Speeches & Presentations

Reinventing Invention: Fixing the Engine of Biopharmaceutical Innovation

John C. Lechleiter, Ph.D.

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

October 30, 2009

San Diego, California

Thanks, Duane, and good afternoon. My thanks to The City Club … LEAD San Diego … CONNECT … and BIOCOM San Diego for presenting today’s program. It’s an honor to be here. Coming from Indianapolis, I’m not sure we’re always going to see eye-to-eye on NFL football … but there’s one thing that our two cities share, and that’s the conviction that biotechnology offers tremendous potential for our communities and for human health.

Yesterday, I helped dedicate the Lilly Biotechnology Center here in San Diego, and we were pleased to be joined by Mayor Jerry Sanders. We’re bringing together nearly 200 Lilly scientists from across Southern California at this new center, which is located within an extensive hub of life science activity and prominent biomedical research institutes.

Today at Lilly, biotechnology is a growing part of our business. We have nine biotech products on the market, and more than one-third of our pipeline is composed of biotech candidates. We’ve also invested in new biotech research centers in Indianapolis and in New York City … but we believe that if you’re going to be a player in biotech, you have to have a strong presence in San Diego. You’ve made your city one of the top centers for life sciences in the world. And that makes this the perfect setting for my talk today.

Now, you may be wondering why I would come to a hotbed of biotech R&D to talk about “fixing the engine of biopharmaceutical innovation.” Doesn’t that imply that the engine is broken? Well, I say it is. At a time when the world desperately needs more new medicines – for everything from H1N1 to Alzheimer’s disease – we’re taking too long, we’re spending too much, and we’re producing far too little.

Ironically, this crisis comes at a time when we have vastly more scientific knowledge and data than ever before. But unless we change the way we do research, we won’t translate this knowledge into advances for patients. In the face of diminishing results, we're still too often taking the same old approach we've always taken and expecting a different outcome. That turns out, by the way, to be an old definition of insanity!

And it’s a tremendous waste, because there’s never been a more compelling case for the value of biopharmaceutical research. We’ve added a decade to life spans in this country, just in my lifetime! Innovative medicines have proven themselves time and again to be the most effective way to reduce costs and improve quality in health care, and the U.S. biosciences sector leads the world, providing good jobs to 1.3 million Americans. But today we risk losing our advantage and squandering our potential.

Let’s begin with a look at what exactly is broken.

First, we face a public environment where our industry – especially Big Pharma – is suffering from a loss of trust in the safety of our products and the honesty of our business practices … and we mostly have ourselves to blame. At the same time, we’re a victim of our own success. The public has come to take for granted continual improvement in medical care and expects progress to be essentially free of risks. So, even as we try to rebuild trust, we must meet ever-higher expectations.

Public mistrust is linked to a second issue, a risk-averse regulatory environment that leads to unreasonably high hurdles for new medicines. This worldwide phenomenon has been exacerbated in the United States, where legislation has led to new regulatory requirements and an associated slowdown in decision making at the Food and Drug Administration. Recent approvals have been delayed well beyond their expected review date. Among priority applications, 36% missed their target dates in 2008 – up sharply from 10% in 2007. We’re hopeful that FDA leadership will address these issues as it incorporates new legislative mandates into daily operations. But we need to give regulators new reasons to work with us … to reverse these trends and help speed innovation to patients.

Third, the biopharmaceutical industry is not immune to the tremendous pressures on the overall health care system. Despite the fact that prescription drugs account for only 10% of health care spending, we’re an attractive target for policy makers looking for cost savings. We also face perennial policy issues such as threats to intellectual property protection and patent enforcement that add to the uncertainties of a long-term commitment to drug development.

Ultimately, however, complaining about the external pressures is like complaining about the weather in Indianapolis. We can’t just wait for the weather to change. We have to change. If we’re going to be in the innovation business, we have to begin by reinventing the way we develop new medicines.

The statistics are daunting: Goldman Sachs estimates that the six largest U.S. pharma companies, including Lilly, will lose $60 billion in sales of products with expiring patents between 2008 and 2015. And we’re not launching new products fast enough to fill the gap. Indeed, Big Pharma accounts for a shrinking share of FDA approvals – only about one-third of all approvals in the past five years. Not surprisingly, the common stock of large pharmaceutical companies trades at a significant discount to the S&P 500 and has underperformed the market since the end of 2000.

In today’s world of constrained health care budgets, where success in the marketplace is tied more than ever before to reimbursement, we cannot expect to build a business on medicines that provide little or no incremental value over therapies that are already available. We can no longer sustain an R&D program on products that are aimed at broad populations with response rates averaging 50% – and, given what science makes possible today, we should not. Going forward, we must demonstrate clear superiority over existing treatments, and clear value for an identifiable group of patients, with a balance of benefits and risks aligned with society’s expectations. The stakes, and the challenges, of drug development are far higher – but so is the potential of the science and technology available today.

