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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, 1999
Commission file
number 001-6351
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:
Title of Each
Class
|
|
Name of Each
Exchange
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 |
7 1
/8% Notes Due June 1,
2025
|
|
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 15, 2000
(Common Stock): $56,399,202,838.
Number of shares of common stock
outstanding as of February 15, 2000: 1,092,565,591.
Portions of the following
documents have been incorporated by reference into this report:
Registrant
’s Document
|
|
Parts Into Which
Incorporated
|
| Annual Report to
Shareholders for fiscal year ended December 31, 1999 |
|
Parts I, II, and
IV |
| Proxy Statement
dated March 3, 2000 |
|
Part III |
PART
1
Item 1.
Business
Eli Lilly and Company (the
“Company” or “Registrant”, which may be referred to as
“we”, “us”, or “our”) was incorporated in 1901
in Indiana to succeed to the drug manufacturing business founded in
Indianapolis, Indiana, in 1876 by Colonel Eli Lilly. We discover, develop,
manufacture, and sell products in one significant business segment
—pharmaceutical products. Operations of our animal health business
segment are not material to our financial statements. We manufacture and
distribute our products through owned or leased facilities in the United
States, Puerto Rico, and 28 other countries. Our products are sold in
approximately 160 countries.
Most of the products we sell today
were discovered or developed by our own scientists, and our success depends
to a great extent on our ability to continue to discover and develop
innovative new pharmaceutical products. We direct our research efforts
primarily toward the search for products to diagnose, prevent and treat
human diseases. We also conduct research to find products to treat diseases
in animals and to increase the efficiency of animal food
production.
In January 1999, we completed the
sale of our PCS Health Systems business, which provided pharmacy benefit
management services in the United States.
Financial
Information Relating to Business Segments and Classes of
Products
You can find financial information
relating to our business segments and classes of products in our 1999 Annual
Report at pages 27-28 under “Segment Information” (pages 15-16 of
Exhibit 13 to this Form 10-K). That information is incorporated into this
Report by reference.
The relative contribution of any
particular product to our consolidated net sales changes from year to year.
In addition, the contribution of any particular product to net income is not
necessarily the same as its contribution to consolidated net sales. This is
due to several factors, including the introduction of new products by us and
by other manufacturers.
Products and
Services
Our pharmaceutical products
include:
|
Neuroscience products,
our largest-selling product group, including Prozac®, indicated
for the treatment of depression and, in many countries, for bulimia and
obsessive-compulsive disorder; Zyprexa®, a product for the treatment
of schizophrenia and acute bipolar mania; the Darvon® line of
analgesic products; and Permax®, a treatment for Parkinson’s
disease;
|
|
Endocrine products,
including Humulin®, human insulin produced through recombinant DNA
technology; Humalog®, a rapid-acting injectable human insulin analog
of recombinant DNA origin; Iletin®, animal-source insulin; ACTOS®,
an oral agent for Type 2 diabetes that is manufactured and sold by Takeda
Chemical Industries, Inc. of Japan and co-promoted by us in the U.S. and
certain other countries; Evista®, a selective estrogen receptor
modulator product for the prevention and treatment of osteoporosis in
post-menopausal women; and Humatrope®, human growth hormone produced
by recombinant DNA technology;
|
|
Anti-infectives,
including the oral antibiotics Ceclor® (cefaclor), Keflex®,
Keftab®, and Lorabid®, used in the treatment of a wide range of
bacterial infections; Vancocin® HCl, an injectable antibiotic used
primarily to treat staphylococcal infections; the oral macrolide
antibiotic Dynabac®; the injectable cephalosporin antibiotics Tazidime
®, Kefurox®, and Kefzol®, used to treat a wide range of
bacterial infections in the hospital setting; and Nebcin®, an
injectable aminoglycoside antibiotic used in hospitals to treat various
infections caused by staphylococci and Gram-negative bacteria;
|
|
Cardiovascular agents,
including ReoPro®, a monoclonal antibody product developed and
manufactured by Centocor, Inc. and co-marketed by Centocor and us for use
as an adjunct to percutaneous coronary intervention (“PCI”),
including patients undergoing angioplasty, atherectomy or stent placement
and patients with unstable angina who are not responding to conventional
medical therapy when PCI is planned within 24 hours; Dobutrex®, an
agent for cardiac decompensation; and Cynt™, marketed outside the
United States for treatment of hypertension;
|
|
Oncology products,
including Gemzar®, indicated for treatment of advanced or
metastatic pancreatic cancer and, in combination with other agents, for
treatment of non-small-cell lung cancer; Oncovin®, indicated for
treatment of acute leukemia and, in combination with other oncolytic
agents, for treatment of several different types of advanced cancers;
Velban®, used in a variety of malignant neoplastic conditions; and
Eldisine®, indicated for treatment of acute childhood leukemia
resistant to other drugs; and
|
|
An antiulcer agent, Axid
®.
|
Animal health products include
Tylan®, an antibiotic used to control certain diseases in cattle, swine,
and poultry and to improve feed efficiency and growth; Rumensin®, a
cattle feed additive that improves feed efficiency and growth; Coban®,
Monteban® and Maxiban®, anticoccidial agents for use in poultry;
Apralan®, an antibiotic used to control enteric infections in calves and
swine; Micotil® and Pulmotil®, antibiotics used to treat respiratory
disease in cattle and swine, respectively; and Surmax® (sold as Maxus
® in some countries), a performance enhancer for swine and
poultry.
