Lilly outlines turnaround strategy as CEO calls research cuts "nuts"

You have to give Eli Lilly CEO John Lechleiter (photo) credit for consistency. In a fast-changing biopharma world in which some of its top rivals are scrambling to create new R&D models, he's sticking with his research team and refusing to budge on investor pressure to hack at its multibillion-dollar R&D budget--despite a string of setbacks in the clinic.

"I never thought I'd live to see this, but investors are actually thinking to cut R&D--that's the hot topic of the day," he told Reuters in an exclusive interview at BIO's big confab in Washington, D.C. "This is kind of nuts, but this is what's being talked about." And he wasn't finished. Lechleiter, a 32-year veteran at Eli Lilly, is far too classy to criticize other pharma companies directly. But he wasn't mincing words when it comes to rebuking the trend.

"It's crazy; first of all, by definition this is a research and development-based industry," he said. "We spend as an industry more on R&D, as a percentage of sales, than probably any other industry. These are long-term investments and it's important to maintain a thoughtful, consistent approach to investing in research. It's very difficult when you go through a lot of ups and downs."

Lechleiter is gambling that the Lilly R&D machine can deliver some major new drugs to silence the critics. As Zyprexa faces an onslaught of generic competition in the fall, Lilly today spelled out plans to have 10 drugs in late-stage development by the end of the year. Six years ago Lilly had five drugs in mid- and late-stage development. Today it has 33.

"Our progress in R&D has not only positioned Lilly for growth after 2014, but has built an R&D engine with global reach that can deliver new medicines accepted by regulators, reimbursed by payers, and benefiting patients, while generating a positive return for shareholders over the long term," said Lilly's Jan Lundberg, Ph.D., executive vice president, science and technology.

Bold words, but Lilly has also been presented with some nasty setbacks in the clinic on Alzheimer's and other key areas. And with net income set to plunge in the next year, the pressure to slash R&D costs can only grow.

"Expectations are pretty low," portfolio manager Les Funtleyder told Bloomberg. "The street is about as negative as you are going to get for a pharma company."

- read the release on the R&D strategy
- here's the Reuters interview
- see the story from Bloomberg