Eli Lilly and Co. and Health Care Businesses and Health Care & Life Sciences

Taurel passes the baton

December 31, 2007

A new leader will guide the city's largest company in 2008, with some of the biggest challenges in its history on the horizon.

Eli Lilly and Co. announced Dec. 18 that CEO Sidney Taurel will step down March 31 and will be replaced by President John C. Lechleiter, who has been the heir apparent for more than two years.

Taurel, 58, leaves a legacy of adroitly handling crises, like the 2000 court decision that voided Lilly's Prozac patents, but also of a languishing stock price.

Lilly's shares fell 4.5 percent from the day before Taurel became CEO in 1998 to Dec. 17, the day before he announced his retirement. Only three out of 13 major U.S. and European drugmakers had a worse stock performance during that time.

Lechleiter, 54, brings a scientist's background to his new post. And he'll need it to help Lilly bring new medicines to market to replace five products that will lose patent protection by 2014--and which generate 60 percent of Lilly's sales.

Biggest among those experimental drugs is a blood-thinner known as prasugrel. It could supplant Bristol-Myers Squibb's mega-blockbuster Plavix, which boasted $6 billion in sales last year.

Analysts first pumped up expectations for prasugrel, forecasting that it could equal as much as two-thirds of Plavix's sales. Lilly would have split the drug's revenue with its development partner, Japan's Daiichi Sankyo Co. Ltd.

Prasugrel proved superior to Plavix in a massive head-to-head clinical trial. But it also caused higher rates of severe bleeding than Plavix in one out of five patients.

Now, analysts expect prasugrel might bring Lilly $500 million in annual sales. Some are predicting prasugrel won't win regulatory approval at all--at least not without Lilly's conducting another expensive clinical trial. Company officials, however, called the drug "compelling" and pressed ahead with an application for approval to the U.S. Food and Drug Administration.

Lilly needs to get prasugrel established in the marketplace before cheaper, generic versions of Plavix hit the market when that drug loses patent protection in 2011.

That's the same year Lilly's patents will end on its bestseller Zyprexa. The antipsychotic pill pulled in $4.4 billion in 2006 sales and, according to an IBJ estimate, accounted for $2 billion of Lilly's pre-tax profits.

Lilly also will confront its Zyprexa challenge by cutting costs. Taurel told investors on Dec. 6 that Lilly would continue to reduce its number of employees with "great intensity," but mostly through attrition. The company also will outsource more work, including up to half its $3.1 billion in research and development costs by 2010.

The blockbuster-driven model is fading for drugmakers, and Taurel said that the entire industry must change to survive.

"We have a strategy in place to overcome our challenges and deliver the medicine our customers are demanding," Taurel said.

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