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Eli Lilly and Company

Eli Lilly and Company

Lilly Corporate Center
Indianapolis, Indiana 46285
U.S.A.
Telephone: (317) 276-2000
Fax: (317) 276-3492
Web site: http://www.lilly.com

Public Company
Incorporated:
1881
Employees: 41,000
Sales: $11.54 billion (2001)
Stock Exchanges: New York Boston Cincinnati NASDAQ Philadelphia Basel Geneva Zurich Tokyo London
Ticker Symbol: LLY
NAIC: 325412 Pharmaceutical Preparation Manufacturing; 339112 Surgical and Medical Instrument Manufacturing; 422210 Drugs and Druggists Sundries Wholesalers

Eli Lilly and Company discovers, develops, manufactures, and markets ethical drugs (those requiring a doctors prescription) for a wide variety of human ailments. It has research and production facilities in many nations, and its products are sold in 159 countries. It introduced the worlds first commercial insulin in the 1920s, and in 2002 was the leading producer of products for those with diabetes. Its best-selling antidepressant, Prozac, continues to be a controversial drug, even though it lost its U.S. patent protection in 2001. Like many other large corporations, Lilly has numerous collaborations or joint ventures with other firms. As a major player in the pharmaceutical industry, Lilly has faced many controversies such as the high cost and advertising of prescription drugs. The companys subsidiary Elanco Animal Health sells animal health products in over 100 countries.

Lillys Origins and Community Commitments: 1870S-1960S

Despite its huge domestic and international operations, Lilly continued to maintain a close allegiance to the U.S. Midwest and wielded significant influence in its native city. For instance, in 1971 Forbes magazine prepared a profile of the company, but because Lilly did not want the article published, an Indianapolis newspaper refused to sell Forbes photographs of the Lilly family.

Much of this community loyalty stemmed from Lillys long history of paternalism and generosity. In 1876, Colonel Eli Lilly, a Civil War veteran, built a laboratory in Indianapolis and began to manufacture ethical drugs. The business established itself successfully with the innovation of high-quality gelatincoated capsules, and it was not long before Colonel Lilly was able to serve Indianapolis in a variety of ways. He served as president of the Commercial Club to help in the development of the city and chaired a committee to help the indigent during the financial panic of 1893. He also donated his own personal funds to build a childrens hospital in memory of his 13-year-old daughter who died of diphtheria.

This civic consciousness was inherited by the second and third generation of Lilly management. During the Depression, the Colonels grandson, Eli Lilly, refused to lay off any employees. Instead, he had them help with general maintenance of the facility until they could return to their normal jobs.

The Lilly family in 1937 established the Lilly Endowment to provide financial support for educational, cultural, and religious institutions. The family donated $5 million worth of rare books to Indiana University, and later the Smithsonian Institution acquired a family coin collection worth $5.5 million. The endowment also funded new buildings, music schools, student centers, and laboratories in most colleges and universities in Indiana and in several other states.

Lilly also laid the foundations for its reputation for marketing ingenuity in those early years. After the 1906 San Francisco earthquake, the company sent as much of its stock as it could to the disaster area at the request of sales personnel and wholesalers. Since then the ready availability of Lillys products was central to its marketing strategy. That and aggressive advertising campaigns, plus its large, eager sales force, have been the keys to its marketing success. Its sales marketing department was formally established around 1922.

Besides being a pioneer in pharmaceutical marketing, Lilly was known for its development of many important drugs. In the 1920s, Lilly began selling the worlds first commercially available insulin that would benefit millions with diabetes. In the years ahead it would remain the leading manufacturer of insulin, commanding at least 75 percent of the U.S. market in the early 1990s.

In the 1920s, the company produced a liver extract for the treatment of pernicious anemia. In the 1930s, Lilly laboratories synthesized barbituric acids, essential to the production of drugs used in surgery and obstetrics. In 1955 Lilly manufactured 60 percent of the Salk polio vaccine. But the companys greatest contribution to human health was in production of penicillins and other antibiotics that revolutionized the treatment of disease.

Throughout this era of innovation and expansion and up until the late 1980s, Lillys management remained a constant. Every president and almost every member of the board of directors was either a direct descendant of Colonel Lilly or a native of the Midwest, if not of Indiana. After the colonels death in 1898, his son Josiah Lilly ran the company for the next 34 years. He was succeeded by son Eli and later by Josiah, Jr. During the 16-year presidency of Eli Lilly, sales rose from $13 million in 1932 to $117 million in 1948. After Eli relinquished his executive powers to his brother, he became the titular chairperson of the company. Upon his death at age 91, he had lived to see the company reach $1 billion in sales.

Business in the 1970s and 1980s

Josiah, Jr.s presidency marked the last reign of a direct family descendant, followed by presidents Beesley, Beck, Wood, and Lake. Richard Wood, who advanced to the CEO position in 1973, was the third of seven company presidents to be an outsider. He was, of course, born and raised in Indiana and was a longtime Lilly employee.

In 1971 members and descendants of the Lilly family owned $1 billion of the $4 billion in company stock, while the Lilly Endowment (controlled by the family) owned another $900 million. Furthermore, the endowment resisted making large disbursements, and it was not until the 1969 Tax Reform Act that the endowment was forced to loosen its 25 percent hold on stock. Still, in 1979 the endowment continued to hold 18.6 percent of company shares.

Lillys conservative management paralleled the outspoken ideology of the Lilly Endowment, although the company and the endowment were separate and distinct organizations. During the 1960s, the Lilly Endowment professed a specific political mission. It supported anticommunism, free enterprise, and limited government. Despite what some have called an anachronistic approach to business, no one can dispute Lillys financial success.

While the rest of the drug industry in the 1970s was depressed, Lilly doubled in size. When the pharmaceutical business was hit hard by competition from generic drugs that flooded the marketplace after the expiration of patents for drugs discovered in the 1950s and 1960s, Lilly diversified into agricultural chemicals, animal-health products, medical instruments, and beauty-care products.

Meanwhile, Lilly increased its expenditure on research and development of Pharmaceuticals, spending $235 million in those areas in 1981 alone. The immediate result was three new drugs: Ceclor, an oral cephalosporin antibiotic; Dobutrex, a heart-failure treatment; and Mandol, an injectable cephalosporin effective against a broad spectrum of hospital-acquired infections. The release of the new cephalosporins represented a significant step for Lilly. The company had always been dominant in the antibiotic market, but competition from Merck, SmithKline, and foreign drug companies threatened Lillys supremacy. With the new drugs, the company was able to recapture hegemony of the cephalosporin market; of the $3.27 billion in company sales in 1985, $1.05 billion was from the sale of antibiotics.

A similar success story resulted after the company bought Elizabeth Arden for $38 million in 1971. At first glance, the purchase of the beauty-care company seemed an unwise move. Elizabeth Arden had been a money loser and continued to lose money for five years after Lilly acquired it. Lilly management seemed to have no idea of the intense competition in the beauty industry. But, in an unusual move, Lilly hired outsiders to fill its subsidiarys top executive positions, and by 1982 Elizabeth Ardens sales were up 90 percent from 1978, with profits doubling to nearly $30 million.

The introduction of several new drugs in the late 1970s and early 1980s increased Lillys sales and challenged the market boundaries of competing products. Lilly released Nulfon, an anti-inflammatory drug, to compete with Mercks top selling Indocin. In addition, the company introduced Cinobac, an antibacterial agent used to treat urinary-tract infections; Eldisine, a treatment for childhood leukemia; Moxam, a potent new antibiotic licensed from Shionogi, a Japanese drug company; and Benoxaprofen, an antiarthritic introduced in the United Kingdom. Moreover, the company in 1982 introduced Humulin, the first healthcare product made from recombinant DNA technology. This breakthrough promised to protect Lillys majority share of the insulin market.

