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Eli Lilly & Company:
A Perspective on an Indiana Giant
An Honors Thesis (ID 499)
by
Kristin Willard
Dr. Grant J. Wells
Professor of Finance
Ball State University
Muncie, Indiana
May 15, 1987
Expected date of graduation (Spring, 1987)
1
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TABLE OF CONTENTS
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
Introduction
Pharmacological Evolution
Lilly Presidents and Their Contributions
A. Eli Lilly, Founder
B.
Josiah K. Lilly, Sr.
C. Eli Lilly
D.
Josiah K. Lilly, Jr.
E. Eugene N. Beesley
F. Burton E. Beck
G.
Thomas Lake
H. Richard Wood
Revolutionary Breakthroughs
Strategic Acquisitions
Financial Analysis
Footnotes
BIBLIOGRAPHY
2
INTRODUCTION
Rooted
respected
deep
in
company
the
of
history of
Eli
legends
is
the
Eli
Lilly
and
from its
local
activities
Lilly.
spans
Indiana
contribution
to
society
Indianapolis
to
the far corners of the world.
It is
Company's
a
in
major
manufacturer and marketer of ethical drugs, or prescription drugs
that
the
consumers
through
only
history
of the industry,
the
medical
This study
agricultural products; and cosmetics.
practitioners;
details
to
available
are
company's
and
its
presidents' background, and a financial analysis.
PHARMACOLOGICAL EVOLUTION
health and longevity have been
Since the beginning of time,
among the greatest ambitions of men and women.
progress
in
history.
world"
corporeal
It
of
prosperity
East
the
Likewise,
the
quest
as
the
course
prompted Christopher Columbus to brave
Atlantic in order
seeking a crosscut to the East,
the
has altered
Anticipation for
to
discover
the
"flat
America.
When
Columbus' era used the spices of
medicinal herbs rather than seasonings
for
food.
the dream of eternal pleasure sent Ponce de Leon
swamps of Florida in search of the fountain of
into
youth.
The
for healthfulness has led the dignified and courageous
risk their fortunes and,
of
at times,
to
their lives in jungles, high
1
seas, and laboratories.
Though
new
successes in the industry are discovered
day, the drug trade is very old.
The word "chemistry"
3
every
is derived
from
"the land of Kahmi
the ancient name of Egypt,
or
Chemi."
Furthermore, the Rx insignia on today's prescriptions is a prayer
to
the Egyptian god of healing.
Horus,
"drugs"
The origin of the word
can be traced back to the priest-physicians
of
ancient
2
Persia who used herbs to combat disease demons or "drogues."
Among
the
remedies
the ancients
and the blood of bats.
crocodile dung,
they
of
were
lizard
flesh,
It was inevitable
should chance upon a handful of beneficial
they experimented with everything imaginable.
that
substances,
as
Cinchona bark and
coca leaves, the source of quinine and cocaine, respectively, and
the
opium-yielding
poppy are a few notable discoveries
by
the
:3
ancients.
With
ancient
almost
Greece
entirely medicinal herbs,
and
Rome prepared
their
the
own
physicians
drugs.
of
Besides
employment as medicine, herbs were also used for food, cosmetics,
perfumes, and dyes.
This established connection of pharmacy with
4
these fields continues today.
The
concept
of
the apothecary was spread
Mediterranean by the Arabs.
the
first
Coreisch
throughout
the
At the command of Caliph of Bagdad,
apothecary shop known to history was
Isa el Szandalani about A.D.
754.
opened
by
Abu
The Arabs assigned
numerals and words like "alkali," "alembic," and "alcohol" to the
science
of
alchemists,
crystallized
their
they
day.
Using
filtered,
raw drugs.
techniques
distilled,
With the passing of
derived
by
their
evaporated,
time,
and
apothecary
5
shops spread through Europe and then into Colonial America.
While disease has not been entirely eliminated,
4
man in
the
second
to
half of the twentieth century is closer than ever
attaining
life
his desires for physical well-being
which were all developed in Germany,
However,
barbitone.
discoveries
6
pharmaceutical industry.
In
1910,
Paul
namely; aspirin, phenacetin
the 40-year period from 1900 to
major
three
held
Ehrlich
that
discovered
a
major
supposition
milestone in medicine,
that
disease in man.
an
arsenic
antibacte~ial
of
sulfonamide
compound,
substantiated
an
the
infectious
Gerhard Domagk, in 1935, characterized the
properties of sulphonamido-chrysoidin, the first of
the sulfa drugs.
treatment
for it
the
This development
a man-made compound could cure
Dr.
1940
revolutionized
arsphenamine, which cured syphilis effectively.
was
extended
By 1900 there were only three known synthetic drugs
span.
and
and
before
This breakthrough heralded the first effective
bacterial
infections and launched
drugs in the industry.
Finally,
the
race
the discovery
for
of
penicillin in 1929 credited Sir Alexander Fleming with the first
7
known antibiotic.
While significant advances have occurred
in
the
d~ug
industry,
these
discoveries
paved
the
way
for
continued success in pharmaceuticals.
1ILLY PRESIDENTS AND THEIR CONTRIBUTIONS
ELI LILLY L FOUNDER
On the morning of May 10,
a
1876, Eli Lilly walked briskly to
small downtown Indianapolis side street known as Pearl Street.
Here he turned a big key in the double doors and opened the doors
to
the
future of Eli Lilly and Company.
5
Having served
as
an
apprentice in an apothecary shop called "The Good Samaritan
Store,"
Eli
Lilly
had
he
Indeed,
manner.
learned his business
had
had
than
his
a
creditable
own
share
of
As a Yankee officer in the Civil War, Eli Lilly was
afflictions.
His wife of six years died in 1866,
taken as a prisoner of war.
leaving
more
in
Drug
him with a five-year-old son to
Unfortunately,
raise.
his dreams of earning a living as a cotton planter in Mississippi
crumbled
that
same
as
year,
he
had
gone
bankrupt.
