Case Study: Health Care Industry (eli Lilly and Company)

CASE STUDY: HEALTH CARE INDUSTRY (ELI LILLY AND COMPANY)

Introduction:

Following on his experience of medicines used in the Civil War, Colonel Eli Lilly, a Union Officer and a pharmacist, started a small pharmaceutical company in Indianapolis, Indiana, USA with the aim of producing high quality prescription drugs. After Colonel Lilly's death, his son Josiah K. Lilly Sr., and eventually his two grandsons, Eli Lilly and Josiah K. Lilly Jr., each served as president of the company. It was his grandson who led the company into the industrialized era by stressing upon the need of biomedical research and installing modern equipments to make the research successful. His interest in research paid off and since its inception the company has grown to be one of the largest and most influential pharmaceutical companies in the world, offering key pharmaceutical products in almost every key therapeutic area. It is a leading global manufacturer and distributor of pharmaceutical therapies in cancer, cardiovascular disease, central nervous system and endocrine system disorders, and infectious disease. Among the companies many breakthroughs are cephalosporin, erythromycin, insulin and Prozac which proved to be world’s most widely prescribed antidepressant and was a major source of company’s revenue for more than ten years. In addition to Prozac some of Lilly’s famous product trademark includes Darvocet, Evista, Gemzar, Humalog, Humatrope and Zyprexa. Eli Lilly was the first distributor of methadone which is used frequently in the treatment of some of the narcotic drug addictions. In 2003 Eli Lilly introduced Cialis in partnership with biotechnology company ICOS to compete with Pfizer’s blockbuster Viagra for erectile dysfunction. Lilly in collaboration with other organizations is providing low-cost antibiotics, training for international medical personnel and technology to enable the manufacture of products for treatment in China, India, and South Africa. In 2004 company registered global revenues of $13.9 billion. Like General Electric and IBM Eli Lilly has developed a global reputation for attracting some of the brightest corporate managerial talent. Now it has more than 44,000 employees worldwide of which nineteen percent are engaged in research and development. The company’s products market has extended to 143 countries. Eventually it has risen up to fourth position among the pharmaceutical companies in terms of its sales.

However the company ran into operational troubles such as looming patent expirations, sputtering R&D output and some problems in the external policy environment as concerns about product safety brought new calls for more stringent regulation. This caused ninety percent decrease in the company’s share value during the year 2004. But the company’s promising new products including Zyprexa are expected to help the company to stabilize its position.

IS in Eli Lilly

PBM:

The emergence of professionally managed prescription drug benefit programs ("PBMs") was an important force in the managed care revolution. 125 million Americans are currently participating in PBMs and that number is expected to increase to 200 million by the end of the decade. PBMs typically select participating pharmacists, drug manufacturers and suppliers, administer point of sale claims processing systems, negotiate quantity discounts with pharmaceutical manufacturers and pharmacists, administer plan record keeping and payment systems, and maintain quality control. They also attempt to control costs by negotiating discounts from manufacturers, usually in the form of rebates, in return for placing the manufacturer’s drug on the PBM’s formulary. The Eli Lilly’s acquisition of America’s largest PBM i.e. PCS has been controversial because a manufacturer’s acquisition of PBMs may threaten the PBMs independence and, as a result, its ability to create purchasing efficiencies and secure lower prices for plan sponsors and their subscribers. The manufacturers can use their PBMs to foreclose competitors’ products from the market or the manufacturer owned PBMs can facilitate collusion in pharmaceutical manufacturing and PBM markets.

After an extensive investigation, the Federal Trade Commission (FTC) concluded that acquisition presented some competitive risk and issued a complaint against Eli Lilly; charging that the PCS acquisition would harm competition in the national full-service PBM market. The complaint alleged that the acquisition

• might foreclose non-Lilly products from the PCS formulary and that PCS would be eliminated as an independent negotiator of pharmaceutical prices.

• the acquisition could facilitate collusion through reciprocal dealing, coordinated interaction, and interdependent