Lilly is rearranging its operating priorities to put manufacturing processes on the same level as R&D and sales and marketing, CEO Sidney Taurel told investors.

In the course of resolving its ongoing GMP problems with FDA, Lilly recognized that it was placing an "overemphasis" on certain functions, to the detriment of good manufacturing practices, Taurel acknowledged during an investor luncheon in New York June 26.

"R&D was our priority, second [was] sales and marketing, and manufacturing only came third. Perhaps we failed to make the appropriate investments and also be careful enough about the quality and quantity of people that we had in those operations."

The organizational hierarchy was well known within Lilly, especially at the Indianapolis campus, where the most qualified employees typically opted to work in product development over manufacturing, Taurel said.

In Indianapolis, for example, "you have right next door to the manufacturing plant the development operations, i.e., part of R&D's sexier job, which attracted the best and brightest" among employees with technical and scientific backgrounds, he said.

"What we've done to correct all of that, besides our changing processes and so forth, is to make sure that everybody understands that manufacturing is a key part of our strategy," and on the same level as R&D and sales and marketing.

Lilly's emphasis on R&D and marketing investment was not unusual in the brand name industry.

Between 1990-2000, investments in manufacturing did not keep pace with other areas of operations, according to the Pharmaceutical Research & Manufacturers of America's 2001 member survey. PhRMA stopped reporting employment numbers after 2001.

In 1990, employment in "production, quality control" and "marketing" were essentially at the same level, at 59,546 and 56,014, respectively. A decade later, however, the number of manufacturing employees had declined to 58,839, while marketing numbers had swelled to 87,810, a 57% increase.

R&D employment increased 11%, from 43,952 employees in 1990 to 48,527 in 2000. Sales in the U.S. rose from $38.5 bil. to $112 bil. during the period, and R&D spending increased to $20 bil. from $6.8 bil.

Recent years have brought several high-profile GMP problems for big pharma, with Wyeth signing a consent decree in 2000 and Schering-Plough entering one in 2002. FDA approved Schering's GMP work plan in May (¹ Also see "Schering Moves Forward On GMP Work Plan; Is Marketing Settlement Next?" - Pink Sheet, 9 June, 2003., p. 17).

Lilly has been discussing GMPs with FDA for more than two years - ever since the agency issued a warning letter after a pre-approval inspection for the firm's intramuscular version of its antipsychotic Zyprexa (² Also see "Zyprexa IM Manufacturing Issues To Be Discussed By FDA, Lilly March 15" - Pink Sheet, 12 March, 2001., p. 26).

Lilly's GMP issues delayed the approvals of the osteoporosis agent Forteo , and continue to hold up final marketing clearance for the antidepressant Cymbalta as well as Zyprexa IM. Lilly expects fourth quarter approval for Cymbalta but has set no timetable for the antipsychotic.

To help raise the level of GMP expertise in Indianapolis, Lilly hired 300 new employees - 50 scientists and 250 manufacturing and quality control professionals (³ Also see "Lilly Cialis Using Alternate Manufacturing Facilities For 2nd Half 2003 Launch" - Pink Sheet, 22 July, 2002., p. 10).

During that process, Lilly changed 60% of company managers and executives in quality control and more than 50% in manufacturing operations. Some individuals were transferred to manufacturing from product development.

"We have brought a lot of talent, scientific and technical expertise, and with other industry experience or other types of experiences, literally hundreds of people," Taurel told analysts.

For example, Lilly realigned Global Quality and Technical Support into two units: Manufacturing, Science and Technology, headed by Carmel Egan, PhD, and Corporate GMP Compliance, led by David Miner, PhD (⁴ Also see "Lilly GMP “Culture Change” Will Address Compliance Issues, Firm Tells FDA" - Pink Sheet, 4 February, 2002., p. 34).

The management overhaul is part of a larger initiative at Lilly to "effect culture change" in its approach to GMPs, including more direct involvement from the upper ranks. Lilly is spending $200 mil. annually to fund the improvements.

Lilly cites its improvement program and "open communication" with FDA as reasons the company has avoided signing a consent decree. Lilly signed GMP consent orders with FDA in 1989 and 1995.

"We have been working on a very constructive basis with the agency," Taurel said. "We are making progress, but we are not yet where we want to be. But we are assiduously implementing our plans."

The exec acknowledged, however, that it took time for FDA to convince Lilly of the seriousness of the GMP situation. "It took us some time. The first few months we didn't get it, but after that we did, and have been very, very assiduously engaged in a major investment in people and resources."

The Indianapolis dry and injectable facilities were reinspected May 5-23, resulting in an FDA-483 report (⁵ 'The Pink Sheet' June 16, 2003, In Brief).

Taurel refused to speculate on when the GMP problems - and the issues outlined in the 483 - will be fully resolved. Lilly continues to believe that all remaining delayed products could be cleared by FDA before the company's compliance program is fully implemented (⁶ Also see "Lilly GMPs Will Not Deter Product Rollout, Firm Says" - Pink Sheet, 28 April, 2003., p. 31).

During its discussions with FDA, Lilly has communicated its displeasure with the current inspection progress. Taurel indicated that the agency's "top-down" regulatory approach was one factor leading to Lilly's GMP problems.

Taurel pointed to a need for more "transparency" in the inspection criteria; more dialogue between companies and inspectors; an opportunity to "resolve technical issues before they escalate" to a 483 report or warning letter; and the option for a third-party mediator.

Current regulations discourage "continuous improvement" of manufacturing facilities, he added. "If there's a change in the manufacturing process through continuous improvement, you get to a point where you need to re-register the process, and that takes time, energy [and] resources."

Risk-based GMP initiatives are a cornerstone of Commissioner McClellan's strategic plan for FDA (⁷ Also see "FDA GMP Initiative Shifts Warning Letter Review Back To Agency Centers" - Pink Sheet, 24 February, 2003., p. 3). The agency is developing a draft guidance on a formal dispute resolution process and is emphasizing the observational, as opposed to punitive, nature of 483s (⁸ Also see "GMP Dispute Resolution Draft Guidance To Issue In Next Few Months" - Pink Sheet, 2 June, 2003., p. 31).

Lilly Revisits Priorities: GMPs Awarded Same Status As R&D, Marketing

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