REPEATING FROM LAST NIGHT: Two months after disclosing plans to lay off more than 1,600 sales reps (back story), Eli Lilly is now planning to suspend base pay raises for most employees - including executives - next year and reduce employee bonuses that are paid in 2015 in a cost-cutting move that is designed to save some $400 million through 2016.
The move comes as the drugmaker faces significant competition from low-cost generics. The patent on the Cymbalta antidepressant, which generated $4 billion in global sales last year, expires in December and then next year, the patent on the Evista osteoperosis treatment, which notched $1 billion in sales last year, expires in March 2014. Two years ago, the patent on the Zyprexa antipsychotic expired.
"This action is necessary to withstand the impact of upcoming patent expirations and to support the launch of our large phase III pipeline,’’ Lilly ceo John Lechleiter wrote in a letter to employees, a copy of which we obtained. "The current situation requires us to take the appropriate action now to secure our company’s future. We can’t allow ourselves to let up and fail to make the tough choices.”
"This is a difficult, but necessary decision," a Lilly (LLY) spokesman tells us. "While we remain confident in our future, we continue to face the most significant challenges in our history. We expect to lose about 20 percent of our global revenue in 2014 because of the expiration of the Cymbalta and Evista patents in the U.S. While we've taken many actions to reduce costs and become a leaner organization, we must do more." However, employees will be eligible for base pay increases in 2015.
What remains unclear is whether any employees will be exempt from the pay freeze and bonus reductions. We asked for clarification and will update you accordingly. [UPDATE: The Lilly spokesman has gotten back to us say that some overseas employees will not experience these moves.]
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