Philip Johnson - Vice President, Investor Relations John C. Lechleiter, Ph.D. - Chief Executive Officer Derica W. Rice - Chief Financial Officer Nicholas Lemen - Director, Investor Relations Ronika Pletcher - Director, Investor Relations Steven M. Paul, M.D. - President, Lilly Research Laboratories

John Boris - Citi Catherine Arnold - Credit Suisse Steve Scala - Cowen & Company Tim Anderson - Sanford C. Bernstein Charles Butler - Barclays Capital Robert Hazlett - BMO Capital Markets Eric Lo - Banc of America-Merrill Lynch Jami Rubin – Goldman Sachs Chris Schott - J.P. Morgan

Ladies and gentlemen thank you for standing by and welcome to the Eli Lilly and Company Q3 2009 earnings call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Vice President of Investor Relations, Phil Johnson.

Good morning and thank you for joining us for Eli Lilly & Company's third quarter 2009 earnings conference call. I am Phil Johnson, Vice President of Investor Relations. Joining me are: our President, CEO, and Chairman, John Lechleiter; our Chief Financial Officer, Derica Rice; our President of Lilly Research Laboratories, Dr. Steve Paul; and Ronika Pletcher and Nick Lemen from Investor Relations. During this conference call we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to a number of factors, including those listed on Slide 3 and those outlined in our latest 10-K and 10-Q filed with the Securities and Exchange Commission. The information we provide about our products and pipeline is for the benefit of the investment community; it is not intended to be promotional and is not sufficient for prescribing decisions. You can access the earnings press release, supporting materials, a live Web cast, and Internet-based replay and a podcast of this conference call at lilly.com. The supporting materials, the replay, and the podcast will be available on our Web site through November 20, 2009. In the third quarter we again generated strong financial results, including volume-driven revenue growth, leverage between the revenue growth and operating income growth, robust EPS growth, and strong operating cash flow. This financial performance gives us the resources we need to strengthen our pipeline, to deal with the patent expirations coming in the next decade, and to respond to our challenging healthcare environment. Now, I will turn the call over to John for a review of key events since our last earnings call. John C. Lechleiter, Ph.D.: During the third quarter we took bold steps to reshape our operation. We unveiled a new corporate operating model as well as a series of changes designed to speed medicines to patients, to deliver greater, and to lower our costs. I will have more to say about these changes in a minute. Now, aligned with these plans, we offered a voluntary exit program in select areas of our U.S. sales force. We are implementing a new commercial approach in 2010 that is designed to deliver more value to our customers and to be more efficient. We agreed to sell our Tippecanoe Laboratories manufacturing site to an affiliate of Evonik Industries. This deal provides a continuous, reliable supply of human and animal health products to Lilly. It preserves high-quality manufacturing jobs for the Indiana economy and enables us to lower our costs over time. In regulatory news, FDA approved Forteo for the treatment of osteoporosis associated with sustained, systemic glucocorticoid therapy in men and women at high risk of fracture, and we submitted Byetta in Japan for the treatment of Type II diabetes in adults. In clinical trial news, based upon the outcome of the Phase III generations trial, we announced that we will not submit arzoxifene for regulatory review. While the study met its primary efficacy end points, it did not meet key secondary efficacy and safety end points. As a result, we do not feel arzoxifene would offer a competitive value proposition. This decision led to a charge to earnings of approximately $45.0 million in the third quarter, most of which was booked in R&D expense. Along with Bio MS, we announced results of the two-year MAESTRO-01 Phase III trial, which showed that dirucotide did not meet the primary end point of delaying disease progression in patients with secondary progressive multiple sclerosis. The company has announced that we are stopping clinical trials. On a more positive note, we completed enrollment, ahead of schedule, for our Identity I trial, the first of two Phase III trials of semagacestat for Alzheimer's Disease. On the legal front, the U.S. District Court for the Southern District of Indiana upheld the company's method of use patents on Evista. These patents run through March of 2014. The U.S. District Court for the Eastern District of Michigan granted a partial summary judgment motion invalidating the company's method of use patent on Gemzar, which had been set to expire in May of 2013. We continue to believe that our Gemzar method of use patent is valid and will be upheld by the court. We intend to pursue an appeal of this decision with the court of appeals for the federal circuit. The Canadian Federal Court ruled that Lilly's Canadian compound patent for Zyprexa is invalid. We believe this decision is deeply flawed and that it is inconsistent with the evidence that was presented at trial and with applicable law. We intend to appeal this decision and protect Lilly's intellectual property rights regarding the validity of the Zyprexa patent in Canada through April 2011. Finally, we reached settlement with the Attorneys General of West Virginia, Connecticut, South Carolina, and Idaho, resolving their Zyprexa-related claims. In addition, we are in advanced discussion with eight other state Attorneys General. As a result, in the third quarter we incurred a special pre-tax charge of $125.0 million to adequately reserve for the currently probable and estimable exposures in connections with the states' claims. Now, I would like to share a few of my thoughts about the changes we announced in mid-September, which were the most sweeping in Lilly's history. We are reorganizing the development function within Lilly Research Laboratories. Now, a Development Center of Excellence will employ a variety of tools to speed molecules to patients. We are reorganizing our global operations around five business units and we are streamlining and aligning our corporate services and general and administrative functions. On top of that, we aim to reduce our cost base by $1.0 billion and lower our headcount to 35,000 by the end of 2011, excluding strategic sales force additions in high-growing, emerging markets and Japan. There has been considerable coverage of these changes in the media and on Wall Street, much of it focused on the cost savings and the headcount reduction. In fact, our key objective is to fulfill our strategy of creating value by accelerating the flow of innovative new medicines that provide improved outcome for individual patients. Our commitment to innovation will not waiver. These organizational changes are primarily intended to reduce the time it takes to get medicines to patients, to establish a clear line of sight to our customers, and to reduce our operating cost structure, thereby freeing up the resources necessary to fund the innovation that will drive our future growth. Let's start with the changes in R&D. Over the past few years we have significantly improved productivity and research, leading to an unprecedented number of Phase I starts: 15 in 2007, 17 in 2008, and 13 so far this year. Internal research has been, and will continue to be, the primary driver for our long-term viability and must remain intact. As a result, there are no significant changes occurring in our basic research area. But we are reorganizing development to ensure we move these molecules quickly and get the most out of them. We are creating the Development Center of Excellence, or COE, to address a drug development process that is increasingly complex, slow, and expensive—not just at Lilly but across the industry. Now what makes the development COE different is that we will use one common operating system, one common set of priorities, and a singular focus to streamline the development of new medicines. The common operating system will provide our scientists with a simpler way to organize and get work done. Common priorities will help each function in the COE know where to focus their resources