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Team Executive Summary
Eli Lilly and Company-2011
Team Executive Summary
BAM479-OB: Strategic Management
Siena Heights University
Suzan Ali, Brittany Babcock, Lizaura Basave, Dawn Badgero
April 6, 2018
Eli Lilly and Company
Case Statement
Eli Lilly and Company encounter decline in its business environment for the next few years due to an intense contestant in the pharmaceutical industry and the making of similar generic drugs at low prices. Therefore, the company must reach and increase its global economics expectations to boost its performance.
Introduction
Eli Lilly and Company was founded in the year of 1876 in Indianapolis, IN by Colonel Eli Lilly, a pharmaceutical chemist, who was 39 years old by that time. Colonel Lilly was a member of the army during the US Civil War. He committed himself to creating and developing innovative medications to help others. According to Pharmaphorum article, that Colonel Lilly was disappointed by the poorly prepared drugs of his day and assured himself that he would “Found a company that manufactured pharmaceutical products of the highest possible quality.” He wanted his development of medicines to reflect high-quality drugs that suggested by the doctors; he wanted to “Develop only medicines that would be dispensed at the suggestion of physicians rather than by eloquent sideshow hucksters.” And his company will be based on the science and research development of the day. His promise came into life by finding different treatments for many incurable diseases. However, Eli Lilly, a strong business that has remained in the industry for more than 140 years. Lilly was determined to be as one of the most top firms in the world.
Mission and Vision Evaluation:
- Vision Statement
- Mission Statement
Milestones
- Eli Lilly Corporation has stood and been successful for 142 years.
- Lilly continued its humanitarian policies by replacing pharmaceutical supplies lost in natural disasters at no cost to aid those affected by the San Francisco earthquake.
- Partnering with American Red Cross, Lilly set up a medical field hospital in France, staffed by Indiana personnel, to treat wounded soldiers of all nationalities during World War I.
- Lilly introduced Iletin® (animal-source insulin, Lilly), the world’s first commercially available insulin product, for the treatment of diabetes – then a fatal disease with no effective treatment options.
External Assessment and Internal Assessment:
This EFE matrix suggests that Lilly Corporation is doing well with its position in the medication production field (External Evaluation, n.d.). A score above 2.5 suggests a strong standing (David F.R., 2013). Close to a score of 3.0 is above average. A score close to 1.0 suggests a very poor standing and that the company needs work. Lilly Corporation has been in business and treating their customers with respect and integrity for over 140 years (Eli Lilly Company, n.d.). They were one of the first medication production organizations to make a huge impact on the industry and they have made innovations along the way to keep their reputation in good standing and to keep their customers long-term.
IFE's determine a company's standpoint from an internal perspective versus an EFE which looks at the external environment (David F.R., 2013). A score lower than 2.5 indicates the internal structure is weak. However, the score here, for Eli Lilly, is 2.91. This shows that the company has an above average standing internally (David, 2011). The framework of the organization and how they conduct business financially is strong.
SWOT ANALYSIS
Strengths
One of the greatest strengths that Lilly has is its global presence. Lilly controls much of the global market share. It’s a company that is widely recognized in the market around the world. The second greatest strength that Lily has is its employee and management teams. The company produces great teams of people from around the world, to bring better understanding of local demands and how the company can produce accordingly to help out with the different demands from around the world.
Weaknesses
Lilly has a lower turnover in some medicine that they produce or were producing. This caused a few problems for the company, one was drug rot which was a waste of funds and time it took to produce. The second is room for storage they don’t have enough room, which meant they had to give up some production and discontinue in the making of some Alzheimer’s late stage drug. They had to give up their market share which was another loss to the company. There is a huge demand for some of the medicines that Lilly produces in developing countries like India, Pakistan and Bangladesh but Lily is reluctant and doesn’t want to invest.
