Financial Risk Management at Eli Lilly and Company
| Case Code: FINA016 Case Length: 15 Pages Period: 2003 Pub Date: 2003 Teaching Note: Not Available |
Price: Rs.500 Organization: Eli Lilly and Company Industry: Pharmaceutical Countries: Global Themes: Banking and Financial Management |
Abstract Case Intro 1 Excerpts
Excerpts
Background Note
Colonel Eli Lilly, pharmacist and Union officer in the Civil War, started Eli Lilly & Company in 1876 with $1,300, to make gelatin-coating pills. Later, the company began to make gelatin capsules. Lilly began extracting insulin from the pancreases of hogs and cattle in 1923. Other products launched in the 1920s and 1930s included antiseptic Merthiolate, sedative Seconal, and treatments for pernicious anemia and heart disease. Lilly researchers isolated the antibiotic erythromycin from a species of mold found in the Philippines in 1952. Lilly also became a major supplier of Salk polio vaccine. In 1947, Lilly had begun selling diethylstilbestrol (DES), a drug to prevent miscarriages. Lilly enjoyed a 70% share of the DES market by 1971, when researchers noticed that a rare form of cervical cancer afflicted many of the daughters of women who had taken the drug...
Business Overview
Pharmaceutical products dominated Lilly's business. The largest category of products was the neurosciences group, which included Zyprexa, Prozac, Permax, and Strat-tera. Endocrinology products consisted primarily of Humulin, Humalog, Actos, Evista, Forteo, and Humatrope. Oncology products consisted primarily of Gemzar...
Credit Risk
Lilly was exposed to credit risk mainly due to trade receivables and interest-bearing investments. Wholesale distributors of life-sciences products and managed care organizations accounted for a substantial portion of trade receivables...
Market Risk
Lilly faced interest rate risk exposure due to changes in short-term US dollar interest rates. The company attempted to achieve an acceptable balance between fixed and floating rate debt positions and used interest rate derivatives to help maintain that balance...
Financial Instruments: Accounting & Valuation
Derivative activities were initiated within the guidelines of documented corporate risk-management policies. Lilly believed derivatives did not create additional risk because gains and losses on derivative contracts offset losses and gains on the assets, liabilities, and transactions being hedged...
Exhibits
Exhibit I: Lilly: Financial Highlights
Exhibit II: Lilly: Segment Information
Exhibit III: Lilly: Consolidated Statements of Cashflows
Exhibit IV: Lilly: Fair Values of Options
Exhibit V: Lilly: Fair Value of Financial Instruments
Exhibit VI: Lilly: Summary of the Unrealized Gains & Losses
Annexure A: Accounting for Financial Instruments under US GAAP
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