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Scenario and Strategic Planning: A Case Study of Eli Lily & Co.
This document discusses scenario planning for Eli Lilly & Co. to explore different possible futures for the pharmaceutical industry over the next 7 years. Four initial scenarios were developed based on two key uncertainties: political landscape in the US and progress of embryonic stem cell research. The scenarios range from a revolutionary transformation of the medical industry with stem cell breakthroughs, to the status quo where no changes occur. Analyzing these scenarios can help Eli Lilly prepare for challenges and opportunities in the uncertain industry environment. Further research is needed to refine understanding of the scenarios and develop quantitative planning methods.
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Scenario and Strategic Planning: A Case Study of Eli Lily & Co.
- 1. Scenario and StrategicPlanning Eli Lilly & Co. ● CHEE LIUNG WUN ● LIM SHIEH CHERN ● NG YEE JIE ●
- 2. Preface • Scenario planningis 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
- 3. Team Members Chee LiungWun 2821927 Lim Shieh Chern 2821959 Ng Yee Jie 2821942
- 4. The Company -Eli Lilly & Co. 4 AboutUs Global, research-based pharmaceutical company and one of the world's largest corporations. Origin Founded in 1876 by a retired colonel & Pharmacist, Eli Lilly. Global headquarter in Indianapolis, United States Mission To makes medicines that help people live longer, healthier, more active lives Source : Eli Lilly and Company (www.lilly.com)
- 5. 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)
- 6. Scope and TimeFrame • 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
- 7. Major Stakeholders • Stakeholders InternalStakeholders – Management Team External Stakeholders – Major suppliers, health care providers, regulators and consultants into the process
- 8. Porter’s Five Forces(Current) Threat of Substitute Products LOW (Low Value, Risk) Threat of New Entrants LOW (Patent, regulatory process & Dist System) Bargaining Power of Buyers LOW (Insurance companies, doctors‘& patients’ buying habit) Bargaining Power of Suppliers LOW (Multiple sources) Rivalry Among Competing Firms in Industry LOW (Different niches & Patent Protection)
- 9. Porter’s Five Forces(Trend) Threat of Substitute Products MODERATE (Embryonic Stem Cell, Alternatives) Threat of New Entrants MODERATE (Increased Biotech Firms) Bargaining Power of Buyers MODERATE (Buyer Consolidate, government & hospitals price sensitive) Bargaining Power of Suppliers MODERATE (Petrochemical cost ) Rivalry Among Competing Firms in Industry HIGH (Generics more common, price pressure)
- 10. Basic Trends Political • UnitedStates Political Landscape Economy • Mergers and Acquisitions (M&A) Socio • Demographic - Aging Population Legal • Expiring Patents and Stricter Regulation PESTLE Analysis
- 11. United States PoliticalLandscape Fact • In 2008, Democrats won the presidency election Before • Republicans protected branded pharmaceuticals After • Democrats support generic pharmaceuticals
- 12. Mergers and Acquisitions(M&A) Mutual Benefits Sharing Resources Complement on Product Pipelines Work towards blockbuster drugs Self Benefits Improve Sales Cut Cost Increase Competiveness
- 13. 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 2008 12 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
- 14. Demographic - AgingPopulation 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
- 15. Expiring Patents 15 “Many branded-namedrugs 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
- 16. Expiring Patents 51% 17% 22% 3% 7% Brand NameDrug Patent Expirations 2006 2007 2008 Ex-2009 2009 Source: Expiring Patents Ignite Biotech Boom & Flooded Generic Pipeline Looms as Branded Patents Expire
- 17. Key Uncertainties Emerging Disease Embryonic Stem Cell Research Personalized Medicineand Health IT Traditional Medicine Petrochemical Price
- 18. Emerging Disease Emerging diseaseslike 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
- 19. Embryonic Stem CellResearch • 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
- 20. 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
- 21. Traditional Medicine Traditional 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
- 22. Petrochemical Price • Pharmaceutic alproducts 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
- 23. 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.
- 24.