Opportunities
Consequently, once of Lily’s biggest weaknesses is also one of their biggest opportunities. There are opportunities in developing countries and room for growth. There are also opportunities for the introduction of new medicines for the curing of diabetes and other newly found diseases. There is an increase in the demand for medicines in these areas leaving Lily in a good position. There is also room in the manufacturing in the latest pharmaceutical equipment like robot surgeons and or blood pressure machines. If they turned their focus and invested into these areas they would find room to grow and become more standardized in their field.
Threats
There are few threats that Lilly must look out for, the number one threat is their pricing. The pricing of Lily is much higher than their competitors leaving them vulnerable if there is an economic downfall or recession. If either of these happen not just in the United States, this goes for regions all over the globe many of Lilly’s customers may look to alternatives or companies who charge less. Their competitors are always growing at a slightly fastest pace and are now starting to get more of the market share. They really need to keep an eye out for companies like AstraZeneca and Pfizer they could be in trouble in the future if their market growth rate continues.
MATCHING STRATEGY TO INTERNAL AND EXTERNAL CONDITIONS
Strengths Weaknesses
- Global Presence 1. Storage issues with loss of products
- Employee and management 2. Doesn’t want to expand into less
Team are very strong less developed counties
- Products are rated with 3. Chose to discontinue making some drugs
High standards that are in high demand
Opportunities SO Strategies SW Strategies
- Improve global 1. Expand into developing 1. Startup funds for
living standards countries to help with for undeveloped countries
- Increase Awareness about healthcare needs 2. Global laws and
Healthcare needs 2. Distribute new medicines standards for
- Global societies growing older to help cure diabetes pharm-
- Introduction of new medicines 3. Sales of new pharmaceutical aceutical’s
- Manufacturing of latest equipment to help with the
pharmaceutical equipment latest in robotic surgery
Threats ST Strategies WT Strategies
- Market growth in 1. Spend more time in 1. Hire more
Competitors making robotic equipment engineers
- Economic Recession 2. Find ways to save money 2. Use less
- Increase in laws for 3. Trying selling products for expensive
Discovery and development less suppliers
Of new drugs
- Increase in generic drug use
Industry Analysis:
Rivalry among existing competitors can drive down prices or dissipates profits by raising the cost of competing. Rivalry among the Eli-Lilly’s competitors will always exist, but in order for it to stay above its competition Eli-Lilly must build a sustainable differentiation. Eli-Lilly’s top competitors are Pfizer, GLAXOSMITHKLINE PLC, and SANOFI. These companies are also always creating strategic plans in order to stay on top with companies like Eli-Lilly. Eli-Lilly must really know its competition by knowing what products and/or services they are offering. The company must keep on attracting a wide range of customers, they must increase premium price, and increase unit prices as well as keep gain buyer brand loyalty.
People are seeking for lower cost products and services and Eli-Lilly faces a threat due to generic brands; this can cause its old customers to stop purchasing from Eli-Lilly and turning to those alternative lower cost products. Eli Lilly patent on the drug Strattera ended and four other generic brands have been approved to hit the market, which was expected to hit the pharmaceutical’s bottom line (Bell, 2017). For this reason, Eli-Lilly must come up with a strategic plan in order to keep its customers from switching companies. Some examples that Eli-Lilly can tackle the Threat of Substitute Products or Services are by becoming service oriented rather that just product oriented. Eli Lilly is known for its product, insulin, but in order to stay above its competition it must go beyond producing the insulin. According to Contero, The Big Pharma set up the unit after intuiting that the future of the diabetes market will belong to companies that monitor patients and deliver drugs rather than the businesses that make insulin itself (Taylor, 2017). This has made Eli Lilly push into devices in order to protect the company’s diabetes sales. Another example would be by understand the core needs of customers rather than what the customer is buying. These strategies allow Eli-Lilly to keep its current customers as well as reaching new customers.
