Scenario and Strategic PlanningEli Lilly & Co.

● CHEE LIUNG WUN ● LIM SHIEH CHERN ● NG YEE JIE ●

Preface

• Scenario planning is a tool that can be used to – Explore the impact of different possible futures for

pharmaceutical industry.– Help to avoid overlooking important opportunities

and major threats • This can be done by analysing rapid, turbulent

and uncertain shift in the industry environment, thus the survival of Eli Lilly in the pharmaceutical industry

Team Members

Chee Liung Wun

2821927Lim Shieh Chern

2821959

Ng Yee Jie2821942

The Company - Eli Lilly & Co.

4

Abou

t Us Global,

research-based pharmaceutical company and one of the world's largest corporations.

Orig

in Founded in 1876 by a retired colonel & Pharmacist, Eli Lilly. Global headquarter in Indianapolis, United States

Mis

sion To makes

medicines that help people live longer, healthier, more active lives

Source : Eli Lilly and Company (www.lilly.com)

Eli Lilly & Co.

5

• Today, marketed in 143 countries, 9th largest pharmaceutical company in world. Steadfastly remained independent, but not isolated. Global headquarters in Indianapolis, United States

• Global employees’ number approximately 40,000, and its medicines are marketed in 143 countries.

• Major research and development facilities in 8 countries and conducts clinical trials in more than 50 countries.

Source : Eli Lilly and Company (www.lilly.com)

Scope and Time Frame

• 7 Years

Duration

• Corporate level, to identify possible challenges

Scope

• To maintain Eli Lilly’s position as one of the top ten elite multinational pharmaceutical firms globally

Aim

Major Stakeholders• Stakeholders

Internal Stakeholders – Management TeamExternal Stakeholders – Major suppliers, health care providers, regulators and consultants into the process

Porter’s Five Forces (Current)

Threat of Substitute Products

LOW(Low Value, Risk)

Threat of Substitute Products

LOW(Low Value, Risk)

Threat of New Entrants

LOW(Patent, regulatory

process & Dist System)

Threat of New Entrants

LOW(Patent, regulatory

process & Dist System)

Bargaining Power of BuyersLOW

(Insurance companies, doctors‘& patients’

buying habit)

Bargaining Power of BuyersLOW

(Insurance companies, doctors‘& patients’

buying habit)

Bargaining Power of Suppliers

LOW(Multiple sources)

Bargaining Power of Suppliers

LOW(Multiple sources)

Rivalry Among Competing Firms in

IndustryLOW

(Different niches & Patent Protection)

Rivalry Among Competing Firms in

IndustryLOW

(Different niches & Patent Protection)

Porter’s Five Forces (Trend)

Threat of Substitute Products

MODERATE(Embryonic Stem Cell,

Alternatives)

Threat of Substitute Products

MODERATE(Embryonic Stem Cell,

Alternatives)

Threat of New Entrants

MODERATE(Increased Biotech

Firms)

Threat of New Entrants

MODERATE(Increased Biotech

Firms)

Bargaining Power of Buyers

MODERATE(Buyer Consolidate,

government & hospitals price sensitive)

Bargaining Power of Buyers

MODERATE(Buyer Consolidate,

government & hospitals price sensitive)

Bargaining Power of SuppliersMODERATE

(Petrochemical cost )

Bargaining Power of SuppliersMODERATE

(Petrochemical cost )

Rivalry Among Competing Firms in

IndustryHIGH

(Generics more common, price

pressure)

Rivalry Among Competing Firms in

IndustryHIGH

(Generics more common, price

pressure)

Basic Trends

Political

• United States Political Landscape

Economy

• Mergers and Acquisitions (M&A)

Socio

• Demographic - Aging Population

Legal• Expiring Patents

and Stricter Regulation

PESTLE Analysis

United States Political Landscape

Fact

• In 2008, Democrats won the presidency election

Before

• Republicans protected branded pharmaceuticals

After

• Democrats support generic pharmaceuticals

Mergers and Acquisitions (M&A)

Mutual BenefitsSharing

ResourcesComplement on

Product PipelinesWork towards

blockbuster drugs

Self Benefits

Improve Sales Cut Cost Increase Competiveness

Mergers and Acquisitions (M&A)

No Name of Company Merger/Acquisition Year

1 Bayer and Schering AG Acquisition 2006

2 Merck KG aA and Serono Acquisition 2006/2007

3 Nycomed and Altana Pharma Acquisition 2006/2007

4 UCB and Schwarz Pharma Acquisition 2007

5 Mitsubishi and Tanabe Merger 2007

6 Schering-Plough and Organon Acquisition 2007/2008

7 AstraZeneca and Medlmmune Acquisition 2007

8 Mylan and Merck Serono Acquisition 2007

9 Eisai and MGI Pharma Acquisition 2007/2008

10 Takeda and Millennium Acquisition 2008

11 Eli Lilly and ImClone Acquisition 200812 Daiichi-Sankyo and Ranbaxy Acquisition 2008

13 Pfizer and Wyeth Acquisition 2008

14 Merck and Schering-Plough(currently on negotiation)

Merger 2009

List of M&A undertaken

between 2006 - 2009

Source : Report: Mergers and Acquisitions in the Pharmaceuticals Sector, 2009

Demographic - Aging Population

The average expenditure for prescription drugs for people age 65 & above increased 130%, rising from $819 in 1997 to $1,914 in 2004.

