eli lilly and company corporate citizenship report 2005… · 3 welcome to eli lilly and...

Eli Lilly and CompanyCorporate Citizenship Report 2005/06

Full Website Contents

2

Overview

3 Welcome to this Report • About This Report

4 Chairman’s Message

6 Our Business • Company Profile • Indirect Economic Benefits • Our Products • Our Value Chain and Issues • Key Indicators

12 Corporate Citizenship Approach • Corporate Citizenship at Lilly • Engaging with Our Stakeholders

Key Issues

16 Research and Development • Research Priorities • Clinical Trials • Data Disclosure • Animal Research

21 Protecting Health, Safety, and the Environment • Health, Safety, and Environmental Management • Product Life Cycle • HSE Performance Review

32 Ethical Marketing and Use • Governance of Product Promotion • Product Liability Issues • Product Promotion Issues • Lilly Principles for Direct-to-Consumer Communications

Table of Contents

38 Access to Medicines • Increasing Access to Medicines – United States • Increasing Access to Medicines - Internationally • Public Sector Needs

42 Investing in Our Communities • Improving Patient Outcomes • Helping Patients with Mental Illness • Helping Children with Diabetes • Supporting Scientific Education and Research • Providing Disaster Relief • Encouraging Employee Commitment

46 Workforce and Workplace • Responsibility Toward Employees • Upholding Human Rights

49 Supply Chain • Supplier Diversity • Auditing Suppliers and Third-Party Contractors

51 Public Policy • Corporate Political Contributions • Lilly PAC • Lobbying and Advocacy • Lilly Membership in Business and Trade Associations

Company Information

56 Five-year Data Set

58 Awards and Recognition

59 Our History

62 Your Feedback

3

Welcome to Eli Lilly and Company’s corporate citizen-ship report addressing the environmental, social, and economic aspects of our products and operations.

Corporate citizenship reporting is an important expression of our commitment to transparency and accountability and a tool for dialogue with our stake-holders. We hope you find this report valuable. Our approach to reporting is evolving, and we welcome your feedback via the on-line survey at www.lilly.com/aboutcitizenship or the address listed on the inside back cover of this report.

This is a PDF version of our full corporate citizen-ship report, which is also available as web pages at www.lilly.com/aboutcitizenship. A separate summary report, focusing on five key corporate citizenship issues, is available as a PDF. This report includes the content of the summary report and additional infor-mation to provide a comprehensive picture of our business and our corporate citizenship performance.

We have tried to make this report more relevant to users by focusing on the key issues associated with our business and our role in society (page 10).

This report has three main sections. The first provides our chairman’s perspective on corporate citizenship (page 5); a profile of our business, products, and issues (page 6); and discussion of our approach to corporate citizenship (page 12), including stakeholder engagement (page 14), our governance systems, and our Code of Conduct (page 13).

The second section reviews our approach and perfor-mance relative to the following key issues:

• Research and Development, including clinical trial disclosure and animal research

• Ethical Marketing and Use, including promotion of pharmaceuticals and patient safety

• Access to Medicines

• Investing in Our Communities, including global examples of philanthropy and community involve-ment

• Protecting Health, Safety and the Environment, in-cluding our management systems, product life cycle approach, and performance

Welcome to this Report

• Workforce and Workplace, including our employ-ment philosophy and approach to training and development and human rights

• Supply Chain, including supplier diversity and auditing suppliers

• Public Policy, including political lobbying and con-tributions.

The third section summarizes the awards and rec-ognition Lilly has received, Five-year data set, Our History and information on how to feedback.

About This ReportThe development of this report was influenced by the Global Reporting Initiative (GRI) Guidelines for Sustainability Reporting (www.globalreporting.org). The GRI guidelines are designed to meet the needs of diverse stakeholders throughout the world and have provided useful guidance on the content of the report. For information about locating each GRI ele-ment addressed in this website, see the GRI content index.

Data contained in this report are for the 2005 cal-endar year and include global operations, unless otherwise noted. This report does not include joint ventures, partially owned subsidiaries, leased facili-ties, outsourced operations, and other items, unless such business arrangements would materially affect the intent of this report.

Accuracy and Validity of Information Our financial information is prepared according to the Generally Accepted Accounting Principles (GAAP) in the U.S. and is subject to our own internal accounting control systems as well as external third-party audits.

Lilly uses an internal information technology ap-plication to gather health, safety, and environmen-tal (HSE) performance data from our sites around the world. These data are extensively reviewed by internal subject-matter experts in the corporate HSE division. At this time we do not engage third-party services to review our HSE performance data.

Overview

4

The more than 40,000 Lilly employees are energized by our mission to provide breakthrough medicines and medical expertise that enable people to live longer, healthier, and more active lives. But concerns over the rising cost of health care, access to medi-cines, drug safety, and promotional practices have eroded trust in our industry and opened a gap be-tween how we see our company and how the public views us.

As a business that exists to serve patients, trust is essential. For 130 years, Lilly has sought to earn the public’s trust by upholding the highest standards in the way we make medicines, conduct business, and fulfill our duty as a corporate citizen. We also recog-nize that trust is only earned when parties engage and communicate with each other. We know that listening and responding to you – our stakeholders – are keys to enhancing our capacity to tackle the daunting challenges of delivering quality, affordable health care in the 21st Century.

Chairman’s Message

In practice, corporate citizenship at Lilly has three important parts.

First, we strive to execute the fundamentals of our business to the highest standards. This includes conducting medical research and development and marketing our products in an ethical and transpar-ent manner, and manufacturing them in a way that protects patients, the environment, and the health and safety of our workers and host communities.

Second, we seek to be an employer of choice and to use our resources and influence to strengthen the local and global communities in which we operate.

Third, we look beyond our own operations to un-derstand global health needs and what we can do to help meet them.

I believe we are making good progress in all of these areas.

In 2005, we invested more than $3 billion in research and development to meet our goal of inventing breakthrough medicines. We pioneered an online clinical trial registry, setting an indus-try benchmark for transparency by sharing our research results. A recent independent audit confirmed that we had posted 100 percent of the clinical trial information that we promised to pro-vide on our website (www.lillytrials.com) and that more than 99 percent of the studies were posted on schedule. Our research and development func-tion receives guidance from a Bioethics Committee, unique in our industry for including two highly respected external bioethics experts.

Lilly manufacturing reduced hazardous material purchases by more than a third from 2003 through 2005, demonstrating progress towards environmen-tal goals we set for 2010.

During 2005, we donated more than $1 million per day in cash and products (U.S. net wholesale price) for patient assistance programs, international humanitarian causes, and other charitable endeav-ors. This included responding to the Asian tsunami, Pakistan earthquake, Hurricane Katrina and other disasters. And we continued to forge ahead on

Sidney TaurelChairman of the Board and Chief Executive Officer

Overview

5

groundbreaking efforts aimed at stopping the spread of multi-drug resistant tuberculosis, a present-day global health threat.

But the challenges we face as an industry and as members of a global society go beyond what any company can address on its own. Half of the popula-tion of developing countries lacks basic sanitation, without which good health is a distant dream. Even in the U.S., where the expertise, training and technol-ogies for healing are first-rate, 45 million Americans lack health care insurance.

The steps we are taking to improve access to medi-cines and respond to other needs are outlined in this report. We are also pursuing a business strategy aimed at a new vision of delivering to patients the right drug at the right dose at the right time. In addi-tion, we have set a goal to reduce the cost of bring-ing a new medicine to market by a third by the end of the decade. We are determined to help answer society’s need for high-quality, affordable health care.

But much more remains to be done. Comprehensive answers to the challenges of improving health care around the world require coordinated action by the public and private sectors, aid agencies, and philan-thropists. Lilly is committed to being a partner in addressing these challenges and making a difference for the millions who are counting on us.

Sidney TaurelChairman of the Board and Chief Executive Officer

For 130 years, Lilly has sought to earn the public’s trust by upholding the highest standards in the way we make medicines, conduct business, and fulfill our duty as a corporate citizen.

Chairman’s Message

6

Company ProfileEli Lilly and Company is a leading innovation-driven pharmaceutical corporation committed to develop-ing a growing portfolio of best-in-class pharmaceuti-cal products that help people live longer, healthier, and more active lives. We have a long history of meaningful medical innovation, most notably in the treatment of infections, diabetes, and depression. A timeline (page 59) illustrates some significant events in the history of our development as a responsible public corporation. For additional information about our corporate history and significant medical break-throughs at Lilly, visit the “About Lilly” pages on www.Lilly.com.

The Lilly Difference/Our Company

Our Business

France, Germany, Ireland, Italy, Japan, Mexico, Puerto Rico, Spain, the United Kingdom, and the United States. Skilled in the art of making medicine, these employees make and supply products sold in 143 countries.

Lilly manufacturing consists of complex operations where employees translate deep knowledge of sci-ence, chemistry, engineering, production, and numer-ous other disciplines into the reliable manufacture and supply of high-quality, safe, and effective medi-cines. Because of the unique challenges associated with making medicine, we place special emphasis on ensuring that our operations are safe in the broadest sense of the word—for patients, employees, the envi-ronment, and the communities in which we operate. This means that the health, safety, environmental, and quality aspects of making medicine are the start-ing point for all that we do.

In 2005, Lilly reached a milestone in its efforts to improve quality in manufacturing, with a successful inspection by the U.S. Food and Drug Administration at Lilly Technology Center. Lilly is fully committed to ensuring compliance with current good manufactur-ing practices as required by all regulatory agencies that govern our industry. In addition, we are driving a renewed cultural mindset where compliance is the minimum expectation and continuous improvement is a primary objective at every site, every day. The success of these efforts has led to operational im-provements that are having an important and lasting impact on the company’s overall success.

Lilly Research and Development Our research division, Lilly Research Laboratories (LRL), is responsible for the discovery, develop-ment, clinical evaluation, and commercialization of potential new pharmaceutical products. LRL’s 8,400 people from a wide variety of scientific disciplines also provide ongoing scientific support for marketed products. Discovering and developing innovative therapies for many of the world’s unmet medical needs is at the core of LRL’s mission.

Research and development locations in the United States include two sites in Indiana (Indianapolis and Greenfield). During 2005, we relocated our LRL development operations from West Lafayette to Indianapolis. We also closed our research operations located in Lilly’s Research Triangle Park Laboratories in North Carolina and relocated the operations to our Indianapolis facility.

In 2005, more than 42,600 people worked for Lilly worldwide. Lilly has sales offices in 89 countries and we market our products in approximately 143 countries.

Lilly has been a publicly held company for more than 50 years. Eli Lilly and Company common stock is listed on the U.S. New York and Pacific stock ex-changes and the London and Swiss stock exchanges. On the New York Stock Exchange, our shares trade under the ticker symbol LLY.

Lilly Manufacturing In 2005, our global manufacturing operations consisted of 25 sites. More than 12,500 manufactur-ing employees work at sites in Brazil, China, Egypt,

Overview

Lilly Employees

United States: 22,611

Intercontinental: 12,397

Europe: 6,698

Japan: 1,536

7

2005 Key Financial Indicators ($M)

Worldwide sales 14645.3

U.S. Sales 7798.1

Europe, Middle East, and Africa Sales 4184.0

Other foreign country sales 2663.2

Cost of Revenue 3474.2

Cash payments of interest on borrowings 32.0

Cash payments of common stock dividends 1654.9

Retained earnings increase 302.6

Cash payments of income taxes 1780.0

Outside the U.S., our research and development facilities are located in Australia*, Belgium, Canada, China*, England, Germany, Japan, Singapore, and Spain. Lilly conducts clinical research in more than 50 countries. * joint venture

Elanco Animal HealthA division of Lilly, Elanco Animal Health mar-kets products worldwide to improve the health of animals. Products are marketed primarily to cattle, poultry, and swine producers. With key operations in North America, Europe, the Middle East, Africa, the Asia-Pacific area, and Latin America, Elanco employs about 2,000 people and markets its products in more than 100 countries.

Corporate Financial Information Our worldwide sales for 2005 were $14.6 billion. More detailed information on Lilly’s financial per-formance is provided in our 2005 Annual Report. Information about Lilly’s indirect economic benefits can be found below.”

Lilly’s indirect economic contributions around the world generally are not quantified. That makes them no less genuine and far-reaching, however. For example:

• Our employees make personal buying decisions and pay taxes that strengthen the larger fabric of their communities. In Indiana alone, an Indiana Univer-sity study determined that Lilly contributes more than $3 billion each year to the state’s economy and that any change in Lilly’s employment levels has a sevenfold impact on total employment in the state.

• The personal philanthropy and citizenship of Lilly employees also create a significant impact. We en-courage Lilly employees—and often provide them company time—to serve as volunteers in not-for-profit agencies and other civic roles. Our corporate foundation in many cases matches the personal financial contributions of our employees to groups that promote education, health, and cultural enrich-ment—adding millions of dollars each year to these vital purposes.

• Recognizing the essential ingredient of leadership in community initiatives, Lilly often lends the time and talents of its executives to economic-develop-ment or building projects that have no direct link to our own business. In Indianapolis and in other communities, Lilly’s involvement often has made the difference in attracting a new corporate citizen or creating a vital new public facility.

• In the specific area of health care, Lilly’s interests and the impact of our work go well beyond sim-ply selling pharmaceutical products. When used appropriately, innovative prescription drugs often generate disproportionate savings in other forms of health care by eliminating the need for costly and invasive surgeries in many cases, replacing long stays in hospitals or other institutions, or prevent-ing the appearance of more difficult-to-treat condi-tions later in life. Therefore, Lilly invests consider-ably to educate our customers about the importance of appropriate use of medicines and compliance with medical treatment. And through our Lilly Cares and LillyAnswers programs, we devote large-scale resources to expanding access to pharmaceu-ticals for all patients, regardless of their income or insurance status.

Lilly is privileged to be part of many fine communi-ties—and to take part in a virtuous cycle of economic and social benefit with these cities, states, regions, and countries.

Indirect Economic Benefits Lilly’s ability to attract the most talented employees, tap scientific insights, develop effective supplier relationships, and make sound investment deci-sions all depends to a large extent on conditions in our surrounding communities. Fortunately, Lilly’s headquarters and our operations worldwide are located in exceptional communities—places that combine aesthetic and cultural appeal, attractive and stable economic conditions, and a critical mass of related businesses. We benefit from these communi-ties—and it is natural that we should give back much in return.

Our Business

A full data set of financial, economic, workplace safety, and community investment data for 2005 is available on page 56.

8

Our ProductsHuman Health Lilly’s current product line addresses a broad array of the world’s medical needs. The table below lists the pharmaceutical products we currently market. For full prescribing information for these products, use the respective website links listed on our products webpage.

Our Business

Lilly Trademark Chemical Identity / Generic Name Product Use

Actos® pioglitazone hydrochloride* for type 2 diabetes

Alimta® pemetrexed for injection for malignant pleural mesothelioma, for 2nd-line treatment of non-small-cell lung cancer

Byetta® exenatide injection** for type 2 diabetes

Ceclor® cefaclor for infections

Cialis® tadalafil*** for male erectile dysfunction

Cymbalta® duloxetine hydrochloride for major depressive disorder, for diabetic peripheral neuropathic pain

Evista® raloxifene hydrochloride for prevention and treatment of osteoporosis in postmenopausal women

Forteo® teriparatide of recombinant DNA origin for osteoporosis

Gemzar® gemcitabine hydrochloride for non-small-cell lung cancer, for pancreatic cancer, for bladder cancer (not approved in the U.S.), for metastatic breast cancer, for recurrent ovarian cancer

Humalog® insulin lispro injection of recombinant DNA origin for treatment of type 1 and type 2 diabetes

Humatrope® somatropin of recombinant DNA origin for injection for growth failure caused by pediatric growth hormone deficiency, for replacement therapy for adult growth hormone deficiency, for short stature caused by Turner syndrome, for idiopathic short stature

Humulin® human insulin of recombinant DNA origin for type 1 and type 2 diabetes

Prozac® fluoxetine hydrochloride for depression, obsessive-compulsive disorder, bulimia, and panic disorder

ReoPro® abciximab, Centocor for cardiovascular disease

Strattera® atomoxetine hydrochloride for attention-deficit hyperactivity disorder (ADHD) in children, adolescents, and adults

Symbyax® olanzapine and fluoxetine hydrochloride for bipolar depression

Xigris® drotrecogin alfa (activated) for adult severe sepsis patients at high risk of death

Yentreve® duloxetine hydrochloride for stress urinary incontinence in women (not approved in the U.S.)

Zyprexa® olanzapine for schizophrenia, for short-term treatment of acute manic episodes associated with bipolar disorder, for schizophrenia long-term therapy and maintenance, as a combination therapy with lithium or valproate for acute manic episodes associated with bipolar disorder, for bipolar maintenance

* Actos is a registered trademark of Takeda Chemical Industries, Ltd., and is used under license by Takeda Pharmaceuticals America, Inc. ** Byetta is a trademark of Amylin Pharmaceuticals, Inc. *** Cialis is a trademark of Lilly ICOS LLC. The product names appearing in these tables are U.S. approved products (except where indicated) and U.S. trademarks. There are different product names and additional products marketed in other countries.

9

Animal Health Our Elanco Animal Health business unit markets products worldwide to improve the health of animals. Elanco’s current product line (see list below) concentrates on four areas: antibacterials, parasiticides, anticoc-cidials, and productivity enhancers. The division develops and markets innovative technologies for use in animal production, care, disease treatment, and prevention.

Lilly Trademark Chemical Identity / Generic Name Product Use

Coban® monensin sodium prevention of coccidiosis, a common poultry disease

Elector® spinosad a cattle pour-on or dilutable spray for controlling horn flies and lice; can be used as a dilutable spray for house flies and stable flies on agricultural animal premise

Elector® Bait Spinosad a bait product for the control of the adult common house fly

Maxiban® narasin and nicarbiazin prevention of coccidiosis, a common poultry disease

Micotil® tilmicosin antibiotic used to control respiratory disease in cattle*

Monteban® narasin prevention of coccidiosis, a common poultry disease

Optaflexx ractopamine hydrochloride a feed ingredient used in cattle to increase live weight gain, improve feed efficiency, and increase red meat yield

Paylean® ractopamine hydrochloride a feed ingredient used in swine to increase the amount of quality meat while improving grain and feed efficiency

Pulmotil® tilmicosin phosphate antibiotic used to control respiratory disease in swine

Rumensin® monensin sodium widely used for more efficient beef production

Tylan® tylosin an agricultural antibiotic used in swine, cattle, and poultry

* For Micotil product label, including the boxed warning, see www.elanco.com or call 1-800-428-4441. The product names appearing in these tables are U.S. approved products (except where indicated) and U.S. trademarks. There are different product names and additional products marketed in other countries.

Our Business

Our Pharmaceutical PipelineThe search for new drugs is risky and uncertain, and there are no guarantees. For more information on our pipeline visit our investor relations section on Lilly.com.

10

Our Value Chain and Issues This graphic summarizes our major business activities and related issues of public concern.

3. Manufacturing• Production of bulk active pharmaceutical ingredient

• Formulation, filling, and finishing of final product

• Quality management

• Health, safety and environmental management

4. Marketing, Distribution, Use• Promotion and advertising

• Customer engagement

• Reporting and feedback on safety and efficacy

• Postmarketing clinical trials (Phase IV)

2. DevelopmentClinical trials —Phases I to III:

• Safety

• Efficacy

• Broader testing

Development of manufacturing process

Regulatory approval

1. Research (Discovery)• Patient needs assessment

• Hypothesis generation

• Drug candidate development

Issues of public concernResearch (Discovery)

• Access to medicines —what diseases are targeted• Value of drugs created:

are there drugs already on the market to treat equivalent conditions?

• Creating drugs of dubious benefit

Development

• Access to medicines —patient populations tested• Patient safety during clinical trials• Clinical trial disclosure• Animal testing

Manufacturing

• Environmental aspects —energy and water use; emissions • Employee health and safety• Pharmaceuticals in the environment• Supplier social and environmental impacts

Marketing, Distribution, Use

• Access to medicines —product pricing; availability in emerging markets; patent protection • Promotional practices,

including direct-to-consumer marketing

• Patient-use monitoring• Drug counterfeiting• Reimportation

Our Goal:Better PatientHealth

Our Business

11

All data are global unless otherwise noted.

Figures in U.S. dollars

Some environmental data have been restated for 2004 due to improvements to data reporting systems and use of new waste categories relevant to the pharmaceutical industry

Please see page 56 for a full data set.

2004 2005 Trend

Financial

Worldwide sales (U.S. $ million) 13,858 14,645

U.S. sales 7,669 7,798

Europe, Middle East, and Africa sales 3,858 4,184

Other foreign country sales 2,331 2,663

Stock price ($ year-end) 56.75 56.59

Cash payments of common stock dividends ($ million) 1,540 1,655

Environment

Total energy consumed (billion megajoules) 15.39 16.01

Normalized energy consumption (m megajoules/$m sales) 1.11 1.09

CO2 equivalent emissions (thousand metric tonnes) 2,215 2,278

Normalized CO2 equivalent emissions (thousand kg/$m sales) 160 156

Total water consumed (billion liters) 37.0 35.4

Normalized water consumption (million liters/$m sales) 2.67 2.42

Hazardous materials purchases (kg/$m sales) 807 593

Total solid waste generated (million kg) 167 155

Normalized solid waste generated (thousand kg/$m sales) 12.02 10.60

Solvent emissions (loss as percent of use) 0.46 0.40

Total Volatile Organic Compound Emissions (thousand kg) 976 913

Serious environmental events1 11 3

Workplace Safety

Serious injury and illness (per 100 employees) 1.6 1.7

Serious ergonomic injury rate (per 100 employees)2 0.64 0.71

Lost-time cases (per 100 employees) 0.57 0.65

Lost workdays (per 100 employees) 11.9 10.1

Fleet safety: Lilly USA (collisions per million miles driven) 7.79 7.21

Community Investment

Product donations ($ million) 338 453

Cash contributions ($ million) 71 58

Total contributions ($ million) 409 511

Better than 2004

Worse than 2004

1. Defined as a significant regulatory compliance event; an event that results in a complaint from an agency or the public; an event that could create an impairment to aquatic life, wildlife, or human life, or an agency enforce-ment action.

