Speeches & Presentations

A Second Opinion: Innovation and the Health Care Reform Diagnosis

John C. Lechleiter, Ph.D.

Chairman, President and Chief Executive Officer — Eli Lilly and Company

May 14, 2009

Remarks to The United States Chamber of Commerce,

Washington, DC

Thank you, Arthur [Rothkopf], and good afternoon, ladies and gentlemen.

My topic this afternoon is health care reform—which has been a perennial, high-stakes challenge for U.S. policymakers and is now once again a top priority here in Washington both for the U.S. Congress and for the Obama Administration.

To those of us outside the Beltway, it sometimes appears that when a set of issues goes to the top of the heap in Washington—the way health care reform is doing right now—something strange happens. The things that are said in public about these issues seem to get less and less interesting. Conventional wisdom tends to be echoed disagreements are downplayed, and the action generally moves behind the scenes. And that’s where we are at this moment.

Health care, as we all know, is a vitally important topic. And any reform measures will touch each of us and our families. So now of all times, before it’s too late, I believe that we have a duty to move beyond platitudes. We need to discuss and debate the enormous stakes involved—in getting reform right.

So let me say straight out: I do not believe that policymakers have yet arrived at a full and complete diagnosis of what’s wrong and what’s right with U.S. health care. One factor in particular is missing from the assessment. And I am very concerned that some of the proposed policies—the treatments, to continue my metaphor—will have unintended side-effects that make our situation worse. Respectfully, I’d like to offer a second opinion.

Like most second opinions, mine will not invalidate or throw out most of what’s already been learned or surmised. Instead, I hope that my second opinion will add value towards a better outcome.

To demonstrate just how predictable our thinking on health care has become, let me ask you to complete the following sentence in your mind: “Above all, health care reform must blank.” Think for a moment about how you would fill in that blank.

I won’t put you through a hand-raising exercise. But if I did ask you to put your hand up when you heard your own answer to that question, then I believe that almost every hand in this room would be up after I rattled off just three possible answers.

Above all, health care reform must (1) assure access to health insurance coverage for all Americans; (2) raise health care quality standards across the board; and (3) get a handle on the enormous costs of health care.

Access for all, improved quality, and manageable costs – they sound familiar, right? They are nothing short of a mantra. And indeed, these are important diagnoses and vital goals of treatment, each one of them. But there is yet one crucial thing that we’re completely missing in this standard triage of the health care system in America.

Let me keep you in suspense for another moment while I take you back to a time when none of our big three policy mandates was even at issue in America. Yes, such a time existed. I’ll use 1909, to make it an even century ago.

So it’s 1909. And access to health insurance is not a problem. You want health insurance to pay for what, exactly? Fresh air treatments for your husband’s tuberculosis? A starvation diet for you child’s diabetes? A stiff belt of whisky to deal with your arthritis pain? Those kinds of treatments—and there aren’t much more—well, they don’t cost enough to justify insurance. And what outfit would pay for them to begin with?

What about health care quality in 1909? Again, it is not really a policy issue. After all, quality can only be measured when standards exist and a provider fails to live up to them. Quality is a problem when one group of patients gets good results and another group of patients with the same condition gets poor results. In 1909, there are no meaningful standards, and the results of treatment for all but the most mundane medical conditions are almost uniformly bad. By the way, the Food and Drugs Act, signed by Teddy Roosevelt in 1906, had barely taken hold.

And let’s look at number three. What about health care costs in 1909? You certainly can get a good price on “cures” from the snake-oil salesmen and other purveyors of the day. Their overhead is a cart and horse, and since their products have little intrinsic value, or much in the way of expensive ingredients, they can afford to offer some nice discounts. And Doc Smith or Doc Jones down the street or across town? Well, they’ll usually barter with you in exchange for the modest interventions that they can provide.

So our 1909 utopia—in which health care access, quality, and cost were not problems—it was of course anything but a utopia where the health of the American people was concerned. Life expectancy at birth was about 47 years, by the way.

