Lilly Reports First-Quarter 2014 Results

INDIANAPOLIS, April 24, 2014 /PRNewswire/ — Eli Lilly and Company (NYSE: LLY)
today announced financial results for the first quarter of 2014.

$ in millions, except per share data First Quarter %
————- —

2014 2013 Change
—- —- ——

Total Revenue –
Reported $4,683.1 $5,602.0 (16)%

Net Income –
Reported 727.9 1,548.0 (53)%

EPS – Reported 0.68 1.42 (52)%

Net Income – non-
GAAP 749.9 1,247.7 (40)%

EPS – non-GAAP 0.70 1.14 (39)%
============== ==== ==== ====

Certain financial information for 2014 and 2013 are presented on both a reported
and a non-GAAP basis. Some numbers in this press release may not add due to
rounding. Reported results were prepared in accordance with generally accepted
accounting principles (GAAP) and include all revenue and expenses recognized
during the period. Non-GAAP measures exclude the items described in the
reconciliation tables later in the release. The non-GAAP measures are presented
in order to provide additional insights into the underlying trends in the
company’s business. The company’s 2014 financial guidance is also being provided
on both a reported and a non-GAAP basis.

“Lilly’s first-quarter results reflect the substantial decline in revenue and
earnings that we expected to encounter as a result of the recent U.S. patent
expirations for Cymbalta and Evista,” said John C. Lechleiter, Ph.D., Lilly’s
chairman, president and chief executive officer. “Beyond our financial
performance, the initial months of 2014 have included a series of key regulatory
actions, pipeline announcements and business development transactions that
solidify the company’s future growth prospects, highlighted by the approval of
Cyramza in the U.S. and the announced acquisition of Novartis Animal Health.”

