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eli_lilly__company_case_study.docRunning head: Eli Lilly & Company Case Study 1
Eli Lilly & Company Case Study 5
Eli Lilly & Company Case Study
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Abstract
From the case 22: Eli Lilly & Company on page 224, the paper is a response to the questions: How should Eli Lilly & Company Position itself for the future? Should it strengthen its retail presence, grow internationally, or move into the void created in the healthcare provision? Develop Projected Financial Statements that fully assess and evaluate the impact of the proposed strategy. How are the acquisitions/growth financed? Will debt be increased further, or ownership of Eli Lilly & Company stock is diluted to raise the capital needed?
Charts and graphs are used in the response so as to further clarify the explanations and also as supporting evidence.
Eli Lilly & Company Case Study
Executive Summary
The paper submitted will contain a proposed plan of action using primarily data from the company annual report of Eli Lilly & Company. The acquisition will greatly increase survival of the company in the hard times in the company’s industry. The proposal will combine the benefit of the organization’s lion’s share and the cheap yet technical knowledge of the biotechnology company to come up with the desired drugs.
The main reason that various biotechnology companies are acquired is the cost effective nature of the companies, most of which had already began with the production process but stopped or rather, declined during the global credit crunch. Actelion, Shire plc and Onyx pharmaceuticals are among the best targets. The companies are will less likely present a large financial burden in the acquisition process.
Should Eli Lilly & Company acquire various biotechnology drug companies?
To be on the safe side, depending on the potency of the competitors in the market, Eli Lilly should acquire various biotechnology drug companies. That will ensure that the company enlarges the drug pipelines, reduce its production costs and at the same time produce high quality products. By doing that, the company which is already in the leading position of high quality pharmaceutical and animal health products, will be better placed in current market situation; which is characterized by cheap and low quality generic drugs, government’s approvals of biosimilars, increased taxation and growth of managed care organizations.
According to the 2013 Annual Report for Lilly, the company has lost and is bound to lose most of its revenues as a result of their dependence on products with intellectual property protection. Accordingly, the company has lost and will continue to lose significant patent protection in its market (Lilly.com, 2014). As illustrated in the table below, the company has lost and may continue to lose a significant patent protection hence revenues, sooner or later.
|
Product |
U.S Revenues(2013) ($ Million) |
Percent World wide revenues(2013) |
U.s Patent protection |
|
Cialis Cymbalta Evista |
942.8 3, 960.8 772.0 |
4% 17% 3% |
Compound patent 2017 Compound patent plus pediatric exclusivity December 2013 Use patent March 2014
|
|
Product |
Revenues Outside U.S(2013)($ in millions) |
Percent of Worldwide Revenues(2013) |
Patent Protection-Major Europe/Japan |
|
Cialis Cymbalta Zyprexa |
1, 216.6 1,123.6 1,071.2 |
5% 5% 5% |
Major European Countries: Compound patent 2017 Major European Countries: data package protection 2014 Japan: Compound patent 2015 |
How can Lilly best enter global markets, which together comprise less than 50% of company sales?
Lilly can best enter the global market by selling its products through Acquisition of the companies with a large market share in a region. That will make the company enjoy the historical presence which the acquired company had. It should also put up a well structured website. A good and interactive website is the simplest and cost effective way for the company to do so. Through the Website, the company’s customers around the world will be able to visit the website at any time to place orders for the desired products. the Website should be designed to suite various territories in terms of language and design. The website should mainly be used for business to business due to the fact that drugs need prescription from a specialist.
Financial Statements that fully assess and evaluate the impact of the proposed strategy
Below is the Projected Combined Balance Sheet and Income Statement. This acquisition would give Eli Lilly & Company about 4 % increments in revenues.
NB: Expected growth rate in the coming year= 4%
|
Period Ending |
Dec 31, 2013 |
Dec 31, 2012 |
Dec 31, 2011 |
|
|
|
||||
|
Assets |
||||
|
Current Assets |
||||
|
|
Cash And Cash Equivalents |
3,830,200 |
4,018,800 |
5,922,500 |
|
|
Short Term Investments |
1,567,100 |
1,665,500 |
