1. ELI LILLY
The Competitive
Advantages in
Pharmaceutical Industry
● Chee Liung Wun
● Lim Shieh Chern
● Ng Yee Jie
● Terrenz Leong
● Winny Low
1

2. Preface
 Competitive Analysis of Eli Lilly to
determine its market position in
pharmaceutical industry by identifying
issues & challenges using SWOT analysis &
Porter’s Five Forces in determinant of
industry attractiveness for Eli Lilly
 The future directions & strategies will be
of assistance for Eli Lilly to meet the
urgent & crucial challenges.
2

3. Content
1. Introduction
• 1.1 Team Members
• 1.2 The Company – Eli Lilly & Co.
2. Porter’s Five Forces (Current
Situation)
3. The Key Trends in
Pharmaceutical Industry
• 3.1 Mergers & Acquisitions (M&A)
• 3.2 Outsourcing
• 3.3 Cost Control
• 3.4 Expiring Patents
• 3.5 Aging Populations
• 3.6 Food & Drugs Authority (FDA) Regulations
• 3.7 Emerging Disease
4. S.W.O.T. Analysis
5. Eli Lilly Driving Forces
• 5.1 Merger and Acquisition (M&A) Emergence of New
Biotech Companies
• 5.2 Aging Population and New Emerging Market
• 5.3 Expiration of Patents and Emergence of Generics
6. Porter’s Five Forces (New Situation)
• 6.1 Rivalry Among Competing Firms in Industry
• 6.2 Bargaining Power of Buyers
• 6.3 Threat of Substitute Products
• 6.4 Threat of New Entrants
• 6.5 Bargaining Power of Suppliers
7. The Future Direction & Strategies of
Eli Lilly
• 7.1 Mergers & Acquisitions (M&A)
• 7.2 Outsourcing
• 7.3 On-going R&D for New Drugs – Emergence Market for
Aging Population and New Geographic Market Penetration
• 7.4 Regulatory & Government Affair Capabilities & Patents
8. Conclusion
3

4. Introduction
Team
Members
The Company
– Eli Lilly & Co.
4

5. Team Members
Chee Liung Wun
2821927
Lim Shieh Chern
2821959
Ng Yee Jie
2821942
Terrenz Leong
2821913
Winny Low
2821920
5

6. The Company - Eli Lilly & Co.AboutUs
Global,
research-based
pharmaceutical
company and
one of the
world's largest
corporations.
Origin
Founded in
1876 by a
retired colonel
& Pharmacist,
Eli Lilly. Global
headquarter in
Indianapolis,
United States
Mission
To makes
medicines that
help people live
longer,
healthier, more
active lives
6

7. Eli Lilly & Co.
• Today, marketed in 143 countries, 10th largest pharmaceutical
company in world. Steadfastly remained independent, but not isolated.
Global headquarters in Indianapolis, United States
• Global employees’ number approximately 40,000, and its medicines
are marketed in 143 countries.
• Major research and development facilities in 8 countries and conducts
clinical trials in more than 50 countries.
7

8. Senior Management
8

9. Porter’s Five Forces (Current
Situation)
Porter’s Five Forces: Determinant
of Industry Profitability (Current)
9

10. Porter’s Five Forces (Current
Situation)
Threat of Substitute
Products
LOW
(Low Value, Risk)
Threat of New
Entrants
LOW
(Patent, regulatory
process & Dist
System)
Rivalry Among Competing
Firms in Industry
LOW
(Different niches & Patent
Protection)
Bargaining Power of
Buyers
LOW
(Insurance companies,
doctors‘& patients’
buying habit)
Bargaining Power
of Suppliers
LOW
(Multiple sources)
10

11. Our Main Focus
 To evaluate the key trends in pharmaceutical
industry.
 To identify how these trends apply to Eli Lilly
currently.
 To discover the influences of competitive
dynamics within the industry for the next 10
years. 11

12. The Key Trends in
Pharmaceutical Industry
Mergers &
Acquisitions
(M&A)
Outsourcing Cost Control
Expiring
Patents
Aging
Populations
Food &
Drugs
Authority
(FDA)
Regulations
Emerging
Disease
12

13. Mergers & Acquisitions (M&A)
To improve sales & increase competiveness in the
healthcare industry
To better position themselves to remain competitive
To create mutual benefit through sharing resources &
complement each other on their product pipelines
To increase their shopping lists & product pipelines
with a handful of highly prospective blockbuster drugs
13

