Lilly Sets Out To Reorganize

Eli Lilly & Co. is embarking on a reorganization that will establish five business units and eliminate about 5,500 jobs, a cut of nearly 14%, by the end of 2011. Lilly employs some 40,000 people worldwide.

The new business units—oncology, diabetes, established markets, emerging markets, and Elanco animal health—will be in place by the end of the year. The reorganization is intended to eliminate $1 billion in the company’s costs by the end of 2011.

At the same time, the company is establishing a “development center of excellence” that will impose common operating practices and priorities in all its drug development areas. Lilly says the center is unique in the drug industry and will help it accelerate the launch of important molecules over the next decade.

“We remain confident that continued focus on medical innovation is the best way to ensure the long-term growth of our company,” says Lilly CEO John C. Lechleiter, an organic chemist who took the top office at the drug firm last year. The announced changes, he says, are aimed at accelerating development of new drugs in the pipeline. The company currently has 60 molecules in clinical development.

Other major drug companies, including Pfizer and Merck & Co., have launched streamlining plans this year. Merck announced a similar regrouping of businesses that will take effect after it completes its acquisition of Schering-Plough (C&EN, Sept. 7, page 29).

“While our financial performance during the past few years has been strong, we will soon enter the most challenging period in our company’s history,” Lechleiter says. “This calls for strong measures to speed our output of new medicines, better meet the changing needs of our customers, and reduce our costs.”

One of Lilly’s primary challenges will be patent expirations. Its top-selling schizophrenia drug, Zyprexa, will lose patent protection in 2011. Zyprexa has annual sales of nearly $5 billion worldwide and accounts for about a quarter of Lilly’s total sales. The company’s next biggest seller, Cymbalta, a depression and anxiety-disorder treatment with sales of $2 billion, is set to lose patent protection in 2013.

In its pipeline, Lilly has six candidates in Phase III clinical trials for various diseases including type 1 diabetes, Alzheimer’s disease, and breast cancer. FDA is reviewing Arxxant, a potential blockbuster drug for diabetes-related eye disease, and has asked for more tests. FDA is also reviewing a once-a-week-injection version of its type 2 diabetes drug, Byetta; the marketed version of Byetta is injected twice a day.

Lilly’s moves “represent a realistic admission of the challenges the company faces,” health care equity research firm Leerink Swann told investors in a research note. But they do not alter long-term forecasts that have assumed Lilly would eliminate at least $1 billion from its cost structure by 2015. Lilly will need to “deliver substantial pipeline surprises” or a midsized acquisition to shore up its future earnings, the note claims.

However, Stefan D. Loren, the managing director at Baltimore-based consultancy Westwicke Partners, tells C&EN that Lilly will benefit from the changes because the firm, unlike Pfizer and Merck, is not involved in a major acquisition. “Lilly will at least be small enough to grow after its patent expirations,” he says. “It has some interesting things in the pipeline.”

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