Speeches & Presentations

Federation of German Industries (BDI) Conference

John C. Lechleiter, Ph.D.

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

July 7, 2011

Competition for Health: An International Perspective

Thank you, Herr Schweer. Let me also extend my thanks to BDI for providing me the opportunity to speak to this distinguished assembly of German industry.

Although Eli Lilly and Company is based in the U.S., we have deep roots here in Germany … and enormous respect for this country’s legacy as a pharmaceutical powerhouse.

Germany is one of the most important markets in the world for Lilly. Last year we celebrated our 50th anniversary in Germany, and our presence in this country spans the full spectrum of our business. We have nearly 1,000 employees in Germany. We direct our German operations from headquarters in Bad Homburg, and we package and distribute Lilly products to more than 90 countries from our facility in Giessen. We are currently conducting more than 120 clinical trials in this country alone, involving more than 14,000 patients and testing 26 potential new medicines. And Heidelberg is the international scientific development base of our subsidiary ImClone Systems… focused on new cancer treatments. I am very happy that Dr. Bernhard Ehmer, president of ImClone, a valued colleague and a great example of Germany’s heritage of scientific excellence, could join me here this evening.

Early this year, Lilly and Boehringer Ingelheim – one of Germany’s great pharmaceutical innovators – entered into an important global alliance for the development and marketing of at least four potential treatments for diabetes. We expect to be working together for a long time, and I want to thank Dr. Andreas Barner for inviting me to participate in this conference.

Today I’ll share with you an international perspective on health care from a U.S.-based company with a long, productive history in Germany. I also bring the perspective of a scientist who has spent my entire career in pursuit of pharmaceutical innovation to help people “live longer healthier.”

Germany is the third-largest market in the world for most of the industry, including my company … and in no other place in the world has the environment for innovative pharmaceuticals changed more in the last 12 months than it has here. Recent health care reforms are jeopardizing the country’s legacy of pharmaceutical innovation and creating barriers that will prevent patients … and the health care system … from benefiting from future medical breakthroughs.

At the same time, I see Germany as a place where the pharmaceutical industry can achieve a breakthrough – a fresh start if you will – to develop more constructive and more collaborative relationships that contribute to the health of the German people.

The frame for my remarks is the theme of this conference: Competition for Health. I’ll talk about how competition drives the health care debate and how innovation can, and must, transform the role of competition in health care. Then I’ll apply these lessons to the recent health care reforms … with an appeal for constructive ways to implement these reforms for the benefit of German patients, the health care system, and the economy of this country.

Competition is indeed driving health care debates around the world … the competition between the growing health care needs of aging populations and limited funds in government and private-sector budgets during a time of significant economic stress. These budget pressures lead to competition among different medical treatments for reimbursement in health care systems. There’s also competition among countries for economic activity and investment that creates jobs, income, and revenues to finance those health care budgets. How a country manages the first two contests can have a big impact on its ability to attract innovative life science enterprises.

To be clear: competition is often very good – indeed essential. Competition among research-based pharmaceutical companies has historically led to improvements in medicines. While government-funded basic research is a critical element of innovation, studies in the U.S. have found that the vast majority of new medicines approved the past quarter-century – 80 to 90 percent or more – were developed solely by industry.

And these new medicines make a big difference. A study by a Columbia University economist found that launches of new medicines – just that single factor – accounted for 40 percent of the increase in life expectancy during the 1980s and 1990s in 52 countries.

Further, competition can – and should – lead to the best allocation of our scarce resources for health care and everything else. Of course, how that competition plays out – the rules of the game – that’s what the debate is all about.

But there is one place where competition does not fit: competition between the public and private sectors. We’re on the same side in the fight to advance public health. We have a common enemy – disease, disability, and premature death. And we have a common interest in the only means by which our health care systems can help more people “live longer healthier” within constrained budgets – and that’s innovation … medical progress.

I say that, of course, as the representative of a company that has staked its future on biopharmaceutical innovation – not generics, consumer products, or diversification into other unrelated businesses.

Innovation has the power to transform the competition that permeates the health care debate. I want to lay out two key ways that innovation makes possible – and necessary – a rethinking of health care:

  • First, we need to shift our thinking from an emphasis on cost to an understanding of value.
  • And second, rather than think about health care only in terms of the broad population, we can and should focus more than ever on meeting the needs of individual patients.