After
Eli Lilly entered two more busjnesses in
returning north,
which
At the
he failed to achieve satisfactory success in either one.
rather mature age of 38,
with
coupled
the
Eli Lilly's sorrows and disappointments
experience
gained
over
the
years
likely
8
bolstered the determination to make this venture permanent.
With total capital of $1,400, $1,000 in negotiable notes and
$400
in finished merchandise,
would
eventual
in
red brick building with only two employees.
two-story,
later
Eli Lilly began business
The
assistants.
A month
show the addition of his then 14-year-old
Josiah
successor,
young
Kirby
company
Lilly,
to
meticulously
his
his
son
and
staff
developed
of
such
exotically named fluid extracts as Bear's Foot,
Cramp Bark, Life
Root,
months
9
month.
As
Squaw
Vine,
and
Wormseed.
operations, sales averaged
December,
less than
Eli Lilly
and
$1,000 a
more than
10
employees and annual sales of well over $3,100,000,000.
As
1986,
In the first 18
early
revolutionary
company
use
and
as 1879,
process
Company had
Colonel Lilly developed and
for
coating
pills
with
began selling
6
them
applied
gelatin.
to
of
29,200
later began to manufacture gelatin capsules for its
from 1898 onward,
of
others.
a
The
own
11
A radical
departure
from
conventional practice
of
the
late
nineteenth century, the distribution of drug products exclusively
through
wholesalers
Colonel Lilly.
pricing,
he
discounts.
became
a
company
policy
established
In order to create a degree of stability in drug
announced
there
Therefore,
the
would be no variations
Incorporated
in
1881,
goods
in
manufactured
12
available to all wholesalers at an equal discount.
he
the business was
corporation with 800 shares of stock issued,
With
his
by
gradually expanding business,
Lilly
would
recognized
be
as
a
worth $50 a piece.
the Colonel
moved
his
laboratories to a former chair factory on McCarty Street in 1881.
The following
the company began putting a facsimile of the
yea~,
Colonel's smooth signature on its business cards.
This practice
continued when in 1900, the signature was printed on the packages
containing
Lilly
products.
In that same year,
Eli Lilly
"If It Bears a Red
13
Right" in its promotional endeavors.
Company
Having
been raised in a religious atmosphere,
attended church and following the service,
stopping
city
to
therapeutic value.
pluck
herbs
that
the
It's
Colonel
would ride around the
he
knew
or
hoped
had
However, in the eighteen-nineties Colonel Eli
grew less interested in the business.
he
Lilly
began using the slogan,
and
As the company
began to focus his attention on civic works and the
and social development of Indianapolis.
p~ospered,
economic
He donated a children's
hospital to the city and was a chairman of a committee to provide
relief to the poor during the financial panic of 1893. On June 6,
1898,
Colonel
Eli,
the founder of an Indiana legend,
7
died
of
14
cancer.
JOSIAH
~
LILLY, SR.
Perhaps
more instrumental than his forebear in shaping
destiny of the firm,
Lilly, Sr., succeeded his father
Josiah K.
as president in 1898.
the
He entered the business as superintendent
of the laboratories upon graduating from the Philadelphia College
of
Pharmacy in 1882.
In that same year,
he married his second
Lilly
Ridgely,
who became the only Lilly Lilly in
15
history of the company.
cousin,
the
Possessing experience and knowledge of the l)roduction end of
the business and other aspects as well,
J
.K.,
Sr. ,
focused his
16
efforts on sales,
wholesalers,
finances,
and expansion.
His
results:
sales were increased by $100,000 in the year following
17
the Colonel's death.
He recognized the importance of employment of new
personnel in order that the business might
continue
to grow.
Under
operations
the
leadership of J.K.,
subsequently expanded.
Sr. ,
sale~:
increased
and
"A couple of years after
became president he told his two young sons,
he
shooting as it were
'Someday,
the moon,
boys,
we're going to sell a million a
18
year. ,II
The company attained this milestone in 1905,
perhaps
for
sooner than J.K.,
have
Sr. ,
reached the million-dollar mark.
and Company required the
in
had dreamed, when sales were reported to
1900;
opening of branch offices
Dallas in 1901,
years
later;
North
Plant
and
The growth of Eli
which was
moved to Sew
the New York Branch in
1902.
was constructed in 1902 and 1903 and
8
Lilly
at St. Louis
Orleans two
Indianapolis'
consisted
of
a power plant, a warehouse, and a building for
three buildings:
a milling
stallation
addition
into
Accompanying this
department.
of a new
expansion was the inThis
175 horsepower Atlas Corliss engine.
to the production department was the first introduction
the
19
plant
of
electric energy
for
the
transmission
of
power.
Starting in 1911-1912,
plans
for
the
future
President Lilly began
growth of
the
contemplating
company.
He
advocated
increasing the range of products in order to provide distributors
with
a
full service line.
In addition,
he
appealed
to
the
stockholders that responsibilities in all aspects of the business
be
delegated to individuals who would be capable of
the
shouldering
necessary tasks when older executives were no longer able to
function
accordingly.
An important development of this
was the construction of the biological plant in 1912.
period
Under the
guidance of Professor Severance Burrage of Purdue University, the
project
was
established on 156 acres of ground
purchased
on
Indiana.
Today,
Elanco's
~esearch
With
workers
the
were
established
open,
the
Old
Road
outside
of
had
been
Greenfield,
many Lilly lifesaving biologicals and much
20
is carried on at the Greenfield plant.
Great
laid
that
National
that
Depression of
off
as
their
the
jobs.
1930s,
many
However,
long as the company could keep
no one would be discharged.
of
American
J .K.,
Sr. ,
its
doors
While a new research building
was under construction, employees painted fences, washed windows,
and
were responsible for general maintenance and
Lilly, Sr.
