SVC MG 406 Eli Lilly Template Presentation

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					Eli Lilly and Company




                MG 406 Strategic Management (Capstone)
                Instructor: Eric Drouart




                                                    1
Company Overview
   Mission Statement
   Key Facts
   Company Highlights
   Company History
   Corporate Governance




                           2
Eli Lilly and Company – Mission Statement
Source: www.lilly.com



                        Mission

    We provide customers “Answers That Matter”
                      through
 innovative medicines, information, and exceptional
 customer service that enable people to live longer,
                     healthier,
               and more active lives.




                                                   3
Eli Lilly and Company – Core Values
Source: www.lilly.com/about/responsible/vision

       Respect for People – We maintain an environment built on
        mutual respect, openness, and individual integrity.

       Integrity – We conduct our business in a way that embraces the
        very highest standards of honesty and ethical behavior and is
        consistent with all applicable laws and regulations.

       Excellence – We pursue pharmaceutical innovation, provide high-
        quality products, and strive to deliver superior business results.




                                                                         4
Key Facts
Source: www.lilly.com/about/highlights

       A heritage more than 128 years strong: company founded on
        May 10, 1876
       More than 46,000 employees worldwide
       Approximately 8,800 employees engaged in research and
        development
       Clinical research conducted in more than 60 countries
       Research and development facilities located in 9 countries
       Manufacturing plants located in 13 countries
       26 products marketed in 138 countries




                                                                     5
Key Facts (Cont’d)
Source: www.lilly.com/about/highlight

   Employees :
       Indianapolis (Corporate HQ)              = 14,159
       Indiana (excluding Indianapolis)         = 5,556
       U.S. (excluding Indiana)                 = 4,758
       Outside U.S.                             = 21,667
       Worldwide total                          = 46,140

   Staff:
       Employees engaged in Lilly R&D activities = 8,782
       Percent of total work force = 19%




                                                            6
Company Highlights
Source: www.lilly.com/about/highlights
   Named:
       One of the 100 Best Companies to Work for in America (five consecutive
        years) by Fortune magazine.
       One of the Best Companies for Working Mothers (in the top 10 for the
        fifth time in nine years) by Working Mother magazine.
   Research and Development:
       2003 Expenditures                     $2,350.2 million/year
                                              $195.9 million/month
                                              $45.2 million/week
                                              $9.0 million/workday

       Increase from previous year           $200.9 million

       R&D as a percentage of sales          19 percent

       Total R&D investment in last five years from continuing operations
                                              $10,536.7 million

                                                                                 7
Company History
Source: www.lilly.com/about/responsible/profile
      1876 Colonel Eli Lilly opens his new drug manufacturing company.
      1905 Sales reach $1 million.
      1923 Iletin®, the first commercial insulin product, is launched.
      1943 The company’s first penicillin product is produced for use by the armed forces,
       mass production begins one year later.
      1963 A new herbicide, Treflan®, is launched; it becomes the company's top-selling
       product from 1973 to 1982.
      1974 Sales reach $1 billion.
      1982 Humulin®, Lilly's human insulin, is launched. It is the world's first pharmaceutical
       product produced through recombinant DNA technology.
      1982 Oraflex®, a treatment for arthritis, is withdrawn from the market after deaths in
       elderly patients are reported.
      1986 Prozac®, the first of a revolutionary new class of antidepressant drugs, is
       launched in Belgium; the U.S. launch follows in 1988.
      1990 The Church of Scientology attacks the safety and efficacy of Prozac. Charges are
       later proven unfounded.
      1994 The company announces its intent to divest from its medical devices and
       diagnostics businesses to better focus on its core pharmaceutical business.



                                                                                                   8
Company History (Cont’d)
Source: www.lilly.com/about/responsible/profile
       1996 Gemzar® is launched in the United States for the treatment of locally advanced
        or metastatic pancreatic cancer.
       1997 The company receives approval to market Evista®, first in a class of new drugs
        called selective estrogen receptor modulators, for the prevention of osteoporosis in
        postmenopausal women. Marketing begins in early 1998.
       1998 Lilly CEO Randall Tobias announces his intention to retire at the end of 1998;
        Tobias is succeeded by Sidney Taurel, who becomes CEO and chairman of the board.
       2000 Zyprexa® reaches a prescribing milestone by having been prescribed to 5 million
        consumers in 84 countries worldwide since its market entry four years earlier,
        surpassing Prozac to become Lilly's leading product.
       2001 Lilly loses U.S. market exclusivity for Prozac.
       2002 Cialis, a medication to treat male erectile dysfunction, is approved for marketing
        in the European Union; the U.S. launch follows in 2004. Strattera® and Forteo®, are
        also approved.
       2003 Optaflexx® is approved by the U.S. FDA to be fed to beef cattle to increase red
        meat yield.
       2004 Symbyax™, the first and only FDA-approved medication to treat bipolar
        depression, is launched in the United States. Alimta® is approved for use with
        cisplatin.
       2004 Lilly acquires Applied Molecular Evolution, Inc. (AME), a leader in applying
        directed molecular evolution to improve healthcare by discovering, optimizing and
        developing human biotherapeutics, headquartered in San Diego, California, U.S.


                                                                                                  9
External Environment
   Economic Factors
   Market Outlook
   Socio-Economic
   Advancing Technology




                           10
Economic Factors: GDP Growth
Source: devdata.worldbank.org




                                11
Market Outlook: Aging Population
Source: www.findarticles.com

   Current worldwide population over 60 years old is
    approximately 500 million.
   Per the United Nations – 60+ age group will
    quadruple to 2 Billion by 2050.
   Extended life span attributed to:
       Public Health Advances
       Disease Immunization
       Clean air and water
       Better Nutrition
       Effective High Blood Pressure medication




                                                        12
Market Outlook: Aging Population (Cont’d)
Source: Watson Wyatt Worldwide Bethesda Md.




                                              13
Socio-Economic: Worldwide Health Issues
Source: www.phrma.org, www.un.org

   Bioterrorism – need for new medicines to prevent and treat
    infectious diseases.
   Genomics/Biotechnology – promises new approaches to drug
    discovery understanding of how diseases form.
   HIV/AIDS:
       Without effective vaccine or cure, expected deaths by 2025:
           100 million in sub-Saharan Africa
           31 million in India
           18 million in China
       Eventual course depends on how the world responds to the threat today
        and tomorrow.
   SARS/Asian Flu – fast moving, life threatening epidemics that
    require immediate and swift action to contain.



