Eli Lilly said Thursday it will lay off about 8% of its global workforce to cut costs as it invests in developing new drugs.
The drugmaker expects the layoffs will impact about 3,500 positions and realize annualized savings of roughly $500 million, which will be about equally 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.
More than 2,000 of the cuts are projected to come from the U.S., most of them through a voluntary early retirement program.
“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,” Lilly CEO David A. Ricks said in a news release. “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.”
He added that the cuts “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.”
Lilly is investing in research and development after recently suffering setbacks with medicines to treat Alzheimer’s and arthritis. According to Morningstar analyst Damien Conover, its operating margins have also lagged behind those of its rivals.
“Lilly’s R&D as a percentage of sales has trended a bit high over the last couple of years,” he told Reuters. “Part of this [cost-cutting effort] is to try to get its operating margins more in alignment with the overall group.”
The new drugs it is developing treat such conditions as diabetes, heart disease, cancer drugs, lupus and psoriasis. “With our company, we have come out of a difficult period in the early part of this decade and are now entering a period of growth and strength,” Ricks told the Indianapolis Star.
While Lilly is streamlining certain areas of its workforce, it is hiring in other areas, such as research and development, he noted.