Lilly Announces Reorganization

Eli Lilly and Company (Indianapolis, IN) is undergoing a companywide reorganization that is intended to accelerate the progress of the company’s pipeline. As part of the reorganization, Lilly will establish a Development Center of Excellence to speed the launch of important molecules during the next decade and bring medicines to patients sooner. The center will use a common operating system and a common set of priorities to streamline and accelerate the late-stage development of new medicines.

Tim Garnett and Tom Verhoeven will lead the Development Center of Excellence within Lilly Research Laboratories. Garnett will be responsible for medical affairs, regulatory affairs, global product safety, translational medicine, and global health outcomes. Verhoeven will oversee the clinical-development organization, product research and development, toxicology, and project management.

In addition, Lilly will reorganize the company around five global business units, including oncology, diabetes, established markets (which encompasses neuroscience, osteoporosis, and cardiovascular health), emerging markets, and Elanco animal health. The reorganization represents a shift from a functionally oriented structure to a business-unit structure.

John H. Johnson, currently the chief executive officer of ImClone Systems, a wholly-owned subsidiary of Lilly, will lead the oncology business unit. Enrique A. Conterno, president of Lilly USA, will lead the diabetes business unit. Bryce D. Carmine, Lilly’s executive vice-president of global marketing and sales, will lead the established-markets business unit. Jacques Tapiero, Lilly’s president of the intercontinental region, will lead the emerging-markets business unit. Jeffrey N. Simmons will continue to lead Elanco, the animal-health business unit. The leadership appointments will become effective on Nov. 1, 2009.

Lilly’s reorganization includes a plan to cut $1 billion in costs by the end of 2011. The company will accomplish this goal in part by eliminating 5500 jobs. At the end of 2008, Lilly employed 40,500, but the company plans to reduce its headcount to 35,000 by the end of 2011. Strategic sales additions in high-growth emerging markets and Japan will be exempt from the reduction.

“While our structure and approach served us well in the past, we must take measures now that will make us leaner, more focused, more customer-oriented, and more competitive,” said John C. Lechleiter, Lilly’s chairman and chief executive officer, in a press release. “The changes we’re making will simplify our organization, clarify accountability and authority, and speed decision making.”

In his statement, Lechleiter cited patent expirations for key products as reasons for the reorganization. The patent for Zyprexa, Lilly’s best-selling drug, will expire in 2011. Zyprexa earned $4.7 billion in sales in 2008, which was 23% of the company’s revenue. Likewise, Cymbalta earned $2.7 billion in sales in 2008 and faces patent expiration in the next few years. Lechleiter observed that the reorganization had also been prompted by challenges that the global pharmaceutical industry is facing such as slowing innovation, rising costs, healthcare reform, and increased generic competition.

Lilly plans to have its new organizational structure in place by Jan. 1, 2010. The company will offer further details of the changes taking place at its annual investment community day in New York on Dec. 10, 2009.