3rd Quarter Results

     
BW20021023002183  20021023T110936Z UTC


( BW)(ELI-LILLY-&-CO)(BC43) 3rd Quarter Results

    Business Editors
    UK REGULATORY NEWS

    INDIANAPOLIS--(BUSINESS WIRE)--Oct. 23, 2002--Eli Lilly and
Company (NYSE:LLY) announced financial results for the third quarter
of 2002.

--  Lilly Announces Third-Quarter Earnings per Share of $.68, an
    Increase of 3 Percent, Adjusted for One-Time Events; Company Also
    Provides Updated Financial Expectations

Third-Quarter Highlights

--  Sales decreased 3 percent, to $2.786 billion.

--  Excluding Prozac(R), sales increased 7 percent, driven primarily
    by certain key growth products, including Zyprexa(R), Gemzar(R),
    Evista(R) and Humalog(R).

--  Reported net income and diluted earnings per share increased 20
    percent and 21 percent, respectively, to $683.9 million and $.63.

--  Adjusted for one-time events, normalized net income and diluted
    earnings per share increased 2 percent and 3 percent,
    respectively, to $738.5 million and $.68.

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Pharmaceutical Product Sales Highlights
---------------------------------------
(Dollars in millions)

                             % Change                      % Change
             Third Quarter  Over/(Under)  Year-to-Date    Over/(Under)
           
            --------------  ------------  ------------    ------------
              2002   2001      2001       2002     2001      2001
              ----   ----      ----       ----     ----      ----
Zyprexa     $974.0  $812.5       20%    $2,700.1 $2,186.2      24%
Diabetes
 Care
 Products    571.3   533.0        7%     1,688.8  1,577.9       7%
Gemzar       197.2   187.0        5%       613.7    521.9      18%
Evista       217.4   183.1       19%       583.5    499.1      17%
Prozac,
 Prozac
 Weekly(TM)
 and
 Sarafem(TM) 189.9   449.4      (58)%      570.9  1,764.6     (68)%
*T

Significant Events Over the Last Three Months

--  The European Committee for Proprietary Medicinal Products (CPMP)
    issued a positive opinion for Cialis(TM), an investigational oral
    PDE5 inhibitor for the treatment of erectile dysfunction. The CPMP
    recommended to the European Commission that approval should be
    granted. Lilly ICOS LLC plans for a European launch of Cialis in
    the first half of 2003.

--  Lilly received an approvable letter from the U.S. Food and Drug
    Administration (FDA) for Strattera(TM), a treatment for
    attention-deficit hyperactivity disorder (ADHD) in children,
    adolescents and adults. Approval is contingent upon labeling
    discussions and submission of additional data or analyses from
    either existing studies or a potential new study. While Lilly
    continues to plan for final FDA approval in the spring of 2003,
    approval timing is contingent upon further discussions with the
    FDA.

--  The European Commission granted marketing authorization for
    Xigris(R) in all 15 member states of the European Union. This
    biotech therapy is approved for the treatment of adult patients
    with severe sepsis with multiple organ failure when added to best
    standard care. Last week, Xigris was launched in a number of
    European countries.

--  Lilly received an approvable letter from the FDA for Cymbalta(TM),
    a dual reuptake inhibitor that works through two key
    neurotransmitters - serotonin and norepinephrine - involved in
    depression. Approval is contingent upon labeling discussions and
    resolution of the company's outstanding manufacturing issues.

--  Lilly and Amylin Pharmaceuticals, Inc., signed a global agreement
    to collaborate on the development and commercialization of
    Amylin's compound AC2993 (synthetic exendin-4), a potential
    first-in-class treatment for type 2 diabetes that could represent
    a significant advance. AC2993 is currently in Phase III clinical
    trials with a submission to the FDA anticipated as early as 2004.


"This quarter marks a return to quarterly earnings growth for Lilly,
and we are now through the period during which the Prozac sales
decline triggered by generic competition in the U.S. had the greatest
impact on our performance," said Sidney Taurel, Lilly chairman,
president and chief executive officer. "Given the size of Lilly's
sales base and the potential of our portfolio, we believe our
opportunities are substantial. Several key products are delivering
solid growth while our late-stage pipeline could deliver as many as 10
new products through 2005. We anticipate being able to provide more
specificity regarding the new product approval and launch timelines as
well as 2003 financial expectations when we receive the FDA's final
conclusions and recommendations regarding our outstanding
manufacturing issues."

