| — |
|
The company recognized a gain on the disposal of PCS of $174.3
million, net of $8.7 million tax benefit, which increased earnings per
share by approximately $.16, net of tax, in the first quarter of 1999. |
The company's reported sales for the first quarter of 2000 increased 9
percent, to $2.45 billion, compared with the first quarter of 1999. Sales
growth was led by diabetes care revenues, Zyprexa, and Evista. Revenue
growth was partially offset by lower sales of Axid and anti-infectives.
Sales in the U.S. increased 11 percent, to $1.51 billion, for the first
quarter of 2000, compared with the first quarter of 1999. International
sales increased 5 percent, to $938.3 million, for the first quarter of 2000,
compared with the first quarter of 1999. Worldwide sales reflected volume
growth of 10 percent, partially offset by an unfavorable exchange rate
impact of 1 percent, while selling prices remained flat.
Worldwide sales of Prozac in the first quarter of 2000 were $596.2 million,
an increase of 1 percent, compared with the first quarter of 1999. Prozac
sales in the U.S. increased 12 percent, to $508.0 million, due to abnormally
low wholesaler buying during the first quarter of 1999. Sales outside the
U.S. decreased 35 percent, to $88.2 million, primarily due to the entrance
of generic competition in the U.K. in the first quarter of 2000. The company
expects slight declines in worldwide Prozac sales in 2000 compared with 1999
primarily due to increased generic competition outside the U.S. Actual sales
levels will depend on the effectiveness of the company's marketing efforts
in offsetting increased competition, the rate of growth of the
antidepressant market, and the stocking patterns of wholesalers, retailers,
and consumers.
In the first quarter of 2000, Zyprexa had worldwide sales of $458.1
million, an increase of 14 percent, compared with the first quarter of 1999.
U.S. sales increased 1 percent, to $299.8 million, and sales outside the
U.S. increased 53 percent, to $158.3 million. Sales comparisons in the U.S.
were negatively affected by wholesaler stocking in the first quarter of
1999. In the first quarter of 2000, Zyprexa was approved by the U.S. Food
and Drug Administration (FDA) for the treatment of acute mania associated
with bipolar disorder. The company expects continued strong sales growth for
Zyprexa in 2000 due, in part, to the new indication.
Worldwide Gemzar sales were $136.0 million in the first quarter of 2000, an
increase of 19 percent, compared with the first quarter of 1999. Sales in
the U.S. increased by $7.7 million, or 11 percent, while sales outside the
U.S. increased by $13.9 million, or 32 percent.
ReoPro sales for the first quarter of 2000 were $110.3 million, which
reflected an increase of 9 percent, compared with the first quarter of 1999.
Growth for ReoPro was principally driven by sales outside the U.S. Due to
increased competition in the U.S., the company now anticipates modest
worldwide sales growth for ReoPro in 2000.
Diabetes care revenues, composed primarily of Humulin, Humalog, and Actos,
increased 53 percent, to $392.0 million, compared with the first quarter of
1999. Diabetes care revenues increased 71 percent in the U.S., to $226.3
million, and increased 33 percent outside the U.S., to $165.7 million.
Worldwide Humulin sales of $273.7 million increased 35 percent. Worldwide
Humalog sales of $72.1 million increased 70 percent. In March 2000, the
company launched Humalog Mix75/25 Pen in the U.S. for the treatment of
diabetes. The company anticipates moderate growth in sales of diabetes care
products, excluding Actos, in 2000. The company received service revenues of
$42.5 million in the first quarter of 2000 relating to sales of Actos, a
portion of which was attributed to the withdrawal of a competitive product
from the market. Actos, an oral agent for the treatment of type 2 diabetes,
was introduced to the U.S. diabetes market in the third quarter of 1999.
Actos is manufactured and sold in the U.S. by Takeda Chemical Industries,
Ltd., and is copromoted by the company. The company anticipates very strong
growth in Actos revenues in 2000.
For the first quarter of 2000, worldwide sales of anti-infectives decreased
14 percent, to $233.0 million, as a result of continuing competitive
pressures. U.S. and international anti-infectives sales declined 11 percent
and 16 percent, respectively. Cefaclor and Lorabid accounted for the
majority of the decline in anti-infective sales.
Evista sales were $100.5 million in the first quarter of 2000, an increase
of 84 percent over the first quarter of 1999 due, in part, to the FDA
approval for the treatment of postmenopausal osteoporosis, which was
received in September of 1999. While most of the sales dollar growth for
Evista occurred in the U.S., international Evista sales reflected strong
percentage growth.