Financial Analysis:
The top five ratios used in the financial field are: debt-to-equity ratio, current ratio, quick ratio, return on equity and net profit margin. These ratios explain the company’s current performance and industry position. According to Investing.com, Eli Lilly’s quick ratio is 1.01 while the industries quick ratio is at 2.06. Eli Lilly’s positive quick ratio is an indicator of the company’s short-term liquidity and measures the company’s ability to meet its short-term obligations with its most liquid assets. Elli Lilly has a financial strength in its current ratio. The higher the current ratio, the more capable the company is of paying its obligations, as it has a larger proportion of asset value relative to the value of its liabilities. For every $1 of current debt, Elli Lilly has $1.32 cents available to pay for the debt, which means it has more than enough to cover its current liabilities. The company’s debt-to-equity ratio indicates how much debt a company is using to finance its assets relative to the value of shareholders’ equity. Eli Lilly has a debt-to-equity ratio of 87.75%, which indicated the company is taking on more debt than that relative to the equity value. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. Eli Lilly’s return on equity is 13.36% indicating the shareholder earned .13 cents for every dollar the shareholder invested. Net profit margin is the percentage of revenue left after all expenses have been deducted from sales. Eli Lily’s net profit margin is 7.48%. Generally, a net profit margin in excess of 10% is considered excellent (“Net Profit Margin”, 2017). Eli Lilly is not to far off from the 10% profit margin and compared to its industry it indicates that Eli Lilly is doing very well in its industry.
Eli-Lilly
Industry
Quick Ratio
1.01
2.06
Current ratio
1.32
2.73
Debt-to-equity
85.75%
92.59%
Return on equity
13.36%
25.54%
Net profit margin
7.48%
-435.85%
Competitive Strategies:
The biggest strategy I would recommend for Eli-Lilly would be to take care of its patent problem. The company has lost several patents for their products over the years (David F.R., 2013). The most recent was last year in Canada (Gold, 2017). They lost two patents in Canada. The judge that ruled on the case came to the conclusion that the company made up a doctrine in order to get the items patented. Eli-Lilly thought otherwise and proceeded to sue Canada for $500 million. These only being the most recent two, whatever is hindering the company from keeping their products under patent, they need to fix the problem.
I would also recommend that Eli-Lilly increase marketing. They should make more commercials and market in the countries that they are stationed in heavily. With their ability to make strong alliances with partnering companies as well as being present in 125 different countries, they should make their presence known. Also, hurdles in research and development are becoming more prevalent. The hurdles in R&D along with the fact that generic medications are becoming more prevalent makes for a great couple of reasons to increase marketing to full scale.
My last recommendation is to adopt the process of producing generic medications in the home company. The world is changing, and companies have to be able to take risks. They need to stay up with what is happening in today’s culture. If increased state/federal health care coverage is forcing citizens to buy generic pills, then be the best company that sells generic brand pills out there. As a leader in a company, if you spot a problem, you need to come up with a solution. If they continue to just let the generic brands take over, then they may soon be out of business. Adopting the strategy of producing the generic brands domestically could be beneficial.
Recommended Strategy:
Our recommended strategy is that Eli-Lilly increase marketing. With their ability to make strong alliances with partnering companies as well as being present in 125 different countries, they should make their presence known. Eli-Lilly has spent a great deal of money and time on research and development. That day and age is over. Since their sales have been steadily declining and generic drugs are becoming more prevalent than name brands, they need to address this in some way. Hurdles in research and development are becoming more prevalent as well. By letting go of R&D and instead focusing on marketing their name in all 125 companies they are stationed in, sales will likely increase which solves the case problem.
Implementation Plan:
Eli-Lilly can go about implementing marketing in many ways. Since they are stationed in so many different countries, different marketing mixes will likely need to be used. For example: A JC Penny located in Michigan in the month of December is going to carry different apparel than a JC Penny in Long Beach, CA in December. Different countries have different health issues that are prominent in their communities. Japan isn’t going to need the same heart disease medications that the United States does.
