‘Smooth transition’ predicted as Lilly turns to experienced exec

Over the last eight years, Eli Lilly and Co. relied on a three-decade company veteran to steer it through declining sales and a struggling product pipeline. Now it’s turned to another long-time executive for its next chapter.

On Wednesday, the Indianapolis-based drugmaker—which recently returned to favor with investors—said CEO John Lechleiter will step down after more than 35 years at the drugmaker and hand over the job to David Ricks, another longtime executive. Lilly said it didn't look outside the company for a new CEO.

Ricks, who started at Lilly in business development in 1996, is currently senior vice president and president of Lilly Bio-Medicines. Unlike Lechleiter, an organic chemist who became a businessman, Ricks comes from a commercial background. He holds a bachelor’s degree in business from Purdue University and an MBA from Indiana University, according to Lilly’s website.

In his most recent role, he oversaw some of the company’s biggest programs, including in Alzheimer’s disease, pain and marketing operations, along with several other drug areas. He will take over as CEO on Jan. 1, and as chairman six months later, Lilly said Wednesday in a written statement.

Lechleiter, 62, joined Lilly’s labs in 1979 and rose through the ranks to become director of pharmaceutical product development. After becoming CEO in April 2008, he navigated the drugmaker through the loss of patents on some of its biggest drugs, the anti-psychotic drug Zyprexa and the antidepressant Cymbalta, and trimmed the workforce to cut costs.

“This is a very smooth transition,” John Boris, an analyst with SunTrust Robinson Humphry, said. “John was the architect for the turnaround for Lilly as it went through its most difficult patent-expiration period, and then he restocked the cabinet.” He has a buy rating on the shares.

He called Ricks an “exceptional operator” given his wide-ranging experience with sales, marketing, operations and new products. Ricks’ work at Lilly spans continents, having served as general manager for the company in Canada and China before becoming president of Lilly USA in 2009.

Alzheimer’s bet

The company has made a high-risk, potentially high-reward bet on an experimental treatment for Alzheimer’s under his tenure, which could have results from a large, final-stage trial in the next year.

“Should it be positive, that’s a big deal for us, but if not we have a broad portfolio in Alzheimer’s and in many other disease areas,” Ricks said Wednesday in a telephone interview.

Ricks, 49, became president of Lilly Bio-Medicines in 2012. The unit includes company’s operations in Alzheimer’s, urology, immunology, pain and musculoskeletal drugs, as well as its marketing efforts.

“He’s shockingly well-schooled in the pharmaceutical business,” Guggenheim Securities analyst Tony Butler said in a phone interview. When Ricks would present on behalf of the company, “he was incredibly good about understanding all of the particular products they had and why one was more important than the other.”

Passion for deals

Ricks has a background in doing deals, and he anticipates doing more of that when he takes over as CEO.

“I have some passion for that area,” he said of mergers and acquisitions, but added that the company isn’t looking for large-scale deals. “We’re interested in pipeline collaborations or acquisition of companies that have assets we’re interested in.”

After lagging many of its pharmaceutical peers, Lilly has started to regain favor among investors. Since Lechleiter took over as CEO, the shares have gained 58 percent. The stock rose 1.1 percent to $82.98 at 12:58 p.m. in New York.

Lechleiter said the company has made it through several difficult years where revenue fell and the pipeline of new experimental drugs looked dry.

“We went through this period where we lost patent protection on four of our biggest products, we had some pipeline failures and had to rebuild our late-stage pipeline,” Lechleiter said in a telephone interview. Since then, “we’ve rebuilt the confidence of investors.”

Perspective

He’d been thinking about stepping down for some time. In May 2013, he took a break from running the company to undergo heart surgery for a dilated aorta, an asymptomatic condition. He returned to work two months later.

“I’d had surgery a few years ago, and I’d thought at the time I’d not go the distance, not because of health matters but because of the perspective that gives you,” Lechleiter said. Lilly has a mandatory retirement age of 65 for executives. “The date I’ve had in mind has been the end of this year.”

Ricks sees two major challenges ahead.

“The more pressing one is successfully introducing the pipeline that’s been built under John’s leadership,” Ricks said. Introducing a new drug is more complex than when he joined the company in 1996, and health insurers and pharmacy benefit managers hold more leverage. “We need to make sure that goes extremely well.”

Ricks said he’s also focused on continuing research and development efforts to make sure the company doesn’t face a major revenue fall-off in future years.

Looking back

Lechleiter noted how the industry has changed in the 37 years since he started at the company, when drug discovery was usually about testing as many different chemicals against as many different targets as possible, hoping one would work.

“The chemists made as many molecules as they could and you hoped you found something," he said. "That has completely changed. We understand disease at the molecular level. We’re able to understand something with computer models before you do the first wet chemistry in the lab.”

The outside perception of the drug industry has changed as well, he said.

“The expectations on our industry have risen astronomically,” he said. “Dave will have to be even more adept at dealing with not only our friends but also those who can be critical of the industry or disagree with us.”