J
found work for everyone.
9
upkeep.
J.K.
He had fences painted three
or four times,
21
boredom.
When
varying the colors with each new coat to
prevent
1933,
Lilly's
the country's banks closed on March 6,
traveling salesmen were spared the agony of suspended operations.
The company's management had built up a cash and security reserve
Likewise,
in the event of such an occurrence.
wholesalers were
Eli
extended credit for the purchase of pharmaceuticals.
Lilly
and
Company's ability to weather the storm and to continue
22
operations is both unusual and commendable.
with
In addition to his keen business sense, J.K. Lilly, Sr., was
an
admirerer
amassed
ever
of composer Stephen Collins
Foster.
the most comprehensive collection of Foster
assembled.
invaluable
His
in
memorabilia
was
moved
that
23
should be permanently housed in the city of Foster's birth.
Pittsburgh,
Pennsylvania,
collection
Sr. ,
J.K. ,
1937 after he concluded
Retiring as president in 1932,
up
to chairman of the board.
infection
that
penicillin
was
medication
by doctors.
diagnosed
Josiah K.
In 1943,
was hermetic to any
still
in crude form,
he was
serious
drug.
Although
administered
The penicillin cured him,
with cancer four years later.
it
Lilly, Sr., moved
he developed a
available
to
but
the
he
was
Having influenced
the
course of Lilly history in an incalculable way, Josiah K.
24
Sr., died on February 8, 1948, at the age of 86.
Lilly,
ELI LILLY
Following
Lilly,
in the footsteps of his father,
J
.K.,
Sr. ,
the founder's namesake, became president in 1932.
He had
graduated from the Philadelphia College of Pharmacy in 1909,
10
Eli
and
that
same
year obtained the position as superintendent of
25
His performance in this capacity credits
laboratories.
with having introduced modern industrial practices
blueprinting of manufacturing formulas
straight-line
production
and the
methods after having
the
him
including the
installation
visited
a
of
Ford
26
assembly
Mr. Eli personally supervised the design
plant.
production
lines
in
order that there
might
be
a
of
constantly
regulated flow from the arrival of raw materials to the departure
27
of
finished
While
drug
products.
instrumental
therapy,
Mr.
suppository-making
his
in bringing about events
Eli was himself a creator.
carrying case.
a
Mr.
Mr.
yell.
1:0
as
Eli
so
Rushing
to the spot they found a
they
heavy
woman
After rescuing the damsel
aid,
grabbed an ax and rancorously chopped a larger hole
that
a
spot flaws and
distress and seeing that she was attended to with first
the floor.
it
Eli mainly served
the old one with a sample-room stock clerk when
employee had fallen through the floor.
in
of
Before the construction of a new building, he was
correct them.
inspecting
patents
a
a hypodermic syringe and an
alert watchdog, constantly searching
restless,
heard
However,
to
He developed
machine and was also granted two
own for the following devices:
insulin
important
The hole was so great that a fence was built
the company's employees might not vanish
in
around
into
the
28
chasm.
Established by Eli Lilly in 1937, the Lilly Endowment became
one
of
the major philanthropic organizations
in
the
country.
Possessing an affinity and proficiency for historic publications,
Mr. Eli wrote and published Antiquities of Indiana.
11
In addition,
he
became
restored
interested
the
Conner
historic
Prairie
Farm
landmarks
in
and
bought
and
Indiana.
Noblesville,
This
he conferred the landmark to Earlham College.
ULtima tel;l,
was
donation
in
just
a
drop
in
the
bucket
of
his
personal
Owing to his insistence on anonymity, the source
29
of many contributions was never revealed by their recipients.
philanthropies.
Mr.
Since
Eli
philanthropies,
a
most
acknowledgment
public
shunned
uncomfortable moment came when
Governor
30
proclaimed April 1 as "Mr. Eli Lilly Day."
eight-fourth
As
birthday
of
in
Edgar
1969,
the seventh Lilly to join the
firm,
his
on
D.
his
Whitcom
Lilly,
J.K.
Jr. ,
Eli's younger brother, began working for the company in 1914 upon
graduating
from
pharmacy.
the
University of Michigan with
Jr. ,
J. K. ,
Efficiency
Division
Production
Division;
was
in 1914;
responsible
for
a
organizing
the planning department
Jr. ,
31
Company.
service
and the Sales Research Division which
was
succeeded
commission
artillery.
during
was
in
the
the
In
1948,
his brother as president of Eli Lilly and
Wishing to emulate his grandfather,
the
in
for
later supplemented with a Salesmen's Training School.
J.K. ,
degree
World War
the
I.
J
Much
.K.,
to
Sanitary Corps rather
Jr., enlisted in
his
than
He spent eighteen months overseas and,
dismay,
the
his
field
in due time,
had 311 men and $8 million in medical supplies under his command.
At the age of 25,
April 1,
1919,
J
.K.,
Jr., received an honorable discharge on
and attained the rank,
12
at his mustering out, of
32
major the following day.
An
unflaggin
accumulated
valued
for
forty
Josiah,
years,
1956,
he
presented his collection of
at more than $5 million and including some
Jr. ,
stamps
an incredible collection of rare books,
In
coins.
collector
rare
and
books,
20,000
first
editions such as Ben Hur, Peter Pan and works of Edgar Allen Poe,
to
Indiana
instantly
Josiah
University.
The
Eli
Lilly
Library
at
Indiana
became one of the premier repositories of rare
books.
some
dating
also
had a collection of 6,127 gold coins,
from the early Mesopotamian empires,
which is now housed at
D.C.
Smithsonian Institution in Washington,
the presidency in 1953,
the
Stepping down from
Josiah spent his later years reading the
At the time of his death in 1966,
33
Encyclopaedia Britannica.
he
had reached the letter "G."