Let’s begin with that first shift: the need to move from a focus on the cost of therapy options to a holistic understanding of the value they create.

Unfortunately, the immediate pressures of rising costs are overwhelming debate on health care around the world. Focusing exclusively on the cost of specific therapies … and on this year’s budget … can have the unintended and counterproductive effect of increasing health care spending over time … along with the overall costs to society. Let me cite two examples:

  • In Germany alone, according to a major independent study, the disease of depression costs the economy between 15 and 22 billion Euros per year … including 9 billion Euros annually in reduced output of people who continue to work without seeking treatment for depression. The costs of even the most expensive therapies for depression are a small fraction of the costs of no treatment … or ineffective treatment. Clearly, policies focused on limiting the price or the diversity of therapies are aimed in the wrong direction… and, in fact, may very well increase the real costs of depression.

  • More broadly, according to data from the OECD, over the last 40 years of the 20th Century the use of medicines helped cut in half the number of hospital admissions for 12 major diseases … including mental illness and infectious diseases. Since a hospital stay is almost always much more expensive than a pharmaceutical therapy, the use of medicines in these instances is not a cost driver but rather a cost saver.

New medicines to alleviate the growing human and economic toll of Alzheimer’s disease … or countless other unmet medical needs around the world … could have dramatic, positive impacts not only on the quality human life, but also on the capacity of our health care systems to improve public health and on the broader costs of disease to society.

If our focus is exclusively on cost, the relationship between government and industry is indeed adversarial – a zero-sum game. But if the focus is value, then we have a common interest in innovations that create value that can be shared.

That leads to a second important consideration: how the value of innovation is determined. Getting that right, I believe, will require the other shift in thinking about health care I noted earlier: moving from an emphasis on 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 focus on individual needs and outcomes.

This shift reflects the advance we’re seeing in science toward tailored therapies. More and more, science can understand and respond to the needs of individual patients or identified groups of patients – through applications of genomics, more complete understanding of disease, diagnostic tools, new clinical-research methods, and other breakthroughs.

From the point of view of patients and their doctors, a tailored therapy can provide a higher degree of confidence that it will work effectively and without harmful side-effects. From a value-for-money standpoint, as we’re able to identify patients who will indeed benefit from a particular therapy, 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 … exactly the improved value we are determined to deliver. However, if health care policy creates centralized, population-based decision making about what new medicines and technologies will be available to physicians and patients … then this value will be lost.

Indeed, I can say from three decades of experience in pharmaceutical science that medical innovation is rarely dramatic and sweeping. Advances are typically incremental, in terms of the patients they reach or the benefits they provide. But those advances add up.

A good example is the progress we’ve achieved against cancer. In cancer treatment, incremental innovation still rules the day, and researchers seek tailored therapies that prolong life in specific sub-groups of patients … often in combination with existing therapies. In 1975, the five-year survival rate in the U.S. for all cancers together was 50 percent—only one out of two cases.. Today, the five-year survival rate is nearly 70 percent—more than two out of three cases. This tremendous advance has occurred not in “revolutions” or “cures,” but in small, evolutionary steps.

Recognizing and rewarding this kind of value is critical … and not just for the patients who can benefit from new therapies today. It’s also essential for companies like Lilly to continue the pursuit of medical advances for tomorrow.

So, with that international perspective on competition and innovation in health care, I’ll focus the remainder of my remarks specifically on health care in Germany.

Let me reiterate my belief that government and industry are on the same side in the fight against disease. We are collaborators, not competitors. We need to work together in a spirit of openness and trust … and our industry bears responsibility for helping to build … or rebuild … that trust.

As I noted at the outset of my remarks, our industry has real concerns about recent health care reforms in Germany. Our company’s experience to date suggests that these concerns are not unreasonable.

By way of background, last year the German government froze prices for pharmaceuticals already in the market. It also increased significantly the mandatory rebates that our industry must pay to the health system on sales of our products. And then … in the law known by its German acronym AMNOG … parliament imposed a complex new regulatory mechanism to assess the added benefit of new pharmaceutical products entering the German market … linking our future net prices to the outcome of this assessment.

No other country in the world has a set of requirements quite like those imposed by AMNOG. The potential effects are serious: launches of new medicines that can benefit patients delayed or withdrawn … erosion of Germany’s strength in pharmaceutical innovation … and the loss of high-paying jobs in research and development.