Marketing
We sell most of our products
worldwide. We adapt our marketing methods and product emphasis in various
countries to meet local needs.
|
Pharmaceuticals
—United States
|
In the United States, we
distribute pharmaceutical products principally through approximately 200
independent wholesale distributing outlets. Our marketing policy is designed
to assure that products are immediately available to physicians, pharmacies,
hospitals, and appropriate health care professionals throughout the country.
Three wholesale distributors in the United States accounted for
approximately 18%, 15%, and 13%, respectively, of our consolidated net sales
in 1999. No other distributor accounted for more than 10% of consolidated
net sales. We also sell pharmaceutical products directly to the United
States government and other manufacturers, but those direct sales are not
material to consolidated net sales.
Salaried sales representatives
promote our major pharmaceutical products in the United States under the
Lilly and Dista trade names. These sales representatives call upon
physicians, wholesalers, hospitals, managed-care organizations, retail
pharmacists, and other health care professionals. To support our sales
representatives’ efforts, we advertise in medical and drug journals,
distribute literature and samples of certain products to physicians, and
exhibit at medical meetings. In addition, we advertise certain products
directly to consumers in the United States. Divisions of our sales force are
dedicated to product lines or practice areas, such as primary care,
neuroscience, diabetes care, cardiovascular, endocrinology, and oncology. We
have entered into licensing arrangements under which other companies market
certain products manufactured by the Company, such as Ceclor CD, Dynabac,
Keftab, and Permax. Most recently, in September 1999 we sold the rights to
market Lorabid in the United States and Puerto Rico to King Pharmaceuticals,
Inc.
Large purchasers of
pharmaceuticals, such as managed-care groups and government and long-term
care institutions, now account for a significant portion of total
pharmaceutical purchases in the United States. We have created special sales
groups to service managed-care organizations, government and long-term care
institutions,
hospital contract administrators, and certain retail pharmacies. In response
to competitive pressures, we have 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.
|
Pharmaceuticals
—Outside the United States
|
Outside the United States, we
promote our pharmaceutical products primarily through salaried sales
representatives. While the products marketed vary from country to country,
neuroscience products constitute the largest single group in total sales.
Distribution patterns vary from country to country. In most countries, we
maintain our own sales and distribution organizations. In some countries,
however, we market our products through joint ventures or independent
distributors.
Our Elanco Animal Health business
unit employs field salespeople throughout the United States to market animal
health products. Elanco also has an extensive sales force outside the United
States to market its animal health products. Elanco sells its products
primarily to wholesale distributors.
Raw
Materials
Most of the principal materials we
use in our manufacturing operations are chemical, plant, and animal products
that are available from more than one source. We obtain certain raw
materials principally from only one source. If we were unable to obtain
certain materials from present sources, we could experience an interruption
in production until we established new sources or, in some cases,
implemented alternative processes.
The major portion of our sales
abroad are of products manufactured wholly or in part abroad. However, a
principal source of active ingredients for those manufactured products
continues to be our facilities in the United States.
Patents,
Trademarks, and Other Intellectual Property Rights
Intellectual property protection
is, in the aggregate, material to our ability to successfully commercialize
our life sciences innovations. We own, have applied for, or are licensed
under, a substantial number of patents, both in the United States and in
other countries, relating to products, product uses, formulations, and
manufacturing processes. There is no assurance that the patents we are
seeking will be granted or that the patents we have been granted would be
found valid if challenged. Moreover, patents relating to particular
products, uses, formulations, or processes do not preclude other
manufacturers from employing alternative processes or from successfully
marketing alternative products that might successfully compete with our
patented products.
Outside the United States, the
standard of intellectual property protection for pharmaceuticals varies
widely. While many countries have reasonably strong patent laws, other
countries provide little or no effective protection for inventions or other
intellectual property rights. In recent years, intellectual property
protection has been strengthened in some countries because of the adoption
of international agreements such as the new World Trade Agreement, and we
believe further improvements are possible. It is too soon to assess how much
we will benefit commercially from these changes.
When a product patent expires, the
patent holder often loses effective market exclusivity for the product. This
can result in very substantial reductions in sales of the patented product,
particularly in the United States. However, in some cases the innovator
company can obtain additional commercial benefits through manufacturing
trade secrets; later-expiring patents on processes, uses, or formulations;
trademark use; or marketing exclusivity that may be available under
pharmaceutical regulatory laws.
We consider patent protection for
certain products, processes, and uses—particularly that relating to
Prozac, Zyprexa, Axid, Humalog, ReoPro, Gemzar, and Evista—to be
important to our operations.
The United States compound
patent covering Prozac expires in February 2001 and a patent for the method
of use of the compound expires in December 2003. See “Legal
Proceedings” at page 10 for a discussion of certain litigation
involving those two patents. We are also eligible to receive an additional
six months of marketing exclusivity for Prozac in the U.S. under the terms
of the Food and Drug Administration Modernization Act of 1997 (“FDAMA
”). Under this law we are conducting clinical studies of Prozac in
pediatric populations under a written request of the FDA. To obtain
exclusivity, we must submit a report on these studies and the FDA must
determine that the studies have been conducted in accordance with the
written request, commonly accepted scientific principles and protocols, and
the requirements of FDAMA. Outside the United States, Prozac patents
generally either have expired or will expire over the next several
years.