They will need to research trends among the various countries in terms of medications. Since there can be different target markets, different marketing mixes will have to be employed. This can get costly, so I would suggest developing a solid 3 marketing mixes to use to market across all of the locations. The first “P” they will need to cover for each marketing mix is place. Which countries does the company want to market in. Then they need to pick the product. Which medications do they want to use? The 3rd “P” to look at is promotion. What kind of deal is going to be offered to the consumer. Finally, price is adjusted. A price needs to be set for the product being promoted. I would suggest a yearly budget of $3 million for marketing.
Summary/Conclusion
Eli-Lilly is a reliable pharmaceutical company that has been around for over 140 years. They have completed many important milestones and been the first to put out a variety of medications as well as send soldiers medical supplies during the war. Their financial standing is great for being one of the only medication producers in the industry; they do very well for themselves. Both the EFE and IFE matrixes show that they are in good shape both internally and externally with above average scores. They present more opportunities and strengths than they do weaknesses and threats.
Eli Lilly needs to increase marketing budgets, decrease R&D budgets, and adopt manufacturing of generic prescription medications. They also need to take care of their patenting issues and document their R&D more efficiently. Overall, the company is in great standing and doesn’t seem to be going anywhere anytime soon. The Price per share of stock keeps increasing and their financial ratios are a little better as each year passes.
References
Bell, J. (2017, May 31). Lilly's Strattera faces first wave of generic competition. Retrieved April 13, 2018, from https://www.biopharmadive.com/news/lillys-strattera-generic-competition-fda/443948/
David, F. R. (2013). Strategic management: Concepts and cases. Upper Saddle River, NJ: Prentice Hall.
David, F. (2011). ELI-LILLY- 2011. (master’s thesis). Retrieved April 4, 2018, from chrome-extension://bpmcpldpdmajfigpchkicefoigmkfalc/views/app.html
Getting a Patent on your Own. (n.d.). In NOLO. Retrieved April 4, 2018, from https://www.nolo.com/legal-encyclopedia/getting-patent-yourself-29493.html
Gold, R. (2017, August 16). Eli Lilly’s odyssey to use a fake rule and fake news to protect bad patents. In STAT. Retrieved from https://www.statnews.com/2017/08/16/eli-lilly-canada-patents-zyprexa-strattera/
Eli-Lilley Company. (n.d.). Who We Are. In Lilly. Retrieved February 15, 2018, from
https://www.lilly.com/who-we-are
Eli-Lilly Corporation. (n.d.). External Evaluation. In Lilly- Answers That Matter. Retrieved April
4, 2018, from http://elilillyadrian.weebly.com/external-assessment.html
Eli Lilly (LLY) Financial Ratios. (n.d.). Retrieved April 13, 2018, from https://www.investing.com/equities/eli-lilly-and-co-ratios
Eli Lilly and Company. (n.d.). Retrieved April 07, 2018, from https://www.lilly.com/
Eli Lilly. (2018, April 11). Retrieved April 13, 2018, from https://en.wikipedia.org/wiki/Eli_Lilly
EXTERNAL ASSESSMENT. (n.d.). Retrieved April 13, 2018, from http://elilillyadrian.weebly.com/external-assessment.html
H. (2016, September 05). A history of... Eli Lilly & Co. Retrieved February 17, 2018, from https://pharmaphorum.com/views-and-analysis/a-history-of-eli-lilly-co/
Net profit margin. (17, August 23). Retrieved April 13, 2018, from https://www.accountingtools.com/articles/what-is-net-profit-margin.html
Product News, Financial News, & Corporate News. (n.d.). Press Releases. Retrieved April 13, 2018, from https://www.lilly.com/newsroom/press-releases/
Taylor, N. P. (2017, November 22). Lilly makes big push into devices to protect diabetes sales. Retrieved April 13, 2018, from https://www.fiercebiotech.com/medtech/lilly-makes-big-push-into-devices-to-protect-diabetes-sales
Who We Are. (n.d.). Retrieved April 13, 2018, from https://www.lilly.com/who-we-are