Worldwide sales of Axid decreased 39 percent, to $67.9 million, in the
first quarter of 2000, compared with the first quarter of 1999, due to
continued competitive pressures.
For the first quarter of 2000, gross margins were 79.2 percent, compared
with 78.1 percent for the first quarter of 1999. The improved gross margin
was primarily the result of favorable product mix, and to a lesser extent,
increased volume, and improvements in productivity.
Operating expenses (the aggregate of research and development and marketing
and administrative expenses) increased 14 percent for the first quarter of
2000. Investment in research and development increased 11 percent, to $458.5
million, for the first quarter. Marketing and administrative expenses
increased 16 percent from the first quarter of 1999 due, in part, to
increased spending to support worldwide product launches.
Net other income for the first quarter of 2000 increased $17.6 million, to
$60.3 million, excluding the first quarter 2000 gain on the sale of Kinetra
LLC and the first quarter 1999 charge from funding Eli Lilly and Company
Foundation. The increase was primarily due to an increase in interest
income.
For the first quarter of 2000, the effective tax rate was 17.3 percent
compared with 17.0 percent for the first quarter of 1999. Excluding the
impact of the unusual items discussed previously, the effective tax rate
would have been 22.0 percent for both periods.
FINANCIAL CONDITION
As of March 31, 2000, cash, cash equivalents and short-term investments
totaled $3.83 billion as compared with $3.84 billion at December 31, 1999.
Cash flow from operations of $610.2 million was offset by dividends paid of
$282.2 million, shares repurchased of $241.8 million, a decrease in debt of
$218.5 million, and capital expenditures of $114.0 million. Total debt at
March 31, 2000, was $2.83 billion, a decrease of $218.5 million from
December 31, 1999, primarily due to the repayment of $200 million of euro
bonds in February 2000. In March 2000, the company announced a $3.0 billion
share repurchase program, following successful completion of a $1.5 billion
share repurchase in 1999.
The company believes that cash generated from operations in 2000, along
with available cash and cash equivalents, will be sufficient to fund
essentially all of the 2000 operating needs, including debt service, capital
expenditures, share repurchases, and dividends.
EURO CONVERSION
On January 1, 1999, 11 European nations adopted a common currency, the
euro, and formed the European Economic and Monetary Union (EMU). For a
three-year transition period, both the euro and individual participants'
currencies will remain in circulation. After July 1, 2002, at the latest,
the euro will be the sole legal tender for EMU countries. The adoption of
the euro affects a multitude of financial systems and business applications
as the commerce of these nations will be transacted in the euro and the
existing national currency.
The company has created the capability to transact in both the euro and the
legacy currency and will continue to address euro-related issues and their
impact on information systems, currency exchange rate risk, taxation,
contracts, competition, and pricing. Action plans currently being
implemented are expected to result in compliance with all laws and
regulations; however, there can be no certainty that such plans will be
successfully implemented or that external factors will not have an adverse
effect on the company's operations. Any costs of compliance associated with
the adoption of the euro will be expensed as incurred and the company does
not expect these costs to be material to its results of operations,
financial condition, or liquidity.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Under the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, the company cautions investors that any forward-looking
statements or projections made by the company, including those made in this
document, are based on management's expectations at the time they are made,
but they
are subject to risks and uncertainties that may cause actual results to differ
materially from those projected. Economic, competitive, governmental,
technological and other factors that may affect the company's operations and
prospects are discussed in Exhibit 99 to this Form 10-Q filing.
PART II. OTHER INFORMATION
| Item 1. |
|
Legal Proceedings |
PROZAC PATENT LITIGATION
In March 1996 the company was 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 the company's patents. Barr has alleged that
the company's 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, the company filed suit in the United States District
Court for the Southern District of Indiana seeking a ruling that Barr's
challenge to the two patents is without merit. In 1997, Geneva
Pharmaceuticals, Inc. ("Geneva"), another generic manufacturer,
submitted a similar ANDA and, like Barr, asserted that the company's U.S.
Prozac patents are invalid and unenforceable. On June 23, 1997, the company
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 the
company's favor, dismissing the claims of Barr and Geneva based on the
patent doctrines of "best mode" and "double patenting."
On January 25, 1999, 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, and a decision is pending.
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 the December 2003 patent is invalid and
unenforceable. Also, 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. The company 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,
the company 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. In March 2000, the
company received notice that another generic manufacturer, Alphapharm Pty.,
Ltd., has filed an ANDA for one dosage form, asserting that both the 2001
and 2003 patents are invalid and unenforceable. In April 2000, Barr notified
the company that it filed a second ANDA for an additional dosage form.
