Speeches & Presentations

Washington Biotechnology and Biomedical Association Governor’s Life Sciences Conference

John C. Lechleiter, Ph.D.

Chairman, President and Chief Executive Officer Eli Lilly and Company

November  18, 2011

Bellevue, Washington

Thanks, Chris, and good morning.

It’s an honor to be invited by the WBBA to speak at the Governor’s Life Sciences Summit and Annual Meeting.

It’s also a pleasure to be in Seattle.  As a proud Hoosier for more than three decades, I have to admit that while Indianapolis has its own quiet beauty, it’s a bit different to have the ocean and mountains right in your backyard.

But there’s one thing that our two cities share … and that’s the conviction that biotechnology and the life sciences offer tremendous potential for our communities and for human health.  Both of our cities have become world-class life sciences hubs – about which I’ll have more to say in a little while.

We’re also very proud that the Lilly TB Drug Discovery Initiative – which is part of Lilly’s global partnership to combat multi-drug-resistant tuberculosis – is headquartered in Seattle as part of the Infectious Diseases Research Institute – or IDRI.  The initiative brings together specialists from around the world – including some great scientific talent from this region – to search for much-needed treatments for one of the leading killers in developing countries.

And it’s my pleasure this morning to announce that Lilly is providing more than $4 million in additional funding – as well as volunteer time from Lilly scientists – to enable IDRI to continue its important work.

Next year marks the 50th anniversary of an event that helped put Seattle on the map:  the 1962 Seattle World’s Fair.

In the years after Sputnik, science was the hot topic.  The theme of the World’s Fair was “Better Living Through Modern Science”… and visitors got a “sneak peek” at the 21st century.

Among the advances they got to see were a kitchen with disposable dishes … gyrocopters whizzing commuters to work … and machines that could actually transmit correspondence!  (I’m still waiting for that gyrocopter!)

Another star attraction was the world’s most advanced computer, the Univac 3 – the first computer to replace vacuum tubes with transistors.  Today’s iPads are about 1,000 times smaller and exponentially more powerful … and while they sold just 96 Univac 3, Apple sold more than 9 million iPads – just in the last quarter!  Amazing …

While the benefits of growing computing power have been far-reaching … I would argue that those of another area of science have been even more profound – and that’s medical innovation.

Since the time of the Seattle World’s Fair, the life sciences that all of us represent have enhanced life and driven economic growth in ways that are literally beyond calculation.  And the prospects for future advances are well within reach.

Yet they are under increasing threat by policies that could undermine – rather than nourish – innovation.

So today I want

  • to reinforce the case for medical innovation …
  • to sound the alarm over the policies that are endangering it …
  • and to offer some prescriptions for keeping Seattle, Indianapolis, and the United States at the forefront of medical innovation.

I’ll start with a claim that is too often under-appreciated:

Medical innovation in the 20th century transformed the basic expectations of human life that had prevailed since the dawn of civilization.

More and more death sentences were lifted … many dread diseases became manageable chronic conditions … and countless maladies barely understood or described at the dawn of the 20th century were brought to heel by medical interventions. 

I’m proud to note that Lilly was a pioneer in several of these pivotal breakthroughs, with insulin, antibiotics, the polio vaccine, and more.

The cumulative impact of the medical innovation of the past century is nothing short of mind-boggling.

In 1900, the average American life expectancy was 47.  Today, it’s 78.  That’s an increase of 66 percent over 110 years – unprecedented in human history. 

If you’re older than 50, like me – (I admit) – we’ve added nearly a decade to lifespans just in our lifetimes!  Seen another way – each day of our lives, every 24 hours, we’ve gained an additional five hours!  Although it’s still not enough hours to clear my email. 

A key reason why we’ve gained this extra decade is innovation.  If fact, an independent study found that just one area of medical innovation – the launches of new medicines – accounted for 40 percent of the increase in life expectancy during the 1980s and 1990s.

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

If the sole impact of these innovations were additional decades of life and health, we’d be hard-pressed to find their equals.

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

And then there’s the impact on the broader economy.

The life sciences sector today supports – directly and indirectly – more than 4 million American jobs and generates nearly $644 billion in economic activity. 

  • The state of Washington is now ranked the fifth-largest life sciences cluster in the U.S.
  • Data released just today says that in 2010, Washington filled more than 33,000 life sciences jobs – with another 57,000 jobs supporting the industry – for a total of 90,000 jobs.
  • And the life sciences sector stimulates more than $10 billion in state economic activity … and another $6.6 billion in personal income for the people who live here.