974,600 |
|
|
Net Receivables |
4,022,800 |
3,888,300 |
4,237,900 |
|
|
Inventory |
2,928,800 |
2,643,800 |
2,299,800 |
|
|
Other Current Assets |
755,800 |
822,300 |
813,400 |
|
|
||||
|
Total Current Assets |
13,104,700 |
13,038,700 |
14,248,200 |
|
|
Long Term Investments |
7,624,900 |
6,313,900 |
4,029,800 |
|
|
Property Plant and Equipment |
7,975,500 |
7,760,200 |
7,760,300 |
|
|
Goodwill |
- |
- |
- |
|
|
Intangible Assets |
4,331,100 |
4,752,700 |
5,128,100 |
|
|
Accumulated Amortization |
- |
- |
- |
|
|
Other Assets |
2,212,500 |
2,533,400 |
2,493,400 |
|
|
Deferred Long Term Asset Charges |
- |
- |
- |
|
|
|
||||
|
Total Assets |
35,248,700 |
34,398,900 |
33,659,800 |
|
|
|
||||
|
Liabilities |
||||
|
Current Liabilities |
||||
|
|
Accounts Payable |
3,633,900 |
3,861,500 |
3,156,100 |
|
|
Short/Current Long Term Debt |
1,012,600 |
11,900 |
1,522,300 |
|
|
Other Current Liabilities |
4,270,100 |
4,516,100 |
4,252,500 |
|
|
||||
|
Total Current Liabilities |
8,916,600 |
8,389,500 |
8,930,900 |
|
|
Long Term Debt |
4,200,300 |
5,519,400 |
5,464,700 |
|
|
Other Liabilities |
4,491,100 |
5,716,100 |
5,728,600 |
|
|
Deferred Long Term Liability Charges |
- |
- |
- |
|
|
Minority Interest |
9,300 |
8,700 |
(6,100) |
|
|
Negative Goodwill |
- |
- |
- |
|
|
|
||||
|
Total Liabilities |
17,608,000 |
19,625,000 |
20,124,200 |
|
|
|
||||
|
Stockholders' Equity |
||||
|
Misc Stocks Options Warrants |
- |
- |
- |
|
|
Redeemable Preferred Stock |
- |
- |
- |
|
|
Preferred Stock |
- |
- |
- |
|
|
Common Stock |
698,500 |
716,600 |
724,100 |
|
|
Retained Earnings |
16,992,400 |
16,088,200 |
14,897,800 |
|
|
Treasury Stock |
(93,600) |
(192,400) |
(95,300) |
|
|
Capital Surplus |
5,050,000 |
4,963,100 |
4,886,800 |
|
|
Other Stockholder Equity |
(5,015,900) |
(6,810,300) |
(6,871,700) |
|
|
|
||||
|
Total Stockholder Equity |
17,631,400 |
14,765,200 |
13,541,700 |
|
|
|
||||
|
Net Tangible Assets |
13,300,300 |
10,012,500 |
8,413,600 |
|
|
Retrieved from https://www.sec.gov/Archives/edgar/data/59478/000005947814000078/lly-20131231x10k.htm
|
|
|
|
Eli Lilly & Co., Consolidated Income Statement
USD $ in thousands
|
|
12 months ended |
Dec 31, 2013 |
Dec 31, 2012 |
Dec 31, 2011 |
Dec 31, 2010 |
Dec 31, 2009 |
|
|
23,113,100 |
22,603,400 |
24,286,500 |
23,076,000 |
21,836,000 |
|
|
|
(4,908,100) |
(4,796,500) |
(5,067,900) |
(4,366,200) |
(4,247,000) |
|
|
|
18,205,000 |
17,806,900 |
19,218,600 |
18,709,800 |
17,589,000 |
|
|
|
(5,531,300) |
(5,278,100) |
(5,020,800) |
(4,884,200) |
(4,326,500) |
|
|
|
(7,125,600) |
(7,513,500) |
(7,879,900) |
(7,053,400) |
(6,892,500) |
|
|
|
(57,100) |
– |
(388,000) |
(50,000) |
(90,000) |
|
|
|
(120,600) |
(281,100) |
(401,400) |
(192,000) |
(692,700) |
|
|
|
5,370,400 |
4,734,200 |
5,528,500 |
6,530,200 |
5,587,300 |
|
|
|
Income related to termination of the exenatide collaboration with Amylin |
495,400 |
787,800 |
– |
– |
– |
|
|
(160,100) |
(177,800) |
(186,000) |
(185,500) |
(261,300) |
|
|
|
119,700 |
105,000 |
79,900 |
51,900 |
75,200 |
|
|
|
63,900 |
(41,000) |
(72,900) |
128,600 |
(43,400) |
|
|
|
Other, net, income (expense) |
518,900 |
674,000 |
(179,000) |
(5,000) |
(229,500) |
|
|
5,889,300 |
5,408,200 |
5,349,500 |
6,525,200 |
5,357,800 |
|
|
|
(1,204,500) |
(1,319,600) |
(1,001,800) |
(1,455,700) |
(1,029,000) |
|
|
|
4,684,800 |
4,088,600 |
4,347,700 |
5,069,500 |
4,328,800 |
Retrieved from http://www.stock-analysis-on.net/NYSE/Company/Eli-Lilly-Co/Financial-Statement/Income-Statement
The combined company would effectively merge with the biotechnology firms further expand consumer options and reduce the cost of production as the smaller biotechnology firm is will produce the needed drugs rather cheaply.
How are the acquisitions/growth financed?
The acquisition is best financed through common stock financing. In the example below, the company’s good performance indicates that the path of financing is the best. In the five year return on the company’s stock is compared with Standard & poor’s 500 stock index and with peer group for a period from 2009 to 2013. The dividends invested in the company are presumably reinvested in the company’s stock.
Retrieved from https://www.sec.gov/Archives/edgar/data/59478/000005947814000078/lly-20131231x10k.htm
Will debt be increased further, or ownership of Lilly stock be diluted to raise the capital needed?
Ownership of Lilly will be diluted as the financing will be done through distributing the ownership of the company so as to finance the acquisition. The overwhelming strength of the company will however make it difficult to notice the dilution.
References
Lilly.com, (2014). Eli Lilly & Company website. Retrieved from http://www.lilly.com/Pages/Home.aspx
Stock Analysis on net.com, (2014).Stock Analysis on net: 100 U.S Stock Market Leaders. Retrieved from http://www.stock-analysis-on.net/NYSE/Company/Eli-Lilly-Co/Financial-Statement/Income-Statement
