ELI LILLY The Competitive Advantages in Pharmaceutical Industry ● Chee Liung Wun ● Lim Shieh Chern ● Ng Yee Jie ● Terrenz Leong ● Winny Low 1
Aug 10, 2015
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ELI LILLYThe Competitive Advantages in
Pharmaceutical Industry
● Chee Liung Wun ● Lim Shieh Chern
● Ng Yee Jie● Terrenz Leong
● Winny Low
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Preface
Competitive Analysis of Eli Lilly to determine its market position in pharmaceutical industry by identifying issues & challenges using SWOT analysis & Porter’s Five Forces in determinant of industry attractiveness for Eli Lilly
The future directions & strategies will be of assistance for Eli Lilly to meet the urgent & crucial challenges.
Content
1. Introduction
• 1.1 Team Members• 1.2 The Company – Eli Lilly & Co.
2. Porter’s Five Forces (Current Situation)
• 3.1 Mergers & Acquisitions (M&A)• 3.2 Outsourcing• 3.3 Cost Control• 3.4 Expiring Patents• 3.5 Aging Populations
• 3.6 Food & Drugs Authority (FDA) Regulations• 3.7 Emerging Disease
3. The Key Trends in Pharmaceutical Industry
4. S.W.O.T. Analysis
5. Eli Lilly Driving Forces
• 5.1 Merger and Acquisition (M&A) Emergence of New Biotech Companies
• 5.2 Aging Population and New Emerging Market
• 5.3 Expiration of Patents and Emergence of Generics6. Porter’s Five Forces (New
Situation)• 6.1 Rivalry Among Competing Firms in
Industry• 6.2 Bargaining Power of Buyers• 6.3 Threat of Substitute Products• 6.4 Threat of New Entrants• 6.5 Bargaining Power of Suppliers
7. The Future Direction & Strategies of Eli Lilly• 7.1 Mergers & Acquisitions (M&A)• 7.2 Outsourcing• 7.3 On-going R&D for New Drugs –
Emergence Market for Aging Population and New Geographic Market Penetration
• 7.4 Regulatory & Government Affair Capabilities & Patents
8. Conclusion3
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Introduction
Team Members The Company – Eli Lilly & Co.
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Team Members
Chee Liung Wun
2821927
Lim Shieh Chern2821959
Ng Yee Jie2821942
Terrenz Leong2821913
Winny Low2821920
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The Company - Eli Lilly & Co.
Ab
ou
t U
s Global, research-based pharmaceutical company and one of the world's largest corporations.
Ori
gin Founded in
1876 by a retired colonel & Pharmacist, Eli Lilly. Global headquarter in Indianapolis, United States
Mis
sion To makes
medicines that help people live longer, healthier, more active lives
Eli Lilly & Co.
• Today, marketed in 143 countries, 10th largest pharmaceutical company in world. Steadfastly remained independent, but not isolated. Global headquarters in Indianapolis, United States
• Global employees’ number approximately 40,000, and its medicines are marketed in 143 countries.
• Major research and development facilities in 8 countries and conducts clinical trials in more than 50 countries. 7
Senior Management
Chairman & CEOSidney Taurel
President & COOJohn C. Lechleiter
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Porter’s Five Forces (Current Situation)
Porter’s Five Forces: Determinant of Industry Profitability (Current)
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Porter’s Five Forces (Current Situation)
Threat of Substitute Products
LOW(Low Value, Risk)
Threat of Substitute Products
LOW(Low Value, Risk)
Threat of New Entrants
LOW(Patent, regulatory
process & Dist System)
Threat of New Entrants
LOW(Patent, regulatory
process & Dist System)
Rivalry Among Competing Firms in Industry
LOW(Different niches & Patent
Protection)
Rivalry Among Competing Firms in Industry
LOW(Different niches & Patent
Protection)
Bargaining Power of BuyersLOW
(Insurance companies, doctors‘& patients’
buying habit)
Bargaining Power of BuyersLOW
(Insurance companies, doctors‘& patients’
buying habit)
Bargaining Power of Suppliers
LOW(Multiple sources)
Bargaining Power of Suppliers
LOW(Multiple sources)
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Our Main Focus
To evaluate the key trends in pharmaceutical industry.
To identify how these trends apply to Eli Lilly currently.
To discover the influences of competitive dynamics within the industry for the next 10 years.
