GROUP D4| A JEETH PAL KUMARAN S | NIKHIL MANN | PRIYANSHI MATHUR | | SHROFF AAKASH PANKAJ | SNEHIL BASOYA | V ISHAL TONGER |

Innovation Without Walls: Alliance Management At Eli Lilly And Company

The pharmaceutical industry

Rapid consolidation – 42 16 firms in 2003

Global sales of prescription drugs = $550 billion in 2004

Expected growth = 7% globally

Consolidation –efficiencies in research and marketing

Cost of developing a drug – US$800 million

Time to develop = 10-12 years

Pressure to appropriately price drugs from government, HMOs, drug industry

R&D investments were growing but no increase in output

80% patented drugs set to lose patent protection in few years

Pharma companiesLicensing late-stage products from outside firms and marketing them through “in-licensing”

“Out-licensing” for drugs who could be developed in entrepreneurial boutique research units cost-effectively

Expands capability base and increases capacity

• technically capable, small & agile. • Assets: scientific personnel & patents• Needed large-scale investment and product-failure cushion provided by big

pharma companies

Biotechnology firms –

• Early stage alliance : focused on a drug target that could be evolved into a drug• Clinical stage alliance: molecules that had been developed to the point of first

human dose tested for toxicology and efficacy• Advanced clinical alliance: for molecules that were either in market or in phase 3

clinical trials

Research alliances:

Manufacturing alliances: to manufacture and package drugs

Marketing alliances: co-branding and co-marketing

Eli Lilly & CompanyInnovation-

focussed growth

strategyR&D viewed as crucial to its long-term

success

Aggressive growth strategy in increasingly competitive environment, compounded

by rising development costs external alliances

Partnerships: growing source of research capabilities, biological targets, future products, drug-

delivery technologies

Goals: • to become the fastest growing company in the

industry• Maintain independence

through a constant stream of innovation derived from

internal as well as external collaborations

Belief: Organic development [no focus on M&A] to leverage

external capabilities through alliances will help them

achieve goals

• 1. Strong capability to create strategic alliances & marketing partnerships with other corporations

• 2. Strong marketing ability

• 3. Well developed in house R&D capability

• 4. Global footprint & ability to sell drugs all over the world

• 5. They employ more than 7000 people in LRL spanning 50 countries

• 6. Products available in over 125 countries and has close to 40,000 employees

• 7. Success of anti-depressant Prozac

• 8. Top 10 contender in pharma industry

Strengths

SWOT ANALYSIS

• 1. Loss of patents in US & other major markets affects performance

• 2. Drop in sales because of new generic products

• 3. Eli Lilly has captured fragmented market shares which prevents it from becoming market leader

Weaknesses

SWOT ANALYSIS

• 1. US Market offering high growth potential

• 2. Improvement  in global living standards in third world countries

• 3. Opening of new markets

• 4. Increasing awareness about healthcare needs

• 5. Global societies growing older

• 6. Longer life expectancy

Opportunities

SWOT ANALYSIS

• 1. Over the years there is considerable increase in generic drugs

• 2. Economic slow down

• 3. Increased hurdles for drug discovery & development

• 4. Expiration of patents

• 5. Price controls by governments

Threats

SWOT ANALYSIS

Alliances

More than 60% alliances failed due to non-technical reasonsConflicts due to

partners’ cultural differences

Unaligned objectives of the partners

Poor alliance leadership

Poor integration processses

LRL – Lilly’s Research Laboratories organized R&D activitiesEvaluated the existing product pipeline

Identifying potential in-licensing & out-licensing candidates and

partnersNegotiating an alliance contract

Alliances managed at operational levelTherapeutic areas managed research alliances

Product departments managed commercial alliances

Procurement department responsible for manufacturing

collaborations

Humulin : genetically manufactured synthetic insulin developed with Genentech in 1982

Early start with university of toronto researchers manufactured and sold insulin in 1921

Office of Alliance Management (OAM)Seam

less coordination of

external innovation

• Research acquisition group focused on identifying potential candidates• Corporate business development focused on due diligence process and the

negotiations• OAM supported the successful implementation of alliance

Mission of OAM

• to help Lilly develop the alignment, commitment and capabilities needed to achieve the alliance’s vision

