WWYD Eli Lilly Eli Lilly's 20-Year Patent on Zyprexa, a Drug

Multiple Choice

WWYD Eli Lilly Eli Lilly's 20-year patent on Zyprexa, a drug that generates $5 billion a year runs out in October 2011. This means other manufacturers can sell low-priced generic versions of the drug. Lilly has seven other major drugs that will fall off the "patent cliff" and stands to lose 75% of its annual revenue if it doesn't generate new "blockbuster" drugs. And Lilly isn't the only pharmaceutical company in this situation. The entire industry will see half of its revenues fall off due to expiring patents. When Lilly's patent expired on Prozac, a drug for depression taken daily by 40 million people, then-CEO Sidney Taurel took steps to energize drug development by increasing R&D budget and instructing Lilly's 7,000 researchers to focus on drugs that could produce one-half billion dollars a year in sales. This time, however, expanding headcount and increasing R&D budgets aren't options. The long-term challenge is to grow Lilly's drug pipeline with faster, less expensive innovation. Some think that large budgets, centralized approval for allocating research dollars, and "siloed" research (where few know and understand what others in the company are working on) stifle innovation and slow decision making. Thus, after laying off workers and reducing annual expenses by $1 billion, CEO John Lechleiter had to jumpstart Lilly's drug development process and restructure his company to address this challenge. John Lechleiter restructured Lilly to significantly improve communication in product development teams and speed up the entire drug development process. One of his first actions was to put everyone involved in the drug development process under one building, which Lilly named the Development Center of Excellence. In addition to improving chances for spontaneous communication, the company focused on ways to achieve dramatic improvements in cost, quality, service, and speed. Lilly began using Critical Chain project management developed by physicist Eli Goldratt, which eliminates delays that occur in a process when a task is completed by one person and then handed off to the next to begin the next step or task in the process.
Lilly also created a group within the company called Chorus, which outsources 80% of Lilly's research to contract research organizations (CROs) . To ensure results, CROs earn bonuses for successfully meeting deadlines-and, if the products make it to market, they earn drug sale royalties too.
The cost of using CROs is roughly a third less than it would have cost for Lilly to do the testing in-house. Of course, modular organizations have disadvantages, too, such as the loss of control that occurs when key business activities are outsourced to other companies. Also, suppliers to whom work is outsourced can sometimes become competitors. So, is Lilly risking its future by outsourcing the core function of researching and testing new drugs? While CROs may help pharmaceutical companies do a faster job of determining which drugs don't deserve more expensive late-phase testing, some critics doubt whether they can help firms like Lilly uncover the blockbuster drugs they need to replace the drugs that are coming out of patent protection. Refer to WWYD Eli Lilly. When John Lechleiter put everyone involved in drug development under one roof in a Development Center of Excellence, he increased the opportunities for the people directly responsible for drug development to connect and talk about their work. This single move increased the __________at the company.

A) formal organization
B) cycle time for drug approval
C) centralization of authority
D) skill variety
E) behavioral informality