Lilly Announces Massive Reorganization

Lilly Chairman and Chief Executive Officer John Lechleiter says it is a "pivotal moment" for the company adding "The need for breakthrough medicines – to help aging populations, to provide treatments and cures for deadly diseases, and to improve on inadequate options for many diseases – has never been greater."

updated: 9/14/2009 1:23:50 PM

Lilly Announces Massive Reorganization

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In what is being called some of the most sweeping changes in the company’s history, Indianapolis-based Eli Lilly and Co . (NYSE: LLY) is releasing details today on a major restructuring, aimed at getting drugs in its pipeline to the marketplace more quickly. As part of the plan, Lilly has set a goal of reducing operating expenses by $1 billion by the end of 2011, which includes the reduction of 5,000 positions worldwide. Lilly’s current global work force stands at approximately 40,000. The strategy calls for the creation of a new operating model and a Development Center of Excellence. Lilly is reorganizing its pharmaceutical business into four operating units.

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Press Release

Indianapolis, IN – Eli Lilly and Company (NYSE: LLY) today unveiled a new operating model and announced a series of changes to speed medicines from its pipeline to patients. 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 business into four business units that will operate alongside the Elanco animal health business unit. In addition, the company has set a goal to significantly reduce its cost structure by the end of 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., 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.”
To achieve these objectives,

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. 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. The ultimate goal of the Development COE is to accelerate the launch of important Lilly molecules over the next decade and bring innovative medicines to patients sooner.

-Organize the company around five global business units: oncology, diabetes, established markets, emerging markets, and Elanco animal health, thereby moving from a 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.

Explaining the need for such changes, 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.

“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,” Lechleiter said.

Among a number of growth options that could be considered, 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.

“This is a pivotal moment for our company,” said Lechleiter. “The need for breakthrough medicines – to help aging populations, to provide treatments and cures for deadly diseases, and to improve on inadequate options for many diseases – has never been greater. With the largest early- to mid-stage pipeline in our history, the opportunities for Lilly have also never been greater. The test for our company is to bring those medicines to patients more efficiently and provide demonstrable value.

“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,” said Lechleiter. “The changes we’re making will simplify our organization, clarify accountability and authority, and speed decision making.”

Lechleiter 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.

Activities are currently under way to put the new operating model in place, with the goal of transitioning to the new organization on January 1, 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 announced today.

“These changes will challenge us and require new ways of thinking and acting,” concluded Lechleiter. “Under this new operating model, Lilly has the opportunity not only to better navigate this uncertain, challenging time, but to emerge with renewed strength and focus.”
In connection with today’s 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.

About Lilly

Lilly, a leading innovation-driven corporation, is developing a growing portfolio of pharmaceutical products by applying the latest research from its own worldwide laboratories and from collaborations with eminent scientific organizations. Headquartered in Indianapolis, Ind., Lilly provides answers – through medicines and information – for some of the world's most urgent medical needs. Additional information about Lilly is available at www.lilly.com.

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