Case Study Alternative Business Models
Read the Case: Eli Lily Choices for the FuturePreview the document. Then prepare a paper that assesses one of the five alternative business models that Eli Lilly’s planning team has developed. Then answer the following: How do these reflect the generic strategies of our lesson? How do you think each model fits with the different future scenarios? Which would strategy would you recommend Eli Lily chose to follow? Business model: A company running the Vertical Firm R&D business model is not fully integrated across the value chain, but instead is a research organization focused solely on discovering large numbers of high quality NMEs. Firms that operate under this model believe the majority of value is created during the discovery of a novel NME. They capture value by licensing their candidate molecules to the best possible partner for commercialization. Revenues are generated through upfront licensing fees, milestone payments and royalties on product sales. These firms have world-class capabilities in identifying the best possible partner, in capturing the maximal value in the candidate molecule, and in managing the partner relationship for the long-term. Value is delivered to the shareholders through running an efficient organization focused on R&D productivity. Since revenues are limited to a royalty stream (perhaps only 15-20% of a product’s sales), expenses must be controlled to deliver a reasonable return to the shareholders. Product discovery and development costs must be tightly managed and a project’s probability of technical success must be carefully monitored to decrease the investments in “dry holes.” Product cycle times must be short and project teams extremely flexible, so the firm is capable of generating a wealth of licensable candidates each year.