Lilly Ties Employees Cash Bonuses to the Success of New Drug Development

Eli Lilly & Co., facing generic competition to its top-selling drug Zyprexa this year, said it will tie cash bonuses for employees partly to the success of medicines the drugmaker is developing as it seeks new products.

The Indianapolis-based company altered its bonus system to focus on “this critical part of our strategy,” said Mark Taylor, a Lilly spokesman. Full-time employees will gain bonuses as drugs move into the final stage of clinical testing or when they win regulatory approval, Lilly reported today in a regulatory filing.

Lilly has sustained setbacks in the past year as it tried to bring products to market. In January, the U.S. Food and Drug Administration’s advisory panels said Lilly’s Amyvid test for Alzheimer’s disease and its Solpura treatment for cystic fibrosis weren’t ready for approval. In October, the agency delayed clearance of the long-acting diabetes medicine, Bydureon from Lilly and San Diego-based Amylin.

“Advancing our drug pipeline is a critical part of our strategy,” Taylor said in a telephone interview. “This gives additional incentive to support that strategy.”

Besides obstacles bringing drugs to market, Lilly’s top- selling antipsychotic drug Zyprexa goes off patent this year. Patents are scheduled to expire on drugs accountable for 65 percent of the company’s revenue in the next three years.

Lilly’s price-earnings ratio for the past year, a measure of prospects for growth, is 7.4, lower than 95 percent of its industry peers, according to data compiled by Bloomberg.

Lilly shares fell 10 cents to $35.53 at 4:15 p.m. in New York Stock Exchange Composite trading. The stock gained 2.5 percent in the past 12 months.

Stock-based compensation restricted to management won’t be tied to drug development. This pay-for-performance system will continue to be linked to increases in earnings per share, Taylor said. Chief Executive Officer John Leichleiter’s $1.5 million salary in 2010 is unchanged in 2011, Taylor said.

To contact the reporter on this story: Pat Wechsler in New York at pwechsler@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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