UPDATE: Lilly chief says more job cuts on the way

December 6, 2007
Eli Lilly and Co. CEO Sidney Taurel says the company will continue reducing its work force - even through some job cuts - as the entire pharmaceutical industry tries to retool for a future without the kinds of mega-blockbusters that sustained it for decades.

"We're going to continue, year after year, with great intensity, to reduce our head count, taking advantage mostly of attrition, some functional actions where necessary," Taurel said in a television interview this morning with Bloomberg News.

In a separate interview with The Wall Street Journal, Taurel said the pharmaceutical industry is "doomed" if it doesn't change the way it does business. He explained to analysts this morning that he meant drugmakers need to tailor their products to small groups of patients, thereby improving their "value proposition" for health insurers, doctors and patients.

He also outlined to investors this morning how Lilly continues to construct a "network" of contract scientists, sales people and third-party firms to make itself more nimble and more efficient.

Taurel said Lilly has already trimmed its work force by 5,000 people - or 11 percent- since mid-2004, mostly through attrition. He argued that Lilly is keeping up with other drugmakers even though it has made no "splashy announcements" about cutting its work force.

New York-based Bristol-Myers Squibb Co. announced yesterday that it will trim 4,300 workers and close half its manufacturing plants by 2010.

"I don't think we are behind the curve. We don't make splashy announcements. But we do reduce our headcount and we do close plants when that's necessary," Taurel told Bloomberg.

Lilly stock edged up 11 cents to morning to trade near $53.60 a share after the company significantly exceeded analysts' expectations for its 2008 profits.

Lilly said it expected to earn $3.85 to $4 per share next year. Analysts had projected earnings of $3.81 per share, according to a survey by Thomson Financial. The company also reaffirmed its 2007 profit forecast of $3.50 to $3.55 per share. Analysts are expecting $3.53 per share.

Lilly officials said the company will have seven of its drugs capture $1 billion in sales next year. Its bestseller Zyprexa is holding up, even under intense competition and "harsh criticism," said Lilly President John C. Lechleiter.

Lilly needs to produce another blockbuster like Zyprexa, which garnered $4.4 billion in sales last year. The major patents on Zyprexa expire in 2011.

But Lilly's best hope for a new blockbuster, a blood thinner called prasugrel, has disappointed many analysts. That's a because a clinical trial showed that prasugrel increased serious bleeding in about 20 percent of patients, even though the drug proved more effective at preventing strokes and heart attacks than the current standard, Plavix.

Plavix produced $6 billion in sales last year for Bristol-Myers, but its patent will expire in 2012. Other companies, such as Pfizer Inc. and Merck & Co. Inc., also face patent expirations on their blockbusters in coming years.

Lilly will try to offset its own patent expirations by producing a greater volume of drugs. Taurel boasted to analysts this morning that Lilly now has 44 compounds in clinical testing, up from 30 a year ago.

the company is targeting the launch on average of two new compounds per year beginning in 2011, increasing to three per year by 2014.

Lilly needs lots of drugs beyond Zyprexa's patent expiration. It has four other drugs that expire in either 2013 or 2014 that had 2006 sales of $5.5 billion.

Lilly calls the 2011-2014 time period "years YZ."

Our goal is to be as well prepared for our YZ years as we were for the Prozac expiration," Taurel told analysts, who were gathered in New York. "We have a strategy in place to overcome our challenges."
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