Eli Lilly and Company: the Global Pharmaceutical Company

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Analysis Methods

Porter's Five Force in relation to Eli Lilly

Threat of New Entrants
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.

Bargaining Power of Buyers
It tends to be high in pharmaceutical business as main sales are done using whole sales. Institutions that purchase drugs in large quantities are considering the discounts that drug producers are willing to give and therefore are able to influence price. As long as Eli Lilly have competitors with similar products it is obvious that bargaining power of buyers is high for the industry. Buyers with smaller volumes of purchases do not influence price policy, but such buyers are outnumbered by wholesale buyers. It is also important that people purchasing drugs for themselves are usually covered by healthcare insurance and therefore are not interested in pulling price down. Yet the volumes of sales to such buyers are not significant.

Bargaining Power of Suppliers
It is relatively not high. There exists possibility to switch supplier at low cost and supplier brands are not powerful. There exists a little possibility of forward integration. All of the above makes the bargaining power of supplier low. In Eli Lilly’s case it is true that the power of suppliers is reversal of the buyer’s power.

Threat of Substitute Product
The threat of substitutes is not very high. Traditional medicine using drugs as a curing remedy is a main mean for treatment used by almost all healthcare institutions. Substitutes such as sport, yoga, alternative medicine are not very popular and unlikely to become such. However for the main product Prozac, which is an antidepressant drug, alternatives are possible because treating depression using alternative medicine, psychologist’s help and other means is more probable than treating of physical disease by similar means. The threat of substitutes is low, which is a significant advantage

Rivalry Among Competitors
The rivalry is tense in this business. However the competitiveness is rather unique in pharmaceutics. High costs of research and development hold the appearance of new rivals. It is also true that rivals are usually focused on a rather small market of specific medication. The main rivals Novo Nordisk A/S, Pfizer and Smithkline are narrowly oriented companies which however give Eli Lillys hard time producing such products as Zoloft – Prozac alternative. The competitive rivalry in the business is medium. SWOT MATRIX

STRENGTHS-OPPORTUNITIES

1Eli Lilly & Company should join strategic alliance to develop and market a blood substitute product on its ethical products. 2Use cooperation joint ventures & alliance3s to lower down costs of R&D expenditures, increase research capabilities and seize economies of scale, thereby protecting future profits. 3Offer wide spectrums of products

4Make research in other therapeutic benefits from a previously marketed drug. 5Identify and develop treatments for future wide spread maladies.

STRENGTHS-THREATS

1Find innovative ways to extend patent on Prozac through marketing it in other forms.

WEAKNESS-OPPORTUNITIES

1Consider joint ventures and alliances with generic-producing...
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