Key Indicators

2. Definition of “serious injury” is equivalent to the U.S. Occupational and Health Administration Recordable Injury definition.

12

Corporate Citizenship at LillyOur commitment to corporate citizenship is insepa-rable from our basic business activities. What we do—discover, develop, manufacture, and market medi-cines that help people live longer, healthier, and more active lives—is described in the following section and at www.Lilly.com. How we go about our work is just as important as what we do. This is why we have set high standards and put systems in place to help en-sure compliance with laws, regulations, and society’s expectations, including:

• The public policy and compliance committee of the Lilly board of directors reviews, identifies, and, when appropriate, brings to the attention of the board political, social, and legal trends and issues, as well as compliance matters that may have an impact on the business operations, financial performance, or public image of the company. The committee also reviews, monitors, and makes recommendations to the board on corporate policies and practices that relate to public policy and compliance. This committee is composed entirely of independent directors, and sup-porting corporate staff includes our vice president of corporate affairs, the office of the corporate secretary, and the vice president and chief compliance officer.

• We maintain comprehensive programs to help en-sure compliance with Lilly policies, voluntary com-mitments, and legal and regulatory requirements. These efforts include: establishing and communicat-ing standards and procedures; providing oversight, monitoring, auditing, and performance incentives; and taking disciplinary action, when necessary. A cornerstone of this program is Lilly’s code of busi-ness conduct, The Red Book (page 32). All employees receive training on The Red Book and must certify that they have received, read, understand, and agree to abide by it.

• Our Corporate Citizenship Principles (page 12) draw on our values, policies, and standards and summarize how we approach key issues of public concern.

You can learn more about our board of directors, senior management, and corporate governance at the Corporate Governance portion of our website, www.investor.lilly.com/governance.cfm. Our systems for sales and marketing compliance are discussed in more detail in the marketing and use section of this report (page 32).

Corporate Citizenship Approach

Our approach to corporate citizenship is influenced by the aspirations we have for our company’s reputation. We want the Lilly brand to be admired and valued. We endeavor to be a company with whom stakehold-ers—patients, employees, physicians, shareholders, and others—prefer to work and interact. And, we know this is less about what we say, and more about what we do. Therefore, through our actions, we want stakeholders to view Lilly as providing “Answers That Matter” by delivering breakthrough products and medical expertise, actively listening and responding, and being reliable and trustworthy in all that we do.

Further, we know that to deliver on our commitments, we must have engaged and dedicated employees who share in Lilly’s mission. Therefore, Lilly strives to cre-ate an enriching workplace (discussed further in the workforce section on page 46) that reflects the compa-ny’s values and philosophy, and provides employees the opportunity to make a meaningful difference in the world through the work they do.

In summary, our approach to corporate citizenship re-quires a commitment to accountability, transparency, and engagement with our employees, customers, and other stakeholders. This report is a key tool and sup-ports this approach. We hope that it sparks dialogue

Overview

Our Brand: Answers That Matter

• Our commitment to breakthrough products means that we focus our considerable investment in research and development of new medicines not only on responding to market opportunities but also on meeting unmet patient needs.

• Medical expertise enables the research, discov-ery, and development of new medicines. We also want to share that expertise, as discussed in the Access to Medicines and Community Investment sections of this report.

• Active listening and responding describes how we engage with our internal and external stakehold-ers. Listening builds understanding of our stake-holders’ wants and needs and provides insight into markets, emerging policy and regulatory issues, and community and customer concerns. Responding builds trust and assures stakehold-ers that their concerns have been taken seriously.

• Our pledge to be reliable and trustworthy demon-strates our intention to build trust in our company and our industry.

13

Mission, Strategic Intent, Vision

Mission We provide customers “Answers That Matter” through innovative medicines, information, and exceptional customer service that enable people to live longer, healthier, and more active lives.

Strategic Intent By providing for the unmet needs of our customers through a constant stream of innovation, we will out-grow all competitors.

Vision “Answers That Matter” is the foundation of our promise to our customers. We will deliver on our promise by listening to and understanding the needs of our cus-tomers and by providing unmatched value. To provide our customers unmatched value, we will create four dimensions of competitive advantage:

• Generating an accelerating flow of pharmaceuti-cal products from internal discovery and external sources that address our customers’ unmet needs.

• Manufacturing and supplying our portfolio of prod-ucts at an ever-increasing level of quality and service.

• Providing information, services, and delivery systems that maximize value for our customers and drive the early and sustained adoption of our products.

• Partnering to obtain access to high-potential mol-ecules and strengthen key capabilities, thereby creat-ing more value for Lilly and our partners than we could achieve on our own.

Our organization will be adaptive and highly flexible, allowing us to respond to both internal and external changes.


Corporate citizenship statements of conduct

Core valuesLong-established core values guide Eli Lilly and Com-pany in all that we do. These values are:• Respect for People—We maintain an environment

built on mutual respect, openness, and individual integrity. Respect for people includes our concern for the interests of all people who touch—or are

touched by—our company: customers, employees, shareholders, partners, suppliers, and communities.

• Integrity—We conduct our business in a way that embraces the very highest standards of honesty and ethical behavior and is consistent with all applicable laws and regulations. We are honest in our dealings with customers, employees, suppliers, competitors, shareholders, and the community.

• Excellence—We pursue pharmaceutical innovation, provide high-quality products, and strive to deliver superior business results. Our quest for excellence is reflected in our unsurpassed focus on quality and a continuous search for new ways to improve everything we do. As a result, customers around the world will increasingly choose our products, enabling us to generate a superior financial perfor-mance that benefits our shareholders, employees, and the communities where we live.

Corporate responsibility principles

Our Business • We are dedicated to providing customers “Answers

That Matter” through innovative medicines, infor-mation, and exceptional customer service. Our dedi-cation will enable people to live longer, healthier, and more active lives.

• We discover and develop products through rigorous testing and in accordance with the highest scientific and ethical standards. We strive to create innovative products that are either first-in-class or best-in-class and fulfill the clinical promise of their Lilly label.

• We respect and protect the environment.• We reliably manufacture and supply high quality

medicines that are safe and effective. We create and maintain safe and healthful working conditions.

• We price our products mindful of dual responsi-bilities: to realize the profits that will enable us to invest in discovery of the next generation of in-novative medicines and to permit patients to have access to the value that our innovative medicines can bring to them and their families today.

Governance and business conduct• We are at the forefront of good corporate gover-

nance and have strong, independent, and diverse membership on our board of directors.

• We comply with the laws and regulations of every country in which we conduct business and act af-firmatively to verify our compliance.

• We conduct our business activities with respect for people and a commitment to diversity, equal op-portunity, and freedom from exposure to improper conduct and discrimination.

and sheds light on how we are addressing the chal-lenges and opportunities of being a pharmaceutical company in the 21st century.

14


• We select and maintain relationships with suppliers based on the merit and value of their products and services. We will work only with suppliers that we believe are in full compliance with local laws and Lilly’s standards of social, environmental, and eco-nomic performance.

• We safeguard and make proper use of nonpublic company and third-party information to which we have access.

• We respect the privacy of individuals’ personal infor-mation.

• We comply with all laws and regulations that govern the manner in which we participate in the political process and interact with government officials and public international organizations.

• We support charitable needs in communities where we operate and in areas where we have talents and resources that will make a difference.

Transparency and accountability to stakeholders• We listen and respond forthrightly to questions and

criticisms of Lilly and the pharmaceutical industry. We commit ourselves to doing so with the utmost in transparency and timeliness. Our aim is to lead within our industry, improving its responses to the questions and criticisms it faces.

• We create and maintain proper records, adhere to the highest standards of external reporting practices, and are as transparent, clear, and accurate as possible in providing information to our stakeholders.

Engaging with Our Stakeholders The nature of Lilly’s business, together with its global reach, means that a vast array of people, institutions, government agencies, and nongovernmental orga-nizations are interested in the choices it makes and actions it takes. The varied backgrounds and interests of our stakeholders mean they can often present us with fresh ideas for improvement. By listening and responding to our stakeholders’ concerns, Lilly can im-prove its transparency and the way it does business.

Who Are Our Stakeholders? Business partners Community membersEmployees Governing/authorizing organizations Patients Payers PhysiciansShareholders

Engaging in Dialogue with Our Stakeholders We use a variety of techniques to communicate with our stakeholders, and we continue to look for ways to improve how we receive feedback. This report is an important method for directly communicating with and soliciting feedback from our stakeholders.

Other successful ways we have found to engage in dialogue with interested parties include:

• The Lilly Answers Center—This call center provides U.S. customers with accurate information about Lilly and its products. Our staff includes multi-lingual em-ployees and we offer a language interpreter service.

• Community Advisory Panels (Indiana facilities)—Our manufacturing facilities in Indianapolis, Clin-ton, and Lafayette, Indiana, have established active Community Advisory Panels made up of community leaders and facility staff. The panels meet regularly throughout the year to discuss items of mutual inter-est and serve as a forum for community leaders to be updated on new developments at Lilly facilities, and to recommend and implement activities or pro-grams that help meet mutual needs.

• Neighborhood Meetings—Lilly employees organize visits of neighbors to several Lilly plant sites, provid-ing community members the opportunity to interact directly with facility managers and other employees. Staff members from many of our locations help local emergency planning committees gather information and conduct training to enhance community safety.

• Tours for Business Guests—The tour ambassadors at our Indiana sites are front-line employees who make Lilly products, support manufacturing and adminis-trative operations, or are involved in research. They provide historical tours of Lilly research facilities to business guests who are interested in learning more about who we are and what we do.

• Employee Surveys—In 2005, Lilly implemented a new annual survey method that provides employee feedback results on a monthly basis. Rather than surveying our employees all at the same time, we have begun contacting employees from most of our business units on a staggered basis throughout the year, which provides our senior management with more timely feedback on employee attitudes and opinions.

15

• Voice of the Alliance—We began this survey in 2000 due to an increased awareness of the impor-tance of our research and manufacturing alliances. Our Office of Alliance Management performs about 30 surveys per year, including over 2,000 respondents, asking both our partners and the Lilly employees involved in partnerships how relation-ships could be improved. Our alliance managers use results from this diagnostic survey to determine how well the partnership is performing on 14 dif-ferent measures. These data are then used to design and implement interventions targeted at improving the probability of success of the partnership.

• Other Lilly Surveys—We want to know what our stakeholders are thinking. We gather information from many other “Voice” surveys, including Voice of the Customer, Government, Shareholder, and Payer. We use this information to improve our performance and to deliver on our promise to be a reliable and trustworthy company.


16

Our core mission is to meet health care needs by providing innovative medicines. The research and development process (R&D) is at the heart of this mission. During 2005, we spent more than $3 billion on R&D, an increase of 12 percent over 2004, repre-senting more than 20 percent of sales.

Our commitment to high levels of R&D investment has provided a well-rounded portfolio of current products and a healthy pipeline of potential new products to treat a variety of conditions, including diabetes and its complications, cancer, heart disease, osteoporosis, obesity, and insomnia. For more on our products development pipeline, see the investor rela-tion section of www.lilly.com.

Pharmaceutical R&D is a complex and lengthy pro-cess (see page 17). In order to demonstrate the safety and efficacy of a drug, by law it must be tested in the laboratory, in living cells and organisms, in laborato-ry animals, and finally, in humans. Some of the social and ethical issues that arise include:

• Which diseases we target for development of medi-cines and how we establish priorities (See “research priorities,” on page 17)

• Who participates in clinical trials and how patient safety is protected (See “clinical trials” on page 17)

• What role animals play in pharmaceutical research, and how their welfare is protected (See “animal research” on page 18)

Lilly has established policies, standards, and protec-tions throughout the R&D process to ensure that patient needs are foremost at all times. This begins with our Principles of Medical Research, an overarch-ing statement about how and why Lilly conducts research, its relationship to researchers, and how it shares research and development results. The fol-lowing is a summary of Lilly’s Principles of Medical Research:

• Lilly creates and delivers innovative medicines that enable people to live longer, healthier, and more ac-tive lives.

• Lilly carefully conducts medical research to gener-ate important information regarding those medi-cines and promotes them for the indications for which they have been approved. Moreover, Lilly thoughtfully aligns its medical research and market-ing activities to provide “Answers That Matter” to its customers.

Research and Development

• We sponsor and support medical research for the purpose of answering scientific questions that are important and relevant to our customers.

• The medical component of Lilly is accountable for the design, approval, conduct, and scientific disclo-sure of medical research sponsored by Lilly.

• Lilly makes payments to health care providers only for legitimate, reasonable, and necessary services and in amounts that are no more than the fair market value for the services performed.

• Lilly discloses publicly all medical research results that are significant to patients, health care providers, or payers—whether favorable or unfavorable to a Lilly product—in an accurate, objective, and bal-anced manner in order for our customers to make more informed decisions about our products.

In addition, our bioethics committee (see box below), composed of 12 senior leaders representing various Lilly functions and two prominent external bioethics experts, reviews ethical issues throughout the R&D process, develops positions on specific ethical issues, and consults with Lilly research teams on how the positions apply in practice.

Key Issues

Lilly Engages Bioethics Thought Leaders

Lilly has a standing bioethics committee that includes highly respected external bioethics ex-perts as well as senior executives. We believe this approach is unique in our industry. Lilly’s Bioeth-ics Committee was formed in 1999 to focus on ethical matters in pharmaceutical research and development. The Committee is comprised of two external bioethicists, Tom L. Beauchamp, PhD, of Georgetown University, and Robert J. Levine, MD, of Yale University; and 12 senior internal leaders representing Lilly’s Medical, Regulatory, Discovery, Legal, Corporate Communications, International Government Affairs and Global Brand Development Platform functions. The Committee reports jointly to the leadership of Corporate Affairs and Lilly Research Labs.

The Committee has two major functions. It devel-ops Lilly positions on bioethics issues such as the conduct of international clinical trials. These are incorporated into ongoing Lilly training and stan-dard operating procedures. The Committee also responds to time-sensitive requests for advice on particular issues from drug development teams.

17


It takes 10 to 15 years, on average, for an experimental drug to travel from the lab to patients. Only five in 5,000 compounds that enter preclinical testing make it to human testing. Just one of these five compounds tested in people is approved.

Lilly’s investment in bringing a medicine to market averages about $1.2 billion. If present trends continue, the cost could reach $2 billion (not adjusted for inflation) in the early part of the next decade.

Overview of the Drug Discovery, Development, and Approval Process

Clinical trials

Years

Test Population

Purpose

SuccessRate

Discovery/PreclinicalTesting

6.5

Laboratory and animal studies

Assess safety, biological activity, and formulations

5,000 compoundsevaluated

File marketing authorization

application with regulatory agency

Phase I1.5

20 to 100healthy

volunteers

Determinesafety and

dosage

Phase II2

100 to 500patient

volunteers

Evaluate effectiveness, look for side

effects

Phase III3.5

1,000 to 5,000+patient volunteers

Confirmeffectiveness,

monitor adversereactions fromlong-term use

Regulators1.5

Reviewprocess/approval

1approved

Phase IV

Additionalpost-

marketingtesting

required byregulators

Reference: “The Drug Discovery, Development and Approval Process,” Pharma New Medicine, (October 2004), page 43.

5 enter trials

File clinical trial application w

ith regulatory agency

Research PrioritiesTo make the best use of our R&D investment, we largely concentrate in therapeutic areas where we have deep expertise (diabetes, neuroscience, car-diovascular, and oncology). We seek to develop pharmaceuticals that are “first in class” (providing a treatment where none existed) and/or “best in class” (improving on existing treatments). With this ap-proach, some of our new products may treat condi-tions for which there are existing medicines. How-ever, our goal is to ensure that all of our medicines meaningfully enhance treatment options available to patients.

Clinical Trials Following discovery of a potential new treatment, clinical trials involving controlled testing in humans are used to study whether the experimental medi-cine is safe and effective. Testing also determines the most effective dose of the new medicine, side effects that may be experienced, and, in some cases, whether the experimental treatment is safer or more effective than other pharmaceutical options.

By nature, there are risks inherent to pharmaceuti-cal research on human subjects. When we conduct clinical trials, we adhere to the ethical principles that

have their origin in the Declaration of Helsinki and that are consistent with good clinical practices and applicable laws and regulations of the country or countries where the study is being conducted. We also follow standards published by the International Conference on Harmonisation of Technical Re-quirements for Registration of Pharmaceuticals for Human Use, the International Ethical Guidelines for Biomedical Research Involving Human Subjects, and the Pharmaceutical Research and Manufacturers of America Principles for Conduct of Clinical Trials.

Taken together, these principles and standards set forth rules that companies should follow to protect the safety of research participants and the integrity of the research enterprise. Applicable wherever research is conducted, they address issues such as informed consent, potential researcher conflicts of interest, and disclosure of results. Our bioethics com-mittee has also developed complementary positions on clinical trial matters that address specific issues such as the conduct of clinical trials in international venues, including developing countries.

Like other pharmaceutical companies, we are con-ducting an increasing amount of medical research in developing countries. Lilly sponsors or conducts clinical trials only with investigators and at research

18

sites that meet appropriate standards of medical care and scientific rigor and are capable of conducting such trials in accordance with international stan-dards of good clinical practice. Lilly does not sponsor or conduct clinical trials in countries in which there is little or no likelihood that the drug being investi-gated will be made available.

Additionally, ethnic minorities often suffer dispro-portionately from diabetes, mental illness, heart disease, obesity, cancer, osteoarthritis, tuberculosis, stroke, and other diseases, yet these patients tend to be underrepresented in clinical research. We are working to include a more diverse mix of patients in medical research and development and improve un-derstanding of the importance of diversity in clinical research through investigator selection, trial place-ment, and community awareness programs.

Data DisclosureWe believe that disclosure of information about clini-cal trials is in the best interest of patients and the medical community. Therefore, Lilly has taken a lead-ing role in our industry through increased transpar-ency and disclosure.

In 2004, Lilly was the first pharmaceutical company to launch a clinical trial registry (www.lillytrials.com) that makes publicly available detailed summaries of clinical studies (Phase I through Phase IV) we have sponsored in connection with our marketed medicines. We were also the first to commit to post information on the initiation of all of our Phase II, III, and IV clinical trials and append results when completed. While the industry standard calls for posting trials dating from 2002 or later, we volun-tarily post trials dating from 1994 or later. We also participate in a U.S. government clinical trials reg-istry (www.clinicaltrials.gov) and a pharmaceutical industry site (www.clinicalstudyresults.org).

For each posted trial, Lilly includes summary results of trial designs and methodology. Results are posted whether they are favorable or unfavorable to any Lil-ly product. Through June 15, 2006, 144 study-result summaries and 382 new initiated studies have been posted to the registry. Each month, the site receives more than 10,000 visits.

Animal Research Lilly is dedicated to the discovery and development of the highest quality products that improve the health and well-being of people and animals around the world. We are committed to the careful and thorough evaluation of our products using the best scientific technologies available. Meeting this com-mitment requires the use of animals. We recognize that, in doing so, we have an ethical and scientific obligation to ensure the responsible treatment of animals used in research, to minimize the number of animals involved, and to pursue the development of alternative test systems. We continually evaluate new testing alternatives but, at this time, there are no satisfactory means to totally eliminate the use of animals.

Animal UseThe use of animals has not grown at the same rate as the research budget during the past 15 to 20 years. Since the early 1980s, we have reduced our overall animal usage by nearly 50 percent. During this time, our overall research effort has increased significantly, with annual R&D expenditures growing from ap-proximately $950 million in 1993 to over $3 billion in 2005 (see Figure A). However, since 2000, the number of animals used has increased slightly as the availability of genetically altered mice and rats of-fered new opportunities for research and innovation.


Lilly Animal Use as Fraction of R & D Expenditures

0

100

200

300

400

1993 1995 1997 1999 2001 2003 2005Year

Animals/R&D

Ani

mal

s/$

(Mill

ions

)

Figure A

Lilly Clinical Trial Registry Audited

In mid-2006, SEC, an independent, external auditor, con-firmed that Lilly has disclosed 100 percent of the studies it said it would, and more than 99 percent of the time the studies were posted on schedule. The external audit also included a broader look at the accuracy and completeness of the data disclosed, with only minor discrepancies noted.

19


Lilly Animal Usage 2005

Dogs & CatsRodentsRabbitsPrimatesFarm mammalsBirdsEctothermsOther

Regulatory agencies such as the U.S. Food & Drug Administration and the International Conference on Harmonisation require us to verify the safety of an investigational treatment through animal testing prior to human administration. FDA regulations related to pharmacology and toxicology information for Inves-tigational New Drugs indicate that certain data must be provided from studies using laboratory animals. The terms “animals” and “laboratory animals” appear in regulations.3 Also, the International Conference on Harmonisation (ICH) - M3 guideline entitled “Non-clinical Safety Studies For The Conduct Of Human Clinical Trials For Pharmaceuticals” states in section 1.4 (General Principles) that most studies should be conducted in at least two mammalian species. So, while some in vitro data may be acceptable, a broad series of non-clinical pharmacology and toxicology studies are necessary to demonstrate the efficacy and safety of a new medicine. Animal studies continue to be necessary before a new drug is first given to humans.

