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Lilly Cuts Back, Again

The Big Pharma story at the moment, sad to say, is that Eli Lilly is shedding a lot of employees: 3,500 or so (2000 of them in the US), about 8.5% of their global workforce. Their site in Bridgewater (NJ) is being closed, and interestingly, so is their site in Shanghai, which makes them (if I’m keeping count correctly) the second big multinational drug company (after GSK) to close out a physical presence in China that way.

The company says that it plans to do most of the US cuts by offering early retirement packages, details of which aren’t going to be available to employees until next week (have a nice weekend). Lilly as a whole has been having a pretty hard time of it in recent years, partly due to patent expirations and partly due to a massive lack of success in their massive Alzheimer’s research effort. The days of two approvals a year, as forecast by their CEO in 2010, have never quite arrived. (Tip for drug company CEOs: never tell people in advance how your organization is going to ramp up to X approvals a year – just go get the approvals, and I promise that everyone will be happy).

The company still has a shot or two on goal in Alzheimer’s, but you wonder if, years from now, its history will show a big stretch of hard times in the early 21st century, back during the Alzheimer’s Era. As I’ve said before, I simultaneously admire their nerve in trying this, and remain glad that it’s not me trying to make any of it work.

Lilly’s stock, of course, went up on this news, since layoffs are a direct tonic to the bottom line. And given the company’s state, you know, they may well have too many employees. But at the same time, it sounds like they’re going to be losing a lot of experienced people through that buyout program, and some of that experience is surely valuable. Those effects will be slow and silent (reminding one of Bastiat’s “things that are not seen“), and no one is selling Lilly’s stock on the fear that they’re getting rid of longtime employees who might know a few things. It was ever thus.

16 comments on “Lilly Cuts Back, Again”

  1. Hap says:

    Maybe it’s pharma’s version of “We finished last with you, we can finish last without you.” On the other hand, there’s no real bottom in pharma (until you go bankrupt) – things can almost always get worse – and the batting average in baseball is a lot better than in pharma.

    “Someone’s else’s experience and skills are always cheap and expendable, while yours are invaluable and priceless” seems to be the mantra of management. I guess they figure they can manage wherever the business that their company used to do ends up. (There is the legitimate issue of deciding when the experience people have is not useful, but that doesn’t seem to enter into firing decisions.)

  2. DCRogers says:

    The stock going up is simply the market saying they value the retained capital more than whatever activity the management planned to spend it on. Given the lack of management achievement at reaching stated goals (2 approvals/year), that’s not unreasonable.

    But why stockholders would trust that same management to execute layoffs well, and not cripple chances for future success, is beyond me.

    My best regards to those affected, may you land on your feet in a good place.

  3. AZbizness says:

    “But why stockholders would trust that same management to execute layoffs well, and not cripple chances for future success, is beyond me.” Jan Lundberg would be a good example of your point.

  4. MoMo says:

    You get what you invest in and what you deserve. In sourcing chemists does not build institutional intelligence, productivity and I wouldn’t be surprised if each of them stole their weight in office supplies just to supplement their meager incomes while treated like the outsiders they were.

  5. dearieme says:

    Of the readers here who are scientists in the pharma industry, and are middle aged, how many are encouraging their children to study for the same degrees and pursue the same careers?

    1. midAge says:

      My kids have 13+ years until they make that choice and who knows what the economy looks like then. At this point, unless there is a titanic shift in the industry, I would encourage them to NOT to pursue chem or bio with Pharma in mind. I still have hope that STEM jobs will be a fruitful career path.

  6. Ted says:

    Hi:

    I feel bad for the employees facing unemployment – good luck to you!

    That’s the only thing that keeps me from toasting Lilly’s inevitable downward spiral towards oblivion. They took our jobs so that they could keep all of the profits from a $2bn/year drug. Money they clearly frittered away.

    -t

  7. Dionysius Rex says:

    Five years ago this comment thread would have been 100+ messages full of apopleptic rage.

    1. Some idiot says:

      Yep. I thought precisely the same thing. It is now “business as usual”, although the “usual business” is now going to be different.

      Interesting they are closing their unit in China. Will that be replaced by outsourcing to China? I have no idea, just curious. Whatever, outsourcing will probably make their books look better, but probably won’t help in the long run.

      My sincere, heartfelt best wishes to all affected by this. I hope the road gets better for you real soon…!

  8. Bigly Pharma says:

    “Research is at the core of our business, which is why we are dedicated to investing in it. For that reason, we’re going to fire 10% of our researchers. Long live George Orwell.”

    – Every pharma CEO, every year

  9. UK Chemist says:

    Several years ago, a friend of mine, who worked for Lilly, asked me what I thought of Jan Lundberg. Having worked at AZ for many years, I said the following.
    If Lilly wanted a nice and enthusiastic cheer leader, then he could be the man. If however they wanted someone with the judgement to sort the good from the bad in a portfolio and make good decisions then I doubted he’d be a good appointment, given that he’d never shown those qualities at AZ. I did wonder if the new CEO still wanted to run R&D.

  10. Lilly Nomo says:

    Wait, getting rid of bottled water and making employees drink from the tap didn’t save the company enough money? Pretending that circulating amyloid beta is a good pharmacodynamic biomarker and ignoring negative m288 data in early development didn’t make Semagacestat and Solenazumab blockbuster drugs for Alzheimer’s?

    Say it ain’t so, Colonel.

    Godspeed LRL scientists, get out of Indiana as soon as you can.

  11. Anonymous says:

    There may be other examples, but these two are well known. (Details may be disputed, e.g., back burner vs officially approved and supported.)

    As SKF (Smith, Kline and French) was mismanaged into near oblivion, a project that was sustained on the back burner by a small group of researchers, despite numerous attempts to kill it, saved the company. They made Tagamet, which became the top selling Rx in several countries, including the US, and shot SKF back towards the top.

    Prozac was not exactly a high priority at Lilly. It was primarily the back burner work of a few researchers until it was elevated to a higher priority as the Lilly pipeline was thinning and other projects were failing. At one time, Prozac accounted for some huge percentage of Lilly’s profits (40%?). Lilly management used ~$4 billion that Prozac brought in the purchase PCS, a pharmacy benefit management company. A year later, they took a $2 billion write down on that. A year after that, they sold off PCS for ~$1 billion. $3 billion disappeared and Randall Tobias was still labeled some sort of CEO genius. (Tobias later joined the Bush Administration but resigned after it was discovered that he was a repeat client of an escort agency. See wikipedia.)

    I wonder how many Tagamets and Prozacs have been shown the door with this latest round of firings.

  12. SteveM says:

    For years, Lilly has been a propaganda engine for a “Best and Brightest” workforce are immigrants, not American citizens. The more, the merrier.

    I’d like to see the layoff list, (better yet, have DoL review the layoff list) and see how many experienced, competent American citizen technologists are getting zotzed while H-1B and other temp immigrants are retained.

  13. LeftIndy says:

    New CEO for Lilly as of January 1 and he became Chairman of the Board as of June 1. Changes in research management will be coming soon?

    1. Disgruntled Biotech says:

      Lundberg retires at the end of year AFAIK. Changes in research were going to happen with or without dodgy Dave.

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