During this time, the initial flurry over the possible hazardous side effects of a popular analgesic called Darvon seemed to have subsided. Critics had charged that the drug introduced in 1957 was both ineffective and had the dangerous potential for abuse, but Lilly mounted an educational campaign on proper use of the drug and continued to hold 80 percent of the prescription analgesic market. Darvon generated annual sales of $100 million.

Company Perspectives:

Eli Lilly and Company creates and delivers innovative medicines that enable people to live longer, healthier and more active lives.

With a 19 percent increase in sales in 1978, a 24 percent return on equity, and impressive results from Woods foreign-market campaign, Lillys prospects seemed excellent. Then, however, company growth began to fall short of projected figures. In 1982, a miscalculation of inventory and expected sales caused Lilly to produce far more Treflan (a soybean herbicide) than it could sell. With the patents expiring on Treflan and two animal products, and with the overproduction of Treflan, income from agricultural products suddenly did not look as promising as it once had. Furthermore, profits from Moxam had to be shared with Shionogi, the Japanese partner in the joint venture. In addition, the patent on Keflin, an injectable cephalosporin that had been generating $100 million in sales, expired in November 1982.

Lillys diversification into medical instruments through the acquisition of IVAC Corporation, a manufacturer of systems that monitored vital signs and equipment for intravenous fluid infusion, and Cardiac Pacemaker, a manufacturer of heart pacemakers, cost Lilly $286 million in stock, a significant investment with an unknown potential for profits. Also, since the combined assets of its medical instrument subsidiaries and Elizabeth Arden represented only 20 percent of the entire company, their projected profits were not expected to have a substantial effect on company profits as a whole. Elizabeth Arden was, in fact, later sold to Fabergé, Inc. for $657 million in 1987.

Of more concern, however, was the re-emerging specter of Darvons addictive qualities. Ralph Naders consumer-advocacy group demanded a ban on Darvon because of its alleged associations with suicides, overdoses, and misuse by addicts. Joseph Califano, the U.S. Secretary of Health, Education, and Welfare, harshly criticized the sincerity of Lillys educational campaign and went so far as to recommend that Darvon and other propoxyphene products not be prescribed unless there really was no alternative, and then only with care. The FDA charged that Lillys educational campaign actually amounted to ingenious marketing in that Lilly sales representatives not only gave doctors educational material that emphasized the drugs positive attributes but also conveniently left samples. The result of this litigation was that Darvon was not removed from the market, and it was proven safe and effective when used as directed.

To the companys dismay, Darvon was not the only drug to cause a controversy. Oraflex, the U.S. version of Benoxaprofen, was withdrawn from the market in August 1982. Only one month after the FDA approved Oraflex, a British medical journal documented five cases of death due to jaundice in patients taking the drug. The FDA accused Lilly of suppressing unfavorable research findings. Initial warnings about the possibility of inconsequential side effects were later amended to include the threat of jaundice, but only after the company had already applied for FDA approval. Package inserts were amended to recommend a reduced dosage for elderly patients.

At a time when drug-regulation reform would have allowed companies to interpret the results of their own lab tests, the Oraflex controversy represented a major disaster. Furthermore, publicity for the drug, which was projected to be a $100 million seller (prescriptions for Oraflex increased by 194,000 in just one month), had been unwittingly distorted. Reports from outside the company had falsely claimed that the drug could cure arthritis.

On August 21, 1985, the Oraflex controversy culminated when the U.S. Justice Department filed criminal charges against Lilly and Dr. William Ian H. Shedden, the former vice-president and chief medical officer of Lilly Research Laboratories. The Justice Department accused the defendants of failing to inform the government about four deaths and six illnesses related to Oraflex. Lilly pleaded guilty to 25 criminal counts, which resulted in a $25,000 fine. Shedden pleaded no contest to 15 criminal counts and was fined $15,000. All 40 counts were misdemeanors; there was no charge against Lilly of intentional deception.

Key Dates:

1876:
Colonel Eli Lilly starts making ethical drugs in Indianapolis.
1881:
Company is incorporated.
1886:
Lilly hired its first scientist, Ernest Eberhardt, to establish one of the first pharmaceutical research and development programs.
1923:
Eli Lilly and Company begins selling Iletin, the first commercially available insulin.
1940s:
Lilly becomes one of the first companies to begin mass producing penicillin.
1950s:
Lilly introduces two important antibiotics: erythromycin and vancomycin.
1960s:
Lilly introduces cephalosporin antibiotics and anticancer drugs vincristine and vinblastine.
1971:
The company buys cosmetics manufacturer Elizabeth Arden.
1977:
IVAC Corporation is acquired.
1978:
Cardiac Pacemakers Inc. is acquired.
1980:
Company acquires Physio-Control Corporation.
1982:
Lilly introduces Humulin, the companys human insulin and the first human-healthcare item made by recombinant DNA technology (genetic engineering).
1987:
Eli Lilly sells Elizabeth Arden cosmetics business to Fabergé for $657 million.
1987:
FDA approves the use of Prozac for treating depression.
1996:
Zyprexa is introduced as a new treatment for schizophrenia.
1998:
Company dedicates its new laboratories for clinical research at Indiana University Medical Center in Indianapolis.
1999:
Takeda Chemical Industries, Ltd. and Lilly launch Actos, an oral diabetes agent that acts as an insulin sensitizer.
2001:
Patent protection for Prozac ends in the United States, opening competition from generic versions.
2002:
Lilly becomes the fourth major drug company to offer big discounts for needy patients.

Lilly was cited as a defendant in a lawsuit filed against drug manufacturers and distributors of diethylstilbestrol (DES). The drug, which was prescribed to pregnant women during the 1940s and 1950s to prevent miscarriages, caused vaginal cancer and related problems in the children of the patients. Lilly was the first and largest manufacturer of DES, and it was estimated that 40 percent of the drug came from Lilly production facilities. In 1981, a court ordered the company to pay $500,000 in damages to one plaintiff, and in 1985 Lilly was ordered to pay $400,000 to the first male seeking damages in a DES-related case. Other claims asked for damages totaling in the billions of dollars.

In the early 1980s Lilly continued acquiring manufacturers of medical devices and diagnostic equipment. Lilly added both Physio-Control Corp. and Advanced Cardiovascular Systems Inc. through share exchanges in 1980 and 1984, respectively. Hybritech, a California diagnostic products company, was purchased for $350 million in 1986. Lilly added Devices for Vascular Intervention, Inc., and Pacific Biotech, Inc., in 1989 and 1990, respectively. These companies (along with Origin Medsystems, a 1992 acquisition) constituted Lillys Medical Devices and Diagnostics Division, which contributed about 20 percent of the pharmaceutical corporations annual revenues in the early 1990s. Heart Rhythm Technologies, Inc. was acquired in 1992. But even this new business interest had its problems, not the least of which was intense competition from Abbott Laboratories.

While Wood concentrated on these domestic acquisitions, Lillys competitors had expanded internationally, where twothirds of the worlds pharmaceutical market awaited. Although Lillys top two drugs, Ceclor (an antibiotic) and Prozac (an antidepressant introduced in 1987) were highly profitable, the companys $1 billion annual investment in research and development did not yield any new blockbuster breakthroughs.

The 1990s and the New Millennium

By the beginning of the decade, the companys star antidepressant Prozac had become a major medical, legal, and social controversy. Many reported relief from the sufferings of depression. About two million individuals worldwide had taken the drug by the summer of 1990. However, some said Prozac caused them to become suicidal. Lawsuits were filed and some politicians argued that their opponents were unstable because they took Prozac. Those who thought they were hurt by Prozac formed support groups in several states, while Lilly and the FDA continued to defend the drugs usefulness and safety. Eventually several books were written about the pros and cons of using drugs such as Prozac to treat depression and other mental illnesses.

