Under mounting pressure in diabetes, Eli Lilly
has just become the latest drugmaker to undergo a major shakeup. The pharma
giant on Thursday announced plans to cut 3,500 employees by the end of the year
as it shoots to achieve $500 million in annual savings.
The company said it expects most of the cuts to
come from an early retirement program in the U.S. in which participants will
receive “enhanced retirement benefits.” Lilly disclosed the program to eligible
employees today and expects the retirements to be done mostly done by the end
of the year. Altogether, the announcement is the first major restructuring
effort by new Lilly CEO David Ricks since taking the helm this year.
Other cuts will come from site reductions and
closures. Research sites in New Jersey and Shanghai are slated to shutter as
part of a streamlining effort, according to a release, with further
consolidation coming elsewhere. The company plans to move animal health
manufacturing from a site in Larchwood, Iowa, to an existing site in Fort
Dodge, Iowa.
Lilly expects the closures, severance expenses
and the retirement program will cost $1.2 billion pre-tax, 80 cents per share
after tax, impacting EPS guidance for the year. Half of the savings will go
toward improving the drugmaker’s cost structure, while the company plans to
reinvest the other half in product launches and R&D.
The cuts represent about 8% of Lilly’s global
workforce as Lilly had nearly 42,000 employees by the end of 2016, according to
an SEC filing. The drugmaker announced a big round of cuts—5,500—back in 2009.
Like its peers Sanofi and Novo Nordisk, Lilly
has been under increasing pressure in diabetes as payers play the drugmakers
against each other to secure better pricing. Back in March, the drugmaker
released a transparency report showing that an average 14% list price hike in
2016 for its medicines amounted to a net 2.4% increase after discounts. Across
its portfolio, Eli Lilly said it is chopping half the list price off of its
drugs in behind-the-scenes negotiations.
It’s not alone, however. Sanofi and Novo have
had to announce sizable layoffs over the last year as sales in the treatment
area erode. Novo cut 1,000 staffers last fall, while Sanofi announced its own
cuts in December, part of a larger restructuring effort.
Lilly is working to boost its fortunes in other
areas of business with new psoriasis entrant Taltz quickly picking up sales
this year. The company also has big plans in cancer with late-stage pipeline
drugs such as abemaciclib and ramucirumab.
Thursday’s cuts at Eli Lilly follow another
round earlier this year as the drugmaker had to let go of 485 employees in the
wake of a failed phase 3 trial for Alzheimer’s candidate solanezumab. The
company had staffed up in anticipation of an approval and launch.
Before that, the Indianapolis-based drugmaker
changed some management and brought in former Novartis executive Christi Shaw,
while also naming Enrique Conterno to president of Lilly USA as well as
diabetes chief. Former USA head for the company, Alex Azar, left Lilly as part
of the shakeup.