Source: Drug Spending Increases More Than 2.5 Times in 8 Years

Expiring Patents

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“Many branded-name drugs lose patent protection will leading to a WAVE of generic medications entering the market” (Quoted from Article “Flooded Generic Pipeline Looms as Branded Patents Expire”)

About 183 of branded drugs will go off patent starting 2009 until 2013

$60 billion worth of drugs are going off by 2011

Expiring Patents

51%

17%

22% 3%7%

Brand Name Drug Patent Expirations

2006 2007 2008 Ex-2009 2009

Source: Expiring Patents Ignite Biotech Boom & Flooded Generic Pipeline Looms as Branded Patents Expire

Key Uncertainties

Emerging Disease

Embryonic Stem Cell Research

Personalized Medicine and

Health IT

Traditional Medicine

Petrochemical Price

Emerging Disease

Emerging diseases like SARS, Bird Flu, Aids & the

recent type A Influenza H1N1

Roche who own the proprietary drug, Tamiflu that can treat bird flu & type A influenza H1N1 took

full advantage of the situation

Threaten human kind in the form of a global pandemic

Share price of Roche skyrocketed & attracted popular & media attention to the industry

Embryonic Stem Cell Research

•Able to replicate, divide and produce a variety of specialized cells to repair human body, cure disease, and alleviate suffering.

Capability

•Able to cure spinal cord injuries, multiple sclerosis, diabetes, Parkinson's disease, cancer, Alzheimer's disease, heart disease, age-related macular degeneration, hundreds of rare immune system and genetic disorders

Potential

Personalized Medicine & Health IT

Personalized Medicine• Tailored to suit personal diagnostic requirement• Aimed to prevent certain diseases and to treat illnesses specifically• Knowing well ahead the conditions and heritage of body will

translate to prevention and lower healthcare bills

Proficient Use of Health Information Technology• Health IT can create, store, transmit and manage individuals’ health

data to improve health care safety, cost and quality• In addition, provides security and privacy of personal health

information• Other technologies include EMR, EHR, PHR, HIE, PBHR, and e-

prescribing

Traditional MedicineTraditional Chinese Medicine•TCM accounts for 38% of

medical products produced in China in 2007 (Mustapha, 2009)

India’s Ayurveda•65% of Indian population in

rural areas use Ayurveda and medicinal plants to help to meet their primary healthcare need

Petrochemical Price

• Pharmaceutical products are the derivatives of petrochemical

Overview

• World crude oil prices fluctuate

Situation• Affect the

petrochemical prices and in turn will result higher cost of medicines

Resulted

Possible Scenario Variables

• Based on the above table, the two most important variables are following:– Political- United States Political Landscapes– Embryonic Stem Cell Research

• Both scored the highest rating at 25 points.

Initial Scenario Themes

New Revolutionary Transformation of the Medical Industry

Description

• Embryonic stem cell treatment becomes a reality

• Government support innovative and branded drug

• Whole medical industry would experience an explosive revolution

• New breakthroughs in medical treatments for uncured diseases

Impact

• Pharmaceutical firms would continue to invest heavily in R & D for further new innovations

• Diversify and undergo M & A for biotechnology companies that are specialized in embryonic stem cell research

The Renaissance of the Pharmaceutical Industry

Description

• No progress in embryonic stem cell research

• Government support innovative and branded drug

Impact

• Pharmaceutical firms still continue to invest heavily in R & D for further new innovations

• Eli Lilly innovate and invent new drugs for emerging diseases in order to gain competitive edge against the other competitors

New Era of the Medical Industry

Description

• Government support generics rather than branded pharmaceuticals

• Embryonic stem cell research successfully proves its applicability in medical treatment

• Embryonic stem cell gains upper hand over pharmaceutical

Impact

• Pharmaceutical firms will be facing a critical moment

• Eli Lilly should seriously consider diversifying into biotechnology in stem cell or undergo M&A to stay competitive in pharmaceutical industry

Status Quo of the Pharmaceutical Industry

Description

• No progress in embryonic stem cell research

• No support from government

• Pharmaceutical industry remains the same status quo

• Medical treatments would only be using old technologies or the currently available technologies.

Impact

• Branded and innovative pharmaceutical firms would lose their market share

• No further investment in R & D as the ROI is not attractive

• Eli Lilly needs to reduce price and join the price war with generic drug’s manufacturer

Consistency and Plausibility

• Are the scenarios plausible?– The constructed scenarios are greatly plausible– The next political election in five years may bring

change to the existing situation. – Stem cell research is an emerging industry and the

future is highly anticipated• Are the scenarios all challenging?

– All constructed scenarios possess a great challenge to Eil Lily to survive and sustain its position as the top multinational pharmaceutical firms

• Rate the importance of the scenarios

Rate the importance of the scenarios

Variable Outcome Probability %

Political Government supports branded drugs 60%

Government supports generic drugs 40%

Embryonic Stem Cell Research Applicable 70%

Not applicable 30%

Scenario P(P) P(S) P(P and S) %P(P and S)New Revolutionary Transformation of the Medical Industry 0.6 0.7 0.42 42%The Renaissance of the Pharmaceutical Industry 0.6 0.3 0.18 18%New Era of the Medical Industry 0.4 0.7 0.28 28%Status Quo of the Pharmaceutical Industry 0.4 0.3 0.12 12%

Identify Research Needs

• Identify whether embryonic stem cell research will post real threat to the pharmaceutical firms in the next seven year

• Study or know more about the political situation

Develop Quantitative Method and Decision Scenarios

Conclusion• From scenario matrix unfolded four variables

scenario, Eli Lilly would be able to align basic trends especially M&A that shape the future pharmaceutical industry

• The “Explosive” New Revolution Medical Industry appeared to be the highly rated scenario with the probability outcome of 42%

• Although scenario planning cannot predict the definite future, it helps companies to compensate usual errors in decision-making (Schoemaker, 1995)