Third-Quarter Results- as Reported

Worldwide sales for the quarter were $2.786 billion, a decrease of 3
percent compared with the third quarter of 2001. The sales decline was
due primarily to lower Prozac sales as a result of the August 2001
introduction of generic competition in the U.S. market and, to a
lesser extent, continued declines in sales of anti-infectives and
Axid(R). This decrease was partially offset by the strong performance
of certain key growth products. Worldwide sales volume declined 3
percent and selling prices reduced sales by 1 percent, while exchange
rates increased sales by 1 percent. Excluding Prozac, worldwide sales
volume increased 6 percent.

Gross margins as a percent of sales declined by 0.8 percentage points,
to 80.1 percent. This decline was due in part to the decline in Prozac
sales and higher inventory losses, offset partially by a favorable
sales mix of other high margin products and favorable manufacturing
throughput from increased volume of product manufactured.

Overall, marketing and administrative expenses decreased 6 percent, to
$810.7 million. The decline in marketing and administrative expenses
was attributable to pre-launch marketing support payments from
Quintiles Transnational Corp. as part of the recently announced
Cymbalta commercialization agreement as well as lower underlying
marketing expenses due in part to less Prozac promotional expenses.
Underlying administrative expenses increased due in part to costs
associated with litigation. Research and development expenses were
$526.7 million, or 19 percent of sales. Compared with the third
quarter of 2001, research and development expenses decreased 7 percent
due primarily to lower late-stage clinical trial costs.

Operating income increased 19 percent, to $810.5 million, primarily as
a result of lower operating expenses as well as the net effect of the
one-time events relating to in-process research and development and
2001 asset impairment as discussed below. Interest expense declined
due to lower interest rates. Other income was essentially flat due to
a combination of income recognized during the quarter from upfront and
milestone payments from Quintiles as part of the recently announced
Cymbalta commercialization agreement as well as income recognized from
InterMune, Inc., related to the 2001 oritavancin outlicense agreement,
offset primarily by lower interest income due to lower interest rates.
Net income and diluted earnings per share for the third quarter
increased 20 and 21 percent, respectively, to $683.9 million and $.63.

One-Time Events

During the third quarter of 2002, the following one-time event
affected reported net income and earnings per share:

--  The company recorded special charges of $84 million for in-process
    research and development associated with the collaboration with
    Amylin Pharmaceuticals, Inc.

As previously disclosed, during the third quarter of 2001, the
following one-time events affected reported net income and earnings
per share:

--  The company recorded special charges of $91 million for in-process
    research and development associated with molecule acquisitions.

--  The company recorded special charges of $121 million primarily for
    asset impairments and other charges associated with the company's
    ongoing effort to maximize the efficiency of its worldwide
    manufacturing operations.

--  The company took advantage of lower interest rates to refinance
    and thus recorded as an extraordinary item a charge of $26 million
    ($16.6 million net of tax) for early retirement of existing higher
    cost debt.

Adjusting for these one-time events, net income and earnings per share
increased 2 percent and 3 percent, respectively, to $738.5 million and
$.68 due to lower operating and interest expenses.

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Reconciliation of Reported to Normalized
Third-Quarter Earnings per Share
----------------------------------------                       %
                                           Third-Quarter  Over/(Under)
                                           -------------  ------------
                                             2002   2001     2001
                                             ----   ----     ----  
E.P.S. (as reported, diluted)                $.63   $.52       21%
Add back one-time charges:
     In-process research and development      .05    .05
     Asset impairment and other site charges  N/A    .07
     Early retirement of debt                 N/A    .02
                                             ----   ----
E.P.S. (normalized and diluted)              $.68   $.66        3%
*T

Zyprexa

In the third quarter of 2002, Zyprexa sales totaled $974.0 million, a
20 percent increase over the third quarter of 2001. U.S. sales of
Zyprexa increased 18 percent, to $683.2 million, while sales outside
the United States increased 24 percent, to $290.8 million. The label
change in Japan, which includes a contraindication in patients with
diabetes or a history of diabetes, has dampened the Zyprexa sales
growth rate in that country.

