We now return to our regularly schedule program around here - or at least, Eli Lilly is now returning to theirs. The company announced that they're freezing salaries for most of the work force, in an attempt to save hundreds of millions of dollars in advance of their big patent expirations. Some bonuses will be reduced as well, they say, but that leaves a lot of room. Higher-ups don't look for increases in base pay as much as they look for bonuses, options, and restricted shares (although, to be fair, these are often awarded as a per cent of salary).
‘‘This action is necessary to withstand the impact of upcoming patent expirations and to support the launch of our large phase III pipeline,’’ Chief Executive Officer John Lechleiter, 59, said in a letter to employees today, a copy of which was obtained by Bloomberg. ‘‘The current situation requires us to take the appropriate action now to secure our company’s future. We can’t allow ourselves to let up and fail to make the tough choices.”
Lechleiter himself has not had a raise since 2010, it appears, although I'm not sure if his non-salary compensation follows the same trend. If anyone has the time to dig through the company's last few proxy statements, feel free, but actually figuring out what a chief executive is really paid is surprisingly difficult. (I remember an article a few years ago where several accountants and analysts were handed the same batch of SEC filings and all of them came out with different compensation numbers).
But there's not doubt that Lilly is in for it, something that has been clear for some time now. The company's attempts to shore up its clinical pipeline haven't gone well, and it looks like (more and more) they're putting a lot of their hopes on a success in Alzheimer's. If they see anything, that will definitely turn the whole situation around - between their diagnostic branch and a new therapeutic, they'll own the field, and a huge field it is. But the odds of this happening are quite low. The most likely outcome, it seems to me, is equivocal data that will be used to put pressure on the FDA, etc., to approve something, anything, for Alzheimer's.
It's worth remembering that it wasn't very long ago at all that the higher-ups at Lilly were telling everyone that all would be well, that they'd be cranking out two big new drugs a year by now. Hasn't happened. Since that 2010 article, they've had pretty much squat - well, Jentadueto, which is Boehringer Ingleheim's linagliptin, which Lilly is co-marketing, with metformin added. Earlier this year, they were talking up plans for five regulatory submissions in the near future, but that figure is off now that enzastaurin has already bombed in Phase III. Empagliflozin and ramucirumab are still very much alive, but will be entering crowded markets if they make it through. Dulaglutide is holding up well, though.
But will these be enough to keep Lilly from getting into trouble? That salary freeze is your answer: no, they will not. All the stops must be pulled out, and the ones after this will be even less enjoyable.