCEEDINGS
Product Liability Litigation. The Company is currently a defendant in a
variety of product litigation matters involving primarily diethylstilbestrol
("DES") and Prozac. In approximately 265 actions, including several with
multiple claimants, plaintiffs seek to recover damages on behalf of children
or grandchildren of women who ingested DES during pregnancy. In March 1996 a
suit was filed in the federal district court for the Eastern District of New
York against the Company and several other manufacturers purporting to be a
nationwide class action on behalf of women who were exposed to DES in utero.
The suit does not seek compensation for personal injuries but instead seeks
establishment of a fund for various expenses allegedly incurred as a result of
DES exposure. In another approximately 70 actions, plaintiffs seek to recover
damages as a result of the ingestion of Prozac.
Pricing Litigation. The Company has been named, together with numerous
other U.S. prescription pharmaceutical manufacturers and in some cases
wholesalers or distributors, as a defendant in a large number of related
actions brought by retail pharmacies and consumers of prescription
pharmaceuticals in the United States alleging violations of federal or state
antitrust laws, or both, based on the practice of providing discounts or
rebates to managed-care organizations and certain other purchasers. The
federal cases have been consolidated or coordinated in the Northern District
of Illinois as In re Brand Name Prescription Drugs Antitrust Litigation (MDL
No. 997).
The federal suits include a certified class action on behalf of a
majority of retail pharmacies in the United States (the "Federal Class
Action"). The class plaintiffs allege an industrywide agreement in violation
of the Sherman Act to deny favorable pricing on sales of brand-name
prescription pharmaceuticals to certain retail pharmacies in the United
States. The Federal Class Action is scheduled to begin trial May 7, 1996.
The Company and eleven other manufacturers have agreed to settle the Federal
Class Action. The settlement amount, which is not material, was accrued by
the Company in the fourth quarter of 1995. The settlement is subject to
approval of the District Court. A hearing on the proposed settlement is
scheduled for March 27, 1996. The other federal suits, brought as individual
claims by several thousand pharmacies, allege price discrimination in
violation of the Robinson-Patman Act as well as Sherman Act claims. The suits
seek treble damages and injunctive relief against allegedly discriminatory
pricing practices. Defense motions for summary judgment on the Sherman Act
claims in these suits are pending. With respect to the Robinson-Patman Act
claims, the District Court has designated certain plaintiffs and defendants
named in the individual suits (not including the Company) to participate in an
initial trial or trials of the claims. No trial dates have been set.
Robinson-Patman claims asserted in the suits against nondesignated defendants,
including the Company, are stayed.
In addition, there are a number of related state court cases. The state
court suits typically seek money damages and injunctive relief against
allegedly discriminatory pricing practices. Cases have been brought in
Alabama, California, Minnesota, and Wisconsin by large numbers of retail
pharmacies alleging violations of various state antitrust and pricing laws,
purporting to be class actions on behalf of retail pharmacies in those states.
The court in California has certified a class of retail pharmacies. Cases
have also been brought in state courts in Alabama, Arizona, California,
Colorado, District of Columbia, Maine, Michigan, Minnesota, New York,
Washington and Wisconsin that purport to be class actions on behalf of
consumers of prescription pharmaceuticals, alleging violations of state
antitrust and pricing laws. The courts in Alabama and California have
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certified classes of consumer plaintiffs. The Colorado and Washington cases
have been dismissed and appeals are pending. The Maine case has been removed
to federal court but a motion to remand to the state court is pending.
Other Litigation. In June 1995, a California retail pharmacy filed an
action in federal district court in the Northern District of California
against the Company and PCS alleging that the Company's acquisition of PCS
violated federal antitrust laws. The suit seeks divestiture of PCS by the
Company. The Company's motion to dismiss is pending. In October 1995,
Pfizer, Inc. sued PCS in the New York Supreme Court for New York County
alleging that PCS breached a 1994 rebate agreement between the companies. The
suit seeks injunctive relief and damages. Pfizer's request for a preliminary
injunction was denied and trial is scheduled to begin March 19, 1996.
