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Lilly Will Cut 8.5% of Workers Amid Pricing Pressure

Lilly plans to close a research facility in Bridgewater, N.J., and consolidate some manufacturing operations in its animal health unit.

Eli Lilly & Co. plans to cut 8.5% of its workforce as the drugmaker contends with acute pricing pressure for some of its biggest products.

The Indianapolis company said some of the 3,500 cuts will come from early retirements, and that about 2,000 jobs would be eliminated in the U.S. Lilly plans to close a research facility in Bridgewater, N.J., and consolidate some manufacturing operations in its animal health unit, it said in a statement.

Faced with expiring patents on a number of its other medicines, Lilly has been increasingly focused on diabetes drugs, which account for three of its 10 top-selling products. Its biggest seller is insulin drug Humalog. But intense competition from a flurry of new treatments in that market has helped drive down prices.

“That was on the mind as they made these changes,” spokesman Mark Taylor said in an interview. The cuts are expected save about $500 million annually starting in 2018, Lilly said, and result in charges of $1.2 billion, or 80 cents a share, in the second half of this year.

In recent years, Lilly has cut thousands of jobs, including in its sales force, amid a slide in sales caused by generic rivals. Last year, it eliminated 500 positions following the failure of an experimental Alzheimer’s disease drug. It had about 41,000 employees as of June.

'Some Fat to Cut'

The company’s decision to close some plants suggests that its struggles aren’t limited to the diabetes market, Kurt Kemper, an analyst at Hilliard Lyons Inc. who rates Lilly shares as long-term buy, said in an interview. Lilly’s animal health division, Elanco, has operating margins much below rival Zoetis Inc., he said.

“There’s some fat to cut there,” Kemper said. He said that the decision to close the New Jersey plant is because “they’re rejiggering their oncology pipeline.”

Lilly shares rose 1.8% to $81.95 at 12:32 p.m. in New York.

The reductions will let Lilly focus on newer drugs in its pipeline, Chief Executive Officer David Ricks said in a statement.

“To fully realize these opportunities and invest in the next generation of new medicines, we are taking action to streamline our organization and reduce our fixed costs around the world,” said Ricks, who took over as CEO in January.

Taylor said half of the $500 million in savings would be invested in research & development. The rest will help help Lilly reach its promise to investors to bring down operating expenses to 50 percent of revenue or less by 2018.

By Jared S. Hopkins

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