14. Mergers & Acquisitions (M&A)
No Name of Company Merger/Acquisition Year
1 Bayer and Schering AG Acquisition 2006
2 Merck KG aA and Serono Acquisition 2006/2007
3 Nycomed and Altana Pharma Acquisition 2006/2007
4 UCB and Schwarz Pharma Acquisition 2007
5 Mitsubishi and Tanabe Merger 2007
6 Schering-Plough and Organon Acquisition 2007/2008
7 AstraZeneca and Medlmmune Acquisition 2007
8 Mylan and Merck Serono Acquisition 2007
9 Eisai and MGI Pharma Acquisition 2007/2008
10 Takeda and Millennium Acquisition 2008
11 Eli Lilly and ImClone Acquisition 2008
12 Daiichi-Sankyo and Ranbaxy Acquisition 2008
13 Pfizer and Wyeth Acquisition 2008
14 Merck and Schering-Plough
(currently on negotiation)
Merger 2009
List of M&A
undertaken
between
2006 - 2009
Source : Report: Mergers and Acquisitions in the Pharmaceuticals Sector, 2009
14

15. Outsourcing
• Dramatic & durable
changes to the
operating
environment.
• The eroding pricing
power, patent expiring
& tighter regulatory
standards.
Reasons
• Companies to
outsource their non-
core business, such as
preclinical activities to
third party
Resulted • The core business,
cost control & speedy
delivery
To Focus
15

16. Cost Control
• New generic are
competing for
expiring patents.
• The global financial
crisis
Reasons
• Many companies
has undertaken
cost cutting
exercise as one of
the measure
Resulted • To lowing fixed cost
& eliminating
redundancy
To Focus
16

17. Cost Control
Top Five Layoff in
Pharmaceutical Industry
(2007)
Total
Layoff
Top Five Layoff in
Pharmaceutical Industry
(2008)
Total
Layoff
Pfizer 10,000 Merck 8,400
AstraZeneca 7,600 Schering-Plough 5,000
Bayer 6,100 Wyeth 5,000
Johnson & Johnson 5,000 UCB Pharma 2,000
GlaxoSmithKine 5,000 AstraZeneca 1,400
Data show the total no. of layoff in 2007 &
2008 in the pharmaceutical industry 17

18. Expiring Patents
“Many branded-name drugs lose patent protection will
leading to a WAVE of generic medications entering the
market”
(Quoted from Article “Flooded Generic Pipeline Looms as Branded Patents Expire”)
About 183 of branded drugs will go
off patent starting 2009 until 2013
$60 billion worth of drugs are going
off by 2011
18

19. Brand Name Drug Patent
Expirations
51%
17%
22%
3%
7%
Brand Name Drug Patent Expirations
2006 2007 2008 Ex-2009 2009
Source: Expiring Patents Ignite Biotech Boom & Flooded Generic Pipeline Looms as Branded Patents Expire
19

20. Aging Populations
Fact
• An increasing aging
population is another
trend that affects the
pharmaceutical
industry
Current
• 6 countries account for
54% of the total
number aged 80 years
or over
• China (12mil), U.S.A.
(9mil), India (6mil),
Japan (5mil), Germany
(3mil) & Russian
Federation (3mil)
Future
• In 2050, 6 countries
will have more than 10
million people aged 80
years or over
20

21. Aging Populations
The average expenditure for prescription drugs
for people age 65 & above increased 130%,
rising from $819 in 1997 to $1,914 in 2004.
Source: Drug Spending Increases More Than 2.5 Times in 8 Years 21

22. Food & Drugs Authority (FDA)
Regulations
• Glaxo Smith Kline (GSK)
Fail to inform physicians that
studies had shown that its highly
profitable drug Paxil, despite
ineffective in adolescents, it also
contribute to some cases of suicide
Becoming stricter in
approving new drugs
after a series of
lawsuits & scandals
involving prestigious
pharmaceutical firms
• ImClone
Erbitux drug failed to get approval
from FDA in late 2001, causing the
company’s stock price to plummet
severely
It is very common to
see the stock of these
companies skyrocket
(or plummet) as test
data is released
22

23. Emerging Disease
Emerging diseases
like SARS, Bird Flu,
Aids & the recent
type A Influenza
H1N1
Roche who own the
proprietary drug, Tamiflu
that can treat bird flu &
type A influenza H1N1 took
full advantage of the
situation
Threaten human kind in the form of a
global pandemic
Share price of Roche skyrocketed & attracted
popular & media attention to the industry 23