The Company is also a defendant in other litigation, including product
liability and patent suits, of a character regarded as normal to its business.
While it is not possible to predict or determine the outcome of the legal
actions pending against the Company, in the opinion of the Company the costs
associated with all such actions will not have a material adverse effect on
its consolidated financial position or liquidity but could possibly be
material to the consolidated results of operations in any one accounting
period.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1995, no matters were submitted to a vote of
security holders.
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Information relating to the principal market for the Company's common
stock and related stockholder matters, set forth in the Company's 1995 Annual
Report under "Review of Operations--Selected Quarterly Data (unaudited)," at
page 28 (page 15 of Exhibit 13), and "Review of Operations--Selected
Financial Data (unaudited)," at page 29 (page 16 of Exhibit 13), is
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
Selected financial data for each of the Company's five most recent fiscal
years, set forth in the Company's 1995 Annual Report under "Review of
Operations--Selected Financial Data (unaudited)," at page 29 (page 16 of
Exhibit 13), are incorporated herein by reference.
11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following portions of the Company's 1995 Annual Report (found at pages
1-7 and 35-37 of Exhibit 13) constitute management's discussion and analysis
of results of operations and financial condition and are incorporated herein
by reference:
"Review of Operations--Strategic Actions" (page 16)
"Review of Operations--Stock Split" (page 16)
"Review of Operations--Operating Results of Continuing Operations and Net
Income--1995" (pages 16, 17, 19 and 20)
"Review of Operations--Operating Results of Continuing Operations and Net
Income--1994" (pages 20-21)
"Review of Operations--Financial Condition" (pages 21 and 24)
"Review of Operations--Environmental and Legal Matters" (page 24)
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its
subsidiaries, listed in Item 14(a)1 and included in the Company's 1995 Annual
Report at pages 18, 22, 23, and 25 (Consolidated Statements of Income,
Consolidated Balance Sheets, and Consolidated Statements of Cash Flows), pages
26 and 27 (Segment Information), and pages 30-43 (Notes to Consolidated
Financial Statements) (together, pages 9-14 and 17-32 of Exhibit 13), and the
Report of Independent Auditors set forth in the Company's 1995 Annual Report
at page 45 (page 34 of Exhibit 13), are incorporated herein by reference.
Information on quarterly results of operations, set forth in the
Company's 1995 Annual Report under "Review of Operations--Selected Quarterly
Data (unaudited)," at page 28 (page 15 of Exhibit 13), is incorporated herein
by reference.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the Company's directors, set forth in Section 1
of the Company's Proxy Statement dated March 4, 1996 (the "Proxy
Statement"), under "Nominees for Election" and "Certain Information
Concerning Director Nominees and Directors Continuing in Office," at pages 1-
5, is incorporated herein by reference. Information relating to the Company's
executive officers is set forth at pages 7-8 of this Form 10-K under
"Executive Officers of the Company." Information relating to certain filing
obligations of directors and executive officers under the federal securities
laws, set forth in the Proxy Statement under "Other Matters" at page 25, is
also incorporated herein by reference.
12
Item 11. EXECUTIVE COMPENSATION
Information relating to executive compensation, set forth in Section 1 of
the Proxy Statement under "Directors' Compensation", "Executive
Compensation", "Compensation Committee Interlocks", "Retirement Plan" and
"Change-in-Control Severance Pay Arrangements" at pages 7-18, is
incorporated herein by reference, except that the Compensation and Management
Development Committee Report and Performance Graph are not so incorporated.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to ownership of the Company's common stock by
persons known by the Company to be the beneficial owners of more than 5% of
the outstanding shares of common stock and by management, set forth in Section
1 of the Proxy Statement under "Common Stock Ownership by Directors and
Executive Officers," at page 6, and "Principal Holders of Common Stock," at
page 7, is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The following consolidated financial statements of the Company and its
subsidiaries, included in the Company's 1995 Annual Report at the pages
indicated in parentheses, are incorporated by reference in Item 8:
Consolidated Statements of Income--Years Ended December 31, 1995, 1994,
and 1993 (page 18) (page 9 of Exhibit 13)
Consolidated Balance Sheets--December 31, 1995 and 1994 (pages 22-23)
(pages 10-11 of Exhibit 13)
Consolidated Statements of Cash Flows--Years Ended December 31, 1995,
1994, and 1993 (page 25) (page 12 of Exhibit 13)
Segment Information (pages 26 and 27) (pages 13-14 of Exhibit 13)
Notes to Consolidated Financial Statements (pages 30-43) (pages 17-32 of
Exhibit 13)
(a)2. Financial Statement Schedules
The consolidated financial statement schedules of the Company and its
subsidiaries have been omitted because they are not required, are
inapplicable, or are adequately explained in the financial statements.
