Regilding the Lilly

THE FRIDAY INTERVIEW: WITH WHAT might seem an ironic sense of timing, John Lechleiter took over at the helm of US pharmaceutical giant Eli Lilly on April 1st.

It is not the most auspicious time to lead one of the world's largest pharmaceutical firms. Lilly is famous for introducing insulin to the commercial market in the 1920s and, more recently, established a strong reputation in providing treatments for mental illness.

But it has not escaped the current industry difficulties in developing productive drug pipeline. The Fortune500 company has not brought an in-house therapy to market since 2005. And, like its peers, it has suffered some reverses, with the company last month settling another in a series of claims relating to risk disclosure on its blockbuster antipsychotic drug, Zyprexa.

These events, alongside the failure of a number of promising therapies, have seen the company's shares sag. They have underperformed the Standard & Poor's 500 Health Care Index by 55.7 per cent over the past 10 years. In that time, the company has lost 6.5 per cent of its value, even allowing for dividend payments.

Wall Street analysts are growing impatient and a couple of smaller shareholders, including the activist Californian state pension funds, Calpers, are getting bolshie.

If the Lilly veteran feels the strain, it doesn't show. In Ireland this week, just days after his appointment, to lay the foundation stone for a €400 million biotechnology manufacturing plant at the group's Dunderrow plant, near Kinsale, he acknowledges the challenge ahead but insists the company is well-positioned to compete.

"I think there is still a wonderful business at the core and I think Lilly is still well positioned, with a strong cadre of scientists and a good presence in therapeutic areas like mental illness, oncology, heart disease and diabetes."

The company has also entered the race for an effective therapy to tackle Alzheimer's disease, announcing last month that it was entering phase three trials with one molecule in what Lechleiter calls a "calculated risk".

"These are among the most serious diseases that plague the developed and even the developing world today. So, despite the challenges, I am optimistic if we can mobilise that science."

In today's corporate America, Lechleiter is something of an oddity - a one-company man who joined Lilly back in 1979 as a senior organic chemist just days after completing his PhD at Harvard.

He is also unusual in being a scientist at the helm of a major pharmaceutical company.

At a time when beefing up the pipeline is a priority, he agrees that the timing "is opportune". "I think I benefit from having enough knowledge about the science to at least engage our scientists and to be conversant in it. I think in terms of representing the face of Lilly to the public and being able to talk . . . about what we do and how we do it, it perhaps gives me some added credibility."

The eldest of nine children of a tight-knit Catholic family in Louisville, Kentucky, Lechleiter learned early the need for resilience and the importance of communication in a large family.

Both qualities are likely to serve him well in his new role. He is spending his first two months touring Lilly operations across the globe and meeting the company's top 1,000 managers on what he calls a listening tour, and he also pens a weekly blog for Lilly's 40,000 employees, taking about company and industry issues.

The core of his message is that the essence of the business has not changed despite the challenges the pharmaceuticals industry faces today.

"It is still about connecting science with patient needs. And the science has never been more exciting.

"What we know about human biology, what we're able to test and study and the tools we have to use I think augur well for a new generation of medicines."

However, he concedes the standard the company and its peers must meet has also gone up considerably. Generics - "in essence our own products, which we thought were pretty good when we launched them" - are available at lower cost and are taking a bigger share of the market.

At the same time, people are concerned about the benefit risk. "They are asking 'can I safely take one of these newer drugs and is it going to be that much better for me?'." The people paying the bills - often medical insurance providers - are asking much the same questions. The regulatory threshold has also become more demanding.

As a result, Lechleiter openly admits the group will have to become more productive. Part of that involves greater emphasis on outsourcing. But job cuts will also feature.

While avoiding dramatic announcements of job cuts, Lilly has cut 12 per cent of its workforce since mid-2004. Lechleiter says more jobs will go, but he is confident that there is still scope for recruitment of new talent.

The new biotechnology plant in Dunderrow is a case in point. When fully operational, it could add 200 jobs to the 430 employees at the site.

Lilly's Irish operation was opened in 1981, providing what was, at that time, cost effective bulk manufacture of chemical product with access to a well-educated potential workforce.

The environment has changed in the intervening years and Ireland is no longer as well positioned to compete on costs, particularly for labour.

However, Lechleiter agreed that this week's stone-laying for a €400 million investment marked a "significant vote of confidence in the Irish operation".

"Our biotechnology facility is essentially a biotech version of what we began to build almost 30 years ago, only this time with small molecules."

He says Lilly continues to talk to the Government, development agencies and academics to see how it can develop its presence here - possibly in the development of drug delivery systems.

"The logic of us expanding here at this site is, in part, a function of our being able to still hire a very high-quality graduate in this country," Lechleiter says, noting that Lilly's worldwide head of manufacturing and worldwide head of quality - two of the 13-strong executive team which reports directly to him - started work as chemists at the Dunderrow site.

"The degree to which talented people that we have hired here in Ireland have prospered and done well throughout the company tells us this has been a good investment on a long-term basis."

Some of the workforce at the Cork plant have been with the company since it opened its Irish operation and, with more recent graduates, they have created a blend of experience that, as Lechleiter points out, "you cannot invent overnight. We're trying to build on that legacy even as the site mission changes."

Lechleiter is working to a three-year programme for the group as a whole. In 2011, Zyprexa, the company's top-selling drug, comes off patent. He knows the company needs to have something in place by then to drive revenues.

He points to an acceleration of licensing deals with other smaller firms and growth in developing markets such as China as developments that will compensate for declining revenues.

"But nothing is more important than moving molecules through the pipeline."

A lot of hope and resources are being invested in cardio prospect prasugrel, which is being developed with Japanese firm Daiichi Sankyo and which has been fast-tracked by the US regulator, the Food and Drug Administration.

The company is also working on new treatments for sleep disorders and diabetes as well as successors to a number of its existing products.

Despite the challenges, he is optimistic about the future for Lilly.

"Today we have about four dozen molecules in some stage of clinical development. Last year we brought 16 new molecules into that group. This year we will bring 14 more into human testing.

"These are unprecedented numbers for Lilly certainly, and our job now is to try to move to a proof of concept or decision point as quickly as possible so we know which ones have the potential to go through and be commercial medicines."