Other U.S. compound patent
expirations include Axid, 2002; Zyprexa, 2011; Humalog, 2013; and ReoPro,
2015. The Gemzar compound patent in the U.S. expires in 2010, but a use
patent covering treatment of neoplasms with Gemzar is in force until 2012.
We hold a number of U.S. patents covering Evista and its approved uses in
osteoporosis prevention and treatment that we believe can provide us
exclusivity in the United States until at least 2012.
Worldwide, we sell all of our
major products under trademarks that we consider in the aggregate to be
important to our operations. Trademark protection varies throughout the
world, with protection continuing in some countries as long as the mark is
used, and in other countries as long as it is registered. Registrations are
normally for fixed but renewable terms.
We also grant licenses under our
patents, trademarks, and know-how, and we manufacture and sell products and
use technology and know-how under licenses from others. The amount of
royalties paid and received were not material.
Competition
Our pharmaceutical products
compete with products manufactured by many other companies in highly
competitive markets throughout the world. Our animal health products compete
on a worldwide basis with products of pharmaceutical, chemical, and other
companies that operate animal health divisions or subsidiaries.
Important competitive factors
include product efficacy, safety and ease of use, price and demonstrated
cost-effectiveness, service, and research and development of new products
and processes. If competitors introduce new products and processes with
therapeutic or cost advantages, our products can be subject to progressive
price reductions or decreased volume of sales, or both. When we introduce
new products with patent protection, they usually must compete with other
products already on the market at the time or products that are later
developed by competitors. Manufacturers of generic products typically invest
far less in research and development than research-based pharmaceutical
companies; accordingly, they are able to price their products significantly
lower than branded products. Therefore, when a branded product loses its
market exclusivity, it often faces intense price competition from generic
forms of the product. In many countries outside the United States, patent
protection is weak or nonexistent. In order for us to successfully compete
for business with managed care and pharmacy benefits management
organizations, we must demonstrate that our products offer not only medical
benefits but also cost advantages as compared with other forms of
care.
We believe our long-term
competitive position depends upon our success in discovering and developing
innovative products that serve unmet medical needs and are cost-effective,
together with our ability to manufacture the products efficiently and to
effectively market them in a highly competitive environment. There can be no
assurance that our research and development efforts will result in
commercially successful products or that our products or processes will not
become outmoded from time to time as a result of products or processes
developed by our competitors.
Government
Regulation
For many years our operations have
been regulated extensively 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 to varying degrees the testing, approval,
production, labeling, distribution, post-market surveillance, advertising,
dissemination of information, and promotion of our products. The lengthy
process of laboratory and 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. Promotion,
marketing, and distribution of pharmaceutical products are extensively
regulated in all major world markets. In addition, our operations are
subject to complex federal, state, local, and foreign environmental and
occupational safety laws and regulations. We anticipate that the laws and
regulations affecting the manufacture and sale of current products and 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, the Omnibus
Budget Reconciliation Act of 1990 requires us to provide rebates to state
governments on their purchases of certain of our products under state
Medicaid programs. Other cost containment measures have been adopted
or proposed by federal, state, and local government entities that provide or
pay for health care. In most international markets, we operate in an
environment of government-mandated cost containment programs, which may
include price controls, discounts and rebates, restrictions on physician
prescription levels, restrictions on reimbursement, compulsory licenses and
generic substitution.
We expect that governments inside
and outside the United States will continue to propose and/or adopt a
variety of measures to contain health care costs, including pharmaceutical
costs. Some of these measures could adversely affect our business. As an
example, there are a number of legislative proposals in the United States at
both the state and federal levels intended to provide greater access to
drugs for elderly and low-income Americans. Some of these proposals would,
directly or indirectly, impose governmental controls on the prices at which
our products are sold. Outside the United States, some proposals would
either directly or indirectly impose additional price controls or reduce the
value of our intellectual property protection. We cannot predict whether
such proposals will be adopted or the extent to which our business may be
affected by these or other potential future legislative or regulatory
developments.
Research and
Development
Our commitment to research and
development dates back more than 100 years. Our research and development
activities are responsible for the discovery or development of most of the
products we offer today. We invest heavily in research and development,
which we believe is critical to our long-term competitiveness. At the end of
1999, we employed approximately 6,050 people, including a substantial number
who are physicians or scientists holding graduate or postgraduate degrees or
highly skilled technical personnel, in pharmaceutical and animal health
research and development activities. We expended $1.37 billion on research
and development activities in 1997, $1.74 billion in 1998, and $1.78 billion
in 1999.
Our research is concerned
primarily with the effects of synthetic chemicals and natural products on
biological systems. We apply the results of that research to develop
products to treat diseases in humans and animals, with the primary effort
devoted to human pharmaceutical products. We concentrate our 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.
However, we remain opportunistic; therefore, we selectively pursue promising
leads in other therapeutic areas. We are actively engaged in biotechnology
research programs involving recombinant DNA, proteins, and genomics (the
development of therapeutics through identification of disease-causing genes
and their cellular function). In addition to discovering and developing new
chemical entities, we seek to expand the value of existing products through
new uses and formulations.
