Eli Lilly's Lesson in Long-Term Thinking

For Lilly and its CEO, John Lechleiter, a reckoning looms three years away, when the company's patent on schizophrenia drug Zyprexa expires. The drug has not been without controversy, and Lilly has been taken to court for marketing off-label uses. (On Tuesday, Lilly announced a $62 million settlement with 32 states.) Despite the legal troubles, Zyprexa is still Lilly's best-selling medication, with annual global sales of about $4 billion.

In 2011, when generic competition enters the market, Lilly can expect that revenue to shrink significantly. That's where ImClone comes in. The biotech company's most successful product to date is Erbitux, a treatment for colorectal and head and neck cancer, and it has other promising cancer medications in development. Cancer just happens to be one of Lilly's three main research focuses, making ImClone's products a good fit.

"ImClone increases Lilly's exposure to the fast-growing, high-unmet medical need of oncology," says Linda Bannister, senior area analyst for health care at Edward Jones. "With five pipeline products, three of which will be in late-stage clinical trials next year, the acquisition of ImClone should help Lilly navigate through the loss of patent protection of its key products."

ImClone's infrastructure is also a draw. "Its biotech development and manufacturing expertise should allow Lilly to avoid as much as $1 billion in capital spending over time," says Bannister.

Another plus to buying a biotech? Its breakthroughs may come with more patent protection than traditional drugs.

Going after long-term goals takes courage and a certain amount of faith. It will be years before we know whether the Lilly-ImClone partnership pays off big. But if you look at the challenges likely to face Lilly in the future, the purchase makes sense. Your small business has several advantages over Big Pharma: You can probably get your products on to shelves more quickly and easily. That doesn't mean you should take your eye off your company's long-term prospects. Sometimes, to build success in the future, you've got to lay the groundwork now.