EUGENE
~
BEESLEY
Though
Eugene
was
N.
not
a
full-time employee of the company for
years,
Beesley was the first person to become president
a
member of the Lilly family.
Beesley
was
representative for the company around the Cleveland,
during
24
the Depression.
a
who
sales
Ohio,
area
His personal goal was to make at
least
per day,
and he never failed in attaining this
34
established quota.
self-
one
sale
At Beesley's ascension in 1953,
the
company
early
days.
the fundamental aspects
remained unchanged from what they had been
the
Colonel Eli's philosophy and practice continued to
provide a foundation for the company's operation:
ethical
in
of
to manufacture
drugs of the highest attainable quality and to
13
maintain
Nevertheless,
the best possible relationship with its employees.
net
net profit was maintaining
sales were increasing yearly;
growth
steady
and
rate;
the
number
of
employees
became
The
McCarty
increasingly larger with the passing of each year.
Street
headquarters
extensive
manufacturing
the
Avenue;
was
now
comprised
facilities
of
were
a
thirty
located
buildings;
on
Kentucky
first buildings of the Tippecanoe Laboratories
had
been built; and additional manufacturing plants in Great Britain,
35
Brazil, and Argentina supplemented the company's operations.
Beesley
he
command,
working
excellent
were
informed
in
other
training
Paris
Beesley
his
countries
of
his
executives
besides
the
that
United
The year following his
made a tour of Europe,
through Switzerland,
result
junior
trip,
Germany,
Beesley
Spain,
concluded
his
experience
States
and would be a plus quality when
being considered.
president,
At the onset of
internationally minded.
was
was
promotions
appointment
as
traveling south from
and Italy.
that
there
As
a
was
a
36
considerable untapped potential for Lilly in the European area.
In
Lilly acquired the biochemicals division of
1963,
Company
Limited located in England.
Distiller
Though principally engaged
in producing whiskey and gin,
the company had experience in
manufacture
With
of
penicillin.
a fermentation
capacity
500,000 gallons, Distillers proved very enticing to Lilly.
the
purchase
of
one
of
Eli
subsidiaries,
Lilly
Dista Products Limited,
37
term as president.
and
the
Company's
of
Thus,
major
was made during Beesley's
Not only was Beesley president of Eli Lilly and Company, but
14
he
was
also
chairman
the
Manufacturers
Pharmaceutical
The Thorntown, Indiana, farm boy proved to
Association (P.M.A.).
be
of
a well-respected and eloquent spokesman for the
On December 4,
industry.
1961,
entire
drug
Beesley was summoned to assist
the Kennedy Administration during an international crisis.
Fidel
Castro had informed the United States that the 1,113 prisoners of
war
he had been holding since the Bay of Pigs incident could
released if the following demand was
three
million
Havana.
met by Christmas:
worth of drugs
dollars'
must
be
be
twenty-
delivered
to
As chairman of the P.M.A., Beesley and his board pledged
to meet the deadline,
if at all possible.
Each company was
to
provide a share of the total roughly proportional to its share of
the pharmaceutical market.
The operation proved successful, with
38
Lilly's contribution approximating $2,342,797 worth of drugs.
With
the
courage
Beesley approved
field
trial,
inherently
the production of Salk's
another
consequential
to make an
risky
decision,
for
a
landmark development that proved to be
a
lifesaving action.
polio vaccine
The slow,
laborious task
of
processing raw virus shipped from Toronto and testing vaccine
in
preparation for the field trail was pursued with safety
implemented
companies
for
were
the
benefit of the
workers.
standard
Although
in the process of developing a safe
and
other
stable
polio vaccine, Lilly had got a head start due to the work of some
of its scientists.
When it was generally made
available,
more
than half of all the Salk vaccine eventually used was accompanied
by
the ever-reputable Lilly label.
profitable
1955,
for
Beesley's initiative proved
the company as sales rose from $141
million
in
to $181 million in the following year, and to $199 million
15
39
the year after that.
BURTON h
BECK
Burton E.
As Beesley's successor,
Beck found his roots
and they were both assigned
III was a fraternity brother of his,
to
a
company
training
Lilly
J.K.
Lilly after his graduation from Cornell University.
in
program.
Beck's
progression
up
the
corporate ladder was,
however, markedly different from his peer.
In
chosen
1959,
Beck
president.
His
was
task
exporter
of
products
products
in
a country.
as
the
new
Lilly
International
involved changing International
to
a country to a maker
Indeed,
Beck was
and
from
an
seller
of
successful,
as
he
revitalized
the headquarters' management group and improved
40
decision-making pipeline to distant outposts.
With
a long-standing interest in cattle
desire to get into cattle ranching,
and,
in
the
fact,
a
Beck was a firm supporter of
George Varnes, Elanco Products Company's first president.
Elanco
marketed
a
concept
agricultural
to
and
animal products,
Eli Lilly and Company.
which
was
"Beck reflected
new
afterward.
'For three-quarters of a century, Lilly had construed its mission
to
be to do things that related exclusively to the effects
biologicals and chemicals had on human beings.
our
thinking
every
Now, we broadened
and began to perceive our mission as
kind of life,
that
relating
which of course included animal
and
to
plant
41
life as
expertise
Hell as
human.'"
Beck's
open-minded
attitude
and
were essential to the continued growth of the company.
Nevertheless,
in 1972,
Beck took early retirement at the age of
54 after only serving as president for a year and a half.
16
Though
his
action
astounded
many people,
Beck
evidently
preferred
42
quarter horses to quarterly reports.
THOMAS LAKE
While
greatly
Beck
improved
solidified
and
Lilly
International, he had also opened the opportunity for Thomas Lake
to move upward through the executive ranks and become a president
Lake lived in Puerto Rico, Portugal, and
of Lilly International.
Likewise,
England.
parents
had
his
background was international,
come to the United States
from
coal
miner
England.