The “3Rs” and AlternativesLilly is committed to the responsible treatment of all laboratory animals and to the application of the “3R” philosophy as defined by Russell and Burch: replace-ment, reduction, and refinement.

• Replace: We have replaced – and continue to re-place – the use of animals with in vitro techniques in all aspects of research and development. With improvements in biomarkers and in vitro (test-tube)

techniques including cell binding systems and cell cultures, we are able to eliminate many potential drug candidates before getting to the stage of animal test-ing. Statistical and other methods are applied to en-sure that the minimum numbers of animals are used. But, because of the complexity of biological systems, there are currently no satisfactory means to eliminate the use of animals altogether.

• Reduce: Since the early 1980s, Lilly has reduced its animal usage significantly. When such testing is necessary, use of modern study design and statistical analysis ensures that we use as few animals as pos-sible.

• Refine: We take every measure to minimize dis-comfort and distress. Experimental design, sample collection, and study conclusion parameters are all carefully evaluated to ensure model and study refine-ment. In all studies, methods to reduce or eliminate stress and distress are used as refinements.

Accreditation, Regulations, and InspectionsThe company maintains the highest standards of animal care and use globally. In the United States, Lilly has been accredited by the Association for the Assess-ment and Accreditation of Laboratory Animal Care, International for more than 30 years.

Lilly complies with local, state, and national laws, regulations and guidelines on the use of animals in clinical research, which are enforced by the relevant authorities. All animal facilities are subject to external review and inspection. For example, our U.S. facilities are subject to unannounced site inspections by the U.S. Department of Agriculture or local authorities. In Europe, local and national authorities regularly inspect all animal facilities. The Association for the Assess-ment and Accreditation of Laboratory Animal Care, International also provides an independent review and confirmation of appropriate animal care and use.

In the U.S., an Animal Care and Use Committee (which includes an independent, third-party member) ap-proves and oversees animal research activities and care programs. Similarly, Ethical Committees in the UK and Germany review all animal usage, regularly inspect all facilities, and ensure that people using animals are ap-propriately qualified. The standards of “best practices” have been instituted at all facilities, and the mainte-nance or improvement of best practices depends on both internal and external expertise.

Figure B

3. 21 CFR Ch. 1, section 312.23 a (8) (i) and (ii), and section 314.50 (d) (2) (iv)

As is the case at most pharmaceutical companies, more than 97 percent of the animals we use are rodents (see Figure B), and all are purposely bred for research. Our strict policy prohibits the use of animals from unknown sources, including strays and those from rescue organizations. All animals at Lilly are cared for under the close supervision of veteri-narians and trained animal caretakers.

20

Training, Awareness, and CommunicationAnimal users globally undergo thorough and detailed training involving regulations, the 3Rs, use of alter-natives, experimental design, and animal husbandry and behavior among others. Key veterinarians are involved on a local and national basis with animal welfare organizations. Our technicians have been recognized on a local, regional, and national basis for their expertise and improvements in animal welfare.

Lilly also supports an Animal Welfare Award on a global basis to identify and recognize those individu-als who have substantially contributed to research animal welfare.

Our Company feels that it is important to communi-cate the use and benefits of use of animals in re-search. Our veterinarians regularly go to high schools and colleges to discuss research animal care and use. We also regularly conduct animal care and use seminars internally for employees, visitors, and con-tractors. In addition, key personnel in all countries are engaged and involved in animal care and welfare organizations.


21

Health, Safety, and Environmental ManagementProtecting the environment and protecting the health and safety of those who work on our behalf are among our highest priorities. Lilly has a global corporate Health, Safety, and Environment (HSE) Policy (see below) that guides our actions, supported by 36 global functional policies on common HSE is-sues, such as process safety, air pollution control, soil and groundwater protection (page 22), and emergen-cy management (page 22).

Each of our facilities develops its own HSE objectives in accordance with local priorities and corporate commitments, requirements, and goals. Sites are held accountable via the HSE management system, which includes oversight through metrics review and site self-assessments. Our facilities are also subject to pe-riodic corporate HSE internal audits by teams com-posed of internal experts and external auditors. The information gathered during the auditing process is the basis for annual reports to the corporate compli-ance committee and the corporate HSE guidance council. These committees report progress and issues requiring senior management intervention to the policy and strategy committee, composed of the CEO and senior staff, or to the public policy and compli-ance committee of the board of directors.

Each of our plants is expected to have a health and safety committee that includes both management and non-management personnel. Employees are encouraged to report health and safety practices that they believe could be improved. The committees work to find solutions to the reported practices and then implement those solutions.

We follow and apply the U.S. Occupational Safety and Health Administration (OSHA) Recording and Reporting Occupational Injuries and Illnesses Stan-dards globally. Corporate data regarding accidents, illnesses, injuries, and lost workdays within the company are tracked continuously and collected and analyzed monthly.

We have several facilities certified to ISO 14001. The International Organization for Standardization (ISO), based in Geneva, Switzerland, established ISO 14001 as a voluntary standard for environmental manage-ment systems (EMS). The goal of the ISO 14001 standard is similar to our sustainability objective: to demonstrate the integrity of our HSE management system through continuous improvement, compli-

Protecting Health, Safety, and the Environment

ance, and minimization of environmental impacts. Our strategy is to allow individual Lilly sites around the world to determine whether facility registration is appropriate for their facility.

Three manufacturing facilities—our locations in Morumbi, Brazil; Kinsale, Ireland; and Mexico City, Mexico—and the corporate EMS have achieved certi-fication to the ISO 14001 standard.

In addition, we participate in several voluntary programs related to HSE management, including the OSHA Voluntary Performance Program, Responsible Care®, and the Business Roundtable’s new S.E.E. Change Initiative (page 23).

A brief case study from Lilly’s Speke, UK, facility illus-trates how our facilities are continuously improving the way they manage environmental challenges (page 23).

Goals for Improving HSE Performance The corporate HSE function, working with other functions within the company, has developed a com-prehensive corporate strategy to drive performance improvement. The strategy includes five HSE goals:

1. Realize a one-third reduction in the energy intensi-ty (normalized to sales) and corresponding green-house gas emissions of our operations by 2010, compared to the baseline year of 2003. Progress to date: 13 percent reduction for energy; 11 percent for greenhouse gas emissions.

2. Realize a one-third reduction in the purchase of hazardous materials (normalized to sales) by 2010 through innovative process and facility design, compared to the baseline year of 2003. Progress to date: 38 percent reduction.

3. Achieve zero serious environmental events by 2007. Progress to date: Reduced from 11 to 3.

4. Reduce serious ergonomic injuries by 50 percent by 2008, compared to the baseline year of 2003. Progress to date: 11 percent reduction.

5. Attain a one-third reduction in collisions per mil-lion miles by 2010 through implementation of motor vehicle safety programs in our top 10 sales affiliates, compared to the baseline year of 2005.

Corporate HSE PolicyAs a health care company, we are committed to the present and future well-being of people and the environment in which we live. This commitment is pursued with a goal of continuous improvement and

Key Issues

22

guided by the following principles: • Encourage and expect each employee to be environ-

mentally responsible and to conduct work practices in a safe manner in accordance with established policies and procedures. These practices are con-sidered an essential measure of performance for all employees. Contract employees working on Lilly premises and external entities engaged in the pro-duction of our products will also be held account-able for this expectation.

• Build health, safety, and environmental (HSE) con-siderations into all phases of the business, including product and technology discovery and develop-ment, facility design, operation and maintenance, and product delivery.

• Strive for an injury-free workforce and minimize environmental impact through implementation of programs in our facilities and the surrounding com-munities that reduce risks to employees, neighbors, the public at large, and the environment.

• Comply with all applicable laws and regulations. Where existing laws and regulations are not ad-equate, we will adopt our own standards consistent with this policy.

• Encourage and promote waste minimization, the sustainable use of natural resources, recycling, en-ergy efficiency, resource conservation, and resource recovery.

• Engage in dialogue with our stakeholders about our commitment to the environment and to the health and safety of Lilly employees, contractors, shareholders, vendors, customers, visitors, and the communities in which we operate.

• Actively participate with government agencies and other appropriate groups to ensure that the devel-opment and implementation of environmental, health, and safety policies, laws, regulations, and practices promote the present and future well-being of people and the environment and are based on sound scientific judgment.

• Regularly assess and report to management and the board of directors on the status of compliance with these principles and other external HSE initiatives to which we subscribe.

Protecting Soil and Groundwater We are committed to ensuring that our present and future operations do not negatively impact soil and groundwater. To this end, we have established a global Soil and Groundwater Protection Policy that requires each of our facilities to conduct periodic risk assessments of activities and processes that could result in impacts to soil and groundwater. The as-sessments must include evaluations of possible spills from activities and leaks from equipment, containers,

and piping; drum storage practices; and the impacts of past waste-management practices. Once risks are identified, programs are implemented to minimize these risks. These programs may include, but are not limited to, preparing spill prevention plans, imple-menting secondary containment inspection and repair programs, and training employees/contractors in spill response measures.

Emergency Response Programs and Practices Lilly sites are required by company policy and regu-latory requirements to have an emergency manage-ment system. This includes a risk assessment to identify the critical risks that should be addressed in the site emergency plan. Each site is required to assess its readiness annually. Testing the plan can range from tabletop exercises to full-scale drills that include community fire and emergency agencies.

In addition to testing the local site plan, Lilly has a corporate-level Incident Support Team that is ready to commit corporate resources in the event of an incident that impacts tangible assets (such as people and facilities), products, or sites. Major exercises have been conducted in the past, including working with manufacturing facilities in Indiana (U.S.), Puerto Rico, France, and Mexico.

These drills test the site emergency plan, emergency response teams, and local agencies. Past drills have also included the local hospitals, law enforcement agencies, and local emergency response agencies.

Corporate HSE Audits Every three years, the corporate HSE audit group completes an assessment of HSE and business risks associated with Lilly global operations and facilities. This assessment is based primarily upon available site information, including:• role of the site• previous audits and bi-annual site self-assessment

results• corporate HSE staff and management input• geographic location• dates of previous audits• regulatory inspection history• process/operational changes• management/staff changes

The results of this assessment are used to create a plan for the following year as well as a tentative three-year HSE audit plan, which may be revised based on major changes in one or more risk factors.


23

OSHA Voluntary Performance Program The U.S. Occupational Safety and Health Adminis-tration’s (OSHA) Voluntary Performance Program sets performance-based criteria for a managed safety and health system, invites sites to apply, and then assesses applicants against these criteria. OSHA’s verification includes an application review and a rigorous on-site evaluation by a team of OSHA safety and health experts.

On October 16, 2002, the Lilly Technology Center in Indianapolis, Indiana, was awarded “Star” status—the highest level of recognition in this OSHA program. The Lilly Technology Center was able to demonstrate that it has excellent injury reduction and health and safety programs in place. Other U.S.-based Lilly sites are considering participation in this initiative.

Responsible Care®

In 2005, Lilly continued its longstanding involve-ment in the American Chemistry Council’s Respon-sible Care® initiative. This voluntary program aims at achieving improvements in health, safety, and environmental (HSE) performance at participating manufacturing facilities beyond levels required by the U.S. government. Highlights of Lilly’s efforts in 2005 include performance of an external audit on the Responsible Care management system that addresses our HSE and security systems. Lilly has shared facil-ity security plans with local law enforcement agen-cies during on-site visits. We also publish various HSE performance metrics via the Responsible Care metrics website, www.responsiblecare-us.com.

Lilly’s manufacturing sites in Kinsale, Ireland, and Speke, UK, are also members of Responsible Care in their respective countries.

S.E.E. Change InitiativeLilly is actively participating in the Business Round-table’s new S.E.E. Change Initiative (Social, the Environment, the Economy), a program designed to encourage the adoption of sustainability principles as business tools. The initiative asks American com-panies to establish and meet goals that will enhance society and the environment while creating busi-ness value. Together, our efforts are focused on such high priority challenges as water quality and energy efficiency. Another key goal of the initiative is the eradication of disease and poverty, something we work toward every day in our quest to develop new drugs, and through efforts such as our Multiple-Drug Resistant Tuberculosis Partnership (page 39)

Lilly Speke Makes Environmental Improvements

Lilly’s Speke facility, which is on Merseyside in the UK, has put in place several innovative systems to address environmental challenges.

Wastewater: Facility engineers redesigned a manufactur-ing process to cut zinc levels in the facility’s wastewater in half without any loss in yield or product quality. As a result, we are now able to comfortably meet our CTD limit for zinc. The process was recognized externally with a Business Commitment to the Environment Award.

Solvent recovery: Two bulk solvents (Butyl Acetate and AcetoNitrile) are in use in the Speke site. Butyl Acetate is recycled by distillation and reused on-site. Following continuous technical development, this recovery process is greater than 98 percent efficient. We have also invested heavily in containment to ensure that we minimize all physical losses. We have also made improvements to our management of AcetoNitrile by segregating different waste streams containing the solvent such that they can be disposed of in the most environmentally effective way. In doing so, we have moved from a situation in which all of the waste solvent was incinerated to the current situation in which the solvent is either recovered for reuse off-site, or used as a secondary fuel with subsequent energy recovery. We are actively working on proposals to recover and reuse the solvent back into the process.

Energy management: Speke uses a Combined Heat & Power Plant (CHP), which, when it was installed, was the most efficient generation technology available. We have worked with BP Energy to identify cost-effective ways of reducing energy usage and related emissions. We have begun to replace old equipment with energy-efficient, state-of-the-art solutions. For example, we recently re-placed our chilled water generators with a system based on vapor absorption, which saves about 20 percent of the energy used by the previous system, uses available excess steam efficiently, and avoids use of traditional refrigerants with their associated atmospheric ozone impact.

Waste management: The Speke facility produces around 50 tons per day of mycelia waste that is currently land-filled. UK implementation of the EU Landfill Directive and revised regulations governing the rules for acceptance of waste at landfill sites in the third quarter of 2007 mean we will not be able to continue landfilling this material with-out changing our process. The site has invested significant resources to find an alternative environmentally sound solution. We have identified changes to our process that will enable continued acceptance of mycelia at landfill sites as an interim measure, and we have identified co-combustion of the mycelia as a long-term environmentally friendly route. Detailed commercial discussions will com-mence shortly with the proposed service provider.


24

Product Life CycleWe are committed to making health, safety, and environmental (HSE) considerations a priority in new product development and manufacturing. We identify and manage risks by evaluating the potential HSE impacts of our operations and products as well as the HSE capabilities of our suppliers and third-party op-erations (page 50). It also means looking for opportu-nities to make improvements throughout our product life cycle, from development through final disposal.

Green ChemistryWe believe that the most significant HSE improve-ments result from designing new products and processes to minimize HSE impacts from the start. This concept is captured in the term “green chemis-try,” which typically encompasses reducing material and resource inputs, with a special emphasis on us-ing fewer hazardous materials. Our green chemistry initiatives also consider process safety and industrial hygiene to improve the health and safety profile of our products and processes. We are integrating HSE considerations into our development efforts using green chemistry principles in several ways.

Our scientists and engineers work to apply the most up-to-date science to our processes. When selecting the best processes to use for producing our medicines, we evaluate attributes that predict the future HSE burden of a process, along with more traditional crite-ria such as yield, quality, cost, and equipment needs.

We have set a goal to cut hazardous material pur-chases normalized by sales by one-third by 2010, compared to 2003. To drive progress toward this goal, we have established specific material use efficiency standards at critical steps in the product development process. The E-factor (a ratio of material used per unit of active pharmaceutical ingredient) of the proposed manufacturing process is evaluated at key develop-ment milestones. If the standard is not met at the checkpoint, management review is triggered. These standards, which we believe are unique in the indus-try, are driving improvements in the efficiency of new processes. For example, the improved process identi-fied for one pharmaceutical product will cut material use by an estimated 13 million pounds per year at full-scale production.

In only two years, we exceeded the goal by reducing hazardous material purchases (defined as compounds listed on the U.S. Toxic Release Inventory) by 37.6 percent as a result of efficiency increases, solvent

recovery, changes in our product mix, and supply chain actions. However, this number may fluctuate year-to-year due to factors such as bulk raw material inventory and purchase cycles.

Making pharmaceuticals requires highly specialized, state-of-the-art chemistry. In many cases, there are no commercially viable alternatives for the chemical processes or materials we use, so we must develop or identify new alternatives. This means investing in new science for developing safer and cleaner processes and working cooperatively to search for al-ternatives. In addition to our internal efforts, Lilly is using its position as a charter member of the Green Chemistry Institute’s Pharmaceutical Roundtable to multiply our knowledge and progress in partnership with other pharmaceutical companies.

��

��

��

��

��

��

��

��

��

��

��

Environmental Impacts of Products and Services The prevalence and impact of pharmaceuticals in the environment is a matter of increasing interest to Lil-ly and the public. Lilly is one of the leading compa-nies in Pharmaceutical Research and Manufacturers of America (PhRMA) working to provide guidance on disposal of unused products in a manner that minimizes environmental impact. Very low levels of certain drug products have been detected in water by scientists at various locations around the world due to improved testing technologies. Reported concen-trations of drug substances in water are extremely low, ranging from parts per trillion to parts per bil-lion. Lilly has been proactive in promoting a science-based examination of the issue and supports efforts to address existing gaps in knowledge associated with the very low concentrations of these substances in water. We are partnering with PhRMA and work-ing with scientific experts to better understand and analyze the impact of trace levels of pharmaceuticals on the environment.


25

Environmental EventsIn 2003, we established a metric for “serious envi-ronmental events,” defined as a significant regulatory compliance event; an event that results in a com-plaint from an agency or the public; an event that could create an impairment to aquatic life, wildlife, or human life; or an agency enforcement action. Our goal is zero environmental events by 2007.

We have reduced environmental events from 13 in 2003 to 3 in 2005. The data has shown a downward trend for several reasons, including enhanced aware-ness at our sites about controlling environmental events by reducing the variability in our operations; environmental hazard reviews of key operations; capability assessments that resulted in improved processes; and better root-cause analysis of events when they occur.

HSE Performance ReviewHealth and SafetyThe leading cause of injuries at Lilly, affecting all business sectors globally, is ergonomic factors (work-place conditions that pose a risk of injury to the musculo-skeletal system of the worker). Lilly con-tinues to aggressively implement a comprehensive ergonomic injury reduction initiative called Ergo An-swers. Our program focuses on training employees, raising employee awareness, conducting proactive ergonomic assessments, and reducing or eliminating factors that cause the greatest ergonomic risk within Lilly facilities. Unfortunately, we have not yet real-ized a reduction in our injury rate. In 2006, we are putting greater emphasis on injury reduction in the offices at our corporate center where our injury rate has increased over the past few years. We intend to complete assessments of more than 80 percent of our office workers at this location and provide improved office equipment where appropriate.

Another area of concern is injuries due to motor vehicle accidents. In 2005, the number of collisions per million miles driven in the United States de-creased by 7 percent compared to 2004. We attribute the decrease to increased awareness among our sales associates and a heightened commitment by sales management to motor vehicle safety. We will con-tinue to use our eight-element Lilly Motor Vehicle Safety Program to pursue our improvement goal.

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

�

�

�

��

��

��

��

�

�

�

��

��

��

��

��

��

��

��

�

�

�

�

��

��

��

��

��

��

��


26

Resource Use

Energy As a large multinational company, energy use is one of the most significant aspects of our environmental footprint. Our total energy consumption in 2005 was approximately 16 billion megajoules, a 4 percent increase over 2004 due to the addition of capacity at new facilities. When normalized by sales, energy use decreased by about 2 percent compared to 2004, from 1.12 to 1.10 million megajoules per million dollars of sales. We have established a 2010 goal of realizing a one-third reduction in energy intensity (energy consumption normalized by sales) and a cor-responding reduction in greenhouse gas emissions from our operations, compared with the baseline year of 2003.

The volume of total water intake at all our operations declined by 4 percent in 2005, compared to 2004; when normalized to sales, the decline was 9 percent. About half of our total water use occurs in manu-facturing operations in Indiana, where a significant proportion of our total manufacturing capacity is located. We continue to monitor the installation and startup of new equipment at these facilities to iden-tify future water conservation opportunities.

Water In 2002, Lilly began collecting data on the total amount of water being brought into its manufactur-ing and R&D sites worldwide, either through direct extraction or from municipal sources, as well as the quantity of water demand necessary to conduct operations. From these data, we have begun to track a Water Conservation Index, which is the quantity of water intake divided by the quantity of water demand. The index indicates the degree to which a facility reuses water internally to meet its total de-mand; the lower the index, the more internal reuse is occurring at a facility.

Beginning in 2004, we calculated Water Conserva-tion Indices from sites with water intakes exceeding 200,000 liters per day (about 53,000 gallons per day), which represents 12 Lilly sites worldwide. Of those sites, five reported an index of less than 0.1 in 2004, which means that they take in less than one liter of water for every 10 liters of actual water demand needed for operations. While results show that some of our bulk manufacturing sites are doing very well in conserving water, we are striving for further im-provements.

BiodiversityLilly is continuously working to protect habitat and minimize the impacts of our operations on ecosys-tems. We are committed to engaging in conservation projects and habitat enhancements on the more than 7,300 acres of land that we own around the globe, as well as supporting conservation efforts outside our own properties.