and their efforts. And the singular focus means that we will now have one single point where decisions will be made. Again, the ultimate goal of the Development Center of Excellence is to accelerate the development and launch of Lilly molecules over the next decade and bring innovative medicines to patients sooner. Next, in addition to our existing animal health business unit, we are organizing our human health business around four distinct business units: one for oncology, one for diabetes, a business unit for established markets, and one for emerging markets. Each business unit will be charged with creating a competitive, sustainable business. In addition to commercial responsibilities, they will all reach back into development and partner with research to bring forward valuable, innovative molecules for their customers. The business unit heads will report directly to me. I expect this structure to drive more accountability, to establish clear authority, and ultimately to provide our customers with greater value. These changes, the Development Center of Excellence, and the new business units, will be in place on January 1, 2010. We will also streamline corporate and general and administrative functions to support the business through improved quality, better customer service, and reduced costs. We anticipate that the streamlined functions will be in place by mid-next year. Now, Derica will discuss our third quarter financial results. Derica W. Rice: As I have done on previous calls, today I will focus my comments on the pro forma non-GAAP results, which we believe provides insights into the underlying trends in the business. Now this view assumes we owned ImClone as of January 1, 2008, and it excludes certain items such as restructuring charges, asset impairments, and other special charges. Let's start on Slide 12 with a quick look at our Q3 income statement, before reviewing the effect of foreign exchange. On a pro forma non-GAAP basis, you can see that we generated leverage between revenue and operating income as third quarter revenue grew 5% while operating income grew a robust 17%. The leverage between revenue and operating income was driven by a 3.7% expansion in our gross margin percent. The increase in the gross margin percent from 77.4% to 81.1% is due to the favorable effect on cost of sales arising from the effect of changes in the value of the U.S. dollar on international inventories that we sold during the period, specifically changes in the foreign currency value of the U.S. dollar added to the cost of sales in Q3 of 2008, while lowering costs in Q3 of 2009. In addition, this quarter operating expenses, which we define as the sum of R&D and SG&A, grew slightly faster than sales. Within operating expenses, marketing, selling, and administrative expenses grew only 2% while R&D expense grew 13% due to the increased late-stage clinical trial costs as well as the cost of terminating the development of arzoxifene. Moving down in the income statement, you will also see a slight improvement in other income due to lower net interest expense. In addition, our tax rate improved by about 2% due to a projected change in the mix of income among tax jurisdictions, and also the final resolution of our 2001 to 2004 IRS audit. As a result of these modest improvements in other income and the effective tax rate, net income and EPS both grew faster than operating income of 22% compared to 17%. Let's move to Slide 13, which shows our reported income statement while Slide 14 provides a reconciliation between reported and pro forma non-GAAP EPS. Additional details about our reported earnings are available in today's earnings press release. Let's look at how foreign exchange affected our Q3 results, starting with revenue. As you can see on Slide 15, total revenue grew 5% on a pro forma basis, which includes a negative 3% impact from foreign exchange. Absent that impact, total revenue grew 8%, driven by a robust 6% volume growth. This volume growth was consistent across all major geographies. Japan's volume growth was largely driven by Alimta, which was approved earlier this year for both first line and second line non-small cell lung cancer. Also, animal health volume growth benefited from the inclusion of U.S. Posilac sales after our acquisition of Monsanto's dairy business in Q4 of last year. As you will see on Slide 16, we provided the price, rate, and volume analysis on a reported basis. Let's look at the rest of the income statement. Slide 17 shows the year-over-year growth of select line items of our pro forma non-GAAP income statement, both with and without the effect of changes in foreign exchange rates. The numbers in the first column are the same as those you saw earlier on our pro forma non-GAAP income statement. I will focus my comments on the second column of numbers, which strips out the impact of foreign exchange rates on our pro forma non-GAAP results. First, you will see the 8% revenue growth I mentioned previously. Below that you will see that cost of sales and operating expenses grew in line with revenues this quarter. The 8% performance growth in operating expenses was driven by an increase of 5% in marketing, selling, and administrative expenses, and an increase of 14% in R&D. Our 8% performance growth in revenues translated into 8% performance growth also in operating income. EPS grew slightly faster at 11% due to year-on-year favorability and other income and the effective tax rate. Finally, you will see in the last column that year to date we have grown revenue faster than both cost of sales, as well as operating expenses, which has led to a 14% performance growth in operating income and EPS. For your information, on Slide 18 we have provided the year-on-year growth of select line items of our reported income statement, both with and without the effect of foreign exchange rates. Comparisons of 2009 to 2008 operating income and EPS are not meaningful due to charges taken in 2008. Let me wrap up my comments with an update of our 2009 financial guidance. If you take a look at Slide 19, let's discuss a few high-level trends for the remainder of the year. In terms of operating performance, we expect continued volume-driven revenue growth. We also expect revenue growth to exceed growth in operating expenses, and regularly scheduled maintenance shut-downs at our manufacturing sites should put upward pressure on our cost of goods sold. In terms of the impact of foreign exchange, at current rates FX should have a modest, positive impact on international revenue and income. However, we do not expect the substantial cost of sales to benefit from FX-related to international inventories sold in the first nine months of the year to be repeated in Q4. At current FX rates we could see a significant addition to cost of sales in the fourth quarter. In addition, year-on-year comparisons will be affected by the significant reduction to cost of sales booked in the fourth quarter of 2008. With this context, let's move to Slide 20 to summarize our 2009 guidance. Given the strong performance in the first nine months of the year, we are raising our previously issues 2009 earnings per share guidance range of $4.20 to $4.30 to a new range of $4.30 to $4.40 on a pro forma non-GAAP basis. This corresponds to a range of $3.90 to $4.00 on a reported basis. In terms of line item guidance, we expect total revenue to grow low- to mid-single digits on a pro forma basis and mid-single digits on a reported basis. Gross margin as a percent of revenue for the year is expected to increase on both a pro forma non-GAAP and reported basis. In the fourth quarter we expect a significant decrease in gross margin as a percent of revenue. Marketing, selling, and administrative expenses are projected to show flat to low-single digit growth. Research and development expenses are projected to grow in the high single digits on a pro forma non-GAAP basis and low double digits on a reported basis. Our other income for the year is still expected to be a net deduction of between $200.0 million and $250.0 million, as well as the effective tax rate for the full year should now be approximately 21% on a pro forma non-GAAP basis and 20% on a reported basis. Finally, we expect capital expenditures to be less than $1.0 billion for the year. Now, let me turn the call over to Mick and Ronika for our product review and pipeline update.