With
a
Lake's father worked as
family to support during the Depression,
a
for his
Lake's
in western Pennsylvania.
mother
was
a
and she made all his shirts by hand until he went to
seamstress,
43
the Temple University College of Pharmacy on a scholarship.
During
employment at a pharmacy in Philadelphia,
encountered
Furthermore,
a
Lake
Lilly salesman and was very impressed
he
had
with
observed that the only salesman who
easily obtain entry into one Army hospital where he was
during the war was from Lilly.
salesman
years
Hence,
and took a position in Cleveland in 1915.
his
talent
and
energy
merchandising for Lilly International.
Puerto
Rico
proficienoy
in
sales
could
assigned
Within four
headquarters
promotion
to
and
In 1951, Lake was sent to
where he had studied Spanish
when
him.
Lake opted to be a Lilly
he had been summoned to the Indianapolis
utilize
had
and
he was transferred to Lisbon,
44
gained
where
adequate
he
then
learned Portuguese.
Lake
1976.
served as Eli Lilly and Company's president from 1973-
A distinguished honor for both Lake and, Rubsequently, the
17
company
took
place
when
he dedicated a
Lilly
plant
at
Spain, in 1974, and the Spanish government decorated
Alcobendas,
him with its Grand Cross of Health.
that
new
This was only the third time
the medal had been presented to a non-Spanish
person,
45
the other two recipients had both been Nobel laureates.
and
RICHARD WOOD
Without
presented
in
a
everyone
Bachelor
engineering
the
of
Richard
introduction,
Nobody had even conceived that Wood might
else at Lilly,
Wood
offices
eventually
nor had the awesome idea
even
A native of Brazil, Indiana, Wood had obtained
entered his mind.
a
letter
himself at Eli Lilly and Company's employment
1950.
outrank
even
of
Science
degree
from
University
Purdue
and a Master of Business Administration degree
University
in
from
of Pennsylvania's Wharton School of Finance
and
46
Commerce.
In 1954, the company was in the process of investigating the
potential
markets
Industrials
for
that
confronted
"Agricultural
and
Richard Wood,
a
to
Executive Vice-President William R. Spurlock
a financial research man who had
with the company for four years,
assembled
the
Products Division," which later changed its name
Elanco, would sell.
been
products
mirage of financial data,
with the
only
problem.
and both
Wood
astounded
and
47
pleasantly surprised management with his results.
was
When
Spurlock tapped Wood for his exploratory
well
known
Employee
reputation
around the company as a staunch
Activities
for
tennis
tournaments.
excellence spread as he became
18
mission,
he
competitor
in
However,
a
Wood's
president
of
Lilly
International,
climb to the top
of
Eli
living
in Argentina and
continued when in 1972,
he
became
Lilly and Company and has served in this
1977 to the present.
Likewise,
Wood's
Mexico.
president
position
from
he has occupied the position of
Chairman of the Board from 1973 to the present.
When Wood became
Chairman of the Board, many of his colleagues were astounded, not
because
they
because
he had not worked for the company long enough to
the
annual
48
service.
considered
dinner
him unqualified for the
for people with a
Richard Wood's talent,
quarter
position
of
a
but
attend
century's
ability, and energy
quickly
catapulted him to the head of Eli Lilly and Company.
REVOLUTIONARY BREAKTHROUGHS
While
Eli
antibiotics,
of
Lilly and Company has discovered
and
developed
penicillins, herbicides, barbiturates, and a myriad
other products,
following section.
only a few major ones are highlighted in the
Indeed,
the ramifications of Eli Lilly
and
company's research and development are immeasurably beneficial to
the nation and the world.
INSULIN
Perhaps more revolutionary than any medical discovery before
its
time,
insulin
healthy life.
has enabled the diabetic to lead
a
normal,
Diabetes is a disease in which the body is unable
to utilize sugar and the afflicted person has a hunger and thirst
beyond appeasement.
Dr. Frederick Banting, a young physician and
scientist of Toronto, Canada, and his assistant Charles Best made
19
the
An invitation to assist the
Toronto
in the production and purification of the new
product
monumental discovery.
scientist
Through
ws extended to the Lilly Research Laboratories in 1922.
Lilly
efforts toward improved methods of purification and large-
scale
production,
insulin
medical profession in 1923.
49
was Iletin.
became generally
available
to
the
The Lilly name used for this product
PERNICIOUS ANEMIA
Saved with an injection of insulin, Dr. George R. Minot went
on
to
make a valuable contribution to the medical
world.
William P. Murphy led to the discovery that
association with Dr.
meals
of liver,
blood
and extended the lives of persons with pernicious
At
the
mother
time
His
or injections of liver
extract,
of research and experiment,
the
restored
Lilly
red
anemia.
brothers'
was dying of this affliction,
but the finalized
50
was not released in the market until 1928.
product
MERTHIOLATE
In
1929,
antiseptic.
the
At
firm
introduced
the time of its
Merthiolate,
introduction,
the
a
popular
prevailing
notion of the public was that a medication had to look bad, smell
bad,
taste bad,
original
solution
or feel bad if it was to be effective.
form,
Merthiolate was colorless and did
proffer discomforture when applied.
and
a little alcohol,
In its
not
By adding red vegetable dye
Merthiolate became a smash pharmaceutical
51
hi t.
20
POLIOMYELITIS VACCINE
As
Eli Lilly
outlined in Beesley's term as president,
Company
participated
killed-virus
in
Salk
of
Lilly was instrumental
in
the discovery by
poliomyelitis vaccine.
Dr.
Jonas
and
developing methods and producing vaccine for field trials in
spring
of
vaccine
with
1954,
Through Lilly's efforts
manufacture.
conclusive
52
1955.
an entire building set aside
and
for
Dr.
the
polio
Salk's
the vaccine was released in the market
research,
in
TREFLAN
Of
all
the
agricultural products marketed by
Treflan has been the prize winner.