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The Key Trends in Pharmaceutical Industry
Mergers & Acquisitions
(M&A)Outsourcing Cost Control Expiring
PatentsAging
Populations
Food & Drugs Authority
(FDA) Regulations
Emerging Disease
Mergers & Acquisitions (M&A)
To improve sales & increase competiveness in the healthcare industry
To better positioning themselves to remain competitive
To create mutual benefit through sharing resources & complement each other on their
product pipelines
To increase their shopping lists & product pipelines with a handful of highly prospective
blockbuster drugs
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Mergers & Acquisitions (M&A)
No Name of Company Merger/Acquisition Year
1 Bayer and Schering AG Acquisition 2006
2 Merck KG aA and Serono Acquisition 2006/2007
3 Nycomed and Altana Pharma Acquisition 2006/2007
4 UCB and Schwarz Pharma Acquisition 2007
5 Mitsubishi and Tanabe Merger 2007
6 Schering-Plough and Organon Acquisition 2007/2008
7 AstraZeneca and Medlmmune Acquisition 2007
8 Mylan and Merck Serono Acquisition 2007
9 Eisai and MGI Pharma Acquisition 2007/2008
10 Takeda and Millennium Acquisition 2008
11 Eli Lilly and ImClone Acquisition 2008
12 Daiichi-Sankyo and Ranbaxy Acquisition 2008
13 Pfizer and Wyeth Acquisition 2008
14 Merck and Schering-Plough(currently on negotiation)
Merger 2009
List of M&A undertaken
between 2006 - 2009
Source : Report: Mergers and Acquisitions in the Pharmaceuticals Sector, 2009
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Outsourcing
• Dramatic & durable changes to the operating environment.
• The eroding pricing power, patent expiring & tighter regulatory standards.
Reasons
• Companies to outsource their non-core business, such as preclinical activities to third party
Resulted • The core business, cost control & speedy delivery
To Focus
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Cost Control
• New generic are competing for expiring patents.
• The global financial crisis
Reasons
• Many companies has undertaken cost cutting exercise as one of the measure
Resulted • To lowing fixed cost & eliminating redundancy
To Focus
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Cost Control
Top Five Layoff in Pharmaceutical Industry
(2007)
Total Layoff
Top Five Layoff in Pharmaceutical Industry
(2008)
Total Layoff
Pfizer 10,000 Merck 8,400
AstraZeneca 7,600 Schering-Plough 5,000
Bayer 6,100 Wyeth 5,000
Johnson & Johnson 5,000 UCB Pharma 2,000
GlaxoSmithKine 5,000 AstraZeneca 1,400
Data show the total no. of layoff in 2007 & 2008 in the pharmaceutical industry
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Expiring Patents
“Many branded-name drugs lose patent protection will leading to a WAVE of generic medications
entering the market” (Quoted from Article “Flooded Generic Pipeline Looms as Branded Patents
Expire”)
About 183 of branded drugs will go off patent starting 2009 until 2013
$60 billion worth of drugs are going off by 2011
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Brand Name Drug Patent Expirations
51%
17%
22% 3%7%
Brand Name Drug Patent Expirations
2006 2007 2008 Ex-2009 2009
Source: Expiring Patents Ignite Biotech Boom & Flooded Generic Pipeline Looms as Branded Patents Expire
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Aging PopulationsFact•An increasing aging population is
another trend that affects the pharmaceutical industry
Current•6 countries account for 54% of the
total number aged 80 years or over•China (12mil), U.S.A. (9mil), India
(6mil), Japan (5mil), Germany (3mil) & Russian Federation (3mil)
Future•In 2050, 6 countries will have more
than 10 million people aged 80 years or over
Aging Populations
The average expenditure for prescription drugs for people age 65 & above
increased 130%, rising from $819 in 1997 to $1,914 in 2004.Source: Drug Spending Increases More Than 2.5 Times in 8 Years 21
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Food & Drugs Authority (FDA) Regulations
• Glaxo Smith Kline (GSK) Fail to inform physicians that studies had shown that its highly profitable drug Paxil, despite ineffective in adolescents, it also contribute to some cases of suicide
Becoming stricter in approving new drugs
after a series of lawsuits & scandals involving prestigious pharmaceutical firms
• ImClone Erbitux drug failed to get approval from FDA in late 2001, causing the company’s stock price to plummet severely
It is very common to see the stock of these companies
skyrocket (or plummet) as test data is released
Emerging Disease
Emerging diseases like SARS, Bird Flu, Aids & the recent type A Influenza
H1N1
Roche who own the proprietary drug,
Tamiflu that can treat bird flu & type A
influenza H1N1 took full advantage of the
situation
Threaten human kind in the form of a global pandemic
Share price of Roche skyrocketed & attracted popular & media attention to the industry23
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S.W.O.T. Analysis
S.W.O.T. Analysis
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Strengths
Research-based pharmaceutical company & is one of the largest
