Speeches & Presentations

How Do We Speed Innovation to Patients?

Jan M. Lundberg, Ph.D.

Executive Vice President, Science and Technology, and President, Lilly Research Laboratories

February 8, 2011

BioCrossroads Frameworx Conference

Indianapolis, Indiana

Thank you, David [Johnson]. I am delighted to be here this morning to discuss one of my favorite subjects: innovation.

Obviously, you are here because of your own interest in innovation, specifically innovation in the life sciences. Whether you are involved with biopharmaceuticals, medical devices or equipment, health care delivery, agricultural or veterinary sciences, health information technology, or higher education, you know how vital innovation is to the life sciences. Perhaps even more important, you recognize that innovation in the life sciences can make a huge difference in the lives of people around the world.

Consider the impact a new medicine to treat cancer, diabetes, Alzheimer’s, or other horrible diseases would have on human health. Or, think about the value of a dental microlaser that can be used to perform biopsies and other procedures with less bleeding, lower doses of anesthesia, and faster healing than traditional methods. What about innovations that increase the nutritional yield of our food supply, in a world where millions go to bed hungry every night and even more are malnourished? Or, consider the potential of an improved air-handling system to reduce hospital infection rates.

Innovation in the life sciences isn’t about creating a new “app” for a smart phone, or a quieter kitchen appliance, or retractable door technology that will increase the fuel efficiency of your automobile, although those are all fine things. It is about bringing new medicines, new diagnostics, and new medical devices and equipment to patients. It’s about increasing the abundance, reliability, and safety of the world’s food supply.

Innovation in the life sciences contributes to the economic vitality of Indiana. Even more important, it contributes to longer, healthier lives. Medical innovation is the key to meeting the health care needs of a rapidly aging population, improving quality and lowering costs, and making progress against debilitating and often highly complex diseases.

In our business, innovation translates into healthier, happier lives for millions of people. I am very proud to be involved with—and contribute to—innovation that can make such a difference.

Certainly, in this time, we face a tough environment, especially regarding risks and payer demands for better differentiated treatments. Creating innovation itself involves solving difficult scientific, technical, and medical problems. Inevitably, there will be failures. They are simply part of the innovation process. As filmmaker Woody Allen said, “If you’re not failing every now and again, it’s a sign you’re not doing anything very innovative.”

There will always be critics, people who doubt the value of scientific innovation or say it is too expensive. The late John Sladek, an American science fiction author, said, “The future, according to some scientists, will be exactly like the past, only far more expensive.”

It is clear that those of us in the innovation business have our work cut out for us.

This morning, even though I am a newcomer, I want to talk about the vibrant life sciences community in Indiana and its importance…the contributions of BioCrossroads…and some of the ways Lilly has transformed the way we discover and develop innovative new medicines. But, more than anything, my goal is to spark a discussion about how we can perpetuate our strong life sciences community in Indiana, one that will help all of us overcome obstacles, solve scientific problems, and speed innovation to patients.

Specifically, I would like to begin a conversation about…

  • ways to increase collaboration—and the sharing of learnings (both successes and failures)—between industry and academia
  • possible collaborative approaches to overcoming regulatory challenges and better meeting the needs of our customers
  • how we might bring Indiana life sciences even further to the world stage and attract more world-class talent to Indiana.

Before I came to Lilly just over a year ago, I knew a bit about Indianapolis—more, I would guess, than most Europeans. Of course, the Indianapolis 500 race is familiar to many in Europe and around the world…and I knew that the Indianapolis Colts were the champions of Super Bowl 41. As an executive at AstraZeneca, I knew a great deal about Lilly and had followed the company and its pipeline rather closely.

Through my years as a professor and researcher in the department of pharmacology at Karolinska Institute in Stockholm, I also knew about the strong life sciences programs and research being conducted at Indiana’s universities, notably Purdue, Notre Dame, and Indiana University.

Since moving to Indianapolis from my native Sweden, I have learned more about Indiana’s life sciences sector and what I’ve learned is very positive.

Last October, a Time magazine article examined bright spots in the sluggish U.S. economy. The article’s author—Bruce Katz, founding director of the metropolitan policy program at the Brookings Institution—identified factors that drive an area’s economic success: patents, advanced research and venture capital, college graduates and Ph.D.s, and air, rail, and sea transportation. While Indiana can’t do anything about its access to sea travel, it scores pretty well on the other characteristics.