The story is similar in my home state of Indiana.

  • While we’ve seen a steady decline in heavy manufacturing jobs … the losses have been softened by the life sciences sector, which has grown 21 percent over the last eight years.

Today, the U.S. is the undisputed leader in medical advances. Our biopharmaceutical sector is the envy of the world. U.S. inventors and companies:

  • hold the intellectual property rights to a majority of new medicines;
  • they account for more than 80 percent of the world’s biotech R&D;
  • and they’re testing more potential medicines in clinical trials than the rest of the world combined.

Despite all these benefits … the evidence is mounting that we are facing today nothing short of an innovation crisis in America’s life-sciences sector:

  • To begin with, the science is difficult … incredibly complex … and staggeringly expensive. According to Joe DiMasi at Tufts, since 1975, the cost to develop one new drug has risen from $140 million to some $1.3 billion.
  • At the same time, the number of new molecular entities approved by the FDA over the past five years – 89 – is lower than in any other five-year period since I started working in the industry in the late 1970s
  • And this comes in the midst of a five-year period when some $150 billion of branded pharmaceutical products lose patent protection. This is great news for consumers, who will gain access to more generic drugs – medicines, by the way, that exist solely because of our original research. But this translates into $150 billion less annual revenue for the industry collectively – which means we’ll have proportionately less to invest in discovering and developing the next generation of innovative medicines the world desperately needs.
  • As a result of these forces, in the large-cap pharma industry, we’ve seen a wave of defensive consolidations that has left a dwindling number of entities capable of taking an idea … a discovery … and turning it into a medicine approved for patients. Large pharmaceutical companies and a select group of large biotech firms are the only entities that can do this work – period … and I believe that a further reduction of this small community is not necessarily a good thing.
  • The smaller biotech firms in the U.S. have also seen their cash dry up as investors clearly see the tremendous risks … with less upside than ever before.

And all this is happening at a time when global competitors – such as China and India – are producing more scientists and engineers than we are – and are intensely focused on growing their innovation capacity.

What will it take to preserve our lead in medical innovation?

Let me be clear that when it comes to sustaining innovation, the burden remains on research-based companies like Lilly – as it should.  Businesses like ours that live or die by health care innovation in the U.S. ask only that we be allowed to continue doing just that: proving the value of what we’ve developed … and succeeding or failing in the marketplace. 

The one thing that industry has a right to ask of public policy … in my view … is to help preserve the environment in which innovation is even possible.

I want to briefly call attention to five policies necessary to allow innovation to take root and grow. 

The first is science and math education – especially at the high school level. 

In international comparisons, American 15-year-olds perform poorly in science and math literacy.  When compared with students in 57 countries around the world, U.S. 15-year-olds rank 29th in science literacy and 35th in math literacy. 

Folks, these kids are the future scientists we’ll need to build the next generation cars and power plants and semiconductors … and to discover new treatments and cures for our toughest medical problems.  But, not surprisingly, the number of U.S. students pursuing bachelor’s degrees in science, technology, engineering and math is far below what will be needed to meet future demand.

Broad understanding of math and science is essential so that young people across our society have an opportunity to participate in the high-tech economy of the future … and also can replace the Baby Boomers who are starting to retire.  

Meeting these needs will require continued significant attention to improving K-12 science and math education across our country, and I believe that both the public and private sectors must be involved.   

Second, we must return to immigration policy that allows and encourages top scientists to choose to work in the U.S.  

As we know, many of the top candidates don’t start out as U.S. citizens or even permanent residents.  This includes candidates emerging from the best U.S. graduate schools. 

Today, it takes an average of five years for the Lilly employees we sponsor for residency status to obtain a green card.   

This uncertainty and frustration is driving away prospective candidates before we ever see them.  With growing opportunities in their own countries … the last thing we should be doing is pushing them away. 

Whether or not Congress takes up comprehensive immigration reform, we must fix the policies that are driving away talented people who want to live here and contribute.   This does not require drastic changes … just a sensible increase in visas for these highly skilled immigrants and a shorter, simpler process to get a green card.  In fact, I wholehearted agree with a business associate who stated in December:  “If you receive an advanced degree in Science or Engineering in this country, you should find a Green Card stapled to your diploma!” 

Third, we need strong, sustained government funding of basic research. 

Academic and government research has historically operated synergistically with the private sector, often supplying the raw material and insights … which industry works to translate, develop and commercialize.  Yet, over the past 30 years, while federal spending on payments for individuals has doubled … federal funding for non-defense physical capital, R&D, education and training has been cut in half. 

