Business Strategy Eli Lilly and Company Case Study
Please write a case report Eli Lilly and co attached below for,.an executive summary and use in text citations and references below. other references should be less the five years old.
the class Global healthcare leadership. Focus on Global healthcare leadership.
Requirements: Case Study | 2 pages, Single spaced
se outline example below:
Thesis: Therefore, this executive summary analyzes Walsh leadership through the lens of global healthcare leadership. Thus, the paper will examine different concepts ranging from four P's, pricing, supply, brand dilution, reputational risk, quality, value and market position and supply and demand.
- Global strategy
- Supply and demand
For the exclusive use of I. Suazo, 2021. Harvard Business School 9-391-032 Rev. January 24, 1992 Eli Lilly and Company (A): Globalization In the summer of 1989, Richard D. Wood, chairman and chief executive officer of Eli Lilly and Company, looked back over his company’s 1988 performance. It had been a very good year. The company had achieved excellent financial results, with sales increasing 12% to $4.1 billion and net income increasing 18% to $761 million, extending its record to 28 consecutive years of increased net income. Two major new products, the antidepressant Prozac and the antiulcer agent Axid, were about to be introduced around the world. Along with other exciting new products under development, they provided substantial growth opportunity.
Prozac alone achieved sales of more than $100 million in its first year, the highest ever for any Eli Lilly product in its initial year. At the same time, the company continued to implement programs for its future, many of which focused on improving its position outside the United States. Although Eli Lilly was the second largest pharmaceuticals supplier in the United States, the largest market in the world, it ranked eleventh worldwide. In the important European market, it ranked as the twenty-fifth largest supplier, putting it in the second- or third-tier in that region. Several of the company’s leading competitors were significantly ahead in their overseas business activity. In the last few years, the company had been making substantial investments to strengthen its position in key markets outside the United States.
These investments were part of the company’s long term strategy to seek global leadership in anticipation of the changes taking place in the industry. Confident of Lilly’s ability to maintain its leadership position in the United States, Wood was considering what further steps, if any, were necessary to expand it on a global basis. Company History Eli Lilly traces its origins to 1876, when Colonel Eli Lilly founded a new business with four employees, including his 14 year-old son, Josiah, and a total capital of $1,400. Although it was the heyday of patent remedies, Colonel Lilly chose to make medicine according to recognized scientific criteria of the day: precise formulation, accurate compounding, standardization by assay, full disclosure of ingredients on the label, and honest claims.
The Lilly family members were entrepreneurs who risked their own money in developing the business. Their early philosophy was summed up in a 1908 statement by President Josiah Lilly: Thomas W. Malnight prepared this case under the supervision of Professor Michael Y. Yoshino as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1990 by the President and Fellows of Harvard College.
To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 1 This document is authorized for use only by Ingrid Suazo in DHA 806 taught by ATUL GUPTA, Lynchburg College from Nov 2020 to Apr 2021. For the exclusive use of I. Suazo, 2021. 391-032 Eli Lilly and Company (A): Globalization To those who come after us, we can only say: keep up an organization of able, well-paid associates; avoid tyranny but keep control; keep steady and consistently to an honorable and correct policy; be conservatively progressive and keep away from outside business ventures.
There is sufficient field in this business for all the thought and effort one should care to devote to business matters. May the red Lilly trademark which has become so prominently identified with pharmaceuticals remain the symbol of all that is upright and creditable and be passed on to successive generations unsullied. A weak generation could wreck this truly splendid business. Through the years, the company was a leader in the pharmaceuticals industry, as well as in management practices in general. It created a scientific division in 1886, a separate research building in 1911, and a department of experimental medicine in 1912. Various generations of the Lilly family led developments in improving “systematic” (as opposed to scientific) management, assigning to management the responsibility of maintaining operations with sound planning and equitable standards of performance.
