Lilly New Zealand Case Study: Healthcare Market Dynamics Analysis

This case study examines the challenges faced by Lilly New Zealand, a pharmaceutical affiliate, within the evolving healthcare market of New Zealand. The analysis focuses on key issues such as the shift from public funding, consumer resistance to medicine costs, and the impact of Pharmac, the government agency controlling pharmaceutical purchases. The study highlights the decline in market growth, the erosion of profit margins, and challenges in patent protection. Recommendations include leveraging legal controls for pricing, establishing independent agencies to prevent undue advantages, and conducting health technology assessments. The case study emphasizes the need for pharmaceutical companies like Lilly to adapt their strategies, focusing on cost control and reference pricing to navigate the changing healthcare landscape and remain competitive. The study also highlights the importance of adapting to the changes in customer relationships and the need for strategic realignment to ensure long-term survival and success.

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Table of Contents
Summarization of the Key Issues....................................................................................................2
Recommendations............................................................................................................................3
Measures to be Undertaken and the Ways in which it could be done.............................................3
References:......................................................................................................................................5

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Summarization of the Key Issues
The key issues of the case study are primarily focused on the significant change of the
healthcare industry of New Zealand in the past few years. The pharmaceuticals market has
primarily been public funded and there has been strong resistance on the part of the consumers in
paying for the acute medicines. There was only the presence of a single purchaser of
pharmaceuticals with the objectives focused primarily on the cost control which was achieved in
reference to lower cost mechanism for pricing. If a medicine was available at a higher price than
the subsidy level then the patients only had to pay the additional cost. In spite of implementation
of the cost containment strategy the cost of the health care rose rapidly as there has been
increasing level of investment due to the increase in the life expectancy and entry of the new
quality of drugs into the market place.
The change of scenario in the healthcare market brought the business of Lily, a small
New Zealand based affiliate of a US multinational with the pharmaceutical industry, under
attack. The company has faced challenges in protecting its patent. Besides, the cost containment
policies of the government not only drove the prices down but made it difficult for Lily to
reimburse the products in line with the pricing strategy of Lily. The pharmaceutical company
also faced a change in the nature of the customer relationship as it presently had to negotiate with
representatives with a greater acumen.
It is also to be noted that a single agency was established by the government for the
purchase of the medicine known as Pharmac whose objectives focuses on the cost control
(Braithwaite, 2013). . This has resulted in negative market growth for the past three years. The
idea of putting across a completely subsidized medicine in each of the therapeutic group eroded

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margin lowered the prices and increased the competition amongst the various pharmaceutical
companies. The aspect of patent protection also abolished that resulted in limited introduction of
the innovative pharmaceuticals based on the research. This resulted in a continuous decline of
the healthcare sector of New Zealand with the research based companies retaining a smaller
presence within the market.
Recommendations
 It is recommended that New Zealand should rely on the legal controls for determining the
profits, mark ups and selling price of the manufacturers for ensuring affordability in the
pharmaceutical pricing (David, Wolfender & Dias, 2015).
 Introduction of other independent agencies like Pharmac will prevent it from enjoying the
undue advantages by adopting various techniques likes the reference pricing, competitive
tendering, bundling agreements and generic substitution.
 Undertaking proper assessment of health technology for ensuring accurate funding
decisions.
Measures to be Undertaken and the Ways in which it could be done
Pharmac plays a key role in determining access of the New Zealanders to the
pharmaceuticals. The benefits from immense political consensus have ensured stability that has
allowed it in focusing on the negotiation of the favorable prices. Besides, its role considerably
expanded and presently it took care of the inpatient and the outpatient pharmaceuticals, vaccines,
medical devices and treatments. In other words, Pharmacy seems to feature in the health system

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of New Zealand in future (Rychert & Wilkins, 2015).Therefore, Pharmaceutical companies like
Lily should adopt its strategies in line with Pharmac by not only focusing on cost control but also
adopting a reference pricing mechanism for subsidizing its pharmaceutical products.
This can be achieved by charging the patients the additional cost for the medicines whose
prices seem higher than subsidized level.

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References:
Braithwaite, J. (2013). Corporate Crime in the Pharmaceutical Industry (Routledge Revivals).
Routledge.
David, B., Wolfender, J. L., & Dias, D. A. (2015). The pharmaceutical industry and natural
products: historical status and new trends. Phytochemistry Reviews, 14(2), 299-315.
Francis, S. (2014). Identifying priority medicines policy issues for New Zealand: a general
inductive study. BMJ open, 4(5), e004415.
Rychert, M., & Wilkins, C. (2015). The challenge of a ban on animal testing for the development
of a regulated legal market for new psychoactive substances (NPS)(‘legal highs’) in New
Zealand: Issues and options for resolution. International Journal of Drug Policy, 26(12),
1273-1278.