Lilly To Restructure, Shed 5,000 Jobs

Lilly has unveiled a new operating model and announced a series of changes with the goal of “speed medicines from its pipeline to patients.” The company will establish a Development Center of Excellence (CoE) to streamline and accelerate late-stage development of new medicines, and will reorganize its pharmaceutical business into four business units that will operate alongside the Elanco animal health business unit. In addition, the company has set a goal to reduce its cost structure by $1 billion by the end of 2011. Lilly faces a series of patent expirations for key products beginning in late 2011.

“We remain confident that continued focus on medical innovation is the best way to ensure the long-term growth of our company,” said John C. Lechleiter, Ph.D., Lilly’s chairman and chief executive officer. “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.”

As part of its restructuring, Lilly will:

• Establish the Development Center of Excellence (COE) “to help address the industry-wide challenge of a drug development process that is increasingly complex, slow and expensive,” according to a company statement. The Development COE will distinguish Lilly from its peers by using one common operating system, one common set of priorities and a singular focus to streamline the development of new medicines.
• Organize the company around five global business units: oncology, diabetes, established markets, emerging markets, and Elanco animal health, shifting away from its predominantly functionally-oriented organization to a business-unit structure.
• Streamline the organization and align corporate and general and administrative functions to support the business with a focus on improved quality, strong customer service and reduced costs.
• Reduce the company’s cost structure by $1 billion and lower global headcount to 35,000 by the end of 2011, excluding strategic sales additions in high-growth emerging markets and Japan. Lilly had 40,600 employees at the end of 2008.

“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,” Dr. Lechleiter remarked.

“While our structure and approach served us well in the past, we must take measures now that will make us leaner, more focused, more customer-oriented, and more competitive,” he added. “The changes we’re making will simplify our organization, clarify accountability and authority, and speed decision making.”

Dr. Lechleiter commented that 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.”

The new model is expected to be in place by the beginning of 2010. On December 10, 2009, at the company’s annual investment community day in New York City, company leaders will present additional details of the changes.

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