Eli Lilly’s Project Resilience (A): Anticipating the Future of the Pharmaceutical Industry. Kaoutar Kasmaoui - Rim El Guerrab Guer rab - Ghita Ouchane - Younes El Gharbi
Supervised by: Dr. Othmane Benmoussa
BACKGROUND OF PHARMACEUTICAL INDUSTRY •
The industry is under significant pressure: !
The research productivity of the industry was declining.
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difficulty of measuring the research productivity (10 to 12 years to release a new drug in the market).
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High cost of R&D ($1.7 billion in 2003).
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1/13 discovered drugs reach the market.
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Emergence of smaller specialised biotech companies.
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Decline in the industry growth (7% in 2004).
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Significant financial pressure on companies: loosing patent protection.
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Increase in the budget for marketing expenditure over the budget of R&D.
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Growing trend towards “personalized” products and servies.
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Political pressure due to the health care expenditure is arising percentage of the GDP.
KEY UNCERTAINTIES How can Eli Lilly face the competition of less expensive generic equivalents of blockbusters before the expiration of their patent? What if blockbuster products have problematic side effects and need to be recalled after being released? Will the government and private insurers continue to be in charge of the costs of prescription drugs? Will pharmaceutical industry be able to translate advances in genomics, proteomics, and other technologies into new products? What if the public perception of and confidence in the pharmaceutical industry dropped? Will it affects Eli Lilly’s strategy and sales ? How can Eli Lilly overcome the new Asian competition? How society views healthcare? Will society influence public healthcare policy, regulations, and demand fo healthcare products? To which degree technology influence pharmaceutical industr y?
Radical Innovation
Government & Private insurers are in charge of the cost
Scenario 3:
People are paying out of their pocket
Payers Rule
Incremental Innovation
HOW CAN ELI LILLY FACE THE COMPETITION OF LESS EXPENSIVE GENERIC EQUIVALENTS OF BLOCKBUSTERS BEFORE THE EXPIRATION OF THEIR PATENT?
The most significant factors that pushed us to choose the 3rd scenario are: the cost of R&D and the decline in R&D productivity, competition from generics, health care costs and product liability.
COST OF R&D •
The life-blood of the pharmaceutical industr y is R&D, as this industry is in continuous development. There are several interrelated issues related to this the fir st one being the R&D cost and the second one being R&D high risk and the third one being time consuming research.
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According to the Food and Dr ug Administration (FDA), the cost per new dr ug discovery has grown from US$154 M in 1976 to US$800 M in 2000.
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From 10.000 analysed in laboratories, only 1 or 2 eventually pass all approval stages to become a marketable medicine with a high risk of failing at clinical testing phases.
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According to the European Federation of Pharmaceutical Industries and Association, only 3 out of 10 new marketed drugs earn back the cost of investing in R&D (EFPIA, 2007)
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R&D is time consuming since the median time from discovery to patent of a new drug averages now from 12 to 13 years (EFPIA, 2007)
DECLINE IN R&D PRODUCTIVITY •
According to the US congressional budget office and the government Accountability office, the productivity of R&D investment has declined since the mid 90s.
• Whereas
15 blockbusters were introduced in 1997, only four were in 2005 (Anon 2007; Anon 2004; Jackson 2003).
COMPETITION FROM GENERICS •
Aside from intense rivalry from the industry, pharmaceutical companies are facing increasing competition from generics medicine because the FDA approves generics without extensive clinical testing.
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As a result the cost of developing a generic drug is around 1 million dollars.
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Generic drugs are sold 20% to 80% bellow the price of equivalent branded drugs.
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Patents of 80% of the global blockbusters in 2000 will expire in 2008 exposing the market to generic erosion.
HEALTH CARE COST AND PRICE CONTROL •
According to Feki, worldwide health care expenditure is increasing and the cost of pharmaceutical is the fastest growing component of health care which reached US $1.8 Trillion in 2004. (Feki, 2005).
PRODUCT LIABILITY •
Lawsuits in the USA over prescription drugs generally result in the highest financial settlements of all product liability integration. •
Merck with 11,500 lawsuits over Vioxx with a total of US$20 billion in settlements.
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Eli Lilly with 8000 lawsuits over Zyprexa with a total of US$700 million in settlements .
PUBLIC PERCEPTION AND CONFIDENCE •
Patients are demanding for more transparency concerning the relationships between medical professionals and pharmaceutical firms •
According to the Wall Street Journal: 3% of people think that the pharmaceutical companies are working for the public good while 76% think that are interested in making profit (Agres 2005).
ANALYSIS • We
believe that for the consolidation of the industry should be implemented and the focus would be on cost and efficiency oriented strategies to combat competition from generics and political press pressures.
WILL THE GOVERNMENT AND PRIVATE INSURERS CONTINUE TO BE IN CHARGE OF THE COSTS OF PRESCRIPTION DRUGS? •
Up to 2010 USA was the only major market in which there were no general government prices controls on drugs. As a result prices have continued to rise. (US Government Accountability office 2006)
• Whereas
in Japan and Europe, government have successively strengthen cost control and containment measures. => as a result, prices has flattened or declined.
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Because people do have other expenses, they except the government will help them partially regarding healthcare expenses.
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Eli Lilly as many other pharmaceutical companies expect from the government to set up more severe pressures and regulations on pharmaceutical pricing.
OBAMA-CARE •
In March 2010, Obama-Care (AKA The Affordable Care Act) was launched. It is a US law that aimes at reforming the American health care system. Obama-Care’s main focus is on providing more Americans with access to affordable health insurance, improving the quality of health care and health insurance, regulating the health insurance industry, and reducing health care spending in the US.
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This program is reinforcing our idea of the importance of the interference of the government in regulating the costs of the pharmaceutical industries.
Delta Model
Redefining the Customer Relationship
RECOMMENDATION •
Eli Lilly should invest in incremental innovation.
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They should adopt technical Blockbuster model to insure a constant flow of potential product in R&D, quality manufacturing and defining customer value in market place.
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The company should conduct continuous marketing research to keep up with the customers’ needs.
EXPECTED RESULT
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If adopting our model Eli Lilly company will improve its ranking regarding blockbuster’s sales and will compete directly with Pfizer and Merck being the leaders of Blockbusters sales as they are producing 7 Blockbusters drugs VS 3 by Eli Lilly.