                                                                            14
Socio-Economic: The Rising Costs of Rx Drugs
Source: AARP Public Policy Institute, “Trends in manufacturer prices of brand name prescription drugs
used by older Americans, 2000 through 2003




   Figure 3: Distribution of Average Annual Percentage Changes in Manufacturer   Figure 4: Average Change in Annual Cost of Therapy Due to Manufacturer Price Changes
             Prices for Most Widely Used Brand Name Prescription Drugs              For Most Widely Used Brand name Prescription Drugs Treating Chronic Conditions




                                                                                                                                                                    15
Socio-Economic: The Rising Costs of Rx Drugs
Source: www.phrma.org, wwww.manhattan-institute.org, www.fdanews.org


   Medicaid/Medicare/Other Gov’t Programs:
       Fraud allegedly perpetrated by multiple large pharmaceutical
        companies driving costs up.
       Outdated billing system needs to be updated to prevent fraud.
       Possible changes to reimbursement levels.
   Reimportation
       Canadian International Pharmacy Association (CIPA), recently
        told a number of state and local agencies in the U.S. its 27-
        member mail-order pharmacy association will not engage in
        formal commercial agreements with them.
       The number of state and local governments considering
        reimportation of drugs from Canada continues to grow.
       The number of U.S. drug makers placing restrictions on their
        inventories in Canada is also growing.

                                                                        16
Socio-Economic: Regulatory/Legal Issues
Source: www.phrma.org
   In The Courts (2003 Cases)
       The Bristol-Myers Squibb Company received a subpoena from the United States
        attorney in Boston over pricing and marketing of drugs covered by Medicare and
        Medicaid.
       Pfizer Inc. facing class action lawsuit claiming that injuries might have developed
        after patients stopped taking Rezulin, a prescription diabetes drug.
       AstraZeneca and Medco charged with fraud related to giving free samples of its
        cancer drug, Zoladex, to American doctors, to curry favor, knowing that these
        same doctors were billing the government's Medicare health insurance scheme
        for unwarranted reimbursement.
   FDA Issues
       Pre-clinical testing
       Clinical studies
       Drug approval
       Drug labeling
   Intellectual Property
       It takes 10-15 years and costs $800 million on average to bring a new medicine to
        market.
       Patents must be protected as aggressively as possible.


                                                                                              17
Advancing Technology in Drug Discovery
Source: www.lilly.com; Drug Discovery & Development , January, March, May 2004;
www.ornl.gov/sci/techresources/Human_Genome/glossary/glossary.shtml
   Methods of research
       Genomics -The study of genes and their function.
           Gene expression
           Genetic mapping
       Combinatorial chemistry - The creation of large populations of molecules, or
        libraries, that can be screened efficiently en masse. By producing larger, more
        diverse compound libraries, companies increase the probability that they will find
        novel compounds of significant therapeutic and commercial value. The field
        represents a convergence of chemistry and biology, made possible by
        fundamental advances in miniaturization, robotics, and receptor development
       Molecular biology – The interpretation of biological events in terms of the physics
        and chemistry of molecules within cells.
       Informatics/Bioinformatics - The science of managing and analyzing biological
        data using advanced computing techniques. Especially important in analyzing
        genomic research data.
   To speed the drug discovery process drug development companies develop
    assays using high throughput screening, ultra high throughput screening,
    and microarray technology.
   To get richer data more companies are turning to cell-based assays.

                                                                                          18
Industry Analysis
   Overview
   Market Definition
   Category Definition
   Industry Trends
   Future Growth Drivers
   Projected Growth Rates
   Eli Lilly Performance vs. Industry
   Risks
   Summary




                                         19
Industry Overview
Source: S&P Industry Survey Healthcare:Pharmaceuticals June 24, 2004; Pharmaceutical Online

   Pharmaceutical industry plagued by mega mergers over last
    five years
       Merging of companies to combine R&D resources
       Merging with companies in Europe and abroad
   Expiring patents and shallow pipelines of new products
       50% of top 10 ranked pharmas will have pipeline performance
        challenges by 2008
   Generic based drug companies encroaching on upcoming
    patent expirations
   Increase in DTC marketing, particularly in US markets
   High barriers to entry due to costs associated with developing
    new drugs
   Impact of importation


                                                                                              20
Market Definition as % of Sales
Source: S&P Industry Survey Healthcare:Pharmaceuticals June 24, 2004


Total global pharmaceutical sales $492B in 2003




     North America produces the greatest revenue from sales of ethical drugs


                                                                               21
    Market Definition as % of Sales (Cont’d)
    Source: Lilly 2003 Annual Report, Statistics 2004/VFA, IMS
                                                                        Pharmaceutical Sales per Capita
               Sales share of the world’s top 100                 in the seven major pharmaceutical markets
                  prescription medicines 2003                    2002 in USD (adjusted for purchasing power)




  Lilly
Non-USA
  ~2%


                                      Lilly USA ~3%




             Eli Lilly 2003 worldwide sales = $12.6B; world market share = 2.5%


                                                                                                               22
Category Definition
Source: Hoover’s Online & GSK 2003 Annual Report



World Market – Top 5 therapeutic classes                Industry $B   Eli Lilly $M

Cardiovascular                                          86            669.3


Central Nervous System                                  84            5554.8


Alimentary tract & Metabolic                            66            3926.7


Anti-infectives (incl. bacterial, viral, fungal) excl   57            489.9
vaccines

