The restructuring, announced by Lilly's new chief executive, Randall Tobias, yesterday, will mean hiving off divisions that manufacture state-of-the-art medical equipment, and either selling or spinning them off as independent companies.
Three subsidiaries - Hybritech, Pacific Biotech and Physio-Control Corporation, all based on the US west coast - are to be sold outright, although the timing will vary. Lilly's medical-devices and diagnostics businesses will also be divested but how that will take place has not been resolved, Mr Tobias said.
The proceeds of the restructuring - dollars 2bn by some estimates - would be reinvested in Lilly's pharmaceutical research and development effort.
The nine divisions, which make products ranging from diagnostic devices to pace-makers, heart defibrillators and balloon catheters, account for more than dollars 1.2bn of Lilly's annual revenues and, in many cases, are leaders in their markets.
But analysts said yesterday that many were producing uneven profits and slowed Lilly's otherwise impressive returns to shareholders in recent months - prompting the change in management late last year.
The decision to refocus the company, one of the world's most successful pharmaceuticals groups, will cost it dollars 1.2bn in charges against its earnings, resulting in a loss for the fourth quarter and perhaps for 1993. Before the charge, Lilly said yesterday that it was expecting earnings of about dollars 4.50 a share for the year, almost double the dollars 2.41 a share, or dollars 828m, it made in 1992.
In the final quarter of 1992, Lilly made dollars 311m, dollars 1.06 a share, on turnover of dollars 1.65bn.
The move was widely welcomed on Wall Street and among agencies that rate Lilly for credit. While the revamp will increase the company's dependence on pharmaceuticals for profits, the equipment businesses are 'diverting resources from this highly profitable business', Standard & Poor's said yesterday.
Analysts said Lilly's ability to survive in the increasingly competitive drugs business will depend largely on exploiting new products in its research pipeline.
Lilly currently spends about dollars 900m on research, but should be concentrating all its resources on drug development if it is to maximise shareholder value, Mr Tobias told analysts.Reuse content