Eli Lilly (LLY): America’s Most Stable Companies Keep Cutting Jobs

The rate at which unemployment is growing has slowed recently and is no longer running more than 700,000 jobs lost a month. But, the firings are continuing, even at America’s largest companies, a sign that whatever bright light at the end of the economic tunnel, many firm’s don’t believe it is really there.

Eli Lilly (LLY) said it will let 5,500 people go. At the time of the announcement John C. Lechleiter, Ph.D., chairman and chief executive officer said, “The changes we are announcing today will accelerate the progress of the most exciting pipeline in our history, with more than 60 molecules currently in clinical development.” That gives the impression that management is upbeat about Lilly’s prospects.

But, Lilly obviously does not think that innovation means enough for future profits that it is willing to keep its headcount as it is. The company owned up to the fact that its future is not as bright as its CEO said–“Explaining the need for such changes, Lechleiter noted that the global pharmaceutical industry is facing unprecedented challenges – slowing innovation, rising costs, patent expires and increased generic competition, demands from payers to deliver greater value, and health care reform. These forces are reducing industry growth rates and profitability. Lilly faces these and its own challenges, including a series of patent expiration for key products beginning in late 2011.”

Lilly is not a charity case which makes the layoffs all the more troubling. Its plans may be clouded, but its future opportunities seem to be good. Last quarter, Lilly made $1.5 billion on revenue of $5.3 billion. That, however, is clearly not sufficient to save 5,500 people their jobs.

Douglas A. McIntyre