The pharmaceutical industry needs to make significant changes to its cost structure to remain competitive over the next three to five years, Lilly CEO Sidney Taurel said.

"I think something that all companies in our industry have to face is that we have too heavy a cost structure," Taurel told a Dec. 3 analyst meeting in New York.

"Where I want to really improve significantly further is in reducing our cost structure...through creative use of technology and more flexible work force arrangements," Taurel said.

"We need to all become more agile, use more flexible ways of working, more use of contract labor so that we can adjust better to the peaks and valleys of activity of our pipeline," he said.

Lilly also needs to "improve the connectivity between the various parts of our enterprise," Taurel said. "It's very important to do that."

Taurel also suggested the company is looking to achieve efficiencies in the sales and marketing area.

"In sales and marketing...we may be getting to a point of saturation where you have just too many sales reps competing for the time of physicians and also more and more public criticism for just retaining sales reps, for just interacting with the industry," he said.

"So here we need to find some new ways, I think, to interact. We are...experimenting with a number of things there, again using the internet. We use a lot, obviously, peer-to-peer selling."

"This being said, we don't have the answer to how to do it much more productively. But at the end of the day, targeting of the important physicians is very important and having a good product is very important."

A number of large pharma companies are in aggressive cost-management mode. Roche and Schering-Plough are two of the latest to announce resource-saving efforts (see ¹ Also see "The 10% Solution: Roche Cuts U.S. Sales Force, Schering Reduces Payroll" - Pink Sheet, 8 December, 2003. ).

Several firms have begun to talk about streamlining sales and marketing. During a recent industry conference, a Takeda exec predicted that the industry will begin to reverse the decade-long expansion in field force size (² Also see "Sales Force Bubble May Soon Burst; Slowing R&D Is Cause, Takeda Says" - Pink Sheet, 1 December, 2003., p. 10).

Companies seem to be avoiding talking about sales force personnel cuts, however, and instead focusing on innovative detailing techniques instead.

Bristol-Myers Squibb is investigating a new approach to sampling (³ Also see "Bristol Rethinking Sales Model, May Try New Approach To Sampling" - Pink Sheet, 17 November, 2003., p. 33). Johnson & Johnson is also talking about "increasing sales force efficiencies," but said it does not intend to eliminate any sales positions (⁴ [A#PS042874], p. 31).

Lilly is actually continuing with a sales force expansion plan outlined in 2002 (⁵ 'The Pink Sheet' Nov. 19, 2002, In Brief).

By the end of 2004, the company will have added about 2,000 reps globally (for a total of 17,500), including a move from 5,300 to about 7,000 reps in the U.S., Executive Director-Investor Relations Simon Harford said.

He noted, however, that the U.S. projections include 500 contract reps from Quintiles to help launch Cymbalta in the summer of 2004 (⁶ Also see "Lilly Dual-Acting Cymbalta Promoted By Dual Sales Force With Quintiles Deal" - Pink Sheet, 29 July, 2002., p. 30).

Taurel's discussion of cost-cutting strategies suggests the degree to which the ideas of streamlining and outsourcing have permeated the industry.

Lilly has just emerged from a difficult operational period surrounding the loss of the Prozac franchise. Unlike most big pharma firms, Lilly is in the midst of a heavy schedule of new product introductions.

In the last year, the company has recently launched Strattera , Cialis , and Forteo , and expects approval of Cymbalta , Symbyax and Alimta by mid 2004.

In addition, Lilly and most other big pharma companies can look forward to a significant benefit from the Medicare prescription drug legislation, which will be signed into law Dec. 8.

The company is making significant investments on the manufacturing side as a result of FDA scrutiny of its good manufacturing practices compliance (see ⁷ Also see "Lilly Expects Full GMP Inspection After Upgrades To “Building 105”" - Pink Sheet, 8 December, 2003.).

Big Pharma “Cost Structure” Needs Attention, Lilly CEO Says

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