Let me emphasize that we recognize the pressures on health care budgets here and around the world, and we share the goal of holding down health care costs.

Indeed, it would be hard to argue with AMNOG’s underlying thesis – that prices should reflect the added benefit of new products. Assessing the added benefit of a new product is consistent with the appropriate focus on value that I explained earlier. Any company … in any field … that does not establish the value proposition of a product … is a company bound for failure.

So why is the biopharmaceutical industry so concerned about the impact of AMNOG on innovation? There are two reasons.

First and quite simply, this is not the means by which value propositions should be determined. AMNOG proposes to assess value … added benefit … in a wholly unnatural way: at the time a new medicine is launched in the market … before any real-world experience with the new product is available.

And second, we are concerned that the understanding of innovation reflected in German regulation fails to account for the full value of the kinds of innovation I described earlier. In practice, this approach places far too much emphasis on holding down short-term costs by imposing impossible standards on new treatments that some of the most effective medicines of the past never would have met.

Consider Zyprexa, a Lilly product that was the third therapy approved in the class of atypical antipsychotics. Since its introduction in 1996, Zyprexa has been prescribed to 31 million patients in 80 countries and is still today our most important product in Europe. I fear that we could not have brought Zyprexa to the market in the current environment. A tool such as the new “Early Assessment” in Germany might have labeled Zyprexa a “me-too product” with little or no “added benefit” versus existing therapies. That is because its benefit only became clear in the actual practice of medicine … individual patient by individual patient … not solely in the formal development trials focused mainly on efficacy and safety.

Diabetes is a clear example of a disease where the approach embodied in AMNOG will deny the benefits of innovation to the growing number of Germans facing this disease. Research in diabetes is moving towards targeted innovations for patients in different stages of the disease and for its various complications. Patients also see innovation in the form of improved delivery systems ... such as better injection devices and less frequent injections … which make it easier for them to comply with their doctor’s orders.

Yet in Germany in recent years, innovations that provide patient-specific benefits in diabetes have been particularly hard hit by the decisions of IQWIG and GBA. The message for us in industry seems to be, “Insulin is enough. Do not pursue innovations in diabetes care.” Patients and their doctors do not agree with that message … and the growth of the diabetes epidemic worldwide tells us as a society that more innovation is needed … not less.

Given that AMNOG is now the framework we have for assessing the value of new medicines, I believe it’s vitally important to find ways within that framework to allow patients … and the health care system … to benefit from pharmaceutical innovation.

What I am suggesting, first of all, is that the “Early Assessment” be used not to define the potential of a new medicine as low as possible to save money … but rather to take a comprehensive view of its potential value for patients. An assessment that helps a new medicine to succeed would be far more constructive … and generate more savings in the long term … as compared with an assessment that looks only for reasons to disqualify a new medicine.

More broadly, for companies like Lilly to make the enormous investments necessary to develop new medicines, we need predictability and certainty in the regulatory process that will determine whether or not those new medicines will ever reach patients. We must know that our innovative medicines will have a fair chance to compete in the health care system, and to be reimbursed on the basis of the true value they provide.

We in industry are prepared to work with regulators to help define clear, transparent, and workable approaches to regulation … and we want to work in the same way with health care policy makers to lay out the process that determines the value of innovation. We support a more open, scientific process and debate on the development of new and innovative clinical endpoints, study designs, and analytical methods … one that incorporates all scientifically valid data from a broad range of sources and study designs for the clinical question under consideration.

Of course all this would take an extraordinary level of trust between industry and health care regulators. I know I speak for colleagues in the biopharmaceutical industry when I say that we seek a regular, open, and structured dialogue in Germany with the government and the health care system. Australia offers an excellent example of this kind of constructive dialogue, and we are developing similar relationships with other countries in Europe, such as Spain.

That is the breakthrough to which I referred at the beginning of my remarks:

  • a constructive and collaborative relationship between research-based pharmaceutical companies and policy makers in Germany
  • a relationship built on trust and a recognition that we’re allies with a shared commitment to the health of the people of this country
  • a relationship that reflects our common interest in innovation and builds on Germany’s heritage as a leader in pharmaceutical research

Working together, we can harness innovation to help meet growing health care demands within increasingly constrained budgets … create an environment where biopharmaceutical innovation can thrive … and achieve victories on behalf of the people who are counting on us to live longer healthier.

Thank you very much.

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