So what must we do? We can’t expect to get the innovation engine restarted just by consolidating or cost-cutting. We have to rebuild the drug development engine to provide that new level of value for patients. The only answer to the challenges we face is innovation … not only truly innovative medicines that address unmet patient needs, but innovative approaches to discovering and developing those new medicines.

In 1862, at this nation’s darkest hour, Abraham Lincoln offered some wisdom that fits our situation well. Addressing Congress, Lincoln said:

“The dogmas of the quiet past are inadequate to the stormy present. … As our case is new, so we must think anew, and act anew. We must disenthrall ourselves.”

So let me suggest three ways of thinking and acting anew in biopharmaceutical research … and I’ll call them three “C’s” if you will:

  • First, collaboration: We must break down whatever walls remain that inhibit or prevent collaboration with other enterprises, large and small … including academic institutions and government labs, anywhere in the world. This is certainly a critical component of Lilly’s strategy and one important reason why we’ve established a presence in San Diego!
  • Second, competency: We must rethink the way we conduct research in the lab as well as clinical trials, employing new methods and tools that enable us to draw from and take advantage of the explosion of knowledge in human biology.
  • And third, culture: We must radically refocus our research on improving outcomes for individual patients – and radically reshape our organizations … to lock into that focus from the very beginning of the drug development process.

In discussing these three concepts, I’ll offer some examples from Lilly’s own efforts. Clearly, we don’t have all the answers … not by a long shot … but we’re focusing all our energies on finding solutions.

Let’s start with collaboration. The possibilities created by science today, and by the wealth of information available, are too vast to be identified, much less developed, within any one company.

The Lilly I joined as a scientist 30 years ago was a “fully integrated pharmaceutical company” – or “FIPCo” – which owned the entire value chain from an idea in a researcher’s lab to a pill in a patient’s medicine chest. Earlier this decade, we adopted a new model – a “fully integrated pharmaceutical network.” This “FIPNet” still stresses the integration aspect … with Lilly assembling and orchestrating the network … but more and more of the pieces are linked through partnerships, alliances, and other relationships and transactions … rather than always through outright ownership.

A well-developed FIPNet allows us to cast a wider net – for ideas, for molecules, for talent, and for resources. In the process, we can greatly expand the pool of opportunity. We can leverage our financial resources by sharing investment and risk. And we can operate around the globe … and around the clock … to get work done more efficiently.

Collaboration like I describe can take many forms:

  • Five years ago we created a virtual development team called Chorus to execute one of the most important aspects of drug development … getting to proof of concept, which is early evidence that a drug works in humans. Chorus manages an average of 15 molecules – about 20% of Lilly’s early development pipeline – with a core team of just under 30 scientists and 80% of the work done by scientists and organizations outside our walls. Compared with external figures for our industry, Chorus is able to reach proof of concept 12 months earlier and at half the cost.
  • We’ve also handed off some early-stage molecules to other firms using risk-sharing deals that provide us the right to buy back a molecule … once our collaborators succeed in establishing proof of concept in the clinic.
  • We’ve tapped private investment funds to spread the risks of certain late-stage R&D projects … and we’ve put our own funds to work in biotech start-ups. In fact, our venture capital firm, Lilly Ventures, has an office here in San Diego and has made investments in several local firms – including Cabrellis, Conforma, and Cylene.
  • We’re also working with groups such as San Diego CONNECT to find collaborative ways to bridge the so-called “valley of death.” This is the phase in development where funding often dries up before a promising molecule can be translated into a potential medicine that would attract new investment. We’re hopeful that a collaborative approach can give new life to molecules discovered at places like UCSD, Scripps, Burnham, and other research institutions and companies here in San Diego.

By the way, CONNECT is also working with BioCrossroads … a public/private initiative that Lilly helped to form in 2002 to develop the life sciences in Indiana … to link San Diego-based discovery companies with Indiana-based development organizations. San Diego is home to 300-400 biotech companies that typically contract externally for many or all discovery and development-related services. Central Indiana is home to more than 50 contract research organizations and other specialized service providers. Sounds like a perfect marriage to me!

Again, the success of biopharmaceutical research in this country requires collaboration that goes far beyond the network of any one company.

Academic and government research has historically maintained a symbiotic relationship with the private sector, often supplying the raw material … such as insights on disease processes and leads on promising molecules … which industry has helped advance toward commercialization.

And we will increasingly need to collaborate across the industry itself … rethinking what information must be proprietary and what information is more valuable when it’s shared. Several industry consortia have been formed to undertake common efforts such as developing disease progression models or validating biomarkers.