As you can see on Slide 22, and as mentioned earlier, in Q3 we again posted volume-driven revenue growth, continuing the trend we've seen for most of this decade. In the lower chart you will see the contribution made by select products to our worldwide volume growth of 6%. Alimta, Cymbalta, Zyprexa, and Humalog were the principle drivers. Gemzar's international volume fell 30% compared to Q3 2008 because of generic competition, which cut volume growth of total revenue by nearly 1.5%. Last quarter we discussed underlying prescription and share of market trends for Cymbalta, Alimta, Cialis, and Byetta. This quarter we will take a look at Humalog and provide an update on the launch of Effient. We have seen an encouraging trend in the mealtime analog insulin market during Q3. Humalog had been losing share to Novolog for over a year, especially in the primary care physician segment. Over the last three months Humalog's new to brand share gains have been impressive in both the endocrinologist and primary care settings. We achieved these results by applying our increased understanding of the mealtime insulin experience for both patients and healthcare professionals, which has enabled our sales force to have more valuable customer interactions and dedicate more focus to the Humalog brand. The Humalog KwikPen, which we believe is best-in-class in the mealtime insulin market, continues its strong sales performance. Now, let's turn to Effient, our new treatment for the reduction of thrombotic cardiovascular events in patients with acute coronary syndromes who are undergoing percutaneous coronary intervention, or PCI. We received FDA approval for Effient in mid-July. We launched in the U.S. in early August and we are diligently executing our launch plan. Obtaining hospital formulary status is critical to the uptake of a hospital-based product like Effient. As we have said in the past, gaining wide-spread hospital formulary status will take roughly six months. To date, we are on track to achieve our hospital formulary goals. As we move forward, in addition to working to gain formulary status, we will be focused on communicating formulary availability to physicians and seeking initiation of appropriate ACS/PCI patients, particularly those under 75 years of age and those over 132 pounds of body weight who have not had a TIA or stroke. Payer access is also meeting our expectations of interim formulary status of Tier 3 unrestricted. We are especially pleased that as of October 1 Effient has Tier 2 unrestricted access with Express Scripts in both commercial managed care and Medicare Part D. In Europe, despite receiving regulatory approval in late February this year, we are still early in the process of gaining pricing and reimbursement access at the individual country and hospital level. For example, we received a positive NICE [National Institute for Health and Clinical Excellence] recommendation for England and Wales in September, however, this recommendation will only become final later this month and then individual hospitals will have up to 90 days to implement this approval. We have also received positive reimbursement and access decisions in a number of countries, including Argentina, Australia, Denmark, Greece, New Zealand, and most recently, Switzerland. France also has recommended reimbursement of Effient although it will be some time before pricing discussions conclude. We hope to fully launch the product in France, Italy, and Spain during 2010. As in the U.S., we are making good progress and expect Effient prescription volumes to build over time. Now Ronika will provide a brief update on our pipeline.