Tippecanoe Laboratories, Indiana, U.S. Since 1997, Lilly has been a corporate member of the Wildlife Habitat Council (WHC), a nonprofit organization dedicated to protecting and enhancing wildlife habitat. The WHC helps large landowners in the United States manage their unused lands in an ecologically sensitive manner for the benefit of wild-life and certifies sites that meet its stringent require-ments for habitat enhancement.

Lilly’s WHC-certified Tippecanoe Laboratories site in Lafayette, Indiana, includes 1,486 acres of farm-land and 607 acres that are managed for wildlife by a 100-member wildlife habitat team, made up of employees, retirees, their families, and numerous community volunteers. The team’s projects include prairie restoration, tree and shrub plantings, a but-terfly garden, nest box placement and monitoring for bluebirds and house wrens, and walking trails to help promote awareness of environmental issues and efforts to enhance the property.


��

��

��

��

�

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

�

�

�

�

��

27

More than 750 elementary, middle school, and high school students use the Tippecanoe Laboratories site every year through WHC’s Corporate Lands for Learning program. In addition, six schools from Purdue University use the area as an outdoor lab, including the school of agronomy, entomology, environmental sciences, forestry, horticulture, and environmental engineering. This program allows students of all ages to engage in activities designed to teach about a variety of habitats and historical resources. They follow the walking trail through prairies, observing such species as bluebird, wood ducks, herons, and beavers. A team of Lilly scientists, teachers, and community environmental leaders has developed curricula allowing students to perform experiments on site and return to their classrooms to analyze the data.

In 2005, we initiated a long-term relationship be-tween the USDA Forest Research Center and Tippe-canoe Laboratories. Forest plantations were installed on 5-acre parcels for the purpose of developing improved genetic traits in hardwoods species (walnut and butternut). The project will last at least 15 years. This is a win-win situation for the research center, since the Lilly site is located only two miles from the Purdue Campus, and other research locations are located over 100 miles away.

Lilly ARBOR Project, Indiana, U.S.The Lilly Foundation continues to support the Lilly ARBOR Project, an initiative of the Center for Earth and Environmental Science at Indiana University – Purdue University at Indianapolis. ARBOR is an acronym for Answers for Restoring the Bank Of the River, and its primary goal is to develop an outdoor research and experiential learning site for teaching principles of science-based environmental steward-ship. As a part of this long-term project, faculty, students, and community volunteers (including many Lilly employees) have worked together to plan, implement, and monitor reforestation on 8.5 acres of riverside corridor along the White River in down-town Indianapolis, Indiana, U.S.

Lilly Development Centre, Mont-Saint-Guibert, Belgium Since acquiring our 11-hectare research site in Bel-gium in 1993, Lilly has worked diligently to enhance habitat and improve species diversity on the portion of this property that is maintained for wildlife. In a partnership with the local university, Catholic Uni-versity of Louvain-la-Neuve, conservation scientists worked with Lilly to plan a biologically diverse eco-

logical preserve focusing on reintroduction of native plants. Implementation began in 1994 with the plant-ing of 5,000 trees over a 5-acre area, including more than 20 varieties of trees and incorporating a walking trail and information signs. We also maintain an or-chard and a wild grass area that attracts native insects and butterflies. Lilly has also provided information to other companies that are interested in how to establish wildlife areas at their own sites.

Erl Wood Facility Conservation Management, Erl Wood, England Lilly’s R&D center at Erl Wood has joined hands with the local Wildlife Trust to gain a greater understanding of the 47-acre site in Surrey, England. As an established institution in the area, the Trust has vast experience and local know-how in managing nature reserves and sites of interest. Through this collaborative effort, we are developing a conservation management strategy for the site. Besides habitat preservation, the site en-hancements being planned will provide Lilly employ-ees the opportunity to explore the site through nature trails, guided walks, and environmental challenge days.

Other InitiativesOther new biodiversity projects include a 15-acre wildlife habitat at our Greenfield Facility. This will be constructed in 2006, and is being done as part of the facility’s stormwater management plan. Also in 2007, there will be over 150 acres of riparian vegeta-tion established along the Wabash River at our Clinton Facility.

Emissions, effluents, and wasteClimate change and greenhouse gas emissionsThe issue of global climate change is increasingly important to our stakeholders and to our business, as public concern and policies create risks and opportuni-ties associated with greenhouse gas (GHG) emissions.

We track direct and indirect GHG emissions from our operations, including manufacturing and non-manu-facturing facilities, wastewater treatment plants, and employee air travel. Indirect emissions, which compose about 70 percent of our total GHG emissions, repre-sent the quantity of GHGs emitted by off-site electric utilities, energy providers, and other service providers engaged in activities on our behalf. These activities include:• Electricity generation• Steam generation• Chilled water production• Off-site waste incineration• Wastewater treatment at publicly owned treatment

works (POTWs)


28

More than 80 percent of Lilly’s GHG emissions (direct and indirect) result from energy use. We have set a goal to achieve a one-third reduction in the en-ergy intensity and corresponding GHG emissions of our operations by 2010, compared to a 2003 baseline. As part of this initiative, we have improved our data collection, developed an energy policy, and created a $10 million annual capital fund for energy and waste reduction projects. From 2003 to 2005, our energy usage increased by 2 percent while our sales grew by 16 percent. This translated to a 13 percent reduc-tion in our GHG emissions intensity (in thousands of kilograms of CO2-equivalent emissions per million dollars of sales), demonstrating progress toward our reduction goal.

We are an active participant in Climate RESOLVE (Responsible Environmental Steps, Opportunities to Lead by Voluntary Efforts), an initiative involving some of America’s largest companies aimed at volun-tarily controlling emissions of GHGs linked to global warming. The Business Roundtable developed Cli-mate RESOLVE in response to U.S. President Bush’s challenge to the business community to voluntarily reduce GHG intensity by 18 percent by 2012. Lilly and other companies participating in the program have pledged to seek innovative and cost-effective methods for mitigating GHG emissions while foster-ing continued economic growth.

Ozone depleting substancesWe are actively phasing out the use of all ozone-de-pleting substances, but they are still present in some of our heating and cooling and refrigeration equip-ment. Our 2005 emissions of ozone-depleting sub-stances were nearly zero – a reduction of 98 percent compared to 2004.

��

��

��

��

��

��

�

�

�

��

��

��

��

��

��

��

��

��

��

Sulfur EmissionsSulfur oxides and other acid gas precursors contrib-ute to acid rain formation and are reported in terms of sulfur dioxide (SO2) acidity equivalents. For Lilly, acidification pollutants are mainly sulfur dioxide (SO2) and nitrogen oxides (NOx). Air emissions of both compounds result primarily from fossil fuel combustion for steam production at our manufactur-ing sites.

In 2005, our SO2 emissions declined 15 percent in total and 19 percent normalized by sales, compared to 2004.

We expect SO2 emissions to continue to decline in 2006 and to decline significantly after 2007 as several sites convert to lower sulfur fuels, including one site that plans to replace coal-fired boilers with natural gas units.

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��


��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

29

Solvent EmissionsLilly uses solvents in a wide array of activities at its laboratories, pilot plants, and manufacturing opera-tions. The vast majority of the solvent emissions occur at the bulk scale manufacturing sites in Indi-ana. Most significant sources of solvent emissions are equipped with state-of-the-art emission control systems. In many locations, we use formal leak detec-tion and repair programs to find and repair small leaks of solvent vapors. Furthermore, many of our manufacturing processes are equipped to recover and reuse solvents. We determined that an effective way to measure our progress in minimizing solvent emissions is to express loss as a percent of solvent used. We believe that our target of 1 percent loss as a percent of use is nearing an industry “best practice.” In 2004 and 2005, we exceeded our target by mini-mizing solvent emissions as a percent of use to less than 0.5 percent.

A subset of solvent emissions to air is reportable under the Toxics Release Inventory (TRI) require-ments in the United States. We have seen these air

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

U.S. Agency Honors Tippecanoe Laboratories with Clean Air Award

An air quality program that has improved produc-tivity at Tippecanoe Laboratories received national recognition in early 2006. The EPA honored the In-diana plant’s flexible air permit with a Clean Air Ex-cellence Award in the regulatory/policy innovation category. Tippecanoe management and corporate environmental affairs partnered with the Indiana Department of Environmental Management (IDEM) to develop the permit, which is based on the site using emissions control and continuous emission monitoring systems that exceed state and federal regulatory requirements.

By applying the state-of-the-art technology to all foreseeable changes over a five-year period, the permit—one of only a few “flexible permits” in the

U.S.—enables the plant to implement process and equipment changes without extensive IDEM per-mit reviews for each change. In 2005, the program saved the company and IDEM more than 1,000 hours of permit development and review time, and no projects were delayed due to the permit process.

The permit has also simplified compliance manage-ment by consolidating overlapping—and sometimes inconsistent—requirements, allowing environmental staff to spend more time working on improvements to our site environmental management systems and waste minimization efforts. The permit has enhanced Lilly’s ability to respond to ever-changing market demands for our products through produc-tivity-driven changes.

emissions continue to decline due to the factors cited above and to the discontinuation of processes that historically used large quantities of TRI chemicals.

WastewaterThe majority of Lilly’s wastewater and the greatest amount of total chemical oxygen demand (COD) that our facilities discharge directly to surface water come from three bulk pharmaceutical manufacturing locations in Indiana, U.S., and Ireland. The Indiana manufacturing plants—Clinton Laboratories and Tippecanoe Laboratories—discharge to the Wabash River under permits issued by the Indiana Depart-ment of Environmental Management. Discharges from both plants are significantly below the allow-able discharge limits for total COD. The Kinsale, Ireland, plant operates under an Integrated Pollution and Prevention Control license issued by the Irish EPA in 2005. It discharges to Kinsale Harbor.

Clinton 7.78 mgd 625 lb/day 15,559 lb/day

Tippecanoe 8.40 mgd 1,438lb/day 14,025lb/day

Kinsale 0.3 mgd 290 lb/day 9,900 lb/day

lb/day = pounds per day

mgd = million gallons per day

2005 Water Discharge Average Average daily Permit limit Data by Site discharge flow COD (total)

We have a longstanding commitment to monitor the biological diversity of both the Wabash River and Kinsale Harbor. Lilly and the Cinergy Corporation (a regional electric utility that also discharges to the Wabash) have jointly funded river studies for more than 30 years.


30

We have also commissioned a long-term study of Kinsale Harbor, which is located along the southern coast of Ireland. This study, begun in 1978 by re-searchers at National University of Ireland, Galway, was recently completed. The monitoring results sug-gest that the minor changes observed in the aquatic life of Kinsale Harbor are associated with natural stresses, such as storm events, rather than any dis-charge effects from our facility. Overall, the ecologic system of the harbor has shown a high measure of resilience and an ability to thoroughly disperse wastewater discharges.

Waste Generation and managementWe have adopted a corporate goal to realize a one-third reduction in the purchase of hazardous materi-als as a percentage of sales by 2010 through inno-vative process and facility design. Consistent with the Corporate Waste Management Policy, we have adopted an additional, internal goal to reduce waste generation. Although there are two approaches, the desired result is the same—reduce the amount of waste we generate as a result of our operations.

We plan on achieving our goals by three means:

1. Using green chemistry (page 24) to assist in design of our manufacturing processes to reduce the number of kilograms of waste generated per kilogram of product made.

2. Increasing solvent recovery to reduce the amount of solvent waste created during manufacturing.

3. Continuing use of waste minimization plans at all sites to drive reductions in everything from paper to production wastes.

Waste minimization has a multiplying effect. It will generate savings across the Lilly business, and it will generate safety and environmental improvements inside and outside the company’s boundaries.

Compared to 2004, our 2005 solid waste generation declined 7 percent in total and 12 percent normal-ized by sales, while waste recycling declined 1 percent. Beneficial reuse of byproducts of our pro-duction process rose by 35 percent and 28 percent normalized by sales.

Beginning in 2005, we are reporting waste genera-tion and management using categories developed for the pharmaceutical industry because we believe this provides us the most useful information for manag-ing our wastes.

Our corporate environmental affairs group coordi-nates and conducts reviews of commercial waste management facilities in the U.S. and Puerto Rico to verify that they are being operated in an environ-mentally appropriate manner. Sites outside the U.S. conduct reviews of the commercial waste manage-ment facilities they use, following the same corporate procedure. The frequency of the reviews is based upon the type of service that is supplied.

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

�

�

�

�

��

��

��

��

��

��

��

��

��

��

��

��

�

�

�

�

�

��

��

��

��

�

��

��

��

��

�

�

�

�

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��


31

For example, incinerators (hazardous and non-haz-ardous) are reviewed every three years, while non-hazardous waste landfills are reviewed every five years. A review may involve a site visit where the reviewing team observes operations, examines docu-mentation, and interviews facility personnel.

Compliance and Liabilities

Efforts to reduce the number of accidental releases to the environment showed continued success in 2005. The number of reportable accidental releases world-wide dropped from 5 in 2004 to 2 in 2005 that were significant enough to be reportable to the respective government agencies. None of these releases resulted in any identifiable threats to human health or the environment. One of our goals for the remainder of this decade is to achieve a level of zero serious envi-ronmental events.

There were no fines or monetary penalties imposed by government agencies in 2005.


Environmental fines 1 2 2 1 0

Environmental fines (U.S. dollar amounts) $3,000 $17,000 $71,392 $18,000 0

Reportable accidental releases 14 14 12 5 2

Health and safety fines 0 0 0 1 0

Health and safety fines (U.S. dollar amounts) - - - $1,479 0

Environmental audits of Lilly facilities* 7 5 12 13 14

Health and safety audits of Lilly facilities* 6 9 14 16 16

* Beginning in 2002, all environmental audits of Lilly facilities were joint health, safety, and environmental audits. There were 12 of these joint audits conducted in 2003 and

13 in 2004. The additional health and safety audits (4 in 2002, 2 in 2003, 3 in 2004, 2 in 2005) represent process safety management audits.

Compliance Performance Summary 2001 2002 2003 2004 2005

Under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as Superfund, we have been designated as one of several potentially responsible parties with respect to fewer than 10 sites. Under Superfund, each respon-sible party may be jointly and severally liable for the entire amount of the cleanup. We also continue remediation of certain of our own sites. We have ac-crued for estimated Superfund cleanup costs, remedi-ation, and certain other environmental matters, tak-ing into account, as applicable, available information regarding site conditions, potential cleanup methods, estimated costs, and the extent to which other parties can be expected to contribute to payment of these costs. We have reached a settlement with our liability insurance carriers providing for coverage for certain environmental liabilities.

We are committed to making health, safety, and environmental (HSE) considerations a priority in new product development and manufacturing. This necessitates identifying and managing risk by evalu-ating the potential HSE impacts of our operations and products as well as the HSE capabilities of our suppliers and third-party operations.

32

Lilly is dedicated to discovering and developing in-novative products that improve the health and well-being of people around the world. We introduce a medicine to the market only if we believe it addresses unmet patient needs. Once a product is approved for use, we market it in compliance with our code of business conduct, company policies, and applicable requirements, and closely monitor results as the medi-cine enters widespread use. The marketing of pharmaceuticals informs health care providers and their patients about the availability of medicines and their benefits and risks. Potential ethi-cal issues arise, however, in the interactions between pharmaceutical company representatives and purchas-ers, prescribers, and users of medicines. In addition, regulations and norms concerning the marketing of pharmaceuticals vary worldwide, creating a complex context in which to promote our products. There is also growing public concern about the cost of medi-cines (see “pricing of pharmaceuticals,” page 35) and the related issues of drug reimportation and counter-feiting (see “statements on key issues,” page 53).

In some cases, litigation has arisen over Lilly products (see “product liability issues” page 35) and promotion-al practices (see “product promotion issues” page 36).

Governance of Product PromotionLilly’s code of business conduct, The Red Book, applies to all employees worldwide, requiring them to display proper business conduct, avoid conflicts of interest, comply with laws, and protect company assets. The Red Book covers a wide range of business practices at a high level, including pharmaceutical promotion and interactions with health care providers. All Lilly employees receive code of business conduct training and must certify that they will comply with the code. The Red Book is publicly available at investor.lilly.com/downloads/lilly_red_book_public.pdf.

The Red Book draws from more detailed, confidential Lilly policies that are based on company values, laws and regulations, and industry codes of conduct, where applicable. When Lilly’s policies and local law differ, Lilly employees are held to the higher standard.

Lilly has been involved with and sometimes led ef-forts to create industry codes of conduct (for example, in South America and the Middle East) or update and improve existing standards, such as those used

Ethical Marketing and Use

in Canada, Germany, the U.S., and the UK (see box below). Lilly’s regional head of Europe, Middle East and Africa, plus many Lilly general managers, have also been involved with the European Federation of Pharmaceutical Industry Association, the Pharmaceu-tical Research and Manufacturing Association and Local Area Working Groups on efforts to strengthen regional codes.

Key Issues

Lilly Leads Push to Strengthen UK Pharmaceutical Code

In late 2004, the Association of the British Pharmaceuti-cal Industry (ABPI) began a process to update its Code of Practice, which governs the industry’s relations with health providers and other stakeholders. Lilly’s managing director in the UK was selected to chair the effort.

Through public consultation and independent market research, ABPI engaged with dozens of organizations and individuals representing patient advocacy groups, consumer groups, professional bodies, regulators, the public sector, and the industry. The consultative process revealed areas of improvement for the existing Code of Practice, which relied on industry self-regulation backed by a strong role for regulators.

Based on the consultation, ABPI adopted changes to the Code and signed a Memorandum of Understanding with the regulatory bodies. Among other elements, the Memorandum encourages the Medicines and Healthcare products Regulatory Agency (MHRA) to review promo-tional materials for new pharmaceutical products before their use. It also acknowledges that MHRA will act when needed if self-regulation fails.

Key changes to the Code include a requirement for all printed promotional material to include prominent infor-mation about how to report adverse drug reactions; limits on advertising and promotion of pharmaceuticals; and steps to accelerate the process of assessing complaints so that decisions can be made more quickly and sanctions imposed faster.

Because of the varying requirements in the markets in which we operate, each Lilly affiliate (local busi-ness unit) works with the company’s global mar-keting compliance department to develop a local marketing and promotion policy and/or standard operating procedures consistent with the principles stated in The Red Book, as well as applicable internal and external requirements and voluntary commit-ments. To ensure compliance with the affiliate’s pol-

33

icy, Lilly has a comprehensive sales and marketing compliance program that includes oversight, train-ing, self-assessment, audits, incentives, sanctions, and remediation (see Figure C).

care or health care delivery. A review of the grant recipient is also undertaken to prevent any undue influence in the prescribing, purchasing, registration, or reimbursement of any Lilly product.

Gifts and Payments: Nothing of value may be given or offered to a health care provider so as to unduly influence his or her decisions regarding Lilly prod-ucts. Each affiliate must (I) establish and document a monetary limit on the value of gifts that may be provided to such providers (in accordance with local laws, regulations, policies, procedures, and industry and professional codes) and (II) implement a system to track payments for services to health care provid-ers, which are subject to an annual limit. Meeting and Hospitality: Scientific or educational objectives must be the principal focus of all Lilly-funded meetings and programs, whether promo-tional, medical, scientific, or independent in nature. Educational activities must account for majority of the total time spent in the event or meeting, and time limits apply to hospitality and entertainment activi-ties. There are also limits on acceptable venues for these meetings, to avoid lavish settings.

Partnering with External Organizations: Local com-pany policies reflect the following key principles for interactions with external organizations, such as pa-tient advocacy groups and professional associations:• Both sides must work together as equal partners to

promote the best interests of patients.• The company must not attempt to oblige external

groups to conform to a marketing agenda in ex-change for funding.

• Company funding and/or sponsorship of external group initiatives must be made public and explicit.

• There must be a written understanding between the parties, establishing the type of relationship and expectations of each side.

• The company must encourage external organiza-tions to diversify their funding so Lilly is not the dominant financial source.

• The company avoids creating external organiza-tions and focuses instead on helping existing orga-nizations to develop and grow.

Promotional and Educational Materials Review Process: Before they can be distributed to custom-ers, all promotional materials must be reviewed by local medical and regulatory personnel in accordance with a local procedure that establishes review criteria consistent with Lilly’s own global standards, as well as with local laws, regulations, and codes of conduct.

Affiliates’ policies must be consistent with the follow-ing sales and marketing principles that were devel-oped to summarize Lilly’s global policies and provide guidance for our employees:

Inputs

Compliance support

Affiliate Local Policy

Industry codes (global,

regional, national)

Lilly code of business conductLilly global policy

Legal requirements

(regional, national, local)

Communication Training Monitoring and auditing

Incentives and disciplinary action

Figure C, comprehensive sales and marketing compliance program

• Do not buy the business • Charitable donations and • Gifts and payments educational grants • Meetings and hospitality • Partnering with external organizations

• Do not promote off-label • Promotional and educational • Only use approved promotional materials review process and educational materials • Consumer communication

• Follow the sampling rules • Product sample distribution • Do not disguise discounts

• Report adverse events and • Patient pharmaceuticals product complaints safe data and use

• Always protect data privacy • Respect for privacy

• Be personally accountable for compliance and the Lilly Brand

Sales and marketing Activities for affiliate principles policy to address

Charitable Donations and Educational Grants: Each affiliate must specify how charitable requests will be received, processed, evaluated, approved, and com-municated. This process is managed by a department outside sales and marketing that applies pre-estab-lished criteria to evaluate requests, with priority giv-en to those having the potential to improve patient


34

Consumer Communication: Patients are seeking more information about diseases and treatments, asking questions, evaluating information, and mak-ing choices. We believe that patients should have access to information about medicines from a variety of sources, including the pharmaceutical industry. We are committed to providing accurate, truthful, and balanced information in all of our communica-tions, including consumer marketing and advertis-ing efforts. To demonstrate this commitment, in 2001 we adopted Principles for Direct-to-Consumer Communication, which we updated in 2005 to reflect the Pharmaceutical Research and Manufacturers of America (PhRMA) Code. We further strengthened these principles in 2006 (page 36).