In 1991, Wood abdicated Lillys chief executive office and chose Vaughn D. Bryson, a longtime executive, as his successor. Lillys employees reportedly appreciated Brysons management style, which was much less formal than that of his predecessor. Unfortunately for Bryson, however, patent expirations, a dearth of new drugs, and general volatility in the pharmaceutical industry combined to thwart his stint at the top. The company lost over 30 percent of its market value during his 18 month tenure. Worse, the corporation recorded the first quarterly loss in its history in the fall of 1992. Wood, who had retained Lillys chairmanship, orchestrated a boardroom revolt to oust his protégé in 1993.

In June of that year, Randall Tobias was selected CEO and chairperson. Unlike all his predecessors, Tobias was recruited from outside Lillys employee roster. The former vice-chairman of American Telephone and Telegraph Co. had served on Lillys board since 1986 and was by his own admission inexperienced in pharmaceuticals. Nonetheless, after just six months at Lillys helm, Tobias announced a reorganization of the venerable drug company.

His plan included divestment of the profitable, but distractive, Medical Device and Diagnostics Division, through which he hoped to raise $550 million. A cost-reduction program included the elimination of 4,000 employees through early retirement. Tobias planned to use these savings to acquire the distributors needed in a pharmaceutical industry that was increasingly influenced by budget-conscious managed care organizations. In line with this focus, Lilly announced its plan to acquire PCS Health Systems Inc., Americas largest pharmacy benefit manager, from McKesson Corp. for $4 billion in mid-1994. Tobias, who had orchestrated AT&Ts overseas expansion, also worked to expand Lillys international sales from their 1993 level of about 39 percent of total revenues.

Tobiass plan also focused Lillys research and development on five broad disease categories: central nervous system diseases, endocrine diseases (including diabetes and osteoporosis), infectious diseases, cancer, and cardiovascular diseases. In line with these strategic imperatives, Lilly in 1995 released Lys-Pro, a new type of insulin for the treatment of diabetes, in 1995, and Zyprexa (olanzapine), indicated for schizophrenia, in 1996.

In 1996 the FDA approved Lillys Gemzar as the nations first drug to treat pancreatic cancer. Two years later the FDA approved using Gemzar for nonsmall-cell lung cancer. According to the companys web site, in 2002 over 85 countries had approved Gemzar and almost 80 percent of U.S. patients with pancreatic cancer used Gemzar.

In 1997 the FDA authorized using Evista to help prevent osteoporosis in postmenopausal women. Evista sales in 2000 of $552 million made it one of the companys major products. Other new products were Humalog, a human insulin analog, and ReoPro, a cardiovascular product discovered and developed by Centocor.

After the U.S. Food and Drug Administration in 1997 eased rules on mass media advertising for prescription drugs, Lilly and others in the pharmaceutical industry increased their spending on TV spots. Lilly spent $7 million in direct-to-consumer (DTC) promotionals in 1999. The following year $46.5 million was spent, mostly for Prozac as the end of its patent protection neared.

Although the evidence was not conclusive, television ads in particular were linked to increasing consumer sales, but perhaps with a hidden cost. The issues raised by DTC advertising are serious, said health policy researcher Steven Findlay in Marketing Health Services in spring 2000. They touch upon questions of public health, corporate responsibility, advertising ethics, and consumers capacity to understand complex medical and pharmaceutical information.

In August 2001 Lilly lost U.S. patent protection for Prozac after a series of legal conflicts. At that point Barr Laboratories gained a six-month exclusive right to make a generic Prozac equivalent. Declining Prozac sales in the fourth quarter of 2001 led to a 14 percent reduction in company revenues. In January 2002 the U.S. Supreme Court rejected Lillys final patent appeal without comment, which opened the door to several other companies making generic versions of the antidepressant drug. Thus ended a major chapter in Lillys history.

The same month the federal government settled an investigation of Lilly violating its own privacy policies by releasing email addresses of over 600 Prozac patients. According to the New York Times, the case is the first the Federal Trade Commission has pursued over suspected unintentional violation of a Web sites privacy policies.

Lilly reported $10.86 billion in net sales and $3.05 billion in net income in 2000, both figures up from $10.0 billion in net sales and $2.72 billion in net income the previous year. There was a significant change in the source of its income. In 1996 Prozac accounted for 34 percent of its net sales, but that declined to 24 percent in 2000. Meanwhile, its newer products (Zyprexa, Evista, Actos, Humalog, Gemzar, and ReoPro) increased to bring in 41 percent of all 2000 sales. Zyprexa, approved for schizophrenia and the acute manic phase of bipolar conditions, in the fourth quarter of 2000 surpassed Prozac as the companys number one selling product, with over $2 billion in 2000 sales. In 2000 the company listed 30 trademarked Pharmaceuticals on its web site. A few of those were trademarked by other companies that Lilly worked with in joint operations.

In December 2001 Lilly had several new products that it planned to launch by 2004. They included Forteo to reverse osteoporosis, Cialis for male erectile dysfunction, Atomexetine to treat attention deficit disorder, Duloxetine for depression and urinary incontinence, an olanzipine and fluoxetine combination to fight depression, Alimta to treat a form of lung cancer called mesothelioma, and a PKC beta inhibitor to treat diabetic eye problems. Lilly expected that these and several other products in the pipeline would keep the company prosperous in the years to come.

Principal Subsidiaries

Eli Lilly International Corporation; Eli Lilly Interamrica, Inc.; Eli Lilly de Centro America, S.A. (Guatemala); Eli Lilly Compania de Mexico, S.A. de C.V.; Dista Mexicana, S.A. de C.V.; EPCO; Eli Lilly Industries, Inc.; Eli Lilly and Company (Taiwan), Inc.; CBI Uniforms, Inc. (50%); ELCO Management Corp.; Eli Lilly S.A. (Switzerland); Elanco Animal Health; Sphinx Pharmaceuticals Corporation; Control Diabetes SVC; Lilly ICOS LLC.

Principal Competitors

GlaxoSmithKline; Pfizer Inc.; Novo Nordisk.

Further Reading

Bian, Tonda R., The Drug Lords: Americas Pharmaceutical Cartel, Kalamazoo, Mich.: No Barriers Publishing, 1997.

Bliss, Michael, The Discovery of Insulin, Chicago: University of Chicago Press, 1982.

Bottcher, Helmuth M., Wonder Drugs, A History of Antibiotics, London: Heinemann, 1963.

Breed, Allen G., Women Form National Group to Support Prozac Users, Provo Herald (Provo, Utah), August 28, 1990, p. C5.

Clark, Roscoe Collins, Threescore Years and Ten: A Narrative of the First Seventy Years of Eli Lilly & Company, Chicago: R.R. Donnelley, 1946.

Eli Lilly Puts Another Notch in Health Cares Belt, Corporate Growth Report, July 25, 1994, pp. 7363, 7374.

Findlay, Steven, Do Ads Really Drive Pharmaceutical Sales?, Marketing Health Services, Spring 2000, pp. 2025.

Greising, David, Randall Tobias Takes a Pruning Hook to Lilly, Business Week, January 31, 1994, p. 32.

Hass, Nancy, Serious Medicine, Financial World, November 9, 1993, pp. 3234.

Kramer, Peter D., Listening to Prozac, New York: Viking Press, 1993.

Kronholm, William, FDA Ends Barriers to Advertising Prescription Drugs, Salt Lake Tribune, September 16, 1985, p. D2.

Lilly and Schering Offer Modest 4Q Results, Chemical Market Reporter, January 28, 2002, p. 2.

Lilly Plans to Offer 8 New Drugs , Los Angeles Times, December 24, 2001, p. C6.

Lilly Privacy Violation Charges Are Settled, New York Times, January 19, 2002, p. C3.

Madison, James H., Eli Lilly: A Life, 18851977, Indianapolis: Indiana Historical Society, 1989.

Moskowitz, Milton, et al., Lilly, in Everybodys Business: A Field Guide to the 400 Leading Companies in America, New York: Doubleday Currency, 1990, pp. 17677.

Petersen, Melody, Lilly Joins 3 Other Giants on Discounts, New York Times, March 6, 2002, p. C12.

