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Lilly Plans To Cut About 3,500 Jobs Globally


Eli Lilly and Co. (LLY) said Thursday that it plans to cut about 3,500 positions globally, as part of a streamlining plan. It expects to incur charges of about $1.2 billion pre-tax or $0.80 per share after-tax. The company's reported earnings per share guidance in 2017 will be reduced by the amount of the charges.

"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. 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," said David Ricks, Lilly's chairman and chief executive officer.

With the streamlining efforts announced, the company expects annualized savings of about $500 million that will begin to be realized in 2018.

Lilly expects the majority of the positions eliminated to come from a U.S. voluntary early retirement program, which is being offered to employees who meet certain criteria. Those who participate will receive enhanced retirement benefits. The program, announced to U.S. employees on September 7, 2017, will be largely completed by December 31, 2017.

The company noted that remaining positions will come from other anticipated workforce reductions, including select site closures. The company will move production from its animal health manufacturing facility in Larchwood, Iowa, to an existing plant in Fort Dodge, Iowa, and continue productivity improvement efforts around the world.

In addition, a research and development office in Bridgewater, New Jersey, and the Lilly China Research and Development Center in Shanghai, China, will close as the company streamlines its pharmaceutical research and development activities. The company will also further consolidate some work to its existing shared service centers.

In addition to the U.S. voluntary early retirement program, the company will determine where it needs to further reduce costs and improve efficiencies. These efforts will include evaluation of necessary adjustments to the workforce, with the goal of continued investment in new medicines and growth.

Lilly expects to incur charges of about $1.2 billion pre-tax or $0.80 per share after-tax, which includes the estimated participation of the U.S. voluntary early retirement program, global severance and facility closures. These charges will be reflected as asset impairment, restructuring and other special charges in the third and fourth quarters of 2017.

The company's reported earnings per share guidance in 2017 will be reduced by the amount of the charges. There will be no change to the company's non-GAAP earnings per share guidance as a result of these initiatives.

The annualized workforce savings of approximately $500 million 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.

Lilly confirmed these savings would improve upon its previous commitment and now expects to achieve an OPEX-to-revenue ratio of 49 percent or less in 2018.

LLY is currently trading at $81.19, up $0.68 or 0.85%.

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