Product Samples Distribution: Affiliates that dis-tribute product samples must have policies and procedures, consistent with local legal requirements, governing control and accountability for sample distribution, storage of samples within the appropri-ate temperature range, and appropriate approvals for package modifications.

Patient Pharmaceuticals Safety Data and Use: Lilly has a strong commitment to understanding and com-municating the safety of our products. Our clinical trials are designed to identify potential safety issues before a medicine is approved. This effort continues when we bring our approved medicines to market and for as long as they are used. Our investment in safety is global and ongoing. We collect and store in a single database information from around the world related to potential safety issues to enable the fullest possible understanding of the safety of our products. We have a global network of safety professionals re-sponsible for our compliance with reporting require-ments, allowing us to meet our commitment to the safe use of our products. We are also dedicated to effectively communicating information important to patient safety. Our product labeling provides the best available data on the use of our medicines to doctors, other health care provid-ers, and, ultimately, to patients. In addition to ensuring that physicians and patients have the latest safety information as quickly as possible, we distribute information to regulatory authorities worldwide within required time frames. We have a global network of safety professionals re-

sponsible for our compliance with reporting require-ments, allowing us to meet our commitment to the safe use of our products.

All employees are required to report within one busi-ness day any adverse events, product quality com-plaints, and/or suspected counterfeiting, diversion, or tampering involving Lilly medicines or devices. This is especially important for Lilly personnel who inter-act directly with health care providers every day.

Each affiliate must develop its own procedure for Ad-verse Event Reporting, as required under the Regula-tory Quality System (RQS) and consistent with the reporting requirements stated in The Red Book.

Respect for Privacy: Eli Lilly and Company has operated a Global Privacy Program since 2001. Our privacy program is led by Lilly’s chief privacy officer (CPO), who has global responsibility for privacy compliance. The CPO reports to the law division as well as to the chief compliance officer and the chief information officer. Lilly’s CPO, 20 full-time privacy employees, and 300 global privacy stewards make its privacy program among the strongest in corporate America. Lilly has used this position to influence other companies, including establishing and chairing the International Pharmaceutical Privacy Consor-tium (comprised of 15 of the largest pharmaceuti-cal companies); establishing one of the first privacy audit functions and one of the first vendor privacy certification programs; implementing privacy self-assessments globally across the company; providing computer-based privacy training that is mandatory for all U.S. employees; establishing detailed tracking metrics; and, finally, joining other leading companies to push for federal consumer privacy legislation in the U.S.

In 2004, Lilly initially certified to the EU-U.S. Privacy Safe Harbor, which enables Lilly to export personal information (e.g. clinical trial patient, investigator, Lilly employee, physician, and consumer data) from the European Union to the U.S. Lilly has recertified each year since the original certification by affirming publicly that the company has adequate privacy safe-guards to protect personal data originating in the EU. Safe Harbor certification recognizes Lilly’s commit-ment to handle personal information in a way that protects those individuals’ privacy rights and that adheres to EU privacy laws. Lilly had no material privacy compliance issues in 2005.


35

Pricing of Pharmaceuticals

Pharmaceutical prices, along with other health care costs, have been rising in many parts of the world, raising concerns among stakeholders over the cost of medicines.

Many factors affect the prices consumers pay for pharmaceuticals, including the manufacturer’s wholesale price, the wholesalers’ and pharmacists’ markups, the patient’s insurance coverage, and, in some countries, government-sponsored health care coverage and price controls.

We price our products mindful of dual responsibili-ties—to realize the profits that will enable us to invest in discovery of the next generation of in-novative medicines and to permit patients to have access to the value that our innovative medicines can bring to them and their families today.

Only with appropriate patent protection can society create an incentive for pharmaceutical compa-nies to develop innovative new medicines. And we believe that rewarding pharmaceutical innovation is in everyone’s interest. However, high prices for new medicines can present a barrier to those who might benefit from them in both developed and emerging markets. We take this issue very serious-ly. In the following section, we discuss some of the steps we are taking to expand access to medicines.

In addition, we have launched a major effort to lower the overall cost of bringing a drug to market by improving efficiency throughout our value chain. We are also exploring new models of developing and delivering more tailored therapies. Through the use of technologies such as biomarkers, pharma-cogenomics, and bioimaging, we can better predict which therapies will be most effective for which pa-tients, ensuring that patients receive better value from the medicines they use and achieving our goal of “right drug, right dose, right time.”

Product Liability Issues ThimerosalLawsuits have been filed against Lilly and other manufacturers claiming that there is a link between the vaccine preservative thimerosal and autism. Stud-ies as recent as 2004 continue to show there is no scientific evidence that supports such a link. In fact, the scientific evidence indicates exactly the opposite.

In a report published in the October 1, 2003, Journal of the American Medical Association, “Association Between Thimerosal-Containing Vaccine and Au-tism,” the medical researchers concluded: “We found no evidence of an association between thimerosal-containing vaccines and autism in children com-pared with children who received the same vaccine formulated without thimerosal.” This is the largest, most scientific study to date, based on a review of 467,450 Danish children.

Studies released in 2002 by the World Health Orga-nization’s Global Advisory Committee on Vaccine Safety and the University of Rochester Medical Center also have confirmed the safety of thimerosal. In the University of Rochester study, researchers found that ethyl mercury (the kind of mercury that is in thimerosal) has a half-life in the blood of about 7 days versus methyl mercury with a half-life of 45 days. This quick elimination suggests that ethyl mer-cury would not accumulate in the body, according to researchers at the Vaccine Safety Institute.

Lilly understands that autism is a devastating di-agnosis for any family. But in the end, we want to ensure that science, not politics, will find the causes of autism, the best possible treatments for it, and, hopefully, a cure.

Zyprexa® Beginning in early 2003, product liability cases were filed against Lilly claiming that its antipsychotic medication Zyprexa had caused patients a variety of injuries. Most of these cases allege that Zyprexa caused diabetes or high blood glucose levels. This type of litigation has included other manufacturers of atypical antipsychotics, such as Risperdal® and Seroquel®.

Since June 2005, Lilly has entered into agreements with various claimants’ attorneys involved in U.S. Zyprexa product liability litigation to settle a large number of these claims. While we firmly believe that the lawsuits against Zyprexa are not supported by the scientific evidence, the business decision to enter into agreements to settle the majority of the litiga-tion was driven by our desire to reduce significant uncertainties involved in litigating such complex cases. The settlement agreements are a significant step in not only helping Lilly and its employees get on with our core business, but it also begins to remove what physicians have told us is a barrier to their confidence in making the best treatment deci-sion for an individual patient’s needs. We are pre-


36

pared to continue our vigorous defense of Zyprexa in all remaining cases.

Questions have arisen as to whether there is an increased risk of diabetes in patients who take Zyprexa. It is important to note that, compared with the general population, patients with serious mental illness have a substantially greater rate of diabetes (2 to 4 times greater). Available data do not support a causal link between Zyprexa and diabetes. Since Zy-prexa was introduced in 1996, it has been prescribed to more than 19 million people worldwide.

In 2003, the FDA informed all sponsors of marketed atypical antipsychotic medications that the product labels should be updated concerning diabetes ad-verse events. The agency recognizes that the relation-ship between atypical antipsychotic use and hyper-glycemia-related adverse events is not completely understood, but epidemiological studies have sug-gested some increased risk. By the end of 2004, all manufacturers had complied with this request.

Product Promotion IssuesIn December 2005, Lilly reached a settlement with the U.S. government over an investigation of Evista® marketing and promotional practices. The company agreed to plead guilty to one misdemeanor charge for off-label promotion of Evista during 1998 and paid a penalty of $36 million. We deeply regret the 1998 conduct, which has resulted in a federal misde-meanor charge. We take seriously our responsibili-ties to abide by all the laws governing our business practices and are committed to ensuring our em-ployees’ actions reflect the highest legal and ethical standards of conduct. Although the government has not charged Lilly with any unlawful intent, we will continue to take steps designed to assure that Lilly’s promotional activities remain fully compliant.

More information is available at www.pmcpa.org.uk.

Lilly Principles for Direct-to-Consumer CommunicationsGiven the increasingly complex health care system, we know that patients are seeking more informa-tion about diseases and treatments, asking questions, evaluating information, and making choices. We believe that direct-to-consumer (DTC) advertising provides many benefits, including raising awareness

of diseases and conditions that are often undiagnosed, untreated, or under-treated. As a company responsible for developing new, innovative medicines, we under-stand we have a duty to provide advertising that is truthful, accurate, and balanced. To that end, we have established the following principles to help serve as a guide when designing and launching DTC commu-nications. These principles were initially adopted in 2001, and they were revised to reflect the August 2005 PhRMA Guiding Principles. Lilly is dedicated to fully abiding by the spirit of these principles, as well as the principles themselves.

1. We will allow for sufficient time to educate physi-cians and other health-care professionals about Lilly medications before advertising them to the public based on specific factors that vary by dis-ease state, including the complexity of the risk/benefit profile and the health care professionals’ knowledge of the condition being treated.

2. We will involve patients and health care profes-sionals in the advertisement development process to obtain their perspective and input regarding DTC campaigns. We will also involve the general public where appropriate.

3. We will adhere to FDA standards regarding DTC campaigns, and submit new TV product cam-paigns to DDMAC prior to broadcast to give the FDA the opportunity to comment. This includes creating product advertising that provides clear, ac-curate, and responsible information that is fair and balanced on both the benefits and risks associated with the medications, clearly identifying the condi-tion for which it is being prescribed. To that end, we will no longer air broadcast reminder ads (with the exception of sponsorships).

4. We will not knowingly create advertising that con-tains false, misleading, exaggerated, or unbalanced statements or visuals, and will utilize creative de-signs that respect the seriousness of health condi-tions and medicine being advertised.

5. We will create DTC campaigns that reinforce the physician/patient relationship by encouraging pa-tients to seek additional information and guidance from health care providers.

6. We will protect the confidentiality of patient infor-mation generated by the DTC campaigns.


37

7. We will advertise in ways that encourage appro-priate use of our products, and include informa-tion about the availability of other options such as diet and lifestyle changes where appropriate for the advertised condition.

8. We will not target our advertising directly to individuals under the age of eighteen (18), and will design media plans to achieve an 80 percent adult audience level (90 percent for Cialis) to avoid audiences that are not age-appropriate for the messages involved.

9. We will place our advertisements in media envi-ronments that avoid controversial content/pro-gramming, respect diversity, and align with our company values.

10. In the spirit of “Answers That Matter,” we will provide our customers with feedback mecha-nisms to express their opinions on the DTC campaigns.


38

Throughout the world, patients are concerned about having access to the medicines they need today and may need tomorrow. The underlying issues affect-ing access to medicines differ among countries and regions of the world.

In the U.S., approximately 45 million Americans currently lack any type of health care insurance, and many others have limited coverage. For those who are uninsured, the cost of medical treatment and pre-scription drugs may be an obstacle to getting the care and medicines they need. We believe there should be greater access to affordable health care coverage, which would expand the pool of people who are insured and help to reduce health care costs for all Americans. The new prescription drug benefit—Medi-care Part D—is an important step toward this end and one that Lilly strongly supported.

In other parts of the world, the price of medicine is just one factor that prevents people from obtaining needed treatment. In developing countries, other issues can present access barriers. Among them are the capacity and efficiency of a country’s health care system to distribute and dispense medicines, the abil-ity to provide accurate diagnoses, and the availability of preventative and follow-up care.

And in Europe, the largest segment of the popula-tion—the baby boom generation—is quickly ap-proaching retirement age. This trend will change the ratio of retirees to workers and could place a strain on government funding for pharmaceutical innovation as well as threaten the long-term sustainability of a universal health care system that has served Europe-ans for years.

Pharmaceutical companies have been criticized for not doing enough to make their medicines more ac-cessible and affordable to patients around the world. Our mission to develop innovative medicines that save and enhance lives will not be fulfilled if patients cannot access our products. Therefore, our company has been strongly committed to philanthropic and pa-tient assistance programs designed to provide greater access to Lilly’s medicines.

Increasing Access to Medicines—United StatesLilly donates products through our various patient assistance programs. We currently offer six programs in the U.S., which in 2005 helped more than 410,000 patients obtain needed medicines. In addition to the following patient assistance programs, we participate in access programs in 26 states.

Access to Medicines

LillyAnswers® LillyAnswers was launched in 2002 as a bridge pro-gram to address the concerns of senior citizens who faced rising medical expenses and lacked prescrip-tion drug coverage. Through LillyAnswers, eligible4 patients are provided with a 30-day supply of a Lilly retail drug for a monthly administrative fee of $12. In 2005, LillyAnswers had 235,000 members and pro-vided prescriptions valued at $192 million.

In early 2006, Medicare Part D prescription drug coverage was introduced and is being administered as a permanent measure to provide seniors with greater access to affordable and more comprehensive phar-maceutical coverage. Lilly recognizes some patients who are enrolled in a Medicare Part D plan may still experience gaps in their coverage or access to needed medicines. We have explored the best way to help these patients in a manner that complies with legal issues associated with providing assistance to indi-viduals enrolled in a federally funded program. As a result, Lilly is taking several actions.

For patients not enrolled in a Part D plan, we are:

• Extending LillyAnswers until December 31, 2006, for certain qualifying patients and for most retail products. Patients enrolled in LillyAnswers as of December 31, 2005, but not enrolled in a Medicare Part D plan, are eligible. These patients must certify that they are not enrolled in a Medicare Part D plan. Going forward, new patients will not be enrolled in LillyAnswers.

For certain patients enrolled in a Part D plan, we are:

• Creating a new “Outside Part D” program. This program, LillyMedicareAnswers, will be for patients who are enrolled in a Part D plan and taking growth hormone or certain Lilly injectable osteoporosis or antipsychotic medications. Patients who meet the eligibility requirements5 can then obtain a 30-day supply of these drugs for an administrative fee of $25. We are seeking an advisory opinion from the U.S. Department of Health and Human Services Office of the Inspector General (OIG) regarding the appropriate implementation of this new “Outside Part D” patient assistance program.

Key Issues

4. Usually individuals who are Medicare eligible U.S. citizens, uninsured, and have annual incomes that fall below 200 percent of the Federal Poverty Level. 5. In addition to meeting the same eligibility requirements for enrollment in LillyAnswers, certain patients who enroll in the proposed LillyMedicareAnswers program must provide further documentation.

39

• Providing bridge benefits to current LillyAnswers patients. Qualifying patients are those who are enrolled in a Medicare Part D plan and prescribed certain Lilly injectable osteoporosis or antipsychotic medications. These bridge benefits will be available until the new “Outside Part D” program is imple-mented, or until such other date as Lilly may deter-mine.

Lilly Cares™ The Lilly Cares Foundation provides a number of free medicines, through physicians, to qualifying U.S. patients. Eligibility is based on the patient’s income, which must be less than 200 percent of the federal poverty level, and lack of third-party drug coverage. In 2005, Lilly Cares served 176,000 patients with medica-tions valued at $197 million.

Partnership for Prescription Assistance Lilly participates in the Partnership for Prescription Assistance (PPA), a program that brings together America’s biopharmaceutical research companies, health care providers, patient advocacy organizations, and community groups to help qualifying patients without prescription coverage obtain medicines for free or nearly free. PPA offers a single point of access to more than 275 public and private patient assistance programs, including more than 150 programs offered by pharmaceutical companies.

Other Access ProgramsLilly has three targeted programs that assist patients in obtaining specific medicines. These include:

• Lilly Oncology—Assists patients with obtaining reimbursement for Gemzar® and Alimta®.

• Xigris Treatment Support Program—Assists certain health-care institutions that have provided ur-gent, potentially life-saving treatment to patients who do not have insurance or the capacity to pay.

• Humatrope—Assists patients with obtaining a full or partial supply of this medicine, and also provides support to health care professionals through a reim-bursement center.

More information on our patient assistance programs can be found online at www.Lilly.com.

Increasing Access to Medicines—InternationallyLilly’s marquee global access program is the Lilly Mul-tiple Drug Resistant Tuberculosis (MDR-TB) program, discussed in more detail below. In addition, Lilly is supporting a number of corporate and local initiatives aimed at making our medicines more available and improving patient outcomes.

Multi-Drug Resistant Tuberculosis PartnershipIn 2003, Lilly launched a $70 million global initiative to address the rising incidence of MDR-TB, a strain of TB infecting an estimated 400,000 people each year, notably in China, India, Africa, and the former Soviet Union. Known as the “Lilly MDR-TB Partnership,” this multipronged, cross-sector initiative involves 14 partners and is focused in three ways: transferring Lilly’s proprietary manufacturing technology; enhanc-ing disease surveillance and training programs; and increasing the supply of capreomycin and cycloserine, medications effective in the treatment of MDR-TB.

Technology TransferThe ongoing transfer of Lilly drug-manufacturing expertise for both of our MDR-TB medicines, capreo-mycin and cycloserine, to companies in India, China, Russia, and South Africa will increase global supply of these products at a lower cost. With funding from Lilly, experts from Purdue University are training sci-entists and plant managers from these companies in manufacturing skills and good business practices.

• Shasun Chemicals and Drugs (India) has validated its manufacturing for cycloserine and dispatched its first order in February 2006.

• Hisun Pharmaceutical (China) has validated its manufacturing for capreomycin. Hisun will provide the active pharmaceutical ingredient (API) to Aspen Pharmacare, which will produce the final form of the drug. Hisun is also working on an expansion of its facility so it can locally produce the final form of capreomycin. To ensure the long-term success of the manufacturing partnership, Lilly committed to provide technical assistance and necessary training.

• Aspen Pharmacare (South Africa) sold its first batch of cycloserine to Botswana in late 2005 and plans to start making cycloserine in its new facility, as many as 4 billion capsules per year. Aspen began construc-tion on another facility that will produce capreomy-cin vials.

Access to Medicines

40

• SIA International (Russia) is Lilly’s newest manu-facturing partner as of May 2006 and expects to be making cycloserine by late 2006.

Prevention, Treatment, Surveillance, and TrainingLilly believes the keys to stopping the spread of MDR-TB are greater public awareness, adequately trained health care workers who can ensure proper diagnosis and treatment, and the availability of ef-fective medicines. In 2005, we continued to make progress along these lines. For example: • With Lilly’s support, in 2003, Harvard Medical

School and Partners in Health (PIH) established a Center of Excellence in Tomsk, Russia. During 2005, doctors, nurses, and health care workers from all over the former Soviet Union were trained how to prevent, detect, and treat TB and MDR-TB. In addi-tion, the Russian version of the PIH “Guide to the Medical Management of MDR-TB” was published and an MDR-TB Advisory Board was established, bringing together multiple parties to work on in-corporating MDR-TB protocols into Russian-based TB Centers of Excellence. And now PIH is working with five Tuberculosis Research Institutes in Russia on the development of national MDR-TB training standards.

• The International Federation of Red Cross and Red Crescent Societies, with funds from Lilly, developed MDR-TB awareness and outreach programs that will be implemented in countries of the former Soviet Union and in Eastern Europe.

• The World Medical Association and Lilly are work-ing together to craft an MDR-TB Internet training course for doctors.

• The International Council of Nurses (ICN) and Lilly are working to develop training guidelines for nurses on detection, treatment, and management of the disease. ICN also launched a TB/MDR-TB “train-ing of trainers” pilot program for nurses in South Africa, and extended it to the Philippines.

• The World Economic Forum (WEF) tested a pilot program in India aimed at building awareness in the workplace of TB/MDR-TB, with a particular fo-cus on detecting early signs of infection and identi-fying where to go for diagnosis and treatment. The program, which received support from Lilly, will be implemented in India during 2006 and promoted globally by the WEF to its corporate members.

• The International Hospital Federation (IHF) is working on a comprehensive TB and MDR-TB-con-trol training manual for hospital managers that will be distributed to IHF’s 40,000 public and private hospitals and clinic members.

• The U.S. Centers for Disease Control (CDC) is de-veloping a cutting-edge, laboratory-based electronic surveillance system in Russia to monitor patient resistance to MDR-TB drugs. The new information management system may then be used by other countries to standardize TB and MDR-TB data col-lection and analysis methods.

These efforts were in concert with the World Health Organization (WHO) and the STOP TB Partnership. These organizations are now supporting close to 40 countries in an effort to establish a strategy for MDR-TB management. The WHO provides needed technical assistance to countries in analyzing their caseloads, treating patients, and developing na-tional programs within WHO-approved treatment guidelines. The WHO also monitors trends of global resistance to first-line TB drugs. Assessments were carried out in China, India, Russia, and several other countries in order to strengthen MDR-TB control practices.

Increasing the Supply of MedicinesThrough the transfer of technology, Lilly is increas-ing the supply of critically needed antibiotics. We also support the World Health Organization’s DOT-Plus program (Directly Observed Treatment-short course for MDR-TB patients) by providing our MDR-TB drugs at highly discounted prices. Since the launch of the initiative, we have doubled the quan-tity of drugs that we provide to the WHO.

