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Executive Summary

LILLY CALLS ON AT&T EXEC TOBIAS TO REPLACE CEO BRYSON after less than two years as president and CEO. Effective June 25, Randall Tobias, 51, assumed the titles of chairman, CEO and president. Vaughn Bryson, 54, president and CEO of Lilly since September 1991, has left the company. Bryson's "decision to retire was prompted by differences with the board over management philosophy," Lilly said in a June 25 announcement of the change. Tobias replaces Richard Wood as chairman. Bryson presumably would have soon assumed that title if he had retained the top post. Wood will remain as a director of the company. His continued place on the board reflects an effort to maintain topside continuity and indicates that the split that drove Bryson out may not have been clearly between outside directors and insiders on the board. The Lilly board had eight outside directors and six insiders (including Wood and Bryson) at the time of the decision to change. Given those numbers, it would be unlikely that Bryson could be unseated without a break with at least one of the key inside figures. Bryson's abrupt departure contrasts sharply with the image of management stability that has characterized Lilly for decades. As Bryson's predecessor, for example, Wood had an 18-year tenure at the top of the company. Bryson lasted barely more than 18 months in the top spot. In a company where long service and carrying a detail bag to get to know the customer base first hand have been prerequisites to advancement in the past, the accession of a lifer from another company -- outside the drug business -- is equivalent to a revolution. Transitions lower down the Lilly hierarchy also have not gone smoothly in recent months. In March, the president of North American Operations Ronald Matricaria left the company after less than six months in his position to head the medical device firm St Jude Medical. He was replaced by a recent recruit to Lilly: Mitchell Daniels, a former top Republican Party strategist who had been brought to the company as a VP-public affairs. Tobias, a 30-year AT&T veteran, has been a director of Lilly since 1986. He was vice chairman of AT&T and president of AT&T International prior to the Lilly appointment. To balance Tobias' position as an outsider in a business known for valuing home-grown managers, Lilly is making much of the AT&T exec's local roots and his background in Indiana businesses. A "fifth-generation Hoosier," Tobias joined Indiana Bell in 1964 after graduating from Indiana University. The uncharacteristic appointment of an outsider highlights the unusual corporate circumstances Lilly has faced during Bryson's tenure -- and dramatizes the change in personality of the industry. Lilly maintains that Tobias' background in the rapidly changing telecommunications field prepares him for the wide range of changes affecting the drug industry. Among the recent challenges to the Lilly reputation, the company's record of consistent earnings growth has become scratched. The company reported its first net loss in 51 years during the third quarter of 1992 as a result of restructuring charges. Earnings for the fourth quarter of 1992 were flat and net income dropped 16% in the first quarter of 1993. The company's quality image also has been sullied. In February, Lilly disclosed that a grand jury in Baltimore is investigating its manufacturing operations ("The Pink Sheet" Feb. 22, T&G-10). Two of Lilly's device subsidiaries -- Physio-Control and CPI -- are operating under consent decrees signed with FDA in 1992. Under Bryson, Lilly has been active in signing research collaborations, striking deals with Shaman, GenPharm, Repligen, SIBIA, Bioject, Zynaxis and Sphinx, among others. The company also struck one of the larger biotech licensing deals, paying $100 mil. to Centocor for rights to Centoxin and CentoRx ("The Pink Sheet" July 20, 1992, T&G-6). Centoxin's prospects, however, look bleak after a second Phase III clinical trial showed excess mortality in the group treated with Centoxin ("The Pink Sheet" Jan. 25, T&G-2).

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