Katz goes on to say that the reason the Silicon Valley and Boston lead the world in technological innovation is because they have a concentration of those factors—patents, Ph.D.s, and so on. Those factors also explain, Katz adds, “why San Diego and Indianapolis are global players in the life sciences.”

And Bruce Katz at the Brookings Institution isn’t the only one who believes that Indiana is a true center for life sciences innovation. In June 2009, The Economist made this assessment, “Though every state wants to be a hub for life sciences, Indiana really is one.”

Clearly, the life sciences sector in Indiana is attracting attention, deservedly so. More importantly, it is making a difference for the people of Indiana and for those who live thousands of miles from Interstate 465.

Between 2001 and 2007, life sciences represented nearly a quarter of all job growth in Indiana. As a result, today Indiana is home to more than 1,600 businesses in the medical device, pharmaceutical, drug development, diagnostic, and agriculture-biotech sectors. The annual wage of a typical life sciences job in Indiana is $82,000, which is more than double the average wage in the state.

What’s more, the total value of Indiana life sciences exports more than doubled between 2002 and 2007, from $2.5 billion in 2002 to $5.1 billion in 2007. That figure is 7 percent of the U.S. total and 3rd highest among all U.S. states, behind only California and Massachusetts.

This growth did not happen accidentally. In 2002, Lilly and a number of others helped to launch BioCrossroads—as you know, a public/private initiative to develop the life sciences in Indiana. BioCrossroads began with a strong base of global life sciences corporations—not only Lilly, but also Roche Diagnostics, Dow AgroSciences, Guidant, Zimmer, Biomet, Cook, and others—and the state’s highly respected research universities, including Indiana University and its medical school, Purdue University, and the University of Notre Dame. In addition, the life sciences sector here has benefited from a supportive state government and positive business climate.

BioCrossroads is designed to form connections among Indiana’s life sciences research institutions, corporations, philanthropies, and state government to create new opportunities and prepare for a future that will increasingly be global, networked, and entrepreneurial. In other words, BioCrossroads is designed to foster innovation and collaboration, and it has been very successful in doing just that.

Since its inception,

  • BioCrossroads has directly raised nearly one-quarter of a billion dollars of market capital and philanthropic funding to identify and pursue promising new Indiana life sciences opportunities.
  • It has organized four venture capital funds that have invested in 25 start-up Indiana life sciences companies and has attracted more than $160 million of additional outside venture capital.
  • For example, since 2003, 14 Indiana-based companies—including five university-related firms—have received investments from the Indiana Future Fund… And the Indiana Seed Fund has invested in 11 university-based enterprises that are advancing important discoveries in the diagnosis and treatment of lung disease, chronic pain, kidney disease, memory loss, coronary artery disease, epidemic infections, and cancer.
  • BioCrossroads has also formed eight sustainable enterprises to capitalize on Indiana’s strength in the life sciences, such as the Indiana Health Information Exchange and OrthoWorx, which supports growth and innovation in the orthopedics hub in Warsaw, Indiana—home to nearly one-third of the world’s orthopedic device industry.
  • BioCrossroads has directly helped draw more than 3,000 new life sciences jobs to Indiana and has elevated Indiana’s visibility on the national map of biotech, medical device, and health care IT centers.
  • BioCrossroads has also worked to expand and enhance science and math education in Indiana.

From the beginning of Lilly’s regional efforts in the life sciences, we’ve recognized that one of our most valuable assets is clinical data. In 2004, BioCrossroads drove the formation of IHIE—the Indiana Health Information Exchange—to connect, exchange, collect, and analyze patient information from major central Indiana health systems. By 2008, the Indiana Health Information Exchange was identified by Health Affairs as the “most advanced” health information network system in the United States.

Lilly has a strong tradition and history in pharmaceutical innovation with 134 years of important contributions to human health—such as insulins, Forteo®, and Alimta®, often in collaboration with academia, biotechs, and pharmas.

Lilly’s involvement in BioCrossroads—our support of a life sciences cluster, or hub, strategy— fits perfectly with our own strategy as an innovation-based pharmaceutical company, particularly a key element of the strategy that we call “FIPNet.”

Until just a few years ago, Lilly—like other big biopharmaceutical companies—owned most of the value chain from an idea in a researcher’s lab to a tablet in a patient’s medicine chest. We call that a fully integrated pharmaceutical company, or “FIPCo.” Lilly adopted and has implemented a new model, a “fully integrated pharmaceutical network,” over the past several years. This “FIPNet” means that, while Lilly assembles and oversees the network, more and more parts of the value chain are linked through partnerships, alliances, and other relationships and transactions rather than always through outright ownership by Lilly.

