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Eli Lilly SWOT & PESTLE Analysis

ID : 52384153 | Apr 2018

COMPANY PROFILE - Eli Lilly

Business Sector : Pharmaceuticals

Operating Geography : United States, Global

About Eli Lilly : Eli Lilly is a global pharmaceutical company with focus on neuroscience, endocrinology, oncology, and immunology. Headquartered in Indianapolis, Indiana it operates in 125 countries as of 2018. The company's foundation date backs to 1876 when Colonel Eli Lilly committed himself to the creation of high quality medicines. Ever since then, the company has worked towards its mission of making medicines that help people live longer, healthier and more active lives. The company is also credited with the achievement of being the first one to mass produce penicillin, the polio vaccine. It conducts clinical research in more than 55 countries and has a dedicated and quality workforce of not less than 42000 employees.

Its mission statement states 'We make medicines that help people live longer, healthier, more active lives.' with a vision of 'We will make a significant contribution to humanity by improving global health in the 21st century.'

Its USP is 'Lilly makes medicines that help people live longer, healthier, more active lives.'

Eli Lilly Revenue : $22,871.3 million (FY ending Dec 2017) (y-o-y growth of 7.8%)

$21,222 million (FY ending Dec 2017)

Competitive Analysis of Eli Lilly

The SWOT analysis for Eli Lilly is presented below:
Strengths
Weaknesses
1. Vast Geographic Spread
2. Significantly huge market share
3. Sound financial indicators
4. Strong focus on innovation, alliances and R&D
1. Failed and problematic drugs
2. Price hike regulation and patent expiry to impact financials
Opportunities
Threats
1. Upward trend in US prescriptions of SGLT-2 and GLP-1 class of Diabetes drug
2. Acquisition of new drugs from smaller companies
3. Emerging Markets
1. Negative aspects of patent matters
2. Generic Pharmaceuticals
3. Potential Competition in diabetes segment

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Detailed SWOT Analysis of Eli Lilly

 

Strength

1. Vast Geographic spread: Eli Lilly, a global company with its heart in USA, has its footprints across UK, Germany, France, Spain, Italy, Brazil, South Asia, Middle East and North Asia- Pacific. Lilly international is responsible for operations across the aforementioned hubs. It delivers innovative medicines to more than 80% people around the world. This sort of geographic presence provides Eli Lilly the much needed footprints in the most significant target markets across the globe. The company plans to launch more than 50 potential products by 2020; constituting medicines in therapeutic areas such as oncology, diabetes and autoimmune disease- that shall help them foster a steady share of market growth globally.

2. Significantly huge market share: Eli Lilly enjoyed an increase of 6.95% in its total revenues for Q4-2017. Whereas, its competitors managed to grow at a rate of 6.52% in the same quarter. It commands a stronger hold over its competitors for both human pharmaceutical and animal health products owing to their effectiveness, safety and ease of use, price and demonstrated cost effectiveness, marketing effectiveness, and extent and quality of research and development for new products and processes. Eli Lilly's Animal Health segment saw an approximate improvement of 32.46% in its market share germinating out of a strong revenue growth of 33.2% in the same segment. Market share of Cardio-vascular segment boosted to 9.35%, while similar growth in other segments such as Endocrinology and Neurosciences were also seen. For the full year 2017, worldwide revenue increased 8 percent compared with 2016. Similarly for 2018, the company has in pipeline uptake of several newer products like Taltz, Lartruvo, Jardiance, etc. Through this product expansion, the company forecasts to maintain its current share in the market.

3. Sound Financial Indicators: An analysis of the Eli Lilly stock indicates the sound financial position of the company. Its share price is below the future cash flow value and at a moderate discount (>20%). Its earnings growth rate is expected to exceed the low risk savings rate of 4.5%, while outperforming the US average, as well. It is expected to efficiently use the shareholders’ funds with a Return on Equity greater than 20%. It has its debt well covered with an operating cash flow of 40.9%, greater than 20% of total debt. EBIT provides coverage of 85.5x times for the interest payments. It has been giving out stable dividends in the past 10 years. Dividends, 3 years from now are expected to be covered by the net profit as much as by 2.4x times.