Key Events Over the Last Three Months

— The U.S. Food and Drug Administration (FDA) approved Cyramza(TM)
(ramucirumab) as a single-agent treatment for patients with advanced or
metastatic gastric cancer or gastroesophageal junction (GEJ)
adenocarcinoma with disease progression on or after prior
fluoropyrimidine- or platinum-containing chemotherapy.
— The company announced an agreement to acquire Novartis Animal Health in
an all-cash transaction that will strengthen and diversify Lilly’s own
animal health business, Elanco. Under the terms of the agreement, Lilly
will acquire all assets of Novartis Animal Health for a total purchase
price of approximately $5.4 billion, including anticipated tax benefits.
The transaction is expected to close by the end of the first quarter of
2015, subject to clearance under the Hart-Scott-Rodino Antitrust
Improvements Act, similar requirements outside the U.S., and other
customary closing conditions.
— The company and its alliance partner, Boehringer Ingelheim, announced
that the FDA accepted the filing of the New Drug Application (NDA) for
the investigational combination tablet of empagliflozin and linagliptin
for the treatment of adults with type 2 diabetes.
— The company announced positive top-line results for the REVEL trial, a
global Phase III study of ramucirumab in combination with chemotherapy
in patients with second-line non-small cell lung cancer. The trial
results showed a statistically significant improvement in the primary
endpoint of overall survival in the ramucirumab-plus-docetaxel arm
compared to the control arm of placebo plus docetaxel. REVEL also showed
a statistically significant improvement in progression-free survival in
the ramucirumab arm compared to the control arm.
— The company announced positive top-line results of the sixth AWARD trial
for once-weekly dulaglutide, an investigational, long-acting
glucagon-like peptide 1 (GLP-1) receptor agonist being studied as a
treatment for type 2 diabetes. In the AWARD-6 study, once-weekly
dulaglutide 1.5 mg achieved the primary endpoint of non-inferiority to
once-daily liraglutide 1.8 mg, as measured by the reduction of
hemoglobin A1c (HbA1c) from baseline at 26 weeks.
— The Committee for Medicinal Products for Human Use (CHMP) of the
European Medicines Agency issued a positive opinion recommending
approval of empagliflozin, an investigational sodium glucose
co-transporter 2 (SGLT2) inhibitor, as an adjunct to diet and exercise
to improve glycemic control, or blood glucose levels, in adults with
type 2 diabetes.
— The FDA issued a complete response letter for the NDA of empagliflozin.
The company and its partner, Boehringer Ingelheim, continue to expect
FDA action in 2014.
— U.S. patent exclusivity for Evista® ended in March, 2014, resulting in
the entry of generic competition. The company reached a short-term
agreement with Prasco Laboratories to supply an authorized version of
raloxifene (Evista).
— The company’s animal health division, Elanco, announced an agreement to
acquire Lohmann SE (Lohmann Animal Health) for a purchase price of
approximately 440 million euros. Lohmann Animal Health, a privately-held
company headquartered in Cuxhaven, Germany, is a global leader in
poultry vaccines and also markets a range of feed additives. The
transaction is expected to close in the second quarter of 2014,
contingent upon clearance from regulatory authorities and other
customary closing conditions.
— The U.S. District Court for the Southern District of Indiana ruled in
the company’s favor on the issues of validity and infringement regarding
the vitamin dosage regimen patent for Alimta®. The patent provides
intellectual property protection for Alimta in the U.S. until 2022. In
addition, the Regional Court of Düsseldorf in Germany ruled in Lilly’s
favor on the issue of infringement of the vitamin dosage regimen patent
for Alimta. The patent provides intellectual property protection for
Alimta in Germany until 2021.
— In the Actos product liability case of Terrence Allen, et al. v. Takeda
Pharmaceuticals North America, Inc. et al., a jury found in favor of the
plaintiffs and awarded $1.475 million in compensatory damages. The
allocation of liability was 75 percent Takeda and 25 percent Lilly. The
jury also awarded $6 billion in punitive damages from Takeda and $3
billion from Lilly. Lilly disagrees with the verdict and intends to
vigorously challenge this outcome through all available legal means. The
agreement between Lilly and Takeda calls for Takeda to defend and
indemnify Lilly for losses and expenses with respect to the U.S.
litigation in accordance with the terms of the agreement. After the
verdict was entered in Allen, Takeda notified Lilly that it was
reserving its right to challenge its obligations to defend and indemnify
Lilly with respect to the Allen case only. Lilly believes it is entitled
to full defense and indemnification of its losses and expenses related
to Allen and in all other U.S. cases.
— A lawsuit was filed against the company by Sanofi-Aventis in the U.S.
District Court for the District of Delaware alleging patent infringement
with respect to LY2963016, a new insulin glargine product for which
Lilly is currently seeking approval from the FDA. Lilly respects the
intellectual property of others and does not believe the application for
approval of its new insulin glargine product infringes any valid claim
of the asserted patents.
First-Quarter Reported Results

In the first quarter of 2014, worldwide total revenue was $4.683 billion, a
decrease of 16 percent compared with the first quarter of 2013. The revenue
decline was comprised of 8 percent due to lower volume, 6 percent due to lower
prices, and 2 percent due to the unfavorable impact of foreign exchange rates.
The 8 percent decrease in worldwide volume was driven by the loss of U.S. patent
exclusivity for Cymbalta® in December 2013, partially offset by volume gains
outside the U.S. for other products. The 6 percent decrease in worldwide price
was driven by the authorized generic arrangements for duloxetine (Cymbalta) and
raloxifene (Evista). Total revenue in the U.S. decreased 34 percent to $2.084
billion driven primarily by lower demand for Cymbalta as well as lower prices,
primarily for Cymbalta and Evista. U.S. revenue in the first quarter of 2014 was
also negatively affected by wholesaler buying patterns on various products.
Total revenue outside the U.S. increased 5 percent to $2.599 billion, driven by
higher volume, partially offset by the unfavorable impact of foreign exchange
rates, primarily the Japanese yen.

Gross margin decreased 22 percent to $3.460 billion in the first quarter of
2014, driven by lower sales of Cymbalta due to the loss of U.S. patent
exclusivity. Gross margin as a percent of total revenue was 73.9 percent, a
decrease of 5.4 percentage points compared with the first quarter of 2013. The
decrease in gross margin percent was primarily due to lower sales of Cymbalta
following its U.S. patent expiration, and the unfavorable impact of foreign
exchange rates on international inventories sold.