Scott, Carlee R., Eli Lilly & Co. Agrees to Buy Hybritech Inc., Wall Street Journal, September 19, 1985, p. 8.

Supreme Court Rejects Lilly Appeal, Chemical Market Reporter, January 21, 2002, p. 4.

S wann, John P., Academic Scientists and the Pharmaceutical Industry: Cooperative Research in Twentieth-Century America, Baltimore: Johns Hopkins University Press, 1988.

Szegedy-Maszak, Marianne, The Career of a Celebrity Pill, U.S. News & World Report, August 6, 2001, pp. 3839.

Teitelman, Robert, Wilting Lilly, Financial World, May 3,1988, pp. 3639.

Waldholz, Michael, and Gregory Stricharchuk, Fight Between Generic and Major Drug Firms Heats Up As Stakes Rise, Wall Street Journal, October 4, 1989, pp.Al, A22.

Watson to Sell a Generic Prozac, Wall Street Journal, January 30, 2002.

updates: April Dougal Gasbarre, David M. Waiden

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Eli Lilly & Company

Eli Lilly & Company

Lilly Corporate Center
Indianapolis, Indiana 46285
U.S.A.
(317) 276-2000
Fax: (317) 276-3492

Public Company
Incorporated:
1901
Employees: 28,000
Sales: $6.45 billion
Stock Exchanges: New York Boston Cincinnati NASDAQ
Philadelphia Basel Geneva Zurich
SICs: 2834 Pharmaceutical Preparations; 2835 Diagnostic
Substances; 3841 Surgical and Medical Instruments; 5122
Drugs, Proprietaries, and Sundries; 3845 Electromedical
Equipment; 2948 Prepared Feed, Not Elsewhere Classified

Eli Lilly & Company discovers, develops, manufactures, and markets ethical drugs in 14 plants and facilities in the United States and in 25 plants in 19 countries around the world. The companys products are sold in more than 120 countries. Although Lilly was embroiled in controversy and became the target of numerous lawsuits related to its products in the early 1990s, the Indianapolis-based giant still ranked among the leaders in the pharmaceutical industry in the early 1990s. In 1993, for the first time in its history, Lilly was led by an executive who had not had a career with the venerable drug company. Chairperson and CEO Randall L. Tobias launched a strategic restructuring of the troubled company that year in the hopes of returning Lilly to its former glory.

Despite its huge domestic and international operations, Lilly continued to maintain a close allegiance to the American Midwest and wielded significant influence in its native city. For instance, in 1971 Forbes magazine prepared a profile of the company, but because Lilly did not want the article published, an Indianapolis newspaper refused to sell Forbes photographs of the Lilly family.

Much of this community loyalty stems from Lillys long history of paternalism and generosity. In 1876, Colonel Eli Lilly, a Civil War veteran, acquired a laboratory in Indianapolis and began to manufacture drugs. The business established itself successfully with the innovation of gelatin-coated capsules, and it wasnt long before Colonel Lilly used company profits to benefit the community. He donated money to build a childrens hospital and chaired a committee that helped the indigent during the financial panic of 1893.

This civic consciousness was inherited by the second generation of Lilly management. During the Depression, the Colonels grandson, Eli Lilly, refused to lay off any employees. Instead, he had them help with general maintenance of the facility until they could return to their normal jobs.

Lilly established the Lilly Endowment to provide financial support for educational institutions. The family donated $5 million worth of rare books to Indiana University and later donated a coin collection worth $5.5 million to the Smithsonian Institution. The foundation also funded new buildings, music schools, student centers, and laboratories in every college and university in Indiana and in several around the country.

Lilly also laid the foundations for its reputation for marketing ingenuity in those early years. After the 1906 San Francisco earthquake, Lilly did not wait for requests for medicine to arrive; the company sent as much of its stock as it could to the disaster area. Since then the ready availability of Lillys products has been central to its marketing strategy. That and aggressive advertising campaigns, plus its large, eager sales force, have been the keys to its marketing success.

Besides being a pioneer in pharmaceutical marketing, Lilly was known for its development of many important drugs. In the 1920s, the company developed insulin from a hormone extracted from the pancreas of pigs; Lilly would remain the leading manufacturer of insulin, commanding at least 75 percent of the American market in the early 1990s. Later in the 1920s, the company produced a liver extract for the treatment of pernicious anemia. In the 1930s, Lilly laboratories synthesized barbituric acids, essential to the production of drugs used in surgery and obstetrics. In 1955, Lilly manufactured 60 percent of the Salk polio vaccine. But the companys greatest contribution to human health was in production of penicillins and other antibiotics that revolutionized the treatment of disease.

Throughout this era of innovation and expansion, and up until the late 1980s, Lillys management remained a constant. Every president and almost every member of the board of directors was either a direct descendant of Colonel Lilly or a native of the Midwest, if not of Indiana. After the Colonels death in 1898, his son, Josiah Lilly, ran the company for the next 34 years. He was succeeded by son Eli and later by Josiah Jr. During the 16-year presidency of Eli Lilly, sales rose from $13 million in 1932 to $117 million in 1948. After Eli relinquished his executive powers to his brother, he became the titular chairperson of the company. Upon his death at age 91, he had lived to see the company reach $1 billion in sales.

Josiah Jr.s presidency marked the last reign of a direct family descendant. Richard Wood, who advanced to the CEO position in 1973, was only the second of six presidents to be an outsider. He was, of course, born and raised in Indiana and was a longtime Lilly employee.

Not only was the companys clannishness evident in the executive branch, it was also apparent in Lillys management style. In 1971, members and descendants of the Lilly family owned $1 billion of the $4 billion in company stock, while the Lilly Endowment (controlled by the family) owned another $900 million. Furthermore, the foundation resisted making large disbursements, and it was not until the 1969 Tax Reform Act that the foundation was forced to loosen its 25 percent hold on stock. Still, in 1979 the foundation continued to hold 18.6 percent of company shares.

Lillys conservative management paralleled its outspoken ideology. During the 1960s, the Lilly Endowment professed a specific political mission. The foundation was to support an understanding of anti-communism, free enterprise, [and] limited government. Despite what some have called an anachronistic approach to business, no one can dispute Lillys financial success. In the 1970s, while the rest of the drug industry was depressed, Lilly doubled in size. When the pharmaceutical business was hit hard by competition from generic drugs that flooded the marketplace after the expiration of patents for drugs discovered in the 1950s and 1960s, Lilly diversified into agricultural chemicals, animal-health products, medical instruments, and beauty-care products.

Meanwhile, Lilly increased its expenditure on research and development of Pharmaceuticals, spending $235 million in those areas in 1981 alone. The immediate result was three new drugs: Ceclor, an oral cephalosporin antibiotic; Dobutrex, a heart-failure treatment; and Mandol, an injectable cephalosporin effective against a broad spectrum of hospital-acquired infections. The release of the new cephalosporins represented a significant step for Lilly. The company had always been dominant in the antibiotic market, but competition from Merck, SmithKline, and foreign drug companies threatened Lillys supremacy. With the new drugs, the company was able to recapture hegemony of the cephalosporin market; of the $3.27 billion in company sales in 1985, $1.05 billion was from the sale of antibiotics.

A similar success story resulted after the company bought Elizabeth Arden for $38 million in 1971. At first glance, the purchase of the beauty-care company seemed an unwise move. Elizabeth Arden had been a money loser and continued to lose money for five years after Lilly acquired it. Lilly management seemed to have no idea of the intense competition in the beauty industry. But, in an unusual move, Lilly hired outsiders to fill its subsidiarys top executive positions, and by 1982 Elizabeth Ardens sales were up 90 percent from 1978, with profits doubling to nearly $30 million.

