Case Study - Eli Lilly's Project Resilience: Anticipating the Future of the Pharmaceutical Industry

Rebecca M. Henderson

2. Low Cost Innovative FIPCO- As its name suggests, the Low Cost Innovative FIPCO model puts cost at the center of every decision made by the firm. Relative to today's FIPCO model, the cost structure of such a firm would be on average 40-50% lower, with sales and marketing expenses probably reduced even further to allow for disproportionate investments in discovery and development. This firm succeeds not by "cost-cutting" but by making decisions in a completely different framework with costs at its core. A company adopting the Low Cost Innovative FIPCO model relies on external pricing signals to drive its sourcing of services along the entire value chain and aggressively uses sophisticated IT tools to create a global network of suppliers who can provide those services at the lowest possible price. The firm is rigorous about outsourcing all non-core work. The firms' cost structure begins to look like that of an Indian pharmaceutical manufacturer, with professional salaries a tenth to a fifth of the U.S. level and a majority of clinical trials executed outside of the U.S. in the lowest cost locations. For this model to work, the U.S. regulatory authorities will need to change some of their policies, particularly around accepting data generated in other countries.

Questions to answer

• How do these reflect the generic strategies of our lesson? (Porter's Generic Competitive Strategies)
• How do you think each model fits with the different future scenarios
• Which would strategy would you recommend Eli Lily chose to follow?