These efforts resulted in substantial improvement in productivity and reduction in employee turnover. The company was a leader in setting standards and practices in hiring, training, job classification, compensation, and benefits, the combination of which led to its becoming the largest pharmaceuticals firm in the United States during the early 1940s, a position it maintained until 1985. This achievement was especially noteworthy because all of the early growth resulted from internal improvements and expansion—not diversification—and was financed solely within the organization itself. The company continued to maintain and practice the same high standards.
According to Wood, only the second nonfamily member to be chairman, “The Lilly family and its traditions and values guide our operations to this day. These principles have been the cornerstone of 11 decades of success, and they seem as relevant today as they were in 1876.” According to Steve Stitle, vice president of Human Resources, the corporate culture consisted of “expressions of basic human decency, respect for the individual, and the attainment of excellence.” The culture was integrated into daily management practice through a system of collective responsibility, including consensus management, committee processes, goal orientation, and high performance standards.
The company’s objectives are summarized in its corporate mission statement, shown in Exhibit 1. Eli Lilly Businesses Eli Lilly was engaged in the discovery, development, manufacture, and sale of a broad line of human health and agricultural products. The company manufactured and distributed through facilities in the United States and 25 other countries. Its products were sold in more than 130 countries. Exhibits 2 and 3 outline recent financial results. Human Health Care Products Human health care products, including pharmaceuticals, medical instruments, and diagnostic products, accounted for 1988 sales of $3,272 million, or 80.4% of total sales. The largest segment was pharmaceuticals, which accounted for $2,680 million, or 65.8% of total sales. Traditional pharmaceutical product lines emphasized antibiotics and diabetic care products. Exhibit 4 outlines Lilly’s major pharmaceutical products—along with their therapeutic category, therapeutic indications, and estimated sales—and new products under development.
2 This document is authorized for use only by Ingrid Suazo in DHA 806 taught by ATUL GUPTA, Lynchburg College from Nov 2020 to Apr 2021. For the exclusive use of I. Suazo, 2021. Eli Lilly and Company (A): Globalization 391-032 A leader in oral and injectable antibiotics, the company marketed one of the broadest lines of cephalosporins in the industry. Antibiotics sales in 1988 were $1,351 million, or 33.2% of total sales. Competition in antibiotics sales was very intense due to increased availability of effective products, government-mandated cost-containment measures, and competition from generic drugs as patents expired. Sales of diabetic care products were $446.0 million in 1988, or 11.0% of total sales. Although its patent for insulin had long expired, Lilly, due to its expertise in the manufacturing process and patient sensitivity to even slight variations in product quality, remained the world leader in the supply of insulin.
The company expanded its pharmaceutical product line into chronic-care and retail segment products, with success in the antidepressant Prozac, the antiulcer agent Axid, and several other promising products. They not only offered high growth potential, but were in accord with Lilly’s changing strategic focus. Regarding chronic-care products, once a medication had been prescribed, use continued for an extended period. Retail products were less sensitive to large-scale buyers and increasing price competition than hospital products. In its pharmaceuticals business, Lilly enjoyed a high operating margin due to effective management of operating expenses, low manufacturing costs, resulting from expertise in the fermentation process, and a high value-added product line. Sales of medical instruments were $592 million in 1988, or 14.5% of total sales. The medical instruments business was conducted through five subsidiaries, most of which had been acquired in an effort to expand business in this field.
Specific products included patient-vital-sign measurement and monitoring systems, intravenous fluid-delivery and control systems, catheters for coronary balloon angioplasty, cardiac pacemakers, implantable defibrillators, and peripheral and coronary atherectomy catheter systems. In 1986, through the acquisition of Hybritech, Lilly expanded into diagnostic products. By this move, the company positioned itself to be one of few suppliers involved in pharmaceuticals, medical instruments, and diagnostics. Agricultural Products Agricultural product sales in 1988 were $798 million, or 19.6% of total sales.
