Lily announces massive staff cuts of 3,500 to "streamline business"

In a drastic bid to "streamline business, invest in new medicines and drive", Eli Lilly has announced major staff cuts to the tune of 3,500 positions, or a massive 8.5% of its global workforce.

The majority of the cuts are to take place in the US via a voluntary early retirement programme, made available to eligible employees who meet certain criteria outlined by the company, which will end by 31 December this year. Following the programme’s completion, Lilly will further evaluate its position and identify further areas where further growth can be encouraged.

Beyond this programme, the remaining cuts will be made through site closures. The company will be drawing the curtain on its Larchwood, Iowa animal health manufacturing facility and transferring staff to a plant in Fort Dodge in the same state. Furthermore, the firm has announced it is to close its research and development office in Bridgewater, New Jersey, and the Lilly China Research and Development Center in Shanghai, China.

The company has said that it expects the layoffs to generate annualised savings of around $500 million, which will begin to materialise next year in 2018. This sum will be split to improve the company's cost structure and reinvest in the business, including product launches and clinical development for new indications and line extensions. As a result, the firm expects to achieve an OPEX-to-revenue ratio of 49% or less in 2018.

On the other side of the coin, Lilly expects the move to incur $1.2 billion in pre-tax charges, based on estimated enrolment to the retirement plan, planned facility closures and global severance payments.

"We have an abundance of opportunities: eight medicines launched in the past four years and the potential for two more by the end of next year," said Chairman and CEO David A. Ricks. "To fully realise these opportunities and invest in the next generation of new medicines, we are taking action to streamline our organisation and reduce our fixed costs around the world. The actions we are announcing today will result in a leaner, more nimble global organization and will accelerate progress towards our long-term goals of growing revenue, expanding operating margins and sustaining the flow of life-changing medicines from our pipeline."