Eli Lilly reorganization targets $1 billion in cost savings by end of 2011

US drug major Eli Lilly has unveiled a new operating model and announced a series of changes to speed medicines from its pipeline to patients in a move that expects to generate some $1 billion in cost savings and lower headcount to 35,000 from 40,500 by end-2011.

To help achieve this goal, the company will establish a Development Center of Excellence to streamline and accelerate late-stage development of new medicines, and will reorganize its pharmaceutical operations into four business units: oncology, diabetes, established markets and emerging markets that will operate alongside Elanco animal health.

"We remain confident that continued focus on medical innovation is the best way to ensure the long-term growth of our company," said John Lechleiter, chief executive. "The changes we are announcing today will accelerate the progress of the most exciting pipeline in our history, with more than 60 molecules currently in clinical development. These changes will also ensure that we meet the changing needs of our customers and operate our business in a manner consistent with an increasingly challenging environment. I have great confidence that these changes will have a very positive impact on the company's future."

Explaining the need for such changes, Mr Lechleiter noted that the global pharmaceutical industry is facing unprecedented challenges - slowing innovation, rising costs, patent expiries and increased generic competition, demands from payers to deliver greater value, and health care reform. These forces are reducing industry growth rates and profitability. Lilly faces these and its own challenges, including a series of patent expirations for key products beginning in late 2011.

Atypical antipsychotic Zyprexa (olanzapine), with 2009 sales expected to hit $4.7 billion, accounted for almost a quarter of the Lilly's 2009 sales. Lilly's second-biggest seller, the antidepressant Cymbalta (duloxetine), and the osteoporosis medicine Evista (raloxifene) will lose patent protection by 2014. These drugs, along with Zyprexa, generated $8.47 billion worldwide last year, or about 42% of Lilly's revenue.

"While our financial performance during the past few years has been strong, we will soon enter the most challenging period in our company's history. This calls for strong measures to speed our output of new medicines, better meet the changing needs of our customers and reduce our costs," Mr Lechleiter said.

Among a number of growth options that could be considered, Mr Lechleiter said management is convinced that Lilly's promising pipeline of early- and mid-stage molecules offers the best possible opportunity for sustainable long-term growth. He said the move to business units combined with a lower cost structure will allow Lilly to deliver valued innovation quicker and at less cost and thus provide greater value to customers. The realigned organization will focus on speeding delivery of innovative medicines to market; establishing leadership positions in cancer and diabetes therapies; realizing the opportunity for growth in emerging markets and the company's animal health business; and introducing new products in the company's largest base, the established markets.

In connection with this announcement, the company confirmed its previous 2009 earnings per share guidance range of $4.14 to $4.24 on a reported basis, or $4.20 to $4.30 on a pro forma non-GAAP basis.