The stimulus bill did include additional funding for the NIH and other agencies involved in health research.  And President Obama has outlined the goal to increase R&D investment to 3 percent of the Federal budget.  Still, the amount of money invested by the federal government is proportionately small; the NIH budget, for example, is less than half of what our industry spends on R&D.

I believe that investment will be most effective if a commensurate share goes to basic research – which I distinguish from large, expensive, and often inconclusive investments in head-to-head drug effectiveness studies.  And it can’t be just one-and-done.  Because medical research is such a long-term enterprise, the funding must be consistent; predictable; and sustained. 

This sustained commitment is necessary to attract more outstanding scientists to basic research and keep them engaged in productive work throughout their careers, whether in academia, government laboratories, or the private sector. 

Fourth, we need a tax structure that encourages – rather than undermines – innovation and commercialization in the United States. 

Specifically, we need a business tax system that levels the playing field.

Our country must embrace a corporate tax rate in the 20 to 25 percent range … as well as a globally competitive territorial system for the taxation of foreign earnings – in other words, the same tax rates and policies most of the rest of the world has already adopted!   

We should also seriously consider temporary repatriation of foreign earnings as a transitional measure to inject cash that is currently outside the U.S. into the U.S. … where it can be deployed for the benefit of American workers and used to fund other critical public needs!

In addition, we must recommit our country to a globally competitive innovation incentive tax regime … and make the federal R&D tax credit permanent and raise it to levels that are globally competitive. 

Lastly, in these deficit-driven times, we must strongly resist the temptation to impose international tax revenue raisers on America’s worldwide companies.  These will hurt the U.S. economy … deplete U.S. jobs … and further exacerbate a corporate tax system that is out of step with the rest of the world. 

In summary, we need a corporate tax system like the rest of the world – one that encourages, rather than discourages, investment in the United States. 

Finally – we need a modernized regulatory system that is timely, predictable, consistent, transparent, and scientifically rigorous.

The current regulatory process is asymmetrical.  There is much greater pressure on regulators to identify and avoid the risks of new medicines than to balance those risks against the potential benefits to patients.   

I believe the problem lies not in the regulators, but in the system itself, which creates incentives to put off decisions and to err on the side of avoiding risk … even if some patients might accept that risk in return for the potential benefits. 

I believe that regulators – and the regulatory process – must bring to bear a more systematic approach that documents the basis for any such decision … the data used, the rationale, the standards, and the values that regulators applied in reaching the decision. The FDA recognizes this need … as well as the need for systematic tools for benefit/risk assessment. 

Such an approach would allow regulators to demonstrate why a decision was reasonable even when viewed in the light of subsequent data.  Just as important, I believe that such an approach would result in regulatory decisions that are more predictable, more balanced, clearer, and more timely.

Regulators and industry … and, most importantly, patients … have a common interest in a systematic, transparent decision-making framework to support a robust benefit/risk assessment.  PDUFA V is one step … and we hope to discuss with FDA ways to strengthen the system further. 

I’ve been talking today about what medical innovation has meant to American citizens – more jobs, higher standards of living, and longer, healthier lives.

Clearly, it’s impossible to predict the full range of benefits future generations could enjoy from today’s innovation. 

But, when I think of the incredible advances since the Seattle World’s Fair … I’m convinced that what might seem unimaginable today will be commonplace tomorrow:

  • treatments that transform cancer into a chronic disease, with survival times measured in decades rather than months.
  • effective treatments for malaria, TB, and other diseases affecting tens of millions in the developing world …
  • breakthroughs that will save millions from the devastation of Alzheimer’s disease …
  • cardiovascular repair and prevention of heart disease …
  • replacement organs …
  • and – ultimately – additional decades for people to enjoy precious life and enhanced vitality – not just additional years, but additional healthy and productive years.

And, along with the profound benefits in and of themselves, we’ll see exciting, new opportunities … a rising standard of living … and a reinvigorated American economy.

However, success is not guaranteed.

You will still hear some people say we have all the innovation we need.  Or that, in this difficult economic climate, we simply can’t afford it. 

I hope when you hear these arguments, you’ll remember what I’ve talked about today and conclude – as we at Lilly have – that innovation is not the problem.  Innovation is the solution – the essential key to ensuring that, when people look back at the 21st century, they will say that it truly was the second American century.

Thank you very much.

It’s now my pleasure to introduce Conrad Smits.  Mr. Smits is the Senior Vice President of Philips Healthcare and the General Manager of Philips Ultrasound. 

Please join me in welcoming Mr. Smits to the podium.

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