I had a conversation with a family member over Christmas break regarding Eli Lilly’s overseas strategy for drug development and distribution. This family member is a part of major strategic decisions for the drug company, which gives him a great insight into the opportunities and challenges drug companies face.

He said that there are really only two other markets that a large healthcare company like Lilly would be interested in outside of the US: China and India. China offers a growing economy and large population, but its corrupt government would make a product like drugs very unstable and unpredictable to bring to market. India does not want to give foreign drug companies access to its population because it is interested in creating its own drug companies; but their fledgling companies do not have the experience needed to manage the runway for the development of a major drug. In a very shrewd move, India created a deal: access to their market through partnership in exchange for guided experience. It breaks down into three parts:

  1. US company gives a promising drug to an Indian company to further develop and bring to market. The US company guides the Indian company through the complexities associated with R&D, clinical trials, etc…
  2. In exchange, the US company shares in revenue along with the Indian company while the drug is sold in India.
  3. After this shared partnership ends, future drugs are fair game (aka, let the competition begin).

According to my family member, US drug companies are so starved for the financial growth that would come from India’s market that they are willing to move forward on India’s proposal. Lilly’s sales jumped 22% in Q4 2007 (19% rise on the year). This is welcomed news in the midst of a stock market ravaged by subprime lending and paralyzed by the fear of a recession. But could it be that this short-term good news will come at the expense of lost market share in 5 or 10 years?