Eli Lilly said this morning it will eliminate 8% of its workforce—approximately 3500 jobs—through a restructuring designed to cut costs and further focus the company on developing new treatments.

Lilly said the majority of the 3500 jobs would be eliminated through a voluntary early retirement program in the U.S., though the company will also shut or consolidate some of its facilities and eliminate some jobs worldwide.

The pharma giant said its global “productivity improvement efforts” will include:

  • Shutdown of its R&D office in Bridgewater, NJ;
  • Shutdown of the Lilly China Research and Development Center in Shanghai;
  • Shift of production from its animal health manufacturing facility in Larchwood, IA, to an existing plant in Fort Dodge, IA; and
  • Additional consolidations of existing shared service centers.

Lilly employed approximately 41,975 people worldwide as of December 31, 2016, including approximately 23,115 employees outside the U.S., according to its Form 10-K Annual Report for 2016.

“The actions we are announcing today will result in a leaner, more nimble global organization and will accelerate progress toward our long-term goals of growing revenue, expanding operating margins, and sustaining the flow of life-changing medicines from our pipeline,” Lilly chairman and CEO David A. Ricks said in a statement.

Ricks noted that Lilly has launched eight medicines over the past four years, with potential to bring to market two additional treatments by the end of 2018: “To fully realize these opportunities and invest in the next generation of new medicines, we are taking action to streamline our organization and reduce our fixed costs around the world.”

Patent Expirations

Ricks told The Wall Street Journal that a factor in the restructuring was pending expirations of some of its top-selling drugs. Lilly’s attention-deficit/hyperactivity disorder (ADHD) drug Strattera® (atomoxetine) saw its U.S. patent expire in May, while erectile dysfunction treatment Cialis® (tadalafil) will lose U.S. patent protection in November.

Just six months ago in March, Lilly was talking up plans for growth in the U.S., trumpeting plans to spend $850 million this year on capital projects for its facilities across the U.S., including research laboratories, manufacturing sites, and general and administrative areas.

However, Lilly has also laid off significant numbers of workers earlier this year. In January, the company disclosed plans to eliminate about 485 field-based employees based in its Integrated Health Partners (IHP)/Cardiovascular Account Specialists organization within the company’s U.S. Bio-Medicines Business Unit. Those job cuts followed the Phase III trial failure of its drug candidate solanezumab in patients with mild dementia due to Alzheimer's disease.

In February, Lilly said it would eliminate 200 R&D positions worldwide—but added in a statement that it would also “increase our investment and hire in strategic areas, including molecule-making capabilities, immunology, and Alzheimer's disease, across our U.S. research sites later this year.”

Ricks took office in January, succeeding John Lechleiter. As CEO in 2012, he committed Lilly to expanding sales in China, spearheading the opening of the Shanghai R&D center in 2012.

Lilly projected that it will incur restructuring-related charges of approximately $1.2 billion pretax or $0.80 per share after tax—but added that it expects to generate annual savings of approximately $500 million starting in 2018.

That annualized savings, Lilly said, will be about equally split between lowering its cost structure and reinvesting in the business—including product launches and clinical development for new indications and line extensions.

Lilly acknowledged that it will reduce its earnings per share guidance in 2017 to reflect the charge, but added that its non–generally accepted accounting principles (GAAP) earnings per share guidance will not change due to the restructuring.

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