corporation
Existing patent protection for a number of years on key products
Marketing strength in major geographical & therapeutic areas
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2
3
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Weaknesses
Patent expiring for few patent blockbuster drugs such as
Zyprexa, Cymbalta & Evista in year 2010 & 2014
Discontinuation of products in the latter stages of development
1
2
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Opportunities
Emergence of global markets (China, Vietnam, etc) & aging
population
Decreasing development time through favorable R&D
collaborations & internal efforts
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2
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Threats
Expiring of patent protection for a number of years on key products
Increase in growing of generic market
Government policy to support generic products
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2
3
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Eli Lilly Driving Forces
Merger and Acquisition (M&A) Emergence of New Biotech Companies
Aging Population and New Emerging
Market
Expiration of Patents and Emergence of
Generics
M&A Emergence of New Biotech Companies
Current trend of M&A has changed the pharmaceutical
landscape dramatically
With emergence of many Behemoth pharmaceutical firms like Pfizer & Merck
which has become stronger in term of product
development, market penetration, etc
Many new biotech companies that have developed some
highly potential innovated & niche products. This has
hastened the need to speed up the development of products in the pipeline
The stricter regulation of FDA that tend to slow down the
development of drugs in the pipeline also has resulted the Company to embark on the similar exercise in order to remain competitive in the
market30
Aging Population and New Emerging Market
The large pool of “growing” market that focus on diagnosis & treatment of illness for old age people, ie, diabetics, Alzheimer or cardiovascular drugs.
Zydus Cadila, an India based drug maker on the R&D conducted the joint research program, which could continue for up to 6 years for developing drugs for cardiovascular diseases
As part of the agreement, Lilly will have the option to license the result at different stage
If Lilly is able to successfully develop the product, it will help the Company to increase their product pipeline & through patent the drug, the Company will able to secure the sale volume at least for another 15-20 years
Source: www.ibtimes.co.in/articles/20090401/cadila-healthcare-inks-research-development
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Expiration of Patents and Emergence of Generics
• The oncoming patent expirations & generic pressure
• Sales of the 3 blockbuster drugs were raked in 2006 for a combined $6.8bil, nearly half of the Company’s total revenue
• The fierce emergence of generics which increase pricing pressures and spiraling drug development costs
New Challenges
• Between 2011 & 2014, Lilly will lose patents on 3 big name drugs: Zyprexa, Cymbalta and Evista
Patents Lost
Source: Eli Lilly signals vigour for outsourcing32
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Porter’s Five Forces (New Situation)
Rivalry Among
Competing Firms in Industry
Bargaining Power of
Buyers
Threat of Substitute Products
Threat of New
Entrants
Bargaining Power of Suppliers
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Porter’s Five Forces (New Situation)
Threat of Substitute Products
MODERATE(OTC alternative)
Threat of Substitute Products
MODERATE(OTC alternative)
Threat of New Entrants
MODERATE(Increased Biotech
Firms)
Threat of New Entrants
MODERATE(Increased Biotech
Firms)
Rivalry Among Competing Firms in Industry
MODERATE(Generics more common,
price pressure)
Rivalry Among Competing Firms in Industry
MODERATE(Generics more common,
price pressure)
Bargaining Power of Buyers
MODERATE(Buyer Consolidate, Large
governmnet players & hospitals price sensitive)
Bargaining Power of Buyers
MODERATE(Buyer Consolidate, Large
governmnet players & hospitals price sensitive)
Bargaining Power of Suppliers
MODERATE(Multiple sources)
Bargaining Power of Suppliers
MODERATE(Multiple sources)
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Rivalry Among Competing Firms in Industry
•To explore a broader differentiation strategy & attract wide range of customer
•Increase premium price, increase unit sales & gain buyer brand loyalty
Explore
•Increase R&D activities
•Incorporate features that raise product performance
•To avoid replacing old products
R&D
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Rivalry Among Competing Firms in Industry
● Competes against the Pfizer’s Viagra in the erectile dysfunction market.● CIALIS’ has 36 hours potency as compared to Viagra’s 4 hours.● Lesser side effects & lasts longer in the body to increase spontaneity.● The longer duration of effect is ideal for partners who seek for freedom & flexibility to choose the right moment for sexual activity.
