Market Shift Pushes Lilly to Abandon Construction of $325 Million Insulin Plant in Virginia

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Reported by Annette Kreuger, Manager Pharma-Biotech Industry for Industrial Info Resources (Sugar Land, Texas). Since first being announced in 2002 (see: Virginia Offers Sweet Deal to Win Lilly's $425 Million Insulin Plant), there have been a number of changes in both the size and scope of Eli Lilly & Company’s (NYSE:LLY) (Indianapolis, Indiana) construction of an insulin production plant in Prince William County, Virginia. After slashing the initial estimated construction cost by $100 million, the company has now made the stunning decision to immediately halt construction on the $325 million plant. The company has said it will return all economic development incentives received from state and local entities.

Following a strong trend within the pharmaceutical sector (reference: 2007 Pharmaceutical-Biotech Industry Forecast), the company has devised an operational reorganization place, with more resources being allocated to development of its biotech pipeline. Lilly’s anticipates that its emerging biotech pipeline will average one new product per year beginning in 2010. Biotechnology-based programs and drug candidates now make up more than 30% of the company's drug portfolio and pipeline.

Scott Canute, Lilly's president of manufacturing operations, issued a statement that while Lilly continues to expect growing worldwide demand for its insulin products and insulin delivery devices, it will not be at levels projected when initial plans for developed for the Virginia plant. The assembly operation for Lilly's new pre-filled insulin pen, called Humalog MirioPen, will now be sourced out of Lilly's delivery device assembly operations in Indianapolis rather than the Prince William County site. It is expected that the company will invest in the existing Indianapolis plant to accommodate any increased production needs.

The halt in construction is expected to cost the company an estimated $155 million to $185 million in charges. Further components of the reorganization plan include a scale-back of operations at Lilly's small molecule active ingredient operations in Lafayette, Indiana to offset excess capacity. The site currently employs 1,200 and severance packages will be offered to approximately 250 employees.

The state of Virginia has been actively courting life science projects, with the Lilly project being a major component of the initiative. Despite the sudden loss of the plant and accompanying jobs, the state is by any definition successful at attracting life science investment dollars. An analysis of current life science activity located within the state reveals a total of 36 active reported projects representing a total investment value (TIV) of $980 million.

Click on the image at right to view a breakdown of Virginia Pharma-Biotech Industry projects by County.

One of the largest is private German drug maker Boehringer Ingelheim’s $142 APIs capacity expansion project at its site in Petersburg. In addition to the current activity, another major coup for the state was last year’s completion of the $500 million Howard Hughes Janelia Farms Research Center (see: Nothing Reclusive About Spectacular $500 Million Howard Hughes Medical Institute in Virginia.)

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