Respiratory                                             37            N/A




                                                                                 23
Industry Trends
Source: S&P Industry Survey Healthcare:Pharmaceuticals June 24, 2004

   Leading drug companies are aggressively forming
    partnerships with smaller biotech companies (Lilly’s
    acquisition of Applied Molecular Evolution, Inc.)
       Partnering deals between biotech and pharmaceutical companies totaled
        $8.9 billion in 2003, with an acceleration in partnering activity for 2004
   Greater utilization of direct-to-consumer marketing, including
    use of the Internet
       Advertising spending rose 22% in 2003, to $3.3 billion
       $7.1 billion spent on sales personnel to call on physicians
       $13 billion spent to distribute free samples to physicians
   Strong growth expected due to surge in aging population
    aged 65 years & older
   Increasing governmental price controls in foreign markets
   Increase in combination products and supplemental NDA
    filings to help extend drug patent life

                                                                                24
Future Growth Drivers
Source: Pharmaceutical Research and Manufacturers of America
Pharmaceutical Industry Profile 2004 (Washington, DC: PhRMA, 2004)

   New medicines to curb healthcare costs by reducing
    need for hospitalization and invasive surgery or by
    delaying nursing home administration
   Emerging diabetes epidemic
   Saving the lives of cancer patients
   Forestalling Alzheimer’s disease
   Improving patient quality of life by tailoring treatment
    to the needs of the individual



                                                                     25
Projected Growth Rates (in sales)
Source: www.zacks.com




                        Eli Lilly   Industry   S&P 500


     Next Year (2004)   15.6%        19.6%      9.6%



     Next 5 Years       13.2%        20.0%      6.0%




                                                         26
Eli Lilly YTD Performance 2004
(relative to industry)
Source: http://yahoo.investor.reuters.com 10/15/04


                                             LLY YTD   Industry     Status
                     Current Ratio             1.31      1.63       Worse
                     Quick Ratio                .87      1.19       Worse
                     LT D/E                     .34      .27      Increasing
                     Total D/E                  .49      .381     Increasing
                     Profit Margin            18.61%   22.30%       Worse
                     Operating Margin         24.62%   22.12%       Worse
                     ROI                      15.70%   14.95%       Better
                     ROA                      11.69%   11.17%       Better
                     ROE                      25.71%   22.89%       Better
                     P/E                       24.72    22.37       Better
                     P/CF                      20.24    15.78       Better
                     Payout Ratio              59.18      -


            S&P sites Lilly as strong dividend payer for more than 25 years
                                  and give stock 4 stars.
                                                                               27
Risks
Source: Eli Lilly Annual Report: Answers for shareholders 2003

     Generic competition upon patent expiration.
     Economic factors: changes in inflation, interest rates and foreign
      currency exchange rates.
     Governmental factors, including federal, state and foreign laws and
      regulations including Medicaid, Medicare, pharmaceutical
      importation laws, and other laws and regulations that could impose
      governmental controls on the prices at which the company's
      products are sold.
     The difficulties and uncertainties inherent in new product
      development.
     Delays and uncertainties in the FDA approval process and the
      approval processes in other countries, resulting in lost market
      opportunity.
     Unexpected safety or efficacy concerns arising with respect to
      marketed products leading to product recalls, withdrawals or
      declining sales.
     Legal factors: product liability, antitrust litigation; environmental
      matters, and patent disputes with competitors.

                                                                              28
Industry Analysis Summary
   Aging population will increase growth of
    pharmaceutical market
   Industry expected to significantly outperform the
    S&P 500 index in coming years
   Mergers and Acquisitions will continue to reshape
    the landscape
       Long-term prospects enhanced with new therapeutics from
        discovery in genomics and biotechnology
   Re-importation and government programs continue
    to effect earnings for big pharma companies
   Need to increase drug product pipeline

                                                                  29
Competitive Analysis
   Competition
   Primary Competitors
   CNS Performance Comparison
   Market Share
   Geographic Market Share
   Benchmarking and Competitor Comparisons
   Strategic Focus and Growth Strategies
   New Product Activities
   Strengths & Weaknesses
   Summary

                                              30
Top Competitors
Source: S&P
Pharmaceutical competitors covered by S&P (2003 sales in $M)
Pfizer                 45,158   Allergan, Inc      1,771
J&J                    41,862   King Pharm         1,521
GlaxoSmithKline        38,238   Watson Pharm       1,458
Sanofi-Aventis         32,000   IVAX Corp          1,420
Novartis AG            24,864   Alharam Inc        1,297
Merck & Co.            22,486   Mylan Labs         1,269
Bristol-Myers Squibb   20,894   Shire Pharm        1,237
Adolor Corp            20,700   Barr Pharm         902.9
Abbott Labs            19,681   Biovail Corp       824.0
AstraZeneca            18,849   Valeant Pharm      686.0
Wyeth                  15,851   Dr. Reddy’s Labs   361.8
Eli Lilly              12,582   Sepracor Inc       344.0   Those companies less than
Schering-Plough        8,334    Taro Pharm         315.5   $5M will not have the R&D
Teva Pharm             3,276    Medicis Pharm      247.5   investment to compete in
                                                           the coming years.
Forest Labs            2,121


                                                                                31
Primary Competitors
Source: company websites
   Pfizer
       122,000 employees worldwide with manufacturing sites in 37 countries
       2003 revenues $45.2 billion
       2004 estimated R&D budget $7.9 billion (2003 expenses $710,000M)
       Key product brands – Lipitor, Celebrex®, Viagra®, Zithromax®, Zoloft®,
        Zyrtec®
   GlaxoSmithKline
       100,000+ employees worldwide with manufacturing sites in 37 countries
       2003 revenues $35.2 billion
       Approximate R&D budget $4.0 billion
       Key product brands – Paxil, Wellbutrin, Imitrex, Flonase, Augmentin,
        Levitra, Zantac
   Novo Nordisk
       18,800 full-time employees in 69 countries
       2003 revenues ~$4.5 million
       Approximate R&D budget $721,000 million
       Key product brands – NovoSeven®, FlexPen, InDuo, Innovo, Estrofem,
        Norditropin