4. Strong focus on innovation, alliances and R&D: Innovation, acquisitions and R&D happen to be strategic to the growth of Eli Lilly. Its Open Innovation Drug Discovery Program (OIDD) is a perfect strategy solution of how strict regulations, IP concerns and profit pressures can be dealt to adopt best practices for life science companies pursuing collaborative innovation. Open Innovation Centre, Lilly's latest and not-so-easy program is deemed to reap benefits for the company. This gives Lilly the necessary and instrumental access to new and new and different molecules, coupled with a network of partners predominantly made up of research universities and small biotechs. As rigorous as their IP protection has been, Lilly has successfully and very carefully developed a process such that their research does not get contaminated. This way Lilly as well as the external investigators, will both be protected. Moreover, five out of the last nine launches of Lilly stemmed from partnerships, which were nothing less than big pharmaceutical companies.

Weakness

1. Failed and problematic drugs: Eli Lilly has faced and is facing a number of lawsuits for certain dangerous drugs that it has manufactured. To state, Axiron is one such testosterone replacement therapy drug which is facing accusations of augmenting risk of heart attack and stroke and even death. Actos has been found to expose patients to risk of developing bladder cancer and congestive heart failure, Byetta is has potential side effects of pancreatic cancer and pancreatitis. Eli Lilly has also been in soup over its drug called diethylstilbestrol, against which cases of developing breast cancer have been filed. These and a few other problematic drugs have posed huge costs for the company.

2. Price hike regulation and patent expiry to impact financials: Eli Lilly's growth slowed down for the past few years, on account of failed clinical trials and lack of product development. Therefore, the company had to resort to price hikes on existing products before patent expirations made that impossible. It is one of the seven pharmaceutical companies that relied on price hikes for its revenue growth in 2016-17. Investors in the company are a little concerned about expiration of patent protection on Humalog which happened to be one of the biggest contributors to Lilly's revenue. Also, European drug regulators consideration of a similar drug manufactured by Sanofi over Humalog could be hurtful for the latter's sales, the price of which cannot be even hiked now.

Opportunity

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Threat

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The PESTLE/PESTEL analysis for Eli Lilly is presented below:
Political
Economical
1. Impact of US policy measures
2. Repeal and Replacement of Affordable Care Act
3. Accusations of Lobbying against transparency
1. Foreign currency exposure
2. Supply chain consolidation
3. International price and market regulations
Social
Technological
1. Impact of Diversity in workplace
2. Supplier Diversity
3. Diversity in Clinical trials
1. Building a network of GMP OSD (Oral solid Dosage) facilities
2. Investment in Biomedical innovation
3. Leveraging technology to enhance patient experience
Legal
Environmental
1. Lawsuits and government investigations1. Environmental sustainability
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Detailed PESTLE Analysis of Eli Lilly

 

Political

1. Impact of US policy measures: US policy measures are likely to affect the pharmaceutical sector. Increasing public concerns over access and affordability of pharmaceuticals among the people of US, has triggered regulatory and legislative debate. These political issues aggravate the risk of imposition of taxes, rebates, fees or other federal and state measures. Health policy proposals such as those affecting bio pharmaceuticals will have an impact on the cost of drugs. 2017 saw enactment of several state legislations concerned with drug pricing transparency. Savings under these proposals will be spent either in meeting health care/non health care expenditures or managing federal and state budgets.

2. Repeal and Replacement of Affordable Care Act: It remains a priority of the Trump administration to repeal and replace the Affordable Care Act. Currently, the major coverage expansions of ACA are in effect through state based exchanges and expansion of Medicaid. Many employers in the commercial market, in order to reduce their healthcare liabilities; are continuously evaluating strategies such as private exchanges and wider usage of consumer driven health plans. Once repealed and replaced, the final legislation could have an adverse impact on the business. Also, the pharmaceutical industry has been faced with the demand for products with proven real world outcomes data and favourable economic growth. This has primarily happened due to shift to performance based reimbursements and launch of various value based purchasing initiatives.