My purpose is not to disparage the practice of medicine in the early 20th century, which was doing the best that it could. My purpose is to focus on what really made a difference during the century that followed.

The explanation can be summed up in one word: innovation, the same word that today is missing from the health care debate.

Innovation, as I understand it, is the notion of achieving fundamental breakthroughs—responding to health needs for which no answers existed and offering clearly superior outcomes. In the 20th century, innovation of this kind transformed the basic expectations of human life that had prevailed since the dawn of civilization. Along a fluid continuum:

  • More and more death sentences were lifted. Think of antibiotics for infections, vaccines for conditions such as polio, and more effective treatments for a growing number of cancers.
  • Other dread diseases became manageable chronic conditions. Think of diabetes and heart disease.
  • More and more chronic conditions could be avoided entirely with vaccines or proper treatment. Think of tuberculosis.
  • And countless maladies barely understood or described in 1909 — think of severe sepsis, osteoporosis, schizophrenia, and auto-immune disorders — could be brought to heel by medical interventions.

Today, as a result, the average life expectancy at birth in the U.S. is 78. That increase of 66 percent over those 100 years is unprecedented in human history. And the rates of increase have been equally dramatic throughout most of the world.

Innovation in health care takes many forms. The public health improvements of the 20th century played a large role—including the build-out of a sanitation infrastructure, immunization programs, health education on a mass scale, and the training of medical practitioners on the basis of science rather than superstition.

At the same time, innovation placed an array of previously unimaginable new tools—pharmaceuticals, along with medical devices and new surgical techniques—at the disposal of doctors. The impact has been staggering.

Professor Frank Lichtenberg of Columbia University published an analysis four years ago of disease data and death rates from 52 countries—rich and poor—and correlated this information with data on the availability of new medicines. He controlled for income, education, and other factors. And he found that new drug launches accounted for 40 percent of the increase in life expectancy during the two decades that he studied — the 1980s and 90s — a time when you might have thought that the really big gains had already been accomplished.

In other words—in the Lichtenberg study—for every year that life expectancy has increased, five months can be attributed to the availability of new medicines.

The economic payback from these gains is difficult to overstate. The payback is years of productive work, economic value added, consumer spending, and tax dollars paid—which together outweighs the costs of treatment overwhelmingly, even if you resist putting a number on the intrinsic value of being alive.

Yet I am convinced much more innovation is needed, and that it’s possible. In our own families and circles of friends, we’ve all seen the devastations of cancer, Alzheimer’s disease, and other conditions that snuff out lives at their peak. Who among us can experience these things and say, “We have all the innovation that we need”?

It’s innovation that explains why we are the healthiest, longest-lived, and wealthiest human beings ever to occupy the planet and why we have the potential to become even more so.

And so, I submit to you that, above all, health care reform must sustain and encourage innovation. If it does not, then the important goals of expanding access, improving quality, and controlling costs will prove illusory.

Far from being an overarching goal, however, the encouragement of innovation does not even seem to be on the table in today’s policy discussions. In the last several months, as I’ve listened to legislators and policymakers talk about health care reform, the word “innovation” never seems to come up, not even as an afterthought.

Try this yourself at home. Listen or look for the “I” word in what’s being spoken and written. Sad to say, you’ll be hard pressed to find it.

This silence must be our wake-up call.

Yet the real problem may be even worse: innovation is not only being ignored, but also undermined. The evidence is mounting that we are facing today nothing short of an innovation crisis in America’s life sciences sector:

  • In the large-cap pharmaceutical industry, for example, we’re in the midst of a wave of defensive consolidations that will leave the world with a dwindling number of entities capable of taking an idea, a discovery, and turning it into a medicine approved for patients. Large pharmaceutical companies and a select group of large biotech firms are the only entities that can do this work—period — and I believe that a further reduction in the size of this small community is not a good thing.
  • Meanwhile, half of the smaller biotech firms in the U.S. have less than a year of cash remaining, and a third are down to their last six months. Investors clearly see tremendous risks and less upside than ever before.
  • And what about output? The FDA approved fewer “new molecular entities” in the last four years — 73 of them — than in any other four-year period since I started working in the industry 30 years ago.

