Competitive Analysis Group Presentation

1

ELI LILLYThe Competitive Advantages in

Pharmaceutical Industry

● Chee Liung Wun ● Lim Shieh Chern

● Ng Yee Jie● Terrenz Leong

● Winny Low

http://images.google.com.my/imgres?imgurl=http://media.indianasnewscenter.com/images/Eli%20Lilly1.jpg&imgrefurl=http://www.indianasnewscenter.com/news/local/34694094.html&usg=__U3SlwtyZ3f3XbuwHY6KvKaMEW78=&h=480&w=640&sz=83&hl=en&start=1&um=1&tbnid=qlNfmhXAeqabrM:&tbnh=103&tbnw=137&prev=/images?q=wise+quote+of+eli+lilly&hl=en&sa=N&um=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.


Content

1. Introduction

• 1.1 Team Members• 1.2 The Company – Eli Lilly & Co.

2. Porter’s Five Forces (Current Situation)

• 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

3. The Key Trends in Pharmaceutical Industry

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 Generics6. 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. Conclusion3


4

Introduction

Team Members The Company – Eli Lilly & Co.


5

Team Members

Chee Liung Wun

2821927

Lim Shieh Chern2821959

Ng Yee Jie2821942

Terrenz Leong2821913

Winny Low2821920


6

The Company - Eli Lilly & Co.

Ab

ou

t U

s Global, research-based pharmaceutical company and one of the world's largest corporations.

Ori

gin Founded in

1876 by a retired colonel & Pharmacist, Eli Lilly. Global headquarter in Indianapolis, United States

Mis

sion To makes

medicines that help people live longer, healthier, more active lives


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


Senior Management

Chairman & CEOSidney Taurel

President & COOJohn C. Lechleiter

8


9

Porter’s Five Forces (Current Situation)

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


10

Porter’s Five Forces (Current Situation)

Threat of Substitute Products

LOW(Low Value, Risk)


LOW(Low Value, Risk)

Threat of New Entrants

LOW(Patent, regulatory

process & Dist System)


LOW(Patent, regulatory

process & Dist System)

Rivalry Among Competing Firms in Industry

LOW(Different niches & Patent

Protection)


LOW(Different niches & Patent

Protection)

Bargaining Power of BuyersLOW

(Insurance companies, doctors‘& patients’

buying habit)

Bargaining Power of BuyersLOW

(Insurance companies, doctors‘& patients’

buying habit)

Bargaining Power of Suppliers

LOW(Multiple sources)


LOW(Multiple sources)


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.


12

The Key Trends in Pharmaceutical Industry

Mergers & Acquisitions

(M&A)Outsourcing Cost Control Expiring

PatentsAging

Populations

Food & Drugs Authority

(FDA) Regulations

Emerging Disease


Mergers & Acquisitions (M&A)

To improve sales & increase competiveness in the healthcare industry

To better positioning 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


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


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


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


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


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


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


20

Aging PopulationsFact•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


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


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 industry23


24

S.W.O.T. Analysis

S.W.O.T. Analysis


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

1

2

3


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

1

2


27

Opportunities

Emergence of global markets (China, Vietnam, etc) & aging

population

Decreasing development time through favorable R&D

collaborations & internal efforts

1

2


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

1

2

3


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


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

market30


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


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 outsourcing32


33

Porter’s Five Forces (New Situation)

Rivalry Among

Competing Firms in Industry

Bargaining Power of

Buyers


Threat of New

Entrants



34

Porter’s Five Forces (New Situation)


MODERATE(OTC alternative)


MODERATE(OTC alternative)


MODERATE(Increased Biotech

Firms)


MODERATE(Increased Biotech

Firms)


MODERATE(Generics more common,

price pressure)


MODERATE(Generics more common,

price pressure)

Bargaining Power of Buyers

MODERATE(Buyer Consolidate, Large

governmnet players & hospitals price sensitive)


MODERATE(Buyer Consolidate, Large

governmnet players & hospitals price sensitive)


MODERATE(Multiple sources)


MODERATE(Multiple sources)


35


•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


36


● 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



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



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


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



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 billsWider 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



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



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

sauce 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, 200842


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



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



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, 199445


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


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


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


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


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: ImClone System (2008).

Source : Company Analysis – M&A in 2009


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



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



Strategies

Lily could undertake to ease the impact of patent expiration are listed in next slide…

Future Directions

To increase in distribution channelsTo achieve economic of scale & allow Lilly to sell drugs at cheaper rate to the developing countries such as India & 3rd world countries

53



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


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

55


56

THANK YOU


Documents

Competitive Analysis Group Presentation