Eli Lilly and Co. and Public Companies and Patent and Generic drugs and Health Care & Life Sciences and Health Care & Insurance and Pharmaceutical

Lilly: Vendors key after Zyprexa patent loss

October 24, 2011

Today’s the day. At the start of business this morning, Eli Lilly and Co. no longer had U.S. patent protection on its best-selling drug, Zyprexa, a loss that threatens to open a gaping hole in the finances of the locally based drugmaker.

The Indianapolis area and even the state of Indiana hope Lilly’s challenges don’t create similar holes in Hoosiers’ incomes.

That’s because Lilly’s 11,500 employees in Indiana receive average compensation of $151,000 per year—more than double the state average. And their earnings help stoke numerous service businesses, from retailers to restaurants to real estate agents and wealth advisers.

On top of that, Lilly contracts with 1,300 vendors in Indiana, spending nearly $1.1 billion every year for their goods and services. Those range from high-end scientific and manufacturing work, to legal and accounting help, to janitorial and food services.

The majority of that money is spent in Indianapolis and its nearby counties, according to a breakdown on Lilly’s website. But Lilly has at least one vendor in 59 of Indiana’s 92 counties.

“Our footprint is pretty far and wide in the state of Indiana,” said Mike O’Connor, Lilly’s director of state government affairs.

In Marion County, Lilly spent $639 million with 675 vendors last year. In Hamilton County, the drugmaker shelled out $71 million to 187 vendors. And in Hancock County, where Lilly has its animal-health subsidiary headquartered and also contracts with laboratories operated by New Jersey-based Covance Inc., it spent $70 million with 47 vendors.

Some of this spending used to be done entirely under Lilly’s umbrella. But Lilly agreed to sell its Hancock County labs in 2008 to Covance, and transferred 280 employees to the new owner.

Similarly in 2009, Lilly agreed to sell its Tippecanoe County manufacturing plant to Germany-based Evonik Industries AG. Now Tippecanoe County receives the second-largest amount of Lilly’s largesse, totaling $195 million to 115 vendors last year.

Trying to overcome the loss of revenue from the $5 billion-a-year antipsychotic Zyprexa, which also lost its European patent in the past month, requires Lilly to rely on its vendors more than ever, O’Connor said.

Lilly also faces the loss of revenue from its No. 2-selling drug, the antidepressant Cymbalta, in 2013. Cymbalta is on pace this year for $4 billion in sales.

“The business climate is going to require us to develop more partnerships,” O’Connor said, adding, “Our vendor network has to be included in our business strategy, more so than it’s ever been.”

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