Products Company,
a
long lasting herbicide which is effective against
the
Elanco
Treflan is
weeds
that
plague growers of cotton, soybeans, vegetables, peanuts, and more
than
twenty
other commercial crops.
Introduced into the
U.S.
53
market in 1963, Treflan soon became internationally accepted.
STRATEGIC ACQUISITIONS
In
January
Corporation
for
1977,
acquired
$37,815,000.
skin-care preparations,
company's
Lilly
cosmetic
Elizabeth Arden
make-up products,
products
Elizabeth
compete in
Arden
specializes
and fragrances.
the
Sales
in
The
upper-price-range
markets and are marketed internationally.
At present, Eli Lilly
and
its
Company
54
division.
Acquired
is in the process of selling
Elizabeth
in exchange for 1,438,114 common shares of
21
Arden
stock,
IVAC Corporation manufactures and markets top of the line patient
temperature-measuring
systems,
and vital sign products,
intravenous
and
sales
United
States,
Sales
representatives
fluid-infusion systems.
are handled by two direct
and
independent
feeding
enteral
Within
sales
the
forces.
conduct
distributors
55
international business sales.
Cardiac Pacemakers,
for
2,317,450
engaged
in
implantable
was acquired in December of 1978
common shares of Lilly
the
marketing
of
stock.
pacemaker
and
pump.
The
company
products,
cardioverter/defibrillators,
insulin-infusion
physicians
Inc. ,
and
automatic
an
ambulatory
With principal customers consisting
hospitals,
direct
sales
is
representatives
of
are
56
employed in order to generate sales.
An
share
exchange
of 0.7 shares of Lilly common stock
each
of Physio-Control stock allowed for the acquisition of the
latter.
Physio-Control Corporation, similar to companies already
acquired by Lilly, markets acute cardiac
defibrillators and monitors,
ment.
for
and
care
systems,
cardiac
vital-signs-measurement equip-
Its main customers are hospitals and emergency room units.
In
the same manner as mentioned previously,
sales are conducted
by
direct
independent
sales
57
organization.
On May 31,
was
taken
representatives
one
sales
1984, Advanced Cardiovascular Systems Inc.
under
the Lilly wing.
dilatation
balloon
obstructed
coronary arteries.
are handled
and
The company
sells
catheter systems to cardiologists
by independent distributors but
within
58
States are conducted by sales representatives.
22
coronary
to
Sales outside the United
the
(ACS)
open
States
United
Announced
in
develops
immunodiagnostic
1985,
approximately
for
Incorporated
researches,
September,
and
markets
devices in a
Lilly
acquired
Hybritech
Hybritech
$350,000,000.
monoclonal
antibodies
The acquisition
growing market.
of Hybritech further promotes diversification while providing
immediate
Lilly's
entry
into
interest
in
the
diagnostics
and
In
market.
an
addition,
the use of monoclonal antibodies
for
therapeutic treatment of certain types of cancers is enhanced
59
the efforts of Hybritech.
the
in
FINANCIAL ANALYSIS
In
order
to
determine
Eli Lilly
and
Company's
overall
corporate financial structure and key ratios for the period 19771986,
va~ious
tables and figures have been developed.
Sales and Net Income,
Over
the
million
ten-year
escalated
shows a steady rise in the aforementioned.
period 1977-1986,
to $3,720 million,
average annual
Figure I,
sales
rose
from
an increase of 145 percent
increase of 9.40 percent.
Likewise,
$1,518
with
an
net income
from $218.7 million to $558.2 million during the
same
period, an increase of 155 percent and an average annual increase
of 9.90
percent.
The dramatic growth in
from 1985 to 1986 could be due,
sales and net
income
in large part, to the acquisition
of Hybritech in March of 1986.
Figure II diagrams the return on
sales and the return on equity for the period 1977-1986.
With
Studies,
data obtained from the Robert Morris Annual
Eli
Lilly's
1986
performance
23
can
be
Statement
compared
to
FIGURE I
SALES AND NEi INCOME
4·
3.5
~,
::1
S'I
~
f::::'"
··1
f71
Vl k····::~
! ...... i t . . .
k::··:1
(..,
r . . .j
I,,::::
-'1
l::::::::
::::':':1
I!
itp
~
...
.g
'
'-II
~
')
.;;!!_5
._._.-_..- -
2-
-
I
.".....,"
:7
Ii;;
~
;:t
~
1.5
~: : :
. :::::::
.
.
.~:::.
I::::::::
'
-71
.......
..
,~:.......
)
• , •• 1
.£
'~I
t::,,-..:1
j
!
"/
_
·..'····1
".J
",I
·.'..
0.5 -.
·..•.. .
·•....
.."
.•...
,'
.........
>~
;:n
.
:
:
~
.
::~ [',: : "1
'> r1
'
.'
....'...•
I'
,."
,,- ,or
~:.:.: .
0
'.
".
"
tf)T.'
"'::::"1 ....
.,..9·
~"""'.
~......:.
........ .
rI.····. .
......•
.
r:::::-::
r:":::
I.:::....
I.::::....
~'./
.::::.
r' . I
r>:l
~: : :..:
f·......... ,.
.'......."
~: : .: :
t..:::...
.•...
. ......
"-0:-
. :::. ~ r::::" ~ ~::::......: :.
<>::1
<:":::::"'1
1980
r:..·:
t><
...... .
· .' .',. .
I :::
",
••,1
-
4
r::::.::::i
I
8t
r;:-o;:-J
~
82
83
~<
84
r:::::: :::::..:
:..::::. :::::...
85
86
FIGURE U
RETURN ON SALES AND RETURN ON EQUITV
.r
f-\."" j [-)
ELI
tt·
(-'" ("1 r',
I
'.._.' '._.'
','
,1
p. ,~',J'
,', t·... J···.....1
I
.__
.....
....+-__ ~.~-i-.-.---.....,..