They included plant science and animal health products, which accounted for sales of $462 million and $336 million respectively. The company, which conducted this business through the Elanco Products Company, was in the advanced stages of forming a joint venture with Dow Chemical which would assume all the company’s agricultural chemical business. Management believed that the joint venture would be a world leader in the agricultural chemical field by combining the strengths and resources of both companies. It would also allow Lilly to focus its management attention on its core human health care business. Pharmaceutical Industry In 1988, the world market for pharmaceuticals totaled $154.2 billion, a 15.6% increase from 1987 and representing a compound annual growth rate of 14.3% over the prior five-year period. Exhibit 5 provides a breakdown of the market by region and country.
The top eight markets accounted for 77% of the total world market. 3 This document is authorized for use only by Ingrid Suazo in DHA 806 taught by ATUL GUPTA, Lynchburg College from Nov 2020 to Apr 2021. For the exclusive use of I. Suazo, 2021. 391-032 Eli Lilly and Company (A): Globalization The pharmaceuticals market could be divided into two segments: retail and hospital. On an aggregate basis in the top eleven markets in the world, the retail market accounted for 73%, and the hospital segment accounted for 27%. In all of the top eleven markets, except Japan, the retail percentage was more than 80%, whereas in Japan, this share was 52%. Due to concentrated buying decisions and more government regulation, competition in the hospital segment was more severe than in the retail sector. Environment The market for human health care products continued to show excellent opportunities for growth. Due to medical advancements, people throughout the world were living longer. In the United States in 1950, 8% of the population was 65 or older, but by 1990, the portion was expected to reach 13%. The same trend was found in other major developed markets.
Typically, people over 65 required three to four times the medical support than did younger people. In addition, developments in modern health care technologies, including recombinant DNA and monoclonal antibodies, created entirely new approaches to diagnosis and treatment and were expected to produce a steady flow of major advances in medical technology. In total, the worldwide market for pharmaceutical products was expected to grow to $185 billion by 1993 in 1988 constant dollars, representing a real compound annual growth rate of 7.9%. Exhibit 6 outlines the development process for a standard pharmaceutical drug product. Despite the large growth potential of this industry, there were new obstacles facing pharmaceuticals suppliers. The cost and time associated with developing, obtaining regulatory approval of, and introducing new products had grown substantially.
Standard estimates of development costs of a new drug were $125 million (see Exhibit 7 for a breakdown of this total cost). However, an industry group estimate based on a statistical survey of major pharmaceuticals companies increased this figure to $200 million for every new drug launched. The development and approval period increased to 10 to 12 years from the initial discovery of a compound. The lengthening development time was an important challenge given the limited patent life for each products. A patent application was typically filed 1-2 years before IND submission, and restricted competition for 17 years after the patent was ultimately issued. (This led firms to attempt to lengthen the application review period, thus also lengthening the total period a compound was protected.) Finally, there was substantial risk associated with the entire R&D process. According to industry data, only one out of every 5,000 to 10,000 compounds discovered developed into a marketable product.
In addition, only one out of four products launched provided a return sufficient to cover its initial investment. In addition, there were growing challenges even after a product was introduced. Because of spiraling health costs, there was in all major markets an increasing emphasis on cost containment, including price controls, restrictive reimbursement schemes, managed health care programs, greater governmental involvement in medical and pharmaceutical reimbursement, especially for the elderly, poor, and uninsured. These measures reduced the flexibility of the pharmaceuticals suppliers in pricing decisions. Another significant aspect of the changing market environment for pharmaceuticals was the growing competition from generic drugs once a patent expired. Prior to 1984 a generic drug manufacturer could file an abbreviated New Drug Application (ANDA).
In most cases the FDA’s approval of ANDA’s was much faster than the approval of an originator firm’s New Drug Application (NDA). In 1984 Congress passed the Drug Price Competition and Patent Restoration Act. This legislation enhanced the ability of generic manufacturers to gain approval of generic ANDA’s—to the point that generic manufacturer’s products were available almost literally on the day after a patent expired. In exchange for this, innovator firms were granted patent term restoration for up to five years. The amount of restoration that is granted was a function of the estimated amount of regulatory delay in approving a new drug. It was not unusual for sales of a drug to drop 4 This document is authorized for use only by Ingrid Suazo in DHA 806 taught by ATUL GUPTA, Lynchburg College from Nov 2020 to Apr 2021.