Diabetes Care Products

Diabetes care revenue, composed primarily of Humulin(R), Humalog, and
Actos(R), increased 7 percent, to $571.3 million, compared with the
third quarter of 2001. Diabetes care revenue decreased 3 percent in
the U.S., to $341.1 million, and increased 27 percent in international
markets, to $230.2 million.

Worldwide Humulin sales increased 1 percent, to $257.4 million,
compared with the third quarter of 2001, as overseas growth offset a
decline in the U.S. Worldwide Humalog sales for the third quarter were
$214.1 million, an increase of 30 percent compared with a year ago.
Actos generated $81.7 million of revenue for Lilly in the third
quarter, which represents a decrease of 14 percent. Despite strong
underlying product sales growth, Lilly's Actos revenue declined due to
the terms of the agreement with Takeda Chemical Industries, Ltd.
Specifically, the decline in Lilly Actos revenue for the third quarter
of 2002 is driven by two factors: timing of incentive payments earned
and lower detail fee income in the third quarter of 2002. As provided
in the agreement with Takeda, Lilly attained the minimum sales
representative call threshold and earned an incentive payment during
the second quarter of 2002 compared with the prior year when the
incentive payment was earned in the third quarter of 2001. In
addition, Lilly earned less sales representative detail fee income in
the third quarter of 2002 per the terms of the current contract.

Gemzar

Gemzar had sales totaling $197.2 million for the quarter, an increase
of 5 percent from the third quarter of 2001. Gemzar sales decreased 15
percent in the U.S. and increased 34 percent outside the U.S., to
$93.2 million and $104.0 million, respectively. The decrease in the
U.S. was due primarily to U.S. wholesaler stocking in the second
quarter of 2002 due to price increases that occurred in June 2002 as
well as softer underlying U.S. demand for the product as a result of
competitive pricing pressures.

Evista

Evista sales were $217.4 million, a 19 percent increase compared with
the third quarter of 2001. U.S. sales of Evista increased 11 percent,
to $166.1 million, while sales outside the United States increased 51
percent, to $51.3 million.

Xigris

Sales of Xigris, the company's newest product for the treatment of
severe sepsis, were $21.2 million in the third quarter of 2002, which
is essentially flat with the second quarter of 2002.

Animal Health

Worldwide sales of animal health products in the third quarter were
$167.6 million, a decrease of 6 percent compared with the third
quarter of 2001. Excluding the effect of exchange rates, sales
declined by 5 percent for the quarter.

Year-to-Date Results

For the first nine months of the year, worldwide sales decreased 7
percent, to $8.122 billion, compared with sales for the same period in
2001. Net income and diluted earnings per share for the first nine
months decreased 11 percent and 10 percent, respectively, to $1.972
billion and $1.82, compared with results for the first nine months in
2001. The declines are primarily the result of lower sales of Prozac.
Adjusting for the one-time events, net income and diluted earnings per
share for the first nine months declined 14 percent and 13 percent,
respectively, to $2.026 billion and $1.87, compared with the same
period in the prior year.

Financial Expectations

The company continues to expect a slight decline in sales for the
full-year 2002. However, the company's sales in the fourth quarter of
2002 are expected to return to growth and be in the mid-single digits,
driven primarily by Zyprexa, Evista, Gemzar, Humalog and Actos.

For full-year 2002, the company expects gross margin as a percentage
of sales to decline about 1.0 to 1.5 percentage points. Marketing and
administrative expenses are expected to increase in the low single
digits. Underlying marketing and selling expenses will increase more
strongly as the company maintains the marketing momentum for its
current growth products. Research and development expenses are
expected to be slightly lower but remain at the top of the industry in
terms of investment as a percent of sales. Nonoperating income is
expected to contribute at least $250 million, assuming anticipated
business development deals occur. The tax rate is expected to remain
at 22 percent.