To supplement our internal
efforts, we sponsor and fund research and development by independent
organizations, including educational institutions and research-based
pharmaceutical and biotechnology companies, and we contract with others for
the performance of research in their facilities. We use the services of
physicians, hospitals, medical schools, and other research organizations
worldwide to establish through clinical evidence the safety and
effectiveness of new products. We actively seek out investments in external
research and technologies that hold the promise to complement and strengthen
our own research efforts. These investments can take many forms, including
licensing arrangements, co-development and co-marketing agreements, joint
ventures, and acquisitions.
We also conduct extensive work in
the animal sciences, including animal nutrition and physiology and
veterinary medicine. Certain of our 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.
Drug development is
time-consuming, expensive, and unpredictable. On average, only one out of
many thousands of chemical compounds discovered by researchers proves to be
both medically effective and safe enough to become an approved medicine. The
process from discovery to regulatory approval can take more than ten years.
Candidates can fail at any stage of the process, and even late-stage product
candidates could fail to receive regulatory approval. We believe our
investments in research, both internally and in collaboration with others,
have been rewarded by the number of new pharmaceutical compounds and
indications in all stages of development. Among our new investigational
compounds in the later stages of development are potential therapies for
depression, various cancers, diabetic complications, osteoporosis,
infectious diseases, sepsis, stroke, male erectile dysfunction, and
attention deficit/hyperactivity disorder. Further, we are studying many
other compounds in the earlier stages of development. We are also developing
new uses and formulations for many of our important products, such as
Prozac, Zyprexa, Gemzar, ReoPro, Humalog, and Evista.
Quality
Assurance
Our success depends in great
measure upon customer confidence in the quality of our products and in the
integrity of the data that support their safety and effectiveness. The
quality of our products arises from the total commitment to quality in all
parts of our operations, including research and development, purchasing,
facilities planning, manufacturing, and distribution. We have developed
quality-assurance procedures relating to the quality and integrity of
scientific information and production processes.
Control of production processes
involves rigid specifications for ingredients, equipment, facilities,
manufacturing methods, packaging materials, and labeling. We perform tests
at various stages of production processes and on the final product to assure
that the product meets all regulatory requirements and our standards. These
tests may involve chemical and physical chemical analyses, microbiological
testing, testing in animals, or a combination. 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 our executive officers. All but one of the
executive officers have been employed by the Company in executive or
managerial positions during the last five years. Charles E. Golden joined
the Company as Executive Vice President and Chief Financial Officer and was
elected to the Board of Directors in March 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.
The term of office for each
executive officer expires on the date of the annual meeting of the Board of
Directors, to be held on April 17, 2000, 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.
Name
|
|
Age
|
|
Offices
|
| Sidney
Taurel |
|
51 |
|
Chairman of the
Board (since January 1999), President and Chief
Executive Officer (since June 1998), and a Director |
|
|
| Charles E.
Golden |
|
53 |
|
Executive Vice
President and Chief Financial Officer (since March
1996) and a Director |
|
|
| Gerhard N.
Mayr |
|
53 |
|
Executive Vice
President, Pharmaceutical Operations (since October 1999) |
|
|
| August M.
Watanabe, M.D. |
|
58 |
|
Executive Vice
President, Science and Technology (since February 1996)
and a Director |
|
|
| Mitchell E.
Daniels, Jr. |
|
50 |
|
Senior Vice
President, Corporate Strategy and Policy (since June 1998) |
|
|
| Rebecca O.
Kendall |
|
52 |
|
Senior Vice
President and General Counsel (since June 1998) |
|
|
| Pedro P.
Granadillo |
|
52 |
|
Senior Vice
President, Human Resources and Manufacturing (since
June 1998) |
|
|
| John C.
Lechleiter |
|
46 |
|
Senior Vice
President, Pharmaceutical Products (since June 1998) |
Employees
At the end of 1999,
we employed approximately 31,300 people, including approximately
15,800 employees outside the United States. A substantial number of
our employees have long records of continuous service.
Financial
Information Relating to Foreign and Domestic
Operations
You can find
financial information relating to foreign and domestic operations in
the Company’s 1999 Annual Report at pages 27-28 under
“Segment Information” (pages 15-16 of Exhibit 13). That
information is incorporated in the Report by reference.
To date, our overall
operations abroad have not been significantly deterred by local
restrictions on the transfer of funds from branches and subsidiaries
located abroad, including the availability of dollar exchange. We
cannot predict what effect these restrictions or the other risks
inherent in foreign operations, including possible nationalization,
might have on our future operations or what other restrictions may be
imposed in the future. In addition, changing currency values can
either favorably or unfavorably affect our financial position and
results of operations. We actively manage foreign exchange risk
through various hedging techniques including the use of foreign
currency contracts.
Item 2.
Properties
Our principal
domestic and international executive offices are located in
Indianapolis. At December 31, 1999, we owned 12 production and
distribution facilities in the United States and Puerto Rico.
Together with the corporate administrative offices, these facilities
contain an aggregate of approximately 9.6 million square feet of
floor area dedicated to production, distribution, and administration.
