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Eli Lilly shakes up bonuses in pharma land

In a preliminary proxy statement filed on February 4, 2011 by Eli Lilly & Co. (NYSE:LLY) you can find the following statement:

The following changes have been made to the bonus plan, effective January 2011:

— We added a research metric that measures the output and sustainability of our pipeline portfolio. Specific measures of pipeline output include product approvals and new molecular entities that enter Phase III clinical trials during the calendar year. Pipeline sustainability is measured by tracking each project’s progression toward its next milestone and by an evaluation of pipeline quality.

— Financial performance will be measured against company goals.

Talk about lighting a fire under your employee’s rear ends – if you don’t invent some marketable drugs soon you won’t get paid!  Lilly has had a host of late-stage therapies fail over the past few years, semagacestat for Alzheimer’s is one of the more recent ones, and their blockbuster antipsychotic, Zyprexa, loses patent protection in April.  Unlike some of their large cap pharma competitors, LLY has chosen to circle their wagons and focus on in-house R&D to build their pipeline, as opposed to going out and buying one.  That may sound admirable to some, but given the dearth of scientific breakthroughs coming out of the big guys, the move may be risky.  With the “easy” diseases cured or treatable, it’s the diseases with overly complicated mechanisms like cancer and Alzheimer’s that are left.  It could be a while before we see another multi-billion dollar drug approved, but Eli Lilly thinks they can find it on their own; or at least they’ll save money on compensation if they don’t.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.