24. S.W.O.T. Analysis
S.W.O.T. Analysis
24

25. Strengths
Research-based pharmaceutical
company & is one of the largest
corporation
Existing patent protection for a number
of years on key products
Marketing strength in major
geographical & therapeutic areas
25

26. Weaknesses
Patent expiring for few patent
blockbuster drugs such as Zyprexa,
Cymbalta & Evista in year 2010 & 2014
Discontinuation of products in the latter
stages of development
26

27. Opportunities
Emergence of global markets (China,
Vietnam, etc) & aging population
Decreasing development time through
favorable R&D collaborations & internal
efforts
27

28. Threats
Expiring of patent protection for a
number of years on key products
Increase in growing of generic market
Government policy to support generic
products
28

29. Eli Lilly Driving Forces
Merger and
Acquisition (M&A)
Emergence of New
Biotech Companies
Aging Population
and New Emerging
Market
Expiration of
Patents and
Emergence of
Generics
29

30. M&A Emergence of New Biotech
Companies
Current trend of M&A has
changed the pharmaceutical
landscape dramatically
With emergence of many
Behemoth pharmaceutical firms
like Pfizer & Merck which has
become stronger in term of
product development, market
penetration, etc
Many new biotech companies
that have developed some highly
potential innovated & niche
products. This has hastened the
need to speed up the
development of products in the
pipeline
The stricter regulation of FDA
that tend to slow down the
development of drugs in the
pipeline also has resulted the
Company to embark on the
similar exercise in order to
remain competitive in the market
30

31. Aging Population and New
Emerging Market
The large pool of “growing” market that focus on diagnosis
& treatment of illness for old age people, ie, diabetics,
Alzheimer or cardiovascular drugs.
Zydus Cadila, an India based drug maker on the R&D
conducted the joint research program, which could
continue for up to 6 years for developing drugs for
cardiovascular diseases
As part of the agreement, Lilly will have the option to
license the result at different stage
If Lilly is able to successfully develop the product, it will
help the Company to increase their product pipeline &
through patent the drug, the Company will able to secure
the sale volume at least for another 15-20 years
Source: www.ibtimes.co.in/articles/20090401/cadila-healthcare-inks-research-development
31

32. Expiration of Patents and
Emergence of Generics
• The oncoming patent expirations & generic pressure
• Sales of the 3 blockbuster drugs were raked in 2006 for
a combined $6.8bil, nearly half of the Company’s total
revenue
• The fierce emergence of generics which increase pricing
pressures and spiraling drug development costs
New Challenges
• Between 2011 & 2014, Lilly will lose patents on 3 big
name drugs: Zyprexa, Cymbalta and Evista
Patents Lost
Source: Eli Lilly signals vigour for outsourcing 32

33. Porter’s Five Forces (New
Situation)
Rivalry
Among
Competing
Firms in
Industry
Bargaining
Power of
Buyers
Threat of
Substitute
Products
Threat of
New
Entrants
Bargaining
Power of
Suppliers
33

34. Porter’s Five Forces (New
Situation)
Threat of Substitute
Products
MODERATE
(OTC alternative)
Threat of New
Entrants
MODERATE
(Increased Biotech
Firms)
Rivalry Among Competing
Firms in Industry
MODERATE
(Generics more common,
price pressure)
Bargaining Power of
Buyers
MODERATE
(Buyer Consolidate, Large
governmnet players &
hospitals price sensitive)
Bargaining Power
of Suppliers
MODERATE
(Multiple sources)
34

35. Rivalry Among Competing Firms
in Industry
• To explore a broader differentiation
strategy & attract wide range of customer
• Increase premium price, increase unit
sales & gain buyer brand loyalty
Explore
• Increase R&D activities
• Incorporate features that raise product
performance
• To avoid replacing old products
R&D
35

36. Rivalry Among Competing Firms
in Industry
● Competes against the Pfizer’s Viagra in
the erectile dysfunction market.
● CIALIS’ has 36 hours potency as
compared to Viagra’s 4 hours.
● Lesser side effects & lasts longer in the
body to increase spontaneity.
● The longer duration of effect is ideal for
partners who seek for freedom & flexibility
to choose the right moment for sexual
activity.
CIALIS
Source: The Edge, 2005 36

