Post on 08-Dec-2015
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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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