Lilly to sell Lafayette plant to German firm

Eli Lilly and Co. will sell its manufacturing plant in Lafayette to a German company in its first major move toward reducing
its work force by 5,500 employees and cutting its operating expenses by $1 billion.

Indianapolis-based Lilly signed
a nine-year contract with the buyer, Evonik Industries AG,  to supply Lilly with the active pharmaceutical ingredients
the plant makes. Evonik will offer jobs to the nearly 700 full-time employees at the plant.

“The employees are the key to the success of this deal,” said Tom Bates, president of the
North American region for Evonik, which is based in Essen, Germany. He said the company would offer comparable
salaries and benefits to the employees.

Lilly did not disclose financial terms of the sale,
but it will take an accounting charge of 23 cents per share, or about $264 million, in its third quarter
financial report, which it will release on Oct. 21.

Some of those costs will come from giving
severance packages to all the full-time employees dedicated to the Lafayette site. Lilly did not disclose the details of those
packages.

About two dozen other employees who are not dedicated to the Lafayette site will relocate to Indianapolis.
Also, about two dozen contract employees at the plant will not be offered jobs.

The sale is expected to close by
the end of the year.

“This announcement today certainly support our goals of becoming a leaner and competitive
company given the challenges the company faces,” said Lilly CEO John Lechleiter. Lilly announced its job and cost reduction
goals on Sept. 14. It aims to achieve those goals by the end of 2011.

The plant near Lafayette, which is called
the Tippecanoe Laboratories, currently makes active pharmaceutical ingredients for Lilly drugs Cialis, Cymbalta, Gemzar, Alimta
and Tylan, an animal health product. It was founded in the 1950s to make large batches of antiobiotics.

Because
today’s drugs come in smaller doses, the plant has been underutilized. Evonik plans to use that excess capacity to serve
other drug companies, both large and small, Bates said.