I. Introduction
The aim of this essay is to present a business model analysis of the 10th largest pharmaceutical company in the world with $61.54 billion market capitalisation – Eli Lilly and Company (Lilly). The structure of this essay begins with introduction and limitation of analysis, followed by brief explanation about business model concept, then the analysis of Eli Lilly and Company’s current business model. After that, this essay will describe challenges that Lilly has faced in recent years and what Lilly might face in the future. This essay will also explore partnership arrangement among big pharmaceutical companies.
Colonel Eli Lilly, a pharmacist and veteran of American Civil War, established Eli Lilly and Company in 1867. The headquarters of Eli Lilly and Company is located in Indianapolis, U.S. In more than 135 years running its business, Lilly has several important roles in the development of pharmaceutical industry. In 1923, Lilly introduced Iletin, the world’s first commercially available insulin product, and was among the first companies to develop a method to mass-produce penicillin, the world's first antibiotic.
II. Business Model Concept
In order to analyse the business model of Eli Lilly and Company, it is necessary to examine relevant perspectives and definitions of business model concept. Business model indeed takes time to develop, as business model have to be reviewed and evolved. Shafer, Smith et al (2005) define business model as internal activities, including how firm represents its core logic and strategic choices to create and capture value. On the other hand, Zott and Amit (2008) refer business model not only as a structural template, but also concern about external constituents and product market...
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Anytime Fitness and Jetts Fitness are two leading 24-hour gyms with recent remarkable performance in Australia (Heathcote 2013). But it is apparent that their business models are different in many aspects through a critical analysis. This essay states that compared with Jetts, Anytime Fitness has a superior business model by analyzing with SWOT framework and Porter’s Generic Strategies model.
In 2000, Rich Kender, Vice President of Financial Evaluation and Analysis at Merck & Company was discussing the opportunity of investing in licensing, manufacturing and marketing of Davanrik, a drug originally developed to treat depression by LAB Pharmaceuticals. LAB proposed to sell the right of all the future profit made from the successful launch of Davanrik at the cost of an initial fee, royalty payments and additional payments as the drug completed each stage of the approval process. Merck & Company's organizational goal is to constantly refresh it's company's drug development portfolio and reach as many customers as possible during the patented time. So there was not only the potential of financial gain or quantitative aspect of the offer, but also the qualitative value which will be added by getting better positioning in the risky pharmaceuticals industry.
Threat of new entrants is relatively high. Companies forming alliances are potential rivals. Even if earlier such company was not considered to be a threat, after merging with some research and development company or forming alliance with another pharmaceutical company it would become a rival to Eli Lilly. The threat is however weakened by significant research and development costs necessary to successfully enter the business. Eli Lilly’s focus on a relatively narrow market of sedatives and antidepressants weakens the threat of new entrants, but other products that form lesser part of company’s sales such as insulin and others are exposed to high threat of new entrants. The need of obtaining certificates and licenses also weakens the threat of new entrants. Discussed above leads to the conclusion that threat of new entrants is medium.
The first social problem surrounding the health care system in the United States is the growing problem with pharmaceutical companies. The industry averages a 17% profit margin and it has been booming for decades, but the industry is being heavily led by a core group of companies (Dr. Pratt). “In 1992 the top 10 companies accounted for roughly one-third of global pharmaceutical revenue, after a period of consolidation, by 2001 the top 10 accounted for nearly half.”( Leon-Guerrero, Zentgraf, 172). These companies hold a large majority of the market share and make most of their money off patented drugs. This growing core of companies that are dominating the market are causing more problems rather than solving them. These companies are all about making as much money as they can and it shows through the salaries of the executives of these companies (Dr. Pratt). The pharmaceutical industry should have their number one priority be to the users of their products rather than profit gains.
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