Eli Lilly\'s Project Resilience: Anticipating the Future of the Pharmaceutical I

Question

Eli Lilly's Project Resilience:

Anticipating the Future of the Pharmaceutical Industry

It was early May 2004, and Peter Johnson found himself looking forward to the Senior Management Forum that he was scheduled to moderate at the end of the month. As the Executive Director of Corporate Strategic Planning at Eli Lilly and Company (Lilly), it was his job to support the company's senior team in the kinds of in depth strategic discussions that were fundamental to maintaining Lilly's leadership position in the rapidly evolving pharmaceutical industry. To answer the question, "What might Lilly need to do to compete in the future?" The top management team had divided its work into three interrelated phases: scenario planning, business model evaluation, and core capabilities assessment.

The first two phases had taken months of work, but were now largely complete. Peter was fairly confident that the team had a good sense of the different directions in which the industry was likely to evolve, and of the ways in which Lilly - and its competitors - might be able to compete under the different scenarios that the team had described. Now, however, the team was grappling with the last, and toughest phase - what should Lilly do? They needed to come up with some concrete recommendations for Lilly's senior management as to which business models the firm should explore and how Lilly should develop new capabilities to position the firm for the future. Peter sighed as he turned back to his desk. It was going to be a long night.

The team then turned its attention to exploring the alternative business strategies that Lilly might consider adopting in order to compete in these quite different worlds:

1. Low Cost Innovative Strategy

As its name suggests, the Low Cost Innovative strategy puts cost at the center of every decision made by the firm. Relative to today's business model, the cost structure of such a firm would be on average 40-50% lower, with sales and marketing expenses probably reduced even further to allow for disproportionate investments in discovery and development. This firm succeeds not by "cost-cutting" but by making decisions in a completely different framework with costs at its core.

2. Niche, High value Strategy

The Niche High Value FIPCO is built around discovering, developing and commercializing drugs in conjunction with companion diagnostics or IT based tools to help guide the new therapies to patient subpopulations with the highest expected benefit.

As Peter reviewed the various scenarios and the business strategies that the team had considered, he wondered what his recommendations should be.

1-What the porter five forces model of competition to the Pharmaceutical Industry?

2-Discuss two external industry changes that have affected company’s profitability within the Pharmaceutical industry?

3-Explain Whether the Pharmaceutical industry unattractive or attractive from a profit-making position?

4-Conduct a detailed SWOT analysis based on the case

Strength:

Weakness:

Opportunity:

Threat:

Explanation / Answer

1.) Porter’s five forces help identify their attractiveness in the industry in terms of the five competitive forces which are:

2. The two external industry changes that might have affected company’s profitability within the Pharmaceutical industry are :

3. Pharmaceutical industry has always been an attractive industry. When the challenge of affording prescription drugs is raised, pharmaceutical manufacturers often argue that steps to reduce prices will lead to less innovation in the future. This response presumably applies to policies that use the market, such as shortening periods of exclusivity and making approvals of generics more rapid, as well as regulatory tools such as price controls.

Pharmaceutical innovation has produced an enormous amount of social value. The evidence on this point is strong and comes from multiple sources. Studies of disease-specific spending on prescription drugs, macro-comparisons in the United States, and international comparisons have all pointed to high social returns with respect to longevity and functional health outcomes.Those benefits from pharmaceutical innovation stem in great measure from patent policy and the granting of marketing exclusivity to new drug products.Drug company profiteering is also on display when it comes to off-label prescriptions, which according to Forbes accounts for nearly 20 percent of all prescriptions and brings in $40 billion in sales annually. Surely, these companies would remain enormously profitable by simply sticking to FDA-approved uses for their drugs.

4. SWOT Analysis

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