As we communicated in earlier press releases, we are disappointed about the losses of arzoxifene and dirucotide. Our decision not to submit arzoxifene for regulatory review was based on the overall clinical profile of the compound in light of currently available treatment, including our own Evista. And in the Phase III MAESTRO I pivotal trial, dirucotide did not meet the primary objective of delaying disease progression in patients with secondary progressive multiple sclerosis. Despite these disappointments, we still have a robust pipeline in both quantity and quality. Our clinical stage portfolio now stands at 61 distinct NMEs, including 23 compounds in Phase II and Phase III. We continue to develop a robust biotech portfolio. Biotechnologies represent over half of our late stage Phase II and Phase III assets and over a third of our overall clinical portfolio. Our focus has not changed. Advancing our pipeline is our number one priority. As reflected by the arrows on Slide 25, since our last formal portfolio update during the second quarter earnings call, we have initiated Phase II clinical trials on IL Beta, an antibody for the treatment of Type II diabetes, and we have moved three more compounds into Phase I testing: two for diabetes and one for depression. As is the nature of our business, we also terminated development of eight other assets, two in Phase II and six in Phase I. You may recall that in Q1 and Q2 we only had one Phase I and one Phase II termination. Running the right experiments to enable early no-go decisions and knowing when to stop development is just as important as advancing assets, allowing us to refocus our time and money on more promising molecules. Now let me turn to Slide 26 to highlight select milestone between now and mid-2010. In regulatory actions we could have FDA action on Byetta monotherapy and Zyprexa LAI this year and on exenatide once weekly and Cymbalta for chronic pain in the first half of 2010. Earlier this year the FDA raised concerns about the pharmacokinetic comparability data and our sBLAs for Erbitux in first-line squamous cell carcinoma of the head and neck and first-line non-small cell lung cancer. Later this year we will meet with the FDA to discuss our path forward. Pending the outcome of this discussion, we hope to resubmit the non-small cell lung cancer sBLA and respond to the head and neck cancer response letter by late this year or early next year. And we expect to initiate a number of Phase III trials in oncology late this year or early next year, including ImClone's 11F8 and A12, and our own tasisulam. In addition, early next year we hope to begin stand-alone Phase III clinical trials on GLP-Fc and diabetes. This concludes our prepared remarks and we will now open the call for the Q&A session.

(Operator Instructions) Your first question comes from John Boris - Citi. John Boris - Citi: First question just has to do with the revised guidance. If I just take the midpoint of that range and assign a 10% or 15% growth rate to that, coming up with an estimate that could me in the $4.75 to $5.00 range, I guess not looking for specific guidance, I know you will deliver that in December, but can you help us understand what some of the pushes and pulls are going into 2010 that we should be thinking about from a modeling standpoint? The second question just has to do with formulary uptake on Effient, both on the hospital side and PBM side. Any color you can give there. And then the last question just has to do with IDENTITY I. Can you provide an update on IDENTITY II and when do you think you will have data available for presentation and how we communicate the results from the IDENTITY Alzheimer's program with your gamma-secretase? Derica W. Rice: First of all, in regards to 2010, we will provide more color on that at our December 10 analyst meeting. But let me at least provide some insight in terms of our outlook for the remainder of the year. As you've seen and stated, we have revised our guidance on a pro forma non-GAAP basis to $4.30 to $4.40. Within that we still expect to continue the solid, volume-driven revenue growth that we have seen for the first nine months of this year, and that is the sustainable part of our business. And so that's where we focused because with that we get great leverage through the remainder of our operations, both in our manufacturing facilities, in terms of full absorption, as well as getting the full return on our marketing and sales investments. With that, you also heard me speak about the effect of FX on our operating performance, in terms of our financials. Given where current FX rates are, I anticipate having a very significant cost impact to our cost of sales in the fourth quarter of 2009. As I stated, this time last year, we had a significant benefit to cost of sales in the fourth quarter because the rates were going the other way. If you were to go back and look at history, you can basically track the impact of FX on our cost of goods sold line for the last three years. So in Q4 of 2007 was when we had a significant cost of sales due to FX in our gross margin. Last year we had a significant benefit. And now the rates are going the other way again, we are having another significant cost—we anticipate another significant cost. And we have pretty much tracked the dramatic movement in rates when you look at the dollar devaluation in 2007, appreciation in Q4 of 2008, and then devaluation again and now in Q4 of 2009, we anticipate. So that would be our outlook for the remainder of the year. John C. Lechleiter, Ph.D.: I want to just add that we also got some play on manufacturing plant shut downs in the fourth quarter. We are also going to be continuing robust investment in late-stage clinical trials for a number of assets in our pipeline. So these are things that also will factor into those fourth quarter results, and are factored into the guidance adjustment we made today. And on Effient formulary access, we had a plan essentially that's threshed over the first six months or so, after approval, for us to meet with the various hospitals, have their committees takes our decisions, and then grant the access that we expect that we will get. We are executing to that plan and things are proceeding according to plan. As I mentioned earlier, we are very pleased to add Express Scripts in both the managed care commercial business and also in the Part D plans. So again, we are executing to our plan; things are proceeding according to plan, but this is a process and it will take a few months to play out.

