Pharmaceutical company Eli Lilly & Co. (NYSE: LLY) is planning to cut 5,500 jobs over the next few years and reorganize into five business units. The company is looking to reduce costs and accelerate how long it takes new drugs to get to market, especially as its top performers see their patents expire. This translates to a workforce reduction of close to 14% – to 35,000. This measure doesn't include new positions in emerging markets with high potential and Japan.
The company hopes to cut as much as possible through attrition and retirements – and it would not indicate how many other positions would have to be cut.
Eli Lilly's goal is to slash its annual cost by $1 billion during this restructuring. The new business units will be: cancer, diabetes, established markets, emerging markets and Elanco, which is its animal health business. This is a change from the existing functional model, which separates U.S. and global marketing for each drug in the company's portfolio. Through the new structure, Lilly says, drug development and marketing will be tied more closely.
The decision to restructure is an obvious one for Eli Lilly, as it has only received approval for one new drug since 2005 (blood thinner Effient). Antipsychotic drug Zyprexa, an important product, is set to lose its patent in 2011, with Cymbalta, Humalog and Gemzar doing so in 2013.
There are some late-stage drugs on which Lilly seems to be pinning its hopes, including potential treatments for cancer, multiple sclerosis, diabetes and Alzheimer's. Depression, alcohol addiction and osteoporosis drugs are in the pipeline, as well. But testing and development can take up to 15 years and cost $1.2 billion for one drug. The company also sees growth opportunities in the diabetes market. Byetta, Lilly's 2005 drug in this space, saw sales fall by nearly a third last year, because of safety considerations. Currently, it is trying to develop an enhanced version to be taken once a week.
The go-forward strategy for Lilly is focused on the pipeline; there aren't any major acquisitions planned (of the magnitude of Pfizer's (NYSE: PFE) Wyeth pickup at $68 billion or Merck's (NYSE: MRK) of Schering-Plough for $41 billion).
If it's going to win through product, Eli Lilly will have to take quick action to bolster its portfolio – which is normally the domain of acquisition. Zyprexa, Cymbalta, Humalog and Gemzar brought in more than half the company's revenue last year, with $10.85 billion in aggregate sales. With an approval drought since 2005, betting on R&D may be a risky move.
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