Eli Lilly and Co. plans to freeze salaries for most employees in 2012

Drugmaker cites financial pressures caused by patent expirations on top drugs

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INDIANPOLIS—In a preliminary proxy statement thatit filed recently with the U.S. Securities and Exchange Commission, Eli Lilly andCo. has said that it will freeze base pay for most of its employees in 2012,citing financial pressures caused by patent expirations on top drugs. Thisdecision will apply to its roughly 38,000 employees in most countriesworldwide, including top officers. 
In fact, Lilly CEO John Lechleiter requested noincrease in his base salary or incentives "in light of the business challengesthe company faces," according to the filing, and this marks the thirdconsecutive year he has done that. His base pay is $1.5 million per year, andhis total compensation will be about $16.4 million—down roughly $100,000 fromthe previous year—made up of stock awards valued at $5.6 million, nonequityincentive plan compensation of $2.6 million, change in pension value of $6.5million, and other compensation valued at $90,000.
The compensation committee of Lilly's board "electedno base pay increase in 2012 in light of patent expirations we're facing nowand the financial challenges we're going to have," Lilly spokesperson MarkTaylor has said, adding that employees who receive cash bonuses in addition tobase pay have the potential to increase their overall compensation increases in2012 if the company performs very well this year.
Lilly recently lost U.S. patent protection for whathad been its leading product, the antipsychotic drug Zyprexa. Other top-sellingLilly drugs are expected to lose patent protection in coming years as well. Akey trigger for the salary freezes may have been that Lilly missed analystestimates for its earning, and sales of Zyprexa were falling faster thanexpected when generic competition began in October. In fact, Zyprexa revenuedeclined 44 percent in the fourth quarter to $749.6 million, Lilly noted Jan.31.
Lilly shares rose 18.6 percent during 2011,finishing the year at $41.56. The company's reported profit declined 14 percentto $4.3 billion, while sales rose 5 percent to $24.3 billion.
As Lilly works to bolster its pipeline again andfind one or more blockbuster-level drugs to market, the best hope right now,many feel, is solanezumab for Alzheimer's disease. Key trial results are due laterthis year for the drug.

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