SML 840

MANUFACTURING STRATEGY TERM PAPER

Eli Lilly and Company:
Manufacturing Process Technology Strategy

Submitted by
Group 5
Jithin P Gopal
Nitin Singh
Divyang Chaudhari
Sandeep Kumar

Background of the Company

Company was founded by Colonel Eli Lilly in 1876. With total Capital - $1400
and 4 employees.
The company rapidly became a leader in the pharmaceutical Industry. 115
years after its inception, it is the 2nd largest pharma concern in USA and 8th
worldwide. Scientific division 1886 and department of experimental
medicine 1912. In 1991, Lilly with headquarters in Indianapolis, Indiana
sold a broad line of human healthcare and agricultural products.
It was committed to all essential aspects of the industry discovery,
development, manufacturing and marketing. Company manufactured
products in 25 countries and had sales in 110 countries. Lillys top selling
products 1. Ceclor > antibiotic
2. Prozac >
Antidepressant
3. Humulin >Human Insulin
The Pharmaceutical Industry

It was the most profitable sector of U.S. economy.

In 1990 world pharma sales totaled to $174 billion ( an increase of 14%

over 1989.

In 1990 alone Europe showed 28% growth.

North America and Europe accounted for 61% of the total and Japan up
a further 25%.

Major Competitors
In North America Merck, Bristol Myers Squibb, American home
products, Johnson & Johnson and Pfizer
World wide Ciba-Geigy, Hoechst, Glaxo, Bayer and SmithKline- Beecham

Companies always competed to be the first in the market.

Try to establish its product firmly in the mind of the doctors before
another hit the market.

Sales

Companies competed vigorously with sales calls to doctors.

In 1980s the number of sales reps increased by 50 %.

Had at least 4 sales teams in a region.

No price wars
All the firms specialized in different kinds of drugs, which allowed for some
segmentation of the Industry. Like for Lilly it is Insulin and Antibiotics.

Industry trends in 1990s

Globalization
Increase in affluent and aging population which helped increase the
number of customers.
Major medical problem found worldwide so the same product can be
used globally which provided the companies the chance to export
their product to newer markets.
Government regulators were communicating and coordinating so the
process was made straighter forward which helped the
pharmaceutical companies.
Trade barriers reduced as any company can capture your market
because of globalization.
Rising development costs reduced the margins generated by the
pharmaceutical players.
Complicated government approvals resulted in delay in launching of
the drugs it took 8 to 10 years for a drug to be released in the
market for sale
For the safety precaution no of patent trial increased from 1500 to
10000 which resulted in delay of launch for drugs and costed
heavily on the manufacturers which increased the avg cost/drug
was estimated to rise to $250 million

Slower rate of innovation

Stricter government regulation resulted in fewer launches of drugs to
market. Only 1/3 new products were launched compared to 1950.

Difficulty to find new compound for curing dieses also caused fewer
drugs to be available to market.
Only one out of 10000 compounds was manufactured commercially

Government Involvement
Price control, restrictive reimbursement schemes specially for elderly,
managed health care program and greater govt involvement
reduced the margin for the drug
Environment and product safety forced stricter rules
These new changes caused process changes in Lilly which was
estimated to cost $70 million and hundreds of new employees.

Shorter product life cycle

Competition from generic drugs introduced after patent expired
In 1984 the US congress passed Drug price competition and patent
restoration act which enabled generic manufacturers to gain
accelerated approval for their product
Abbott Lab, Warner-Lambert and American Cyanamid were major
competitor in those sector

Creating Pharmaceuticals Product and Processes

First step in the creation of any pharmaceutical product was the

discovery of new compound then the safety of compound was checked
by testing it on animals. After this three phases were followed before
commercial manufacturing of the product can be done.

Phase 1
Tested if the drug is safe for humans

Phase 2
Drug works against the disease it is claimed for

Phase 3
Tested the safety and efficacy in larger patient population

After all the three phases NDA was filed and during the check both the
process for production of ingredient as well as the product (tablet,
capsule or liquid) was checked.

Production Process for Active Ingredient

Lillys scientist in the process research group located in Indianapolis

identified the best process for developing the correct ingredient.

The process which looked most promising on paper were then selected
for further testing first in small scale lab and then in units pilot plant.

When the quantities in clinical trial exceeded the capacity of the pilot
plant it was then transferred to process development group in
Tippecanoe.

At Tippecanoe the process was further refined, improve the yield and
adopt it to large scale production.

It was the job of Process development to identify and solve the

underlining causes of scale up.

Once the large scale manufacturability was demonstrated the process

would be transferred to companies bulk manufacturing site.

Manufacturing at Lilly
During the 1980s, manufacturing priorities at Lilly had evolved through three
phases. In the early and mid-1980s, the cost of idle plant was a continuing topic of
senior management discussion and steps were taken to balance capacity. In the
second half of the 1980s, however, rising sales for several products. The
management soon realized manufacturing contribution was given less weight

leading to loss of opportunities both in developing manufacturing process for

new drugs and improving existing process. Thus in 1988 Lilly formed
Manufacturing Strategy Committee to help establish global manufacturing
policies

Committee was confident that improvement in manufacturing could add

substantially to the company. Lillys senior manufacturing managers were
attracted to process development and improvement as a focal point for
several reasons.
Reason for choosing process development and improvement as focal point:

First:
If greater improvements in the existing process could be made then
the economic benefit of lower cost could be fund more new products
This will help in maintaining a strong market position on mature products
even after the patent expiration
Second:
Substantial process improvements achieved in the early years of a strong,
new product would lead to two types of payoffs
1. One would he higher margins as a result of lower costs
2. Lower capital investment requirements
Better technology might allow more flexibility, reduced cycle time, and/or
improved yields, with important implications for the amount of capacity
needed
Third:
Increase its ability to fully participate in the early stages of product
development. This could result in

Product development he steered toward more effective and efficient

process technologies

Product required for clinical tests could be produced more quickly