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UPDATE: Lilly workers likely to find new jobs

April 16, 2008

At least one economist thinks central Indiana's life sciences sector can absorb the 500 people Eli Lilly and Co. plans to let go through early buyouts.

"These aren't the 1950s factory workers that we have to worry about. These are nimble, highly skilled workers," said Mike Hicks, director of the Bureau of Business Research at Ball State University. "They'll be able to find work elsewhere."

More than 2,000 employees of Eli Lilly and Co. will be offered early severance packages as part of the voluntary program announced this morning.
Lilly hopes to have 430 manufacturing workers take the buyouts as well as about 70 workers in its corporate engineering and research and development areas.

Lilly used the same program last year to cut headcount at its facility in Lafayette, said Lilly spokesman Ed Sagebiel. In that case, 90 percent of employees that chose to leave were near or close to retirement, Sagebiel said. About 200 of the 1,000 Lafayette workers took the buyout.

The Indianapolis-based pharmaceutical maker has been gradually cutting its worldwide work force since 2004, mostly through attrition. It employs 40,600 now, down from more than 46,000 in 2004.

Lilly has 12,800 workers in Indianapolis, down from about 15,000 in 2004. The company accounts for about 60 percent of the life sciences jobs in central Indiana, according to a study by Battelle, a Columbus, Ohio, life sciences consulting firm.

Local officials have been trying to encourage growth of smaller life sciences firms to pick up the slack as Lilly outsources more and more work.

Hicks said the availability of skilled workers from Lilly should help small companies form and grow, offsetting the job losses at Lilly.

"Every time we hear about a big company losing jobs like this, people forget about all the small companies that are hiring," Hicks said.

Lilly officials said the company would take an accounting charge for the buyout in the second quarter this year. The amount of that charge hasn't been determined.

CEO John C. Lechleiter said in a statement, "For several years we have focused on strategic efforts to lower costs, increase flexibility, and improve productivity across the business. This strategy calls for reducing investments in some areas while increasing investments in others, and the streamlining decisions announced today are an example of this."

The biggest reductions will come at facilities that manufacture ingredients for the insulin products Humalog and Humulin as well as for the osteoporosis medicine Forteo.

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n March, Lilly scuttled its inhaled insulin project, halting what was once expected to be a popular product. That decision contributed to the recent cuts, as did productivity gains in Lilly's manufacturing facilities, Sagebiel said.

Lilly officials said the reductions will align manufacturing capacity and engineering support services with needs of the company.

In December, Lilly Chairman Sidney Taurel promised that Lilly would continue to reduce its workforce "with great intensity." Most other pharmaceutical companies are doing the same. In 2007 alone, drugmakers announced more than 35,000 layoffs.

They are desperately trying to cut costs as they approach patent expirations on mega-blockbuster drugs that sustained the industry for years. Drugmakers largely have failed to produce new blockbusters to take the place of old ones, such as Lilly's antipsychotic Zyprexa, whose U.S. and European patents expire in 2011.

Lilly has moved swiftly the last two years to bulk up its research activities in China and India, using contract research firms in those nations, where wages are far lower than in the United States. Taurel touted such moves as one of several ways the company is reducing its costs for developing new drugs.

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