CIALIS
Source: The Edge, 2005
Bargaining Power of Buyers
Doctors’ bill are increasing & outpacing the general inflation rate each year worldwide.
The global medical inflation average 10% each year.
Generic drugs can help patient save between 60% to 90% on their medical bills according to a recent study by the school of Pharmaceutical Sciences at USM, Malaysia)
Government & private hospitals are now relying more on generic drugs to mitigate the effects of rising medical costs
Patient looks for cheaper alternative like generic drugs to ease their burden, e.g., India is famous for its generic drugs & biosimilars.
Patent law since 1970s had allowed scientists could take a brand name drug & reverse-engineer it to create similar drug with the same effects.
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Threat of Substitute Products
Self-care lifestyle
• Demands of expensive patented drugs are expected to decline
Modernizing traditional Chinese
Medicine (TCM)• China recently
announced a US$10 billion “Mega New Drug Development Programme”, with the aim of growing its drug development industry over the next 13 years, which accounts for 38% of medical products produced in China in 2007
• Cheaper cost 38
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Threat of Substitute Products
Burrill stated 3 forces that will shape the healthcare industry:
Molecular & personalized
medicine
Wider access to
lower costs and high quality
healthcare
Proficient use of health
information
Threat of Substitute Products
Molecular & personalized medicine• Genetic screening can identify people risk profile for lethal diseases• Advances in molecular biology and genomics have shown that the
efficacy of personalized medicine can be improved by taking a holistic view of the person
• Knowing well ahead the conditions and heritage of body will translate to prevention and lower healthcare billsWider access to lower costs and high quality
healthcare• In next few years, the patents of blockbuster drugs from major
pharmaceuticals will expire• This could signal a boom in generic drugs in the market, which means
that drugs will get cheaper and be available to more people
Proficient use of health information• Monitoring devices can be implanted or worn and data can be
transferred to secure systems, which allow doctors to effectively monitor and advice patients
• Preventive measures are better than wait until someone is sick and then only start treating them
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Threat of New Entrants
The threat of new entry by biotech
companies is increasing.
Highly potential innovative products being developed by
the very agile & innovative biotech
companies.
It may only take a super blockbuster
drug for these small biotech firms to
change the entire pharmaceutical
industry landscape.
Fortunately due to their small size, very
few biotech firms have managed to develop their own
marketing & distribution channels.
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Bargaining Power of Suppliers
Suppliers have strong bargaining power because they can ensure quality materials
supplies under the purview of regulated body
Active Phamaceutical Ingredient Committee
(APIC), who is a section of The
European Chemical Industry Council
(Cefic) guards the European
pharmaceutical producers to ensure they do not purchase counterfeit or rogue
ingredients
Penalty is extremely heavy of any
offender. Without a patent protection,
ethical pharmaceutical
companies will not be able to compete with
generic producers from China or India
who have less stringent law on
sauce of raw materials
Therefore, Lilly has established a strong business relationship with a few suppliers
so that it will not succumb to
bargaining power of suppliers
Source: Oldenhof, 200842
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The Future Direction & Strategies of Eli Lilly
Mergers & Acquisitions (M&A) Outsourcing
On-going R&D for New Drugs – Emergence
Market for Aging Population & New Geographic Market
Penetration
Regulatory & Government Affair
Capabilities & Patents
Mergers & Acquisitions (M&A)
Future Directions
• Joint venture• Acquired small
biotechnology companies which have products that complement with Lilly’s product
Recent Pharmaprojects
• November 2008, Lilly acquired ImClone System (lacks marketing & distribution channels) as wholly-owned subsidiary
• ImClone brought four preclinical, two Phase I, two Phase II, one Phase III & one launched anticancer MSb to the table
Source : Company Analysis – M&A in 2009 44
Mergers & Acquisitions (M&A)
Future Directions
• Tapping on the skills & knowledge within 2 firms.
• M&A helps to eliminate competitors.
• Acquiring a biotech firm that owns a proprietary drug that competes in the same market segment.
Recent Pharmaprojects
• Lilly acquired PCS Health Systems for $4 billion.
