Speeches & Presentations

Is There a Future for the Research-Led Pharma Company?

John C. Lechleiter, Ph.D.

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

February 10, 2011

The Pharma Summit 2011

London, United Kingdom

Thank you Iain [Scott, Managing Editor, Business Research, Economist Intelligence Unit.]

Good morning. It is an honor for me to open this conference sponsored by The Economist, and a great opportunity to discuss the future of the research-led pharma company … in this country where Lilly has a long history and a significant presence in pharmaceutical R&D.

In fact, I am a proud alumnus of Lilly’s Research Centre at Erl Wood in Surrey. I worked at Erl Wood in one of my earliest and most satisfying Lilly assignments – more than 25 years ago. When Lilly opened the Erl Wood Research Centre in 1967, it became the company’s first research and development site outside the United States. Erl Wood has made truly historic contributions to Lilly research over the past four decades, and it remains still today our largest R&D center apart from our corporate headquarters.

So I won’t leave you in suspense. The answer to the title of my remarks today, “Is there a future for the research-led pharma company?” is … “Yes!” You weren’t expecting different from the CEO of Lilly, right?

But my answer is not unequivocal. The global pharmaceutical industry truly is at a crossroads. It is clear we can no longer depend upon the business models of the past. So my answer to the question is “Yes, if” … if we take the right path … if we meet the challenges facing our industry … if we’re successful in overcoming some formidable hurdles.

The challenges facing the research-based pharmaceutical industry are universal. Countries around the world face inexorable demands on health care systems from aging populations … and budget pressures made even worse by the economic slowdown of the past several years. As a result, payers around the world – both public and private – are relentlessly pursuing ways to hold down spending on health care, including medicines, and demanding greater proof of the value of the medicines that are prescribed or reimbursed.

So it is no surprise that my visit to the UK coincides with a prominent national debate on health care reforms that could have a significant impact on research-based pharmaceutical companies like Lilly. When health care reform was enacted in the United States almost a year ago, we predicted that the new law marked the beginning, not the end, of the debate in our country – which was all along a very safe prediction!

Still, the challenges facing our industry are not all coming from the outside. At a time when the world desperately needs more new medicines – for everything from influenza to Alzheimer’s disease – our industry is taking too long, we’re spending too much, and we’re producing far too little.

In fact, some pharmaceutical companies are hedging their bets, reducing their focus on innovative medicines or staking their future on consolidation – raising the question I’ve been asked to address this morning.

This is not our path at Lilly.

We believe that important new medicines – increasingly tailored for specific sets of patients – can and will continue to be discovered in our labs and our global research network. And we believe that medicines with clear, demonstrable value will be rewarded with pricing and access commensurate with that value.

In fact, there’s never been a more compelling case for the value of biopharmaceutical research and the new medicines we produce.

  • Innovative medicines have proven themselves time and again to be the most effective way to reduce costs and improve quality in health care.
  • Treatments for those diseases that remain unconquered – like cancer and Alzheimer’s disease – will most likely come from laboratories like ours.
  • And even when you consider the diseases we treat today – such as diabetes – there is huge room for improvement.

Here’s just one example of the potential of innovation: The Alzheimer’s Research Trust estimates that dementia directly afflicts more than 800,000 people in the UK and costs the UK economy £23 billion per year. A study published by the Personal Social Services Research Unit suggested, if scientists were to develop a treatment to delay the progression of cognitive impairment … and thus reduce the percentage of older people with severe impairment by just 1% per year … this advance could offset all projected increases in long-term care costs for Britain’s aging population!

So finding innovative medicines that make a difference is an economic – as well as a moral – imperative.

In short, the need is unequivocal.

What will it take to make the innovation model work and secure the future of the research-based pharmaceutical industry? Let me advance two imperatives:

  • First, those of us engaged in the work of medical innovation need to change the way we do research. Our task is nothing less than to reinvent invention!
  • Second, we must be at the forefront of advocating for policies necessary to maintain an environment where medical innovation can thrive and flourish.

There is so much at stake, not only for our company and our industry, but also in a much larger sense for economies around the world, and for people everywhere desperately in need of new treatments. So let’s look at those two imperatives.

It’s only fair that I begin with the responsibility that bears most directly on companies like Lilly – and that’s reinventing invention.

Ironically, the crisis in our innovation model 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 can’t simply perform the same old rituals and hope for a different outcome.

It goes without saying that we must increase the speed of research and reduce the cost to bring a new medicine to patients. Equally, we must build an understanding of patients’ needs into the earliest stages of research … assess the potential of new molecules in terms of what’s truly valued by patients, physicians, and payers … and anticipate the concerns of regulators so that we can answer their questions in our clinical testing.

I believe these goals are within our reach. The challenge of reinventing invention … the scope of what’s required … is vastly beyond what I could hope to cover this morning. Let me just touch on a few of the initiatives we’re currently pursuing within Lilly.

