Not What the Doctor Ordered: Eli Lilly to Shed 5,500 Jobs by 2011

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Reported by Annette Kreuger, Industrial Info Resources (Sugar Land, Texas)--Earlier this week, Eli Lilly & Company (NYSE:LLY) (Indianapolis, Indiana) announced a massive global layoff plan to better fortify the company's defenses against the plagues of profit-killing generics. The grim diagnosis impacts 5,500 employees who will lose their jobs by 2011. Ironically, the 14% workforce reduction could spur sales for one of four top-selling drugs currently facing the patent-loss chopping block for Lilly. That would be Zyprexa, the anti-psychotic medication that helped rack up nearly $80 billion in sales in 2008.

Leading up to this most recent announcement, Lilly has already been aggressively trimming expenses. The industry first took notice in 2007 when the company abandoned construction of a $325 million insulin plant in Virginia. Only half completed, the move stunned local boosters who had embraced the project and the promise of 350 jobs that dated back to the project's inception in 2002 (as followed in Industrial Info's Pharmaceutical-Biotech Tracker - Online Database). The site was eventually purchased by contract research organization (CRO) giant Covance (NYSE:CVD) (Princeton, New Jersey), which is currently delaying an eventual investment of $175 million for the construction of a drug-development campus.

The industry as whole is often reviled by the general public for the perception, or perhaps misconception, that drugs should be developed and provided with no thought of profit. Yet, Big Pharma certainly takes care of its own, as the industry is traditionally known for providing top-tier pay and benefits for employees. And when a company of Eli Lilly's caliber has a major presence in a city or a town, it definitely shows. The high level of salaries and education of the employees tends to influence everything from housing to schools to local cafés. When the pharma jobs vanish, the collateral damage spreads throughout the supporting community.

Sharing the same need as its brethren to beef up anemic product pipelines to offset patent losses, Lilly shares have dropped 18% in 2009. Rather than engineer major deals, such as the proposed $68 billion buyout of Wyeth (NYSE:WYE) (Maidson, New Jersey) by Pfizer Incorporated (NYSE:PFE) (New York, New York), the company will focus on smaller purchases and drug development.

In a recent interview, Lilly CEO John Lechleiter said, "We believe these actions are consistent with our goal to ensure the company is well positioned during the challenging period we have ahead and positioned to grow out of that period with a sustainable flow of innovation." The company has created a Development Center of Excellence, which will streamline the development of drugs and bring medicines into the market faster. Lechleiter stated the company "is convinced" that Lilly's promising pipeline of early- and mid-stage drugs offers the best opportunity for long-term growth.

Lilly expects to cut $1 billion in expenses by the end of 2011 through the planned job cuts and other measures. From a high of nearly 50,000 employees in 2004, the company expects to operate with roughly 35,000 by 2011. In a departure from the company's current operational setup of generally operating as one central unit, by the start of 2010, the company expects to transition to five newly formed global business units: oncology, diabetes, established markets, emerging markets, and the Elanco animal-health unit.

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