Major production sites include Indianapolis; Clinton and Lafayette,
Indiana; and Carolina and Mayaguez, Puerto Rico. We also lease sales
offices in a number of cities located in the United States and
abroad.
We own production and
distribution facilities in 18 countries outside the United States and
Puerto Rico, containing an aggregate of approximately 4.4 million
square feet of floor space. Major production sites include facilities
in the United Kingdom, France, Spain, Ireland, Brazil, Mexico, and
Italy. We lease production and warehouse facilities in Puerto Rico
and 18 countries outside the United States.
Our research and
development facilities in the United States consist of approximately
4.0 million square feet and are located primarily in Indianapolis and
Greenfield, Indiana. Our major research and development facilities
abroad are located in Belgium, Germany, and the United Kingdom and
contain approximately 525,000 square feet.
We believe that none
of our 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. The buildings we own are of
varying ages and in good condition.
Item 3.
Legal Proceedings
Prozac Patent
Litigation. In March 1996 we were informed by Barr Laboratories,
Inc. (“Barr”), a generic pharmaceutical manufacturer, that
it had submitted an abbreviated new drug application (“ANDA
”) to the U.S. FDA seeking to market a generic form of Prozac in
the United States several years before the expiration of our patents.
Barr has alleged that our U.S. patents covering Prozac are invalid
and unenforceable. The compound patent expires in February 2001 and a
patent for the method of use of the compound expires in December
2003. These patents are material to the Company.
On April 11, 1996, we
filed suit in the United States District Court for the Southern
District of Indiana seeking a ruling that Barr’s challenge to
our patents is without merit. In 1997, Geneva Pharmaceuticals, Inc. (
“Geneva”), another generic manufacturer, submitted a
similar ANDA and, like Barr, asserted that our U.S. Prozac patents
are invalid and unenforceable. On June 23, 1997, we sued Geneva in
the same court seeking a similar ruling as in the Barr suit. The two
suits were consolidated. On January 12, 1999, the trial court judge
for the Southern District of Indiana granted partial summary judgment
in our favor, dismissing the claims of Barr and Geneva based on the
patent doctrines of “best mode” and “double patenting.
” On January 25, 1999 (the day trial was to have begun), Barr
and Geneva agreed to abandon their remaining two claims (based on the
patent doctrines of “anticipation” and “inequitable
conduct”) in exchange for a payment of $4 million to be shared
among Barr, Geneva, and a third defendant, Apotex, Inc. Barr, Geneva,
and Apotex appealed the trial court’s January 12, 1999 rulings
to the Court of Appeals for the Federal Circuit. The Court of Appeals
held oral arguments on the appeal on March 8, 2000.
In late 1998, three
additional generic manufacturers, Zenith Goldline Pharmaceuticals,
Inc., Teva Pharmaceuticals USA, and Cheminor Drugs, Ltd. together
with one of its subsidiaries filed ANDAs for generic forms of Prozac,
asserting that our December 2003 patent is invalid and unenforceable.
Finally, in January 1999, Novex Pharma, a division of Apotex, Inc.
filed an ANDA asserting that both the 2001 and 2003 patents are
invalid and unenforceable. We filed lawsuits in the United States
District Court of the Southern District of Indiana seeking rulings
that the four companies’ challenges to the patent(s) are without
merit. In November 1999, we filed a lawsuit in federal court in
Indiana against Cheminor Drugs and Schein Pharmaceuticals, Inc.,
based on their ANDA filing for an additional dosage form. A trial
date of October 30, 2000, has been set for the cases involving
Zenith, Teva, Cheminor, and Schein.
We believe that the
claims of the seven generic manufacturers are without merit and that
we should be successful in this litigation. However, it is not
possible to predict or determine the outcome of this litigation and
accordingly there can be no assurance that we will prevail. An
unfavorable outcome could have a material adverse effect on our
consolidated financial position, liquidity, or results of
operations.
Product Liability
Litigation. We are currently a defendant in a variety of product
liability litigation lawsuits involving primarily diethylstilbestrol (
“DES”) and Prozac. In approximately 85 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 another approximately ten actions, plaintiffs
seek to recover damages as a result of the ingestion of
Prozac.
Pricing
Litigation. We have 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 other federal suits (the “Federal
Individual Actions”), 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.
In 1995, we and
several other manufacturers agreed with the plaintiffs to settle the
Federal Class Action. In addition, in 1997 and 1998 we reached
settlements with two large groups of retail pharmacy and supermarket
chains that were plaintiffs in the Federal Individual Actions. More
recently, we have reached an agreement in principle to settle with
approximately 3,800 of the Federal Individual Action plaintiffs. As a
result of the various settlements, we have disposed of the claims of
all but a few hundred of the U.S. retailers. With respect to the
remaining Federal Individual Actions, 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 Federal Individual Actions
against nondesignated defendants, including the Company, are
stayed.
