Eli Lilly Cvc

Case Preparation Questions

1. What is the role of corporate venture capital in corporate strategy?

The role of Corporate Venture Capital (CVC) in corporate strategy is to finance the promising start-ups in order to acquire technologies or knowledge aligning to the strategy goal of CVC’s parent company.

To be more specific, corporations set up venture capital arms primarily to nurture and develop start-up businesses for their parent company. In general, the payoff to the parent was strategic and typically involved either access to innovation or support for the viability of the parent’s business objectives. Still, profits are always nice to have, but not the only or main reason.

1. What is your assessment of Eli Lilly’s CVC program?

Eli Lilly’s CVC program has been through three phases.

1st Phase: From 1980s to 1990s.

Eli Lilly’s CVC program originated in the first significant business development deal between a large pharmaceutical firm and a small biotech—the licensing of the technology for human recombinant insulin from Genentech. After that, Lilly started making equity investments in start-up companies as part of licensing deals with them. During that period, it had a very clear goal: Lilly should only invest for strategic advantage, not purely for financial return. Actually, investment still made a lot of money except helping Lilly get access to many that it might have otherwise discovered much later. In all, it ran successfully at that time.

2nd Phase: From 2000 to 2001.

Eli Lilly found 2 funs around same time: e.Lilly and BioVentures.

The aim of e.Lilly was to experiment with new technologies, new business models, and new practices that might ultimately have a significant impact on the pharmaceutical industry. It ran more like a independent VC than CVC. Also, its has broader investments, which were less overlap with Lilly’s core business. Since e.Lilly could not contribute to Lilly’s strategy, it’s a bad move.

BioVentures was created after Lilly employees recognized the success of investments in small biotech start-ups and the need these start-ups had for “organizational memory, discipline, and deep commercial understanding resident in large, mature pharmaceutical companies.” BioVentures helped Lilly to access into innovative technologies. Meanwhile, management ran the CVC at in a proper way to realize its strategy goal and control the risk. It’s a great decision on strategy.

3nd Phase: After 2002 to 2004.

From 2002 to 2004, the e.Lilly venture fund was merged into Lilly BioVentures, with the joint group operating under the name Lilly Ventures. After that, several problems emerged into the surface.

First, the group had to resolve internal questions regarding Lilly Ventures fit with the rest of the Lilly organization.

Second, the compensation system problem caused several departures from its small team

It is quite normal for a company to have some problems during the development. The most important thing is the new head of Lilly Ventures, Darren Carroll, has realized that they need to communicate more frequently and more effectively with the Lilly community, much of which believed that Lilly Ventures overly emphasized its external face and was not sufficiently in touch with the strategic needs of the company.