Strong internal competence is key to successful external collaborations to be a credible partner, adding value and ensuring due diligence and progress of the partnerships. 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, risk, and reward. This wider net is global; so, not surprisingly, we’re doing more work in China and India, tapping into the vast intellectual capital in those countries, while sharing learnings about the value of protecting intellectual property with them. These countries have major ambitions in the life science sector. They are potential partners and markets but are also becoming our future competitors.

At the same time, a key part of our FIPNet is right here in our own backyard—building on the 3,000 relationships we have with suppliers in Indiana. That’s the natural fit between our FIPNet strategy and Indiana’s life sciences sector I mentioned earlier. Lilly is part of a growing web of collaboration in the life sciences, expanding our network of drug discovery, development, and manufacturing, within Indiana.

For example, in 2008, Lilly sold Covance its research site in Greenfield, Indiana, and Covance assumed Lilly’s operations there. Lilly has had a collaborative relationship with Covance, a contract research organization, for more than 20 years now. As part of the transaction, we established a long-term relationship with Covance for work they perform for us at the Greenfield labs. To better serve Lilly—and its other customers—Covance expanded the site’s biorepository and other facilities and capabilities. Late last year Covance announced it will close a site in Virginia and transfer its genetic toxicology and reproductive toxicology study capabilities to Greenfield, along with many of the site’s employees.

This agreement is not just good for Lilly and Covance—it is having a positive impact on Indiana as well. Covance has enhanced its regional presence and grown its Greenfield business. In addition to Lilly work, Covance’s Greenfield site has provided R&D services to about 20 other pharmaceutical companies, enabling the company to further invest, grow the campus, and hire additional employees for high-paying jobs.

Lilly followed a similar strategy in late 2009 with the sale of our Tippecanoe Laboratories manufacturing site in Lafayette, Indiana, to Evonik Industries.

As a result, Lilly is a more flexible company, able to tap the capabilities of partners who specialize in the services they provide us, and we are better able to serve the needs of patients. By “unlocking” what had been internal Lilly assets and allowing them to serve additional clients, the Covance and Evonik transactions open the door to additional growth at these sites, leading to increased employment and broader, more robust life sciences capabilities in the region.

As a company that thrives on innovation, we draw strength from a vital life sciences community. Certainly, with the Internet and the airline industry, it’s possible for scientists to collaborate with their colleagues around the world, as Lilly scientists do every day. But those researchers don’t live in cyberspace or on planes. They live in real communities and get involved in their neighborhoods, schools, and places of worship. They benefit from having a wide range of career opportunities in their field, right where they live. They still value opportunities for face-to-face interaction with others who do the same kind of work they do. So we believe strongly that it’s important to have a vibrant life sciences community in Indiana if we are to continue to recruit and retain the best talent. As we say in Sweden: “don’t cross the lake to look for water.” In other words, we don’t need to look elsewhere for talent, if we have it right here in Indiana.

In many cases, Lilly “alumni” remain active in the academic and commercial areas of the life sciences around the state. Just last month, I had the opportunity to talk with some of these Lilly alumni at the JP Morgan Healthcare Conference in San Francisco. They remain deeply passionate about innovation in the life sciences, and the future of Lilly. At least six new Indiana-based life sciences businesses have been spun-off from Lilly or started with Lilly support. For example, former Lilly employees started CoLucid, which received venture capital funding from the Indiana Future Fund, by in-licensing a Lilly pipeline compound for migraine.

Earlier, I mentioned FIPNet, the model that attracts molecules, funding, and expertise from partners—enabling Lilly to share investment, risk, and reward. Now I’d like to mention just a few specific things we are doing to transform the way we do business.

This transformational work has been done deliberately and thoughtfully. Scientists sometimes refer to “serendipity” or “happenstance” when discussing innovation. And, while there is an element of luck, we know that innovation is the result of sound processes, patient investment, hard work. It is, as I am fond of saying, the result of solving difficult scientific, technical, and medical problems. Often, it means adopting an entirely new way of thinking about things.

While Lilly has made significant strides in transforming the way we do R&D (and the way other parts of our business operate as well), there is always room for improvement, and our transformation is a work in progress.

