Eli Lilly &Company

Introduction

To maintain the profits that the pharmaceutical industry has experienced in the past ten years, companies will need to reconsider their approach to identifying and taking advantage of opportunities in today’s more complicated market.

According to my opinion, in order for a Pharmaceutical company to continue generating returns and gain a competitive edge, it should conduct a Pharmaceutical Industry Analysis. This analysis will help identify opportunities which can then be matched with the company’s strengths, ultimately achieving competitive benefits through new strategy formulations. Therefore, I will start by providing a summary of the strategic issues faced by Eli Lilly. Additionally, I will describe the external condition of Eli Lilli using industry analysis and Porter’s 5 forces to analyze the external environment. Furthermore, I will present a SWOT analysis and SWOT matrix. Finally, I will discuss the opportunities that arise from this analysis.

In order to position Lilly for sustainable competitive advantage in the dynamic international pharmaceutical market, I propose implementing certain recommendations for strategy formulation.

Summary

Challenges that Eli Lilly faces

1. In Eli Lilli 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 drugs such Zyprexa was not well suited to the more cost conscious international regions whose their focus was treatment of disease.
2. Other factors that played against Eli Lilli 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.
3. Eli Lilly’s recent decline in market capitalization was brought through the rapidly changing market conditions, intensifying pressures of competition, rising R&D expenditures and the erosion of prices on leading products.
4. Eli Lilly also faced to several legislative problems, such 300 lawsuits accusing of failing to stop Robert Courtenty from diluting cancer drugs, patent litigation involving both Prozac and Zyprexa, charges of deceptive marketing for Evista some problems were originate from FDA,( When found quality problems at several of the company’s manufacturing sites) so one of the item which should be under attention of Eli Lilli is FDA policies and rules.
5. Additional issues that seems to have limit the performance were Eli Lilli failure to meet international sales expectations, expiration of key patents, and its poor performance against competitors.

The reason behind this could be that Lilly’s inflexible behavior is a result of their centrally controlled operating structure, which does not align effectively with the ever-changing pharmaceutical market environment of today.

Eli Lilli External conditions

The external environment of Eli Lilli can be understood through two main factors: the industry environment and the operating environment. Both of these sectors have an impact on the firm’s operations in competitive situations. In terms of industry analysis, it is important to consider entry barriers, supplier power, buyer power, substitute availability, and competitive rivalry. These forces play a crucial role in the firm’s strategy formulation. Eli Lilli has actively engaged in strategic alliances to enhance its R&D capabilities.

Eli Lilly utilized this strategy to enhance its position in the pharmaceutical industry. They aimed to counteract the potential loss of revenue resulting from the expiration of Prozac’s patent protection in 2001 and 2002, affecting both sales and profitability.

1. Rivalry among competitors is intense as brand recognition has become increasingly important as an approach to capturing market share.
2. Companies are increasing advertising budgets to promote the therapeutic benefits of their drugs in an effort to differentiate their products from competitors. Many existing pharmaceutical compounds are standardized formulations that vary little in efficacy among manufacturers. The search for a differentiated product that will lead to blockbuster sales is one reason R & D, advertising and sales force budgets have increased in recent years.
3. Risk is high in the pharmaceutical industry as expenditures for research and development for each drug typically last through a period of 10 to 15 years before a compound makes it to the market. FDA approvals generally take 16 months which is down from 32 months in 1987. It is very unlikely that a compound developed by a pharmaceutical company will ever be used in the retail market. Only 1 in 5000 compounds will eventually be sold and less than one third of all marketed drugs will provide a return to recoup R & D expenditures. The average costs associated with bringing a drug to market is $500 million while the product life of a prescription drug averages 10 years.
4. There are several underlying trends in the world that are contributing to the demand for pharmaceutical drugs. The aging of the baby boom generation and increasing life expectancy rates are expected to increase the demand for prescription drugs over the next years.
5. The pharmaceutical industry is relatively immune from the effects of economic cycles. Demand for the industry’s product remains constant in up and down economic cycles as market demand is a function of the overall health of the population. However the globalization of the pharmaceutical industry increases the risk associated with foreign investments and exchange rates. Operating Environment The Operating sector of the external environment deals closely with competitors, creditors, customers, labor, and suppliers.

In evaluating the firm’s competitive position, key criteria include market share, product breadth, sales distribution effectiveness, proprietary and key-account advantages, price competitiveness, advertising and promotion effectiveness, facility location, capacity and productivity, experience, financial position, relative product quality, and R advantages/position. Mergers would enhance Lilly’s market position in all of these factors.

Porter’s Five Force in relation to Eli Lilly New Entrants

One factor that Eli Lilly has to consider is the potential entry of competitors into the pharmaceutical industry. This threat arises from the company’s diversification through mergers, acquisitions, and product differentiation. As Eli Lilly continues to downsize, its competitors are expanding by acquiring other companies, merging with other players, and differentiating their products. The presence of new players in the industry adds excitement and liveliness as competitors strive to outperform each other.

