Lilly CEO Criticizes Pace of R&D

| About: Eli Lilly (LLY)

By Michael Fitzhugh

Drug companies must become more networked, global, and entrepreneurial to cut costs and bring new drugs to market, says Eli Lilly (NYSE:LLY) chief John Lechleiter.

“Our industry is taking too long, we're spending too much, and we're producing far too little," Lechleiter told the audience at a recent keynote speech before The Economist’s 2011 Pharma Summit in London. “Even as we rebuild our R&D engine, we must build an environment where pharmaceutical innovation can thrive."

Lilly is trying a variety of solutions to fix its own broken R&D engine. Cash bonuses are its latest idea. Starting this year, full-time employees will net bonus payments as the company’s drugs move through late-stage regulatory testing and when they achieve approval.

But given Lilly’s recent track record, it will take more than fatter paychecks to achieve success. The company has struggled with a number of partnered drug programs, most recently halting its pursuit of a late-stage medicine for advanced non-small cell lung cancer with its partner, Bristol-Myers Squibb (NYSE:BMY) on February 2. Other recent disappointments have included the failures of Bydureon, developed with Amylin (AMLN), and teplizumab, developed with MacroGenics.

Another partnership, between Lilly and Acrux (OTCPK:ARUXF), proved successful, resulting in the approval of the testosterone replacement therapy Axiron. However, its success will be more than offset by declining sales of the company’s schizophrenia drug, Zyprexa, and the looming loss of revenue from Cymbalta, which loses patent protection in 2013.

“In the face of diminishing results, we can't simply perform the same old rituals and hope for a different outcome ,” says Lechleiter.