Total operating expenses in the first quarter of 2014, defined as the sum of
research and development, marketing, selling and administrative expenses, were
$2.594 billion, a decrease of 14 percent compared with the first quarter of
2013. Marketing, selling and administrative expenses decreased 10 percent to
$1.485 billion, due primarily to the reduction in U.S. sales and marketing
activities for Cymbalta and Evista, as well as ongoing cost containment efforts.
Research and development expenses decreased 18 percent to $1.109 billion, or
23.7 percent of total revenue, driven primarily by milestone payments and a
charge for the discontinuation of the rheumatoid arthritis program for
tabalumab, both taken in the first quarter of 2013, as well as lower clinical
development costs in the first quarter of 2014.

In the first quarters of 2014 and 2013, the company recognized asset impairment,
restructuring and other special charges of $31.4 million and $21.7 million,
respectively, primarily related to ongoing actions the company is taking to
reduce its cost structure.

Operating income in the first quarter of 2014 was $834.8 million, a decrease of
41 percent compared to the first quarter of 2013, driven by lower gross margin,
partially offset by lower operating expenses.

Other income (expense) was income of $56.0 million in the first quarter of 2014,
compared with income of $529.2 million in the first quarter of 2013. The first
quarter of 2013 included income of $495.4 million related to the transfer of
exenatide commercial rights outside of the U.S. to Amylin.

The effective tax rate was 18.3 percent in the first quarter of 2014, compared
with 20.7 percent in the first quarter of 2013. The effective tax rate for the
first quarter of 2014 includes a discrete tax benefit of approximately $30
million, partially offset by the negative impact of the expiration of the R&D
tax credit in the U.S. at the end of 2013. The effective tax rate in the first
quarter of 2013 reflects the tax impact of the transfer of exenatide commercial
rights outside of the U.S. to Amylin, which was partially offset by the one-time
impact of the R&D tax credit for the full-year 2012, which was recorded in the
first quarter of 2013.

In the first quarter of 2014, net income decreased 53 percent and earnings per
share decreased 52 percent to $727.9 million and $0.68, respectively, compared
with first-quarter 2013 net income of $1.548 billion and earnings per share of
$1.42. The decreases in net income and earnings per share were driven by lower
operating income and lower other income.

First-Quarter 2014 non-GAAP Measures

On a non-GAAP basis, first-quarter 2014 operating income decreased $577.4
million, or 40 percent, to $866.2 million, driven by lower gross margin,
partially offset by lower operating expenses. The effective tax rate increased
to 18.7 percent, compared with 15.5 percent in the first quarter of 2013. The
effective tax rate for the first quarter of 2014 includes a discrete tax benefit
of approximately $30 million, partially offset by the expiration of the R&D tax
credit in the U.S. at the end of 2013, while the effective tax rate in the first
quarter of 2013 includes the one-time impact of the R&D tax credit for the full
year of 2012, which was recorded in the first quarter of 2013. Net income
decreased 40 percent and earnings per share decreased 39 percent to $749.9
million and $0.70, respectively, compared with $1.248 billion and $1.14 during
the first quarter of 2013.

Non-GAAP measures exclude items totaling $0.02 per share of expense in the first
quarter of 2014 and $0.28 per share of income in the first quarter of 2013. For
further detail, see the reconciliation below as well as the Reconciliation of
GAAP Reported to Selected Non-GAAP Adjusted Information table later in this
press release.

First Quarter
————-

2014 2013 % Change
—- —- ——–

Earnings per share (reported) $0.68 $1.42 (52)%

Asset impairment, restructuring
and other special charges .02 .01

Income related to termination of
the exenatide collaboration
with Amylin – (.29)

Earnings per share (non-GAAP) $0.70 $1.14 (39)%
—– —–

Revenue Highlights

(Dollars in millions) First Quarter % Change
——————–

2014 2013 Over/(Under)
—- —- ————

Humalog(R) $650.0 $632.7 3%

Alimta 632.0 616.8 2%

Cialis(R) 532.4 515.0 3%

Cymbalta 478.2 1,328.2 (64)%

Humulin(R) 316.2 311.9 1%

Forteo(R) 300.4 281.5 7%

Zyprexa(R) 283.1 284.8 (1)%

Strattera(R) 154.4 166.7 (7)%

Evista 150.1 240.6 (38)%

Effient(R) 119.3 115.9 3%

Animal Health 527.4 499.1 6%

Total Revenue $4,683.1 $5,602.0 (16)%

Humalog

For the first quarter of 2014, worldwide Humalog sales increased 3 percent, to
$650.0 million. Sales in the U.S. decreased 1 percent to $375.4 million, driven
by lower net effective selling prices and wholesaler buying patterns, largely
offset by increased demand. Sales outside the U.S. increased 8 percent to $274.6
million, driven primarily by increased volume, partially offset by the
unfavorable impact of foreign exchange rates.

