Eli Lilly to Freeze Base Pay for Most Employees in 2014

 

Eli Lilly's CEO John Lechleiter was out for a couple of months as he dealt with some heart issues. He recently returned, and guess what he brought with him? More bad news for employees.

The Indianapolis drugmaker, which just let 40% of its U.S. sales force go, has told everyone left standing there will be no pay raises this year, according to Bloomberg. The Wall Street Journal reported that Lilly will also reduce bonuses paid in 2015. The company told Bloomberg it expects to save about $400 million through 2016. All workers, including execs, will see their pay frozen. Only some workers who live outside of the country will be spared the freeze. The company last year had more than 38,500 employees. 

The actions are being taken ahead of the patent losses on antidepressant Cymbalta, its best-selling drug, and Evista, a drug for osteoporosis and breast cancer. Spokesman Ed Sagebiel told Bloomberg that the company expects to lose 20% of its global revenue in 2014 with the loss of patents on those two products. "While we've taken many actions to reduce costs and become a leaner organization, we must do more," he said.  

Cymbalta last year brought in just shy of $5 billion, $4 billion of that in the U.S., but it will lose patent protection at the end of 2013. It was slated to go off patent June 30, but Lilly last year won a 6-month extension after testing the drug for treating depression in adolescents through the FDA pediatric-exclusivity program. The blockbuster Evista will go off patent next year.  

Lilly's first-quarter earnings actually beat Wall Street forecasts, but much of that occurred from cost cuts. About 1,000 sales folks were told in April they were being let go; their last day was Monday.
Lilly is trying to overcome its problems with new drugs but keeps falling short. Late-stage drugs for Alzheimer's disease and rheumatoid arthritis fell short in key trials, and the company scrapped a schizophrenia program. Lilly has made a huge bet on insulin, and there is some upbeat news from that area. It has four new products in development, including one that could give Sanofi's ($SNY) Lantus a run for its money. It is expanding the sales force in that treatment area, and it is investing about $320 million in a new insulin plant.

Lechleiter left about two month ago for surgery on a dilated aorta, handing over the reins to CFO Derica Rice. He returned to Lilly this month "with renewed energy and enthusiasm," according to the company.

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Pharma Sales – It’s a Different World

Pharma sales reps in the U.S. nearly doubled to 100,000 between 1996 and 2005 even though the number of practicing physicians rose by just 26%. If you observed the world of Pharma sales in a rear view mirror, growth was the name of the game. Today, Pharma sales forces are being downsized. The Wall St. Journal, for example, reports that Eli Lilly has cut its US sales force by 30% so far this year as it prepare for two of its biggest drugs – Cymbalta and Evista – to face generic competition. AstraZeneca announced it would cut 1,600 jobs over the next three years. There are a number of reasons why these companies are reducing the size of their sales forces. An important one is the mindset of Physicians. Some have had to increase the number of patients they see so they no longer have time to talk with sales reps. Others will refuse to see pharma reps even if they have the time. And a growing number of physicians prefer to receive their information online. On the other side of the table with fewer sales reps seeing physicians face-to-face, physicians have come to accept the new normal – fewer free office lunches, reduction in paid speaker programs, and cuts in dollars paid for pharmaceutical and marketing research. If you were to fast-forward to a picture of tomorrow these images are likely to be even more dramatically different. PWC identified seven major socio-economic trends that will have huge implications for the industry as a whole:

1. The burden of chronic disease is soaring.
2. Healthcare policy-makers and payers are increasingly mandating or influencing what doctors can prescribe.
3. Pay-for-performance is on the rise.
4. The boundaries between different forms of healthcare are blurring.
5. The demand for medicines in the developing world is likely to grow rapidly.
6. Many governments are beginning to focus on prevention rather than treatment although they’re not yet invested very much in pre-emptive measures.
7. Regulators are becoming more risk-averse. Added to these trends is the observation that many physicians have no history of the past.

According to Dr. Robert Steinbrook at the Yale School of Medicine, “There are many more doctors-in-training over the last five to ten years who have trained in environments with less drug-industry involvement than comparable students might have had a decade earlier.” This all means how Pharma sale reps are selected and trained will need to look strikingly different as the future unfolds. Companies that crack the code on exactly how tomorrow’s sales force will provide value to physicians will have a distinct competitor advantage.