                                                                             32
CNS Performance Comparison
Source: Hoover’s Online; company annual reports

   Eli Lilly competes head on
    with Pfizer and
    GlaxoSmithKline in the
    central nervous system                                       $7,378     $7,923
    therapy area, particularly                        $5,554.8
    therapy products for
    depression and psychotic
    disorders
       Eli Lilly – Zyprexa, Prozac
       Pfizer – Zoloft, Geodon              Note: Total CNS sales include products other than those
                                             for depression and psychotic disorders.
       GSK – Seroxat/Paxil,
        Wellbutrin, Lamictal




                                                                                                 33
2003 Market Share (in sales)
Source: Hoover’s Online and Standard & Poor’s Healthcare:Pharmaceuticals June 24,2004




                                                                                        34
Sales by Geographic Region
Source: Hoover’s Online 10/20/04

    2003 sales in millions
    Eli Lilly international
     includes Western Europe
     and other regions
    GSK international includes
     Europe, Asia Pacific, Japan,
     Middle East and Africa,
     Latin America, and Canada
    Novo international includes
     Europe, Japan and
     Oceania, and Other

    Pfizer has the biggest presence in international markets with $18,344 M sales.


                                                                               35
2003 Benchmarking and Comparisons
Source: Company Annual Reports; www.yahoo.investor.reuters.com 10/27/04 (Operating Margin)




                Sales            R&D ($M)         R&D as %          Net Income         EPS    Operating
                ($M)                              of sales          ($M)                      Margin
                                                                                              (YTD)
Eli Lilly       12,582.5         2,350.2          18.7%             2,560.8            2.38   24.75%
Pfizer          45,188           7,131            15.8%             3,910              .22    19.5%
GSK             33,249           476              13%               7,975              2.53   28.92%
NVO             4,529            715              15.8%             170                2.39   24.81%




Eli Lilly has made a significant investment in R&D compared to the leading competitors.


                                                                                                       36
Strategic Focus & Growth Strategies
Source: Company 2003 Annual Reports/Review & web sites

   Pfizer
       War on cancer                                       Protecting the Heart
           Gastrointestinal cancer                             Heart disease & cholesterol
           Breast cancer                                       Hypertension
           Nicotine addiction                              Serving the Developing World
       Healthy Aging                                           Treating malaria
           Age-related macular                                 Preventing & treating HIV/AIDS
            degeneration (AMD) is the                            throughout Uganda (education
            leading cause for blindness                          & training)
            among the elderly in developed                      Preventing blindness –
            countries                                            trachoma
           Glaucoma, second leading                        When New Threats Arise
            cause of blindness                                  SARS
           Alliance for Health & the Future                    Smallpox
            a Pfizer partnership with the
            International Longevity Centre;                     HIV/AIDS
            by 2050 35% of all Europeans
            will be over 60



                                                                                               37
Strategic Focus & Growth Strategies                                    (con’t)
Source: Company 2003 Annual Reports/Review & web sites

   GlaxoSmithKline
       Diseases of the Developing World           Cardiovascular
        – only company to focus on all                  Heart disease
        three top priorities of World Health            Anti-blood clotting treatment
        Organization                               Respiratory
           Malaria – Medicene Malaria             Worldwide Sales Force Excellence
            Venture
                                                    initiative – raising sales force
           HIV                                     knowledge of diseases and the role
           Tuberculosis – Global Alliance on       of GSK medicines in treating them
            Tuberculosis
           Also works with the National
                                                   Global marketing initiative help
            Institutes of Health                    undiagnosed patients seek a
                                                    physician’s help and to ensure they
       War on Cancer
                                                    receive appropriate treatment.
           Breast and lung cancer
           Cervical cancer
                                                   Patient advocacy – achieve a
                                                    higher level of intimacy with the
       Neurosciences
                                                    ultimate consumer of GSK
           Anti-depressants
                                                    products
           Arthritis



                                                                                         38
Strategic Focus & Growth Strategies                                      (con’t)
Source: Company 2003 Annual Reports/Review & web sites

   Novo Nordisk
       Diabetes Care                                 Growth Hormone Therapy
           Completing a full insulin analogue            Develop new indications and
            portfolio, physiological control of            provide superior delivery systems
            diabetes catering to individual life           for the company’s liquid growth
            styles                                         hormone, Norditropin® SimpleXx
           New and improved oral therapies           Hormone Replacement Therapy
            for type 2 diabetes continues              (HRT)
           New treatment concepts such as                Offer low-dose products for treating
            inhaled insulin                                symptoms in connection with the
       Haemostatis Management                             menopause
           NovoSeven® - new use in critical
            life- or limb-threatening bleeds now
            in Phase II clinical trials
           Investigate the NovoSeven®
            potential to stop or reduce the
            bleedings associated with cancer,
            gastroenterology, intensive care,
            trauma and surgery




                                                                                               39
New Products / Activities
Source: Company Annual Reports

    Pfizer
         Intend to submit New Drug Applications (NDA) to the FDA for 20 products in the five year
          interval ending in 2006, of which 6 (Relpax, Inspra, Somavert, Spiriva, Caduet and
          pregabalin) have been submitted through December 31, 2003.
         Three new products that were recently approved or are undergoing regulatory review in the
          U.S. and/or E.U. (Inspra, Caduet, pregabalin). Will launch all three in new markets once
          regulatory approvals are received.
         Spent $1.1M in merger-related costs due to acquisitions (Pharmacia and Warner-Lambert)
   GlaxoSmithKline
         Solifenacin for over-active bladder (developed with partner Yamanouchi Pharmaceuticals Ltd
          of Japan)
         Avandaryl, a fixed-dose combination treatment which will further extend the Avandia family of
          treatments for type 2 diabetes
         Epivir plus Ziagen, the first once-daily combination HIV/AIDS treatment to be available in a
          single tablet.
         148 projects in clinical development: 83 NCE, 12 Phase III or submitted for registration, 34
          Phase II, 37 Phase I, 45 PLEs, 20 vaccines
   Novo Nordisk
         10 projects in clinical development: 2 Phase I, 5 Phase II, 2 Phase III, 1 submitted for
          registration




