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Supernaturall Sights and Apparitions
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Group 1
Anto Abraham Arpit Rastogi Ritesh Jain Sandeep Tripathy
073 077 112 114
Shalina Bhatia Arun Ravindran Suman Kumar Saha
119 138 245
Shikha Gupta Suja Barua Suseendran Vishal Gagrai
300 306 308 316
Case facts Environmental analysis Competitive landscape New Product development process Resistance to new technology – human factors Evaluation of options Recommendations
World’s largest and most profitable industry with a revenue of around 250 billion US$ Capital intensive industry around 15-20% of sales spent on R&D Long time to market : 14.8 years 3 out of 10 drugs Profitable , Price slashed after expiry of patent Shortening lead time became priority
Acquisitions of innovative and cost effective firms
Importance of genetic engineering, combinatorial chemistry and high-
throughput screening
Founded in 1876 by Colonel Eli Lilly and leader in industry for 120 years Offices in 150 countries, Revenue of $5.7 billion From Antibiotics to genetically engineered products Dwindling pipeline of products, hence a fall in market value 1993 Tobias, CEO, sold medical device and diagnostic unit to focus on core business More Research focus Acquired Sphinx Pharmaceuticals
Increase the synthesizing capability by 50 times Would increase capacity to screen compounds by 8 times
Synthetic chemistry • More powerful than the naturally occurring compounds • Cumbersome process
Combinatorial chemistry • A library of related molecules was created with base remaining the same • Various combination of compounds tried clinically
High-throughput screening • Testing by Robots • The fit was defined through a color change or any other receptor
Around 10% of the lifetime years lost are due to CNS Lilly was spending around 1billion US$ on research for diseases like insomnia, migraine, clinical depression etcetera CNS market was around 11.1 billion US$ 80 % from G7 nations Success of serotonin based Prozac Focus on Serotonin based drug for Migraine Imitrex for Migraine
Time to market
Diversity of Leads
• Delay causes loss in revenue and also Strategic loss
• The best compounds should be taken forward
Traditional or combinatorial chemistry • Quicker but problematic • Delay Vs Passing rate
• Prices of drugs were exorbitant • Cost effective techniques and related acquisitions
Early entrant
• Strong early mover advantage
Regulatory
• Eli Lilly abided by the regulatory rules
Technological factors
• Combinatorial chemistry • Acquisition of Sphinx
Demographic factors
• Focus on depression, hypertension, cholesterol , CNS disorders
Pricing / Cost pressures
• Focus to develop drug quickly at a lower cost • Concentrated on its core competency
Early Entrant
• Focus on the side effects and drawback Imitrex • Combichem to quicken process
Comparison of balance sheet summaries
R & D R &D as NI as a Sales in in $ % of Net % of RoE in RoA in Company $ Mn Mn Sales EBIT Income Sales % % Bayer 28023 2050 7.32 2430 1271 4.54 11.9 4.7 Ciba-Geigy 16171 1578 9.76 2232 1403 8.68 12 6.1 J&J 15734 1278 8.12 2867 2006 12.75 28.2 12.8 Merck & Co 14970 1231 8.22 4633 2997 20.02 26.9 13.7 Bristol-Myers Squibb 11984 1108 9.25 2638 1842 15.37 32.3 14.3 Sandoz 11639 1199 10.30 NA 1272 10.93 20.7 8.9 Hoffman-La Roche 10816 1710 15.81 3110 2098 19.40 17 8.6 SmithKlime Beecham 9933 976 9.83 1213 110 1.11 12.4 0.9 Abbott Lab 9156 964 10.53 2228 1517 16.57 37.5 17.8
Average
11.23
13.32 22.96
9.87
For large companies, R & D expense as a proportion of sales is less Having high R & D expense ( both absolute and relative ) does not assure superior returns
Company American Home Products Glaxo Pfizer Hoechst Celanese Tekeda Chemical Eli Lilly Sankyo CO Schering Plough Rhone-Poulenc Rorer Wellcome Plc-ADS Maion Merrell Dow
Average
R & D R &D as Sales in in $ % of $ Mn Mn Sales EBIT
No direct correlation between R & D expense and superior returns or Profit Margins Many Large firms don’t have products at the top Past and current investments may result in future ‘Hit’s Why low RoE and RoA for many large firms ?
Iterative Processes and serendipity Probability of success : 30% Long duration before product launch
Few extremely successful products
A critique
Basic Research
• Basic Research for 2 years • Iterative process for ‘Lead’ compound
Preclinical Screening
• 3 years • Animal testing to ensure drug safety
Human Clinical Trials
FDA Review
• 6 years • Most stringent and time consuming : 3 phases • 2-3 years • 10% of drugs entering clinical trials reach market
Only phase that can be quickened
Variations in molecular structures to create a large pool of compounds
High throughput screening : Biologically test compounds from all family of derivatives by Robots
Iterative process in Traditional Chemistry
Quick ‘LEAD’
ADVANTAGES
Multiple derivatives at one go, so less time-to-market Less expensive First mover advantage
DISADVANTAGES
Chosen compound may not be the best one Highly risky Not widely used, unproven Not 100% pure compounds as compared to conventional methods Employee resistance : can be mitigated
ADVENT
Latent/unarticulated needs : Need Seekers Combine off-the-shelf products : Collaborative innovation Non-iterative, parallel process Minimal R & D and time to market Kloss had unlimited power More collaboration across teams
ELI LILLY
Unmet Needs : Need seeker
Build/Acquire capabilities : Internal innovation
Iterative innovation process Extensive R & D and time to market ( Industry specific ) PTAC had power, not individuals Less collaboration ( nonparallel processes )
Human Factors Influences
Honest disbelief in the dramatic but substantiated claims of the new process
Maintenance of the existing society with which people identify themselves
Protection of existing devices and instruments with which they identified themselves
Skepticism : Voodoo Science • Combichem generated compounds that were only 80-90 % pure • Unproved Technology: a distraction • Technology not trustworthy with many unresolved problems
Threat to Jobs • Robots Vs Traditional Chemists
Identification with Process as opposed to the Product • Generating a library of millions of compounds could outstrip the capacity of a screen capable of processing only a thousand compounds
Prob NPV(Billion $) Worst Normal Launch as per industry sales
Cost Best
ER
$3.89
8.88
11.12
-0.23
0.13595
$12.04
8.88
11.12
-0.23
0.859659
Year delay
$3.74
10.40
13.60
-0.23
0.182918
Two Year delay
$3.54
12.12
17.88
-0.23
0.226318
Second Mover
$1.77 12.1194 17.8806
-0.23
0.012162
As per computaion in the case
$0.77
-0.23
-0.14085
Normal launch with increcase mkt
8.88
11.12
Should wait for optimal compound Negative expected return with current strategy Increased probability of success with delay • Late release (no completion) • Late release (second mover)
Combinatorial Chemistry • No Visible effect for launch of Migraine Drug • Learning will be useful for future products • Cost optimization http://www.nytimes.com/1999/03/20/business/lilly-to-stop-developing-migraine-drug.html http://en.wikipedia.org/wiki/LY-334,370