In addition, a number
of related state court cases were filed. The state court suits
typically seek money damages and injunctive relief against allegedly
discriminatory pricing practices. Cases were brought in Alabama,
California, Minnesota, Mississippi, and Wisconsin by retail
pharmacies alleging violations of various state antitrust and pricing
laws, purporting to be class actions on behalf of all retail
pharmacies in those states. Settlements have been approved in
Minnesota and Wisconsin and the cases in those states are now
dismissed. Cases were also brought in state courts in Alabama,
Arizona, California, District of Columbia, Florida, Kansas, Maine,
Michigan, Minnesota, New Mexico, New York, North Carolina, North
Dakota, South Dakota, Tennessee, West Virginia, and Wisconsin that
purport to be class actions on behalf of consumers of prescription
pharmaceuticals, alleging violations of state antitrust, pricing or
consumer protection laws. Settlements have been approved and the
cases dismissed in all states except Alabama, New Mexico, North
Dakota, South Dakota, Tennessee, and West Virginia.
Other
Matters. In March 1996, the Federal Trade
Commission (“FTC”) commenced a non-public investigation
focusing on the pricing practices described under “Pricing
Litigation” above. We have responded to two subpoenas from the
FTC requesting production of certain documents and other discovery
responses. We believe that all of our actions have been lawful and
proper and are cooperating with the investigation.
We are also a
defendant in other litigation, including product liability and patent
suits, of a character regarded as normal to our business.
While it is not
possible to predict or determine the outcome of the legal actions and
investigations pending against us, we believe that except as noted
above, the costs associated with all such matters will not have a
material adverse effect on our consolidated financial position or
liquidity but could possibly be material to our 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 1999, 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
You can find
information relating to the principal market for our common stock and
related stockholder matters, in our 1999 Annual Report under
“Selected Quarterly Data (unaudited),” at page 29 (pages
17-18 of Exhibit 13), and “Selected Financial Data (unaudited),
” at page 30 (pages 19-20 of Exhibit 13). That information is
incorporated in this Report by reference.
Item 6.
Selected Financial Data
You can find selected
financial data for each of our five most recent fiscal years in our
1999 Annual Report under “Selected Financial Data (unaudited),
” at page 30 (pages 19-20 of Exhibit 13). That information is
incorporated in this Report by reference.
Item 7.
Management’s Discussion and Analysis of Results of Operations
and Financial Condition
You can find
management’s discussion and analysis of results of operations
and financial condition in the following portions of the Company
’s 1999 Annual Report (found at pages 1-9 of Exhibit
13):
|
“Review of
Operations—Sale of PCS Health-Care-Management Business”
(page 16)
|
|
“Review of
Operations—Operating Results From Continuing Operations
—1999” (pages 16-19)
|
|
“Review of
Operations—Operating Results From Continuing Operations
—1998” (pages 19-21)
|
|
“Review of
Operations—Discontinued Operations” (pages
21-22)
|
|
“Review of
Operations—Financial Condition” (pages 22 and
24)
|
|
“Review of
Operations—Year 2000 Readiness Disclosure” (page
24)
|
|
“Review of
Operations—Euro Conversion” (pages 24-25)
|
|
“Review of
Operations—Legal and Environmental Matters” (page
25)
|
|
“Review of
Operations—Private Securities Litigation Reform Act of 1995
—a Caution Concerning Forward-Looking Statements” (page
25)
|
The information
referred to above is incorporated in this Report by
reference.
Item 7A.
Quantitative and Qualitative Disclosures About Market
Risk
You can find
quantitative and qualitative disclosures about market risk
(e.g., interest rate risk and foreign currency exchange risk)
in the Company’s 1999 Annual Report at “Review of Operations
—Financial Condition” at page 22 (pages 6-7 of Exhibit 13).
That information is incorporated in this Report by
reference.
Item 8.
Financial Statements and Supplementary Data
You can find the
consolidated financial statements of the Company and its subsidiaries
in our 1999 Annual Report at pages 18, 23, 26, and 27 (Consolidated
Statements of Income, Consolidated Balance Sheets, Consolidated
Statements of Cash Flows, and Consolidated Statements of
Comprehensive Income), pages 27-28 (Segment Information), and pages
31-45 (Notes to Consolidated Financial Statements) (together, pages
10-16 and 20-38 of Exhibit 13). You can find the Report of
Independent Auditors at page 47 of the Annual Report (page 40 of
Exhibit 13). All of the above information is incorporated in this
Report by reference.
Also incorporated by
reference is information on quarterly results of operations, which
can be found in our 1999 Annual Report under “Selected Quarterly
Data (unaudited),” at page 29 (pages 17-18 of Exhibit
13).
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART
III
Item 10.
Directors and Executive Officers of the Company
You can find
information relating to our Board of Directors in the Company’s
Proxy Statement dated March 3, 2000 (the “Proxy Statement
”), under “Item 1. Election of Directors” at pages
4-7, and information relating to our executive officers at page 8 of
this Form 10-K under “Executive Officers of the Company.”
In addition, you can find information relating to certain filing
obligations of directors and executive officers under the federal
securities laws in the Proxy Statement under “Other Matters
—Section 16(a) Beneficial Ownership Reporting Compliance”
at page 31. All of that information is incorporated in this Report by
reference.
Item 11.
Executive Compensation
You can find
information on executive compensation in the Proxy Statement under
“Directors’ Compensation”, “Executive Compensation
”, “Retirement Plan”, and “Change-in-Control
Severance Pay Arrangements” at pages 13-22. That information is
incorporated in this Report by reference, except that the
Compensation Committee Report and Performance Graph are not so
incorporated.
Item 12.