13
Financial statements of interests of 50% or less, which are accounted for
by the equity method, have been omitted because they do not, considered in the
aggregate as a single subsidiary, constitute a significant subsidiary.
(a)3. Exhibits
3.1 Amended Articles of Incorporation
3.2 By-laws
4.1 Form of Indenture with respect to Contingent Payment Obligation
Units dated March 18, 1986, between Eli Lilly and Company and Harris
Trust and Savings Bank, as Trustee
4.2 Rights Agreement dated as of July 18, 1988, between Eli Lilly and
Company and Bank One, Indianapolis, NA
4.3 Form of Indenture dated as of February 21, 1989, between Eli Lilly
and Company and Merchants National Bank & Trust Company of
Indianapolis, as Trustee
4.4 Form of Eli Lilly and Company Five Year Convertible Note
4.5 Form of Indenture with respect to Debt Securities dated as of
February 1, 1991, between Eli Lilly and Company and Citibank, N.A.,
as Trustee
4.6 Form of Standard Multiple-Series Indenture Provisions dated, and
filed with the Securities and Exchange Commission on, February 1,
1991
4.7 Form of Indenture dated as of September 5, 1991, among the Lilly
Savings Plan Master Trust Fund C, as Issuer; Eli Lilly and
Company, as Guarantor; and Chemical Bank, as Trustee1
4.8 Form of Fiscal and Paying Agency Agreement dated July 8, 1993,
between Eli Lilly and Company and Citibank, N.A., Fiscal and Paying
Agent, including forms of Notes, relating to 5-1/2% Notes Due 19981
4.9 Form of Fiscal and Paying Agency Agreement dated February 7, 1995,
between Eli Lilly and Company and Citibank, N.A., Fiscal and Paying
Agent, including forms of Notes, relating to 8-1/8% Notes Due
February 7, 20001
4.10 Form of Fiscal and Paying Agency Agreement dated February 7, 1995,
between Eli Lilly and Company and Citibank, N.A., Fiscal and Paying
Agent, including forms of Notes, relating to 8-3/8% Notes Due
February 7, 20051
10.1 1984 Lilly Stock Plan, as amended2
- ---------------
1 These exhibits are not filed with this Report. Copies will be furnished
to the Securities and Exchange Commission upon request.
2 Indicates management contract or compensatory plan.
14
10.2 1989 Lilly Stock Plan, as amended2
10.3 1994 Lilly Stock Plan2
10.4 The Lilly Deferred Compensation Plan, as amended2
10.5 The Lilly Directors' Deferral Plan, as amended2
10.6 The Eli Lilly and Company EVA Bonus Plan, as amended2
10.7 Eli Lilly and Company Change in Control Severance Pay Plan for
Select Employees2
10.8 Letter Agreement dated September 3, 1993, between the Company and
Vaughn D. Bryson2
11. Computation of Earnings Per Share on Primary and Fully Diluted Bases
12. Computation of Ratio of Earnings to Fixed Charges
13. Annual Report to Shareholders for the Year Ended December 31, 1995
(portions incorporated by reference into this Form 10-K)
21. List of Subsidiaries
23. Consent of Independent Auditors
27. Financial Data Schedule
99. Report to Holders of Eli Lilly and Company Contingent Payment
Obligation Units
(b) Reports on Form 8-K
On October 2, 1995, the Company filed a Form 8-K reporting the completion
of its exchange offer pursuant to which holders of the Company's common stock
exchanged 16,504,298 shares of such stock for all 57,600,000 shares of the
common stock of Guidant Corporation owned by the Company.