The introduction of several new drugs in the late 1970s increased Lillys sales and challenged the market boundaries of competing products. Lilly released Nalfon, an anti-inflammatory drug, to compete with Mercks top selling Indocin. In addition, the company introduced Cinobac, an antibacterial agent used to treat urinary-tract infections; Eldisine, a treatment for childhood leukemia; Moxam, a potent new antibiotic licensed from Shionogi, a Japanese drug company; and Benoxa-profen, an antiarthritic introduced in the United Kingdom. Moreover, using groundbreaking recombinant DNA technology, Lilly was among the first to produce human insulin from bacteria. This breakthrough promised to protect Lillys majority share of the insulin market.

During this time, the initial flurry over the possible hazardous side effects of a popular analgesic called Darvon seemed to have subsided. Critics had charged that the drug was both ineffective and had the dangerous potential for abuse, but Lilly mounted an educational campaign on proper use of the drug and continued to hold 80 percent of the prescription analgesic market. Darvon generated annual sales of $100 million.

With a 19 percent increase in sales in 1978, a 24 percent return on equity, and impressive results from Woods foreign-market campaign, Lillys prospects seemed excellent. Then, however, company growth began to fall short of projected figures. In 1982, a miscalculation of inventory and expected sales caused Lilly to produce far more Treflan (a soybean herbicide) than it could sell. With the patents expiring on Treflan and two animal products, and with the overproduction of Treflan, income from agricultural products suddenly did not look as promising as it once had. Furthermore, profits from Moxam had to be shared with Shionogi, the Japanese partner in the joint venture. And the patent on Keflin, an injectable cephalosporin that had been generating $100 million in sales, expired in November 1982.

Lillys diversification into medical instruments through the acquisition of IVAC Corporationa manufacturer of systems that monitored vital signs and equipment for intravenous fluid infusionand Cardiac Pacemakera manufacturer of heart pacemakerscost Lilly $286 million in stock, a significant investment with an unknown potential for profits. And since the combined assets of its medical instrument subsidiaries and Elizabeth Arden represented only 20 percent of the entire company, their projected profits were not expected to have a substantial effect on company profits as a whole. Elizabeth Arden was, in fact, later sold to Fabergé, Inc. for $657 million in 1987.

Of more concern, however, was the re-emerging specter of Darvons addictive qualities. Ralph Naders consumer-advocacy group demanded a ban on Darvon because of its alleged associations with suicides, overdoses, and misuse by addicts. Joseph Califano, the U.S. Secretary of Health, Education, and Welfare, harshly criticized the sincerity of Lillys educational campaign and went so far as to recommend that Darvon and other propoxyphene products not be prescribed unless there really isnt an alternative, and then only with care. The FDA charged that Lillys educational campaign actually amounted to ingenious marketing, in that Lilly sales representatives not only gave doctors educational material that emphasized the drugs positive attributes but also conveniently left samples.

To the companys dismay, Darvon was not the only drug to cause a controversy. Oraflex, the American version of Benoxa-profen, was withdrawn from the market in August 1982. Only one month after the FDA approved Oraflex, a British medical journal documented five cases of death due to jaundice in patients taking the drug. The FDA accused Lilly of suppressing unfavorable research findings. Initial warnings about the possibility of inconsequential side effects were later amended to include the threat of jaundice, but only after the company had already applied for FDA approval.

At a time when drug-regulation reform would have allowed companies to interpret the results of their own lab tests, the Oraflex controversy represented a major disaster. Furthermore, publicity for the drug, which was projected to be a $100 million seller (prescriptions for Oraflex increased by 194,000 in just one month), had been unwittingly distorted. Reports from outside the company had falsely claimed that the drug could cure arthritis.

On August 21, 1985, the Oraflex controversy culminated when the U.S. Justice Department filed criminal charges against Lilly and Dr. William Ian H. Shedden, the former vice-president and chief medical officer of Lilly Research Laboratories. The Justice Department accused the defendants of failing to inform the government about four deaths and six illnesses related to Oraflex. Lilly pleaded guilty to 25 criminal counts, which resulted in a $25,000 fine. Shedden pleaded no contest to 15 criminal counts and was fined $15,000. All 40 counts were misdemeanors; there was no charge against Lilly of intentional deception.

Lilly was cited as a defendant in a lawsuit filed against drug manufacturers and distributors of diethylstilbestrol (DES). The drug, which was prescribed to pregnant women during the 1940s and 1950s to prevent miscarriages, caused vaginal cancer and related problems in the children of the patients. Lilly was the first and largest manufacturer of DES, and it was estimated that 40 percent of the drug came from Lilly production facilities. In 1981, a court ordered the company to pay $500,000 in damages to one plaintiff, and in 1985 Lilly was ordered to pay $400,000 to the first male seeking damages in a DES-related case. Other claims asked for damages totaling in the billions of dollars.

In the midst of these legal wranglings, chairperson and CEO Richard Wood began acquiring manufacturers of medical devices and diagnostic equipment. Lilly added both Physio-Control Corp. and Advanced Cardiovascular Systems Inc. through share exchanges in 1980 and 1984, respectively. Intec Systems Inc., a manufacturer of cardiac defibrilators, was acquired in 1985. Hybritech, a California diagnostic products company, was purchased for $350 million in 1986. Lilly added Devices for Vascular Intervention, Inc. and Pacific Biotech, Inc. in 1989 and 1990. These companies (along with Origin Medsystems, a 1992 acquisition) constituted Lillys Medical Devices and Diagnostics Division, which contributed about 20 percent of the pharmaceutical corporations annual revenues in the early 1990s. But even this new business interest had its problems, not the least of which was intense competition from Abbott Laboratories.

While Wood concentrated on these domestic acquisitions, Lillys competitors had expanded internationally, where two-thirds of the worlds pharmaceutical market awaited. And although Lillys top two drugs, Ceclor (an antibiotic) and Prozac (an antidepressant) were highly profitable, the companys $1 billion annual investment in research and development did not yield any blockbuster new breakthroughs.

In 1991, Wood abdicated Lillys chief executive office and chose Vaughn D. Bryson, a longtime executive, as his successor. Lillys employees reportedly appreciated Brysons management style, which was much less formal than his predecessor. Unfortunately for Bryson, however, patent expirations, a dearth of new drugs, and general volatility in the pharmaceutical industry combined to thwart his stint at the top. The company lost over 30 percent of its market value during his 18-month tenure. Worse, the corporation recorded the first quarterly loss in its history in the fall of 1992. Wood, who had retained Lillys chairmanship, orchestrated a boardroom revolt to oust his protege in 1993.

In June of that year, Randall Tobias was selected CEO and chairperson. Unlike all his predecessors, Tobias was recruited from outside Lillys employee roster. The former vice-chairperson of American Telephone and Telegraph Co. had served on Lillys board since 1986 and was by his own admission inexperienced in Pharmaceuticals. Nonetheless, after just six months at Lillys helm, Tobias announced a reorganization of the venerable drug company.

His plan included divestment of the profitable, but distractive Medical Device and Diagnostics Division, through which he hoped to raise $550 million. A cost-reduction program included the elimination of 4,000 employees through early retirement. Tobias planned to use these savings to acquire the distributors needed in a pharmaceutical industry that was increasingly influenced by budget-conscious managed care organizations. In line with this focus, Lilly announced its plan to acquire PCS Health Systems Inc., Americas largest pharmacy benefit manager, from McKesson Corp. for $4 billion in mid-1994. Tobias, who had orchestrated AT&Ts overseas expansion, also worked to expand Lillys international sales from their 1993 level of about 39 percent of total revenues.

Tobias plan also focused Lillys research and development on five broad disease categories: central nervous system diseases, endocrine diseases (including diabetes and osteoporosis), infectious diseases, cancer, and cardiovascular diseases. In line with these strategic imperatives, Lilly looked forward to releasing Lys-Pro, a new type of insulin for the treatment of diabetes, in 1995, and olanzapine, indicated for schizophrenia, in 1996.

