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Eli Lilly CEO John Lechleiter to retire

James Briggs, james.briggs@indystar.com
Eli Lilly and Co. CEO John Lechleiter, left, laughs with David Ricks, a senior vice president and president of Lilly Bio-Medicines, during a press conference Wednesday, July 27, 2016, announcing Lechleiter's retirement and Ricks' succession.

John Lechleiter couldn't help but notice Eli Lilly and Co.'s stock price.

As Lechleiter announced his plan to retire from the Indianapolis pharmaceutical giant, Lilly shares on Wednesday jumped 1.6 percent to $83.40.

"The stock's up a buck today," Lechleiter said. "(Investors are) probably glad that I'm leaving."

Not exactly. Investors more likely are glad Lechleiter was at the helm during one of the most painful periods in Lilly's 140-year history. And they reacted favorably to the company's plan to promote David Ricks, a well-regarded executive, to CEO.

Lechleiter will retire Dec. 31 after more than eight years as CEO. He led Lilly through an era of sales-crushing patent expirations and job cuts while also steering it toward new products. The company rebounded last year and had a strong first half of this year.

"Mission accomplished," Lechleiter said. "We resumed growth last year, which is what we told investors we aimed to do at the beginning of 2015. We're on track for a good year this year."

Ricks, a senior vice president and the leader of Lilly's largest business unit, will succeed Lechleiter on Jan. 1. He also will join the board Jan. 1 and become board chairman June 1.

David Ricks will take over as CEO at Eli Lilly and Co.

Lilly's board has been contemplating a succession plan since May 2013 when Lechleiter underwent surgery for a heart defect. Lechleiter earlier this year informed the board he would retire in December.

"The planning has been underway for a long time, the execution for the past few weeks," Lechleiter said.

Lilly only considered internal candidates for the job, Lechleiter said. He called Ricks a "capable, decisive and energetic leader who is very well prepared to succeed me as CEO."

Ricks, 49, joined Lilly in 1996 as a business development associate. He has been the company's director of pharmaceutical marketing, national sales director and general manager for Lilly Canada. He also spent more than a year as general manager of Lilly China.

Ricks became president of Lilly Bio-Medicines in 2012, overseeing the therapeutic areas of Alzheimer’s disease, urology, immunology, musculoskeletal disease, and pain, as well as the company’s global marketing operation.

Ricks said he will be taking over a company that has developed a "strong pipeline" and a "promising portfolio of recently approved new medicines."

That was by no means assured a few years ago, though.

Lilly during Lechleiter's tenure as CEO faced many challenges, particularly patent expirations and late-stage product failures. Between 2011 and 2014, patents ran out on four drugs that had accounted for about 40 percent of Lilly's revenue as recently as 2009.

For instance, Lilly's patent for Cymbalta, an antidepressant and pain pill that had been its top-selling drug, expired in 2013. The drug, which once generated sales of about $5 billion, is on pace for just $870 million this year. Before that, Lilly's patent for antipsychotic drug Zyprexa expired in 2011. Zyprexa sales also once topped $5 billion a year, but are on pace for $847 million this year.

In a significant blow late last year, Lilly ended late-stage development of evacetrapib, which was part of a costly study involving 12,095 patients at 540 sites in 37 countries. The therapy was in Phase 3 development — the final stage before a drug can be submitted to the Food and Drug Administration for approval. The news sent stocks falling 8 percent in one day in October.

Yet, Lilly's stock jumped 22 percent in 2015 and at one time reached its highest price in about 15 years. The company rewarded investors with huge returns in 2014 and 2015, said John T. Boris, the managing director for SunTrust Robinson Humphrey and an analyst who follows Lilly.

"John was the architect behind driving Lilly into one of its best new product cycles in its storied history," said Boris, who worked for Lilly during the 1980s.

The first key to Lechleiter's success was continuing to invest in research and development even as the company had to cut costs elsewhere, Boris said. Lilly laid off 5,000 employees between 2009 and 2011 and faced pressure from Wall Street to "shred the organization," Boris said.

"He very smartly didn't cut R&D," Boris said. "He went around to some of the largest shareholders and explained to them he's going to have to spend more than 20 percent of shares on R&D."

The results are apparent. Lechleiter has said Lilly is in the process of rolling out 20 or more new products over a 10-year period starting in 2014. The products include treatments for diabetes, oncology, neurodegeneration, immunology and pain.

Much of that progress also has happened under Ricks' watch. Lechleiter noted Ricks oversaw Lilly's development of a highly anticipated drug called Taltz, which treats psoriasis.

"That was the biggest challenge — overcoming the unanticipated failures and recovering from that to a point today where I think we have a very strong pipeline and we have ample evidence we’re able to turn those molecules into progress," Lechleiter said.

Ricks' objective will be guiding Lilly's upcoming products through to commercial success, Boris said. Ricks, though, also acknowledged the company isn't insulated from the struggles it faced under Lechleiter.

Eli Lilly president, CEO and chairman John Lechleiter.

"Well, we hope for smoother sailing, but no period is without its challenges," Ricks said. "We have patents that will continue to expire. It's part of our business. And those products go onto help a lot of people at a much lower cost because we have competition.

"What we need to do is keep innovating. We need to keep our foot on the gas in terms of building the pipeline, restocking it constantly. I hope if we're vigilant about that, we can avoid the cycle we just went through."

Lilly on Tuesday reported revenue grew by 8.6 percent to $5.4 billion in the most recent quarter on the strength of new products. Lechleiter will spend the remainder of the year preparing Ricks to build that success.

Lechleiter will remain on Lilly's board, serving as non-executive chairman, until May 31. He joined Lilly in 1979 as a senior organic chemist and became CEO in April 2008. He has been chairman of the company's board since January 2009.

That trajectory is a testament to Lilly's process for grooming new leaders, Lechleiter said.

"Who would have thought a guy wearing a white coat in 1979 in a chemistry lab could become CEO?" Lechleiter said. "I think that’s good evidence that the process we have here works well and that was the mindset as we went through the process where we ultimately selected Dave."

As Lechleiter discussed retirement, he said some of the pressure that comes with leading a 40,000-employee company had already been lifted off his shoulders. He said Ricks will soon learn what it's like to feel "lonely at the top," but expressed confidence the company is in a better place than it was a few years ago.

"Having gone through the experience we went through, not that I would wish that ever on the company again, we are stronger," Lechleiter said. "We’re more resilient. I think we’re tougher-minded. We’re better operators today than we were eight years ago and that will carry over."

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USA TODAY reporter Nathan Bomey contributed to this story.

Call IndyStar reporter James Briggs at (317) 444-6307. Follow him on Twitter: @JamesEBriggs.