Lilly Plans 5,500 Layoffs as Company Heads Over Zyprexa Patent Cliff

Last Updated Sep 14, 2009 5:46 PM EDT

Eli Lilly CEO John Lechleiter told Reuters he needs to cut 5,500 jobs from the company's workforce, that's 1,500 more than the 4,000 pharmaceutical sales reps who were offered buyouts in August. The move was expected, as Gemzar, Zyprexa and Cymbalta were set to see their patents expire in late 2010, late 2011 and 2014, respectively.

BNET previously noted that Zyprexa sales may have peaked: Zyprexa, was down 3% at $1.2 billion in Q2 2009. In Q1 it was flat. It will be no comfort to reps facing redundancy to be reminded that had Lilly not paid $3.3 billion in legal costs on the drug -- about 6 percent of its revenues since 2006 -- they may have kept their jobs a little longer. Nonetheless, only a little longer. Even honest marketing is no defense against cheap generics.

This chart gives you an idea of the cliff that Lilly is falling off, and why the layoffs are happening now:

(Click to enlarge) It describes the growth in revenues and gross profit per $1 spent on reps and marketing. If a point lies above the 0 percent line, then revenues are rising faster than costs. Below the line, then costs are rising faster than revenues. As you can see, Lilly apeared to be winning the battle until Q2 2009, when Zyprexa stopped growing. With that drug now set for a sales decline, Lilly has no choice but to cut its cost base as its revenues fall.

Lilly's official statement says it needs to get $1 billion out of its cost structure.

Meanwhile, some reps on Cafe Pharma are accusing Lechleiter of lying to them about whether there would be mass job cuts. If Lechleiter did indeed make a no cuts promise in Q1 2009, BNET would be very interested in seeing a copy -- perhaps a screen grab? -- of that internal statement.

Previously: