UPDATE 2-Lilly to cut 8 pct of jobs in bid to cut costs

(Adds background about Lilly's drug pipeline)

Sept 7 (Reuters) - Eli Lilly and Co said on Thursday it would lay off about 8 percent of its employees as the drugmaker, which has suffered setbacks over the past year in the development of two potential blockbuster drugs, works to cut costs.

Lilly will cut about 3,500 positions around the world, resulting in yearly savings of about $500 million, beginning in 2018.

The company expects most of the cuts to come from a voluntary early-retirement program it is offering in the United States. It is also closing a plant in Iowa and research and development offices in New Jersey and China.

Lilly expects charges of about $1.2 billion before tax, or $0.80 per share after tax.

Shares of Lilly rose 48 cents, or 0.6 percent, to $80.99 in morning trading.

Lilly outlined in July a likely multi-year delay for its experimental rheumatoid arthritis drug baricitinib, after the U.S. Food and Drug Administration declined to approve the drug, calling for an additional clinical study.

That delay followed the failure of a trial in November of Lilly's experimental Alzheimer's treatment solanezumab, which the company had hoped would be the first medicine approved to slow progression of the disease.

The company said it has the potential to launch two new medicines by the end of 2018. The FDA is currently reviewing abemaciclib to treat advanced breast cancer.

Lilly officials were not available for immediate comment.

(Reporting by Michael Erman in New York and Divya Grover in Bengaluru; Editing by Bill Trott and Bernadette Baum)