Eli Lilly signals vigour for outsourcing

By Kirsty Barnes

- Last updated on GMT

Related tags: Eli lilly and company, Eli lilly

Eli Lilly is the latest big pharma company to signal plans of a vigorous commitment to outsourcing in a bid to prevent its fortunes fading.

The company said it is intending to take on a new, leaner shape, forming itself into a "network structure" made up of third party service providers and contract firms, in its quest to ensure a rosy bottom line in these turbulent pharma times. The firm was slower off the mark than most of its larger rivals in announcing such plans - in the past two years over ten of the big guns have announced similar restructuring and externalisation strategies, complete with plant closures and ensuing planned job cuts, ranging from 1,000 to 10,000 in the case of the drug don Pfizer. However, Lilly is insisting that it won't be going down that road in such a bold manner: "We are not doing it with big, flashy announcements of a reduction of 5,000 heads," said company CEO and chairman Sidney Taurel. Instead, the firm said it will achieve most of the headcount reduction in a more gentle way, gradually downsizing by not filling vacant positions with new staff members as they arise. However, it did not elaborate on how many jobs it plans to erase in this way. Lilly is no stranger to outsourcing, and already relies on more than 80 contactors to perform various functions across its business. The majority of its auxiliary staff (such as cleaners) are contractors, while 20 per cent of its manufacturing and its sales representatives and 40 per cent of its IT work is also outsourced. 5,000 internal jobs have slowly been eroded over the past few years in this manner. Its latest resolve to step up the practice will see an increase in the number of back office and support roles pushed out the door, such as human resources and finance, and a huge proportion - up to half - of its precious preclinical and clinical research and development will also be entrusted to third parties by 2010 in a bid to slash costs and increase productivity. As part of this, contractors in popular low cost offshore locations such as China and India are expected to get more of a look in, as they have done with many of its competitors. Pricing pressures and spiralling drug development costs are the factors gnawing away at Lilly's financial security, along with the knowledge that between 2011 and 2014, the firm will lose patents on three of its big name drugs, Zyprexa, Cymbalta, and Evista, leaving it exposed to a massive profit erosion - in 2006 the three drugs raked in a combined $6.8bn, nearly half of the company's total sales. In addition to the outsourcing shift, Lilly said it is hoping to bring at least six new drugs to market in the coming years to cushion the blow that will be inflicted by this generic competition. However, Taurel conceded in an analyst call that: "There's no question we will face the biggest challenge of our history at the beginning of the next decade."

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