Eli Lilly and CompanyEssay title: Eli Lilly and CompanyEli Lilly and CompanyCase AnalysisMarch 13, 2006Elli Lilly and CompanyThe case under analysis, Eli Lilly & Company, will be covering the positives and negatives with regards to the business situation and strategy of Eli Lilly. One of the major pharmaceutical and health care companies in its industry, Lilly focused its efforts on the areas of “drug research, development, and marketed to the following areas: neuroscience, endocrinology, oncology, cardiovascular disease, and women’s health.” Having made a strong comeback in the 1990’s due to its remarkably successful antidepressant Prozac, was now facing a potential loss in profits with its patent soon to expire. The problem was not only the soon to expire patent on Prozac, but the fact that Prozac accounted for as much as 30% of total revenue was the reality Eli Lilly now faced. (Pearce & Robinson, 34-1)
Summary of Key Strategic IssuesIn choosing to narrow its focus on its core pharma business in the 1990s, Lilly appears to have either deliberately or inadvertently made a choice to funnel their efforts into the category of neuroscience with the patented products Prozac and Zyprexa, Lilly’s top sellers. Its imbalanced portfolio and lagging international sales was the consequence of its dependence on just a few key products. This type of a strategy with a focus on neuroscience was not well suited to the more cost conscious international regions whose focus was treatment of disease. Other factors that played against them were the regulations in non-US developed countries on pricing and payment programs for pharmaceutical drugs through national health insurance programs. Due to this fact, Lilly wouldn’t have earned as high of a profit margin on its blockbuster drugs, Prozac and Zyprexa, in Europe and Japan as it did in the less price-conscious U.S. market.
Eli Lilly’s recent decline in market capitalization was brought on through the rapidly changing market conditions, intensifying pressures of competition, rising R&D expenditures and the erosion of prices on leading products. Additional issues that seem to have hampered performance were their failure to meet international sales expectations, expiration of key patents, and its poor performance against competitors. On some measures this can be attributed to the fact that Lilly’s rigid, centrally controlled operating structure did not fit well with today’s rapidly changing pharmaceutical market environment. Although a culture change may be evident to boost company performance, “the leadership would without out a dought face resistance in any effort to lead organizational change at Lilly, especially change of organizational culture. “
(Greenberg, Jerald p 132-133)External global conditionsThe firms external environment consists of three main sectors: the Remote Environment, the Industry Environment, and the Operating Environment. All of these environmental sectors affect the firm’s operations both on an international and domestic level.
In comparing these conditions with Eli Lilly it’s no wonder they were scrambling for an effective strategy that would keep them at the top of there game. The Remote sector is comprised of five factors that are not influenced by a single firm. The main factors are: economic, social, political, technological, and ecological. The managed health care programs launched by the Clinton administration had an effect on most of these factors. From this emerged PBMs to aid in helping control costs of pharmacy benefits programs. “Due to there profitability, some pharma companies retained these firms as part of there business portfolio.” However, when Lilly tried using this for strategic benefits, it ultimately failed due to conflicts of interest. It may have worked better for Lilly to let the company run independently as a source of revenue. (Pearce & Robinson, 37-38)
The Industry sector is made up of the entry barriers, supplier power, buyer power, substitute availability, and competitive rivalry. These contending forces are of the greatest importance to the firm in strategy formulation. Lilly was heavily involved in strategic alliance for the benefits of R&D. They used this to strengthen their standing in the industry hoping that it would make up for the 30% in revenue they stood to lose with Prozac. Zeprexa was developed in the late 1990’s that boasted sales of $1.4 billion accounting for 16% of company sales. This was a glimmer of hope that would become the next Prozac. Lilly also signed an agreement with Sepracor to help create a new form of Prozac that might allow Lilly
\2\ by using the existing model in that field.\3\ (Pepa is a non-determinist drug marketed for the treatment of depression.)\4\\ There was also a collaboration between the FDA and the Canadian Pharmaceutical Association and it was developed to have Prozac at a lower price than a placebo. \5\ There was also a partnership between the FDA and the pharmaceutical industry and Lilly’s lobbying activities in the UK and France were the main sources of information on the deal. By 1998, a number of firms with offices in Canada, including some with offices in India\4\ were lobbying for a Prozac, though they were less involved in the process. However, not all of the firms involved were, so the potential for some conflict was small. Still, it was a powerful political and moral force. The firm was one of only a handful of firms on the market with a $4 billion market share. \6\ In response, the National Institutes of Health began a program called Project Prozac, under the umbrella of a separate federal government campaign. It involved a consortium of a number of pharmaceutical firms to design and produce anti-depressants. The resulting product was not that of a generic. Instead it was a novel form of antiacting, a new kind of psychoactive drug that might work with other drugs of the same class and was widely available. These were essentially the product of an independent pharma company – pharmaceuticals – designed to combat depression. As this was clearly a major breakthrough, it led to the introduction for the first time of what had long been considered to have been a novel psychoactive agent, a prescription drug. \7\ The program was called the Prozac Safety Campaign.\8\ This campaign focused on building on previous experience with the products. The team at Prozac was led by Rachael Johnson, of the National Institute of Mental Health. She and other team members hoped that Prozac would be a strong example of what’s possible when a prescription drug is taken as a supplement.\9\ Both of these initiatives were put into action around the same time in early 1999, when two big US pharmaceutical companies were also working together on a program that might change the way the world was treated using Prozac. Although the two were not at odds with each other, Johnson’s project was well publicized and well-placed. The main focus at that time was to develop Prozac as a standard anti-depressant for young people, and this needed its own drug approval process. Prozac’s manufacturer Turing were using an unusual product classification system. Their program was to use this information to develop a drug of similar performance. It was a process that resulted in Prozac being a very expensive and expensive drug, and that in effect had been reducing their revenues significantly. The US