Major advances are happening in the generation of therapeutic agents. For example, multi-specific biologics are becoming a reality. You can now combine two unique mechanisms of action into one molecule in order to increase efficacy. As such, there is a constant need to upgrade internal competencies and pursue external innovation. Another exciting development is a virtual early-phase drug development network we call Chorus. Established in 2002, Chorus is a small, cross-disciplinary group of Lilly scientists who design, interpret, and oversee early-stage development work. The work is accomplished through a network of organizations outside Lilly walls. Using this approach, Chorus currently manages 15 molecule programs with a dedicated staff of around 30 scientists.

Chorus draws on internal Lilly skills, contract research organizations, and external consultants with very specific areas of expertise. This means that each partner does precisely what it does best.

Applying a lean development model, Chorus has been able to reach clinical proof-of-concept about 12 months earlier and at half the cost compared to the current industry model. So far, Chorus has delivered data on 19 molecules, several of which resulted in positive proof-of-concept decisions—meaning data showed proof the molecule works the way we thought it would—saving Lilly more than $100 million in the process, not to mention the opportunity costs avoided by reaching the endpoint faster. The frontrunner, an anti-BAFF antibody, is now in Phase III trials for rheumatoid arthritis and lupus.

Because of the success of Chorus, we are scaling our capacity to increase the number of Lilly molecules with unprecedented clinical mechanisms that we will develop under this new paradigm and to participate in the development of non-Lilly molecules through a new model for funding innovation.

In this model, we are working with venture capitalists in the United States and Europe to create investment funds that will enable the acquisition of promising molecules from external sources and from Lilly, using Chorus and other alternative development engines to advance them to proof of concept. We plan to invest in three venture capital funds that could, over time, total $750 million, up to $250 million each, with Lilly contributing up to about 20 percent.

We refer to this R&D strategy as our “Mirror Portfolio,” anticipating the creation of a “mirror image” of Lilly’s internal early-stage portfolio with externally funded molecules whose development we can impact.

This new model is designed to take molecules at the candidate stage—about a year away from testing in humans—and proceed to clinical proof-of-concept in three years at an average cost of $10 million or less per molecule, a speed and cost comparable to the best biotechs.

For our investments of time and capital, Lilly will receive access to molecules developed by the funds. Lilly retains rights to buy back all Lilly molecules licensed by the funds, as well as to evaluate and acquire a number of externally sourced compounds, all at fair market value. At that point, we will have discharged risk on a large number of compounds. We’ll not only have a good initial read on safety, but we’ll also know something about the potential efficacy of the molecule.

Another exciting development is Lilly’s phenotypic drug discovery initiative, or PD2, which was introduced in 2009. PD2 uses Lilly’s biological screening technology to evaluate the therapeutic potential of compounds synthesized in university and biotechnology laboratories around the world…and right here in Indiana.

Each year, scientists in university and biotechnology laboratories throughout the world design and synthesize compounds that are never fully evaluated as potential drug candidates. In many cases, innovative compounds languish on the shelf because of limited access to disease-relevant assays or high barriers of entry into the drug discovery and development process. Through PD2, we are using sophisticated biological screening technologies for key disease pathways and a secure web portal to engage global external investigators in the drug discovery process.

Affiliated institutions—universities, biotech labs, and other institutions—submit compounds in key disease areas (shown on this slide) to Lilly for evaluation. Intellectual property rights remain with the submitting researcher or institution. After testing is complete, Lilly has exclusive first rights to negotiate a collaboration or licensing agreement to further optimize a compound that demonstrates promising biological activity with prospects to become a product.

As you know, the interface between industry and academia is one of the most productive and fertile areas for innovation, and Lilly is finding that to be the case with PD2.

We also like to say that FIPNet doesn’t just mean working with companies or universities in China, India, or even Sweden. It is significant that our first signed agreement for PD2 was with the University of Notre Dame, only 125 miles from Indianapolis.

In addition to evaluating external compounds, PD2 partnered with Indiana University’s Kelley School of Business to explore alternate business models for interesting compounds Lilly doesn’t have the capacity to resource internally. Through the school’s Center for the Business of Life Sciences, 10 graduate students—some pursuing master’s degrees in business administration, others working toward advanced scientific degrees—provided fresh, outside perspectives on how these compounds might be carried to the next milestone via an external network associated with PD2. Currently, Lilly experts are evaluating the students’ proposals.

This is an example of another valuable Lilly collaboration taking place in Indiana—one that takes advantage of an exciting synergy within the Kelley School of Business through the Center for the Business of Life Sciences. Giving graduate students in two very different disciplines—business and life sciences—the opportunity to work together on real business problems is a win for Lilly, a win for the Kelley School, a win for the students, and a win for their future employers.

