Moneycontrol Pro Panorama | Lessons from Eli Lilly in corporate longevity

It is important long-term investors give due importance to corporate longevity.

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Eli Lilly, a company incorporated a century ago, has become the first pharmaceutical establishment in the world to hit a $1 trillion market capitalisation. The achievement is remarkable, given the rapidly changing fortunes of companies.

Studies show a rapid reduction in a lifespan of a company in the S&P 500 index – declining from about 60 years in the 1950s to less than 20 years now. In India, only five companies that entered the Sensex before the year 2000 are still present in the benchmark index now.

As evolution and technology alter business landscapes, it is important long-term investors give due importance to corporate longevity.

Two traits underscore Eli Lilly’s success. One is stable leadership. The current CEO Dave Ricks, who took charge in 2017, joined the company in 1996.

The second is its focus on product innovation and execution. Even though Novo Nordisk was the first to launch anti-obesity drugs, Eli Lilly succeeded in producing a more effective weight-loss product and captured investor imagination. So much so, Eli Lilly’s products may well become the top selling drug in the world in 2025, reports The New York Times.

In India, Eli Lilly’s weight loss drug has already become the top selling medicine by value in October, as we first indicated here.

What’s more, Eli Lilly continues to invest heavily in innovation and new products. In the pipeline is an anti-obesity oral drug, more details of which are awaited. Under the current CEO, on research and development (R&D), expenditure has increased from about $5.2 billion in 2016 to $10.9 billion in 2024. In 2023, R&D as a percentage of revenue increased to 27 percent before easing to 24 percent in 2024.

Comparatively, Indian drug companies spend less than 10 percent of their revenues on R&D.

Even though Indian companies are increasingly spending more amounts on R&D, the success of Eli Lilly highlights the importance of product innovation, staying relevant to market needs and laser sharp focus on execution.  

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