                                                                                                      40
Competitor Strengths & Weaknesses
Source: Datamonitor

                      Strengths                               Weaknesses
 Pfizer                  Strong sales and marketing             Numerous blockbusters facing
                          capabilities                            patent expiry and generic
                         Blockbuster drugs portfolio             competition
                         Large R&D spend                        Large size restricts growth
                                                                 Over-dependence on a few drugs
                                                                  and therapy areas

 GlaxoSmithKline         Global sales and marketing             Poor in-house R&D productivity
                          capabilities linked to lifecycle       High generic risk
                          management                             Dominance of Pfizer
                         Well-established alliance network
                         Depth of pipeline

 Novo Nordisk            Dominance in Europe & Japan            Dependence on pipeline products
                         Product pipeline                        in for future revenues
                         Range of insulin analogs               Concentrated focus
                                                                 Dependence upon diabetes
                                                                  franchise




                                                                                                    41
Summary of the Competition
   Pfizer
        #1 in market
        May be getting to big for its britches!
   GlaxoSmithKline
        #2 in market for pharmaceuticals
        Need to beef up R&D spending to improve late stage product pipeline
   Novo Nordisk
        Leader in diabetes management in Europe
        Poised to take US market share from Eli Lilly in diabetes management
   Sanofi-Aventis
        Largest presence in Europe
        #3 in market for pharmaceuticals
   Merck
        Recent withdrawl of Vioxx
        Joint venture with J&J for Pepcid AC
   Johnson & Johnson
        #2 in overall healthcare market
        Strong consumer and medical devices businesses


                                                                                42
Eli Lilly Internal Analysis
   Organization Structure
   Financial Summary
   Primary Product Segments
   2003 Product Segments Revenues
   Major Pharmaceutical Product Revenue Growth
   Net Sales per Region
   Fundamental Ratio Analysis
   2003 duPont Analysis
   Company Performance
   Projected Performance Trend
   Core Competency
   Products Statistics
   Recent/Anticipated Patents
   Recent/Anticipated Patent Expirations
   Current Growth Strategies


                                                  43
 Organization Structure-Corporate Governance
 Source: www.lilly.com/about/management/


  HR                                                           IT
  Quality                                      Sydney Taurel   Corporate Affairs
  Global Regulatory affairs                     Chairman,      Marketing and Sales
                                                 President
  Finance                                         & CEO        International Operations
  Product Dvpt                                                 European Operations




                             Metabolic
                                            Animal    Pharmaceu-    Science
   Medical    Manufacturing  Disorders                                        Neuroscience   R&D
                                            Health       tical      & Tech.
                            & Specialties




12 members of the Board – 2 internals 10 externals No obvious conflicts of interest
                                                                                44
Financial Summary
Sources: Answers for shareholders 2003, S&P
                                              2003        2002     % change
(000,000’s)
 Profit & Loss
       Revenue                          12,582.5       11,077.5   13.59%
       EBITDA                            3,871.2        4,030.4   -3.95%
       Operating Margin                  30.77%         36.38%    -5.62%
   Balance Sheet
       Assets                           21,678.1       19,042.0   13.84%
       Liabilities                      11,913.3       10,768.4   10.63%
       Equity                            9,764.8        8,273.6   18.02%
   Cash Flow
       Operating Cash Flow                   3,646.7   2,070.7    76.10%
   Employees #                               46,100     43,700     5.49%


                                                                              45
Eli Lilly Primary Product Segments
Source: Answers for shareholders 2003


     Neurosciences products
          Zyprexa, Prozac, Strattera, Permax
     Endocrinology products (diabetes care)
          Humulin, Humalog, Actos, Evista, Forteo, Humatrope
     Oncology products
          Gemzar
     Animal health products
          Tylan, Rumensin, Coban
     Cardiovascular products
          ReoPro, Xigris
     Anti-infectives products
          Ceclor, Vancocin
     Other pharmaceutical products and services

                                                                46
 2003 Product Segments Revenues
 Source: Answers for shareholders 2003


(000,000's)                               2003       2002    % change
Neurosciences                        5,554.80     4,668.30     18.99%
Endocrinology                        3,926.70     3,444.60     14.00%
Oncology                             1,039.80       893.1      16.43%
Animal Health                            726.60     693.1       4.83%
Cardiovascular                           669.30     624.9       7.11%
Anti-infectives                          489.90     577.4      -15.15%
Other Pharmaceutical                     175.40     176.1       -0.40%




                                                                         47
2003 Major Pharmaceutical Product
Revenue Growth
Source: 2003 quarterly earnings (q403Lilly_earnings.pdf)




                                                           48
Net Sales per Region
Source: 2003 corporate responsibility (Lilly_CRR_2003_0704.pdf)



$ millions         2001              2002              2003       %change %change
                                                                  01-02   02-03
Worldwide          11,543            11,078            12,583     - 4.03%   13.6%
US                 7,364             6,536             7,176      -11.24%   9.8%
Western            1,953             2,155             2,711      10.34%    25.8%
Europe
Other              2,225             2,386             2,696       7.24%    13%
foreign
countries




                                                                                   49
Fundamental Ratio Analysis
                         2003     2002      Trend
Liquidity Ratios
Current Ratio             1.58     1.54    Improving