• To create an environment that would maximise the value of these alliances

Tasks

• Ombudsmen for the organization• Minimizing the possibility of alliance failure • Maximising the value of partnership• Obtaining more and better alliance opportunities to fuel Lilly’s organic growth• Involved in vigorous promotion of alliance management discipline within the company

and outside the company through industry-wide forums such as ASAP (Association of Strategic Alliance Professionals)

LAMP – Lily Alliance Management Process

Road map used to

stream line and simplify

alliance managemen

t

From a transaction-driven era of deal making

to a relationship-driven era of partnership implementat

ion

Provided a proprietary framework for lilly to identify common

processes and tools developed by OAM in strategic alliances

Processes, tools,

frameworks, approaches support the alliances as they went through different stages

Some frequently used tools:

• Fit-analysis presented a structured way to assess strategic fit, cultural fit and operational fit between the partners across their life stages

• Strategic futures exercise allowed partners to articulate a future potential for opportunities and problems and to openly discuss them

• Alliance health survey/ voice of alliance survey (VOA) allowed OAM to monitor the health of alliances on a regular basis through a web survey [response rate – more than 50%] and also to use the results to steer the alliance to desired goals

OAM – Responsibility centres

Alliance champion, alliance leader and alliance manager for every alliance

Alliance champion• Responsible for high level support and oversight• To facilitate smooth working relatiponship

Alliance leader• Day to day management of of alliance• Line and budget responsibility for success of alliance• Saw through full life cycle of alliances• Recommended improvements to the LAMP process

Alliance Manager• To provide pre-deal assessment for potential alliances• To facilitate the start-up of new alliances• To support value creation efforts for on going and transitioning alliances• To build Lilly’s capacity and capability for alliances• Advised the deal making team of potential risks, issues and opportunities• Participated in due diligence process• Played an advisory role to deal making group to design the governance for an agreed upon alliance

Moderate

Many buyers for each product hence buyer power is weak

Patented drugs are available with only one manufacturer hence buyers are weak

Generic drugs can be manufactured by many – hence high buyer power

Governments fix prices for many drugs – strong buyer power

Buyer Power

Supplier Power

New Entrant

s

Substitutes

Degree of

Rivalry

Porter’s Five Forces Analysis

Strong

High switching costs from contractual agreements

Therapeutic agents require novel APIs – supply charge fortune

Large pharma’s are self-sufficient – source of weak supplier power

Diversity of chemical s necessitates high skill levels

Buyer Power

Supplier Power

New Entrant

s

Substitutes

Degree of

Rivalry

Porter’s Five Forces Analysis

Weak

The development costs are very high

Rigorous process needs expertise and risk management

Proprietary knowledge and patents protect copying

Generic drugs can be manufactured though

Buyer Power

Supplier Power

New Entrant

s

Substitutes

Degree of

Rivalry

Porter’s Five Forces Analysis

Strong

For a given disease, several alternatives are available

Generic drugs provide easy substitutes in most cases

Alternative medical therapies are becoming popular in many parts of the world

Buyer Power

Supplier Power

New Entrant

s

Substitutes

Degree of

Rivalry

Porter’s Five Forces Analysis

Very strong

Many large players in the MNC markets

High fixed costs and exit costs intensify rivalry

High development costs, presence of competing drugs, absence of switching cots promote fierce

competition

Heavy investment on sales and marketing along with R&D

Buyer Power

Supplier Power

New Entrant

s

Substitutes

Degree of

Rivalry

Porter’s Five Forces Analysis

Recommendations for Existing Alliances

Health of alliances to be made into a Critical Success Factor

Inter-cultural skills to be focused upon in employees

Invest in training new alliance managers

Increase HR, soft skills and project co-ordination training for alliance managers working in manufacturing alliances

Mechanism to diffuse knowledge base of existing relationship managers to new recruits

Increase the frequency of VOA surveys to twice a year and increase their weightage in evaluation of Alliance Managers

Focus – Relationships, Operations or Capability?

Concentrate more on the Operations

aspect

Work out the relative importance of each

division depending on the deal

In one-time deals, concentrate on

results rather than relationships

The Road Ahead

Get into more cooperative

alliances to be able to offer wider ranges of products

Identify and develop

treatments for future wide

spread maladies

Get into alliances with generic drug manufacturers to protect

earnings from patent losses

Marketing and research to

create a brand name for the

firm and customer

loyalty

Expand in the BRIC countries

because of high

population and existence

of many maladies after

adequate research on appropriate

pricing

Decrease cost side pressures by developing alliances with newer talents

from third world

countries

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Thank you!