Principal Subsidiaries

Eli Lilly International Corporation; Eli Lilly Interamrica, Inc.; Eli Lilly de Centro America, S.A. (Guatemala); Eli Lilly Compania de Mexico, S.A. de C.V.; Dista Mexicana, S.A. de C.V.; EPCO; Eli Lilly Industries, Inc.; Eli Lilly & Company (Taiwan), Inc.; CBI Uniforms, Inc. (50%); ELCO Management Corp.; Eli Lilly S.A. (Switzerland).

Further Reading

Clark, Roscoe Collins, Threescore Years and Ten: A Narrative of the First Seventy Years of Eli Lilly & Company, Chicago: R.R. Donnelly, 1946.

Eli Lilly Puts Another Notch in Health Cares Belt, Corporate Growth Report, July 25, 1994, pp. 7363, 7374.

Greising, David, Randall Tobias Takes a Pruning Hook to Lilly, Business Week, January 31, 1994, p. 32.

Hass, Nancy, Serious Medicine, Financial World, November 9, 1993, pp. 32-34.

Teitelman, Robert, Wilting Lilly, Financial World, May 3, 1988, pp. 36-39.

updated by April Dougal Gasbarre

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Eli Lilly & Company

Eli Lilly & Company

307 E. McCarty Street
Indianapolis, Indiana 46285
U.S.A.
(317) 261-2000

Public Company
Incorporated: January 17, 1901
Employees: 28,000
Sales: $3.710 billion
Market Value: $13.210 billion
Stock Index: New York Basle Geneva Zurich

Although Eli Lilly & Company has in recent years been embroiled in controversy and been the target of numerous lawsuits related to its products, the Indianapolis-based giant is still among the leaders in the pharmaceutical industry. In a Fortune magazine survey of corporate performance, Lilly moved from seventh to sixth place in the industrys rankings during 1986. And despite involvement in more than one allegedly unscrupulous drug promotional campaign, the company remains one of the most profitable manufacturers of ethical drugs in the world.

Lilly manufactures human health, agricultural, and cosmetic products in 18 plants and facilities in the United States, including its Indianapolis headquarters, and in 32 plants in 28 countries around the world. The companys products are sold in more than 130 countries. Lilly commands more than 300 wholesale distribution outlets and employs about 1,300 salaried sales representatives in the United States, and at least as many abroad.

Despite these huge domestic and international operations, Lilly jealously guards its American heartland values and wields significant influence in its native city. For instance, in 1971 Forbes magazine prepared a company profile, but because Lilly did not want the article published, an Indianapolis newspaper refused to sell Forbes photographs of the Lilly family.

Much of this community loyalty stems from Lillys long history of paternalism and generosity. In 1876 Colonel Eli Lilly, a Civil War veteran, acquired a laboratory in Indianapolis and began to manufacture drugs. The business established itself successfully with the innovation of gelatin-coated capsules, and it wasnt long before Colonel Lilly used company profits to benefit the community. He donated money to build a childrens hospital and chaired a committee that helped indigents during the financial panic of 1893.

This civic consciousness was inherited by the second generation of Lilly management. During the Depression, the Colonels grandson, Eli Lilly, refused to lay off any employees. Instead, he had them help with general maintenance of the facility until they could return to their normal jobs.

Lilly established the Lilly Endowment to provide financial support for educational institutions. The family donated $5 million worth of rare books to Indiana University, and later donated a coin collection worth $5.5 million to the Smithsonian Institution. The foundation also funded new buildings, music schools, student centers, and laboratories in every college and university in Indiana and in several around the country.

Lilly also laid the foundations for its reputation for marketing ingenuity in those early years. After the 1906 San Francisco earthquake Lilly did not wait for requests for medicine to arrive; the company sent as much of its stock as it could to the disaster area. Since then the ready availability of Lillys products has been central to its marketing strategy. That and aggressive advertising campaigns, plus its large, eager sales force, have been the keys to its marketing success.

Besides being a pioneer in pharmaceutical marketing, Lilly has been notable for its development of many important drugs. In the 1920s the company developed insulin from a hormone extracted from the pancreas of pigs. Today Lilly is the leading manufacturer of insulin, commanding at least 75% of the American market. Later in the decade the company produced a liver extract for the treatment of pernicious anemia. In the 1930s Lilly laboratories synthesized barbituric acids, essential to the production of drugs used in surgery and obstetrics. In 1955 Lilly manufactured 60% of the Salk polio vaccine. But the companys greatest contribution to human health has been in production of penicillins and other antibiotics that revolutionized the treatment of disease.

Throughout this era of innovation and expansion, and up until recently, Lillys management remained a constant. Every president and almost every member of the board of directors was either a direct descendant of Colonel Lilly or a native of the Midwest, if not of Indiana. After the Colonels death in 1898, his son, Josiah Lilly, ran the company for the next 34 years. He was succeeded by son Eli and later by Josiah Jr. During the 16-year presidency of Eli Lilly, sales rose from $13 million in 1932 to $117 million in!948. After Eli relinquished his executive powers to his brother, he became the titular chairman of the company. Upon his death at age 91, he had lived to see the company reach $1 billion in sales.

Josiah Jr.s presidency marked the last reign of a direct family descendant. Richard Wood, the current chief executive officer, is only the second of six presidents to be an outsider. He was, of course, born and raised in Indiana and is a longtime Lilly employee.

Not only is the companys clannishness evident in the executive branch, it is also apparent in Lillys management style. In 1971, of the $4 billion worth of company stock, members and descendants of the Lilly family owned $1 billion of that stock, while the Lilly Endowment (controlled by the family) owned $900 million worth. Furthermore, the foundation has resisted making large disbursements, and it was not until the 1969 Tax Reform Act that the foundation was forced to loosen its 25% hold on stock. Yet in 1979 the foundation continued to hold 18.6% of company shares.

Lillys conservative management paralleled its outspoken ideology. During the 1960s the Lilly endowment professed a specific political mission. The foundation was to support an understanding of anti-communism, free enterprise, [and] limited government.

Despite what some have called an anachronistic approach to business, no one can dispute Lillys financial success. In the 1970s, while the rest of the drug industry was depressed, Lilly doubled in size. When the pharmaceutical business was hit hard by competition from generic drugs that flooded the marketplace after the expiration of patents for drugs discovered in the 1950s and 60s, Lilly diversified into agricultural chemicals, animal-health products, medical instruments, and beauty-care products.

Meanwhile, Lilly increased its expenditure on research and development of pharmaceuticals, spending $235 million in those areas in 1981 alone. The immediate result was three new drugs: Ceclor, an oral cephalosporin antibiotic; Dobutrex, a heart-failure treatment; and Mandol, an injectable cephalosporin effective against a broad spectrum of hospital-acquired infections. The release of the new cephalosporins represented a significant step for Lilly. The company had always been dominant in the antibiotic market, but competition from Merck, SmithKline, and foreign drug companies threatened Lillys supremacy. With the new drugs, the company was able to recapture hegemony of the cephalosporin market; of the $3.27 billion in company sales in 1985, $1.05 billion was from the sale of antibiotics.

A similar success story resulted after the company bought Elizabeth Arden for $38 million in 1971. At first glance, the purchase of the beauty-care company seemed an unwise move. Elizabeth Arden had been a money loser and continued to lose money for five years after Lilly acquired it. Lilly management seemed to have no idea of the intense competition in the beauty industry. But, in an unusual move, Lilly hired outsiders to fill its subsidiarys top executive positions, and by 1982 Elizabeth Ardens sales were up 90% from 1978, with profits doubling to nearly $30 million.

The introduction of several new drugs in the late 1970s increased Lillys sales and challenged the market boundaries of competing products. Lilly released Nalfon, an anti-inflammatory drug, to compete with Mercks number-one-selling Indocin. In addition, the company introduced Cinobac, an antibacterial agent used to treat urinary-tract infections; Eldisine, a treatment for childhood leukemia; Moxam, a potent new antibiotic licensed from Shionogi, a Japanese drug company; and Benoxaprofen, an antiarthritic introduced in the United Kingdom. Moreover, using groundbreaking recombinant DNA technology, Lilly was among the first to produce human insulin from bacteria. This breakthrough promised to protect Lillys majority share of the insulin market.