For the 2002 calendar year, earnings per share is expected to decline,
and the company is currently comfortable with a range of $2.55 to
$2.57, excluding unusual items. For the fourth quarter of 2002, the
company expects earnings per share of $.68 to $.70, excluding unusual
items. This lowering of guidance for full-year and fourth quarter of
2002 is driven by the need to continue to make the appropriate
investments in the business, including supporting Zyprexa and
preparing for several new product launches, in order to implement
Lilly's long-term growth strategy. In addition, sales from ReoPro and
the company's older legacy products, such as anti-infectives and Axid,
are trending lower than anticipated.

For full-year 2003, the company continues to be cautious about its
financial assumptions. Assuming no significant financial penalties
imposed by the FDA related to the company's manufacturing issues or
other unusual items, the company's goal is to deliver some earnings
growth in 2003. As the outlook for the company's new product launch
timelines and resolution of manufacturing issues becomes more certain,
the company will provide more specific 2003 financial guidance as
appropriate.

Webcast of Conference Call

As previously announced, investors and the general public can access a
live webcast of the third-quarter earnings conference call through a
link on Lilly's investor relations website at www.investor.lilly.com.
The conference call begins today at 8:30 a.m. EDT (7:30 a.m.
Indianapolis time) and will be available for replay through November
7, 2002.

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

This press release contains forward-looking statements that are based
on management's current expectations but actual results may differ
materially due to various factors. There are significant risks and
uncertainties in pharmaceutical research and development. There can be
no guarantees with respect to pipeline products that the products will
receive the necessary clinical and manufacturing regulatory approvals
or that they will prove to be commercially successful. In particular,
there is substantial uncertainty surrounding the ultimate impact of
the company's manufacturing compliance issues on the timing of new
product launches and on the company's results. The failure to resolve
these issues to the FDA's satisfaction could result in delayed product
approvals, recalls, fines and penalties, and other sanctions. The
company's results may also be affected by such factors as the
continuing impact of generic fluoxetine on Prozac sales in the United
States, competitive developments affecting current growth products,
rate of growth of Xigris sales, the timing of anticipated regulatory
approvals and launches of new products, other regulatory developments
involving current and future products and manufacturing facilities,
the impact of governmental actions regarding coverage and
reimbursement for pharmaceuticals, and the impact of exchange rates.
For additional information about the factors that affect the company's
business, please see Exhibit 99 to the company's latest Form 10-Q
filed August 2002. The company undertakes no duty to update
forward-looking statements.

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Actos(R) (pioglitazone hydrochloride, Takeda), Takeda
Axid(R)   (nizatidine, Lilly) Reliant Pharmaceuticals LLC
Cialis(TM)(tadalafil, ICOS), Lilly ICOS LLC
Cymbalta(TM)(duloxetine hydrochloride, Lilly)
Evista(R)(raloxifene hydrochloride, Lilly)
Gemzar(R)(gemcitabine hydrochloride, Lilly)
Humalog(R)(insulin lispro injection of recombinant DNA origin, Lilly)
Humatrope(R)(somatropin of recombinant DNA origin, Lilly)
Humulin(R)(human insulin of recombinant DNA origin, Lilly)
Prozac(R)(fluoxetine hydrochloride, Dista)
Prozac(R)Weekly(TM)(fluoxetine hydrochloride, Dista)
ReoPro(R) (abciximab, Centocor), Lilly
Sarafem(TM)(fluoxetine hydrochloride, Lilly)
Strattera(TM)(atomoxetine, Lilly)
Xigris(R)(drotrecogin alfa (activated), Lilly)
Zyprexa(R)(olanzapine, Lilly)



Eli Lilly and Company
Operating Results  (Unaudited)
(Dollars in millions, except per share data)

                            Three Months Ended     Nine Months Ended
                               September 30          September 30
                              2002       2001       2002       2001
                           ---------- ---------- ---------- ----------

Net sales                   $2,785.6   $2,874.4   $8,121.9   $8,713.6

Cost of sales                  553.7      549.0    1,608.7    1,593.5
Research and development       526.7      566.0    1,575.0    1,645.2
Marketing and
 administrative                810.7      865.9    2,503.2    2,534.7
Acquired in-process
 technology                     84.0       90.5       84.0       90.5
Asset impairment and other
 site charges                      -      121.4          -      121.4
                           ---------- ---------- ---------- ----------