Security Ownership of Certain Beneficial Owners and
Management
You can find
information relating to ownership of the Company’s common stock
by management and by persons known by the Company to be the
beneficial owners of more than five percent of the outstanding shares
of common stock in the Proxy Statement under “Common Stock
Ownership by Directors and Executive Officers,” at pages 11-12,
and “Principal Holders of Common Stock,” at page 12. That
information is incorporated in this Report 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 1999 Annual Report at
the pages indicated in parentheses, are incorporated by reference
in Item 8:
|
|
Consolidated
Statements of Income—Years Ended December 31, 1999, 1998, and
1997 (page 18) (page 10 of Exhibit 13)
|
|
Consolidated
Balance Sheets—December 31, 1999 and 1998 (page 23) (pages
11-12 of Exhibit 13)
|
|
Consolidated
Statements of Cash Flows—Years Ended December 31, 1999, 1998,
and 1997 (page 26) (page 13 of Exhibit 13)
|
|
Consolidated
Statements of Comprehensive Income—Years Ended December 31,
1999, 1998, and 1997 (page 27) (page 14 of Exhibit 13)
|
|
Segment Information
(pages 27-28) (pages 15-16 of Exhibit 13)
|
|
Notes to
Consolidated Financial Statements (pages 31-45) (pages 21-38 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.
Financial statements
of interests of 50 percent 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 |
|
Rights
Agreement dated as of July 20, 1998, between Eli Lilly and Company
and Norwest
Bank Minnesota, N.A., as Successor Rights Agent |
|
|
|
| 4.2 |
|
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 |
|
|
|
| 4.3 |
|
Form of
Standard Multiple-Series Indenture Provisions dated, and filed with
the Securities
and Exchange Commission on, February 1, 1991 |
|
|
|
| 4.4 |
|
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, 2005(1)
|
|
|
|
| 4.5 |
|
Form of
Indenture with respect to Capital Securities dated August 5, 1999
between Lilly
del Mar, Inc. and Citibank, N.A., as Trustee(1) |
|
|
|
| 4.6 |
|
Form of
Resettable Coupon Capital Security due 2029 of Lilly del Mar,
Inc.(1) |
|
|
|
| 4.7 |
|
Form of
Floating Rate Capital Security due 2029 of Lilly del Mar,
Inc.(1) |
|
|
|
| 10.1 |
|
1989 Lilly
Stock Plan, as amended(2) |
|
|
|
| 10.2 |
|
1994 Lilly
Stock Plan, as amended(2) |
|
|
|
| 10.3 |
|
1998 Lilly
Stock Plan(2) |
|
|
|
| 10.4 |
|
The Lilly
Deferred Compensation Plan, as amended(2) |
|
|
|
| 10.5 |
|
The Lilly
Directors’ Deferral Plan, as amended(2) |
|
|
|
| 10.6 |
|
The Eli
Lilly and Company EVA® Bonus Plan, as amended(2),(3) |
|
|
|
| 10.7 |
|
Eli Lilly
and Company Change in Control Severance Pay Plan for Select
Employees, as
amended(2) |
|
|
|
| 12. |
|
Computation
of Ratio of Earnings from Continuing Operations to Fixed
Charges |
|
|
|
| 13. |
|
Annual
Report to Shareholders for the Year Ended December 31, 1999
(portions
incorporated by reference into this Form 10-K) |
|
|
|
| 21. |
|
List of
Subsidiaries |
|
|
|
| 23. |
|
Consent of
Independent Auditors |
|
|
|
| 27. |
|
Financial
Data Schedule for the Year Ended December 31, 1999 |
|
|
|
| 99. |
|
Cautionary
Statement under Private Securities Litigation Reform Act of 1995
—“Safe
Harbor” for Forward-Looking Disclosures |
|
|
(1)
|
This exhibit
is not filed with this Report. Copies will be furnished to the
Securities and Exchange Commission upon request.
|
(2)
|
Indicates
management contract or compensatory plan.
|
(3)
|
EVA® is
a registered trademark of Stern Stewart & Co.
|
(b) Reports on
Form 8-K
The Company filed no
reports on Form 8-K during the fourth quarter of 1999.
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.
|
President
and Chief Executive Officer
|
March 24,
2000
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has
been signed below on March 24, 2000 by the following persons on
behalf of the Registrant and in the capacities indicated.
Signature
|
|
Title
|
|
|
|
/S
/ SIDNEY
TAUREL
(Sidney Taurel)
|
|
Chairman of
the Board, President, Chief Executive
Officer, and a Director (principal executive
officer) |
|
|
|
/S
/ CHARLES
E. GOLDEN
(Charles E. Golden)
|
|
Executive
Vice President, Chief Financial Officer,
and a Director (principal financial officer) |
|
|
|
/S
/ ARNOLD
C. HANISH
(Arnold C. Hanish)
|
|
Chief
Accounting Officer
(principal accounting officer) |
|
|
|
/S
/ STEVEN
C. BEERING
, M.D.
(Steven C. Beering, M.D.)
|
|
Director |
|
|
|
/S
/ KAREN
N. HORN
(Karen N. Horn, Ph.D.)
|
|
Director |
|
|
|
/S
/ ALFRED
G. GILMAN
, M.D., PH
.D.
(Alfred G. Gilman, M.D., Ph.D.)
|
|
Director |
|
|
|
/S
/ KENNETH
L. LAY
, PH
.D.