On the semagacestat small molecule for Alzheimer's, as we mentioned, IDENTITY I, the first Phase III trial is completed and enrollment on IDENTITY II. We have enrolled over half of that study to date, of about 1,100 subjects. We expect that study to report out in mid-2012, but keep in mind that this is one of the 21-month studies, so 21 months after the completion of enrollment is when we would expect that report. Steven M. Paul, M.D.: Just quickly, we are reassured by the periodic safety updates. You know, this compound looks to be—it's behaving very well, very well tolerated. So that's all very encouraging about this trial.

Your next question comes from Catherine Arnold - Credit Suisse. Catherine Arnold - Credit Suisse: I was wondering, John, if you could speak to two things. One is your recently announced cost savings program and your changes in development. Should we be thinking about the $1.0 billion in savings as sort of a starting point, given the significant reduction and cost structure for the industry overall. And Lilly obviously playing a role in that. And also the outlook for the company in terms of some of the products that are going off patent, could you just sort of frame how we should be thinking about that initial announcement? And you had made some pretty dramatic comments about the organizational changes in the Development Center of Excellence and I wondered that as we are sitting in your analyst meeting and we are talking to you over the next course of the year, what kind of metrics will you be sharing with us in terms of us knowing whether or not that was a successful initiative and how that is progressing over time? John C. Lechleiter, Ph.D.: I think right now all we have to say on our plans for cost cutting is what we said on September 14, that we aim to take $1.0 billion out by the end of 2011 and we expect that in concert with this we will need to reduce the number of positions at Lilly from a little over 40,000 today down to 35,000, excluding significant strategic sales additions and certain emerging markets and in Japan. Obviously, we are going to be guided by events as they unfold. As we bring molecules forward through Phase III, in anticipation of launches in those out years, we are going to want to make sure we have the right investment behind those products. So I think this is going to be sort of an unfolding story as we move along. With respect to changes in development, I think there are a couple of things you should expect. I think you expect that we can more or less consistently adhere to time lines and target dates. Obviously this is a business with a lot of risks. There are acts of man and acts of God and sometimes the acts of God set you back but you've still got to figure out how to recover from those, and we've done that historically. I think you should also expect to see accelerated time lines. I've got my 30th anniversary with Lilly in two-weeks time and it's still a 10 to 15 year journey, just like it was in the late 1970s, to move a molecule from a lab to patients. We don't believe that has to be accepted as gospel. We believe that we can apply new tools and new technologies in a more robust fashion and in a more consistent fashion in order to reduce that cycle time and also to reduce, hopefully, costs and risks along the way. We are looking at tailoring strategies, even before we enter the clinic. The opportunity, therefore, to study drugs in early-stage development in population groups that may be more enriched with people who are more likely to respond. You've seen the benefit of tailoring with our Alimta sale this month, or this quarter. 47% increase, and actually the Alimta target population today is smaller in terms of the broad lung cancer population than it was when we launched. Because we are only indicated today for treatment of other than squamous cell type lung cancer. But that data that we have, the benefit for patients in that population, is so clear that it is obviously prompting physicians to choose Alimta for those patients who stand to benefit the most. So those are some thoughts on that. But you can expect that we will be quite upfront with the kinds of metrics that we think will be and should be indicative of progress. Steven M. Paul, M.D.: Let me just elaborate just briefly, and we will spend a bit more time on this in December at the analyst meeting, but there are three pillars to this Development Center of Excellence. One is a new operating system that we call Critical Chain, which as John indicates, now has us really operating on time with virtually every project where we have adapted the Critical Chain method. In talking about that, we want to increase that to 100% of our projects. John mentioned tailored therapies and the stratification piece, which is so important for our oncology pipeline. And the third one is something we call advanced analytics, which includes clinical trial simulation modeling, which has really helped us not have to repeat trials, which is a major source of timeline delays, as well as adapt the seamless designs, like we've done with GLP-Fc, where you can literally prevent having any down time between either Phase I and II, or in many cases, Phase II and Phase III. And those are going to speed innovation to patients.

