- The Washington Times - Thursday, January 11, 2007

INDIANAPOLIS (AP) — Eli Lilly & Co. said yesterday it will halt construction of a Manassas, Va., insulin plant as part of a shift in the drug maker’s focus toward biotechnology products.

The Indianapolis company said it will stop building the center because production can be handled by existing plants and a center being built in Italy. All 120 employees in the Prince William County plant — which is partially complete — will be given a chance to transfer or will receive severance packages.

When the company announced plans to build the facility in 2002, it anticipated creating more than 700 jobs that would serve as a hub for a cluster of biotechnology firms. Lilly received more than $7 million in state and county incentives, plus a below-market price on the land for the plant.

The company said yesterday it will return all the economic incentives it received. County Board of Supervisors Chairman Corey Stewart said county and company officials will meet in coming days to discuss details, including disposition of the property. He does not anticipate any serious problems in those negotiations.

“Lilly has been very apologetic about the whole situation,” he said. “They know they put the county in a tough spot.”

Mr. Stewart said the biotech cluster near Manassas has proved successful, and the county will be able to attract a fitting replacement for Lilly.

The company also will offer exit packages to 250 of the 1,000 employees at its plant in Lafayette, Ind.

“Our commitment to insulin and to diabetes is unchanged and shouldn’t be misinterpreted because of this,” said Lilly spokesman Phil Belt. “The best way to describe it is a reallocation of resources.”

Mr. Belt said added capacity and improvements in other plants, including ones in Italy, Indiana and Puerto Rico, plus long-term expectations for insulin demand, prompted the decision to abandon the Manassas site.

Lilly introduced the first commercially available insulin in 1923, and its diabetes portfolio accounts for one-fifth of the company’s revenue. Analysts have predicted that figure could more than double in the next four years.

Sales of Lilly diabetes products rose 9 percent to $712.4 million in the third quarter of 2005. The company will announce fourth-quarter earnings Jan. 31.

Scott Canute, Lilly’s president of manufacturing operations, said the company expects worldwide demand for its insulin products to grow, but not at levels projected when plans for the Prince William site were made in 2003.

Lilly plans significant investments in its facilities in Kinsale, Ireland, and Indianapolis to meet production needs for the introduction of one biotech product per year beginning in 2010. Biotech drugs, which include insulin, and biotech drug candidates make up about 30 percent of the company’s portfolio. The expansions are part of a $1.5 billion investment in biotech at Lilly.

The buyouts at Tippecanoe Labs in Lafayette will be voluntary, Mr. Belt said. Up to 250 people will be offered the exit packages and no one will be forced to leave if fewer than 250 accept, he said.

The company said it plans to take about $155 million to $185 million in charges as a result of the shift. The charges will be split between the fourth quarter of 2006 and the first quarter of 2007.

“Lilly is continuing to transform its operations to compete and win in a more challenging business environment,” Mr. Canute said. “As a part of these efforts, Lilly is making several changes to its global manufacturing operations to ensure the company has the right capacity in the right places.”

Lilly shares rose 57 cents, or 1.1 percent, to close at $52.23 on the New York Stock Exchange.

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