| BUSINESSWEEK ONLINE : MARCH 29, 1999 ISSUE | ||||||||
| ||||||||
 | ||||||||
| COVER STORY
Q&A with Lilly's Sidney Taurel ''The Prozac expiration is the challenge that gives urgency to everything we do'' Casablanca-born Sidney Taurel, 50, is a veteran of Eli Lilly & Co.'s international operations who became CEO in July and chairman on Jan. 1. Best known for its blockbuster antidepressant Prozac, which makes up 30% of total sales, the $9.2 billion Lilly has been striving to prepare for the day when two of the drug's key patents expire, in 2001 and 2003, by ramping up new-drug research and development and crafting more than 100 alliances with other companies to develop or license new products. In fact, investor sensitivity to Prozac's slowing growth emerged on Mar. 17, when an SG Cowen analyst's report suggested Prozac sales would rise just 4% this year.: Lilly says growth will be slower than in '98, and the stock took a hit. In 1998, thanks to a still-respectable 10% growth in Prozac and the strength of a new blockbuster, the antischizophrenic drug, Zyprexa, Lilly's sales grew 16%, while earnings shot up 23%, after adjusting for gains on sales of a joint venture in 1997 and a $2.3 billion write-off for the sale of its PCS pharmacy benefits-management unit. And in December, Lilly signed a development and licensing agreement with Sepracor Inc. for work on a new, purer form of Prozac that could give it new life beyond patent expiration. Business Week's Richard Melcher recently spoke with Taurel. Here are excerpts from their conversation: Q: Where is the evidence in the 1998 results of the payoff from your corporate strategy? A: The sales-volume growth of 17% is the result of the success of five new products introduced in the past three years and continued growth of Prozac. The fact that we have produced 24% growth in earnings per share while at the same time increasing R&D spending 27% and marketing 20% is a result of improving our gross margins, our product mix, and an improved tax rate. Q: Could you provide some perspective on the U.S. pharmaceutical industry, which as a whole had a good year? A: The growth of the U.S. marketplace is positive for the industry as a whole. It comes as the FDA is clearing up its backlog over the past three to four years. And the trend toward more managed care translated into more unit growth. On the other hand, we are facing a lot of challenges outside the U.S. in terms of government price controls. Q: To what extent has the decade of the '90s become one of drug blockbusters and seen the increasing importance of marketing at all drug companies? A: The period of exclusivity with your products has been compressed with a flurry of follow-on compounds. Without signficant new-product improvements, you end up competing on price. And you need to be extremely aggressive in your introductions [of new products]. Zyprexa sold $730 million in its first year [in '97], and $1.4 billion last year. We had approvals [to roll it out] within two days in Europe, the U.S., and Canada. Q: Among other products, Prozac is continuing to grow, but patent expirations are looming. Could you reflect on its prospects and the importance of developing other products? Also, one hoped-for blockbuster, osteoporosis drug Evista, has been a disappointment. What are its prospects? A:The Prozac expiration is the challenge that gives urgency to everything we do. Prozac got more growth in '98 than in '97, but is facing competitive pressure. The venture with Sepracor is one of the many different strategies to help offset the expiration impact in the U.S. We are also pursuing other avenues [with Prozac]: a combination with Zyprexa and a once-a-week application. Evista has been an initial disappointment, but we feel it has the profile for qualifying for a blockbuster in the treatment of heart diseasse and breast cancer, potentially, and for osteoporosis. Since we have to create the markets, it will take some time. We also signed other partnerships last year with [Japan's] Takeda for an oral diabetes drug, which we hope will be released in the U.S. in 1999, and with ICOS for a sexual dysfunction compound. Q: Up to now, Lilly has stood apart from the big drug mergers that took place in the U.S. in the mid-'90s and in Europe last year, preferring to put together some 100 alliances. Why that approach? A:Our latest analysis shows you need critical mass. The top 15-20 companies have the ability to pursue [research in] several molecules at the same time and have global reach. But the analysis doesn't say there is a correlation between size and success. Break the top 15 down into three categories and look at their performance over three years. The worst are those that merged recently. Next are those that merged 7-10 years ago. The fastest-growing are those that never merged. So far, we continue to believe that it is more important to have competitive advantage based on critical capabilities than size for size's sake. We want to be the best partner for biotech and pharmaceutical companies. And, with advances in technology, you can have access to many technologies without having to own them. The advantage that large companies have is that they can place more bets. But are they producing more value for their shareholders? _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
|  |
 | |
 Return to main story RELATED ITEMS
E-Mail to Business Week Online | |||