3. Accusations of lobbying against transparency: During the tenure of Alexa Azar, ranging from June 2007 to January 2017, across various roles and divisions, Eli Lilly became subject to several legal proceedings as well as law enforcement investigations related to the company's pricing of insulin products. Moreover, Lilly is also facing legal battles on account of accusations such as bribery to foreign officials, conduct of illegal off-label marketing and lobbying on both state and central level to suppress price transparency. If figures are to be trusted, Eli Lilly spent, on average, $8 million per year, between 2012 and 2016, on lobbying the federal government. The Securities and Exchange Commission (SEC) on December 2, 2012 had filed in a US District Court over violation of Foreign Corrupt Practices Act (FCPA). Eli Lilly hence, had to pay $29.4 million to settle the charge. The implications of such acts can be seen in the way of contingent liabilities

Economic

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Social

1. Impact of Diversity in Workplace: At Eli Lilly, diversity in workplace is considered as an asset in the sense that it helps the business leverage benefits of diverse ideas and views; along with being a representation of the marketplace that the business serves. The business provides meaningful opportunities to assist enrich and grow women's lives. Back in 1995, the company had announced a child care strategy and opened the childcare centre to facilitate female employees in striking a balance between professional and personal commitments. In 2013, Lilly was selected as a 2020 Women on Boards Winning Company for commitment to diversity on the board of directors. To add to its list of honours, it is also credited with as one of the 50 Leading Companies for Women by APEC. They also have a dedicated and independent website run by the name 'Women @ Lilly' through which the initiate and promote dialogue on a multitude of topics concerning women, from cancer to racial discrimination.

2. Supplier Diversity: Eli Lilly like other companies practices supplier diversity but in a differ sense. Lilly derives it competitive advantage by sourcing from ethnically diverse, women-owned and small businesses to meet their internal business requirements. They are tapping this unexploited source of talent. This is also critical in the sense that it helps in minimising dependence on a handful of suppliers and helps in mitigation of supply related risks. Moreover, sourcing from small and independent suppliers also opens a Pandora of legal and tax benefits for Lilly in the form of easier regulations, exemptions and rebates. Hence, this justifies their recognition as 'outstanding' by the US Small Business Administration, ever since 2005; for their dedicated efforts in the direction of supplier diversity. To testify this, Lilly had spent more than $599.6 million with 600+ suppliers categorised as diverse, women - and/or LGBT - owned businesses, coupled with more than $558.4 million with 1500+ suppliers categorised as small businesses.

3. Diversity in Clinical Trials: This is the third type of diversity that Lily practices. Clinical trials hold a lot of significance in the pharmaceutical industry and it impacts various strategic decisions of any organisation operating in this sector. Similarly, in order to ensure great effectiveness of its medicines/drugs, Lily tests them across a diverse population. Hence, Lilly is able to deliver medicines customised to suit people from varying genetic backgrounds, ethnicity, sex and lifestyle. As a part of this strategy, they have added more than 400 new clinical trial sites with minority patient populations of more than 25 percent. Spread across US are 95 sites in west, 48 in mid-west, 50 in southwest, 141 in southeast, 68 in northeast, 7 in Alaska and Hawaii and 29 sites in Puerto Rico. Such clinical trials boost the success rate of a potential drug.

Technological

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Legal

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Environmental

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Check out analysis of other relevant companies

References used in Eli Lilly Analysis Report

1. http://files.shareholder.com/downloads/LLY/5998474644x0xS59478%2D17%2D204/59478/filing.pdf

2. https://www.lilly.com/who-we-are/key-issues/intellectual-property

3. https://www.lilly.com/products/making-safe-high-quality-medicine

4. https://academic.oup.com/jiplp/article-abstract/12/10/815/4111248

5. https://simplywall.st/stocks/us/pharmaceuticals-biotech/nyse-lly/eli-lilly#038;#health?unique_symbol=NYSE:LLY&l=1&t=cnfg_cresbeznapr&s=3&id=255288&utm_source=post&utm_medium=finance_user&lt=Conc_ticker&utm_campaign=Conc_ticker

6. https://www.lilly.co.uk/en/responsibility/environmental-sustainability.aspx

7. https://www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/whats-next-for-pharma-in-emerging-markets

8. https://www.statnews.com/2017/08/16/eli-lilly-canada-patents-zyprexa-strattera/

9. http://files.shareholder.com/downloads/LLY/5998474644x0xS59478%2D17%2D129/59478/filing.pdf

Copyrights and Disclaimer

Eli Lilly SWOT and PESTLE analysis has been conducted by Avneet Kaur Sahni and reviewed by senior analysts from Barakaat Consulting.

Copyright of Eli Lilly SWOT and PESTLE Analysis is the property of Barakaat Consulting. Please refer to the Terms and Conditions and Disclaimer for usage guidelines.