Lilly to cut 5,500 jobs over 2 years, trim $1B in costs as drugmaker faces loss of key patents

Lilly to cut 14 pct of staff, trim $1B in costs

Seeking to cut costs and bring new drugs to market more quickly as its best-sellers go off-patent, drugmaker Eli Lilly & Co. said Monday it will eliminate 5,500 jobs over two years and reorganize into five business units.

The Indianapolis company said it will reduce its work force by nearly 14 percent, to 35,000 from the current 40,500, by the end of 2011. The new total excludes hirings in high-growth emerging markets and Japan.

Lilly hopes to cut annual costs by $1 billion per year over the same time, and will organize itself into the following units: cancer, diabetes, established markets, emerging markets, and Elanco, its animal health business.

The company said its drug development and marketing will be more closely linked after the reorganization. Eli Lilly is currently organized around “functions,” with separate U.S. and global marketing operations for each drug.

The company faces a dearth of recently approved drugs, having received approval for only one new drug since 2005. That was the blood thinner Effient, which reached the market in August after an 18-month FDA review.

Meanwhile, key Lilly products like the anti-psychotic drug Zyprexa will lose patent protection starting in 2011, with three other drugs — antidepressant Cymbalta, Humalog insulin and cancer drug Gemzar — losing protection in 2013. CEO John Lechleiter believes the company’s best path to profit growth involves focusing on its early and mid stage drug candidates.

Lilly is not planning an acquisition on the scale of Pfizer’s $68 billion purchase of Wyeth, or Merck’s $41 billion deal for Schering-Plough. But the company bought cancer drug maker ImClone Systems for $6 billion last year to acquire the cancer drug Erbitux and help balance the revenue it would lose when Zyprexa, Cymbalta, Humalog and Gemzar faced generic competition. The products were Lilly’s four best-sellers in 2008, with combined revenue of $10.85 billion — more than half the company’s total.

The move will leave the developer of Prozac without a separate division devoted to mental health, as the neuroscience business will be part of the established markets unit, the largest of the five businesses. Spokeswoman Angela Sekston said mental health is still a priority for the company.

“We’re not walking away from our presence in that field,” she said. “We’re going to maintain a strong research presence, absolutely, in neuroscience.”

Lilly’s drugs in late-stage development include potential treatments for cancer, multiple sclerosis, diabetes, and Alzheimer’s disease. Other treatments in the pipeline includes drugs for depression, alcohol addiction and osteoporosis.

Testing and discovery for successful drugs can cost up to $1.2 billion and take up to 15 years, Lilly says on its Web site.

Sekston said there is more room for growth in the diabetes market, as incidents of the disease, which is associated with other health problems, are exploding. The company launched the diabetes drug Byetta in 2005, but sales dropped by almost a third last year due to safety concerns. Lilly is working on a once-a-week version of the drug.

The company said it hopes to make some of the reductions through retirements and attrition, but couldn’t speculate on how many of the cuts will be made that way. It suggested most of the reductions will be in the U.S., including Indiana, where Lilly employs about 13,600 people.

The reorganization builds on the ImClone purchase as former ImClone CEO John Johnson will lead the new oncology business. Enrique Coterno, currently the head of U.S. operations, will lead the diabetes business. Bryce Carmine, who is in charge of global marketing and sales, will lead the established markets unit, and intercontinental region head Jacques Tapiero will be in charge of emerging markets. Those appointments are effective Nov. 1.

Elanco head Jeffrey Simmons will keep his post. The company also said Tim Garnett and Tom Verhoeven will lead a Development Center of Excellence within its research laboratories, which will be focused on streamlining drug development.

The company also backed its annual guidance, calling for a profit of $4.14 to $4.24 per share, or $4.20 to $4.30 per share excluding one-time costs. Analysts on average expect $4.28 per share, according to Thomson Reuters.

Shares of Eli Lilly rose 31 cents to close at $33.13 Monday.