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Eli Lilly, 1998 (B):

Emerging Global Organization





Amit Gupta, Ph. D.
Associate Professor, OB
Management Development Institute
Mehrauli Road, Sukhrali, Gurgaon - 122 007
Tel: +91-98105-87130
e-mail: amit.gupta@mdi.ac.in
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Complementary Strategic Challenge
Continuous innovation
Scientific units focused on therapeutic areas
Research labs distributed globally
Technical units providing support and services
Functional units developing and maintaining leading
edge resources and standards and procedures
National affiliates providing access to clinical
researchers
Medical opinion leaders.
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Complementary Strategic Challenge
Demand realization
Coordination and integration of product units devoted
to individual products
National affiliates focused on markets
Functional units developing and maintaining leading
edge resources and expertise
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Changes in Organization Structure
Started with international division
Moved to focused matrix with cross-functional teams
Discovery and development organization around the
innovation process
Improvements in newly introduced products
Launching them in the global market faster
Developing post launch product strategies
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Organization Structure of Drug Discovery
Discovery and development organization around the
innovation process
Improvements in newly introduced products
Launching them in the global market faster
Developing post launch product strategies
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Challenges of Managing Demand Realization Structure
Increased cost and time of new product development need
for maximization of global returns on each new product
strong product focus and orientation
Operations across diverse world markets need for
maximization of global returns on the entire portfolio of
products across diverse world markets
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Problems in Demand Realization Structure
Patients might not seek treatment
Wrong diagnosis or wrong treatment
Failure to comply with prescribed treatment
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Challenges of Product Innovation
Need to have a stream of innovations volume and flow
Abundance of good scientific ideas intriguing hypothesis
Limiting factor is the resource allocation and management
How many researchers and how much of the finite R&D to
allocate to which compound?
Which drug candidate to enrich and accelerate in clinical
trials and which to set aside?
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Change in Paradigm of Innovation
Innovation as a process by which something gets invented
Innovation as the entire process by which a new thing get
adopted, chosen by the customer to replace current
product
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Lilly R&D Strategy
Quality speed value (QSV) initiative
Stream of innovative new products each year in two-thirds
of the global marketplace
Cutting in half the time and cost of discovery and
development
R&D machine focused on
identifying disease targets:
creating, selecting, testing, and developing the best
possible medicines;
quickly and safely getting the resulting products to
markets
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Lilly Research Laboratories (LRL)
Development of drugs
R&D facilities in Australia, Belgium, Canada, England,
Germany, Japan, Singapore, Spain, and US
Clinical studies in 30 countries world wide.
US 80% of discovery research expenditure and 65% of
clinical trials in the development process
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Lilly Research Laboratories (LRL) Early Discovery
Early discovery operations (Richard DiMarchi)
Exploring promising new areas of research by employing
new technologies to increase identification of high potential
compounds targeted at specific disease areas
20 Collaborative agreements in emerging technologies with
biotech firms, universities, and research institutes to better
identify disease targets and develop promising leads
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Lilly Research Laboratories (LRL) Early Phase Development
Therapeutic-area discovery and early-phase development
Evaluating new drug candidates doing critical evaluative
experiments to enable timely go / no-go experiments proceeding
with promising candidates, terminating projects, and redirecting
resources.
Program teams of preclinical, clinical, and development functions
lead by a team leader
Provide clear goals, dedicated resources, cross-functional
expertise, functional area leadership, direct accountability into the
process of identifying and moving forward high potential
compounds for development and commercialization
Approval by Program Sanctions Committee scope of activities,
timing and cost of activities, strategy, working hypothesis, product
profile, critical success factors
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Lilly Research Laboratories (LRL) Late Phase Development
Once drug candidate had been approved for development
and commercialization product decision
Regulatory approval and commercialization
Efficacy of drug candidate
High probability of regulatory approval
Likelihood of commercial success
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Cross functional product teams from development,
medical, and commercialization areas (manufacturing and
marketing)
Members fully dedicated and co-located
Responsible for Phase III clinical trials, global
submissions, launches, post launch optimize products full
market potential throughout its life cycle.
Linkages between and among research, development,
manufacturing, marketing, and sales for successful global
commercialization and maximize value of each molecule.
Lilly Research Laboratories (LRL) Late Phase Development
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Contracts define deliverables and control budgets for all
related expenses
Formulate centralize development plans to enable rapid
and global launch of product
Design a global development plan to comply with
regulatory requirements
Subcontract actual clinical trials for products across
worldwide affiliate network
Lilly Research Laboratories (LRL) Late Phase Development
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LRL Effectiveness of Team Structure
Team structure has changed the orientation of the
organization.
Focus now on overall development and launch process
Create rapid global launch, early uptake, constant growth in
the markets
Eliminated functional handoffs through cross functional teams
Dramatic reduction in cycle time of product development
impact on costs, critical development capabilities, decision
making, cash flows.
Knowledge area of science and process by which we discover,
develop, and bring innovations to the marketplace
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Demand Realization Process
Operate in 159 countries through national affiliates
Large variation in size and scope of activities of affiliates
Differences in roles affiliates play in their markets and in
the organization
Traditionally affiliates had an operational, sales focus
expected to sell all products in line with marketing and
promotional programs developed for the US market
After 1998, function of affiliate changed from selling
products to building an appropriate position for the
company, its overall product portfolio, and each individual
product in their geographic area of operation
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Role of National Affiliates
Affiliates reflected the differences in national strategies of
EL in that country national market strategy development
Value of the market potential size and return profile.
How resources need to be deployed in the market size and
structure of investments.
The local structure and elements of value chain medical,
manufacturing, marketing, sales, differ based on the value
of the market.
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Health Care Model
Differences in countries in terms of the number of players
and mix of players that impacted the supply and demand of
pharmaceutical products.
Government, regulators, health care reimbursement
system, insurance companies, pharmaceutical
manufacturers and distributors, types of health care
providers (doctors, clinics, private and pubic hospitals,
pharmacies), patients, their socio economic status,
educational status, medical habits
Availability of products, access of patients to health care,
types of treatment channels, delivery of pharmaceutical
products to markets.
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Local Affiliates
Local affiliates need to have the resources, capabilities, and
culture to operate in their markets with Lillys strategies
Representing Lilly within national market environment
Tone and direction of local operations
Optimizing Lillys overall opportunities within its market
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National vs. Corporate Roles
National managers manage local investments how to
spend money within their market
Corporate to provide analytical frameworks to help them
analyze their markets and target investments to yield
maximum returns
Where to spend money (which country) global level
How to spend money (local competitiveness) local level
Geographic affiliates, Product groups, Product teams,
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Role of Product Groups and Teams
Need to develop and leverage product knowledge and
marketing expertise across all markets
Maximize immediate sales opportunities across world
markets
Identify new therapeutic indications
Perform additional studies to enhance the long-term value
of each product
Develop and coordinate strategies associated with market
research, pricing, brand policy and management,
marketing and sales strategies
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Product Teams
Focus on individual products and molecules
Ensure highest global returns on their products globally
Comprehensive life plan for their molecule
Begin with development and commercialization of the
product, continuing through the product life cycle
Control actual budgets for products and responsibility for
managing resources and maximizing returns on products
Product strategies

