Eli Lilly and Company

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.

Operations

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 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), Tradjenta for diabetes (2011), and Livalo for high cholesterol (2010).

Geographic Reach

Lilly sells its products in some 125 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 conducts R&D in eight countries, clinical trials in 55, and has manufacturing facilities in about a dozen.

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 19% of annual sales. Internationally, the company uses a direct sales force in most markets, though it occasionally markets products through independent distributors.

Financial Performance

After years of steady revenue growth, patent expirations and a lack of new blockbusters have begun to take their toll. After a 7% revenue decline in 2012, Lilly reported just a 2% increase in 2013, from $22.6 billion to $23 billion, due mainly to higher prices for Alimta, Humalog, Cialis, Humulin and Forteo. The pricing gains were partially offset by declining sales for Cymbalta and Zyprexa.

The company has used the patent losses to cut administrative, marketing, and sales staff in order to reduce costs. The result brought net income back up from its 2012 decline to a 15% gain for 2013, from $4.1 billion to $4.7 billion. Cash from operations also posted a gain in 2013, up to $5.7 billion from $5.3 billion, as the company changed its deferred income tax and didn't have impairment charges.

Strategy

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 $5.5 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. 

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. 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 included the reduction of 1,000 sales positions in the US during 2013 (or about 30% of its US workforce). The 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 2014 its Elanco Animal Health unit acquired Germany's Lohmann Animal Health, a producer of poultry vaccines and feed additives. Lohmann also brings 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 announced it would pick 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 creates the second largest animal health company in the world.

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Eli Lilly and Company


Lilly Corporate Center
Indianapolis, IN 46285-0001
Phone: 1 (317) 276-2000
Fax: 1 (317) 2760120
www.lilly.com

STATS


  • Employer Type: Public
  • Stock Symbol: LLY,
  • Stock Exchange: , NYSE
  • Chairman, President, and CEO: John Lechleiter
  • EVP Science and Technology; President, Lilly Research Laboratories: Jan Lundberg
  • EVP Global Services and CFO: Derica Rice

Major Office Locations

  • Indianapolis, IN

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