For the exclusive use of I. Suazo, 2021. Eli Lilly and Company (A): Globalization 391-032 as a result of generic-drug competition by 35% to 50% in the first year and continue to decline thereafter. Overall, these trends forced pharmaceuticals suppliers to manage carefully the complex process of drug development, introduction, and marketing to maximize profitability. Therapeutic Categories Exhibit 8 shows a breakdown of the worldwide pharmaceuticals market by major therapeutic classes, including the share of total demand for each category by major geographical area. The markets for pharmaceutical products traditionally varied from country to country, reflecting differences in philosophies of medical practice, approaches to testing of health care products, and government programs for financing medical costs.
Demonstrating such differences is Exhibit 9’s breakdown of the market by therapeutic category for some of the larger markets. Differences in health care markets were slowly but steadily diminishing. Although some medical conditions affected people in only a few parts of the world, the most serious problems were common in every major country. Traditionally, health officials took vastly different approaches to evaluating the safety and effectiveness of medical products, reflecting the preferences of local medical scientists and professionals. However, there came a trend for authorities throughout the world to communicate and develop regulatory standards. One example was the European Economic Community’s development of a multistate application procedure, which was expected to simplify the registration and approval processes in member nations. Competitors Exhibit 10 provides a breakdown of the ranking of leading pharmaceuticals suppliers around the world and by major region. Lilly’s position in each market varied substantially.
Globally, it ranked eleventh (eighth, if sales to Japan through local representatives were included). Lilly ranked second in the United States, but did not rank in the top 10 in any other individual market. In each major market, there were great differences in market share based on the supplier’s nationality, as outlined in Exhibit 11. There were large differences among competitors in annual growth rates, pharmaceuticals sales as a percentage of total sales, percentage of sales in its home country, and R&D expenditures. Exhibit 12 shows data on the major suppliers in each of these areas. International Business Lilly had a long history of OUS (a Lilly term for outside the United States) business, beginning with its first shipment of pharmaceutical products to London in 1884.
In 1909, it began exporting capsules to Japan and in 1918 stationed its first sales representative outside the United States, in Shanghai. A first important phase in the systematic expansion of OUS operations began in the late 1950s with the establishment of “bricks and mortar” presence in key markets and hiring of “nationals” to perform required functions. In the 1970s, OUS efforts followed the expansion of Lilly’s antibiotic product development, and the resulting organization and distribution channels were geared toward marketing the developing hospital-oriented antibiotic products. During both of these periods, OUS business was tightly managed from the Indianapolis headquarters (referred to in the company as “Indy”). 5 This document is authorized for use only by Ingrid Suazo in DHA 806 taught by ATUL GUPTA, Lynchburg College from Nov 2020 to Apr 2021.
For the exclusive use of I. Suazo, 2021. 391-032 Eli Lilly and Company (A): Globalization A next important phase in the development of OUS business occurred when Dr. Mel Perelman served as president of the International Division, from 1977 to 1986. When Perelman took over his position, he started to expand OUS business substantially by encouraging overseas staff to think more aggressively and to “ask Indy more often, and once in a while they may even say yes.” From 1976 to 1980, OUS sales grew from less than $500 million to $900 million. Perelman attributed much of this growth to an “expansionist attitude and loosened reins.” The role of the affiliates was to sell products developed by the research department, and it was assumed that all products were marketable on a worldwide basis. If Indy decided to market a new product, all OUS affiliates had to promote the product, unless they had compelling reasons not to. This export focus was the primary driver behind the expansion. To support OUS activity, the company expanded its international marketing division staff at Indy.
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