  • Our newly created Development Center of Excellence employs a variety of tools, such as advanced analytics, to help increase the probability of technical success for late-stage development candidates, speed clinical trial completion, and reduce the cost of clinical research.
  • We’ve significantly strengthened our biotech R&D capabilities so that today biotech molecules make up nearly 40 percent of our development pipeline.
  • We’re applying tailoring strategies to virtually every molecule in clinical development.
  • And, in changes announced in late 2009, we have redesigned our company to create a clear line of sight from innovation to the customer.

But the imperative to reinvent invention extends well beyond our walls. In fact, the changes that are absolutely essential for companies like Lilly are transforming the research-based pharmaceutical industry into one that is more networked … global … and entrepreneurial than ever before.

Over the last decade, Lilly has been transforming itself from a fully integrated pharmaceutical company, or FIPCO – meaning we owned every part of our value chain – to a fully integrated pharmaceutical network, or FIPNet. We’re using FIPNet to build additional R&D capacity and capabilities that leverage what we do well, while attracting molecules, funding, and expertise from partners. Through FIPNet, we can share investment, risk and reward. And we can more easily operate around the globe, and around the clock, to get work done more efficiently.

Let me focus for a moment on one aspect of our approach … a virtual drug development network that we call Chorus … to give you an idea of how our industry is evolving.

Chorus was established in 2002 as a small, cross-disciplinary group of Lilly scientists that designs, oversees, and interprets early-stage development work through a network of organizations outside Lilly. Using this approach, Chorus manages some 15 molecule programs with a dedicated staff of only 29 scientists … and has been able to reach clinical proof of concept about 12 months earlier and at half the cost compared to the current industry model.

The success of this strategy has led us to “clone” new Choruses … or is it “Chorii”? … in Indianapolis, here in Europe, and in India.

At the same time, we’re working with venture capitalists in the U.S. and Europe to create investment funds that will enable the acquisition of promising molecules from external sources and from Lilly. We’ll use Chorus to advance them from the candidate stage … about a year or so away from testing in humans … to clinical proof of concept. And we aim to do so in three years at an average cost of $10 million or less per molecule – a speed and cost comparable to the best biotechs. The first promising molecules from external sources and from Lilly’s internal pipeline have recently been sanctioned and are currently in development.

In consideration for our investments of time and capital, Lilly will receive preferential access to molecules developed by the funds. 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 a similar number and quality of externally funded molecules whose development we can impact.

Our Mirror Portfolio strategy is just one example of a broad range of initiatives that research-based companies like ours must pursue to rebuild our R&D engine … and thus reshape the research-based pharmaceutical industry of the future.

Let me turn now to the second imperative for the future of research-based pharma companies.

Even as we rebuild our R&D engine, we must help build an environment where pharmaceutical innovation can thrive. As pressures on health care systems around the world continue to grow, we will continue to make the case that innovation is imperative, and to advocate for reforms that promote innovation rather than penalize it.

As we meet here today, the UK and the U.S. share a universal problem in health care … the challenging tradeoff between controlling costs on the one hand and improving access and quality on the other … as aging and affluent populations drive ever-increasing demands on the health care system.

Health care is, in many ways, a victim of its own success. Average life expectancy in the UK increased by over 60 percent – 30 years – between 1901 and 1999. And the rates of increase have been equally dramatic throughout most of the world.

The medicines that are the products of our industry’s research have played a major role. An independent analysis of disease data and death rates from 52 countries, rich and poor, found that new medicines accounted for 40 percent of the increase in life expectancy during the period studied … in this case, the 1980s and 1990s.

The consequence of these gains … unprecedented in human history … is that all of us who are living longer are demanding more and more of the medical innovations that have become available to us – and that’s straining health care systems everywhere.

Yet, just as medical innovation helped bring us to this point, we are convinced that medical innovation can also help get us out of the spot we’re in.

We believe that wise investments in health care innovation will be among society’s most productive investments in the years ahead, and that medicines represent the most cost-effective approach to preventing and treating disease. Without innovation, we’re doomed to more crises and ever more complicated and counter-productive schemes to handle health care costs.

Without innovation, we’ll also lose a dynamic engine of economic growth. In addition to extending and improving human life, investments in medical innovation sustain well-paid, high-value jobs and infrastructure. Here in the UK, the pharmaceutical industry directly employs 72,000 people … 27,000 of them in R&D … with over 200,000 more employed indirectly. Our industry invests more in R&D than any other industrial sector in the UK – approximately £12 million every day. Pharmaceuticals generated a trade surplus of almost £7 billion in 2009, the greatest contribution to the UK’s balance of trade among nine major industries.

Lilly is proud to be a part of the UK’s robust pharmaceutical sector. We have more than 1,400 employees in the UK across sales, marketing and manufacturing, and R&D, including about 350 at our Erl Wood labs, where Lilly scientists are engaged today in neuroscience drug discovery for disease states including Alzheimer’s disease, sleep disorders, chronic pain and Multiple Sclerosis. Over the past year, Lilly invested £130 million in R&D within the UK.

If we’re not vigilant, however, there’s a real danger that reforms of the health care system can suffocate the very innovation that is essential to solving the problem … and damage an industry with enormous potential to create value.

