Eli Lilly and Company

    Lilly and Applied Molecular Evolution Announce Merger Agreement

Eli Lilly and Company (NYSE:LLY) and Applied Molecular Evolution, Inc. (AME)
(Nasdaq:AMEV) announced today the companies have mutually agreed to AME's merger
into Lilly. The boards of directors of Lilly and AME have given their approval
to the transaction, which is subject to approval of AME shareholders, clearance
under the Hart-Scott-Rodino Anti-Trust Improvements Act and certain other
closing conditions.

"We believe that the combination of Lilly's therapeutic area discovery and
medical expertise and AME's industry-leading protein optimization technology
will enhance our stature as a world leader in biotechnology products," said
Steven M. Paul, M.D., executive vice president, science and technology for
Lilly. "We are confident that the synergies this merger creates will accelerate
our ability to discover and optimize biotherapeutic drugs for cancer,
inflammatory diseases, and critical care, as well as diabetes and obesity -
areas where proteins, such as monoclonal antibodies, are of great therapeutic
benefit. We have already seen the advantages of AME's technology firsthand
through our two-year collaboration, and we look forward to leveraging AME's
expertise across all of our therapeutic areas."

"Lilly is an ideal strategic fit for AME. Our combination with Lilly will
leverage the protein therapeutic optimization and development capabilities that
we have created and provides a very substantial return over the past year to our
shareholders," said William D. Huse, M.D., Ph.D., chief executive officer and
chairman for AME. "Based on our extensive collaborative experience with Lilly,
we believe that AME's world-class protein engineering and development team
coupled with Lilly's drug discovery, medical expertise and resources will enable
the full potential of AME's directed evolution technology to be realized."

AME, located in San Diego, will retain its name but become a wholly-owned
subsidiary of Lilly and integrate with Lilly's research organization.

Under the terms of the agreement, AME shareholders will receive $18 for each
outstanding AME share at closing. AME shareholders may elect to receive the $18
in cash or shares of Lilly common stock based on the closing price of Lilly
stock on the closing date, subject to proration such that the total purchase
price paid by Lilly is 80 percent stock and 20 percent cash. The value of the
transaction as of the anticipated closing date is expected to be approximately
$400 million, net of cash.

The transaction is expected to close in the first quarter of 2004. Acquired
in-process research and development related to this transaction will be reported
by Lilly as a substantial one-time charge in 2004. Excluding this one-time
charge, there is no material dilutive impact to Lilly's 2004 earnings.

Applied Molecular Evolution, Inc. (AME) is a leader in applying directed
molecular evolution to improve healthcare by optimizing and developing human
biotherapeutics. Directed molecular evolution is a process for optimizing genes
and proteins for specific commercial purposes. Since its inception, AME's
principal focus has been on applying its proprietary AMEsystem(TM) technology
platform to human biotherapeutics, the largest market for directed molecular
evolution. Biotherapeutics, or biopharmaceuticals, are protein pharmaceuticals
such as antibodies, cytokines, hormones and enzymes. AME uses its proprietary
technology to develop improved versions of currently marketed, FDA-approved
biopharmaceuticals as well as novel human biotherapeutics. For more information,
please visit www.AME.biz.

Lilly, a leading innovation-driven corporation, is developing a growing
portfolio of first-in-class and best-in-class pharmaceutical products by
applying the latest research from its own worldwide laboratories and from
collaborations with eminent scientific organizations. Headquartered in
Indianapolis, Ind., Lilly provides answers - through medicines and information -
for some of the world's most urgent medical needs. Additional information about
Lilly is available at www.lilly.com.

This press release contains forward-looking statements about the benefits of a
merger between Lilly and AME and the potential of AME's directed molecular
evolution technology. It reflects Lilly and AME's current beliefs, assuming that
the transaction is successfully closed; however, as with any such undertaking,
there are substantial risks and uncertainties in the process of implementing the
transaction. There is no guarantee Lilly will realize the expected financial and
technological benefits anticipated, or that AME's technology will yield
commercially successful pharmaceutical products. For further discussion of these
and other risks and uncertainties, see Lilly and AME's filings with the United
States Securities and Exchange Commission. Lilly and AME undertake no duty to
update forward-looking statements.

ADDITIONAL INFORMATION ABOUT THE MERGER AND WHERE TO FIND IT

In connection with the proposed transaction, Eli Lilly and Company and Applied
Molecular Evolution, Inc. will file a proxy statement/prospectus with the
Securities Exchange Commission in the near future, as part of a Registration
Statement on Form S-4. Investors and security holders are advised to read the
proxy statement/prospectus and registration statement when they become
available, because important information will be contained therein. The proxy
statement/prospectus will be sent to stockholders of Applied Molecular
Evolution, Inc. in connection with the solicitation of their approval of the
proposed merger of Applied Molecular Evolution, Inc. with a subsidiary of Eli
Lilly and Company. Once filed one will be able to obtain a free copy of the
Registration Statement on Form S-4 and other documents filed by the companies
with the Commission at the Commission's website at http://www.sec.gov. Once
filed, the Registration Statement also will be available from Lilly by
contacting Eli Lilly and Company, Lilly Corporate Center, Indianapolis, Indiana
46285, Attention: Shareholder Services (317) 276-6993 and from Applied Molecular
Evolution, Inc. by contacting Applied Molecular Evolution, Inc., 3520 Dunhill
Street, San Diego, California 92121, Attention: Investor Relations 
(858) 597-4990.

Eli Lilly and Company and Applied Molecular Evolution, Inc., and their
respective directors and executive officers, may be deemed to be participants in
the solicitation of proxies from the stockholders of Applied Molecular
Evolution, Inc., in connection with the merger. Information about the directors
and executive officers of Applied Molecular Evolution, Inc., and their interests
in the merger, including their ownership of Applied Molecular Evolution, Inc.,
is set forth in the proxy statement for Applied Molecular Evolution, Inc.'s 2003
annual meeting of stockholders. Information about the directors and executive
officers of Eli Lilly and Company and their interests in the merger, including
their ownership of Eli Lilly and Company stock, is set forth in the proxy
statement for Eli Lilly and Company's 2003 annual meeting of stockholders.
Investors may obtain additional information regarding the interests of such
participants in the merger by reading the proxy statement/prospectus when it
becomes available.