We believe that the Lilly MDR-TB Partnership will improve health care worldwide while establishing a lasting model for bringing public and private organi-zations together to fight pandemics and epidemics.

Additional information about Lilly’s partnerships and the history of the initiative is available online at www.LillyMDR-TB.com.

Access to Medicines

41

Public-Sector NeedsLilly’s commitment to innovation and patient care makes us a valuable partner for public-sector payers such as Medicaid. We actively seek to provide for the needs of our customers and are able to offer a variety of resources to improve patient care and financial outcomes in the public health sector. To best address public health needs, Lilly established a business-to-government organization in 2002. This organi-zation’s mission is to align Lilly resources to help public-sector customers achieve the optimal balance of quality, access, and cost of care for patients who use public-sector health care programs. Important components of this mission include partnering with state Medicaid agencies on disease management and patient care quality improvement projects, tailoring our patient assistance programs to meet local health care needs, and working for unrestricted access to medicines for people with mental illness.

We have developed partnerships with many states and local health care authorities over the past three years to support our business-to-government mis-sion. Some key programs of this type are highlighted below. Currently, we have fully implemented pro-grams in over 30 states. • Since 2001, Lilly has been working with the Ar-

kansas Medicaid agency on a disease management initiative that focuses on an intensive patient educa-tion program for people with diabetes. Through the Arkansas Diabetes Control Program, patients are taught about how weight, body mass index, blood pressure, and a high hemoglobin A1c level affect their disease. Participants receive detailed guid-ance about blood glucose monitoring, foot care, and other health behaviors. The program has resulted in measurable reductions in depression, blood pres-sure, blood sugar level, and other disease compli-cations among participating patients, as well as reductions in diabetes-related costs since inception. Concurrently, Lilly has partnered with Arkansas to significantly improve the infrastructure for diabetes treatment and has established 12 American Diabe-tes Association-accredited education centers across the state.

• In an effort to help state Medicaid departments manage pharmaceutical spending without restrict-ing patients’ access to appropriate medicines, Lilly established a pilot partnership with the state of Missouri in 2003. The Missouri Mental Health

Medicaid Pharmacy Partnership Program (MHMPP) was made available to all Missouri Medicaid pre-scribers to identify inappropriate or inefficient use of behavioral health medications within the Medicaid system. MHMPP uses nationally accepted guidelines for clinical practice to identify inappro-priate or inefficient prescribing. The physician is identified for educational communications aimed at changing his or her prescribing behavior. Benefits of MHMPP include increased adherence to clinical practice guidelines and evidence-based practices, which then leads to potentially superior clinical outcomes. During the first full year of the partner-ship, the state’s Medicaid program saw a decrease of 98 percent in the number of patients who are prescribed the same mental health medicines from multiple doctors, and a 43 percent reduction in the number of children who take three or more psycho-tropic medicines. The program allowed Missouri to save $7.7 million in taxpayer-funded Medicaid costs.

• Based on the initial success in Missouri, Lilly is actively partnering with 15 other states on MHMPP, including the state of Utah. Between January 1, 2004, and August 31, 2005, the number of Utah patients prescribed multiple medicines by multiple prescribers decreased by 74 percent. In addition, the number of patients prescribed two or more atypicals also decreased by 74 percent. As a result, pharmacy spending was lower than expected.

We continue to learn from these projects about how best to meet the needs of public-sector customers and the patients they serve.

Access to Medicines

42

Lilly’s history of philanthropy traces back to 1906, when we provided disaster relief after the San Fran-cisco earthquake. Over the years, we have built a tradi-tion of giving back to local communities around the world, with a particular focus on:

• Improving patient outcomes and providing access to Lilly medicines (see below)

• Supporting scientific education and research (page 43)

• Providing disaster relief (page 44)• Encouraging our employees’ involvement (page 45)

In 2005, Lilly contributed more than $511 million in global philanthropy, the highest yearly total for phil-anthropic donations in the company’s 130-year histo-ry. Of this, $453 million (U.S. net wholesale price) was donated in products for patient assistance programs and international humanitarian causes. The remain-ing $58 million was donated in cash contributions by the company and through the Lilly Foundation. These total contributions represented nearly 13 percent of adjusted earnings before taxes and 3.5 percent of rev-enue, making Lilly one of the most charitable compa-nies in the U.S.

Investing in Our Communities

Key Issues

$58 Million cash contributions

$453 Million donated products

2005 Philanthropic Donations

Improving Patient OutcomesIn the U.S. and in countries where Lilly affiliates are located, various initiatives have been launched to help improve the outcomes patients experience relat-ed to our key therapeutic areas, including neurosci-ence, diabetes, and cancer. This 2005 report focuses on Lilly’s efforts to improve the outcomes of patients with mental illness.

Helping Patients with Mental IllnessLilly has committed itself to fight against the stigma of mental illness and to improve the lives of those with mental illnesses and their families. Here are some examples of Lilly’s efforts in 2005:

Lilly Spain, in partnership with the Spanish Psychi-atric Society and other mental health advocates, has created a wellness program called A WHOLE LIFE TO GET BETTER. The program combats social stigma and discrimination toward the mentally ill by showing how people with mental illnesses may be integrated into society, enhancing both their lives and their com-munities. Lilly Spain has contributed 600,000 euros (U.S.$750,000) to the wellness program.

Lilly Belgium continued to fund projects that help individuals suffering from mood and/or thought disorders reintegrate into society. An independent panel of psychiatry experts selected three projects to receive Lilly Reintegration Awards in 2005, for a total of 15,000 euros (U.S. $18,750). One of the awards went to a job program that strives to broaden employment opportunities for those suffering from mood and/or thought disorders.

Lilly Germany has sponsored an award program for the past three years to recognize a public servant who has helped to destigmatize mental illness. In 2005, an independent jury awarded the “MUT-Prize” for coura-geous action to Dr. Regina Goerner, former minister of health and social affairs in the Saarland, a state in southwest Germany. Goerner was recognized for initiating a nationwide virtual workshop that enabled mentally ill citizens to participate in the labor market.

Lilly Canada committed $2 million over two years to launch the Lilly Neuroscience Solutions for Wellness Educational Fund. The goal is to support innovative programs aimed at enhancing wellness for patients facing mental illness so they can improve the qual-ity of their lives, better manage the complications of their disease, and combat the stigma of mental illness. Currently, 30 programs across Canada have received grants in amounts up to $100,000.

Lilly Czech Republic provided $45,000 to the “ZME-NA” (“CHANGE”) initiative, which addresses the social stigma and discrimination associated with mental illness and seeks to transform the delivery of mental health services in the Czech Republic.

43

Lilly Turkey helped create an outpatient facility in Istanbul that specializes in serving patients suffer-ing from schizophrenia. Inner Garden Day Hospi-tal, which officially opened in April 2006, received $100,000 in support from Lilly Turkey. The facility offers medical treatment, counseling, and a host of other therapeutic and rehabilitative services to schizophrenia patients and their families. Lilly Tur-key employees have further supported Inner Garden with a book drive to fill the empty shelves of its pa-tient library. The company matched employee efforts with an additional cash donation.

Helping Children with DiabetesLife for a Child With Diabetes, a program operated by the International Diabetes Federation (IDF), aims to bring insulin and medical services to children and adolescents with type 1 diabetes. Lilly continued to partner with Rotary International, an international service organization, to help finance Life for a Child. Funds contributed by Lilly and its employees spur lo-cal Rotary clubs to raise additional funds, which are then matched by the Rotary Foundation.

In 2005, Lilly’s contribution totaled $82,000, which helped to provide treatment and support for 530 children living in 11 developing countries, including children in Tanzania for the first time. Plans are in place to reach children in Nigeria and Nepal through the program in 2006.

Supporting Scientific Education and ResearchThe advancement of science is a special focus of Lilly’s community investments. Below are some ex-amples of our multilevel approach to support science education and research.

Lilly UK teamed with an education consortium to organize “Step Into Science,” an event geared toward local secondary students in Basingstoke. The event featured workshops aimed at enhancing the students’ coursework and introducing them to activities that make science “come to life.”

Lilly Italy completed its second year of a three-year partnership with Telethon, a renowned Italian research foundation. Lilly is providing 100,000 euros (U.S.$120,000) annually to fully fund two Telethon scientists who have been selected to spend a year at Lilly Italy’s medical division and receive specialized training. These scientists use their newly acquired

knowledge of Lilly’s methodology to help improve Telethon’s internal processes and shorten the time frame for newly discovered treatments for rare dis-eases to reach market and begin benefiting patients.

Lilly France established “Institut Lilly” in 1990 and has continually funded this collaborative endeavor for the purposes of supporting clinical research, offering training to health care professionals, and informing patients. In 2005, Institut Lilly partnered with Estee Lauder Companies, Inc., to support a breast cancer prevention and awareness campaign, “Breast Cancer, Let’s Speak About It.” The support was instrumental in getting 200 informational displays on breast cancer awareness to doctors and pharmacists; bringing together oncologists and patients to talk about preserving quality of life while battling breast cancer; and publishing 10,000 infor-mative pamphlets for women going through treat-ment. Since its inception, the institute has provided 250 research grants and trained 90,000 medical professionals.

Lilly USA also supports a number of science-related achievements, including:

• Lilly hosts Teacher’s Day, a twice-yearly event that provides local science teachers an opportunity to load carts full of free lab equipment recovered from Lilly’s research facilities. In 2005, we donated 80 pallets of equipment, worth more than $120,000, for the teachers’ use in their classrooms at local schools and universities.

Teacher’s Day Donations

Lance Brand, high school science educator and recipient

of the 2005 Milken National Educator Award, has seen how

Teacher’s Day donations benefited his students.

“The current budget situation at most schools doesn’t allow for the purchase of much of any equipment, let alone expensive research equipment which allows students to explore the field of biotechnology. Biotech-nology activities are exciting for my students and give them a sense of what real science in the modern world is like. Without these donations from Lilly, most of these activities wouldn’t even be a possibility,”

Mr. Brand said.


44

• Lilly offers a variety of science-oriented distance-learning programs that can virtually reach any classroom in the world equipped with distance-learning capabilities. The program also engages Lilly employees as volunteers who share their knowledge and experience with participants. Dur-ing 2005, the programs reached 2,770 participants at 75 sites.

• The Lilly Foundation made a $7.5 million grant in 2005 to Indiana University’s Cancer Center, a premier clinical and research institution. The funds will be used to recruit nationally recognized cancer scientists to strengthen research initiatives.

Providing Disaster ReliefIn 2005, devastating natural disasters took a toll on a number of regions around the world. Below are some examples of the type of relief support Lilly provided.

Immediately following Hurricane Katrina, Lilly helped victims in the affected areas by making cash contributions of more than $1 million to the Ameri-

can Red Cross, and donated more than $3 million in medicines. In addition, Lilly matched dollar-for-dollar employee contributions of nearly $500,000.

In early 2005, Lilly donated more than $2 million in cash to relief agencies to help victims of the cata-strophic tsunami of late 2004. Working through the Catholic Medical Mission Board (CMMB), Lilly also donated antibiotics to treat up to 60,000 patients.

Following the massive earthquake in the Kashmir region of Pakistan, Lilly worked through the CMMB and International Medical Corps to airlift urgently needed medicines and supplies, valued at $2 million, to the affected communities.

Hurricane Stan struck parts of Central America in October 2005, causing severe mudslides in Guate-mala that destroyed Mayan villages, areas where residents had started with little. Working through Project HOPE, Lilly donated more than $200,000 in products, which were shipped in February 2006.


Hurricane Katrina struck with devastating force in August 2005, destroying homes, businesses, and communities along the U.S. Gulf Coast. One town particularly hard hit was Bay St. Louis, Mississippi, the hometown of Jim Collins, an executive director at Eli Lilly and Company. As soon as the hurricane passed, Collins personally committed to helping with relief efforts and then inquired whether Lilly could provide further support. The answer was immedi-ately yes.

The next morning, a Lilly response team took action in a way Collins described as going beyond donations of money and materials to “a more personal cor-porate relief effort.” By mid-afternoon, Collins and two colleagues, Robert Reilley and Dr. Greg Larkin, headed to southwestern Mississippi in a corporate jet filled with needed medicines and supplies. They received on-the-ground support from the U.S. Coast Guard, ensuring the precious cargo was delivered to locations where storm victims were being assisted.

Their brief time in Mississippi convinced the re-sponse team that significantly more help was needed. Two weeks later, they returned to Missis-sippi with additional medicines and supplies, but this

Hurricane Relief in a Personal Way

time stayed a week to help coordinate local medical relief efforts. Recognizing the impact their efforts were having on the local communities, Collins sent a message back to Lilly headquarters. “Our presence, support, and pharmaceutical products have been very much appreciated by those in the affected communi-ties. I’m extremely proud to be part of a company that is truly committed to helping in times of need.”

Following Hurricane Katrina, Lilly’s response team delivered critically needed medicines and supplies to the affected area on two occasions. On the second trip, the team consisted of (from left) Bob Reilley, Dr. Greg Larkin, Jim Collins, and Steve Huckstep.

45

Encouraging Employee CommitmentLilly encourages employees to play an active role in their communities through charitable giving and volunteerism. In 2005, Lilly employees around the world demonstrated their commitment to build stronger communities. Some examples include:

Lilly Brazil—A team of nearly 250 Lilly employees, service providers, family members, and partners organized and hosted a Health and Citizenship Day in November 2005. An estimated 3,700 members of a poverty-stricken community in the city of Sao Paulo attended the event, at which they were provided with critical information on health and personal hygiene as well as glycemia and blood pressure testing.

Lilly Mexico—The Lilly Mexico Foundation was recently created to support local social development programs. Lilly employees are encouraged to par-ticipate in the Shared Action Program, an employee volunteer program. Employees can also propose that the organizations they volunteer for receive financial support from the foundation. In 2005, Lilly Mexico Foundation provided more than $4 million in cash contributions and $820,000 in product donations.

Lilly Egypt—Employees joined forces to help fund the opening of a new hospital dedicated to the care of children with cancer, the only hospital of its type in Egypt. Ninety-six Lilly employees are mak-ing monthly contributions to the hospital through payroll deduction. It will provide free services for the diagnosis, treatment, and follow-up of its young can-cer patients, as well as conduct research in the field of children’s cancers.

Lilly Israel—Sixty-five percent of employees partici-pated in a Shekel-a-Day giving program, increasing their contributions by 112 percent over last year. Through this program, employees donate one shekel a day from their salaries to a community investment fund. The funds, which are matched by Lilly, sup-port a local after-school program for children from troubled backgrounds, where Lilly Israel employees also spend many hours tutoring, mentoring, and sup-porting the children.

Lilly USA employees also dedicated their time and resources to strengthen their communities in many ways. At Lilly headquarters in central Indiana, our employees:

• Worked more than 1,700 hours with the nonprofit organization Habitat for Humanity to build two homes near a Lilly facility in Indianapolis. In sup-port of their efforts, Lilly contributed $120,000 towards the projects.

• Tutored local school children in reading, reporting to the same classroom at the same time each week for an hour throughout the school year.

• Donated funds to United Way charities, which were matched with contributions from the Lilly Founda-tion, for a total of $9.2 million. Lilly’s giving rep-resented approximately 25 percent of the Central Indiana United Way’s 2005 campaign.


46

Responsibility Toward EmployeesLilly’s employment philosophy guides our practices and helps us to achieve our goal of securing the long-term trust, loyalty, and commitment of our em-ployees to achieve higher levels of performance and productivity.

Lilly’s philosophy about how we treat employees began with our founder, Colonel Eli Lilly, who estab-lished our core values of respect for people, integrity, and excellence. As leadership was passed to our founder’s son and later to his grandsons, the commit-ment to uphold these traditions and values endured and still holds true today.

In his 1916 “Report on the Subject of Employment,” J.K. Lilly Jr., the grandson of the company’s founder, wrote:

“Without loyalty and team work, the higher levels in output, quality, and service are impossible.”

Breakdown of Work Force At the end of 2005, Lilly had more than 42,000 em-ployees worldwide, of which 2,160 were new hires that year. Our turnover rate is below the industry average (industry data obtained from the Saratoga Institute).

Training and DevelopmentRespect for people is one of Lilly’s core values. This is demonstrated in many ways, one of which is the continued training opportunities we provide for our staff at all levels to enrich their experiences at work. In 2005, Lilly employees around the globe accrued 1.9 million training hours.

Lilly University—a collection of global training orga-nizations across the company—provides a variety of online courses and classroom-based training. Topics range from technical, job-specific training to more transferable skills such as performance management, career planning, presentation skills, and project man-agement. As a result, all Lilly employees have access to and are encouraged to use programs that enhance their skills, employability, and ultimately their suc-cess in the workplace. In addition, continued training is provided to supervisors to assist them with leading people and managing the business.

Workforce and Workplace

Key Issues

Lilly’s Employment Philosophy

Our employment philosophy is based on a set of fundamental beliefs.

• We believe employees are by nature good and want to do what is best for the company, our cus-tomers, and fellow employees.

• We believe employees are motivated by more than their paychecks; they want to be connected to work that makes a meaningful difference in the world and work in a community of colleagues that are committed to common goals.

• We believe in the principle of “reciprocity” in the employer/employee relationship. Yet we also believe the company carries the heaviest respon-sibility at the beginning of that relationship. By demonstrating through employment practices and leadership behaviors that we truly believe our values of integrity, excellence, and respect for people, we earn the trust, loyalty, and commit-ment of employees. Employees then reciprocate with productive contributions to the company’s mission/vision. Through this commitment, employees embrace a willingness to be flexible, making sacrifices for the good of the enterprise. In this sense “reciprocity” is not a demand for loy-alty but rather the intent to secure it from people who will inherently give it if treated well. J.K. Lilly Jr. shared this belief in his 1916 report: “Too many assume that the mere providing of work and the payment of wages gives them the right to absolute fidelity. When loyalty from above has been secured, loyalty from the ranks may readily be observed.”

• We believe our employment philosophy is consis-tent with the value of excellence; it is not an ex-cuse for tolerating poor performance. Employees have an ongoing responsibility to continuously improve their performance to meet constantly rising standards demanded by our competitive environment. This includes developing new skills and being flexible to adapt to the needs of emerg-ing business challenges. Personal accountability and top performance are closely interrelated.

47

Employee Benefits Lilly has consistently been recognized as an employ-er of choice in the U.S. and around the world. We offer a competitive total compensation package and our benefits go above and beyond the standard medi-cal and retirement programs to meet the needs of our employees. Our philosophy is to provide benefits that are market competitive in our industry to attract and retain talented people with the skills and exper-tise necessary to achieve our company objectives and support the long-term interests of sharehold-ers, customers, and most importantly, our patients. Some benefits that Lilly provides globally include retirement/leaving service, and medical/health, life, and disability insurance.

In the U.S., Lilly offers some nontraditional pro-grams to enhance successful work/personal integra-tion, such as flextime, flex week, part-time schedules, and telecommuting options. Some of our other benefits include generous maternity leave, parenting leave, marriage leave, and educational leave. We also offer a generous adoption reimbursement program and encourage our employees to participate in one or more of our many volunteer programs. On-site conveniences available at our U.S. locations include dry cleaning, a credit union, cafeterias, convenience store, two child development centers, and an 11-week summer camp for our employees’ children. In 2005, we paid more than $3.4 million to maintain child care facilities and programs in the United States.

The health and well-being of our employees is very important to us. We expect the very best from our employees, and we strive to give them the very best in return. Our health coverage significantly exceeds national standards, and employees are able to obtain Lilly manufactured and marketed drugs at no cost. In the U.S., employees receive certain medical services at no cost, which they can access at five on-site am-bulatory care facilities maintained by Lilly. Services at these sites include mammography screening, gynecological exams, personal lab services, travel immunization assistance, flu shots, physical therapy, emergency care, as well as coordination care for any work-related illnesses or injuries. A nationally recognized, free colon-screening program was imple-mented in 1995; to date, more than 5,000 polyps and 29 unsuspected cancers have been detected and removed. Employees also have access to an employee assistance program that provides confidential assess-ments and referrals to licensed mental health provid-ers for three free visits per year.

We encourage our employees to pursue further edu-cation by providing educational assistance programs. In the U.S., tuition for job or career-related course-work is reimbursed 100 percent (up to $5,250 per year for undergraduate courses and up to $7,000 per year for graduate courses). In addition, U.S. employ-ees can be reimbursed for 50 percent (up to $100) of the fees paid for any non-job-related “enrichment” courses they pursue. In 2005, 547 employees partici-pated in the undergraduate coursework program, 477 took advantage of the graduate coursework program, and another 57 employees took part in the personal enrichment program.

Upholding Human RightsDiversity Lilly’s values reflect the importance we place on di-versity. These values include a respect for all people worldwide; integrity that expects us to operate with the highest standards of honesty, ethical behavior, and exemplary moral character; and excellence, which reflects our continued desire for improvement. Diversity within our company is something we value and strongly encourage.

By promoting a workplace that blends the talents of each and every employee and encourages different perspectives and approaches to our work, we believe our workforce more closely mirrors the multicultural marketplace and makes us a better company. To achieve this, a number of our key leaders serve on our diversity leadership council, which is led by the vice president for global diversity. The key objective of the council is to bring integration, alignment, and accountability to Lilly’s diversity strategy for our workforce and marketplace. In addition, our senior leaders have diversity performance objectives, and we require diversity training for all U.S. employees with additional instruction for supervisors.