The company believes that the claims of all of these generic manufacturers
are without merit and that the company 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 the
company will prevail. An unfavorable outcome could have a material adverse
effect on the company's consolidated financial position, liquidity, and
results of operations.
PRICING LITIGATION
Reference is made to the discussion entitled "Pricing Litigation"
in Part I, Item 3 of the company's 1999 annual report on Form 10-K. The
following developments have occurred in that litigation since the time of
filing of the 1999 Form 10-K: The recent settlement with approximately 3,800
of the Federal Individual Action retailer plaintiffs is now final. In
addition, an agreement in principle has been reached to settle the
Mississippi class action case brought by retailers. Finally, with respect to
the consumer class actions pending in various state courts, the pending case
in Alabama has been dismissed by the courts, and the
company has reached an agreement to settle all of the other remaining state
court cases (New Mexico, North Dakota, South Dakota, Tennessee, and West
Virginia), subject in each case to court approval
.
| Item 6. |
|
Exhibits and Reports on Form 8-K |
| (a) |
Exhibits. |
The following documents are filed
as exhibits to this Report: |
| |
|
|
| |
EXHIBIT 10. |
1998 Lilly Stock Plan, as amended |
| |
|
|
| |
EXHIBIT 11. |
Statement re: Computation of Earnings Per
Share |
| |
|
|
| |
EXHIBIT 12. |
Statement re: Computation of Ratio of Earnings
from Continuing Operations to Fixed Charges |
| |
|
|
| |
EXHIBIT 27. |
Financial Data Schedule |
| |
|
|
| |
EXHIBIT 99. |
Cautionary Statement Under Private Securities
Litigation Reform Act of 1995 - "Safe Harbor" for
Forward-Looking Disclosures |
| |
|
|
| (b) |
Reports on Form 8-K. |
| |
|
|
| |
The company filed no reports on Form 8-K during the first
quarter of 2000. |
SIGNATURES
Pursuant to the requirements 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 |
| |
|
|
|
|
|
| |
|
|
|
(Registrant) |
| |
|
|
|
|
| Date |
|
May 12, 2000 |
|
/s/ Alecia A. DeCoudreaux |
| |
|
|
|
|
|
| |
|
|
|
Alecia A. DeCoudreaux |
| |
|
|
|
Secretary and Deputy General Counsel |
| |
|
|
|
|
| |
|
|
|
|
| Date |
|
May 12, 2000 |
|
/s/ Arnold C. Hanish |
| |
|
|
|
|
|
| |
|
|
|
Arnold C. Hanish |
| |
|
|
|
Director, Corporate Accounting and |
| |
|
|
|
Chief Accounting Officer |
| |
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|
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|
INDEX TO EXHIBITS
The following documents are filed as a part of this Report:
Exhibit
|
|
| |
|
| 10. |
1998 Lilly Stock Plan, as amended*
|
| |
|
| 11. |
Statement re: Computation of Earnings Per |
| |
Share
|
| |
|
| 12. |
Statement re: Computation of Ratio of Earnings |
| |
from Continuing Operations to Fixed Charges |
| |
|
| 27. |
Financial Data Schedule (EDGAR filing only) |
| |
|
| 99. |
Cautionary Statement Under Private Securities Litigation
Reform Act of 1995 - "Safe Harbor" for Forward-Looking
Disclosures |
| |
|
| *
|
Incorporated by reference from Exhibit A to the Company's
Proxy Statement dated March 3, 2000. |
EXHIBIT 11. STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
Eli Lilly and Company and Subsidiaries
Three Months Ended
March 31,
2000 1999
-----------------------------
BASIC
Net income.......................................................... $ 845.5 $ 625.7
Preferred stock dividends........................................... - (.1)
--------------------------
Adjusted net income................................................. $ 845.5 $ 625.6
==========================
Average number of common shares outstanding......................... 1,083.6 1,092.1
Contingently issuable shares........................................ .6 1.1
--------------------------
Adjusted average shares............................................. 1,084.2 1,093.2
==========================
Basic earnings per share............................................ $ .78 $ .57
==========================
DILUTED
Net income.......................................................... $ 845.5 $ 625.7
Preferred stock dividends........................................... - (.1)
--------------------------
Adjusted net income................................................. $ 845.5 $ 625.6
==========================
Average number of common shares outstanding......................... 1,083.6 1,092.1
Incremental shares - stock options and
contingently issuable shares..................................... 14.1 22.6
--------------------------
Adjusted average shares............................................. 1,097.7 1,114.7
==========================
Diluted earnings per share.......................................... $ .77 $ .56
==========================
Dollars in millions except per share data. Shares in millions.