Many of you may know that private industry in the U.S. spends enormous amounts of money on R&D to develop and obtain regulatory approval of new medicines, fully $58 billion in 2007 alone, on the part of U.S.-based pharmaceutical and biotechnology companies. So after more and more inputs, we’re getting fewer and fewer outputs. Not good.

In a moment, I’ll talk about some of the fears about public policy that have worsened this climate and put innovation at further risk.

But first, let me be very clear about one thing. I am not here to pin the innovation crisis in the life sciences entirely on public policy—not by a long shot.

As the CEO of a pharmaceutical company, I will tell you that this appalling slow-down in productivity and the resulting, per-molecule R&D costs of bringing a new medicine to market are unsustainable, and they are my main obsessions.

In fact, the research-based pharmaceutical industry is in the midst of the greatest “re-think” in our history.

At Lilly, for example, we have tossed out the industry’s decades-old model of vertical integration, in which we owned or employed almost every lab, production facility, and scientific professional needed to bring our medicines from discovery to the pharmacy. Instead—above and beyond our own large, mostly U.S.-based scientific workforce—we’re now integrating a global R&D network that tries to tap the necessary function or expertise without delay—regardless of whether our logo is on the front door or the lab coat.

We believe that this will result in even better products — more quickly than the old 10- to 12-year timelines — while controlling development costs and spreading the financial risks of R&D more broadly.

At the same time, we’re putting to work the insights of the Human Genome Project and other basic research on the pathways of disease in changing what we aim to deliver to doctors and patients. On their way out are one-size-fits-all products, and in their place are what we call “tailored therapies.”

Tailored therapies are products brought to market with pre-existing knowledge about the specific patient groups, disease stages, and comorbid conditions in which they work best or work together with some other intervention. This is our industry’s contribution to what’s become known as “personalized medicine.”

Looking at our company’s pipeline, as a scientist myself, I firmly believe that the innovation drought of recent years is about to end. Lilly and other research-based biopharmaceutical companies have new therapies in our sights for some of the great scourges of our time, including Alzheimer’s disease, many forms of cancer, serious mental illnesses, diabetes, and heart disease.

Indeed, much more is changing in business of health care innovation than I have the time to share with you here—and our individual companies will rise and fall on whether the changes work and whether they are enough.

When it comes to sustaining innovation, the burden remains on us—as it should. We’re not asking for a handout or a bailout.

Instead, businesses that live or die by health care innovation in the U.S. ask only that we be allowed to continue doing just that: proving the value of what we’ve developed or failing in the marketplace.

The only thing that industry has a right to ask of public policy, in my view, is to help preserve the environment in which innovation is even possible. We operate in what I like to call an “ecosystem” of innovation. Like a natural ecosystem, none of its components is dispensable. Take away one element, and the system collapses. It can no longer sustain innovation.

There are three vital components of the ecosystem I’m talking about:

Number one is access to open health care markets. We need to be able to put our innovations to the test among doctors and patients. This means that doctors and patients need to keep the ability to choose, in an informed way, from all of the available alternatives.

Number two is market-based pricing, based on competition among therapies, undistorted by government interventions. We need to be able to get a return on our investment that reflects a real-world assessment of the value we’re delivering.

And number three is intellectual property protection. We need to be able to retain ownership, for some reasonable period of time, of the discoveries that our investors have risked so much on bringing to market.

Every part of this ecosystem is at risk in today’s health care reform push, and it’s time to talk about it much more openly. The answer is most certainly not the status quo. But for every idea that puts innovation at risk, there are viable alternatives that still move America towards improved access, better quality, and manageable health care costs.

I said that doctors and patients need to retain the ability to choose from all of the available alternatives. That ability would decline considerably if the U.S. government continues to expand its role as a health insurer.

