Eli Lilly Case Analysis

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ELI LILLY CASE ANALYSIS The Flexible Facility Decision Oladipo Eso – Rock Creek Cohort 03/03/2011 PROVISO I certify that this is my own work and that I have not taken help from any other person or indulged in plagiarism of any sort 1. How has the competitive environment changed in the last few years? What are the implications for the role of manufacturing within Eli Lilly? The start of the 1990’s brought about key challenges in the pharmaceutical industry, companies like Eli Lilly began to experience pressure on drug margins as a result of changes in the competitive environment. The industry had experienced unprecedented growth in the prior decade, with growth rates of 18% as well as skyrocketing earnings, due, largely in part to the 70% - 85% average gross margins on products. By 1991, the industry once considered to be the most profitable and the fastest growing in the country was beginning to slow down. Diminished pricing flexibility, lethargic innovation, increased competition within drug classes, and the threat of generic substitutes were highlighted as the cause of this decline. It is ironic that the period of slow innovation, beginning in the late 1980’s was also marked by notable increases in R&D investment. This contradiction was caused by the introduction of new regulatory requirements, increased complexity of new compounds, and escalating development costs. Between 1975 and 1992, R&D expenditures grew by a

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