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--Bank loan at 'A+';

--Senior unsecured debt at 'A+';

--Short-term IDR at 'F1';

--Commercial paper at 'F1'.

The Rating Outlook has been revised to Negative from Stable. The ratings apply to approximately $6.77 billion of outstanding debt.

The rating action reflects Fitch's uncertainty of Eli Lilly's ability to counter its exposure to key drug patent expiry in the period between 2010 and 2013, which includes the potential loss of market exclusivity for three of five top-selling medicines. The patent cliff comprises around 57% of total revenues for the LTM period at the end of the third quarter, including the loss of patent protection of Zyprexa in the U.S. in October 2011.

Fitch estimates the company's sales trajectory to turn negative in 2012 and beyond despite incorporating potential commercialization of the late-stage R&D pipeline. The looming revenue and earnings gap heightens the risk of aggressive business development activities. Fitch will closely monitor the company's ability to mitigate potential revenue and earnings losses through initiatives to reduce operating costs, broaden and successfully commercialize the late-stage R&D portfolio, and drive market demand for the human drug portfolio including the promising medicine Effient.

Eli Lilly has focused on strengthening the balance sheet following the largest acquisition in the company's history in November of 2008, when it purchased ImClone Systems Inc. (ImClone) for approximately $6.5 billion. Total debt leverage for the latest 12-month (LTM) period ending Sept. 30, 2009 was 0.9 times (x), falling from 1.5x at the end of 2008. Fitch expects that the current leverage level can be sustained in the long-term absent corporate acquisition activity to address upcoming drug patent expiry.

Fitch recognizes that Lilly's investment into its R&D program, representing at least 18% of revenues, has consistently exceeded the industry norm. The company is committed to sustaining above-market R&D investment to bring forward its more extensive early- and mid-stage programs, including restructuring its drug development processes. However, the addition of the ImClone R&D program did not appreciably expand the late-stage R&D pipeline, which is thin in comparison to peers.

Lilly had been favored by a relatively solid intellectual property position over the past few years and as such, free cash flow dramatically increased to $4.29 billion at the end of 2008 from negative free cash flow in 2005. Free cash flow moderated for the LTM period at the end of the third quarter of 2009 to $1.79 billion, weighed down by Zyprexa litigation payments in the second quarter this year and increasing dividend payments offset by capital preservation. Free cash flow margin for the LTM period ending Sept. 30, 2009 was 8.5%. Fitch estimates free cash flow margins to return to double-digits in 2010 and 2011, and to be pressured from the patent cliff in 2012 and beyond.

Lilly had $3.93 billion of cash and short-term investments and $1.24 billion of unused lines of credit at the end of the third quarter. The next significant long-term debt maturities occur in 2012 when a total of $1.5 billion is due comprising $1 billion of 3.55% senior unsecured notes and $500 million of 6% senior unsecured debt.

Additional information is available at 'www.fitchratings.com'. The issuer did not participate in the rating process other than through the medium of its public disclosure.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

SOURCE: Fitch Ratings

Fitch Ratings, Chicago 
Michael Zbinovec, +1-312-368-3164 
Bob Kirby, +1-312-368-3147 
Media Relations, New York 
Cindy Stoller, +1-212-908-0526 
cindy.stoller@fitchratings.com