Eli Lilly Announces Strategic Changes to its Manufacturing Operations

Indianapolis, IN (Jan. 11)-Eli Lilly and Company (www.lilly.com) announced several strategic changes to its global manufacturing operations. The changes include termination of construction of a planned insulin manufacturing plant in Virginia, staff reductions in its operations for small-molecule active pharmaceutical ingredients (APIs), and investments in manufacturing biotech-based drug products.

“Lilly is continuing to transform its operations to compete and win in a more challenging business environment,” said Scott Canute, Lilly’s president of manufacturing operations, in a company release. “As a part of these efforts, Lilly is making several changes to its global manufacturing operations to ensure the company has the right capacity in the right places. This requires investing in new growth areas and reducing resources in others.”

 Several decisions will affect the company’s manufacturing operations:

• Construction of the planned insulin manufacturing plant in Prince William County, Virginia, will stop, as the company expects to meet growth in insulin demand with existing sites and new insulin capacity that is being built in Sesto, Italy. All of the 120 employees at the site will be given opportunities for jobs at other company sites. Those who choose not to stay will be given a severance package. The assembly operation for Lilly’s new prefilled insulin pen, called “Humalog” “MirioPen” will be placed at Lilly’s delivery-device assembly operations in Indianapolis, rather than the Prince William County site.

Canute said that Lilly continues to expect growing worldwide demand for its insulin products and insulin delivery devices, but not at levels projected when plans for the Prince William site were put in place in 2003. Other factors affectomg this decision are ongoing productivity gains, quality improvements, and investments at existing sites currently manufacturing insulin products that allow the company to meet expected demand.

Construction on the Prince William site will stop immediately. The company will return all economic development incentives received from state and local entities

• In response to excess capacity in Lilly’s small-molecule API operations, a voluntary exit program is being offered for as many as 250 employees at Lilly’s Tippecanoe manufacturing site in Lafayette, Indiana. About 1000 employees currently are working at the site. This program allows employees to voluntarily leave or retire from the company with an enhanced severance package based on years of service.

 • New investments will be made in Kinsale, Ireland, and Indianapolis parenteral operations to manufacture biotechnology products. Lilly says it expects to launch one biotech product per year, on average, beginning in 2010.

The estimated restructuring and asset impairment charges will be roughly $155 to $185 million. These charges will be split between the fourth quarter of 2006 and the first quarter of 2007, and will result in a fourth quarter 2006 earnings per share charge of 5 cents.

Canute said that the decisions affecting the planned site in Prince William County and the Tippecanoe manufacturing site in Lafayette, Indiana, along with the previously announced decision to close its manufacturing site in Basingstoke in the United Kingdom, are based on current capacity needs and an assessment of the future mix of products in the company’s portfolio, which includes further penetration of biotech-based products. 

Eli Lilly invests in biotech manufacturing

Lilly also announced investment plans for manufacturing biotech-based drugs, which, pending approval, are expected to launch early in the next decade. These investments will support the company’s emerging biotech pipeline that is anticipated to produce one new product per year, on average, beginning in 2010. Biotechnology-based programs and drug candidates now make up more than 30% of the company’s drug portfolio and pipeline.

Specific biotech investments include an expansion to the company’s site in Kinsale, Ireland, to manufacture APIs for future biotech products. In addition, Lilly will expand its Indianapolis parenteral operations so that the site can convert the biotech APIs made in Kinsale into their final-dosage form. Both expansions are part of a $1.5 billion investment in the company’s biotechnology capabilities announced over the past five years. These investments include a newly completed biotech pilot-manufacturing plant and a soon-to-be-completed biotech research laboratory, both located in Indianapolis.

Lilly says these investments will allow multiple biotechnology products to be developed and manufactured using similar processes, common technology, and shared infrastructure.

An investment also will be made to add a new assembly line at the company’s device-assembly operation in Indianapolis. One of the first products made on the assembly line will be Lilly’s new prefilled insulin pen, “Humalog” “MirioPen” which is current being reviewed by the US Food and Drug Administration (Rockville, MD, www.fda.gov) with an anticipated launch in the United States later this year.

These expansions follow the recently completed $1-billion expansion of its Puerto Rico manufacturing operations in August 2006, which includes new bulk capacity for “Humalog” (insulin lispro [rDNA origin] injection).