Healthwise, Eli Lilly hopes everything will come up roses for you. Best known for its neuroscience products, the pharmaceutical company also makes endocrinology, oncology, and cardiovascular care medicines. Its top-selling drugs include Cymbalta for depression and pain, Alimta for lung cancer, Humalog and Humulin insulin for diabetes, and Zyprexa for schizophrenia and bipolar disorder. Lilly also makes medications to treat erectile dysfunction (Cialis), osteoporosis (Evista and Forteo), heart conditions (Effient), and ADHD (Strattera), as well as anti-infective agents and animal health products.
Lilly sells its products in some 130 countries, with the US market accounting for more than half of the company's sales. The company operates research, manufacturing, and distribution facilities in the US, Puerto Rico, and 11 other countries in Europe, Asia, Australia, and the Americas.
Lilly has been around for more than 130 years and, unlike many other drug companies, has kept its operations focused almost exclusively on the task of pharmaceutical manufacturing. Pharmaceuticals for human consumption account for more than 90% of annual revenues, while medicines for livestock and companion animals make up the rest of sales. The company has sailed steadily through a number of ups and downs without making drastic changes to its business model or its growth strategy of conducting focused R&D, forming joint ventures and collaborations, and making selective acquisitions.
The company's steady operational performance places it on firm ground even as Lilly enters a challenging time of significant patent expirations. Top selling drug Zyprexa lost patent protection (in Europe and the US) in 2011, and the company's Cymbalta and Evista offerings will lose protection in December 2013 and March 2014, respectively. Its pipeline is progressing well, with new drug approvals and launches helping to offset the impact of generic competition on sales of aging products. Lilly has launched several new products in recent years, including Amyvid for brain condition diagnosis (2012), Axiron for testosterone replacement (2011), Tradjenta for diabetes (2011), and Livalo for high cholesterol (2010).
Sales and Marketing
In the US, Lilly's products are promoted to physicians, hospitals, veterinarians, and pharmacies through direct sales representatives. Products are distributed through independent wholesalers, primarily AmerisourceBergen, Cardinal Health, and McKesson. These three distributors each account for between 10% and 15% of annual sales. Internationally, the company uses a direct sales force in most markets, though it occasionally markets products through independent distributors.
Zyprexa contributed more than $4 billion, or almost 20% of annual revenues, in 2011, but sales of the drug dropped by 63% to $1.7 billion (8% of revenues) in 2012 after the drug's patent expired in the US and Europe. This caused an overall decline in Lilly's revenues of 7% to some $22.6 billion, though lost revenues from Zyprexa were somewhat offset by growth in sales of other medicines (including Cymbalta, Forteo, Effient, and Alimta) and animal health drugs. Prior to 2012, Lilly enjoyed slow but steady growth in revenues
Decreased revenues also triggered a 6% decline in profits in 2012, with Lilly reporting some $4.1 billion in net income, though the company's successful cost-control efforts and payouts from a former partnership with Amylin helped to reduce the impact. Profits were also negatively impacted by higher R&D costs and an increased tax rate. Net income declined slightly in 2011, but increased in 2009 and 2010.
Lilly is counting on its vast experience to overcome its loss of patent protection for Zyprexa in 2011. The firm has resisted seeking out large mergers - a strategy enacted by other top pharma companies seeking to ward off the effects of patent losses - and is avidly working to develop or acquire new potential blockbusters to lessen the impact of generic competition. It is also working to increase sales of strong product offerings; for instance, in 2012 the company launched a three-year construction program to increase manufacturing capacity for insulin products at its Indianapolis location.
The company has some 60 drug candidates in clinical development stages, as well as additional preclinical candidates. Its R&D programs focus on five therapeutic categories -- neurology, endocrinology, oncology, autoimmune diseases, and cardiovascular diseases -- and include potential treatments for cancer, diabetes, rheumatoid arthritis, depression, vascular disease, and Alzheimer's disease. The company is also pursuing additional indications for existing drugs. Biotechnology has become increasingly important area of R&D, with about half of the drugs in Lilly's pipeline coming from biotech molecules (derived from proteins). Its programs are conducted both independently and through collaborations and licensing agreements.
Lilly's emerging markets business is focused on providing branded medicines, as well as select generic medicines, to patients in high-growth regions of the world. To that end, Lilly is making capital investments and forming strategic partnerships to expand its presence in these markets. For example, in 2012 Lilly extended its collaboration with Novast Laboratories to develop a platform of Lilly-branded generic drugs in China. It also established a new diabetes-focused R&D center in Shanghai that year.
Another way that Lilly strives to ward off the ill effects of patent losses and competitive threats is through restructuring initiatives; the company has enacted several ongoing cost-cutting programs in recent years. In 2012 the company recognized charges of more than $300 million on severance costs related to reductions in its cost structure and global workforce. The restructuring program includes the reduction of 1,000 sales positions in the US during 2013 (or about 30% of its US workforce). The recent moves come on the heels of a reorganization plan enacted between 2009 and 2011 that cut $1 billion in costs; the plan included a 14% workforce reduction, the streamlining of business units and manufacturing locations, and increased outsourcing of certain manufacturing and R&D functions.
Mergers and Acquisitions
Acquisitions are another key way in which Lilly boosts its development pipeline. In 2013 it acquired two development-stage diagnostic agents from Siemens Healthcare to boost its presence in the neurological diagnostics market, especially in the field of Alzheimer's.
Lilly has also been expanding its veterinarian pharmaceuticals division, primarily through acquisitions, to help offset potential future losses in the core pharmaceuticals segment. In 2011 its Elanco Animal Health unit acquired the Belgium-based animal health business of Janssen Pharmaceutica (a subsidiary of Johnson & Johnson) for an undisclosed price. The purchase gave Lilly about 50 animal health products marketed in Europe. Elanco also agreed to acquire ChemGen, a biotech firm involved in the development and sale of feed enzymes for livestock animals.
The Lilly Endowment, a charitable foundation created by the company and the Lilly family in the 1930s, owns almost 12% of the company.