Quick Ratio               1.01     0.86    Improving

Debt Management
Debt Ratio               47.2%    49.5%    Decreasing

TIE                      54.47    44.38    Improving

Asset Management
Inventory Turnover        6.41     7.41      Worse

Days Sales Outstanding    82       79        Worse

Fixed Asset Turnover      1.92     2.09      Worse

Total Asset Turnover      0.58     0.58    No Change

Profitability
Profit Margin            20.35%   24.45%     Worse

ROA                      11.81%   14.22%     Worse

ROE                      26.22%   32.73%     Worse

BEP                      15.33%   18.58%     Worse

Market Value
P/E                      27.017   26.056   Improving



                                                        50
2003 duPont Analysis
                                                                                            ROE
                                                                                           26.22%



                                              ROA                                       Multiplied by                        Total Assets/equity
                                             11.81%                                                                                 2.22



           Profit Margin
             20.35%
                                        Multiplied by                         Total Asset Turnover
                                                                                      0.58
                                                                                                         Total Assets
                                                                                                          21,678.1
                                                                                                                                        ÷           Stockholder Equity
                                                                                                                                                         9,764.8



 Sales                                    NI                        Sales                                     Total Assets                                           Total Liabilities
12,582.5                                2,560.8                    12,582.5                                    21,678.1                                                 11,913.3
                 Divided into                                                           Divided by                                          Minus

                             Sales                                   Total Costs               Fixed Assets                             Current Assets                                      Other
                            12,582.5                                  10,021.7                     6,539                                   8,758.7                                         1,674.9
                                            Minus

                                                                                                                                                                                         Total Current
                                                  Cost of goods sold                                                           Cash                      Inventory
                                                                                                                                                                                          Liabilities
                                                       2,675.1                                                                3,713.3                      1963
                                                                                                                                                                                           5,550.6



                                                     Admin. Exp.                                                        Accounts Receivable         Prepaid expenses                       LT Debt
                                                       4,055.4                                                               2,832.9                      249.5                            4,687.8


                                                                                                                                                                                   Financing
                                                    Interest Exp.                              Other Assets
                                                          61                                     6,380.4                                                                           (Debt Management)
                                                                                                                   Investments in Assets
                                                        Taxes
                                                                                                                   (Working Capital)
                                                        700.9



                                                     Other Exp.
                           Operations                 2,529.3




                                                                                                                                                                                                     51
Company Performance




   Shareholder Value is decreasing but is following the S&P 500
 Pharmaceutical & Biotechnology Industry Group Index (^GSPPHB)  52
Projected Performance Trend
Source: www.zacks.com, www.nasdaq.com


Year          EPS            Growth
              forecast
2004          2.812           8.83%

2005          3.218          14.44%

2006          3.727          15.82%

2007          4.245          13.90%

2008          4.846          14.16%


 2004 Earning growth forecast 8.83% below industry average of 10.49%

                                                                       53
Core Competencies
Sources: Lilly corporate responsibility 2003, Standard&Poors

   R&D:
       $2.4 billion spent in 2003 equal 19% of sales
       19% employees engaged directly in R&D
   Manufacturing
       26 plants in 15 locations (Brazil, France, Germany, Ireland, Italy,
        Japan, Korea, Mexico, Pakistan, Puerto Rico, Spain, the United
        Kingdom, the United States).
       Joint ventures in China and Egypt
       26 products sold in 138 countries.
   2004: Acquisition of Applied Molecular Evolution,
    Inc. (AME), leader in optimizing and developing
    human biotherapeutics.
   HR: world-class scientists and clinical researchers.

                                                                          54
2003 Products Statistics
Source: http:www.123jump.com/reports/14428.pdf




  Few products in the beginning phases which explains the dependency on
  existing patents.

                                                                          55
Recent/Anticipated Patents
Source: http://investor.lilly.com/pipeline.cfm
   Recent Approvals                             Timing of Approval
       Xigris
        severe sepsis                            Nov - 01
       Forteo
        osteoporosis                             Nov - 02
       Strattera
        child and adult ADHD                     Nov - 02
       Cialis (EU approval)                     Nov - 02
                (US approval)                    Nov - 03
        erectile dysfunction
       Symbyax
        bipolar depression                       Dec - 03
       Alimta
        malignant pleural mesothelioma           Feb – 04
       Cymbalta
        major depression                         Aug - 04
       diabetic peripheral neuropathic pain     Sept - 04
       Yentreve (EU approval)
        stress urinary incontinence              Aug - 04
   Declared Approvable                          Timing of Submission
       duloxetine
        stress urinary incontinence              Q4 2002
   Under Regulatory Review                      Timing of Submission
       exenatide
        type 2 diabetes                          Q2 - 2004
   Anticipated Submissions                      Timing of Submission
       ruboxistaurin
         Pending Successful Phase 3 Outcomes
         diabetic microvascular complications    Q3/Q4 2005



                                                                        56
Recent/Anticipated Patent Expirations
Sources: IMS Health, ABN AMRO estimates and FDA Orange Book, www.thinkPharm.com

   The expiration of a major patent allows generic drugs to enter
   market and usually eat away most of the branded drug's sales within
   two years.
 Expiring Patents         Treats                                    Expires by
 Humulin                  Diabetes                                  2002
 Humatrope                Growth hormone                            2003
 Prozac                   antidepression                            2003
 Gemzar                   Pancreatic cancer                         2003
 Zyprexa                  Schizophrenia                             2006 (exclus.)
                                                                    2011
 Alimita                  Malignant pleural mesothelioma            2011

 Straterra                AD                                        2016
 Cialis                   Erectile dysfunction                      2016


                                                                                     57
   Current Growth Strategies
   Source: Answers for shareholders 2003




 Investment        Rigorous
in new tools                               Strengthen
     and            portfolio                          Addressing
                                           sales and quality issues in R&D          Partnering
                  management               marketing manufacturing
 technology         process
                                                                         • Centocor for ReoPro
                                                                          • Takeda for Actos
                                                                          • ICOS for Cialis
                                                                          • Quintiles to market
                                                                          Cymbalta in the US
                                                                          • Boehringer Ingelheim
                                                                          to market Cymbalta
                                                                          outside the US