Beyond the workplace, diversity is a key focus in our efforts to improve patient care and outcomes—our ultimate goal. For instance, Lilly has made consider-able progress toward increasing the number of mi-norities participating in clinical trials. As a result, we are able to better inform physicians about how our medicines can help a variety of populations.

We are also building important partnerships with the National Urban League (NUL) and the National Council of La Raza (NCLR) to reach diverse pa-


48

tient groups. In 2006, the Lilly Foundation and NUL launched a multiyear “Health and Wellness” educa-tion initiative, aimed at providing African-Americans with facts about diabetes and other chronic diseases that disproportionately afflict this population at rates higher than other Americans. In addition, the Lilly Foundation provided funding for NCLR for its “Pro-motores de Salud Mental” Project, which promotes mental health awareness in underserved Latino com-munities, with an emphasis on migrant populations and bicultural families. The intent of both initiatives is to provide practical prevention-related solutions and interventions at the local grassroots level in an ef-fort to address higher rates of chronic diseases among minority populations.

Discrimination and Harassment Our Equal Employment Opportunity policy was writ-ten and implemented to ensure that we provide equal employment opportunities to all employees and ap-plicants in all phases of employment, and we proudly uphold this Lilly policy. Our supervisors, human resources, and equal employment opportunity staff are on hand for any consultation or assistance that is necessary for this policy to be carried out correctly.

We have a strict policy against harassment in the workplace. Unwelcome physical or verbal behavior, inappropriate written material, or sex-based or sexual harassment will not be tolerated while in the work-place or participating in workplace activities. This commitment also carries through to the reporting of such conduct or harassment. All employees are equal-ly responsible for reporting harassing conditions; any such reports are investigated in a confidential manner and no retaliatory action is taken against the reporting employee. Our employees are required to adhere to these principles. These policies are referenced in the company’s code of business conduct, which must be read, signed, and respected by our employees.

Child and Forced Labor The member states of the International Labor Orga-nization have recognized that ending commercial exploitation of children must be one of humankind’s top priorities. Yet, despite international efforts to stop child labor, millions of children throughout the world continue to work, often in terrible conditions. Prevent-ing child labor is everyone’s responsibility. Lilly does not use or support the use of child labor anywhere in the world, and we fully abide by all child labor laws and standards. Additionally, we do not use forced or compulsory labor and we adhere to all state and fed-eral fair labor laws.

Internal Grievance System Our company provides an internal grievance process for the consideration of locally unresolved workplace problems or concerns. An explanation of the griev-ance process, including an overview of the proce-dural steps, is provided in our employee handbook. A human resources representative is available to the employee, if desired, for assistance in the initial local-area discussions of the grievance and formal process-ing of the unresolved grievance.

Security Training Our security personnel participate in ongoing, exten-sive training to protect employees. Topics covered include our corporate values, conflict resolution, professional standards, and conduct in the work-place. Additionally, security personnel are trained in valuing diversity, ensuring privacy, and avoiding harassment in the workplace.


49

A comprehensive approach to corporate citizenship requires that we consider the social and environmen-tal effects not only of our own business activities, but those of our suppliers as well. Described below are our efforts to use our purchasing power to promote diverse businesses and to assess the environmental, health and safety programs of our suppliers.

Supplier DiversityLilly’s long-standing commitment to equal oppor-tunity is reinforced through our Supplier Diversity Development (SDD) initiative, which is one aspect of the company’s broader, integrated diversity strategy. Other aspects include multicultural marketing, clini-cal trials, community relations, and corporate work-life initiatives, which are aimed at increasing and promoting diversity across the company. As a global business, we recognize the value diversity adds in building stronger relationships with our employees, customers, suppliers, and investors.

Lilly’s SDD initiative is focused on broadening the participation of minority-owned, woman-owned, and other diverse and small businesses in the Lilly supplier base to levels more reflective of the diverse business community. In an environment where stra-tegic sourcing efforts can make it difficult for small niche companies to play a role, SDD seeks to identify and develop diverse suppliers, and then match the unique capabilities of our diverse supplier portfolio with Lilly business needs.

Suppliers can learn how to participate in Lilly’s Sup-plier Diversity and Development initiatives online at http://supplierdiversity.lilly.com.

The Value of Supplier Diversity Lilly’s supplier diversity initiative stems from our commitment to be a good corporate citizen and to provide ever-increasing value to our customers, shareholders, employees, and communities. The SDD initiative has helped us discover suppliers that offer products, services, terms, or capabilities that are com-petitive to our current pool of suppliers. Increasingly, it is the smaller niche supplier base that can provide immediate, tangible value to Lilly.

In the global competition for talent, it is imperative that Lilly recruit and retain the best employees avail-able. This talent pool gets broader and more diverse each year, representing different cultures, races, and

Supply Chain

genders. Retention of such employees increasingly depends on the level of diversity in the communities where they live as well as the company for which they work.

Over time, we believe our SDD initiative will have a benefit beyond cultivating, developing, and increas-ing the number of diverse suppliers in our supplier network. As diverse suppliers grow and strengthen their businesses, this will help create wealth, jobs, and economic development opportunities within local communities in ways that enhance quality of community life.

Lilly SDD has implemented many best-in-class pro-grams as part of our overall initiative. For example, Lilly established the Historically Underutilized small Business (HUsB) Coordinators, a collaboration of supplier diversity professionals who share a common mission of developing businesses and helping them find contracting opportunities. The membership is a cross-section of representatives from private indus-try, government agencies, nonprofit organizations, and larger, successful minority-owned and woman-owned firms. Each member brings a different focus that is combined to form a cohesive effort. The syn-ergy created from their joint initiatives has resulted in an increased and greater impact.

Another program, the Supplier Diversity Pharma-ceutical Forum, is a smaller collaborative group of diversity representatives from 15 pharmaceutical companies dedicated to creating greater opportunity for diverse suppliers serving the pharmaceutical industry. The forum, which Lilly helped establish in the late 1990s, provides a network for its members to openly share information, benchmark for best practices, and work cooperatively on joint events to benefit diverse and small businesses serving the pharmaceutical industry. The group meets formally on a quarterly basis but interacts and shares best practices among members on an ongoing basis.

Supplier Diversity – 2005 HighlightsLilly spent more than $400 million with U.S.-based diverse and small business suppliers in the U.S. and Puerto Rico. • Lilly sponsored executives of diverse and small businesses to participate in the Amos Tuck Minority Business Executive Program at Dartmouth College in Hanover, New Hampshire.• Lilly continued its active support of national and local diverse organizations, including board and/or advisory positions with the National Minority Sup-

Key Issues

50

plier Diversity Council, the Indiana Business Diver-sity Council, the Puerto Rico Supplier Development Council, and the Indianapolis Chapter of the National Association of Women Business Owners.

Auditing Suppliers and Third-Party ContractorsLilly has relationships with many third-party suppli-ers, including those that assist in the development and manufacturing of Lilly products. With this partnering comes responsibility to ensure our alli-ance companies have implemented employee health, safety, and environmental programs.

Lilly assesses suppliers and third-party operations against health, safety, and environment (HSE) crite-ria during the selection process and throughout the business relationship. Alliance partners are reviewed using a five-stage process. The first-stage review pro-vides a basic understanding of the company’s envi-ronmental, health, and safety programs. The second stage provides for a risk-based review related to the material being handled. For suppliers of critical ma-terials or those that handle manufacturing steps of higher HSE risk, the third step would include on-site visits. The fourth stage is ensuring that our third-par-ty operations have the necessary HSE information on our materials. Lastly, we track their performance ac-cording to several metrics, like government-reported data. Lilly encourages its suppliers to build the neces-sary HSE capabilities.

In addition to HSE performance, the use of a suppli-er’s product by Lilly is reviewed for possible health, safety, or environmental issues. Lilly is a member of the U.S. EPA Green Supplier Network forum for the pharmaceutical sector. This forum promotes the identification of environmental issues that affect the business performance of the supplier. Lilly believes that supporting the goal for suppliers to continually improve their environmental performance will result in improved business and HSE performance for both parties.

As part of the HSE criteria, Lilly requires both key suppliers and alliance partner companies to have appropriate emergency management capabilities to ensure business continuity. In addition, alliance partners are reviewed annually for their safety and environmental compliance performance.

Supply Chain

51

Lilly is committed to participation in the political process as a responsible corporate citizen to help inform the debate in the United States over health care and pharmaceutical innovation. Lilly operates in a highly competitive and regulated industry and therefore considers participation in the political process as necessary to fulfill our responsibility to our stakeholders. When engaging in lobbying ef-forts or making political contributions, the company complies with laws that govern such activities. In the U.S., federal law prohibits corporate political contri-butions to candidates running for federal office.

When participating in the political process, our employees must comply with the company’s global policies, core values, and legal obligations, which are outlined Lilly’s ethics source document, The Red Book: Code of Business Conduct. The section on “Deal-ing with Government Officials and Political Parties” details appropriate employee conduct as it relates to the following topics: • Political financial support• Payments to officials or employees of a government

or public international organization • Interaction with government officials (initiated by

company employees or vice versa).

Lilly has memberships in a number of industry and business associations, as well as national and inter-national advocacy organizations, that help us keep abreast of best practices, provide us with valuable feedback, and enable us to be active in citizenship-re-lated activities and issues. These include the follow-ing (partial list):

American Chemistry Council: The American Chem-istry Council represents the leading companies engaged in the business of chemistry. The council is committed to improved environmental, health, and safety performance through responsible care, common sense advocacy designed to address major public policy issues, and health and environmental research and product testing.

Association of British Pharmaceutical Industries: ABPI is the trade association for approximately 100 companies in the United Kingdom that produce pre-scription medicines. Its member companies research, develop, manufacture, and supply more than 90 percent of the medicines prescribed through the U.K. National Health Service.

Biotechnology Industry Organization: BIO is the trade association representing companies specializ-ing in health care, food and agriculture, and industri-

Public Policy

al applications of biotechnology. BIO members work to benefit mankind by expanding the boundaries of science.

Business Roundtable: The Business Roundtable is the association of chief executive officers of leading U.S. corporations, committed to advocating public poli-cies that foster vigorous economic growth, a dynamic global economy, and a well-trained and productive U.S. workforce essential for future competitiveness.

Council of the Americas: The members of this busi-ness organization share a common commitment to free trade and open markets throughout the Ameri-cas. Industry sectors represented in the council in-clude manufacturing, natural resources, technology, communications, health care and pharmaceuticals, and financial services. European Federation of Pharmaceutical Industries and Associations: EFPIA comprises 29 national pharmaceutical industry associations and 43 lead-ing pharmaceutical companies, all involved in the research, development, and manufacturing of me-dicinal products in Europe for human use. EFPIA’s mission is to promote pharmaceutical research and development and the best conditions for companies to bring to market medicines that improve human health and the quality of life around the world.

Farmaindustria: The national association of the pharmaceutical industry in Spain, Farmaindustria has nearly 250 member companies. The group has a number of technical committees that provide sup-port to member firms and coordinate activities with the government and other stakeholders.

Global Environmental Management Initiative: GEMI is a nonprofit organization of leading com-panies with the mission of providing a forum to help businesses improve environmental, health, and safety performance; increase shareholder value; and strengthen corporate citizenship.

International Federation of Pharmaceutical Manu-facturers and Associations: IFPMA is a nonprofit, nongovernmental organization representing major global research-based pharmaceutical and vaccine companies from both developed and developing countries.

Japan Pharmaceutical Manufacturers Association: JPMA is the national association of the research-based pharmaceutical industry in Japan. JPMA works

Key Issues

52

to promote greater public understanding and find solutions to pharmaceutical industry issues. JPMA is a member of the International Federation of Pharma-ceutical Manufacturers and Associations.

Pharmaceutical Research and Manufacturers of America: PhRMA represents the country’s leading research-based pharmaceutical and biotechnology companies, which are devoted to developing medi-cines that allow patients to live longer, healthier, and more productive lives.

Pharmachemical Ireland: PharmaChemical Ireland, formerly known as The Irish Pharmaceutical and Chemical Manufacturers Federation, is committed to furthering the success and growth of the pharmaceu-tical industry in Ireland.

The Conference Board: This board creates and dis-seminates information about management and the marketplace to help businesses strengthen their performance and better serve society. The board conducts research, convenes conferences, forecasts, assesses trends, publishes information and analysis, and brings executives together to learn from one another.

Verband Forschender Arzneimittelhersteller (As-sociation of Research-based Pharmaceutical Com-panies): The trade organization of research-based pharmaceutical companies in Germany, VFA, works to promote therapeutic progress and the develop-ment of high-quality pharmaceuticals that meet society’s needs.

Corporate Political ContributionsElected officials, no matter what level, have an im-pact on public policy issues affecting Lilly. Where permitted by law, we are committed to backing candidates of any party who support public policies that contribute to pharmaceutical innovation and the health needs of patients. We consider a number of factors when determining which candidates to sup-port. For example:

• Has the candidate historically voted or announced positions on issues of importance to Lilly, such as pharmaceutical innovation and health care?

• Has the candidate demonstrated leadership on key committees of importance to our business?

• Does the candidate demonstrate potential for legis-lative leadership?

• Is the candidate dedicated to improving the rela-tionship between business and government?

• Does the candidate represent a state or district where Lilly operates a facility or has a large concen-tration of employees or retirees?

• Would Lilly support have an impact on his or her campaign?

Lilly corporate political donations are made based on a budget for such contributions. This budget is deter-mined annually. Throughout the year, members of the company’s government affairs organization bring forward specific recommendations for company contributions. The chief financial officer and general counsel of the company must approve corporate contributions made in the United States. The gen-eral counsel for international operations approves financial support given outside the United States. In addition, Lilly belongs to and provides support to various trade associations, some of which may sup-port candidates for political office, or contribute to political parties, officials, or committees.

Lilly PACLilly employees in the U.S. may choose to make voluntary contributions to the Eli Lilly and Company Political Action Committee (PAC), an entity funded solely by employee contributions. Lilly PAC dona-tions are made in accordance with a budget, which is determined annually by the Lilly PAC Board. Lilly PAC support is divided equally between federal and state level, and allocated among various candidates according to specific recommendations from the company’s government affairs organization and em-ployee PAC members.

In addition to The Red Book, the following processes are in place to ensure compliance with political con-tribution laws: • Internal processes related to corporate and PAC

political financial support are documented. • The PAC governing board meets semiannually

(employees outside of government affairs compose a majority of the governing board).

• Computer software tracks PAC and corporate political financial support to ensure that we do not exceed contribution limits.

• Internal audit personnel conduct an annual review of corporate political support, and independent public accountants conduct an annual audit of PAC contributions.

• All required disclosures of corporate and PAC political financial support are made to the federal election commission and state election commis-

Public Policy

53

sions, typically on a quarterly basis. All disclosures required outside the United States are also made in accordance with local law.

The company does not refund or reimburse employ-ees who make personal contributions to the PAC, or directly to political parties or candidates. In 2005, Lilly gave a total of $958,057 in political financial support in the United States, of which $312,175 was corporate contributions and $645,882 was contributed through the Lilly PAC. A list of 2005 corporate and PAC contributions is available online at http://www.lilly.com/about/citizenship/pac_061906.pdf.

Lobbying and AdvocacyGovernment actions can have an impact on the avail-ability of medicines to patients and Lilly’s ability to invest in innovation. We maintain a comprehensive government relations operation to monitor and influ-ence the public policy-making process at both the state and federal levels in the United States.

In 2005, Lilly spent $4,444,391 on federal lobbying activities in the United States. This information is reported to the U.S. Congress in accordance with the Lobbying Disclosure Act of 1995.

The following procedures are in place to manage compliance with federal and state laws as they relate to political lobbying:

• A summary of state political contribution laws is supplied to each public affairs manager.

• Public affairs managers must file and document state-required lobbying reports in a timely manner.

• Prior to submitting the semiannual filings required by the Federal Lobby Disclosure Act, the director of federal affairs verifies accuracy of reported lobby-ing activities.

• Lobbyists are required to comply with applicable gift ban requirements as they apply to government representatives.

Through our lobbying activities, we focused on a number of key issues of concern to Lilly and our industry, including importation of pharmaceuticals, intellectual property protection, and access and cost containment measures, described below.

Statements on Key IssuesImportationLilly recognizes that there is growing political and public momentum for legalizing the importation of prescription drugs from Canada and other countries. Lilly opposes importation for three key reasons. 1. Drug importation poses a clear danger to the U.S.

prescription drug supply, and it threatens our abil-ity to develop new medicines.

2. Drug importation has the potential to harm the U.S. economy through the loss of jobs and invest-ment by the research pharmaceutical industry.

3. Importantly, every federal agency responsible for drug safety that has looked at importation has voiced safety concerns. Most Americans who buy drugs from Canadian websites assume that these drugs come from Canada. However, growing evi-dence suggests that drugs are being shipped from other countries, through Canada, into the United States. Canadian health authorities do not regulate medicines transshipped through Canada; thus the safety of these products cannot be ensured.

In an effort to ensure appropriate Canadian domes-tic supply and to address increasing levels of illegal importation of pharmaceuticals from Canada and the patient safety issues caused by importation, Lilly introduced a program to allocate the supply of its products to Canadian wholesalers based on Canadian patient demand. Intellectual Property ProtectionLilly supports strong and effective protection of intel-lectual property rights, including patent protection for pharmaceutical products. The pharmaceutical industry is dependent upon this protection, which grants the inventor of a new product an exclusive, yet limited, period in which to develop and market the product. Without this protection, pharmaceuti-cal research companies would not be able to recoup the approximately $800 million that they invest, on average, to discover and develop each new drug. Lack of strong intellectual property rights would have a chilling effect on the industry’s ability to bring new lifesaving drugs to patients around the world.

Lilly recognizes the importance of international efforts that seek to improve and harmonize intellec-tual property protection throughout the world. We continue to support international trade agreements that facilitate the implementation of effective patent protection for pharmaceutical products in important markets that formerly provided inadequate protec-tion. Lilly also recognizes the significant contribu-

Public Policy

54

tions that U.S. trade laws and the World Trade Organization (WTO) rules have made in the area of intellectual property protection. We support their continued use to encourage developing countries to provide effective patent protection for pharma-ceutical products. Adherence to WTO standards of intellectual property protection stimulates economic growth (through increased investment and retention of local talent) and ensures the availability of innova-tive medicines.

Access and Cost Containment MeasuresLilly produces medicines to meet patients’ health care needs, and we believe that it is critical for pa-tients to have access to our products, which save and improve lives. Access to medicines is a function not only of price but of health care coverage, particularly in the United States. For this reason, Lilly strongly supports adding drug coverage to the U.S. Medicare program as well as finding ways to increase the avail-ability of affordable health insurance for all. In other countries, additional factors—such as government in-terventions that limit or delay the availability of new products, price controls, and a health infrastructure that ensures proper use—play a major role in deter-mining whether new breakthrough medications will be available.

Lilly recognizes the importance of containing ris-ing health care costs triggered by aging populations, increased public expectations of the health care industry, and in some countries, the need to meet budgetary restrictions and/or reduce budget deficits. We believe that innovative pharmaceuticals are part of the solution to—not the cause of—this problem. Governmental efforts to reduce drug access and prescribing are not effective and ultimately hurt patients. Simply put, they shift costs to other com-ponents of the health care system. Pharmaceuticals, when properly integrated with other methods of treatment, lead to lower overall health care costs.

The research-based pharmaceutical industry is uniquely qualified to discover, develop, and make lifesaving innovative medicines available to patients who need them. Measures to artificially control industry growth and drug prices are counterproduc-tive to that effort. Government-mandated restrictions reduce the return on investment needed by pharma-ceutical firms to engage in the costly research and development of new cost-effective products. The

competitive market forces that exist in the pharma-ceutical industry are the best insurance against exces-sive drug prices and a key driver of continued discov-ery and development of innovative drugs that help patients. We believe that integrated, private-sector coverage for drugs is the best way to ensure access by all patients to the miracles of modern medicines.

CounterfeitingIn the past few years, the prescription pharmaceuti-cal counterfeiting business has evolved into a highly sophisticated, global endeavor, encompassing special-ized distribution syndicates that deliver authentic-looking counterfeit tablets, packaging, and labels through both regulated and unregulated channels—including products imported from one country to another through the Internet. Counterfeit drugs are manufactured illegally in unsanitary conditions and might include too little, too much, or no active ingre-dients, or harmful ingredients. All counterfeit drugs pose a public health risk. Lilly remains committed to patient safety, and the company’s global anti-coun-terfeiting efforts are an important component of our concern for public health.

Lilly is intent on being a leader in combating phar-maceutical counterfeiting and has initiated a broad range of actions, including the addition of enhanced anti-counterfeiting technologies for Lilly products and packaging, and changes in our distribution sys-tem. Lilly is also partnering with governments, non-governmental organizations, and trade associations to strengthen, enact, and enforce anti-counterfeiting laws, and to raise awareness. Lilly is aggressively pursuing and litigating against those who manufac-ture and market counterfeit medicines. These steps against the exploitive actions of these counterfeiters are designed to help protect the patients who place their trust in our company and its products.

Value of PharmaceuticalsLilly advocates policies that recognize the value of pharmaceuticals in treating patients and reducing total health care costs. In many instances, pharma-ceuticals eliminate the need for surgery and hospi-talization, slow or reverse the progress of a disease, prevent a disease from developing, and allow people to return to work sooner.

