Lilly powers ahead with plant investment even as it cuts 3,500 jobs

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Lilly CEO David A. Ricks announced a $72 million investment in a its insulin production site in Indianapolis, Indiana, which is part of hundreds of millions it will spend this year on capital projects.

Even as pricing pressure on its diabetes portfolio led Eli Lilly to cut 3,500 jobs by year-end, the drugmaker today said it is moving forward with a $72 million upgrade to its insulin manufacturing, part of an $850 million outlay it had expected to make this year on capital projects.  

Lilly will replace an existing insulin vial filling line at its site in Indianapolis, where it has its headquarters. It said the project will help it meet demand for Humalog, Humulin and other insulins, and put in place new technology for pipeline projects.

“As technology and science continually advance, it is important that our manufacturing facilities are recapitalized and modernized regularly to ensure we can continue to provide a reliable supply of safe and high-quality medicines to people around the world," Maria Crowe, president of Lilly global manufacturing operations, said in a statement.

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Lilly CEO David A. Ricks today said that the investment is “part of $850 million in anticipated U.S. capital investments which Lilly announced in March...” Those upgrades were to manufacturing sites, research laboratories and general and administrative areas, for both its human and animal drug operations, and include both new projects as well as some there were in progress.

But the drugmaker more recently announced a sweeping cost-cutting endeavor. Last month, Ricks said Lilly would cut 3,500 jobs, about 8% of its global workforce, by the end of the year as it shoots to achieve $500 million in annual savings. He said Lilly expected most of those departures to come from a juiced up early retirement program, but that it would also shutter research sites in New Jersey and Shanghai and consolidate work at an animal health manufacturing site in Iowa.

The company said the closures, severance expenses and the retirement program will cost $1.2 billion pretax, 80 cents per share after tax, impacting EPS guidance for the year. Half of the savings will go toward improving the drugmaker’s cost structure, while the company plans to reinvest the other half in product launches and R&D.

RELATED: Eli Lilly says it's cutting an average of 50% off list prices—and its price hikes don't work

Like its peers Sanofi and Novo Nordisk, Lilly has had to cough up deep discounts on its diabetes medications as payers play drugmakers against each other to secure better pricing. Earlier this year, it released a transparency report that showed an average 14% list price hike in 2016 for its medicines amounted to a net 2.4% increase after discounts. Across its portfolio, Eli Lilly said it is cutting drug prices in half in behind-the-scenes negotiations.

Not all of Lilly's insulin news is bleak, however. Lilly’s Trulicity has captured 42% of the new-to-brand market-share recently, Credit Suisse analyst Vamil Divan wrote to clients last week. Trulicity’s $480.2 million in second-quarter sales, was more than double the $201.3 million it posted in the same period last year.