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Lilly to Cut 3,500 Jobs to Invest in New Drugs and Growth

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Eli Lilly & Company (LLY - Free Report) announced plans on Thursday to reduce its global workforce by approximately 3,500 positions. These initiatives are expected to amass annualized savings of approximately $500 million, beginning 2018. The drug giant plans to invest the savings in new drugs and overall growth of the company.

Lilly is looking forward to launch two new medicines by the end of next year, probably galcanezumab for migraine prevention and galcanezumab and abemaciclib for breast cancer.

Shares of Lilly were up 1.3% on Thursday. So far this year, Lilly’s share price has risen 10.8% compared with an increase of 12.6% for the industry.

Lilly expects most of the layoffs to come from a U.S. voluntary early retirement program that it is offering to some employees. This plan is expected to be completed by December. It is also closing down several sites, a plant in Iowa, a R&D office in New Jersey and a R&D center in China to save costs.

The job cuts are not expected to affect Lilly's adjusted earnings forecast for 2017. Lilly expects to achieve total operating expense efficiency of 49% or less of revenues by the end of 2018. Earlier, the company had expected operating expense efficiency of 50% or less.

Lilly faces its share of challenges. Several key drugs in its portfolio like Zyprexa and Cymbalta are facing generic competition due to loss of exclusivity. Meanwhile, blockbuster drug, Alimta’s U.S. sales are also being affected by the entry of immuno-oncology agents in the market while outside U.S. sales are already being hurt due to loss of exclusivity in several countries.

Other headwinds include competition from immuno-oncology agents as well as recent high-profile pipeline setbacks, the latest being a delay in approval of its rheumatoid arthritis candidate, baricitinib, in the United States. Also, Lilly’s Animal Health segment did not do too well in the first half due to worldwide competitive pressure. The cost savings will likely help Lilly offset the impact of some of these challenges to an extent.

Lilly carries a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked biotech stocks include Alexion Pharmaceuticals, Inc. (ALXN - Free Report) , Ligand Pharmaceuticals Incorporated (LGND - Free Report) and Regeneron Pharmaceuticals, Inc. (REGN - Free Report) , all with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Alexion are up 17.3% year to date. Its estimates for 2017 and 2018 have risen 5.5% and 6%, respectively over the past 60 days.

Shares of Ligand have risen 33.3% so far this year while estimates for 2017 and 2018 have risen 10.4% and 2.2%, respectively, over the past 60 days.

Regeneron’s shares up 28.5% this year so far. Estimates have risen 16.9% for 2017 while that for 2018 have gone up by 7.2% over the past 60 days.

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