Alimta

For the first quarter of 2014, Alimta generated sales of $632.0 million, an
increase of 2 percent compared with the first quarter of 2013. U.S. sales of
Alimta decreased 6 percent, to $245.8 million, driven by wholesaler buying
patterns and, to a lesser extent, lower net effective selling prices. Sales
outside the U.S. increased 9 percent, to $386.2 million, driven by increased
volume, partially offset by the unfavorable impact of foreign exchange rates.

Cialis

Cialis sales for the first quarter of 2014 increased 3 percent to $532.4
million. U.S. sales of Cialis were $205.3 million in the first quarter, a 4
percent decrease compared with the first quarter of 2013, driven by wholesaler
buying patterns, partially offset by higher prices. Sales of Cialis outside the
U.S. increased 9 percent, to $327.1 million, driven by increased volume and, to
a lesser extent, higher prices, partially offset by the unfavorable impact of
foreign exchange rates.

Cymbalta

For the first quarter of 2014, Cymbalta generated $478.2 million in revenue, a
decrease of 64 percent compared with the first quarter of 2013. U.S. sales of
Cymbalta decreased 83 percent, to $176.0 million, due to the loss of U.S. patent
exclusivity in December, 2013. Sales of Cymbalta outside the U.S. were $302.2
million, an increase of 11 percent, driven primarily by higher volume, partially
offset by the unfavorable impact of foreign exchange rates.

Humulin

Worldwide Humulin sales increased 1 percent in the first quarter of 2014, to
$316.2 million. U.S. sales decreased 5 percent to $154.8 million, driven by
wholesaler buying patterns and lower net effective selling prices, partially
offset by increased demand. Sales outside the U.S. increased 9 percent, to
$161.4 million, driven by increased volume, partially offset by the unfavorable
impact of foreign exchange rates.

Forteo

First-quarter 2014 sales of Forteo were $300.4 million, a 7 percent increase
compared with the first quarter of 2013. U.S. sales of Forteo decreased 10
percent to $100.9 million, driven by wholesaler and retailer buying patterns,
partially offset by higher prices. Sales outside the U.S. increased 17 percent,
to $199.5 million, due to increased volume in Japan, partially offset by the
unfavorable impact of foreign exchange rates.

Zyprexa

In the first quarter of 2014, Zyprexa sales totaled $283.1 million, a decrease
of 1 percent compared with the first quarter of 2013. U.S. sales of Zyprexa
decreased 15 percent to $27.2 million. Zyprexa sales outside the U.S. increased
1 percent, to $255.9 million, due to higher volume, partially offset by the
unfavorable impact of foreign exchange rates and, to a lesser extent, lower
prices.

Strattera

During the first quarter of 2014, Strattera generated $154.4 million of sales, a
decrease of 7 percent compared with the first quarter of 2013. U.S. sales
decreased 21 percent to $83.1 million, driven primarily by lower demand and
wholesaler buying patterns. Sales outside the U.S. increased 17 percent to $71.3
million, driven primarily by increased volume in Japan, partially offset by the
unfavorable impact of foreign exchange rates and lower prices.

Evista

Evista sales for the first quarter of 2014 decreased 38 percent to $150.1
million. U.S. sales of Evista decreased 43 percent to $98.0 million, due to the
loss of U.S. patent exclusivity in March, 2014. Despite a decline in demand for
branded Evista, U.S. volume increased in the first quarter of 2014 as a result
of sales of authorized raloxifene to Prasco. This volume increase was more than
offset by significant price reductions attributable to authorized raloxifene.
Sales outside the U.S. decreased 25 percent to $52.1 million, driven by lower
prices and the unfavorable impact of foreign exchange rates, partially offset by
increased volume.