    Partnering: important LT strategy to keep market share after patent expiration


                                                                                          58
Eli Lilly & Company SWOT
Strengths:                                         Weaknesses:
•Company name & brand recognition                  •Not diversified within the healthcare industry

•Ability torecruit prestigious scientific staff    •Rely completely   on patented drugs (i.e. - 40% on
•128 years of continuous operation                 Zyprexa)
•Significant investment in R&D                     •Don’t capitalize on loss of patents (Generic

•Strong current pharmaceutical product portfolio
                                                   market)
                                                   •Lack of presence in proprietary (OTC) market
•International market share
                                                   •Small presence in European and Japanese
•Good financial health
                                                   markets
•Partnering capabilities




Opportunities:                                     Threats:
•Aging population & longer life expectancy         •Possible   changes to Medicare reimbursement
•Emerging international markets                    program
•Merger trend in industry                          •Highly competitive marketplace

•Possible changes to Medicare reimbursement        •Economic factors

program                                            •Governmental factors

•EU established FDA counterpart                    •Unexpected safety or efficacy concerns

•In-licensing & added value markets                •Legal factors

•Direct-to-Consumer Advertising




                                                                                                     59
Key Issue #1
Lack of Presence in Generic Markets
Sources: IMS Health (“Generics Set for “Take-Off”), DrugTopics

     Around 1/3 of the top 35 molecules are due to lose US and EU patent
     protection by 2004
     Branded sales drop as much as 80% by the time a 2nd or 3rd generic
     product arrives.
     Continued pressure on healthcare budget is driving an increase in generic
     prescribing (Latin America)
       Strategic thrust:
         Anticipate generic competition before patents expire and combine
          several defensive and proactive strategies to retain market share when
          generics come into play.
       Activities
         Continue to protect existing brands from patent challenges and generic
          competition through litigation.
         Switch patients to next-generation drugs to balance existing brand
          defense strategies, a market practice known as evergreening.


                                                                                   60
Key Issue #1
Lack of Presence in Generic Markets (con’t)
Sources: IMS Health (“Generics Set for “Take-Off”), DrugTopics


       Activities
        Explore entering into manufacturing and distribution agreements
         with a generic company before a patent is about to expire, a
         strategy known as flanking.
            Typically the generic company distributes the generic form of the
             drug that is produced at the branded drug company’s manufacturing
             facilities.
            Flanking derails competition. It is legal under antitrust law but can be
             considered illegitimate.




                                                                                    61
Key Issue #2
Non-US Markets
Source: Bio.ITWorld www.bio-itworld.com (Global Positioning)
        Erosion in the US market for Zyprexa led the company to announce 1000
        cutting jobs (in R&D and sales)
        Countries in Asia and Europe are offering a host of incentives, including tax
        credits for companies in search of international presence.
       Strategic thrust:
         Reduce costs by relocating some of the R&D and manufacturing efforts to countries offering
          financial incentives while gaining international company name recognition and expanding
          strategic worldwide locations.
       Activities
         Relocate & grow current R&D facilities in Singapore: strategic Asian location
             building infrastructure is sophisticated,
             taxes virtually non-existent
             venture capital funds flowing.
         Increase R&D efforts in Australia: strategic worldwide location
             175% tax deduction for premium R&D costs (over $14,300)
             Investment dollars available
             Deregulated system in which 99% of clinical trials are approved within 1 week
             Free exchange of information with the US
         Increase R&D presence in France: strategic European location
             Significant tax credit on R&D costs
             Interest free loans.


                                                                                                       62
Key Issue #2
Non-US Markets (con’t)
Source: Bio.ITWorld www.bio-itworld.com (Global Positioning)

       Investigate potential partnership with biotechnical startup
        companies in New Zealand (more than 350 in the last 3 years):
        Potential increase in distribution channels and international
        market share
       Monitor Japan’s efforts to attract biotechnical companies as the
        government is growing bioclusters, deregulating and increasing
        international standards: networking
       Develop strong business connections in China as networking in
        China is primordial for creating joint-ventures
       Continue to recruit top international scientists, specially from UK
        prestigious universities (# of UK patents filed is the highest
        among the G7 democracies): increase company name
        awareness


                                                                          63
Key Issue #3: Target Aging Population
Source: www.findarticles.com

        Chronic diseases, which affect older adults disproportionately, contribute to
        disability, diminish quality of life, and increase health- and long-term-care
        costs.
        The fastest growing age group – leading edge Baby Boomers, ages 45 –
        54, have the highest household income and spend more on consumer
        goods than any other age cohort.
       Strategic Thrust:
         Develop a product pipeline that focuses on the needs of the growing demographic
          of individuals 60 years old and up.
       Activities
         Focus R&D resources on development of drugs aimed at medical conditions
          associated with extended life span:
             Hypertension
             Diabetes
             Arthritis
             Heart Disease
             Depression




                                                                                       64
Key Issue #3: Target Aging Population
Source: IMS HEALTH Medical Dynamics




                                        65
Key Issue #3: Target Aging Population
       Activities (Cont’d)
        Develop direct-to-consumer marketing campaign aimed at target
         market of individuals 60 years old and older.
        In an effort to create franchise loyalty - as part of direct-to-
         consumer advertising, include product benefits such as larger
         print, different instructions to use, easier to open packaging, etc.
        Develop marketing campaign targeted to physicians and other
         health services providers educating them of the benefits of our
         products over competition. Also, include something about
         benefits other than efficacy such as service to their patients in
         terms of education and convenience.