- 25. New Revolutionary Transformation ofthe 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
- 26. The Renaissance ofthe 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
- 27. New Era ofthe 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
- 28. Status Quo ofthe 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
- 29. 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
- 30. Rate the importanceof 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%
- 31. 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
- 32. Develop Quantitative Methodand Decision Scenarios
- 33. Conclusion • From scenariomatrix 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)
Editor's Notes
- #8 Since scenario planning only depict possible futures and not specific strategies to overcome them, thus it is not inappropriate to also invite external alliances and partners like major suppliers, health care providers, regulators and consultants into the process. Method like the six thinking hats developed by de Bono (1999) that allow parallel thinking and avoid arguments can be used. Here, the white hat which focus on acquiring information and green hat which focus on creative thinking and putting forward possibilities can be engaged.
- #9 The pharmaceutical industry generally has high average profitability especially in the 1980s and 1990s Buyer power was low as patients did not shop based on price, while doctors chose products with little reason to consider price, as most patients are medically insured with insurance companies Suppliers power is also low because the inputs tend to be available from multiple sources. Threat of substitutions is low as substitutes of other types of therapies were not proven and usually offered little value compared to the effective pharmaceuticals Threat of new entries was also blocked by patents and also the complicated regulatory process for new drug approval plus the difficulty of establishing a formidable sales forces and distribution system
- #12 However, with Republicans’ previous policies and its influences in the current congress, it will continue to give generics some hard times.
- #13 Improve sales, cut cost and increase competiveness
- #18 Few key uncertain trends will shape the landscape of pharmaceutical industry as stated below. Although these key uncertainties are less significant compare to the above basic trends, Eli Lilly cannot ignore the possibilities that could turn real trends in over 5-10 year’s horizon
- #21 Most of the time drugs and medicines work on the idea of “one size fits all” which are not so effective. Personalized medicine can be tailored to suit personal diagnostic requirement, to prevent certain diseases and to treat illnesses specifically. With rising cost of healthcare, knowing well ahead the conditions and heritage of your body will translate to prevention and lower the healthcare bills ultimately (Mustapha, 2009). The health information technology includes electronic medical record (EMR), electronic health record (EHR), personal health record (PHR), health information exchange (HIE), payor-based health record (PBHR), and electronic prescribing (e-prescribing)
- #22 Artemisinin (Qinghaosu) treats malaria Arsenic trioxide treats Acute Myeloid leukaemia Indirubin treats Chronic Myelocytic Leukaemia. Danshentong and tetramethylpyrazine treat cerebrovascular and cardiovascular diseases
- #25 The two variables are chosen because they are rated as highest on importance rating scale. Besides that both variables turn out to be a perfect combination as they possessed great challenges to Eli Lilly.
- #26 Embryonic stem cell treatments would be complemented with innovative pharmaceuticals. Thus, there will be many new breakthroughs in medical treatments for diseases that were previously impossible to cure.
- #30 The scenarios are plausible due to the recent change of political power in US. 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. Therefore the constructed scenarios are greatly plausible All constructed scenarios possess a great challenge to Eil Lily to survive and sustain its position as the top multinational pharmaceutical firms.
- #31 Current US government had given branded drugs at least 12 years of market exclusivity, apart from patent protection lifespan (The Wall Street Journal, 2009). The government also realizes that by cutting down support for branded drugs, it would halt innovation for pharmaceutical firms to research new medicine to the market. Although the government is trying to cut down the price of branded drugs, they will still continue to support branded drugs manufacturers or pharmaceutical firms as branded drugs manufacturers drive innovation but generic drug manufacturers do not In Jan 2009, U.S. Food and Drug Administration had approved the first clinical trial using embryonic stem cells in humans as medical treatment. Geron Corp., a California-based biotech company had been granted the permission to implant embryonic stem cells in paraplegic patients who can’t walk. The National Institutes of Health established a site (http://stemcells.nih.gov) for publics to gain more information about stem cell research.
- #32 If the government turns their support to generic drug manufacturer, Eli Lily needs to figure out strategies to stay competitive in the pharmaceutical industry, either by acquiring existing generic drugs manufacturers or reduce the drugs’ price
- #33 After generating the “first-generation” scenarios by quantifying alternative outcomes of obvious uncertainties, it is determined that the two main forces driving the pharmaceutical businesses are i) Merger and Acquisition (M & A) and ii) Cost Cutting. It appeared that M & A which would also assist in cost cutting are inevitable in the pharmaceutical industry. Thus, Game Theory is used to analyse M & A and to generate decision scenarios.