Eli Lilly and Company (LLY)

Item 2.05 Costs Associated with Exit or Disposal Activities.

On October 14, 2009, Eli Lilly and Company announced the sale of its Tippecanoe Laboratories manufacturing facility to Evonik Industries AG (Evonik), one of the world’s largest chemical companies. The manufacturing site, located in Lafayette, Indiana, will remain in operation with a focus on producing high-quality active pharmaceutical ingredients (API) and specialty chemical and animal health products. In connection with the sale of the site, the two companies have also signed a nine-year supply and services agreement, whereby Evonik will manufacture final and intermediate step API for certain Lilly human and animal health products (with declining volume commitments over the contract period). Approximately 700 current Lilly employees, representing all full-time non-contracted workers dedicated to the site, will be offered employment with Evonik.

The sale of Tippecanoe Laboratories is the culmination of Lilly’s strategic review of the site that was announced in July 2008 and considered various options for the site including continuing operations with a revised site mission, exploring opportunities to sell the facility, and ceasing operations altogether. The decision to sell the site is based upon a projected decline in utilization of the site due to several factors, including upcoming patent expirations on certain medicines made at the site, Lilly’s strategic decision to purchase, rather than manufacture, many late-stage chemical intermediates, and the evolution of the Lilly pipeline toward more biotechnology medicines.

Subject to certain closing conditions, the companies plan for the transaction to close by the end of 2009. Upon closing, Evonik will assume control of the Tippecanoe site and its operations.

As a result of this transaction, Lilly will incur charges in the third quarter of 2009 of $.23 per share after tax, comprised of pre-tax non-cash asset impairment charges and other charges of $355 million, and $38 million in severance related charges, substantially all of which is expected to be paid in cash by early 2010.

Item 2.05 Costs Associated with Exit or Disposal Activities.

On March 7, 2008, Eli Lilly and Company announced the termination of development of its AIR® Insulin program, which was being conducted in partnership with Alkermes, Inc. The program has been in phase III clinical development as a potential treatment for type 1 and type 2 diabetes. The company noted that this decision is not a result of any observations during AIR Insulin trials relating to the safety of the product, but rather was a result of increasing uncertainties in the regulatory environment, and a thorough evaluation of the evolving commercial and clinical potential of the product compared to existing medical therapies.

Lilly is in the process of contacting the clinical investigators conducting the current AIR Insulin clinical trials. Subject to protocols, the trials will be halted and the patients currently enrolled will be moved to other insulin therapy under the supervision of their physicians. In the U.S., Lilly will implement a patient assistance program to provide current clinical trial patients with appropriate financial support to fund their medications and diagnostic supplies through the end of 2008. Based upon further analysis, the company may also pursue a similar program in other regions.

As a result of the decision to terminate the development of AIR Insulin, Lilly will recognize a first-quarter 2008 charge to earnings related to the impairment of Lilly manufacturing assets, as well as wind-down costs associated with the termination of clinical trials and certain development activities, and costs associated with the patient assistance program. The exact amount of the charge has not yet been determined, but is estimated to be in the range of $90 million to $120 million, or $0.05 to $0.07 per share. Approximately 50 percent of this charge will require cash payments. On a reported basis, including the charge related to the termination of the AIR Insulin program, as well as the previously announced charge related to the BioMS in-licensing, Lilly now expects 2008 earnings per share to be in the range of $3.73 to $3.90.