• A prescription benefits-management company (PBM) which provides prescription drugs to health maintenance organizations & the employees of large corporations.
Source: Nichols, 199445
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Outsourcing
Company involved outsourcing exercise basically due to reasons as follows:
Outsiders can perform certain activities better or cheaper
Allows a firm to focus its energies on those activities at the centre of its expertise or core competencies that are the most critical to its competitive and financial success
Source: Thompson, Strickland III & Gamble, 2005, p. 175
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Outsourcing
• To fill up its dwindling new product pipeline to accelerate recovery from many impending patent expirations
• To provides competitive services & innovative capabilities from the talent pool
• To fully utilize overseas market like, whose R&D costs continue to escalate
• To diversify operation strategies to handle FDA who required clinical trials to target much larger populations instead of sub-populations resulted slowdown in the new products launches
• To operate in a leaner shape, forming itself into a “network structure” that made up of 3rd party service providers & contract firms
Benefits
• To outsource non-core activities, such as cleaners, some of the manufacturing section, sales representatives & IT works
Future Directions
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Outsourcing
• China & India has a strong base of CROs (contract research organizations) & CMO (contract manufacturing organizations) to support the changing business models of western companies
• The jobs are human clinical trial testing, side effect testing, product life cycle testing & chemical trial testing
Benefits
• Outsourced the non-competitive or non competencies job functions to India & China
Recent Action
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On-going R&D for New Drugs
Future
Direction
•The emergence aging population market
Strategies
•To focus on R&D for aging diseases drugs, such as cardiovascular drugs
•To acquire smaller pharmaceutical companies with the expertise to develop drugs for diabetics & Alzheimer to shorten the drug launch time
Source : Company Analysis – M&A in 2009
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On-going R&D for New Drugs
Future
Direction
•China, Vietnam market could emerging middle class income groups
Strategies
•To explore overseas market to increase its earning through increase in sales.
•To facilitate the access to penetrate the local market besides taking advantages of their skill, knowledge & expertise.
•Recent Lilly’s project: ImClone System (2008).
Source : Company Analysis – M&A in 2009
Regulatory & Government Affair Capabilities & Patents
Strategies
Lilly has developed its regulatory & government affair capabilities by external recruitment of regulatory & government affair personals to work with & lobby
government agencies like FDA & Health departments on drug regulatory related issues
Future Directions
To protect patent & prevent multibillion lawsuits on ethical issues
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Regulatory & Government Affair Capabilities & Patents
Strategies
Lilly has placed an Adverse Drug Experience reporting monitoring system, which facilitates further remedial actions
like product recalls.New policies on ethical interaction & promotion of
pharmaceutical products for all its employees
Future Directions
To establish itself as an ethical pharmaceutical firm
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Regulatory & Government Affair Capabilities & Patents
Strategies
Lily could undertake to ease the impact of patent expiration are listed in next slide…
Future Directions
To increase in distribution channelsTo achieve economic of scale & allow Lilly to sell drugs at cheaper rate to the developing countries such as India & 3rd world countries
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Regulatory & Government Affair Capabilities & Patents
Maximize promotional activities to strengthen.
Acquisition or partnership with the generic firms in order to bring out their own generic version of the drug
Heavy discount to products soon patent expiring drugs to gain patient & physician loyalty.
Re-engineer the products. One way of doing it is to amend the different dosage strength.
Switch products from prescription to over-the-counter (OTC) status.
For example, SmithKline-Beecham create a milder version of Tagamet that does not require prescription to counter the emergence of generic drug.
Source : Agrawal et. al., 1997
Special Strategies…
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Conclusion
• Besides, smaller biotech firms that are increasingly agile & innovative must also be guarded, as it may only take a super blockbuster drug for these small biotech firms to change the entire pharmaceutical industry
• Although there are still many untapped potential, pharmaceuticals cannot expect profits like the golden era of pharmaceutical industry in the 1990s, but be prepared for a moderate to serious decline in profits
• Established & global expertise of firms including Lilly & its rivals like Pfizer, GSK and Merck which manufacture proprietary drugs have a much better chance to reap emerging global opportunities as compared to firms producing generics
• Pharmaceutical Industry although will experience more competition & challenges which will affect its profitability, its still a profitable industry to venture in relative to many other industries
Profitable Industry Good
Opportunities
Beware of smaller biotech firms
Moderate to Decline Profits
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