We’re also seeing the development of “open source” platforms for pharmaceutical R&D and biostatistics. For example, in June we launched Lilly’s Phenotypic Drug Discovery Initiative, known as PD-squared, through which we engage with scientists working in universities and small biotechs. Lilly performs – free of charge – biological testing of compounds submitted from outside the company in assays representing diseases of interest to us: Alzheimer's disease, cancer, diabetes and osteoporosis. We then provide comprehensive reports to the outside researchers.

In return, Lilly retains first rights to negotiate a collaboration or licensing agreement with the submitters. If such an agreement does not result, the external researcher receives no-strings-attached ownership of the data report to use as they see fit in publications, grant proposals, or further research.

Just as we need to be more creative in collaborating, so we also have to take greater advantage of the second “C” – competency. We have many of the tools right now to transform the drug development process – reduce cycle times, increase the probability of technical success, and cut the cost of bringing new medicines to patients. But these tools are vastly underutilized … and in some cases, the regulatory system is struggling to keep up. Let me briefly explain just three new “competencies” that are changing drug development at Lilly: advanced analytics, critical chain management, and tailored therapeutics.

First, we’re creating an Advanced Analytics Hub to implement novel clinical trial design and analysis methods … to increase the speed and reduce the cost of clinical research while generating more useful data for regulators and for our own decision making.

Clinical trials are the most costly and time-consuming part of pharmaceutical R&D. A large-scale Phase 3 trial can involve tens of thousands of patients, take several years to complete, and cost hundreds of millions of dollars. In the traditional model, each trial is designed basically to answer one question, yes or no. It’s a slow, disjointed process.

We are working to apply new analytical methods that allow us to learn and adjust as we go. We’re developing adaptive trial designs that allow us, for example, to identify optimal doses or target tumor types more quickly, with smaller trials, and thus at lower cost.

We’re also developing “seamless” approaches. One example is our study of an investigational treatment for diabetes. The study combines into a single trial objectives typically addressed in separate Phase 2 and Phase 3 studies. Specifically, dose finding, which is typically conducted during Phase 2, is embedded in a large Phase 3 study of safety and efficacy, eliminating the usual time gap between trials.

We’re also applying advanced analytics to transform pharmaceutical R&D more broadly … using tools such as data mining, Bayesian statistics, and more advanced modeling and simulation techniques.

For example, we have applied such methods to identify patients who are most likely to respond to atypical antipsychotics. Following initiation of treatment for an acutely ill patient suffering from schizophrenia, it has typically taken 6-to-8 weeks to determine whether the patient will respond to a medication in the longer term. We’ve been able to predict that response within two weeks, with 75-80% accuracy. Imagine the value to the doctor, and the benefit to the patient, of knowing that much sooner. This methodology can also help speed clinical trials, since we will be able to determine potential efficacy earlier and study more molecules in less time.

A second competency is project management – which is critical to the success of the complex, multi-year drug development process.

Last month, we announced the most sweeping changes in our company’s history. As part of those changes we’re creating a Development Center of Excellence – or COE – that will streamline the development of new medicines with one common operating system, one common set of priorities, and a singular focus.

The COE is implementing a project management methodology called “Critical Chain,” developed by physicist Eli Goldratt. Critical Chain was actually first applied at Lilly in a completely different context by our IT group. They, in turn, helped our research labs launch a pilot program that has proved the power of Critical Chain in drug development. Historically, across our pipeline, we have a 60% success rate in hitting milestones on time – in other words, we miss almost half of our deadlines. In the Critical Chain pilot program, the success rate so far is 100%. That’s why we’re now applying Critical Chain in force.

A final competency I wish to address is tailored therapeutics.

Fundamentally, tailored therapeutics means moving away from the one-size-fits-all approach to drug development. In fact, we increasingly have the ability to identify the subgroups of patients who are most likely to benefit from a medicine – as well as those who might be at higher risk of side-effects.

Tailoring can be approached using:

  • phenotypic characteristics – such as age or weight;
  • established biomarkers – such as HbA1C levels for people with diabetes;
  • and increasingly genetic markers, as well.

Here’s an example. Lilly’s Alimta is approved to treat the most common type of lung cancer – non-small cell lung cancer. Research has confirmed that Alimta is particularly effective for lung cancer patients with a specific tumor cell type, called “non-squamous” … which can be easily determined from a biopsy of tumor tissue. In fact, Alimta has been approved in the U.S. and Europe specifically for treatment of non-squamous non-small cell lung cancer.

Knowing the patients who are most likely to benefit from Alimta – and those who are not – holds the promise of better outcomes for patients, and more value for the health care dollar. With Alimta, the “tailoring” happened after launch. In the future, we want to build this in at the earliest stages of development of potential new medicines.

In fact, it’s increasingly within our grasp to target R&D efforts on a subset of patients who have not been helped by earlier treatments. And it’s even possible in some cases to customize molecules specifically for those patients, using biotechnology tools developed and applied by Lilly scientists working right here in San Diego. We’ve demonstrated the ability in some instances to “dial in” desired properties or to “dial out” properties that might be linked to harmful side-effects.