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Product Groups
4 Product groups
Neuroscience products
Diabetics care, growth and recovery products
Skeletal products
Internal medicine products
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Product Groups
Focus on disease management
Represent therapeutic area throughout the business cycle
Provide input and direction in the discovery and
development process
Broad business products beyond individual products and
national markets
Consider if identifying and maximizing opportunities
within their business area
Coordinate activities and manage resources beyond
individual products
Focus on providing maximum value to customers
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Product Groups
Champion in the demand realization process.
Best treatments and best points of intervention for various
treatments.
Optimize on clinical and economic results.
Positioning within business area and corporate product
portfolio.
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Role of Product Group Presidents
Outward looking
Thinking strategically about how to position within
business area and the rest of the corporate product
portfolio
Manage portfolio of product teams to optimize their
activities, develop synergies across product teams, support
business area at the corporate level to get the resources,
consider additional opportunities
Facilitate optimal relationship among product teams,
geographic organizations, and the corporate functions
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Some issues National Level
Conflict between short term returns and long term
opportunities
Conflict between product groups
Conflict between product teams within a product group
Knowledge management and transfer of learning between
affiliates, between product teams, and between product
groups, and a mix of these
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Product Team National Affiliate
Product teams and country management operate within
priorities set at the corporate level
Each product team pushes its own products and asks
national affiliates to put resources behind its products
Problem of who should decide what who actually
controls what and who should control what
Need to make roles complementary between product teams
and affiliates
Inconvenience and conflict should result in beneficial
decisions
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Some issues Product Related
Roles and responsibilities of each of the parties involved in
the demand realization process develop systems to
manage the interaction between parties product groups,
product teams, national affiliates
Focus on differences or focus on similarities
Each product is at a different stage in life cycle and faces
different competitors and pressures
Need to have different strategies low cost, differentiation,
prospector, defender, etc.
Increase the overall efficiency of worldwide clinical
development resources
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Product Development Related Issues
Teams enter into agreements with affiliates on how many
clinical trial patients they will deliver for the study, by
when, and for how much cost
Sharing of staff across product teams at the affiliate level
Actual work performed by affiliates who simultaneously
support many teams
Interference of product teams in daily operations get
involved in detailed management of their trials, work
directly with staff and clinical investigators, influence
resource allocation decisions
Product teams do not realize where their responsibility
ends
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Corporate Level Issues
Are we maximizing the value of our overall product
portfolio or are we optimizing operations within individual
geographic markets
Affiliate GM maximize within their geography
Product teams maximize value of product for which team
responsible
Tradeoff between the affiliate and product team
Organize around product teams while continuing to rely
on national affiliates to provide local presence, resources,
and know-how needed to succeed within each national
market
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Corporate Level Issues
Center of excellence for marketing capabilities sharing
learning and best practices across the organization,
ensuring world class capabilities in all aspects of how
products are marketed around the worlds