There is a possibility of significant new competitors emerging in the market, especially for companies that establish partnerships. Even if a company was not previously considered as a threat, merging with a research and development firm or forming an alliance with another pharmaceutical company would turn it into a competitor of Eli Lilly.

Purchasers’ Ability to Negotiate

The pharmaceutical industry heavily depends on wholesale sales. This allows institutions buying large quantities of drugs to negotiate discounts and have a major impact on prices. Eli Lilly holds a strong position in negotiations due to competition from other companies offering similar products. Although smaller buyers may not have much influence on pricing, their impact is outweighed by wholesale buyers. Furthermore, individuals purchasing drugs for personal use are usually covered by healthcare insurance and do not prioritize reducing prices. Nevertheless, sales to individual buyers do not make up a significant portion of the overall volume.

Supplier Bargaining Power

In the pharmaceutical industry, suppliers have more bargaining power as they are typically dominated by a few companies and are more concentrated than the industry they sell to. However, the pharmaceutical industry itself acts as its own supplier through heavy investment in research and development (R&D), which is crucial for pharmaceutical companies. Consequently, suppliers have limited bargaining power in this sector. Switching suppliers is easy and inexpensive, and supplier brands do not hold significant influence. Moreover, forward integration is unlikely. These factors collectively contribute to the weak bargaining power of suppliers. Interestingly, Eli Lilly demonstrates a reversal of power dynamics between suppliers and buyers.

Other choices

In the pharmaceutical industry, there is a moderate risk of substitution as cheaper generic options often become popular when expensive drugs lose their patents. This concern greatly affects Eli Lilly’s profits since the blockbuster drug accounts for 30% of their earnings.

Industry Competitors

Competition plays a vital role in promoting creative innovation throughout a company. It influences market conditions, creates obstacles for new entrants, and encourages product distinctiveness.

Eli Lilly lacked significant product differentiation and relied heavily on a small number of top-selling products until the patents expired. Their focus was primarily short-term, allowing competitors to fully exploit the situation. The rivalry within the pharmaceutical industry is intense, but unique. The high costs of research and development discourage new rivals from emerging. Additionally, competitors typically target niche markets with specific medications. Consequently, the competitive rivalry in this business can be considered moderate.

SWOT Analysis

Strengths

1. Success of their anti-depressant Prozac
2. Many Strategic Alliances
3. Patent protection of company’s products
4. Heavily involved in Alliances to perform research
5. Top 10 contender in the Pharmaceutical Industry
6. Pharmaceutical products are widely distributed in 35 independent wholesale outlets in U. S.
7. It had manufacturing facilities in 26 countries including locations in Australia, South America, China, Middle East, Europe & in U. S. and the company’s products are b selling in approximately160 Countries.

Weaknesses

1. Unfavorable exchange rates in overseas sales
2. Decline of sales of anti-infective due to strong competition from generics in the U. S. and overseas

Opportunities

1. U. S. arket offering great growth potential
2. Trends of globalization
3. Aging of worldwide population
4. Longer life expectancy
5. Increased demand from Third World nation(developing countries)experiencing rising standards of living

Threats

1. Expiration of Prozac patent
2. Emergence of Generic Drugs
3. Lawsuit with Proza and Zyprexa which involved Eli Lilly with patent litigation.
4. Market outside U. S. are less attractive with socialist governments and price controls
5. Face with the charges of deceptive marketing in connection with Evista.
6. 300 lawsuits accusing Elli of failing Robert Courtney from diluting cancer drugs.

Recommendations for Strategy Formulation

In my opinion, implementing the following recommendations will significantly enhance Eli Lilly’s position in the fast-paced and fiercely competitive global pharmaceutical market. One crucial step is to diversify the range of products offered, thereby expanding Eli Lilly’s presence in various pharmaceutical segments. Utilizing Lilly’s existing strengths, resources, and market insights, conducting a thorough research study to assess internal and external factors can help identify the most promising pharmaceutical segments for future development initiatives.

Eli Lilly should take the initiative to form a committee that will create standards for expanding and developing product segments. These standards should include setting cost limitations, sales goals, geographic targets, and other relevant criteria. Once the focus areas have been identified, a segment manager should be appointed for each segment and given specific tasks to handle. It would be beneficial for Eli Lilly to explore opportunities for merger acquisition and conduct research on the international market to identify potential areas for development and suitable targets for acquisition. During this process, it is crucial to carefully assess the cultural compatibility and marketable resources of identified candidates to determine their suitability for adding value to Lilly’s portfolio.

Change organizational culture to build a flexible, learning organization. It is advised that Lilly seek assistance from an external organizational development consultant to facilitate the implementation of this strategy. Additionally, despite holding a dominant position in the neurosciences market through its Prozac and Zyprexa products, Lilly is confronted with various market obstacles stemming from shifting demographics, heightened competition, industry consolidation, regulatory pressures, and cost constraints within the healthcare sector. It is suggested that Lilly undertake portfolio diversification, cautiously engage in acquiring smaller firms, and actively work towards transforming its overall organizational culture to foster adaptability and learning across the entire company.