When you see the tremendous potential of our science today … much of it untapped … you come inevitably to the third "C" – culture … because I believe the biggest barrier to innovation is probably between our ears!

The creation of an optimal culture for innovation within any concern – large or small – is a tricky and challenging endeavor. Countless books have been written about it, but no one seems fully to have the answer. Yet it’s critical that we get this right, particularly at a company like Lilly that has staked its future on discovering and developing innovative medicines.

I recently heard one of my Big Pharma CEO colleagues describe this challenge in terms of getting into proper balance the left brain/right brain activities that spur creativity on the one hand, yet also ensure that rigorous processes help guide decision making and appropriate business choices.

Our innovation culture at Lilly is thick and well established. Its positive attributes include a penchant for teamwork, collegiality, high scientific standards, and a century-old heritage of groundbreaking discoveries and contributions to medical progress.

Yet, I believe if we are going to realize the changes and improvements that we seek, we must examine critically all aspects of the culture within Lilly and all our companies, with an eye to the key determinants of success.

Central to this, I believe, is the notion that it is the patient … and, in particular, delivering improved outcomes for that individual patient … that matters most, above all else. This is what we refer to at Lilly as our True North – as we navigate through the discovery process and attempt to make sense of the myriad data we generate; as we establish those first few critical success factors for a molecule entering into the earliest stages of clinical development; and as we complete large-scale clinical trials and compile the regulatory dossier.

At Lilly, adherence to this principle has prompted us to consider what we must change. For example, I’ve made a simple pitch for our scientists to spend more time in the labs … to clear away distractions that are all too common to corporate culture. And, in a time when knowledge is so widely shared across the web and around the world, we also need to make sure we tap into the broad base of knowledge resident in our own organization, building a culture that encourages everyone to offer new ideas or to challenge the status quo.

And last but not least we must continue to develop and cultivate scientific leaders who are able to inspire their co-workers while at the same time articulating ambitious goals and setting clear expectations.

All of this must translate into a new spirit of urgency around purpose and mission -- not an urgency that creates paralyzing anxiety, but one that spurs action and fosters the creativity that we need. As proud as we might be of where we stand today, we must see our future as anything but secure and acknowledge the full extent of the challenges we face. As Lincoln said, we must indeed "disenthrall ourselves."

And yet, we can and must be reassured by the reservoir of knowledge, the access to resources, and the financial wherewithal that characterize a company like Lilly … even as we recognize that ever smaller numbers of enterprises like Lilly are able to apply such strengths on a global scale.

In this way, we can hope to unleash the ultimate source of our success – the energy of the human spirit – among our Lilly people and all with whom we partner in this pursuit.

Ladies and gentlemen, only by reinventing biopharmaceutical R&D can we meet the challenges I outlined at the beginning:

  • To regain public trust by delivering medicines that meet the rising expectations of patients, physicians, and payers;
  • To address the concerns of regulators by appropriately balancing benefits and risks; and
  • And to demonstrate convincingly to policy makers the role that innovative medicines can and must play to meet growing demands on the health care system.

Repowering pharmaceutical innovation is an urgent need not only for our company and our industry but for our nation – and for communities like San Diego and Indianapolis that have a huge stake in the life sciences. Yet, the most urgent need for innovation is felt by people around the world who are still waiting for cures for so many devastating diseases.

As our nation debates reform of our health care system, we must ensure that reforms do not undermine the very innovation that can help achieve the purpose of reform. Indeed, sustained medical innovation is the only way we can meet our competing goals for health care … expanding access, improving quality, while reining in costs.

No one company – not even the entire biopharmaceutical industry – can do it alone. We remain dependent on a society that welcomes and values new ideas, and public policy that enables innovation to be rewarded for the value it creates. But we also know that we need to change – that we bear some of the burlap.

I’ve outlined in my remarks today some of the ways that Lilly is working to change the way we discover and develop new medicines. But we know that’s not enough – we need to show tangible results. At this point, I can cite some promising early indicators and can state unequivocally that we have the most exciting clinical pipeline in Lilly’s history. But the real proof will be our success in bringing forth new medicines and demonstrating their value in treating patients. I can tell you, for that, we have a real sense of urgency.

Last month, when we announced the changes to our organization, one of most common questions was, Why didn’t we do this sooner? Good question – which one of our senior executives answered with a proverb: “The best time to plant a tree is twenty years ago; the second best time is today.”

The time to rebuild the biopharmaceutical innovation engine is now

  • To reap the benefits of the explosion in scientific knowledge and powerful new tools,
  • To maintain U.S. leadership in this 21st Century field and the economic benefits that go hand-in-hand,
  • And, most importantly, to deliver new cures and improve the health and lives of people around the world.

Thank you.