Your next question comes from Steve Scala - Cowen & Company. Steve Scala - Cowen & Company: I have two questions. First on Effient. On the second quarter call, Lilly stated that you expect rapid formulary access across the board, that you expected things to move very quickly, and that you expected Effient to perform extremely well where indicated. And now you're saying you expect it to build over time, six months was mentioned. It seems like there's been a change, although you're saying it's performing according to plans. I wonder if you could reconcile those groups of statements. And secondly, Lilly only periodically updates its 2007 through 2011 EPS guidance, so low-double digit on the earnings line. Is that guidance intact at this time and given the very strong performance thus far in 2009, is there any reason for us not to assume it will be reiterated or even increased at the December? John C. Lechleiter, Ph.D.: In terms of Effient, as I mentioned before, we are tracking to the plans that we have for having the scheduled meetings with the various hospitals and with the decisions that they had been favorable on granting that formulary access. For the 2007 to 2011 guidance, you are right, that is something that we do update typically once a year at the December analyst meeting. We have made one exception recently. That was when we had the ImClone acquisition that was significant enough we decided to update that guidance off-cycle. Derica W. Rice: Let me say this. We are not going to update our guidance out to 2011 to date. In fact, I commented even on our 2010 outlook and the fact that we will be sharing that at our December meeting on December 10. What I can say is that a least a commitment that we have made and how we have performed up to this point in time. So if you look at our Q3 results, we generated 22% bottom-line growth. If you take out the effect of FX, we were at 11% growth. Year to date without FX, we are at 14% growth. So up until this point in time, which we are prepared to talk about, we are absolutely executing upon the expectations that we've set, both internally in terms of our internal goals, and what we have shared externally with our investment community. And so I feel very good about the performance of the company, not only this quarter and this year, but actually how we have performed over the last several years, which was when we began to talk about that double-digit outlook, bottom-line.

One other thing I would highlight for you is the 2007 to 2011 guidance that we had issued, we did mention in the past, included an expectation, which we have continued to see, of pricing pressures globally. It did not include, however, a specific estimate for any significant healthcare reform here in the U.S. So there will be a number of pushes and pulls that would push that number up, pull it back down, but we will go into our updated numbers we will likely discuss in December. That is one that I would flag for you that was not contemplated in the prior guidance that we clearly need to begin to figure out how we best incorporate that going forward.

Your next question comes from Tim Anderson - Sanford C. Bernstein. Tim Anderson - Sanford C. Bernstein: A couple of questions. Just going back to guidance. Going to 2011 basically takes you right up to the edge of the patent cliff and I think the market is kind of showing you that they want to know what guidance is beyond 2011. And you have more and more companies that are starting to give guidance into that difficult period of patent expirations. I'm wondering when we can expect Lilly to give guidance beyond 2011. A second question is, earlier this year on several different occasions Lilly has disavowed doing any sort of big pharma mergers and I'm wondering if that's still the company's view or if that could be the fall-back option if your pipeline doesn't pan out over the next couple of years and as you approach period of heavy patent expiries. Derica W. Rice: In regards to guidance, and clearly as we look to meet on December 10, we will share more of our perspective on our outlook for that period and how we look to mange through that period. And in terms of 2011 through 2014, which we call our YZ, which is the period of patent expiry for Zyprexa and Cymbalta, and as you look at some of the actions that we've already taken, starting with John's announcements back in September, those are all things that are consistent with our strategies and plans to navigate through that difficult period and for the company, both in terms of the cost savings, both in terms of the headcount reductions, but more importantly, and most importantly, is our focus on speeding up the development of the molecules in our pipeline. In regards to your last question, which was around M&A, we are solely focused on our number-one priority, which you heard Ronika state, which is progressing the assets of our pipeline. We feel very good about the 60 assets we have today in clinical stage of development. They may not be there in time to recover immediately from the Zyprexa and Cymbalta hit, but clearly it provides us good growth prospects post those events, and that's where our central focus is at this time. And it's not on large-scale M&A.