At one level it is frustrating for people the new ways
seem to be more difficult, less efficient. But at a deeper
level, the changes are allowing us to bring to surface
conflicts and inefficiencies that we didnt even know about
before. This is part of the process of becoming a more
effective, more adaptable organization.
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Nature of Conflicts
Resolvable Unresolvable


Need for
Resolving
conflicts
Strong
Dysfunctional and
should be resolved
Reach a stable or
unstable consensus
on the conflict
Weak
Constructive and
should not be
resolved
Cannot be resolved
Do you really want to resolve all the conflicts?
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Health Care Transaction Model
Perception of condition Perception of problem and enter the health care
system
Seek Treatment/
Diagnosis
Seek treatment in the right place
Treatment Plan A Availability of treatment plans and how involved
they are
Treatment Plan B Inclusion of drug therapy in treatment plan
Delivery Once a treatment decision is made can it be
changed
Compliance Will the patient comply with the treatment plan
Evaluation Will the patient attribute success or failure to the
solution
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Health Care Systems Model
Supply Demand
Government Policy
Supply
Channels
Regulators
Pharmaceutical
Companies
OTC/Prescription
Branded
Generic
Access to
health care
Patient
Industrial sales
Retail sales
Payer
Govt, Ins, Self
Providers
Doctors
Clinics
Public Hospitals
Private Hospitals
Pharmacy
RMPs
Quacks
Delivery
channels /
Intermediaries
Manufacturers
Bulk drugs
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Global Distribution of Pharma Market
US 38%
Europe 27%
Japan 15%
Total 80%

(Brazil, France,
Germany, Italy,
Spain, UK,
Latin Am 7.5%
Southeast Asia
and
China 6.5%
Middle-east
2.3%
Total 17.3%
Others
2.7%
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Integration and Differentiation Needs
Need
for
Global
Coordin
ation
and
Integrat
ion
Need for National Differentiation and Responsiveness
L
o
w

H
i
g
h

Low High
Business Function Task
Chemicals
Detergents
Personal
Products
Packaged
Foods
Research
Product
Development
Manufacturing
Marketing
Sales
Product
Policy
Advertising
Pricing
Distribution
Promotion
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Building Global Capabilities
The Global Organizational Challenge
Increased Complexity and Differentiation
Need for Integration
Knowledge Transfer


Global Coordination Mechanisms
Global Teams
Headquarters Planning
Expanded Coordination Roles (function, product,
country, customer, network focused managers)
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Science
& Tech
Diversity Complia
nce
Chief
Mktg
Officer
Quality
President
& COO
Chairman
& CEO
6Sigma
Manufac
turing
Info
Tech
Internati
onal Ops
US Ops
Global Brand
development
Corp
Affairs &
Comm
Legal Human
Resources
Corp
Strat &
Bus Dev
Finance
Elanco (Med
Diagnostics)
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Tailored Based Patient Characteristics
One size fits all
Drug Tailored to suit Patient groups
Drug Targeted to suit a specific patient
based on genetic markers
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Eli Lilly Committees
Policy Committee Charter
At the corporate level, approve and own:
Performance targets
Strategies
Policies
Ensure compliance
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Operations Committee Charter
Integrate strategies based on:
Product
Geography
Function
Monitor corporate performance
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Operations Committee Activities:
Review functional, product and geographic plans
Align plans with corporate goals and targets
Monitor corporate performance
Debate strategic issues
Review succession plans
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Product Risk
10,000 Compounds
1,000 Show Promise
100 Are Tested
1
Average cost
to develop one
drug:
$500 Million U.S.
To Market
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Product Life Cycle
15 years for
R&D
and Product
Launch
Drug
Discovery
and
Development
5 Years
to Recover
R&D costs
Launch
Generic
Competitio
n
Off Patent
No Longer
Manufactu
red
Patent Protection
20 years
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Drug Development Process
Commercializatio
n
Products Programs
Candidate
Development
Hypothesis
Generation
Projects
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Hypothesis Generation
Hypothesis
Generation
Projects
Target
identification
and validation
Assay
development
Lead
generation
Activities Goal
Testable,
valuable
hypothe
sis
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Candidate Development
Lead optimization
First human dose
preparation
Phase IA clinical trials
Phase IB / II clinical trials
Goal
Proven or
disproven
hypothesi
s for given
drug
candidate
Activities Candidate
Development
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Commercialization
Commercialization
Products
Phase III
clinical
trials
Submission
to regulatory
agencies
Global launch
Global optimization
Goal

Successfu
l
commerci
alproduct
Activities
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