Effient

Effient sales were $119.3 million in the first quarter of 2014, an increase of 3
percent compared with the first quarter of 2013. U.S. Effient sales increased 5
percent to $87.8 million, driven by higher prices, partially offset by
wholesaler buying patterns. Sales outside the U.S. decreased 2 percent to $31.5
million, driven by lower volume.

Animal Health

In the first quarter of 2014, worldwide animal health sales totaled $527.4
million, an increase of 6 percent compared with the first quarter of 2013,
driven by higher prices and increased volume, partially offset by the
unfavorable impact of foreign exchange rates. U.S. animal health sales increased
4 percent, to $307.6 million, driven primarily by higher prices of companion
animal products. U.S. volume increases for food animal products were offset by
volume declines for companion animal products. Animal health sales outside the
U.S. were $219.8 million, an 8 percent increase, driven primarily by higher
volume for food animal products and, to a lesser extent, higher prices,
partially offset by the unfavorable impact of foreign exchange rates.

2014 Financial Guidance

The company has revised certain elements of its 2014 financial guidance.
Full-year 2014 earnings per share are now expected to be in the range of $2.70
to $2.78 on a reported basis. On a non-GAAP basis, full-year 2014 earnings per
share are still expected to be in the range of $2.72 to $2.80.

2014 2013

Expectations Results % Change
———— ——- ——–

Earnings
per
share
(reported) $2.70 to $2.78 $4.32 (38)% to (36)%
—–

Asset
impairment,
restructuring
and
other
special
charges

.02 .08

Income
related
to
termination
of the
exenatide
collaboration
with
Amylin

– (.29)

Acquired
in-
process
research
and
development
charge
associated
with
CGRP
antibody

– .03
— —

Earnings
per
share
(non-
GAAP) $2.72 to $2.80 $4.15 (34)% to (33)%
————– —–

The company has updated specific line-items of its 2014 financial guidance to
reflect the impact of the Lohmann acquisition, as well as movements in foreign
exchange rates and the discrete tax benefit recorded in the first quarter of
2014.

The company now anticipates 2014 revenue of between $19.4 billion and $20.0
billion. As described in the company’s initial guidance, patent expirations are
expected to drive a rapid and severe decline in U.S. Cymbalta and U.S. Evista
sales. These revenue declines are expected to be partially offset by growth from
a portfolio of other products including Humalog, Trajenta®, Cialis, Forteo and
Alimta, as well as the animal health business. In addition, strong revenue
growth is expected in China, while a weaker Japanese yen will dampen revenue
growth in Japan.

The company now anticipates that gross margin as a percent of revenue will be
approximately 73 percent in 2014.

Total operating expenses in 2014 are expected to decrease substantially compared
to 2013. Marketing, selling and administrative expenses are now expected in the
range of $6.3 billion to $6.6 billion. Research and development expenses are
still expected to be in the range of $4.4 billion to $4.7 billion.

Other income (expense) is still expected to be in a range between $100 million
and $200 million of income in 2014, benefited by gains of $150 million to $200
million on the sale of equity investments acquired as part of past business
development transactions.

The 2014 tax rate is now expected to be approximately 19 percent, assuming a
full-year 2014 benefit of the R&D tax credit and other tax provisions up for
extension. If these items are not extended, the 2014 tax rate would be
approximately 2 percentage points higher.

The company now expects 2014 net income to be at least $2.9 billion and still
expects operating cash flow to be at least $4.0 billion. Operating cash flows
are still expected to be sufficient to pay the company’s dividend of
approximately $2.1 billion, allow for capital expenditures of approximately $1.3
billion, and fund certain business development activity and share repurchases.

The company’s 2014 financial guidance assumes that the acquisition of Novartis
Animal Health does not close during this calendar year. Should the acquisition
close during 2014, the company will revise its 2014 financial guidance, if
necessary.

Webcast of Conference Call

As previously announced, investors and the general public can access a live
webcast of the first-quarter 2014 financial results conference call through a
link on Lilly’s website at www.lilly.com. The conference call will be held today
from 9:00 a.m. to 10:00 a.m. Eastern Daylight Time (EDT) and will be available
for replay via the website.