Using what’s being called a “public plan” to reduce the number of Americans without insurance is a slippery slope towards the day when all or most Americans would get their health insurance through a government-run plan. There is simply no example, worldwide, of a robust private health insurance market co-existing with a government plan that’s open to all.

The Lewin Group recently estimated that more than 100 million Americans would lose or leave private health plans if an open, government-run plan came into being. That’s because many employers would stop covering their workforces and send them to the public plan. And private insurers could not compete with the resources of the Treasury or the power of the law to set reimbursement rates or the inevitable tendency of governments to dictate care choices.

I don’t think that American patients would —or should — accommodate themselves to the long waits for care, limited options, and other forms of rationing that inevitably accompany government health care monopolies. To realize the benefits of personalized medicine, American doctors and patients need to retain the ability to make choices based on the real value of treatment options.

Seen from this perspective of health care access and choice, I’m convinced that public subsidies and tax credits for the purchase of diverse, private options are a far better way to achieve access for all Americans.

For the same reasons, the proposals we’ve been hearing to, quote, “pay for” health care reform by allowing the government to negotiate Medicare pharmaceutical prices directly will only backfire. We all understand that the buyer of most of your output does not negotiate based on value; he dictates and controls.

In contrast, the private insurers who still negotiate Medicare and Medicaid drug prices today, they drive hard bargains focused on the value of an innovation in the larger scheme of care. Surveys show that a large majority of American seniors are satisfied with the Medicare Part D drug benefit. What’s more — and how many times can this be said about a government program? — the price tag for Part D has come in very much below the original estimates.

For many of the same reasons, doctors and patients need to carefully watch the development of what’s called “comparative effectiveness research” on behalf of the government—an effort that got a big boost in the stimulus package early this year.

Sponsoring solid, comparative research on the benefits, risks, and costs of various treatment options is a good thing. Doctors and patients clearly benefit from solid, science-based information. However, if the results of such research are used to trump physician judgment and to dictate medical practice or the availability and price of medicines, then personalized medicine will stop in its tracks.

Comparative effectiveness research tends to reach conclusions in the aggregate, about the many. Today’s and tomorrow’s highest-value treatments are all about the one, the individual patient.

In the midst of the broader health care reform season, Congress also is looking right now at legislation to encourage and regulate copied biotech products in the health care market, a very important way to control costs down the road.

Some Members of Congress, unfortunately, back legislation that would deny inventor-companies almost any period of “data protection” for their discoveries. Data protection means that for a certain period of time after the FDA approves a new biotech medicine, no one other than the inventor-company could make reference the inventor’s data about the product, and its manufacturing process, in another application to the FDA.

Setting the data protection clock at only a few years would leave biotech companies with almost no hope of recouping our investments in many of the best ideas for creating new medicines. The already anemic venture capital market in biotech, which I mentioned earlier, would get much sicker still.

We believe the answer lies instead with a 14-year protection period, balancing the prospect of a return on investment with a clear path to lower-cost copies. The bipartisan “Pathways for Biosimilars Act” in Congress takes this approach.

Ladies and gentleman, here’s my second opinion in a nutshell. Innovation is not the problem in our health care system. It’s not something to be feared or stifled. Instead, it’s a huge part of the solution.

  • Without innovation, we’re not going to be able to provide more effective health care to a rapidly aging population or control health care’s real cost drivers, including long-term care and hospitalizations.
  • Without innovation, we will be defenseless against growing scourges—such as Alzheimer’s disease, diabetes, and cancer.
  • Without innovation, the staggering health crises that linger in the developing world will get worse, not better.
  • Without innovation, we will not come close to matching the last century’s progress in longevity and quality of life—and may even go backwards.

Tie this all together, and I hope you’ll understand how this second opinion adds value to the first. We need to keep the “I” word on the table so that access to health care for all, better quality, and manageable costs will be achieved and also sustained in the decades ahead.

Encouraging innovation needs to be the purpose of U.S. health care reform—not its victim. Thank you.