- ---------------
2 Indicates management contract or compensatory plan.
15
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.
ELI LILLY AND COMPANY
By s/Randall L. Tobias
--------------------------------
(Randall L. Tobias, Chairman of the Board
and Chief Executive Officer)
March 18, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 18, 1996 by the following persons on
behalf of the Registrant and in the capacities indicated.
SIGNATURE TITLE
------------------------------------------------------------------------
s/Randall L. Tobias Chairman of the Board, Chief Executive Officer,
------------------------- and a Director (principal executive officer)
(RANDALL L. TOBIAS)
s/Charles E. Golden Executive Vice President, Chief Financial
------------------------- Officer, and a Director (principal
(CHARLES E. GOLDEN) financial officer)
s/Arnold C. Hanish Chief Accounting Officer
------------------------- (principal accounting officer)
(ARNOLD C. HANISH)
s/Steven C. Beering, M.D. Director
-------------------------
(STEVEN C. BEERING, M.D.)
s/James W. Cozad Director
-------------------------
(JAMES W. COZAD)
s/Karen N. Horn Director
-------------------------
(KAREN N. HORN, Ph.D.)
s/Alfred G. Gilman, M.D., Ph.D. Director
-------------------------------
(ALFRED G. GILMAN, M.D., Ph.D.)
16
SIGNATURE TITLE
----------------------------------------------------------------------
s/J. Clayburn La Force, Jr., Ph.D. Director
----------------------------------
(J. CLAYBURN LA FORCE, JR., Ph.D.)
Director
-------------------------
(KENNETH L. LAY, Ph.D.)
s/Franklyn G. Prendergast, M.D., Ph.D. Director
--------------------------------------
(FRANKLYN G. PRENDERGAST, M.D., Ph.D.)
s/Kathi P. Seifert Director
-------------------------
(KATHI P. SEIFERT)
s/Sidney Taurel Director
-------------------------
(SIDNEY TAUREL)
s/August M. Watanabe, M.D. Director
--------------------------
(AUGUST M. WATANABE, M.D.)
s/Alva O. Way Director
-------------------------
(ALVA O. WAY)
17
TRADEMARKS
ApralanR (apramycin sulfate, Elanco)
AxidR (nizatidine, Lilly)
CeclorR (cefaclor, Lilly)
CobanR (monensin sodium, Elanco)
CompudoseR (estradiol controlled-release implant, Elanco)
Darvocet-NR (propoxyphene napsylate with acetaminophen, Lilly)
DobutrexR (dobutamine hydrochloride, Lilly)
DynabacR (dirithromycin, Lilly)
EldisineR (vindesine sulfate, Lilly)
GemzarR (gemcitabine hydrochloride, Lilly)
HumalogTM (insulin lispro, Lilly)
HumatropeR (somatropin of recombinant DNA origin, Lilly)
HumulinR (human insulin of recombinant DNA origin, Lilly)
lletinR (insulin, Lilly)
KeflexR (cephalexin, Dista)
KeftabR (cephalexin hydrochloride, Dista)
KefuroxR (cefuroxime sodium, Lilly)
KefzolR (cefazolin sodium, Lilly)
LorabidR (loracarbef, Lilly)
MandolR (cefamandole nafate, Lilly)
MaxibanR (narasin and nicarbazine, Elanco)
IMS MEDACOMR (Integrated Medical Systems)
MicotilR (tilmicosin phosphate, Elanco)
MontebanR (narasin, Elanco)
NebcinR (tobramycin sulfate, Lilly)
OncovinR (vincristine sulfate, Lilly)
PermaxR (pergolide mesylate, Lilly)
ProzacR (fluoxetine hydrochloride, Dista)
RECAPR (PCS)
ReoProTM (abciximab), Lilly
RumensinR (monensin sodium, Elanco)
TazidimeR (ceftazidime, Lilly)
TylanR (tylosin, Elanco)
VancocinR (vancomycin hydrochloride, Lilly)
VelbanR (vinblastine sulfate, Lilly)