Lilly is a global healthcare leader that unites caring with discovery to make
life better for people around the world. We were founded more than a century ago
by a man committed to creating high-quality medicines that meet real needs, and
today we remain true to that mission in all our work. Across the globe, Lilly
employees work to discover and bring life-changing medicines to those who need
them, improve the understanding and management of disease, and give back to
communities through philanthropy and volunteerism. To learn more about Lilly,
please visit us at www.lilly.com and http://newsroom.lilly.com/social-channels.
F-LLY

This press release contains management’s current intentions and expectations for
the future, all of which are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The words “estimate”, “project”, “intend”, “expect”,
“believe”, “target” and similar expressions are intended to identify
forward-looking statements. 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.
Pharmaceutical products can develop unexpected safety or efficacy concerns. The
company’s results may also be affected by such factors as the timing of
anticipated regulatory approvals and launches of new products; market uptake of
recently launched products; competitive developments affecting current products;
the expiration of intellectual property protection for certain of the company’s
products; the company’s ability to protect and enforce patents and other
intellectual property; the impact of governmental actions regarding pricing,
importation, and reimbursement for pharmaceuticals, including U.S. health care
reform; regulatory compliance problems or government investigations; regulatory
actions regarding currently marketed products; unexpected safety or efficacy
concerns associated with the company’s products; issues with product supply
stemming from manufacturing difficulties or disruptions; regulatory changes or
other developments; changes in patent law or regulations related to data-package
exclusivity; litigation involving current or future products; the extent to
which third party indemnification obligations relating to product liability
litigation and similar matters will be performed; unauthorized disclosure of
trade secrets or other confidential data stored in the company’s information
systems and networks; changes in tax law; changes in inflation, interest rates,
and foreign currency exchange rates; asset impairments and restructuring
charges; changes in accounting standards promulgated by the Financial Accounting
Standards Board and the SEC; acquisitions and business development transactions;
and the impact of exchange rates and global macroeconomic conditions. For
additional information about the factors that could cause actual results to
differ materially from forward-looking statements, please see the company’s
latest Form 10-Q and Form 10-K filed with the U.S. Securities and Exchange
Commission. You should not place undue reliance on forward-looking statements,
which speak only as of the date of this release. Except as is required by law,
the company expressly disclaims any obligation to publicly release any revisions
to forward-looking statements to reflect events after the date of this release.

# # #

Actos® (pioglitazone hydrochloride, Takeda)
Alimta® (pemetrexed, Lilly)
Cialis® (tadalafil, Lilly)
Cymbalta® (duloxetine hydrochloride, Lilly)
Cyramza(TM) (ramucirumab, Lilly)
Effient® (prasugrel, Lilly)
Evista® (raloxifene hydrochloride, Lilly)
Forteo® (teriparatide of recombinant DNA origin injection, Lilly)
Humalog® (insulin lispro injection of recombinant DNA origin, Lilly)
Humulin® (human insulin of recombinant DNA origin, Lilly)
Strattera® (atomoxetine hydrochloride, Lilly)
Trajenta® (linagliptin, Boehringer Ingelheim)
Zyprexa® (olanzapine, Lilly)

Eli Lilly and Company Employment Information

March 31, 2014 December 31, 2013
————– —————–

Worldwide Employees 38,120 37,925

Eli Lilly and Company

Operating Results (Unaudited) – REPORTED

(Dollars in millions, except per share data)

Three Months Ended

March 31,

2014 2013 % Chg.
—- —- ——

Total revenue $4,683.1 $5,602.0 (16)%

Cost of sales 1,222.7 1,158.3 6%

Research and development 1,109.3 1,348.1 (18)%

Marketing, selling and
administrative 1,484.9 1,652.0 (10)%

Asset impairment, restructuring
and other special charges

31.4 21.7 NM

Operating income 834.8 1,421.9 (41)%

Net interest income (expense) (3.4) (16.7)

Other income – Special

– 495.4

Net other income (expense) 59.4 50.5

Other income (expense) 56.0 529.2 NM

Income before income taxes 890.8 1,951.1 (54)%

Income taxes 162.9 403.1 (60)%
—– —–

Net income $727.9 $1,548.0 (53)%

Earnings per
share –
diluted $0.68 $1.42 (52)%

Dividends paid
per share $0.49 $0.49 0%

Weighted-average shares
outstanding (thousands) –
diluted

1,075,836 1,091,876

NM – not meaningful

Eli Lilly and Company

Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information (Unaudited)

