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Lilly is Downsizing its Downtown Footprint: Employees Returning to Headquarters as Company Exits $100 Million Office Park

From Indianapolis Star (IN) (April 12, 2010)

Apr. 12--Just eight years ago, Eli Lilly and Co. and Kite Development Corp. put the finishing touches on a $100 million office park about a half-mile from the drug maker’s headquarters, and declared the campus would provide a vibrant, central location for more than 1,000 employees.

But now, those workers are preparing to pack up, vacate the leased space and return to Lilly’s main campus about six blocks away.

The latest move throws into question the future of the huge complex and the surrounding Downtown office market, already suffering from a high vacancy rate.

It also is the latest sign that Lilly is pulling back in Central Indiana after a decade of expansion, which has included more than $2 billion worth of new laboratories, office space and factory capacity.

Lilly said the move will take place this summer, after it renovates an old building on its campus to house the moved workers.

The shift is another reminder that Lilly is aggressively moving to cut costs and speed up development of drugs. Last year, Lilly said it would chop about $1 billion in costs and reduce its worldwide work force by 5,500 jobs, or nearly 14 percent, by the end of 2011.

Lilly said the decision to move workers from the Faris campus, which it leases from Kite, is not part of the cost-cutting move. Rather, it is a way to cluster teams together, encourage more collaboration and launch drugs more quickly, said Ed Sagebiel, a Lilly spokesman.

What will happen to the Faris campus, which has more than 400,000 square feet of space -- roughly the size of two Super Walmart stores -- is not clear. Lilly said it is exploring options and might continue to use the property for unspecified purposes. But the site is listed as available for lease on the CB Richard Ellis Web site. The price is not disclosed.

Vacancy rates soar

Some real estate officials said that if Lilly vacates the property, it could worsen an already depressed market for upscale office space Downtown. The Faris campus is in a commercial area five blocks south of Monument Circle.

Office vacancies Downtown jumped from 14.7 percent in 2008 to 18.3 percent last year, as new leasing activity dried up and businesses and government cut back on leased space, according to a recent report by commercial broker Colliers Turley Martin Tucker.

"If Lilly moves out for good, it will certainly increase the vacancy quite a bit," said David Moore, a principal and senior vice president of Colliers Turley Martin Tucker. "The owner of that complex will need a very large tenant, or perhaps two or three tenants, to fill that space."

It’s just the latest move by Lilly to reduce the space it owns or leases. In 2007, Lilly moved 325 employees and contract workers out of the former L.S. Ayres building at 30 S. Meridian and back to the main campus. That put the workers closer to the departments they supported and saved money, officials said.

And more recently, Lilly has sold its sprawling Greenfield Laboratories and a huge factory near Lafayette. In the process, the buyers picked up hundreds of Lilly employees.

But the core Lilly presence has shrunk -- and more cuts are coming because the 5,500 job cuts have yet to be fully implemented. Lilly hasn’t specified how many of those cuts will come in its hometown but has acknowledged it could be several thousand.

In Indiana, the company has decreased its work force from 13,500 in September to fewer than 12,000 today. The company will release its latest work-force figures April 19, when it announces first-quarter results.

The decision to pull out of Faris seems somewhat jarring, coming less than a decade after the company moved in with great fanfare. The campus includes three office buildings, a two-level conference center, a 1,550-space garage and an employee cafeteria.

The original building formerly held artists’ lofts, which were relocated to make room for Lilly.

$100 million project

The entire campus cost Lilly and Kite $100 million to create. The campus houses Lilly teams across a wide array of therapeutic areas.

"The Faris campus underscores our confidence in new products and our continued presence in the Indianapolis community," Sidney Taurel, Lilly’s former chairman and chief executive, said during the campus’s dedication in 2002.

John Lechleiter, then an executive vice president, said at the time the campus would "strengthen our creativity, increase our productivity and make the most of our portfolio."

But Lilly said it is time to bring the workers back to the main campus, so they can work even closer with others up and down the development line, from drug discovery to marketing.

"Lilly sees the benefits of deeper collaboration within our own walls," Lechleiter, now the company’s chairman and chief executive, said in a recent statement about the move.

Some Lilly managers say the move will give them greater flexibility and speed.

"Right now, we do a fair number of teleconferences with people six or eight blocks away," said Johnston Erwin, global brand development leader for Lilly’s bone, muscle and joint group. "After the move, we will all be on the same site. We can just walk to someone’s office."

In recent years, Lilly has struggled to launch new medicines, even as many of its blockbuster drugs, worth billions of dollars a year, are about to lose their patent exclusivity. Sales of those products represent more than 60 percent of the company’s revenues.

Lilly has more than 60 drugs in its pipeline, but many are still in early clinical development and will take years to hit the market. The company said it hopes the shift in workers will help accelerate the pace.

"The goal is to speed medicines from the laboratories to the marketplace," Sagebiel said. "And this will facilitate that effort."

Call Star reporter John Russell at (317) 444-6283.

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Posted: April 2010

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