Your next question comes from Charles Butler - Barclays Capital. Charles Butler - Barclays Capital: Two questions, please. You have made statements about the billion dollar cuts from total operating expenses and when Catherine Arnold sort of alluded to her views around how committed you may be, the question really is, if 23 products are in Phase II, III today, the R&D expenses are jumping quite heavily into that x/y period, would you be committed to actually doing more than $1.0 billion? Is that sort of a plan that's on the back burner? That's question one. And question two is perhaps more for Steve, and apologies for just picking out one program, but if we look at the GLP-Fc program, and we look back at the Phase II data and we see some issues with heart rate and we see some issues with diastolic pressure, I'm just curious how you actually justify moving the product along and I would be interested in your thought, especially when John alluded to there are failures due to acts of God and failures due to acts of man, and I'm wondering, could this be a failure due to act of man? John C. Lechleiter, Ph.D.: I'll start off an talk about the cuts. Clearly, we want to take all the actions necessary to enable us to place the right resources and invest the right resources in the right places in R&D. Part of the effort underway since our announcement in mid-September is a close look at everything that we have in development, with an eye to being very clear within the company—we talked about this single operating system—on which assets represent the most significant opportunities and therefore should be considered and invested in as the highest priorities. We certainly have other channels and other venues, including partnerships of various sorts, that we can also use to share costs and risks associated with development of a set of molecules that we think frankly, are the most exciting set of clinical assets we've ever had in our history. Again, I think we are very resolute on achieving the $1.0 billion target. At this point in time, I think if we were to go any deeper than that, that would have to be with all due consideration of all the other factors that weight in, including our desire and the need to invest in this pipeline to make sure that we have a trajectory that augers well for strong growth as we come out of this period. Steven M. Paul, M.D.: Let me comment on GLP-Fc. Just to begin, we are very, very excited about the GLP-1 mechanism for treating diabetes. There is no class of drugs that show this kind of glycemic control, weight loss, lack of hypoclycemia, overall. And the clinical data on the efficacy has been tremendous. And I include it in this [inaudible] once weekly in our own GLP-Fc. Now with respect to cardiovascular liability, rest assured, we are very knowledgeable about what we need to do with respect to cardiovascular liability. This drug does not produce, at doses that are very therapeutic and very effective, increases in blood pressure. There are some small increases in heart rate, a couple of beats per minute. By the way, this may be a class effect for all GLP-1-like drugs. So we are very, very confident right now with the safety data we have. Now, we need more safety data as we develop the drug. But we are constantly monitoring the safety of all of our GLPs in development and feel that this is going to be a very important standard of care eventually for treating Type II diabetes. John C. Lechleiter, Ph.D.: Just to be precise, I think the data you may be mentioning was also mentioned in Post ADA on a call by a physician. Actually it's Phase I data, that as Steve mentioned, was sort of super therapeutic doses of 5 mg, for example, which is significantly higher than we have studied in the Phase II trial, called GBC-J, that we had presented this year at ADA and that, as Steve mentioned, showed no increases in blood pressure.

Your next question comes from Robert Hazlett - BMO Capital Markets. Robert Hazlett - BMO Capital Markets: The question is, what are you doing to move IL-17 and Bath[?] forward? Those are interesting programs. What can you do specifically to move those programs forward? When do we hear anything on the Mary Depression Program? And then given these comments, you are talking about restructuring, can you comment on the dividend stability? Steven M. Paul, M.D.: You're absolutely right, I think IL-17, the IL-17 antibody, the anti-bath[?] and Bliss antibody LA-2 94, and our IL-23, selective IL-23 antibody are among the most exciting assets that we have in the pipeline. As you know, we have established proof of concept with each of those molecules in the clinic and they are being pursued for multiple disease indications in the autoimmune area. So we are moving them as quickly as we can. There will be some launches likely in indications and it will be continued development. As you know, there are a lot of diseases where those molecules could be effective. And Mary is also continuing along. I don't know exactly the date that we had one Mary, in terms of an announced date. But again, validated mechanism for depression and augmentation, and again, one that we're very excited about. Derica W. Rice: In regards to the dividend, today as you can look at our stock price, our yield is around 5.7%. I think that's a very healthy yield. But up to this point we have been able to sustain our dividend. In fact, we've actually increased our dividend over the last 40 years. So we understand that it's very important to a very large portion of our investor base. And today we are generating the cash flows in support of that. So if you look at our payout ratio, it's also reasonable. So I feel good about where our dividend payout is at this moment. I think our dividend yield is too high, but primarily because I think our stock price is too low and undervalued at this state.

Your next question comes from Eric Lo - Banc of America-Merrill Lynch. Eric Lo - Banc of America-Merrill Lynch: With regards to the dividend, would you consider cutting the dividend if you had the right acquisition in place, and when it comes to M&A is the priority to acquisition additional late-stage pipeline assets or maybe incremental sales to offset the cliff in the y/z years. And the second question is with regards to the gross margin. Using the current FX rates you are talking about, what would you say is the year-over-year impact to gross margins resulting directly from currency? John C. Lechleiter, Ph.D.: In regards to would we consider cutting the dividend, it's very difficult to sit here and speculate and play what-if. It really would depend on what's before us. But as I stated earlier today, we feel very good about the current operations of the business. Our focus to date is on progressing our pipeline. We know we are going to take a hit with the loss of Zyprexa and Cymbalta in our future. Those are known dates and events. The uncertainty in our business is around our ability to advance our pipeline. So that is our number-one focus from an asset allocation standpoint. Secondly, we believe we can do that and still sustain our dividend. In regards to what is the focus of our business development activities. Also, as stated earlier, it's really not our goal to do the mega-mergers. We are very active in the space of looking at molecular-type acquisitions. Molecules that we believe will complement or enhance or add to our current pipeline. And to date we have been, I think, quite successful with some of the arrangements that we've been able to negotiate with partners that we work very well with. In regards to your third question around gross margin, if you look to date we have, I think, in the fourth and seasonally third quarter, our gross margin expanded by 3.7%. The majority of that was driven by the movement in FX rate. But it's two different directions and two different periods. In Q3 of 2008 our gross margin was hurt by FX. In Q3 of 2009 it benefitted. So that's what creates the full 3.7% expansion year-on-year.

Essentially, if you look at the FX impact on sales and on manufacturing expenses in the period, there really was not much of an impact. So it really is related to this foreign exchange impact on inventories over the period that we've talked about for the last couple of quarters. And that really drove essentially the full change of that 3.7% compared to last year.

