Lilly slashes jobs, announces new operating model

Eli Lilly and Co. has unveiled a new operating model and announced a series of changes to speed medicines from its pipeline to patients. The drugmaker says it will eliminate thousands of jobs and will be organized around five units—oncology, diabetes, established markets, emerging markets and animal health.

INDIANAPOLIS, Ind.—Eli Lilly and Co. has unveiled a newoperating model and announced a series of changes to speed medicines from itspipeline to patients. The drugmaker says it will eliminate thousands of jobsand will be organized around five units—oncology, diabetes, establishedmarkets, emerging markets and animal health.

The company will establish a Development Center ofExcellence to streamline and accelerate late-stage development of newmedicines, and will reorganize its pharmaceutical business into four businessunits that will operate alongside the Elanco animal health business unit. Inaddition, the company has set a goal to significantly reduce its cost structureby the end of 2011.
 
"We remain confident that continued focus on medicalinnovation is the best way to ensure the long-term growth of our company," Dr. JohnC. Lechleiter, chairman and CEO, said in a statement. "The changes we areannouncing today will accelerate the progress of the most exciting pipeline inour history, with more than 60 molecules currently in clinical development.These changes will also ensure that we meet the changing needs of our customersand operate our business in a manner consistent with an increasinglychallenging environment. I have great confidence that these changes will have avery positive impact on the company's future."
 
The global headcount will be lowered to 35,000 from 40,500by the end of 2011, although some markets, including Japan, will add workers,according to a statement released by Lilly.
 
 
The company hasn't said where the job cuts will come from,and Lechleiter said those details will be released in coming months.
 
 
"There are no sacred cows," he said. "We are studyingeverything."
 
Lilly is trying to streamline its operations beforemedicines including its best-selling Zyprexa lose patent protection and salesto cheaper generic rivals, he said.
 
"The major emphasis is to prepare us to enter what's goingto be a challenging period for the company, as we see patent expirations, andto speed up new products as we enter that period," Lechleiter said.
 
 
Lilly shares rose 33 cents, or 1 percent, to $33.15 at 10:07a.m. in New York Stock Exchange composite trading.
 
 
Zyprexa, a schizophrenia drug, loses patent protection in2011. The drug had revenue of $4.7 billion in 2008, or almost a quarter of thecompany's sales. Lilly's second-biggest seller, the antidepressant Cymbalta,and the osteoporosis medicine Evista will lose patent protection by 2014. Thesedrugs, along with Zyprexa, generated $8.47 billion worldwide last year, orabout 42 percent of Lilly's revenue.
 
 
Lechleiter noted that the global pharmaceutical industry isfacing unprecedented challenges—slowing innovation, rising costs, patentexpiries and increased generic competition, demands from payers to delivergreater value, and healthcare reform. These forces are reducing industry growthrates and profitability. Lilly faces these and its own challenges, including aseries of patent expirations for key products beginning in late 2011.
 
"While our financial performance during the past few yearshas been strong, we will soon enter the most challenging period in our company'shistory. This calls for strong measures to speed our output of new medicines,better meet the changing needs of our customers and reduce our costs,"Lechleiter said.

Among a number of growth options that could be considered,Lechleiter notes that management is convinced that Lilly's promising pipelineof early- and mid-stage molecules offers the best possible opportunity forsustainable long-term growth.
 
"This is a pivotal moment for our company," added Lechleiter."The need for breakthrough medicines—to help aging populations, to providetreatments and cures for deadly diseases, and to improve on inadequate optionsfor many diseases—has never been greater. With the largest early- to mid-stagepipeline in our history, the opportunities for Lilly have also never beengreater. The test for our company is to bring those medicines to patients moreefficiently and provide demonstrable value."
 
Lechleiter noted that while the company's structure hasserved it well in the past, measures must be taken to "become leaner, more focused,more customer-oriented and more competitive."
 
 
"The changes we're making will simplify our organization,clarify accountability and authority, and speed decision-making," he said.

Activities are currently under way to put the new operatingmodel in place, with the goal of transitioning to the new organization on Jan.1, 2010. On Dec. 10, at the company's annual investment community day in NewYork City, company leaders will present additional details of the changesannounced today.
 
"These changes will challenge us and require new ways ofthinking and acting," added Lechleiter. "Under this new operating model, Lillyhas the opportunity not only to better navigate this uncertain, challengingtime, but to emerge with renewed strength and focus."
 
In conjunction with the announcement, Lilly has named theleaders of its Development Center of Excellence and its oncology, diabetes,established markets, emerging markets and Elanco animal health units. These leaderswill provide improved line-of-sight to Lilly's customers. Each will carry cleardecision-making authority and accountability for their respective parts of thebusiness.
 
 
Drs. Tim Garnett and Tom Verhoeven will lead the DevelopmentCenter of Excellence within Lilly Research Laboratories. Garnett will have responsibilityfor medical, regulatory, global product safety, translational medicine andglobal health outcomes. Verhoeven will have responsibility for the clinicaldevelopment organization, product R&D, toxicology/ADME and projectmanagement.
 
John H. Johnson will lead the oncology business unit.Johnson currently serves as CEO of ImClone Systems, a wholly owned subsidiaryof Lilly.
 
Enrique A. Conterno will lead the diabetes business unit.Conterno currently serves as president of Lilly USA, the company's U.S.business operations.
 
Bryce D. Carmine will lead the established markets businessunit. Carmine currently serves as Lilly's executive vice president of globalmarketing and sales.
 
 
Jacques Tapiero will lead the emerging markets businessunit. Tapiero currently serves as Lilly's president of the intercontinentalregion.
 
 
Jeffrey N. Simmons will lead Elanco, the animal healthbusiness unit, where he currently serves as president.
 
 
Appointments for each of the four pharmaceutical businessunit leaders and the two leaders of the Development Center of Excellence willbecome effective on Nov. 1.
 
 
"These are proven leaders who bring a wealth of experienceand knowledge to their respective roles," Lechleiter adds. "Each hasdemonstrated strong leadership and an ability to get results throughout theirbusiness careers."


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