37. Bargaining Power of Buyers
Doctors’ bill are increasing & outpacing the general inflation rate each year
worldwide.
The global medical inflation average 10% each year.
Generic drugs can help patient save between 60% to 90% on their medical bills
according to a recent study by the school of Pharmaceutical Sciences at USM,
Malaysia)
Government & private hospitals are now relying more on generic drugs to
mitigate the effects of rising medical costs
Patient looks for cheaper alternative like generic drugs to ease their burden, e.g.,
India is famous for its generic drugs & biosimilars.
Patent law since 1970s had allowed scientists could take a brand name drug &
reverse-engineer it to create similar drug with the same effects.
37

38. Threat of Substitute Products
Self-care lifestyle
• Demands of expensive
patented drugs are
expected to decline
Modernizing traditional
Chinese Medicine (TCM)
• China recently announced
a US$10 billion “Mega
New Drug Development
Programme”, with the aim
of growing its drug
development industry over
the next 13 years, which
accounts for 38% of
medical products
produced in China in 2007
• Cheaper cost
38

39. Threat of Substitute Products
 Burrill stated 3 forces that will shape the
healthcare industry:
Molecular &
personalized
medicine
Wider access
to lower
costs and
high quality
healthcare
Proficient use
of health
information
39

40. Threat of Substitute Products
Molecular & personalized medicine
• Genetic screening can identify people risk profile for lethal diseases
• Advances in molecular biology and genomics have shown that the efficacy of
personalized medicine can be improved by taking a holistic view of the person
• Knowing well ahead the conditions and heritage of body will translate to
prevention and lower healthcare bills
Wider access to lower costs and high quality healthcare
• In next few years, the patents of blockbuster drugs from major pharmaceuticals
will expire
• This could signal a boom in generic drugs in the market, which means that drugs
will get cheaper and be available to more people
Proficient use of health information
• Monitoring devices can be implanted or worn and data can be transferred to
secure systems, which allow doctors to effectively monitor and advice patients
• Preventive measures are better than wait until someone is sick and then only
start treating them 40

41. Threat of New Entrants
The threat of new entry
by biotech companies is
increasing.
Highly potential
innovative products being
developed by the very
agile & innovative
biotech companies.
It may only take a super
blockbuster drug for
these small biotech firms
to change the entire
pharmaceutical industry
landscape.
Fortunately due to their
small size, very few
biotech firms have
managed to develop
their own marketing &
distribution channels.
41

42. Bargaining Power of Suppliers
Suppliers have strong bargaining power because
they can ensure quality materials supplies under
the purview of regulated body
Active Phamaceutical
Ingredient Committee
(APIC), who is a section
of The European
Chemical Industry
Council (Cefic) guards
the European
pharmaceutical
producers to ensure
they do not purchase
counterfeit or rogue
ingredients
Penalty is extremely
heavy of any offender.
Without a patent
protection, ethical
pharmaceutical
companies will not be
able to compete with
generic producers from
China or India who have
less stringent law on
source of raw materials
Therefore, Lilly has
established a strong
business relationship
with a few suppliers so
that it will not succumb
to bargaining power of
suppliers
Source: Oldenhof, 2008
42

43. The Future Direction &
Strategies of Eli Lilly
Mergers &
Acquisitions (M&A)
Outsourcing
On-going R&D for
New Drugs –
Emergence Market
for Aging Population
& New Geographic
Market Penetration
Regulatory &
Government Affair
Capabilities &
Patents
43

44. Mergers & Acquisitions (M&A)
Future Directions
• Joint venture
• Acquired small
biotechnology
companies which have
products that
complement with
Lilly’s product
Recent
Pharmaprojects
• November 2008, Lilly
acquired ImClone
System (lacks
marketing &
distribution channels)
as wholly-owned
subsidiary
• ImClone brought four
preclinical, two Phase
I, two Phase II, one
Phase III & one
launched anticancer
MSb to the table
Source : Company Analysis – M&A in 2009 44

45. Mergers & Acquisitions (M&A)
Future Directions
• Tapping on the skills
& knowledge within
2 firms.
• M&A helps to
eliminate
competitors.
• Acquiring a biotech
firm that owns a
proprietary drug
that competes in the
same market
segment.
Recent
Pharmaprojects
• Lilly acquired PCS
Health Systems for
$4 billion.
• A prescription
benefits-
management
company (PBM)
which provides
prescription drugs to
health maintenance
organizations & the
employees of large
corporations.
Source: Nichols, 1994
45