With the U.S., for example, devoting approximately 15 percent of its economy to health care (as mea-sured by gross domestic product), there is increasing pressure to contain growth in these costs. Innovative and cost-effective pharmaceuticals are an important

Public Policy

55

way to help contain overall health care costs. As a re-sult, society benefits as health care solutions become more cost-effective and people live longer, healthier, and more active lives.

At Lilly, we believe that relying on the judgment of health care decision-makers who provide and pay for health care is the way to fully realize the value of pharmaceuticals. Excessive or inappropriate govern-ment regulations, including cost controls, stifle the innovation necessary to bring the next generation of lifesaving drugs to customers. Applying market principles to the health care system can ensure the delivery of high-quality, lower-cost health care by encouraging innovation and efficiency, which ulti-mately benefit patients.

Integrated Approach to Health CareIn keeping with our commitment to provide cus-tomers with effective results and lower costs, Lilly encourages the transition from the current compo-nent-based health care system to a comprehensive in-tegrated health care delivery system. The traditional approach of trying to control costs of each treatment element ignores the fact that limitations on one ele-ment may lead to increased patient morbidity and/or mortality, with a resulting increase in total health care costs.

For example, while a new drug may cost more than an older one, the benefits of the new therapy may far outweigh this increased expense by eliminating other expenses, such as hospitalization. We believe that the best approach to treatment is to consider the whole patient and to use whatever combination of interventions and therapies is most likely to produce optimal clinical and economic results. No element of the health care delivery process can work alone.

Public Policy

56

Five-year Data Set

Company Information

Economic Indicators Unit 2001 2002 2003 2004 2005 04-05%Net sales worldwide U.S.$ million 11,542 11,077 12,580 13,858 14,645 6% U.S. sales U.S.$ million 7,364 6,536 7,176 7,669 7,798 2% Western Europe sales U.S.$ million 1,953 2,155 2,711 3858.4 4184.0 8% Other country sales U.S.$ million 2,225 2,386 2,696 2331.0 2663.2 14%Cost of revenue U.S.$ million 2,160 2,177 2,675 3,224 3,474.20 8%Cash payments of interest on borrowings U.S.$ million 126 55 45 0 32 Cash payments of common stock dividends U.S.$ million 1,207 1,336 1,443 1,540 1,655 7%Retained earnings increase U.S.$ million 1,188 1,089 970 254 302.6 19%Cash payments of income taxes U.S.$ million 320 864 614 487 1,780 266%Product donations U.S.$ million 177 204 222 338 453 34%Cash contributions U.S.$ million 38 27 29 46 58 26%Total contributions U.S.$ million 215 231 251 384 511 Energy Use Unit 2001 2002 2003 2004 2005 04-05%Purchased electricity billion megajoules 5.06 4.99 5.27 6% Purchased electricity/sales m mJ/$m sales 0.40 0.36 0.36 0%Natural gas billion megajoules 4.01 3.65 3.61 -1% Natural gas/sales m mJ/$m sales 0.32 0.26 0.25 -6%Coal billion megajoules 2.33 2.42 2.49 3% Coal/sales m mJ/$m sales 0.19 0.17 0.17 -2%Fuel oil billion megajoules 0.66 0.56 0.79 40% Fuel oil/sales m mJ/$m sales 0.05 0.04 0.05 33%LP/Propane billion megajoules 0.20 0.01 0.02 9% LP/Propane/sales m mJ/$m sales 0.02 0.00 0.00 3%Purchased steam billion megajoules 3.23 3.18 3.22 1% Purchased steam/sales m mJ/$m sales 0.26 0.23 0.22 -4%Purchased Chilled Water billion megajoules 0.47 0.57 0.62 8% Purchased Chilled Water/sales m mJ/$m sales 0.04 0.04 0.04 2%Total energy consumed billion megajoules 15.97 15.39 16.01 4% Total energy consumed/sales m mJ/$m sales 1.27 1.11 1.09 -2% Water Unit 2001 2002 2003 2004 2005 04-05%Manufacturing billions of liters 28.40 36.50 35.24 -3% Normalized million liters/$m sales 2.26 2.63 2.41 -9%Other water consumed billions of liters 6.10 0.47 0.14 -70% Normalized million liters/$m sales 0.48 0.03 0.01 -72%Total water consumed billions of liters 38.90 36.97 35.38 -4% Normalized million liters/$m sales 2.66 2.67 2.42 -9% Hazardous materials purchases Unit 2001 2002 2003 2004 2005 04-05%Hazardous materials purchases (kg/$m sales) 951.00 807.00 593.00 -27% Air Emissions Unit 2001 2002 2003 2004 2005 04-05%CO2 equivalents thousand kg 2,271,194 2,215,425 2,277,588 3% CO2 equivalents/sales thousand kg/$m sales 181 160 156 -3%Ozone depleting substances thousand kg 2.7 5.1 3.8 -25% Ozone depleting substances/sales thousand kg/$m sales 0.0002 0.0004 0.0003 -29%SO2 equivalents thousand kg 4,125 4,271 3,647 -15% SO2 equivalents/sales thousand kg/$m sales 0.33 0.31 0.25 -19% Solvent Emissions Unit 2001 2002 2003 2004 2005 04-05%Solvent emissions percent of use 0.43 0.46 0.40 -13% VOC Emissions Unit 2001 2002 2003 2004 2005 04-05%VOC Emissions 976 913 -6% Waste Unit 2001 2002 2003 2004 2005 04-05%Hazardous waste generated million kg 89.559 108.914 94.163 -14% Hazardous waste generated/sales thousand kg/$m sales 7.12 7.86 6.43 -18%

57

Five-year Data Set

Note: Some environmental data have been restated for prior years due to improvements to data systems and use of new waste categories relevant to the pharmaceutical industry. Environmental data are presented beginning with 2003, the base year for many of our goals.

Waste (continued) Unit 2001 2002 2003 2004 2005 04-05%Non-hazardous waste generated million kg 46.368 57.667 61.031 6% Non-hazardous waste generated/sales thousand kg/$m sales 3.69 4.16 4.17 0%Total waste recycled million kg 9.844 10.296 10.189 -1%Total waste treated million kg 95.239 117.202 101.166 -14%Total waste disposed million kg 21.609 33.805 34.287 1%Total beneficial reuse million kg 9.235 5.278 9.552 81%Total solid waste generated million kg 135.927 166.581 155.194 -7% Total solid waste generated/sales thousand kg/$m sales 10.81 12.02 10.60 -12% Other Beneficial Reuse Unit 2001 2002 2003 2004 2005 04-05%Other Material Generated million kg 123 100 135 35% Other Material Generated/Sales thousand kg/$m sales 9.8 7.2 9.2 28% Contractor Safety Stats for Indiana Sites Unit 2001 2002 2003 2004 2005 04-05%Recordable case rate per 100 employees 1.4 1.4 -1%Lost-time case rate per 100 employees 0.1 0.2 120%Lost workdays per 100 employees 4.7 11.2 139% Environmental Spending Unit 2001 2002 2003 2004 2005 04-05%Expense U.S.$ million 80.27 61.15 -24% Expense percent of revenue 0.58% 0.42% -28%Capital U.S.$ million 34.3 9.7 -72% Capital percent of revenue 0.25% 0.07% -74%Total U.S.$ million 114.57 70.81 -38% Total percent of revenue 0.83% 0.48% -42% Environmental events Unit 2001 2002 2003 2004 2005 04-05%Environmental events number 13 11 3 -73% Toxics Release Inventory Unit 2001 2002 2003 2004 2005 04-05%Air million kg 0.25 0.22 0.14 -37% Air kg/$m US sales 35.4 16.00 9.56 -40%Water million kg 0.15 0.19 0.16 -14% Water kg/$m US sales 21.5 13.45 10.93 -19%Land (on-site disposal) million kg 0.035 0.01 0.01 5% Land (on-site disposal) kg/$m US sales 4.92 0.69 0.68 0%Land (off-site disposal, excluding POTWs) million kg 0.15 0.04 0.06 63% Land (off-site disposal, excluding POTWs) kg/$m US sales 21 2.66 4.10 54%Total million kg 1.23 0.9 0.59 0.45 0.37 -19% Total kg/$m US sales 82.9 32.79 25.26 -23% Serious Injury and Illness Unit 2001 2002 2003 2004 2005 04-05%Lilly USA per 100 employees 1.7 1.7 1.77 1.7 2.1 25%Lilly global per 100 employees 1.6 1.6 1.6 1.6 1.7 4% Serious Ergonomic Injury Rate Unit 2001 2002 2003 2004 2005 04-05%Lilly global per 100 employees 0.80 0.64 0.71 11% Lost-Time Cases Unit 2001 2002 2003 2004 2005 04-05%Lilly USA per 100 employees 0.39 0.43 0.35 0.42 0.42 0%Lilly global per 100 employees 0.53 0.58 0.51 0.57 0.65 14% Lost Workdays Unit 2001 2002 2003 2004 2005 04-05%Lilly USA per 100 employees 3.9 5.7 5.8 6.9 8.03 16%Lilly global per 100 employees 5.6 10.5 9.2 11.9 10.07 -15% Fleet Safety Unit 2001 2002 2003 2004 2005 04-05%Lilly USA collisions per million miles 10.7 9.1 7.49 7.79 7.21 -7%Pharmaceutical industry benchmark collisions per million miles 9.2 8.73 8.34 8.06 7.61 -6%

58

Business • Fortune Magazine 500 Largest U.S. Corporations:

Lilly climbed to 152nd in 2005 based on revenues. • America’s Most Admired Companies: In 2005,

Lilly ranked second among the top 10 leading U.S. pharmaceutical companies in this Fortune magazine survey of corporate reputation.

• Fortune Global Most Admired Companies: Lilly ranked third in the pharmaceutical category in 2005.

• Science Magazine Best Companies for Scientists: Lilly made this list for the fourth consecutive year in 2005, ranking second in the top 20 and seventh among biotech and pharmaceutical companies.

People, Work/Life, Diversity • Fortune magazine 100 Best Companies to Work For:

Lilly appeared on this list for the seventh consecu-tive year in 2005.

• Working Mother Best Companies to Work For: For the 11th consecutive year, Lilly has been recognized as one of the best companies for working moth-ers in 2005. Lilly has appeared in the top 10 seven times.

• Lilly Belgium was among the four companies hon-ored in 2005 with the “Gender Equality Award.”

• Out of 150 companies, Lilly Spain ranked third overall and top pharmaceutical company as a “Great Place to Work.” Lilly Spain also was named among the 100 best companies to work for in Europe for the past three years.

• Lilly Italy was recognized within the “30 Best Places to Work.” within the top 10 of “Best Employers in Italy,” and within the “100 Best Workplaces in Eu-rope 2005.”

• Lilly Mexico was honored for the fourth consecu-tive year as “One of the Best Companies to Work for in Mexico.”

• Lilly Brazil was recognized within the “150 Best Companies to Work for in Brazil,” “Best Company for Women to Work for in Brazil,” and “100 Best Companies to Work for Latin America.”

• Lilly Germany was recognized as “Top 10 of the 100 Best Employers in Europe.”

• Lilly UK was named “Employer of Choice” for the second consecutive year, earned the Mother@Work “Best Work-Life Balance” award, and was honored with the “Employer of the Year” Award.

• Lilly Poland was nominated as “Solid Employer of 2005.”

Awards and Recognitions

• Lilly Netherlands ranked second of the “49 Best Companies to Work For.”

• Lilly Finland ranked fourth for “Best Workplaces 2005.”

• Lilly South Africa recognized in the “Top 5 Best Companies to Work For in South Africa” and the “Best Pharmaceutical Company in South Africa.”

EnvironmentGovernor’s Award for Environmental Excellence. The Lilly ARBOR Project, funded and supported by the Lilly Foundation and volunteer efforts, and managed by the IUPUI Center for Earth and Environmental Science, won this award in fall 2002. Lilly won this honor again in 2005, for the Mossy Point Nature Pre-serve in Parke County, a cooperative effort involving Lilly at Clinton.

Corporate Citizenship • BusinessWeek magazine Most Philanthropic Com-

panies: For 2003, Lilly was ranked first for in-kind donations and fifth for overall giving (first among pharmaceutical companies).

• Lilly Mexico has been recognized by Mundo Ejecu-tivo, or Executive World, Mexico’s most prestigious business magazine, as one of the country’s top 100 companies to model corporate social responsibility.

Company Information

59

Lilly is a leading innovation-driven pharmaceutical corporation committed to developing a growing portfolio of best-in-class pharmaceutical products that help people live longer, healthier, and more active lives. We have a long history of meaningful medical innovation, most notably in the treatment of infections, diabetes, and depression.

The timeline below illustrates some significant events in the history of our development as a responsible public corporation. Visit the “About Lilly” web pages on www.Lilly.com for additional information on our corporate history and significant medical breakthroughs at Lilly.

1876 Colonel Eli Lilly opens his new drug manufacturing company.

1881 The company is incorporated, and the first shares of stock are issued.

1882 J.K. Lilly Sr. is named superintendent of the research laboratories.

1884 Lilly sends its first overseas shipment of product to London.

1886 The scientific division is established; the company’s first chemist, Ernest Eberhardt, is hired.

1898 Colonel Lilly dies; J.K. Lilly Sr. takes over the business.

1900 The “Red Lilly” is adopted as the company’s logo and trademark.

1905 Sales reach $1 million.

1906 A tradition of philanthropy begins with disaster relief after the San Francisco earthquake.

1907 Eli Lilly, elder son of J.K. Sr., joins the company after graduating from Philadelphia College of Pharmacy.

1914 Eli’s brother, J.K. Jr., joins the company after graduating with a pharmacy degree from University of Michigan.

1914 The Greenfield biological facility opens to produce vaccines and antitoxins.

1916 J.K. Lilly Jr. issues his report on employment to ensure fair, equitable treatment for all employees.

1918 John G.W. King goes to China and serves as the first sales representative abroad.

1919 Dr. G.H.A. Clowes is hired as director of the scientific division.

1923 Iletin®, the first commercial insulin product, is launched.

1926 The Lilly Laboratory for Clinical Research is opened to oversee clinical trials.

1928 Lilly works with Harvard Medical School to produce the first treatment for pernicious anemia.

1928 A sales office is opened in Shanghai, China.

1932 J.K. Lilly Sr. retires; Eli Lilly becomes president.

1934 The first non-U.S. affiliate office is established in London.

1937 Lilly Endowment, Inc., the family trust fund, is founded.

1939 Lilly’s first manufacturing plant outside the United States is opened at Basingstoke, England.

1941 Lilly supplies blood plasma to the armed forces at no profit to the company.

1943 The company’s first penicillin product is produced for use by the armed forces.

1944 Mass production of penicillin begins.

1948 J.K. Lilly Sr. dies; Eli Lilly becomes chairman of the board, and J.K. Lilly Jr. is named president.

1953 J.K. Lilly Jr. retires; Eugene N. Beesley is named president of the company—the first president from outside the Lilly family.

1954 Tippecanoe Laboratories manufacturing plant opens near Lafayette, Indiana.

1954 Agricultural research officially begins at Greenfield Laboratories.

1955 Lilly manufactures its first commercial shipment of the Salk polio vaccine.

1955 Lilly stock becomes publicly traded.

1957 Darvon®, a new painkiller, is introduced.

Our History

Company Information

60

Our History

1960 Elanco Products Company is established to market agricultural and animal health products.

1963 A new herbicide, Treflan®, is launched; it becomes the company’s top-selling product from 1973 to 1982.

1964 Keflin®, the first cephalosporin antibiotic, is introduced.

1965 Lilly opens Erl Wood, its first research facility outside the United States.

1970 Lilly stock is listed for the first time on the New York Stock Exchange.

1974 Sales reach $1 billion.

1976 The company celebrates its 100-year anniversary.

1977 Eli Lilly, grandson of the founder, dies.

1979 Ceclor® is launched; it eventually becomes the world’s top-selling oral antibiotic.

1982 Humulin®, Lilly’s human insulin, is launched. It is the world’s first pharmaceutical product produced through recombinant DNA technology.

1982 Oraflex®, a treatment for arthritis, is withdrawn from the market after deaths in elderly patients are reported.

1986 Prozac®, the first of a revolutionary new class of antidepressant drugs, is launched in Belgium; the U.S. launch follows in 1988.

1989 Lilly and The Dow Chemical Company form DowElanco, a joint venture for agricultural chemicals. Lilly sells its share of the company in 1997.

1989 Elanco Products Company is renamed Elanco Animal Health.

1990 The Church of Scientology attacks the safety and efficacy of Prozac. Charges are later proven unfounded.

1991 Lorabid®, first in a new class of oral antibiotics, is approved for marketing.

1993 Lilly CEO Vaughn D. Bryson resigns amid controversy over issues surrounding the company’s strategic direction; Bryson is succeeded by former AT&T President Randall L. Tobias.

1994 The company announces its intent to divest from its medical devices and diagnostics businesses to better focus on its core pharmaceutical business.

1994 Lilly announces a definitive agreement with Sphinx Pharmaceuticals Corporation for the acquisition of Sphinx in Durham, North Carolina, U.S. The facility is later renamed Lilly Research Triangle Park Laboratories. In 2005, Lilly closes this facility and relocates the operations to its Indianapolis facility.

1994 Lilly acquires PCS Health Systems, Inc., the largest managed-pharmaceutical-care company in the United States. Lilly sells the company to Rite Aid Corporation in 1998.

1995 A joint venture is formed in China to invest up to $28 million to build a pharmaceutical manufacturing plant in Suzhou.

1995 Lilly launches an Internet site, www.lilly.com.

1996 Humalog®, an insulin analog designed to mimic the body’s natural rapid insulin output in response to eating a meal, is launched in the United States and Europe.

1996 Gemzar® is launched in the United States for the treatment of locally advanced or metastatic pancreatic cancer.

1996 Zyprexa® is introduced in the United States for the treatment of schizophrenia; it is eventually approved to treat bipolar disorder.

1997 Pulmotil®, a new treatment for respiratory disease in pigs and chickens, is approved by the U.S. Food and Drug Administration (FDA).

1997 The company receives approval to market Evista®, first in a class of new drugs called selective estrogen receptor modulators, for the prevention of osteoporosis in postmenopausal women. Marketing begins in early 1998.

1998 Lilly CEO Randall Tobias announces his intention to retire at the end of 1998; Tobias is succeeded by Sidney Taurel, who becomes CEO and chairman of the board.

1999 Actos®, a new oral treatment for type 2 diabetes developed by Takeda America Research and Development Center, Inc., is approved for marketing in the United States.

61

Our History

2000 Zyprexa reaches a prescribing milestone by having been prescribed to 5 million consumers in 84 countries worldwide since its market entry four years earlier, surpassing Prozac to become Lilly’s leading product.

2000 Paylean®, a new technology to enhance leanness and improve growth, is introduced for pigs.

2001 Lilly loses U.S. market exclusivity for Prozac.

2001 The company launches its first separate e-business venture, InnoCentive LLC, a wholly-owned enterprise that will use the power of the Internet to create and enhance open-source scientific research and development.

2001 Xigris®, a breakthrough biotech therapy discovered and developed by Lilly, is approved for the reduction of mortality in adult patients with severe sepsis who have a high risk of death.

2002 Lilly announces LillyAnswers®, a prescription drug program for seniors.

2002 Cialis®, a medication to treat male erectile dysfunction, is approved for marketing in the European Union; the U.S. launch follows in 2004.

2002 Strattera®, a nonstimulant, noncontrolled medication to treat attention deficit hyperactivity disorder, is approved.

2002 Forteo®, a first-in-class medicine for osteoporosis patients to stimulate new bone formation, is approved; Lilly USA begins promoting Forteo in December.

2003 Optaflexx® is approved by the U.S. FDA to be fed to beef cattle to increase red meat yield.

2004 Symbyax™, the first and only FDA-approved medication to treat bipolar depression, is launched in the United States.

2004 Alimta® is approved for use with cisplatin, a standard chemotherapy agent, for the treatment of malignant pleural mesothelioma.

2004 Lilly acquires Applied Molecular Evolution, Inc. (AME), headquartered in San Diego, California, U.S.

2004 Lilly launches publicly available, online clinical trial registry at www.lillytrials.com.

2004 Elector®, the first new insecticide class in more than 20 years for control of flies and lice on cattle, is launched.

2004 Cymbalta®, a medication to treat the emotional and physical symptoms of depression, is approved for use in the U.S. in 2004.

2005 Cymbalta®, a medication to treat the emotional and physical symptoms of depression, is approved for use by the European Commission and is launched in the United Kingdom.

2005 Strattera® is approved in Canada as the country’s first nonstimulant treatment for attention-deficit hyperactivity disorder and is later launched in Germany, the Netherlands, and Norway.

2005 Byetta™ (exenatide) is approved for sale and launched in the U.S. to help patients with type 2 diabetes improve their blood sugar control while reducing the risk of hypoglycemia and weight gain. The drug is later approved in Argentina.

2005 Lilly announces it will stop making four different formulations of insulin products, including the last two remaining animal-sourced insulins approved for human use in the United States and Canada.

2005 An agreement in principle is announced to settle the majority of claims made in U.S. Zyprexa® product liability litigation.

62

This report is an important tool for communicating our corporate citizenship performance and progress. Your feedback will help us to improve it in the future. Please take our on-line survey at www.lilly.com/about/citizenship or send comments to:

Eli Lilly and Company Lilly Corporate Center Indianapolis, Indiana 46268 Attn: Social Responsibility Manager DC 1627

Your Feedback

© September 2006, Eli Lilly and Company. All rights reserved.

eli lilly and company corporate citizenship report 2005… · 3 welcome to eli lilly and...

Documents