The initial flurry over the possible hazardous side effects of a popular analgesic called Darvon seemed to have subsided. Critics had charged that the drug was both ineffective and had the dangerous potential for abuse, but Lilly mounted an educational campaign on proper use of the drug and continued to hold 80% of the prescription analgesic market. Darvon generated annual sales of $100 million.

With a 19% increase in sales in 1978, a 24% return on equity, and impressive results from President Woods foreign-market campaign, Lillys prospects seemed excellent. Then, however, company growth began to fall short of projected figures.

In 1982, a miscalculation of inventory and expected sales caused Lilly to produce far more Treflan (a soybean herbicide) than it could sell. With the patents expiring on Treflan and two animal products, and with the overproduction of Treflan, income from agricultural products suddenly did not look as promising as it once had.

Furthermore, profits from Moxam had to be shared with Shionogi, the Japanese partner in the joint venture. And the patent on Keflin, an injectable cephalosporin that had been generating $100 million in sales, expired in November 1982.

Lillys diversification into medical instruments through the acquisition of I VAC Corporation, a manufacturer of vital-signs-monitoring systems and intravenous-fluid-infusion equipment, and Cardiac Pacemaker, a manufacturer of heart pacemakers, cost Lilly $286 million in stock, a significant investment with an unknown potential for profits. And since the combined assets of its medical instrument subsidiaries and Elizabeth Arden represented only 20% of the entire company, their projected profits were not expected to have a substantial effect on company profits as a whole.

Of more concern, however, was the re-emerging specter of Darvons addictive qualities. Ralph Naders consumer-advocacy group demanded a ban on Darvon because of its alleged associations with suicides, overdoses, and misuse by addicts. Joseph Califano, the U.S. Secretary of Health, Education and Welfare, harshly criticized the sincerity of Lillys educational campaign. He went so far as to recommend that Darvon and other propoxyphene products not be prescribed unless there really isnt an alternative, and then only with care. The FDA charged that Lillys educational campaign actually amounted to ingenious marketing. (Lilly sales representatives not only gave doctors educational material that emphasized the drugs positive attributes, they also conveniently left samples.)

To the companys dismay, Darvon was not the only drug to cause a controversy. Oraflex, the American version of Benoxaprofen, was withdrawn from the market in August 1982. Only one month after the FDA approved Oraflex, a British medical journal documented five cases of death due to jaundice in patients taking the drug. The FDA accused Lilly of suppressing unfavorable research findings. Initial warnings about the possibility of inconsequential side effects were later amended to include the threat of jaundice, but only after the company had already applied for FDA approval.

At a time when drug-regulation reform would have allowed companies to interpret the results of their own lab tests, the Oraflex controversy represented a major disaster. Furthermore, publicity for the drug, which was projected to be a $100 million seller (prescriptions for Oraflex increased by 194,000 in just one month), had been unwittingly distorted. Reports from outside the company had falsely claimed that the drug could cure arthritis.

On August 21,1985, the Oraflex controversy culminated when the U.S. Justice Department filed criminal charges against Lilly and Dr. William Ian H. Shedden, the former vice-president and chief medical officer of Lilly Research Laboratories. The Justice Department accused the defendants of failing to inform the government about four deaths and six illnesses related to Oraflex. Lilly pleaded guilty to 25 criminal counts that resulted in a $25,000 fine. Shedden pleaded no contest to 15 criminal counts and was fined $15,000. All 40 counts were misdemeanors; there was no charge against Lilly of intentional deception.

Lilly has also been cited as a defendant in a lawsuit filed agains drug manufacturers and distributors of diethylstilbestrol (DES). The drug, which was prescribed to pregnant women during the 1940s and 1950s to prevent miscarriages, caused vaginal cancer and related problems in their children. Lilly was the first and largest manufacturer of DES, and it is estimated that 40% of the drug came from Lilly production facilities. In 1981 a court ordered the company to pay $500,000 in damages to one plaintiff, and in 1985 Lilly was ordered to pay $400,000 to the first male seeking damages in a DES-related case. Other claims are asking for damages totaling in the billions of dollars.

Of all Lillys projected successes, human insulin manufactured using recombinant DNA technology has the greatest potential. Although recombinant techniques remain costly because of their infancy, manufacturing will eventually be on a much larger scale than that of traditional methods of obtaining insulin. The 1986 acquisition of Hybritech, a genetic engineering company, emphasizes Lillys commitment to the future of biotechnology.

That commitment, plus its aggressive marketing techniques, small army of sales representatives, and efficient wholesale distribution network, should keep Lilly near the top of the pharmaceutical industry.

Principal Subsidiaries

Eli Lilly International Corp.; Elizabeth Arden, Inc.; Bethco Fragrances, Inc.; Philip Kingsley Products, Inc.; ELCO Management Corp.; Cardiac Pacemakers, Inc.; Physio-Control Corp.; I VAC Corp.; Advanced Cardiovascular Systems, Inc. The company also lists subsidiaries in the following countries: Australia, Austria, Belgium, Brazil, Bermuda, Canada, Denmark, England, France, Finland, Guatemala, Italy, Japan, Korea, Malaysia, Mexico, The Netherlands, Spain, Sweden, Switzerland, Taiwan, Venezuela, and West Germany.

Further Reading

Threescore Years and Ten: A Narrative of the First Seventy Years of Eli Lilly & Company by Roscoe Collins Clark, Chicago, R.R. Donnelly, 1946.

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Lilly, Eli

Eli Lilly

American pharmaceutical executive Eli Lilly (1885–1977) spent nearly 70 years with the family company that bears his name. Lilly guided the Indiana business, which had been founded by his grandfather a decade before his birth, through a period of both immense change and immense success over the course of the twentieth century. The scientific advances made during his tenure, combined with the firm's emergence as a marketing leader, helped make Eli Lilly one of the world's leading drug companies.

Company Founded in 1876

Lilly was born on April 1, 1885, in Indianapolis, Indiana. His grandfather and namesake, Colonel Eli Lilly, was a Maryland native whose parents had relocated to Greencastle, Indiana, when he was a child. During the Civil War, the elder Lilly served with a regiment from Indiana that fought on the Union Army side, and after the war's end the "Colonel" settled in Indiana and established himself as a pharmaceutical chemist and owner of a drugstore. He founded the company that bears his name in 1876 with $1,400 in savings, establishing a small laboratory space on Pearl Street.

Originally, the company made pills and the fluid extracts that were popular medicines in the era before doctors dispensed medicines only with a prescription. The Colonel's laboratory soon gained a reputation for producing reliable products that were often markedly better than the standard patent medicines sold over the counter. Many of these potions were ineffective or even dangerous, but the Colonel's business plan aimed to make and sell only formulas that were recommended by physicians for their efficacy. One early bestseller was Succus Alterans, which was reportedly derived from an old Creek Indian formula. It was marketed as a blood purifier and treatment for "syphilitic conditions," rheumatism, and skin problems like psoriasis.


Joined as Junior Bottle – Washer

Lilly's father, Josiah K. Lilly, joined the family business, and assumed its helm when the Colonel died in 1898. Josiah had married a distant cousin, Lilly Ridgely, who became Lilly Ridgely Lilly, and they had two sons: Eli and Josiah Jr. The family lived in an affluent neighborhood in Indianapolis known as the "new north side" at the time, but also spent summers on Lake Wawasee in Kosciusko County, where the Colonel had a cottage. Lilly was close to his grandfather as a child, and his lifelong interest in archeology would be sparked by the tales of Native Americans in the Indiana area that his grandfather regaled him with during summers on the lake.

