Business model of Eli Lilly

Customer Segments

Eli Lilly serves a range of individuals and institutions operating within the healthcare and animal health sectors. Much of the Company’s products are sold via wholesalers and distributors to target customers such as:

• Pharmacy benefit managers;
• Managed care organisations;
• government and long-term care institutions;
• Hospitals;
• Retail pharmacies;
• Physicians and healthcare professionals;
• Veterinary Clinics and veterinary professionals.

Three of Eli Lilly’s largest customers in the past few years have been wholesale distributors AmerisourceBergen Corporation, McKesson Corporation, and Cardinal Health Inc, each of which accounted for between 8% and 19% of the Company’s total revenue.

Eli Lilly serves customers across 125 countries worldwide. Its home market of the US is its largest single market by far, accounting for more than 50% of the Company’s total revenue for 2015. Eli Lilly breaks its international sales into three categories: Europe, Japan, and Other Foreign Countries, with the latter category covering sales across Africa, the Middle East, Latin America and the rest of Asia.

Value Propositions

Eli Lilly provides value to its customers in the following ways:

• Its brand recognition and industry standing, with the Company established as one of the largest and most reliable companies in its industry, with a track record for providing quality and innovative products;
• Its intellectual properties and unique products, with the Company providing a number of treatments and medications that are built on proprietary technologies and that cannot be purchased from its competitors;
• Its technical expertise, with the Company employing a substantial number of physicians, scientists holding graduate or postgraduate degrees, and highly skilled technical personnel;
• Its global sales reach, with the Company operating across more than 100 countries worldwide, reaching customers in smaller, less well-represented jurisdictions through distribution partners; and
• Its research and development activities, with the Company committing substantial financial and personnel resources each year to the development and creation of new drugs and treatments.

Channels

Eli Lilly operates a website at www.lilly.com, through which it provides customers with information on its activities, products and structure. The Company, however, does not make sales through an online sales channel.

The majority of Eli Lilly’s sales are made by its own in-house direct sales teams, organised geographically and by operating segment. The Company manufactures and distributes its products through facilities in the US, Puerto Rico, and 14 other countries across Europe, Asia, Africa and the Americas.

Much of the Company’s pharmaceutical products in the US are distributed by independent wholesale distributors, with some sales made directly to pharmacies. In most of its operating countries, Eli Lilly maintain its own sales organisations, but in some smaller countries it markets and sells products through independent distributors and contract sales organisations.

Eli Lilly promotes its products primarily through a team of sales representatives that directly approach physicians and other health care professionals, as well as implementing traditional advertising programs. The Company also has in place a number of joint-marketing and co-promotion agreements with other pharmaceutical groups, such as with Boehringer Ingelheim, Daiichi Sankyo and Shionogi and Co.

Customer Relationships

Despite its online presence, Eli Lilly does not offer any of its products to customers on a self-service basis. Instead, sales are made by the Company through its own in-house sales force, which deals directly with customers in order to ascertain the exact requirements of each individual client. The Company seeks to establish long-term relationships with its customers, often serving customers under multi-year contracts.

Eli Lilly provides ongoing support to its customers throughout the duration of its supply contracts. It also provides a range of information on its website that customers can use to answer queries relating to certain products. New and existing customers are also able to contact customer support representatives directly over the phone, in order to receive a more personalised response to queries and enquiries.

Customers can also interact directly with Eli Lilly representatives through its social media accounts, including with Twitter, Facebook, YouTube, Pinterest, Instagram, and LinkedIn.

Key Activities

Eli Lilly is engaged in the development, manufacture, marketing and sale of prescription drugs and animal health products.

The operates through two business segments: Human Pharmaceutical Products, comprising the development and sale of various endocrinology, oncology, cardiovascular, and neuroscience products, such as Humalog, Cyramza, ReoPro, and Rumensi; and Animal Health Products, comprising the activities of the Elanco Division, which develops, manufactures and markets products for both food animals and companion animals.

Eli Lilly operates a network of research and development facilities, devoting a substantial amount of funds to the creation of new and innovative treatments.

Key Partners

Eli Lilly collaborates with a broad range of partners throughout the process of developing, producing and marketing its products. These partners can largely be categorised as follows:

• Co-Promotion and Joint Marketing Partners, comprising pharmaceutical and biotechnology companies that work to market and sell certain products in certain regions and jurisdictions;
• Channel Partners, comprising wholesale distributors and independent sales agents that help to extend the Company’s own sales reach, particularly in countries where the Company is not itself well-represented;
• Research and Development Partners, comprising research organisations and pharmaceutical and biotechnology companies that work with the Company in the creation and development of new medications and drugs; and
• Supplier Partners, which provide various resources. Tools and services required for the Company’s activities.

As noted above, Eli Lilly has co-promotion and joint marketing partnerships with Boehringer Ingelheim, Daiichi Sankyo and Shionogi and Co, in relation to the respective marketing of diabetes medications, Effient, and Cymbalta. The Company has also entered recent partnerships with Washington University School of Medicine in a program designed to expand diversity in research; with United Way Worldwide to drive change in education, income, health and basic needs in various communities; and with Halozyme to develop subcutaneous injectables.

Key Resources

Eli Lilly’s key resources are its technologies and intellectual properties, its physical infrastructure and development facilities, its supply chain, its sales and distribution channels, its partnerships, and its personnel.

Intellectual property protection is critical to Eli Lilly’s successful commercialisation of its life sciences innovations. The Company owns, or is licensed to implement, a large number of patents both in the US and internationally. Eli Lilly considers US patents relating to the production of Alimta, Cialis, Effient, Cyramza, Forteo Portrazza, Jardiance, Strattera, Trulicity, and Trajenta to be of particular commercial importance.

Cost Structure

Eli Lilly incurs costs in relation to the development and production of its products, the maintenance of its physical infrastructure, the marketing and promotion of its products, the

Acquisition of resources and supplies, the operation of its sales channels, the management of its partnerships, and the retention of its personnel.

Eli Lilly invests heavily in research and development. At the end of 2015, the Company employed approximately 8,730 people in human pharmaceutical and animal health research and development activities, with research and development expenses for the year amounting to $4.80 billion. In 2015 the Company marketing, selling, and administrative expenses – including the cost of salaries and benefits for its 23,425 employees – exceeded $6.50 billion.

Revenue Streams

Eli Lilly generates revenue through the development and sale of human pharmaceutical products as well as the production and sale of health products for farm animals and domestic animals. The Company focuses particularly in the sale of its flagship pharmaceutical products, including Cymbalta, Alimta, Cialis, Zyprexa, and Strattera. It also provides contract manufacturing services.

In 2015 Eli Lilly generated total revenue for the year of $19,96 billion, a minor increase on the $19.62 billion recorded by the Company in 2014. Eli Lilly’s Human Pharmaceutical Products segment generates the majority of the Company’s revenue, recording total sales revenue of $16.78 billion in 2015.

Sales of no single pharmaceutical product accounted for more than 10% of the Company’s total revenue for the year, with sales of Alimta being the Company’s largest revenue generator, accounting for 7% of annual revenue.