                                                                            66
Key Issue #4:
Expansion into “Lifestyle improvement drugs”
Source: TheFreeDictionary.com; Findarticles.com

    Lifestyle drugs are drugs created to improve the patients quality of life by
    addressing relatively minor non-life threatening conditions.
    “Boomers” will delay their exit form the labor force – and forestall any
    decline in household income, creating a huge opportunity for service firms.
    Strategic Thrust:
         To become a dominant provider of products in the Lifestyle drug market by 2010.
       Activities
         Immediately conduct market research to better understand the needs of consumers in
          this market.
            Areas of concentration should be:
                Baldness
                Erectile Dysfunction
                Incontinence
                Obesity
                Antidepressants
                Osteoporosis
         Immediately thereafter begin research and development on products to serve
          consumers in this market.

                                                                                            67
Key Issue #4:
Expansion into “Lifestyle improvement drugs”
Source: TheFreeDictionary.com; Findarticles.com



       Activities (Cont’d)
         Develop marketing campaign designed to change the perception
          that these types of drugs are little more than “sanctioned
          recreational drug” use and are instead providing a valued service
          by improving quality of life for users.
         Continue to build on leadership position gained by the
          introduction of Evista (Osteoporosis) and Cialis (Erectile
          Dysfunction).




                                                                         68
Key Issues #5:
Lack of presence in OTC market
Source: www.bbriefings.com
OTC market is projected to grow at 6.5% annually for the years 2002-2007 reaching
 a value of US$107.5 billion. US market is expected to grow 8% during the same
  time with OTC drugs at the manufacturer level estimated at a value exceeding
                                  US$10 billion.
   Strategic Thrust: Broaden the portfolio utilizing core competencies to expand the
    business into the consumer market and gain a bigger piece of the healthcare pie
       Activities:
           Evaluate portfolio for Rx-to-OTC switches
               Darvon (analgesic)
               Axid (anti-ulcerant)
               Respiratory products – new market in human health
           Evaluate resources requirements (R&D, sales, marketing) and capital
            investment for consumer division
           Assess competitors for possible acquisitions/mergers
               Partner with pharma company already established in consumer market
           Build brand image through direct-to-consumer advertising targeted to adults
            18 +

                                                                                          69
Key Issues #6:
Protect position in diabetes market
Source: Datamonitor

   Strategic Thrust: Expand business in US and
    abroad
       Activities:
           Evaluate current product analogue for product line extensions
               Actos – oral agent for Type 2 diabetes
           Evaluate in-licensing and added value markets
               OAD market is the largest segment of the US diabetes market
               Insulin pill
           Evaluate competition and potential for acquisition/merger
           Develop marketing campaign targeted at physicians and other
            healthcare providers
           Develop direct-to-consumer marketing campaign targeted to adults



                                                                               70
Key Issues #7:
Capitalize on emerging trend toward
personalized medicine
Source: Modern Drug Discovery, June 2004

     Even if the market is slow to get started, companies that learn how to
      make such medicines could triple their share holder value by 2010.
   Strategic Thrust: Expand business into new therapeutic markets via
    targeted treatment solutions
       Activities:
           Fully understand the future impact of targeted medicine
           Evaluate current and future technology requirements
               Establish a system to diagnose and track patient progress
           Evaluate potential biotech partners and academic research institutions
           Expand pharmaceutical products by focusing research on the molecular level or by
            acquisitions
           Develop marketing campaign targeted to physicians and other healthcare providers
               Develop training materials to educate the sales force on pharmacogenomics



                                                                                               71
Implementation/Cost schedule
                              Key Issue #1: Generic Market
                                                                                            Implementation = $250 millions = 5% R&D for 2 years
                                           Defend Patent




          1/2005                                                                                           12/2007


                      Switch patients to next generation drugs                Agreement with generic drugs companies




                      Key Issue #2: International Presence
                                     Relocate R&D to Australia – Singapore - France   Implementation = $350 millions = 2004 restructuring costs



          1//2005                                                                                          12/2005


                    Networking in China




                                                                                                                                                  72
Implementation/Cost schedule
                          Key Issue #3: Aging Population
                                                                                         Implementation = $4 billion = 5 new products in pipeline
                                Continue R&D work and begin developing marketing plans




          1/2005                                                                                        12/2015


                    Begin R&D on 5 new products                             Complete FDA approval processes

                                                                                    Complete Marketing Plans and launch campaigns




                      Key Issue #4: Lifestyle Drugs
                                                       Design marketing campaigns   Implementation = $ 1.6 billion = 2 new products in pipeline
          Complete market research




          11/2004                                                                                       12/2009


                    Begin R&D on 2 new products (Baldness & Obesity)      Complete FDA approval processes

                                                                              Complete Marketing Plans and launch campaigns




                                                                                                                                                    73
Implementation/Cost schedule
                               Key Issue #5: OTC Market
                                                                                                  Implementation = $4 billion = 3 new products in pipeline
                                      Continue R&D work and begin developing marketing plans




             1/2005                                                                                              12/2015

         Evaluate and complete partnership with
         pharma co currently in OTC market                                        Complete FDA approval processes

                              Begin R&D on 3 new products                                    Complete Marketing Plans and launch campaigns




                          Key Issue #6: Diabetes Products
                                                              Design marketing campaigns     Implementation = $ 3.0 billion = 3 new products in pipeline
             Complete market research




             11/2004                                                                                             12/2016

             Evaluate in-licensing partners of OAD                              Complete FDA approval processes
                                     Begin R&D on 3 new OAD
                                                                                    Complete Marketing Plans and launch campaigns




                         Key Issue #7: Personalized Medicine
                                                                Design marketing campaigns     Implementation = $ 1.5 billion = market leader in new field
               Complete market research




               11/2004                                                                                             12/2010

               Establish bioinformatics partner/acquisition
                                                                                    Complete FDA approval processes
                                     Begin R&D on new technology
                                                                                      Complete Marketing Plans and launch campaigns




                                                                                                                                                             74
Thank You!
Questions?


             75

				
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