-jo;'
,'
~..._........
•• 1"-
••••••
......... f
,
I
-
YE",lR
.J..
. . . . J.
I
0_18
., .,.--.
I
~_N_-··t--_____
,......>t'._-
.'"
I
I
.J_
.Rir1L.~\i'
0.,\;'
EQU2~'"
companies
having
an SIC
number of 2831.
been designated with companies
Table
I
presents
nineteen financial ratios for Eli
for Lilly in 1986 that are comparable to industry
and
low,
Lilly's
ability
ratio
holds
secure
in
the
values
industry.
to meet interest payments is evidenced
in
its
and its sales/working capital
a solid position with
leverage ratios,
and
Lilly turnover ratios
liquidity ratios are average for
hefty times interest earned ratio,
In
Lilly
Table II, however, pinpoints key
in the upper, median, and lower quartiles.
rank
has
manufacturing drugs and medicine.
Company over a ten-year period.
ratios
SIC number 2831
4.09.
When
examining
the
fixed/worth and debt/worth, the Company appears
the degree of protection provided for its
the same respect,
creditors.
operating ratios rank high as compared
to
the industry.
The ten-year period from December 31,
witnessed
1986,
This
$74.25.
price
of
annual
1977 to December
31,
a major rise in the stock price from $18.94
progression
amounts to a tremendous increase
292 percent over the ten-year period with
appreciation
of
14.70
percent.
The
fluctuation per share is graphed in Figure III.
an
to
in
average
stock
price
Prices utilized
in the diagram were closing stock prices as of December 31 of the
respective
detail
the
year.
Likewise,
Table III has been constructed
high and low stock prices and their
respective
ratios over the time period contained in the study.
in
managed to
Illustrated
During
book value per share vacillated wildly
attain an increase
PIE
Fluctuations
the book value per share are reflected in Figure IV.
the ten-year period,
to
but
of 134 percent from 1977 to 1986.
in Figure V is the individual industry
24
segment
\
[ABLE I
ELI LILLi ~ COMPANY
RAllO ANALYSIS
1977-1796
UY RAriOS
1977
--.------
1m
1979
---------
1980
---------
1981
----_._---
1992
1993
1984
---------
---------
---------
1995
---------
1986
---------
2.46
2.20
2.16
2.09
2.04
1.92
I.B5
1.71
1.86
I. 78
1.61
I. 37
I. 31
1.17
I. 21
1.17
1.22
1.12
1.19
1.19
10.99
b8.H
68.92
76.63
75.25
67.53
64.54
64.89
66.57
66.95
hCC [S. RECE IVABLE TURNOVER
5.07
5.26
5.22
UO
4.79
5.33
5.58
5.55
5.41
5.39
! '1',lHlTORY lURNOVER
1.38
I. 42
t. 41
1.S2
1.60
1.72
I. 76
t. 79
1.69
1.94
FlIED ASSET TURNOVER
3.02
3.36
3.28
3.01
2.76
2.61
2.50
2.43
2.38
2.44
TURtmvER
0.B7
0.90
1.1)1
0.98
0.96
0.94
0.B9
0.85
0.83
O.BI
31.0n
32.4ex
27.q)~~
33.40r.
34.9H
34.857.
37.87t
39.04%
39.61%
40.m
O.OOY.
O.3H
;).261
t.m
2.7H
2.m
4.10%
4.99Z
9.09%
12.61t
r'EBI TO EQUITl
45 . .,1%
48. I!i.
38.m:
50.m
53.701
53.501.
60.951
64.05%
65.59!
67.754
TIMES INTEPEST EAPt/ED
23.30
29.23
49.92
33.01
30.13
IB.08
18.93
16.7Q
17.46
14.67
GP.OSS PROF II MARGIN
62 ..34:~
62.m
61.1]):
60.00r.
6O.92t
61. 89%
63.641
61.711
64.061
63.82%
OF'EFIliTPIG PROFIT MARGIN
25.m
26.<)51
25.021.
23.0n
23.297.
23.091
24.981
24.m
24,36%
23.55X
14.m
14.m
14.m
13.m
13.501
13.m
15.08%
15.771
15.m
15.00%
12.48%
13.547.
15. f2l
13.127.
12.901
13.05t
13.40%
\3.451
13.091
12.157.
I9,(J9i.
20.05%
21).997.
lun
19.83%
20.04t
21.57Z
22.071
21.691
20.397.
EAHIHIGS PER SHAPE
3.10
3.81
,,4.52
4.52
4.93
5.42
6. \3
6.73
3.69
4.01
OI'IlOEUD PAYOUT RATIO
0.46
0.43
0.45
0.49
0.48
0.48
0.45
0.44
0.43
0.45
23.011-
24.407.
25.84:!
23. 35t
23. on
22.951
23.m
22.491
21.371
20.467.
CIJRRENT RA rI 0
TEST
qUI~k-ACID
(,','S. COLLECTION PERIOD
TOTAL
~S5ET
lEBI PATIO
1I
DE~T
ro IOTAL CAP
NET PROFIT
PEm:N 011
~ARGIN
INVEST~ENT
FEIURN ON EOUIIV
~AST[
EAPNING FOWEP
TABLE 11
INDUSTRY COMPARISONS
SIC US31
DRUGS AND MEDICINES
KEY RATIOS
ELI LILLY
l COMPANY
------.-------------------.---
--------_.--
ROBERT MORRIS ASSOCIATES
INDUSTRY STATISTICS
L
~
a
CURRBNT RATIO
1. 78
~.5
U
1.4
QUICK-ACID TEST
1.19
2.1
1.1
ii.6
ACCTS. RECBIVABLE TURNOVER
5.j~
12.z
8.u
Ii .""
