Eli Lillys Project Resilience (A): Anticipating the Future of the

Pharmaceutical Industry.
Kaoutar Kasmaoui - Rim El Guerrab - Ghita Ouchane - Younes El Gharbi

Supervised by: Dr. Othmane Benmoussa

BACKGROUND OF PHARMACEUTICAL
INDUSTRY

The industry is under significant pressure:

The research productivity of the industry was declining.

difficulty of measuring the research productivity (10 to 12 years to release a new drug in the market).

High cost of R&D ($1.7 billion in 2003).

1/13 discovered drugs reach the market.

Emergence of smaller specialised biotech companies.

Decline in the industry growth (7% in 2004).

Significant financial pressure on companies: loosing patent protection.

Increase in the budget for marketing expenditure over the budget of R&D.

Growing trend towards personalized products and servies.

Political pressure due to the health care expenditure is arising percentage of the GDP.

KEY UNCERTAINTIES
How can Eli Lilly face the competition of less expensive generic equivalents of blockbusters before the expiration of their
patent?
What if blockbuster products have problematic side effects and need to be recalled after being released?
Will the government and private insurers continue to be in charge of the costs of prescription drugs?
Will pharmaceutical industry be able to translate advances in genomics, proteomics, and other technologies into new
products?
What if the public perception of and confidence in the pharmaceutical industry dropped? Will it affects Eli Lillys strategy
and sales ?
How can Eli Lilly overcome the new Asian competition?
How society views healthcare?
Will society influence public healthcare policy, regulations, and demand fo healthcare products?
To which degree technology influence pharmaceutical industry?

Radical Innovation

Government & Private

insurers are in charge
of the cost

People are paying

out of their
pocket

Scenario 3: Payers Rule

Incremental Innovation

HOW CAN ELI LILLY FACE THE COMPETITION OF LESS

EXPENSIVE GENERIC EQUIVALENTS OF
BLOCKBUSTERS BEFORE THE EXPIRATION OF THEIR
PATENT?

The most significant factors that pushed us to

choose the 3rd scenario are: the cost of R&D and
the decline in R&D productivity, competition from
generics, health care costs and product liability.

COST OF R&D

The life-blood of the pharmaceutical industry is R&D, as this industry is in continuous

development. There are several interrelated issues related to this the first one being the R&D
cost and the second one being R&D high risk and the third one being time consuming research.

According to the Food and Drug Administration (FDA), the cost per new drug discovery has
grown from US$154 M in 1976 to US$800 M in 2000.

From 10.000 analysed in laboratories, only 1 or 2 eventually pass all approval stages to become
a marketable medicine with a high risk of failing at clinical testing phases.

According to the European Federation of Pharmaceutical Industries and Association, only 3 out
of 10 new marketed drugs earn back the cost of investing in R&D (EFPIA, 2007)

R&D is time consuming since the median time from discovery to patent of a new drug averages
now from 12 to 13 years (EFPIA, 2007)

DECLINE IN R&D
PRODUCTIVITY

According to the US congressional budget office

and the government Accountability office, the
productivity of R&D investment has declined since
the mid 90s.

Whereas 15 blockbusters were introduced in

1997, only four were in 2005 (Anon 2007; Anon
2004; Jackson 2003).

COMPETITION FROM
GENERICS

Aside from intense rivalry from the industry, pharmaceutical companies

are facing increasing competition from generics medicine because the FDA
approves generics without extensive clinical testing.

As a result the cost of developing a generic drug is around 1 million

dollars.

Generic drugs are sold 20% to 80% bellow the price of equivalent
branded drugs.

Patents of 80% of the global blockbusters in 2000 will expire in 2008

exposing the market to generic erosion.

HEALTH CARE COST AND

PRICE CONTROL

According to Feki, worldwide health care

expenditure is increasing and the cost of
pharmaceutical is the fastest growing component
of health care which reached US $1.8 Trillion in
2004. (Feki, 2005).

PRODUCT LIABILITY

Lawsuits in the USA over prescription drugs generally

result in the highest financial settlements of all product
liability integration.

Merck with 11,500 lawsuits over Vioxx with a

total of US$20 billion in settlements.

Eli Lilly with 8000 lawsuits over Zyprexa with a

total of US$700 million in settlements .

PUBLIC PERCEPTION AND

CONFIDENCE

Patients are demanding for more transparency

concerning the relationships between medical
professionals and pharmaceutical firms

According to the Wall Street Journal: 3% of

people think that the pharmaceutical companies
are working for the public good while 76% think
that are interested in making profit (Agres 2005).

ANALYSIS

We believe that for the consolidation of the

industry should be implemented and the focus
would be on cost and efficiency oriented
strategies to combat competition from generics
and political press pressures.

WILL THE GOVERNMENT AND PRIVATE INSURERS

CONTINUE TO BE IN CHARGE OF THE COSTS OF
PRESCRIPTION DRUGS?

Up to 2010 USA was the only major market in which there were no general
government prices controls on drugs. As a result prices have continued to rise.
(US Government Accountability office 2006)

Whereas in Japan and Europe, government have successively strengthen cost

control and containment measures. => as a result, prices has flattened or
declined.

Because people do have other expenses, they except the government will help
them partially regarding healthcare expenses.

Eli Lilly as many other pharmaceutical companies expect from the government
to set up more severe pressures and regulations on pharmaceutical pricing.

OBAMA-CARE

In March 2010, Obama-Care (AKA The Affordable Care Act) was

launched. It is a US law that aimes at reforming the American
health care system. Obama-Cares main focus is on providing more
Americans with access to affordable health insurance, improving the
quality of health care and health insurance, regulating the health
insurance industry, and reducing health care spending in the US.

This program is reinforcing our idea of the importance of the

interference of the government in regulating the costs of the
pharmaceutical industries.

Delta Model

Redefining the Customer

Relationship

RECOMMENDATION

Eli Lilly should invest in incremental innovation.

They should adopt technical Blockbuster model to

insure a constant flow of potential product in R&D,
quality manufacturing and defining customer value in
market place.

The company should conduct continuous marketing

research to keep up with the customers needs.

EXPECTED RESULT

If adopting our model Eli Lilly company will

improve its ranking regarding blockbusters sales
and will compete directly with Pfizer and Merck
being the leaders of Blockbusters sales as they are
producing 7 Blockbusters drugs VS 3 by Eli Lilly.