Lilly to cut thousands of jobs over 2 years and form 5 business units, lowering costs by $1B

Lilly will reorganize and cut jobs to pare costs

NEW YORK — Drugmaker Eli Lilly & Co. said Monday it will eliminate 5,500 jobs, or nearly 14 percent of its staff, and reorganize into five business units in order to slash costs and speed up development of potential new drugs.

The Indianapolis company said it will reduce its work force 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.

Key Lilly products like the anti-psychotic drug Zyprexa will lose patent protection starting in 2011. CEO John Lechleiter believes the company’s best path to profit growth involves focusing on its early and mid stage drug candidates.

Zyprexa is the company’s best-selling drug. Its other top sellers include the antidepressant Cymbalta, Humalog insulin and cancer drug Gemzar, all of which will lose patent protection in 2013.

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. That will be 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.”

The company’s pipeline includes drugs for Alzheimer’s disease, depression, and alcohol addiction, but those are outnumbered by potential treatments for cancer, osteoporosis, and diabetes.

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 mushrooming.

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 Lilly’s $6 billion purchase of cancer drug maker ImClone Systems, 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.

In morning trading, shares of Eli Lilly rose 26 cents to $33.08.