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Eli Lilly and Company (LLY)
Eli Lilly Announces Restructuring Plan, 5,500 Job Cuts
Most of the time, headlines relating to Eli Lilly revolve around questionable drug trials, newly released medicines, or the occasional acquisition. With many companies, regardless of the product or service the company provides, the product or service is not always the headline issue behind most of the company's news; sometimes, a company simply needs to increase profits or file for bankruptcy. However, even as Eli Lilly announced what appeared to be a straightforward restructuring plan, if you look closer you couldn't help but see that their products were still a prominent feature in this announcement.
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As with just about any restructuring plan, for Eli Lilly and Co. there is a financial motivation. The company is hoping to save $1 billion, and its first effort towards doing that is by the removal of 5,500 jobs. The company will be cutting these 5,500 positions (out of their existing 40,500 employees) by 2011. Along with the job cuts, the company also plans to implement a new organizational structure. Once reorganized, the company will have five primary business units, which will include oncology, diabetes, emerging markets, established markets, and animal health.
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These efforts seem like ones that would be taken by any company who is trying to save money, potentially to combat decreasing sales or a high level of debt. Eli Lilly, however, is doing it for a slightly more unusual reason; it is primarily due to the fact that the patents for some of its major products, including its schizophenia drug Zyprexa, are set to expire by the end of 2011. Zyprexa itself was responsible for almost one quarter of Lilly's 2008 sales, but when the patents expire, it will then be acceptable for competitors to start marketing generic versions of the drugs, cutting into Lilly's revenue. However, although this type of preemptive strategy is not altogether common in most industries, it is a strategy that is not unfamiliar to the pharmaceutical industry. Pfizer (PFE: Charts, News, Offers) has recently announced a similar restructuring plan, as it too faces the expiration of patents in 2011, most importantly for its popular cholesterol drug Lipitor.
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While the expiring patents may have the most easily recognizable impact on Eli Lilly, CEO Lechleiter also pointed to many other issues in the overall industry, including "slowing innovation, rising costs, patent expiries and increased generic competition, demands from payers to deliver greater value, and health care reform." The company is also struggling against safety concerns with its new blood clot prevention medicine, Effient. With an understanding that the company will soon be facing issues that closely affect them (the expiration of the patents) as well as other concerns affecting the entire industry, the company is making a smart move to act early.
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Eli Lilly Commentary:
Tough Decisions on Osteoporosis Drugs - Eli Lilly and Amgen (AMGN: Charts, News, Offers) have both hit roadblocks with the FDA regarding their new osteoporosis medicines.
Lilly Settles Zyprexa Suit in W.V. for $22.5 Million - One of those many issues facing the pharmaceutical industry is the ever-present lawsuits, and Eli Lilly just settled this one regarding Zyprexa.
Price tag on latest Pfizer restructuring: $6B - In this article from earlier this year, this blogger is less optimistic about the benefits that might come from Pfizer's (PFE: Charts, News, Offers) similar restructuring program.
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Click here to view a detailed profile of Eli Lilly and Company.
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