Lilly scurries to get out from under Zyprexa cloud

Another year of rapid change at Eli Lilly and Co. did little to move the company out from under the cloud cast by its best-selling
drug, Zyprexa.

In January, Lilly admitted it committed a felony by pushing doctors to use the antipsychotic Zyprexa
in ways not approved by U.S. regulators. It paid what was then a record settlement of $1.4 billion and shelled out more than
$100 million more throughout the year to settle various state lawsuits.

None of the fines stopped Lilly from raking
in another $4.7 billion in revenue from Zyprexa—nearly all of which is profit. But that gravy train will end in October
2011 when cheaper generic versions of the drug will flood into the United States and Europe, stealing more than 80 percent
of Lilly’s Zyprexa revenue.

Lilly faces the biggest patent challenges in the pharmaceutical industry. It
will lose patent protection on a blockbuster drug in each of the next five years. More than half its current revenue could
disappear.

Lilly is trying to bring new drugs to market, but this year it had to abandon promising drugs designed
to treat osteoporosis and multiple sclerosis. It finally won approval for its blood thinner Effient, but sales so far have
been slow.

Rival drugmakers Pfizer Inc. and Merck & Co. Inc. made huge acquisitions to fill gaps in their near-term
pipelines. But Lilly CEO John Lechleiter opted for a different plan out of the pharma playbook—cutting staff.

In September, he announced Lilly would shed 5,500 jobs in the next two years. So far, cuts have been concentrated in the
U.S. sales force, which is now 25- percent smaller than a year ago.

Lilly also plans to restructure itself into
five business units and make changes in its research and development arm to move new drugs to market faster.

But
so far, investors aren’t buying it. Lilly’s stock price went nowhere in the past 12 months.

Les Funtleyder,
a health care stock analyst at Miller Tabak & Co., said of Lilly, “Because we still do not understand the end game
for LLY, we remain on the sidelines.”•

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