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 Cialis for erectile dysfunction. Lilly also makes medications to treat schizophrenia and bipolar disorder (Zyprexa), osteoporosis (Evista and Forteo), heart conditions (Effient), and ADHA (Strattera), as well as anti-infective agents and a growing line of animal health products.
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. The company operates in two business segments: human pharmaceutical products and animal health. Pharmaceuticals for human consumption account for about 90% of annual revenues, while medicines for livestock and companion animals (including Rumensin, Posilac, Tylan, and Optaflexx, produced through its Elanco animal health unit) 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. For example, the company co-promotes Cymbalta in Japan with Shionogi & Co.; Erbitux is marketed in the US and Canada by Bristol-Myers Squibb and elsewhere by Merck.
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 lost US protection in December 2013 and March 2014, respectively. Its pipeline had been progressing well, with new drug approvals and launches helping to offset the impact of generic competition on sales of aging products, but it didn't launch anything new in 2013. Lilly had previously launched at least one new product a year, including Amyvid for brain condition diagnosis (2012), Axiron for testosterone replacement (2011), and Tradjenta for diabetes (2011).
Lilly sells its products in some 125 countries, with the US market accounting for about 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 conducts R&D in eight countries, clinical trials in 55, and has manufacturing facilities in more than a dozen. It owns 12 production and distribution sites in the US and Puerto Rico.
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 8% and 19% of annual sales. Internationally, the company uses a direct sales force in most markets, though it occasionally markets products through independent distributors.
After years of steady revenue growth, patent expirations and a lack of new blockbusters have taken their toll. Lilly has seen fluctuation revenue in the last five years, with peaks in fiscal 2011 and 2013 and dips in 2012 and 2014. In 2014, revenue decreased 15% to $19.6 billion, versus $23.1 billion in 2013, as a result of declining sales volume, lower prices, and the unfavorable impact of foreign exchange rates. The recent losses of US patent exclusivity for Cymbalta and Evista led to lower sales of those products; Zyprexa sales also faltered for the same reason.
Net income fell 49% to $2.4 billion in 2014, down from $4.7 billion in 2013, as a result of lower revenue and special charges such as asset impairment and restructuring efforts. The reduction in net income contributed to a decrease in cash flow from operations, which fell 24% to $4.3 billion in 2014.
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 (it spends about $5 billion per year on research), forming joint ventures and collaborations, and making selective acquisitions. It 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.
In 2014, Lilly launched three new medicines: Cyramza (for advanced gastric and metastatic lung cancer), Jardiance, and Trulicity (both for type 2 diabetes). That year the US FDA approved Cyramza to be used with paclitaxel, a type of chemotherapy.
Also in 2014, the company entered into a global agreement with AstraZeneca to co-develop and co-commercialize AstraZeneca's AZD3293, which is being investigated for the potential treatment of Alzheimer's disease. In a similar agreement, it will develop and commercialize Adocia's BioChaperone Lispro, an ultra-rapid insulin compound designed to treat patients with type 1 and type 2 diabetes.
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 2013 it spent $350 million expanding insulin production in China and another $100 million on its animal health business in the country.
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. Its restructuring program included the reduction of 1,000 sales positions in the US during 2013 (or about 30% of its US workforce).
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. In 2014 Lilly acquired the development rights for a calcitonin gene-related peptide antibody that is being studied as a possible treatment for frequent migraine headaches.
Lilly has also been expanding its veterinarian pharmaceuticals division, primarily through acquisitions, to help offset potential future losses in the core pharmaceuticals segment. In 2014 its Elanco Animal Health unit acquired Germany's Lohmann Animal Health, a producer of poultry vaccines and feed additives. Lohmann also brought on board vaccine production facilities in the US and Germany as well as nearly 20 subsidiaries in Europe, Asia, and North America. Shortly thereafter, Lilly picked up Novartis Animal Health and its nine manufacturing plants, six R&D facilities, 600 products, and global distribution infrastructure for $5.4 billion. The move created the second-largest animal health company in the world.