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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: [email protected]

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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 developmentneedfor maximization of global returns on each new product

strong product focus and orientation

Operations across diverse world marketsneed for

maximization of global returns on the entire portfolio ofproducts 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 innovationsvolume and flow

Abundance of good scientific ideasintriguing 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

Qualityspeedvalue (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 anddevelopment

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.

US80% 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 candidatesdoing critical evaluativeexperiments to enable timely go / no-go experimentsproceeding

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 Committeescope 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 commercializationproduct 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 andmarketing)

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.


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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


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LRLEffectiveness 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, decisionmaking, 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 sellingproducts 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 countrynational market strategy development

Value of the marketpotential size and return profile.

How resources need to be deployed in the marketsize andstructure of investments.

The local structure and elements of value chainmedical,

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 ofpharmaceutical 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 investmentshow 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,

f G

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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

P d T

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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

P d t G

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Product Groups

4 Product groups

Neuroscience products

Diabetics care, growth and recovery products

Skeletal products

Internal medicine products

P d t G

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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 andnational 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

P d t G

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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.

R l f P d t G P id t

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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

S i N ti l L l

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Some issuesNational 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 productgroups, and a mix of these

P d t T N ti l Affili t

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Product TeamNational 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 whatwho actuallycontrols what and who should control what

Need to make roles complementary between product teams

and affiliates

Inconvenience and conflict should result in beneficial

decisions

S i P d t R l t d

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Some issuesProduct Related

Roles and responsibilities of each of the parties involved in

the demand realization processdevelop systems to

manage the interaction between partiesproduct 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 strategieslow cost, differentiation,

prospector, defender, etc.

Increase the overall efficiency of worldwide clinical

development resources

Product Development Related Issues

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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 simultaneouslysupport many teams

Interference of product teams in daily operationsget

involved in detailed management of their trials, work

directly with staff and clinical investigators, influenceresource allocation decisions

Product teams do not realize where their responsibility

ends

Corporate Level Issues

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Are we maximizing the value of our overall product

portfolio or are we optimizing operations within individual

geographic markets

Affiliate GMmaximize within their geography

Product teamsmaximize value of product for which teamresponsible

Tradeoff between the affiliate and product team

Organize around product teams while continuing to relyon national affiliates to provide local presence, resources,

and know-how needed to succeed within each national

market


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Center of excellence for marketing capabilitiessharing

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 aboutbefore. This is part of the process of becoming a more

effective, more adaptable organization.

Do you really want to resolve all the conflicts?

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Nature of Conflicts

Resolvable Unresolvable

Need forResolvingconflicts

Strong Dysfunctional andshould be resolved

Reach a stable or

unstable consensuson the conflict

Weak

Constructive and

should not beresolved Cannot be resolved

Do you really want to resolve all the conflicts?

Health Care Transaction Model

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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

Health Care Systems Model

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Health Care Systems Model

Supply Demand

Government Policy

SupplyChannels

Regulators

PharmaceuticalCompaniesOTC/PrescriptionBranded

Generic

Access tohealth care

Patient

Industrial salesRetail sales

PayerGovt, Ins, Self

ProvidersDoctorsClinicsPublic HospitalsPrivate HospitalsPharmacyRMPsQuacks

Deliverychannels /

Intermediaries

ManufacturersBulk drugs

Global Distribution of Pharma Market

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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 AsiaandChina 6.5%Middle-east 2.3%Total 17.3%

Others2.7%

Integration and Differentiation Needs

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Integration and Differentiation Needs

Need

for

Global

Coordination

and

Integrat

ion

Need for National Differentiation and Responsiveness

Low

H

igh

Low High

Business Function Task

Chemicals

Detergents

Personal

Products

Packaged

Foods

Research

Product

Development

Manufacturing

Marketing

Sales

Product

Policy

Advertising

Pricing

Distribution

Promotion

Building Global Capabilities

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Building Global Capabilities

The Global Organizational ChallengeIncreased 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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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 costto develop one

drug:$500 Million U.S.

To Market

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Drug Development Process

Commercialization

ProductsPrograms

CandidateDevelopment

HypothesisGeneration

Projects

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Hypothesis Generation

HypothesisGeneration

Projects

Target

identificationand validation Assay

development

Lead

generation

Activities Goal

Testable,valuablehypothesis

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Candidate Development

Lead optimization

First human dosepreparation

Phase IA clinical trials

Phase IB / II clinical trials

Goal

Proven ordisprovenhypothesis for givendrugcandidate

ActivitiesCandidateDevelopment

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Commercialization

Commercialization

Products

Phase IIIclinical

trials Submission

to regulatoryagencies

Global launch

Global optimization

Goal

Successful

commercialproduct

Activities

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eli lilly 1998 b

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