Your next question comes from Jami Rubin – Goldman Sachs. Jami Rubin – Goldman Sachs: Just further clarification on the gross margin. So the guidance for full year 2009, would seem to imply a midpoint of fourth quarter earnings of $0.79 to $0.89. I believe the consensus is around $0.96. So that would imply a gross margin of around 77%. I don't want to focus on this too much, but after the second quarter the guidance was to assume that we were to assume that gross margins would go back to a sort of normalized level. Can you help us to think about what a normalized gross margin is, because the fourth quarter last year you benefitted. You had a strong gross margins versus a weak gross margin in the third quarter. And I'm just getting confused. So if you could help us to think about what a normalized gross margin should be as we revise our numbers for 2010. Derica W. Rice: I will try to address this one more time, if I may. It's difficult to say what a normal gross margin is because our ability to predict foreign exchange rates, as indicated by the movement over the last two years, is impossible. What we have provided in our guidance for the year, and it implicates us for the fourth quarter, is that based upon where rates are today, we would anticipate having a significant detriment, or negative impact, to our cost of goods sold in the fourth quarter, driven by rates. The guidance I would give you is to go back and look at the movement over time, so you would go back and look over the last—probably mid-2007—and you will see the swings but you will also see the periods of stabilization as well. And I think you can get to kind of what a reasonable range would be. I am walking a fine line here because we have never provided guidance around our gross margin in terms an absolute. What we have said is what we see the movement being year-on-year as we progress forward.

At the last quarter call we had mentioned that we did expect, for the second half gross margin to decrease compared to the second half of last year. That's still the case. We still expect for that to be true for the second half. As you are mentioning, clearly that will be comprised of a significant benefit, in terms of the gross margin percent in the third quarter and a reduction in the year-on-year gross margin percent in the fourth quarter.

Your final question comes from Chris Schott - J.P. Morgan. Chris Schott - J.P. Morgan: On Erbitux, I would be interested in your thoughts on the CHMP negative opinion on the flex data that we had in July. And can you elaborate a little more on the divisions created with the restructuring, specifically given the company's historic strength in neuroscience and late-stage Alzheimer's assets. I was interested in why you opted not to have a neuroscience kind of Center of Excellence.

With the CHMP opinion for the first line non-small cell lung cancer, definitely understand that Merck ADA is really in the driver's seat with having the relationship and the discussion with the regulators there. So they are probably in the best position to give you more color commentary on how they view that interaction. Clearly, from our observations or comments and discussions with them, there is clearly a strong view that there is data that is supportive of a reconsideration of the CHMP's initial recommendation and Merck ADA is intent on taking that out to make sure that we can have that heard fully and hopefully have that recommendation reversed to get approval of the product. John C. Lechleiter, Ph.D.: Let me make a comment on the choices we made around our business units. Clearly, neuroscience is the single biggest component within our single largest business unit, which is our established markets business unit. Our choices of the business unit formation around diabetes and oncology are really driven by our surmising that we are going to be in these two businesses for many years to come. A third of our clinical stage portfolio today are molecules in the oncology area and with our insulin and GLP platforms, I think it's a pretty safe bet that insulin is a long-term business opportunity for Lilly. We hope, and believe that neuroscience can also be that opportunity but that clearly depends on us being able to bring through the next generation of innovative products, whether it's Mary-4, the M-GLU 23 drug, or either of the Alzheimer's assets. So we have the flexibility to make different choices down the road. We think the current arrangement is the best one.

Thanks for all your questions. Ronika, Nick, and I are going to be available after the call to take additional questions you may have. Let me turn it over to John to close the call. John C. Lechleiter, Ph.D.: I would like to thank all of you for taking time this morning for this update on our company. We appreciate your interest in Eli Lilly. Let me close by emphasizing a few key points. Our strong financial performance continued again in the third quarter as we delivered volume-driven revenue growth, operating income growth greater than revenue growth, robust EPS growth, and strong operating cash flow. We remain confident that this type of financial performance provides the resources we need to strengthen our pipeline and drive future growth, to deal with the patent expirations coming in the next decade, and to respond to a challenging healthcare environment. We took decisive action to reshape our operations, including announcing a new operating model that includes a Development Center of Excellence to accelerate clinical development and the reorganization of our pharmaceutical business into four business units. We communicated our plan to reduce our cost structure by $1.0 billion and lower our headcount to 35,000 by the end of 2011. We offered a voluntary exit program to select areas of our U.S. sales force to facilitate implementation of a new commercial approach in 2010. And more recently, agreed to sell our Tippecanoe Laboratories manufacturing site to an affiliate of Evonik Industries. We continue to stake our future on innovation, investing appropriately in R&D, making timely data base decisions to advance or terminate our assets. We look forward to keeping you informed of our progress and seeing many of you in New York on December 10 for our annual Investment Community Update.

This conference will be available for replay, starting today at 11:00 am and will run until October 29 at midnight. You may access the replay service by dialing 1-800-475-6701 and entering the access code of 116136. You may also dial 320-365-3844 and also enter the access code of 116136. This concludes today’s conference call.