18
EXHIBIT 12. STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS FROM CONTINUING
OPERATIONS TO FIXED CHARGES
(Unaudited)
Eli Lilly and Company and Subsidiaries
(Dollars in millions)
Three Months
Ended
March 31, Years Ended December 31,
-------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------
Consolidated Pretax
Income from Continuing
Operations before
Extraordinary Item.................. $1,022.5 $3,245.4 $2,665.0 $2,901.1 $2,131.3 $1,866.6
Interest from Continuing
Operations and Other
Fixed Changes....................... 56.7 213.1 198.3 253.1 323.8 323.9
Less Interest Capitalized
during the Period from
Continuing Operations............... (9.9) (29.3) (17.0) (20.4) (35.8) (38.3)
-------------------------------------------------------------------------------------
Earnings.............................. $1,069.3 $3,429.2 $2,846.3 $3,133.8 $2,419.3 $2,152.2
=====================================================================================
Fixed Charges/1/...................... $ 56.7 $ 213.2 $ 200.5 $ 256.8 $ 328.5 $ 323.9
=====================================================================================
Ratio of Earnings to
Fixed Charges....................... 18.9 16.1 14.2 12.2 7.4 6.6
=====================================================================================
/1/ Fixed charges include interest from continuing operations for all years
presented and preferred stock dividends for 1996 through 1999.
19
5
1,000
3-MOS
DEC-31-2000
JAN-01-2000
MAR-31-2000
3,797,800
37,000
1,465,900
77,900
899,600
6,952,800
7,371,800
3,425,400
12,694,100
3,226,300
2,783,100
0
0
681,300
4,977,100
12,694,100
2,451,100
2,451,100
508,700
508,700
1,146,800
0
46,800
1,022,500
177,000
845,500
0
0
0
845,500
.78
.77
EXHIBIT 99. CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 - "SAFE HARBOR" FOR
FORWARD-LOOKING DISCLOSURES
Certain forward-looking statements are included in this Form 10-Q and may be
made by company spokespersons based on current expectations of management. All
forward-looking statements made by the company are subject to risks and
uncertainties. Certain factors, including but not limited to those listed below,
may cause actual results to differ materially from current expectations and
historical results.
- - Competitive factors, including generic competition as patents on key
products, such as Prozac, expire; pricing pressures, both in the U.S. and
abroad, primarily from managed care groups and government agencies; and new
patented products or expanded indications for existing products introduced
by competitors, which can lead to declining demand for the company's
products.
- - Changes in inventory levels maintained by pharmaceutical wholesalers can
cause reported sales for a particular period to differ significantly from
underlying prescriber demand.
- - Economic factors over which the company has no control, including changes
in inflation, interest rates and foreign currency exchange rates, and
overall economic conditions in volatile areas such as Latin America.
- - Governmental factors, including laws and regulations and judicial decisions
at the state and federal level related to Medicare, Medicaid, and health
care reform that could adversely affect pricing and reimbursement of the
company's products; and laws and regulations affecting international
operations.
- - The difficulties and uncertainties inherent in new product development. New
product candidates that appear promising in development may fail to reach
the market or may have only limited commercial success because of efficacy
or safety concerns, inability to obtain necessary regulatory approvals,
difficulty or excessive costs to manufacture, or infringement of the
patents or intellectual property rights of others.
- - Delays and uncertainties in the FDA approval process and the approval
processes in other countries, resulting in lost market opportunity.
- - Unexpected safety or efficacy concerns arising with respect to marketed
products, whether or not scientifically justified, leading to product
recalls, withdrawals or declining sales.
- - Legal factors including unanticipated litigation of product liability or
other liability claims; antitrust litigation; environmental matters; and
patent disputes with competitors which could preclude commercialization of
products or negatively affect the profitability of existing products. In
particular, while the company believes that its U.S. patents on Prozac are
valid and enforceable, there can be no assurance that the company will
prevail in the various legal challenges to those patents.
- - Changes in tax laws, including laws related to the remittance of foreign
earnings or investments in foreign countries with favorable tax rates, and
settlements of federal, state, and foreign tax audits.
- - Changes in accounting standards promulgated by the Financial Accounting
Standards Board, the Securities and Exchange Commission, and the American
Institute of Certified Public Accountants which are adverse to the company.
- - Internal factors such as changes in business strategies and the impact of
restructurings and business combinations.
20