Operating income               810.5      681.6    2,351.0    2,728.3

Interest expense               (22.3)     (41.9)     (55.8)    (123.7)
Other income - net              74.6       75.6      218.5      206.2
                           ---------- ---------- ---------- ----------

Income before income taxes
 and extraordinary item        862.8      715.3    2,513.7    2,810.8
Income taxes                   178.9      128.6      542.1      589.6
                           ---------- ---------- ---------- ----------

Income before
 extraordinary item            683.9      586.7    1,971.6    2,221.2
Extraordinary item                 -      (16.6)         -      (16.6)
                           ---------- ---------- ---------- ----------
Net Income                    $683.9     $570.1   $1,971.6   $2,204.6
                           ========== ========== ========== ==========

Earnings per share -
 basic:
     Income before
      extraordinary item       $0.64      $0.54      $1.83      $2.06
     Extraordinary item            -      (0.02)         -      (0.02)
                           ---------- ---------- ---------- ----------
     Net income                $0.64      $0.52      $1.83      $2.04
                           ========== ========== ========== ==========

Earnings per share -
 diluted:
     Income before
      extraordinary item       $0.63      $0.54      $1.82      $2.04
     Extraordinary item            -      (0.02)         -      (0.02)
                           ---------- ---------- ---------- ----------
     Net income                $0.63      $0.52      $1.82      $2.02
                           ========== ========== ========== ==========

Dividends paid per share        0.31       0.28       0.93       0.84
Weighted-average shares
 outstanding (thousands)   1,076,823  1,077,115  1,077,096  1,077,561
Weighted-average shares
 outstanding (thousands)
 - diluted                 1,085,720  1,089,892  1,085,986  1,091,198



Eli Lilly and Company
Operating Results  (Unaudited) - NORMALIZED
(Dollars in millions, except per share data)

                            Three Months Ended     Nine Months Ended
                               September 30          September 30
                             2002 (a)   2001 (b)   2002 (a)   2001 (b)
                           ---------- ---------- ---------- ----------

Net sales                   $2,785.6   $2,874.4   $8,121.9   $8,713.6

Cost of sales                  553.7      549.0    1,608.7    1,593.5
Research and development       526.7      566.0    1,575.0    1,645.2
Marketing and
 administrative                810.7      865.9    2,503.2    2,534.7
                           ---------- ---------- ---------- ----------

Operating income               894.5      893.5    2,435.0    2,940.2

Interest expense               (22.3)     (41.9)     (55.8)    (123.7)
Other income - net              74.6       75.6      218.5      206.2
                           ---------- ---------- ---------- ----------

Income before income taxes     946.8      927.2    2,597.7    3,022.7
Income taxes                   208.3      204.0      571.5      665.0
                           ---------- ---------- ---------- ----------

Net Income                    $738.5     $723.2   $2,026.2   $2,357.7
                           ========== ========== ========== ==========

Earnings per share - basic     $0.69      $0.67      $1.88      $2.19
                           ========== ========== ========== ==========

Earnings per share -
 diluted                       $0.68      $0.66      $1.87      $2.16
                           ========== ========== ========== ==========

Dividends paid per share        0.31       0.28       0.93       0.84
Weighted-average shares
 outstanding (thousands)   1,076,823  1,077,115  1,077,096  1,077,561
Weighted-average shares
 outstanding (thousands)
 - diluted                 1,085,720  1,089,892  1,085,986  1,091,198


(a) 2002 third quarter and year-to-date amounts are adjusted for $84
    million charge for acquired in-process technology

(b) 2001 third quarter and year-to-date amounts are adjusted for
    significant transactions of: $121.4 million charge for asset
    impairment and other site charges, $90.5 million charge for
    acquired in-process technology and $16.6 million charge, net of
    tax, relating to the early extinguishment of debt.