(Dollars in millions, except per share data)

Three Months Ended Three Months Ended

March 31, 2014 March 31, 2013
————– ————–

GAAP Reported Adjustments Non-GAAP GAAP Reported Adjustments Non-GAAP
Adjusted(a) Adjusted(a)
————- ———– ————

Total revenue $4,683.1 $ – $4,683.1 $5,602.0 $ – $5,602.0

Cost of sales 1,222.7 – 1,222.7 1,158.3 – 1,158.3

Operating expenses(b) 2,594.2 – 2,594.2 3,000.1 – 3,000.1

31.4 (31.4) – 21.7 (21.7) –

Asset impairment,
restructuring and other
special charges(c)

Other income (expense) (d) 56.0 – 56.0 529.2 (495.4) 33.8

Income taxes 162.9 9.4 172.3 403.1 (173.4) 229.7

Net income 727.9 22.0 749.9 1,548.0 (300.3) 1,247.7

Earnings per share –
diluted 0.68 0.02 0.70 1.42 (0.28) 1.14

Numbers do not add due to rounding.

(a) The company uses non-GAAP financial measures that differ from financial
statements reported in conformity with U.S. generally accepted accounting
principles (GAAP). The items that are excluded when non-GAAP measures or
expectations provided are typically highly variable, difficult to predict, and
of a size that could have a substantial impact on the company’s reported
operations for a period. The company believes that these non-GAAP measures
provide useful information to investors. Among other things, they may help
investors evaluate the company’s ongoing operations. They can assist in making
meaningful period-over-period comparisons and in identifying operating trends
that would otherwise be masked or distorted by the items subject to the
adjustments. Management uses these non-GAAP measures internally to evaluate the
performance of the business, including to allocate resources and to evaluate
results relative to incentive compensation targets. Investors should consider
these non-GAAP measures in addition to, not as a substitute for or superior to,
measures of financial performance prepared in accordance with GAAP.

(b) Operating expenses include research and development, marketing, selling and
administrative expenses.

(c) Certain GAAP reported measures have been adjusted to eliminate asset
impairment, restructuring and other special charges. During the three months
ended March 31, 2014, amounts totaling $31.4 million (pretax), or $0.02 per
share (after-tax), of expense were eliminated primarily related to costs
associated with restructuring to reduce the company’s cost structure. During the
three months ended March 31, 2013, amounts totaling $21.7 million (pretax), or
$0.01 per share (after-tax), of expense were eliminated primarily related to
severance costs from actions the company was taking to reduce its cost
structure.

(d) Certain GAAP reported measures have been adjusted to eliminate a portion of
other income (expense). During the three months ended March 31, 2013, amounts
totaling $495.4 million (pretax), or $0.29 per share (after-tax), of income were
eliminated related to the transfer of exenatide commercial rights outside the
U.S. to Amylin.

Refer to:
(317) 276-5795 – Mark Taylor (Media)
(317) 655-6874 – Philip Johnson (Investors)

http://photos.prnewswire.com/prnvar/20031219/LLYLOGO

Logo – http://photos.prnewswire.com/prnh/20031219/LLYLOGO

SOURCE Eli Lilly and Company

Subject Codes: PC/t.140424063007170, PT/lang.en, PC/ticker, IN/FIN,
IN/PHA, IN/HEA, IN/MTC, SU/ERN, SU/CCA, SU/ERP,
RE/Indiana, PC/priority.r, PC/category.f, PC/class.1134,
PC/class.1254, PC/WAVO_….q., PC/APT_….q, PC/trade_q,
PC/wavo5_q, PC/class.1000, PC/WAVO_..b…, PC/APT_..b..,
PC/circuit_b, PC/wavo3_b, PC/DataFeat_natl3, PC/port_32,
PC/Billing_RWB, PC/Billing_TNW, PC/Billing_US1,
PC/1stAcc_916307, PC/OtherAcc_916306, PC/bureau_DE,
PC/port_01, PC/port_96, PC/port_31, PC/port_19,
PC/port_91, PC/website, PC/photo, PC/id_DE11250

Company Codes: NYSE:LLY

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