Lilly began working at the company pharmaceutical plant at the age of ten during the summer months. He began as a bottle–washer, and later progressed to other duties, such as cleaning out hogs' stomachs used in one of the medicinal preparations the company made from scratch, or grinding the foul–smelling pokeroot. After graduating from Shortridge High School in 1904, he went on to the esteemed Philadelphia College of Pharmacy. Three years later, having earned his degree, he joined the family business full–time and wed Evelyn Fortune, whom he had known since childhood. The couple had three children, but two died in infancy—one at the age of one month, the second at seven months. Only their daughter Evie, born in 1918, survived to adulthood, but her life would be touched by later tragedy as well.


Implemented New Management Ideas

Lilly's father was pleased that his son was joining the growing company, but did not wish to give him a job that might have been due as a promotion for a longtime employee. Thus Lilly was installed as head of the newly created Economic Department, and charged with finding ways of to make the company more efficient. Lilly proved a whiz at this, and instituted several new policies and systems. It was his idea, for example, to make multiple copies of manufacturing formulas from blueprinting. The tickets traveled with the product through each of the departments, and helped streamline the manufacturing and shipping process and improve quality.

Lilly was also fan of time–motion studies, and read avidly on new business management ideas gaining currency at the time. He was a particular devotee of Frederick W. Taylor's The Principles of Scientific Management, and the ideas in it found their way into company policy. There was a Methods and Standards Department, and its official manual set forth guidelines for completing nearly every task at the company in the most efficient manner possible—even for polishing the brass entrance doors. The manual advised Lilly employees that "both hands should be busy; if they are not, surely some change can be made to keep them busy all the time," according to James H. Madison's Eli Lilly: A Life.

In 1909, Lilly was named superintendent of the manufacturing division, where he continued to implement new ideas that made the company more efficient and thus more profitable. He devised a new method for filling gelatin capsules, and the Lilly company's automated system even merited a 1917 feature article in Scientific American. By this time his younger brother Josiah had also joined the company, with responsibilities in the human resources department, and Lilly was soon made a vice president with supervision of both the manufacturing and scientific divisions. The World War I years forced the company, along with other American pharmaceutical makers, to find new sources for the plants and extracts used for drug manufacturing. Before World War I, pharmaceutical research was in its infancy still, and remained largely a European effort. The wartime restrictions on commerce forced Lilly to rethink its corporate strategy and invest in research and development closer to home.


Aided Discovery of Insulin

That strategy paid off handsomely. A new Experimental Medicine division, within the Lilly's Scientific Department, was established in the early 1920s, and the two Lilly brothers installed a brilliant British scientist, George Henry Alexander Clowes, as its head. Clowes oversaw the company's first significant breakthrough: insulin. Working with scientists from the University of Toronto, Clowes theorized that extracting insulin from sheep and cattle pancreas and injecting it into humans who suffered from diabetes might yield positive results. Diabetes was a fatal disease at the time, a condition in which the pancreas did not produce enough insulin, the hormone that regulates the body's conversion of food into usable energy. A child born with it had a life–expectancy rate of just one year, while adults sufferers wasted away from the starvation diet, the only remedy doctors believed would help.

The Lilly Company launched insulin on the market in October of 1923, and it proved a historic breakthrough that won two of the Toronto scientists, Frederick Banting and J. J. R. Macleod, the 1923 Nobel Prize. The new treatment was said to have saved the lives of thousands of diabetics in its first weeks on the market alone, and newspaper stories trumpeted the Lilly product around the world. Eager to continue such success, Lilly approved many new research projects, including a liver extract for the treatment of pernicious anemia in 1930. The deadly blood disease afflicted his own mother, but the Lilly formula could not save her in the end, and she died in 1934.


Applied Management Techniques to Personal Life

Lilly oversaw a company that became a world leader in the 1920s, but his strong work ethic took its toll on his marriage, and he and Evelyn divorced in 1926. He married his longtime secretary, Ruth Allison, on November 27, 1927. A year after the death of his mother, Lilly's father, then 73, wed Allison's sister. Father and son grew closer, though when Lilly was younger their relationship was somewhat strained. Lilly had long strived to please his father, and his work schedule and lengthy correspondence with his father proved that. But his second marriage instigated a determination to become a more well–rounded person, apparently, and he decided to change his personality. He even went so far as to author his own "Plan for Developing a Proper Outlook on Life." It recommended the deployment of willpower, the cultivation of a sense of humor, and an expansion of the mind through reading and cultural pursuits.

Despite the divorce, Lilly tried to be an involved parent to his daughter Evie. He wrote her regularly, and she spent several weeks of the year with him in Indiana. The entertainment at her lavish debutant party at her father's home in 1937 included big–band star Benny Goodman. But Evie eschewed college, entered into two ill–advised marriages, and began to drink heavily. She spent time at rehabilitation facilities, but her increasing irresponsibility compelled her father to alter his will by 1948 after realizing she would likely squander any fortune left to her.

From 1932 to 1948 Lilly served as president of the company, which continued to thrive. During World War II it became involved with a joint research effort that led to the discovery and mass production of penicillin, the life–saving antibiotic. It also produced a typhus vaccine and Merthiolate, an antiseptic, for the battlefield. Josiah Sr., his father, died in 1948, and by then Lilly was 63 years old and, ostensibly, nearing retirement age. He became company chair that year and his brother assumed the president's post. After Lilly was appointed honorary chair in 1953 and had no other daily duties at company headquarters, he came to the office three days a week for years and remained a vital force.


An Ardent Republican

During these years Lilly's fortune accrued, thanks in part to the company's work on another medical breakthrough, the polio vaccine in 1955. The immense profits made from the life–saving vaccine, which had reduced deaths by polio some 95 percent in its first six years on the market, aroused government regulatory suspicion. Lilly's company and four others were accused of a price–fixing scheme in 1958, but were exonerated after a long legal battle. Lilly, a staunch Indiana Republican, opposed what he saw as meddling in business, and once dryly remarked that "it takes about fifty percent of the time of our top brass to fight our own government," according to the Madison biography.

Lilly assumed the post of company chair again after his brother died in 1966, and held it for another three years until becoming honorary chair once again. By this time, the interests he had determined to cultivate in order to improve his personality had borne much fruit. He collected Native American artifacts from the Indiana area, and even authored a book on the subject, Prehistoric Antiquities of Indiana. In 1934, he bought and began a long restoration of the William Conner homestead in Noblesville, Indiana. The Conner home dated back to the early 1800s, and was of first two–story brick homes in the entire region. Lilly turned it into a historical and educational landmark. He was also active in the Christ Church in downtown Indianapolis for decades.


Doled Out Raincoats

Lilly was eager to see theories about personality development explored in a more scientific setting, and funded a number of projects that were the work of respected sociologists and other researchers. These efforts were done largely under the auspices of the Lilly Endowment, which he and his brother had established in 1937. Yet he was also a personally generous fellow, and one story claims he once noticed a young woman on a scooter at a stoplight in Indianapolis during a downpour. Rolling down the window of his Rolls–Royce, he offered her his own raincoat, which she warily accepted. He began keeping a stock of plastic raincoats on hand for similar situations.

The Rolls was one of Lilly's few personal indulgences, and he liked to sit in the front with his longtime driver so they could chat. He continued to come into the office three days a week, even on his 90th birthday. His health declined after the death of Ruth in 1973; his daughter Evelyn had died of cancer as well three years earlier. He was diagnosed with liver cancer not long after the company celebrated its centennial anniversary in 1976. Worth over $165 million when he died, he left large bequests of stock to the Indianapolis Museum of Art, Butler University, Wabash College, the Indiana Historical Society, the Children's Museum of Indianapolis, and the Lilly Endowment.


Books

Dictionary of American Biography, Supplement 10: 1976–1980, Charles Scribner's Sons, 1995.

Madison, James H., Eli Lilly: A Life, 1885–1977, Indiana Historical Society, 1989.


Periodicals

American Druggist, April 1996.

Indianapolis Business Journal, December 27, 1999.

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