46. Outsourcing
 Company involved outsourcing exercise
basically due to reasons as follows:
Outsiders can perform certain activities better or cheaper
Allows a firm to focus its energies on those activities at
the centre of its expertise or core competencies that are
the most critical to its competitive and financial success
Source: Thompson, Strickland III & Gamble, 2005, p. 175
46

47. Outsourcing
• To fill up its dwindling new product pipeline
to accelerate recovery from many
impending patent expirations
• To provides competitive services &
innovative capabilities from the talent
pool
• To fully utilize overseas market like,
whose R&D costs continue to escalate
• To diversify operation strategies to
handle FDA who required clinical trials to
target much larger populations instead of
sub-populations resulted slowdown in the
new products launches
• To operate in a leaner shape, forming
itself into a “network structure” that made up
of 3rd party service providers & contract firms
Benefits
• To outsource non-core
activities, such as
cleaners, some of the
manufacturing section,
sales representatives
& IT works
Future
Directions
47

48. Outsourcing
• China & India has a strong base
of CROs (contract research
organizations) & CMO
(contract manufacturing
organizations) to support the
changing business models of
western companies
• The jobs are human clinical
trial testing, side effect
testing, product life cycle
testing & chemical trial
testing
Benefits
• Outsourced the
non-competitive or
non competencies
job functions to
India & China
Recent Action
48

49. On-going R&D for New Drugs
Future
Direction
• The emergence aging population market
Strategies
• To focus on R&D for aging diseases drugs, such as
cardiovascular drugs
• To acquire smaller pharmaceutical companies with the
expertise to develop drugs for diabetics &
Alzheimer to shorten the drug launch time
Source : Company Analysis – M&A in 2009
49

50. On-going R&D for New Drugs
Future
Direction
• China, Vietnam market could emerging middle class
income groups
Strategies
• To explore overseas market to increase its earning
through increase in sales.
• To facilitate the access to penetrate the local market besides
taking advantages of their skill, knowledge & expertise.
• Recent Lilly’s project: developing drugs for cardiovascular
diseases.
Source : Company Analysis – M&A in 2009
50

51. Regulatory & Government Affair
Capabilities & Patents
Strategies
Lilly has developed its regulatory & government affair capabilities
by external recruitment of regulatory & government affair
personals to work with & lobby government agencies like FDA &
Health departments on drug regulatory related issues
Future Directions
To protect patent & prevent multibillion lawsuits on ethical issues
51

52. Regulatory & Government Affair
Capabilities & Patents
Strategies
Lilly has placed an Adverse Drug Experience reporting monitoring
system, which facilitates further remedial actions like product recalls.
New policies on ethical interaction & promotion of pharmaceutical
products for all its employees
Future Directions
To establish itself as an ethical pharmaceutical firm
52

53. Regulatory & Government Affair
Capabilities & Patents
Strategies
Lily could undertake to ease the impact of patent expiration are listed in next
slide…
Future Directions
To increase in distribution channels
To achieve economic of scale & allow Lilly to sell drugs at cheaper rate to the
developing countries such as India & 3rd world countries
53

54. Regulatory & Government Affair
Capabilities & Patents
 Maximize promotional activities
to strengthen.
 Acquisition or partnership with
the generic firms in order to bring
out their own generic version of
the drug
 Heavy discount to products
soon patent expiring drugs to gain
patient & physician loyalty.
 Re-engineer the products. One
way of doing it is to amend the
different dosage strength.
 Switch products from prescription to over-the-counter (OTC) status.
For example, SmithKline-Beecham create a milder version of Tagamet
that does not require prescription to counter the emergence of generic
drug.
Source : Agrawal et. al., 1997
Special Strategies…
54

55. Conclusion
• Besides, smaller biotech firms that
are increasingly agile & innovative
must also be guarded, as it may
only take a super blockbuster drug
for these small biotech firms to
change the entire pharmaceutical
industry
• Although there are still many
untapped potential,
pharmaceuticals cannot
expect profits like the golden
era of pharmaceutical industry
in the 1990s, but be prepared
for a moderate to serious
decline in profits
• Established & global
expertise of firms including
Lilly & its rivals like Pfizer,
GSK and Merck which
manufacture proprietary
drugs have a much better
chance to reap emerging
global opportunities as
compared to firms producing
generics
• Pharmaceutical Industry
although will experience
more competition &
challenges which will affect
its profitability, its still a
profitable industry to
venture in relative to many
other industries
Profitable
Industry
Good
Opportunities
Beware of
smaller
biotech firms
Moderate to
Decline
Profits

56. 56