Eli Lilly and Company
Major Pharmaceutical Product Sales and Revenues (Unaudited)
(Dollars in millions)
                                % Change                     % Change
                                  Over/       September        Over/
                Third Quarter    (Under)     Year-to-Date     (Under)
                 2002    2001      2001      2002     2001      2001
               ---------------- --------- ------------------ ---------

Zyprexa         $974.0  $812.5       20%  $2,700.1 $2,186.2       24%
Humulin          257.4   254.7        1%     749.6    792.9       (5%)
Gemzar           197.2   187.0        5%     613.7    521.9       18%
Humalog          214.1   164.3       30%     596.2    435.1       37%
Evista           217.4   183.1       19%     583.5    499.1       17%
Prozac, Prozac
  Weekly, and
 Sarafem         189.9   449.4      (58%)    570.9  1,764.6      (68%)
Actos             81.7    94.5      (14%)    296.1    293.2        1%
ReoPro            92.4   105.1      (12%)    285.2    325.9      (12%)
Humatrope         83.2    76.7        8%     243.3    229.7        6%



Eli Lilly and Company
Consolidated Balance Sheets
                                                  Sept. 30,  Dec. 31,
                                                    2002       2001
                                                 ---------------------
                                                 (Dollars in millions)
                                                 (Unaudited)
ASSETS
CURRENT ASSETS
   Cash and cash equivalents                       $2,786.2  $2,702.3
   Short-term investments                           1,549.3   1,028.7
   Accounts receivable, net of allowances
    for doubtful amounts of $74.1 (2002)
    and $88.5 (2001)                                1,525.4   1,406.2
   Other receivables                                  305.1     289.0
   Inventories                                      1,378.4   1,060.2
   Deferred income taxes                              212.8     223.3
   Prepaid expenses                                   556.0     229.2
                                                 ---------------------
   TOTAL CURRENT ASSETS                             8,313.2   6,938.9

OTHER ASSETS
   Prepaid pension                                  1,212.8   1,102.8
   Investments                                      3,034.2   2,710.9
   Sundry                                           1,371.5   1,149.1
                                                 ---------------------
                                                    5,618.5   4,962.8

PROPERTY AND EQUIPMENT
   Land, buildings, equipment, and
     construction-in-progress                       9,117.6   8,415.4
   Less allowances for depreciation                (4,129.2) (3,883.0)
                                                 ---------------------
                                                    4,988.4   4,532.4
                                                 ---------------------
                                                  $18,920.1 $16,434.1
                                                 =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
   Short-term borrowings                             $884.3    $286.3
   Accounts payable                                   499.4     624.1
   Employee compensation                              193.7     381.9
   Dividends payable                                      -     341.0
   Income taxes payable                             1,919.8   2,319.5
   Other liabilities                                1,520.3   1,250.2
                                                 ---------------------
   TOTAL CURRENT LIABILITIES                        5,017.5   5,203.0

LONG-TERM DEBT                                      4,363.1   3,132.1
OTHER NONCURRENT LIABILITIES                        1,278.0     995.0
                                                 ---------------------
                                                    5,641.1   4,127.1

COMMITMENTS AND CONTINGENCIES                             -         -

SHAREHOLDERS' EQUITY
   Common stock                                       702.9     702.7
   Additional paid-in capital                       2,610.0   2,610.0
   Retained earnings                                8,614.2   7,411.2
   Employee benefit trust                          (2,635.0) (2,635.0)
   Deferred costs-ESOP                               (125.2)   (129.1)
   Accumulated other comprehensive loss              (774.4)   (748.4)
                                                 ---------------------
                                                    8,392.5   7,211.4
   Less cost of common stock in treasury              131.0     107.4
                                                 ---------------------
                                                    8,261.5   7,104.0
                                                 ---------------------
                                                  $18,920.1 $16,434.1
                                                 =====================
*T

   Short Name: Lilly (Eli) & Co
   Category Code: QRT
   Sequence Number: 00001027
   Time of Receipt (offset from UTC): 20021023T101814+0100

    --30--djl/cl* fg/uk

    CONTACT: Eli Lilly and Company
             Terra L. Fox, 317/276-5795

    KEYWORD: INDIANA 
    INDUSTRY KEYWORD: MEDICAL BIOTECHNOLOGY PHARMACEUTICAL EARNINGS
    SOURCE: Eli Lilly and Company

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