INVBNTORY TURNOVE&
1.94
6.5
Lb
Lj
FIlED ASSET TURNOVER
~.H
1~.5
U
01.1
TOTAL ASSET TURNOVER
0.81
L(
1.7
1.2
TIllES INTERBST EARNED
iLtii
~.a
j,7
1.z
SALES/'ORKING CAPITAL
LO~
, "
v."
5.~
1~ • ~
'lIED ASSETS/NET
0.56
Ut~
Ii.n
1.1
0.6&
0.4
1.~
~
1. ~9~
4Ii. ~o"
~z. 50;
L~o~
19.67i
19 .~u%
L4u~
1.70~
~ORrH
toTAL LIABILITIES/NET wORTH
~
PROFIT BBFORE TAlES/TANGIBLE
NET WORTH
i PROFIT BBFORB TAlES/TOTAL
j
'
"
t
1
FiSURE III
STOCK PRlCE PER SHARE
ELI l
_I1 iL
1
L\'' '-
(-'" ( ..! ~•• r', 1:., r·,·, J"',...".__ .' '._.' I'.' I
.' \
I
I
12--:'1'/-··-:;"/
,5'0
t"~J:·
I'
t 2-·-31--86
·-1-·-·-·----·----·--··--···----···---·-----·---·--·--------.---,
~
.
m~
/
1
/
I
00-
I
I
~~
!
..
I
1
I
~J
II
/
3J:.~! _'1
2Ot-/-
._.--..9-------- 8-______
--=_------
"---'E!-
!
!
!
I
/1
"
/
j
_---:eJ
-SElI---'~-=
f
--'
t tJ -~-----T-'---'----'I-----r----r
1980
81
.
82
r·----r----i
83
ADJUSTED TO REFLECT 2 FOR 1 STOCK SPLIT
EFFECTIVE DECEKBER, 1985
84
85
86
TABLE III
ELI LILLY AND CO"PANY
H/L STOCK PRICE AND PIE RATIOS
1977-1986 .
PRICE
PIE
If
l
H
l
1977
24.1
16.4
15.5
10.5
1978
27.0
18.4
14.1
9.6
1979
31.8
23.6
a.o
10.4
1980
31.8
22.8
14.0
10.0
1981
34.5
22.b
14.0
9.1
1982
32.b
22.5
12.0
8.3
1983
34.2
28.3
11.1
9.2
1984
33.8
26.5
10.0
7.9
1985
55.8
32.1
15.1
8.7
1986
83.5
50.0
15.5
9.0
iljDJUSTED
FOR STOCK SPUT
FIGURE IV
BOOK VALUE PER SHARt
!-
L L'- I LL\I/ Af\,J ["I r" () r',i1 P' A r\,J \1/
I,
,'I
.1
4....1
',_,
I,
I
I
8~----r---~----'-----r---~----~----~--~~--~
tSBtJ
8t
82
83
84
85
86
!DJUST~D
~Y~~CTIVK
TO ¥~~~IGT I ~OK t STOCl
DKCK!HKK, 1985
SP~lt
,.
FIGURE
IHDUSTRY
",- !
~llGlIllNT
-~
CONTRIBUTION TO SALES
j
:-:...-!
\.
j
I
\1
---_ .. --
.~--- .....
-
)
.--_..~.-
l
1'1.,
... l
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Human health,
contribution to Lilly sales for the year of 1986.
agriculture,
cent,
and
and cosmetics accounted for 70.5 percent, 18.8 per10.7 percent,
Not
sales.
surprisingly,
human
of the Company's
health commanded the
competitors.
Key statistics averaged over the
largest
between the companies' performance can be made.
its
three-year
period of 1982-1984 have been provided in order that
an
total
Table IV presents a composite of Eli Lilly and
percentage.
major
respectively,
comparisons
Figure VI offers
apparent picture of Lilly's record pertaining to earnings per
share and their attitude toward dividends per share.
dividends
9.75
paid
peroent
Since 1977,
per share have increased at an average
per year,
while the increase from
rate
1977
to
of
1986
amounts to a tremendous 153.5 percent.
Traded on the New York Stock Exchange, Eli Lilly and Company
has
attained a high PIE ratio of 15.5 and a low of 7.9 over
ten-year period,
December 31,
the
1986,
ten-year
provides
1977-1986.
The closing price of Lilly stock on
was $74.25 with EPS of $4.01.
average
of
the high and low PIE
Derivation of
ratio
the basis for the following projections.
average high PIE ratio of 13.5,
expected
increase
the
and
Assuming
a low PIE ratio of 9.3,
in EPS of 10.3 percent
EPS
annually,
and
an
an
conditions
remaining the same, the Company's EPS should approximate $5.93 by
the end of 1990.
1990,
the
Therefore, a foreseeable price by December 31,
could fall between $80.00 to $55.00.
Company's
With
Arden,
the
Eli
stock had reached a price of
As of May 1,
$91.00
acquisition of Hybritech and plans to
sell
per
1987,
share.
Elizabeth
Lilly and Company's future financial success is,
effect, inevitable.
25
in
TABLE IV
MAJOR COMPETITORS' PERFORMANCE
VS. ELI LILLY
1382-1984 AVBRAGB
KBY STATISTICS
CURRBNT RATIO
PIE H-L
DIVIDBND PAYOUT
BPS
BOOK VALUE PER SHARB
AMERICAN HOMR
PRODUCTS CORP.
ELI LILLY
I
CO.
MHkCK
l
CO.
PFIZHR INC.
SMITHKLINK
BHCKMAN CORP.
VARNER
LAMBERT CO.
2.1
2,1
1.9
16 - 12
16 - 11
12 - ~
14 - 10
46~
4U
43~
44%
58%
$3.95
$3. u5
$6.14
$2.65
$5 .85
$2.51
U1.49
$IUO
$31.08
$13.29
Ul.13
$10.88
3.0
1.8
13 - 10
II - 8
60~
U
FIGURE Vi
OIVIDENDS PER dHA&E
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