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UPDATE: Investors welcome Lechleiter to Lilly helm

December 18, 2007

Investors gave an initially favorable response to the news that John C. Lechleiter, a chemist by training, will take the helm of Eli Lilly and Co. next year, at a time the entire industry faces wrenching changes.

"I'm all for the person with the science background to be the CEO," said Rich Foran, vice president of research at Symons Capital management in Pittsburgh, which owns Lilly shares. "It certainly can't hurt."

Other investors agreed, as Lilly's shares moved up 59 cents in morning trading to $53.77.

In a news conference this morning attended by scores of Lilly workers, the 58-year-old Taurel said he is moving aside because Lechleiter is ready to take over, and because he wanted to give Lechleiter time to become accustomed to the position before major patents expire.

"I want to make sure that John has enough runway to have some success before the company faces patent expirations," he said.

Taurel was vague about personal reasons for stepping down. He emphasized that the company was moving in a good direction, but hinted at the burdens and nature of the CEO's job, which he has held nearly 10 years.

"This is a big job with lots of different constituencies and lots of different responsibilities," he said.

Taurel said he plans to spend more time with his wife and children, "smell the roses," and plan for his own future during the nine months he will remain as chairman. That period runs through 2008.

Lechleiter, 54, replaces Taurel on April 1.

Taurel, who had been CEO since July 1998, oversaw the company during a challenging stretch when it lost patent protection for Prozac and faced intense litigation against its blockbuster Zyprexa.

Lilly's stock price has fallen 17 percent in Taurel's tenure, compared with a 28-percent gain by the S&P 500. Most pharmaceutical stocks have under-performed the broader markets during the last decade.

The patent on Zyprexa expires in 2011, and four others will end by 2014. Those five compounds account for 60 percent of Lilly sales.

Lilly, like other big drugmakers, has struggled to bring new blockbusters to market. It currently is pinning its hopes on a drug-thinner in the development pipeline called prasugrel. The company hopes the drug helps offset lost sales on Zyprexa, which had sales of $4.36 billion in 2006.

"They have the same problems as other pharma companies. They need to develop new drugs, and they need to defend their existing products," said Les Funteleyder, a health care analyst at Miller Tabak & Co. in New York. "I mean, its been difficult for many."

Lechleiter will try to implement an ambitious strategy laid out by Taurel: bring as many of the 44 molecules currently in Lilly's pipeline to market while at the same time slimming down Lilly's work force. The company plans to do more outsourcing, parceling out as much as half of its $3 billion in research and development costs by 2010.

The company also aims to have 10 drug compounds in late-stage clinical testing by 2011 and wants to launch two new compounds per year beginning in 2011, increasing to three per year by 2014.

"I and the senior leadership team have laid out a vision for the company that will guide Lilly for many years to come, and this gives me great confidence about Lilly's future success," Taurel said in a written statement.

Lechleiter, a Louisville native, joined Lilly in
1979. The Xavier University graduate received a master's degree and doctorate from Harvard University in 1980. Three years later, he moved to England to direct pharmaceutical product development at Lilly's research center in Windlesham.

He returned to the United States in 1986 as manager of research and development projects for Europe. In 2001, Lilly named Lechleiter its executive vice president for pharmaceutical products and corporate development, the arm responsible for developing and registering Lilly products.

Lechleiter and his wife, Sarah, have three grown children.

Taurel joined Lilly in 1971 as
a marketing associate in Eli Lilly International, and took on the London-based role of vice president of Lilly's European operations before moving to Indianapolis as president of Lilly International.

Associated Press contributed to this article.

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