You can see this in the history of pharma R&D on this continent. At the beginning of the 1990s, the pharmaceutical industry spent 50 percent more on research in Europe than in the United States. By 2001, that was reversed, with the industry spending 40 percent more in the U.S.

The fact is, innovation faces plenty of challenges on both sides of the Atlantic. Lilly strongly supports the “Innovation Union” initiatives in the EU’s “Europe 2020” Strategy … particularly strengthening the “knowledge triangle” of education, research and innovation … and we have spoken out in favor of similar policies in the United States.

To sustain an environment where pharmaceutical R&D can thrive, we need a rethinking of health care reforms … in two key ways … to acknowledge and to unleash the power of medical innovation.

First, we need to shift our thinking from a focus on the cost of therapy options to a holistic understanding of the value they create.

Not surprisingly, the immediate pressures of rising costs tend to overwhelm debate on health care reforms. However, focusing exclusively on the cost of specific therapies … and on the annual budget … can have the unintended and counterproductive effect of increasing health care spending over time. Let me cite just two examples that demonstrate how pharmaceuticals can reduce overall costs to society:

  • According to data from the OECD, over the last 40 years of the 20th Century the use of medicines helped halve the number of hospital admissions for 12 major diseases including mental illness and infectious diseases.
  • A 2005 study of people with diabetes in the U.S. found that, as adherence with their prescribed course of medicine increased, the costs of prescription drugs rose (as you would expect), but the total cost of treatment declined significantly.

And these are just two examples. New medicines to address countless unmet medical needs … such as the toll of Alzheimer’s disease, as I mentioned earlier … could have dramatic, positive impacts not only on the quality of human life, but also on the capacity of our health care systems and the costs they incur.

To sustain the investment necessary to develop these new medicines, companies like Lilly must earn a profit on medicines we successfully bring to market. There is a clear link between pharmaceutical pricing and research investment.

So policies focused on controlling health care costs alone can have the unintended consequence of impeding innovation, making it that much harder to meet patient needs with the resources we have.

It’s vitally important that society gets it right, and that means arriving at a comprehensive assessment of a medicine’s value, reflecting the viewpoints of patients, providers, payers, and industry. This value assessment should be reflected not only in pricing, but also in decisions on reimbursement and patient access to new medicines.

Given the complexity of determining value … in the context of evolving clinical practice and the need to encourage continued pharmaceutical R&D … policymakers in the UK need to have access to an array of approaches as they strive to attain value for money in pharmaceuticals. And, let me add, pricing decisions in the UK, combined with exchange rate fluctuations, are especially critical, because of this country’s growing importance as a point of reference for other health care systems around the world.

The second shift in thinking we need is from population-based measures of quality to individual patient outcomes.

The fact is, our best chance at improving health care for all … maybe our only chance … is to bring much greater focus to individual needs and outcomes.

This shift reflects the advance we’re seeing in science toward personalized medicine – or, more broadly, tailored therapies. As we’re demonstrating in our own labs, science increasingly enables us to understand and respond to the needs of individual patients or identified groups of patients – through applications of genomics, more complete understanding of disease, new diagnostic tools, new clinical-research methods, and other breakthroughs.

From the point of view of patients and their doctors, a tailored therapy is expected to provide a better benefit/risk profile. And payers can have much greater confidence that they will get the benefits they are paying for!

In short, this is exactly the kind of innovation our health care system needs … but only if the promise of personalized medicine avoids the trap of a one-size-fits-all approach.

Public policies – on matters such as cost-benefit analyses, reimbursement decisions, and prescribing guidelines – must recognize and reward this progress toward personalized medicine. If the pursuit of quality or evidence-based medicine drives toward standardization that neglects individual patient needs … if centralized, population-based decision making determines what new medicines and technologies will be available to physicians and patients … it will threaten further innovation in health technology, and improvement in health care.

Innovation might not be a panacea for the challenges facing our health care systems, but it is hard to see any way out of the current crisis without innovation.

The continued contribution of research-based pharma companies like Lilly depends on an environment where innovation can thrive. We must relentlessly make the case for innovation … not only in words, but more importantly in our actions and in demonstrating the value we bring to patients through innovative medicines.

A few years ago, a business reporter offered a startling description of the business that Lilly is in. “Drug research,” he said, “is quite possibly the least efficient endeavor in the world of business. It’s the equivalent of hiring thousands of art students and paying for decades of work in hopes that once in a while one will paint a Mona Lisa.”

Now that comes across to me as a sobering thought … particularly in the context of today’s topic … except that Lilly scientists do produce those Mona Lisas.

At Lilly, we’ve made an all-out commitment to innovation, out of a fundamental faith in the future of the research-based pharmaceutical industry:

  • an industry model that is more networked, global, and entrepreneurial to bring innovative medicines to patients faster and at lower costs of development; and
  • an industry that meets the needs of patients, physicians, payers, and regulators, by delivering medicines that improve outcomes for individual patients;
  • an environment where innovation can thrive and where new medicines can contribute to long-term solutions to our health care crisis.

More than 30 years of experience in the industry tells me we can still do this. For the sake of societies and patients everywhere, we must do this.

Thank you!