All of us here this morning are involved with, or have great interest in, innovation in the life sciences. We know that patient needs are great, that regulatory hurdles are high, and that creating innovation in the life sciences involves risks along with the potential rewards. Too often today, when policymakers and the public talk about health care and medical innovation, the conversation turns to cost. That is easy to understand, given the rising cost of health care in the United States and throughout the developed world. But the question shouldn’t be “Does health care cost too much?” but, rather, “Are we getting our money’s worth?”

Consider, for example, another field: information technology. As customers of IT, we consider the entire value proposition of new hardware or applications. We do not just look at price, anymore than we evaluate the potential purchase solely on its features and benefits. The value of health care must be evaluated in terms of its costs, risks, and benefits.

A report released in December 2011 by the Zerhouni Group—founded by Dr. Elias Zerhouni, former director of the National Institutes of Health—called biotech “a high risk, high public interest industry.” Of course, the same could be said about the broader life sciences sector. In fact, I am convinced that this perspective—viewing our work as “high risk” and “high public interest”—will be critically important going forward.

Various groups—patients, their families, physicians, payers, regulators—should want us to succeed in creating innovation. Clearly, collaboration will be the key.

Examples of collaboration are evident throughout our industry—including the Lilly examples I mentioned, the work of BioCrossroads, and efforts being undertaken by your own companies or universities.

When I was at AstraZeneca, I was a member of the research directors group of the European Federation of Pharmaceutical Industries and Associations. In 2007, EFPIA and the European Commission established the Innovative Medicines Initiative. IMI aims to strengthen the competitiveness of the European Union and to support more efficient discovery and development of better medicines for patients by removing research bottlenecks in the current drug development process. Research activities are conducted through collaborative projects between pharmaceutical and small biotechnology companies, academic institutions, regulatory agencies, and patient organizations. Billion-dollar funding comes jointly from the EU and pharma industry (in biotech).

Here in the United States, NIH has supported precompetitive initiatives and collaborations among industry, government, and academia. ADNI, the Alzheimer’s Disease Neuroimaging Initiative, is one example of a collaboration designed to find solutions to scientific problems faced by virtually every researcher working in the field. Alzheimer’s disease is a key strategic area for Lilly, with several investigational medicines aimed to slow progression. This research and development is being facilitated by Lilly’s recent acquisition of a PET imaging diagnostic that detects amyloid plaque in the brain, a key characteristic of Alzheimer’s disease. Previously, this could only be done by autopsy.

I cannot say it strongly enough—or too frequently—innovation in the life sciences absolutely depends on collaboration. Innovation means coming up with and investigating big ideas, different approaches, perhaps entirely new ways of doing things.

Collaboration among scientists—whether it is with a colleague in the lab next door or a researcher across town or halfway around the world—increases knowledge and the flow of ideas. When it is possible to share research to advance science and, ultimately, benefit patients, we should consider doing so, taking care, naturally, to protect our intellectual property.

Certainly, there are ways to create incentives that foster innovation. For instance, some have suggested tax incentives (similar to those offered to oil and gas companies in the United States and to R&D efforts in Canada) or capital gains tax relief. Others have suggested innovation bonds or the creation of a government high-risk development fund, promoting and partially funding high-risk projects. Still others advocate changes to patent laws, including lengthening the period of data exclusivity for medicines that meet certain criteria for unmet public health needs, which recently happened for biologics and many believe should also happen for small molecule pharmaceuticals.

I am a scientist, not a politician or a public policymaker. What I can do—and what I would like to begin this morning—is encourage discussion of ways we can share learnings and work together to solve common or related problems, for the benefit of the patients and the community we all serve.

Science is about generating ideas and hypotheses and testing them. It is not an easy endeavor but the rewards can be great. The most valuable reward of all is bringing much-needed innovation to patients.

So, my question to my Lilly colleagues virtually every day, and my question to you this morning: How do we work together to solve tough scientific, technical, and medical problems?

I would like us to begin by considering these questions:

  • How can we expand collaboration between industry and academia?
  • How can we bring Indiana’s life-sciences sector even further onto the world stage?
  • How can we work together, as a life sciences community, to solve and overcome regulatory challenges and hurdles? Getting the discussion to benefit and risk, not only risk.
  • Finally, how can we better satisfy the needs of our customers (patients, providers, and payers)?

Lilly and your own companies or institutions face tough challenges, but we are all committed to finding—or, for those of you from venture capital firms, funding—true innovation. That means we must be just as committed to collaboration and sharing knowledge.

Thank you, and I look forward to the panel discussion...