Question 1 Analysis of Eli Lilly s competitive environment
Question 1: Analysis of Eli Lilly¡¦s competitive environment Eli Lilly (Lilly), headquartered in Indianapolis, Illinois, is an innovation-driven pharmaceutical corporation, following a product leadership strategy focusing on unmet medical needs in a diverse range of applications. ... Lilly is primarily US-focused, yet successfully markets its key products in Europe. In total, the company has more than 41,000 employee¡¦s world-wide and markets its products in 158 countries; it has major research and development facilities in nine countries and ongoing clinical trials in around 60. ... Research and Development Investment (R & D) comprises 15 to 20% of a firm¡¦s sales. ... Tight regulatory environment (mainly the Food and Drug Administration, FDA that requires a stringent, comprehensive three phase approval process after testing for clinical safety over a period of 6 Years. The industry forces that shape the competitive environment of Eli Lilly can be analyzed in terms of Porter¡¦s five industry forces model (Porter, 1980) as follows: Supplier power „h In 1994, Lilly vertically integrated its pharmaceutical value by acquiring one of its biochem suppliers, Sphinx Pharmaceuticals (Burgelman, 2001). ... This process allowed Lilly control over cost of technologies (high speed screening) and could enable Lilly through cost effective drug discovery, to pass on savings to end-products and users. „h If Lilly seeks to pursue an existing patent that is legally protected (up to 20 years) from a supplier that do not wish to pursue it, the latter might exercise a power in charging the patent at a high premium. Barriers to entry/New entrants The threat or reality of increased competitions in the pharma industry depends on the relative ease new drug developers can compete with Lilly; usually if the barriers to entry are low then competition in rife. ... Expenditures for prescription drugs are expected to grow at 11 % per annum from 2001 to 2004 when Lilly plans to have its migraine drug on the market (Anon, www. ... lilly. ... The amount spent by major role players such as HMOs, who continuously demand decreases in prices, determine sales figure of Lilly, which also determine the amount of R & D available for innovations. The downward trend acts as an inhibitor to innovation and thus drug makers like Lilly has to fund innovation privately out of it¡¦s own resources. ... When Lilly faced high organizational costs and a dwindling pipeline in the early 1990¡¦s, it¡¦s share price dropped and became a target for reverse integration as described.