(Kenneth L. Lay, Ph.D.)
|
|
Director |
|
|
|
/S
/ FRANKLYN
G. PRENDERGAST
, M.D., PH
.D.
(Franklyn G. Prendergast, M.D., Ph.D.)
|
|
Director |
|
|
|
/S
/ KATHI
P. SEIFERT
(Kathi P. Seifert)
|
|
Director |
|
|
|
/S
/ AUGUST
M. WATANABE
, M.D.
(August M. Watanabe, M.D.)
|
|
Director |
|
|
|
/S
/ ALVA
O. WAY
(Alva O. Way)
|
|
Director |
|
|
TRADEMARKS USED IN THIS REPORT
Trademarks or
service marks owned by Eli Lilly and Company or its subsidiaries or
affiliates, when first used in this Report, appear with an initial
capital and are followed by the symbol ® or ™, as
applicable. In subsequent uses of the marks in the Report, the
symbols are omitted.
INDEX TO
EXHIBITS
The following
documents are filed as part of this report:
Exhibit
|
|
|
|
Location
|
|
3.1 |
|
Amended
Articles of Incorporation |
|
Incorporated by reference from
Exhibit 3 to the Company’s Report on
Form 10-Q for the quarter ended
September 30, 1998 |
|
|
|
3.2 |
|
By-laws |
|
Incorporated by reference from
Exhibit 4.2 to the Company’s
Registration Statement on Form S-8,
Registration No. 333-90397 |
|
|
|
4.1 |
|
Rights
Agreement dated as of July 20, 1988, between Eli
Lilly and Company and Norwest Bank Minnesota, N.A., as
Successor Rights Agent |
|
Incorporated by reference from
Exhibit 1 to the Company’s Report on
Form 8-K filed July 23, 1998 |
|
|
|
4.2 |
|
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 |
|
Incorporated by reference from
Exhibit 4.1 to the Company’s
Registration Statement on Form S-3,
Registration No. 33-38347 |
|
|
|
4.3 |
|
Form of
Standard Multiple-Series Indenture Provisions dated,
and filed with the Securities and Exchange Commission on
February 1, 1991 |
|
Incorporated by reference from
Exhibit 4.2 to the Company’s
Registration Statement on Form S-3,
Registration No. 33-38347 |
|
|
|
4.4 |
|
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, 2005
|
|
* |
|
|
|
4.5 |
|
Form of
Indenture with respect to Capital Securities dated
August 5, 1999, between Lilly del Mar, Inc. and Citibank,
N.A., as Trustee |
|
* |
|
|
|
4.6 |
|
Form of
Resettable Coupon Capital Security due 2029 of
Lilly del Mar, Inc. |
|
* |
|
|
|
4.7 |
|
Form of
Floating Rate Capital Security due 2029 of Lilly del
Mar, Inc. |
|
* |
|
|
| 10.1 |
|
1989
Lilly Stock Plan, as amended |
|
Incorporated by reference from
Exhibit 10.2 to the Company’s Report
on Form 10-K for the fiscal year
ended December 31, 1993 |
|
|
| 10.2 |
|
1994
Lilly Stock Plan, as amended |
|
Incorporated by reference from
Exhibit 10 to the Company’s Report
on Form 10-Q for the quarter ended
September 30, 1996 |
|
|
| 10.3 |
|
1998
Lilly Stock Plan |
|
Incorporated by reference from
Exhibit A to the Company’s proxy
statement dated March 4, 1998 |
Exhibit
|
|
|
|
Location
|
| 10.4 |
|
The
Lilly Deferred Compensation Plan, as amended |
|
Incorporated by reference from Exhibit 10.4
to the Company’s Report on
Form 10-K for the fiscal year
ended December 31, 1994 |
|
|
| 10.5 |
|
The
Lilly Directors’ Deferral Plan, as amended |
|
Attached |
|
|
| 10.6 |
|
The Eli
Lilly and Company EVA® Bonus Plan, as
amended |
|
Incorporated by reference from Exhibit 10.6
to the Company’s Report on Form 10-K
for the year ended December 31, 1998 |
|
|
| 10.7 |
|
Eli
Lilly and Company Change in Control Severance
Pay Plan for Select Employees |
|
Incorporated by reference from Exhibit 10.7
to the Company’s Report on Form 10-K
for the year ended December 31, 1998 |
|
|
| 12. |
|
Computation of Ratio of Earnings to Fixed
Charges |
|
Attached |
|
|
| 13. |
|
Annual
Report to Shareholders for the Year Ended
December 31, 1999 (portions incorporated by reference
in this
Form 10-K) |
|
Attached |
|
|
| 21. |
|
List of
Subsidiaries |
|
Attached |
|
|
| 23. |
|
Consent
of Independent Auditors |
|
Attached |
|
|
| 27. |
|
Financial Data Schedule for the Year Ended December
31, 1999 |
|
EDGAR
filing only |
|
|
| 99. |
|
Cautionary Statement Under Private Securities
Litigation Reform Act of 1995 — “Safe Harbor” for
Forward-Looking Disclosures |
|
Attached |
|
|
*Not
filed with this report. Copies will be furnished to the
Securities and Exchange Commission upon request.
|