INDIANAPOLIS -- Eli Lilly & Co., battered by stagnating prices for prescription drugs, said yesterday that it planned to cut 4,000 jobs, or 12.5 percent of its work force, and discontinue some cancer research.
Lilly's plans echo cuts by other pharmaceutical companies, which are jettisoning thousands of jobs as the potential for reform of the U.S. health care system forces companies to pursue growth through cost reductions instead of price increases.
Drug prices are rising at an annual rate of about 3 percent, compared with increases of 8 percent to 10 percent a year for the past five years.
U.S. drug companies this year have announced plans to cut at least 20,000 jobs.
"These companies have been fat and happy for a long time, and they now have to adjust their cost structures for a lower-margin business," said Barbara Ryan, an analyst with Alex. Brown in New York.
Lilly said the company's Hybritech Inc. unit will abandon development of radioimmune therapy and in vivo imaging, technologies designed to use monoclonal antibodies to destroy cancer while leaving healthy tissue unharmed.
Lilly's products include the antidepressant Prozac and Humulin insulin.
Lilly plans to cut 2,000 jobs by offering a voluntary early retirement program. The other 2,000 job cuts would come during the next few years from reducing employment of temporary workers and attrition.
Lilly plans to take a fourth-quarter charge to reflect the cuts. It didn't specify the size of the charge.
Lilly said it expects to report third-quarter earnings of 98 cents to $1 a share. Wall Street was expecting earnings of 97 cents a share, according to Zacks Investment Research. Eli Lilly shares gained $3.50, to $53.625, on the New York Stock Exchange yesterday.