Speeches & Presentations

An Ecosystem for Pharmaceutical Innovation
2012 International Summit for Pharma Innovation

John C. Lechleiter, Ph.D.

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

November 30, 2012

Beijing, China

Good morning. It is an honor to participate in this conference on pharmaceutical innovation. I am speaking today on behalf of PhRMA, which represents the major innovative pharmaceutical companies in the world. PhRMA is a U.S.-based industry association, but our membership is global and includes firms based in Japan, Europe, as well as the U.S.

PhRMA’s mission is to bring innovative medicines to patients so they can live longer, healthier, and more productive lives.

PhRMA members have substantial investments and partnerships in China, including technical collaborations, disease awareness programs, patient access initiatives, and large financial investments and employment throughout China.

I’m here this week with colleagues from PhRMA to learn how we can better support China’s efforts to reform its health care system and China’s goal of developing an innovative biopharmaceutical industry.

This morning I will first briefly review the state of health care and biopharmaceutical research in China. With this background, I will explain why innovation is so critical to achieving China’s goals for improving health care for the Chinese people and reaping the economic benefits of a growing biopharmaceutical industry. Then I will detail the conditions necessary for innovation to thrive in China, or anywhere. These interrelated requirements form what can be called an “innovation ecosystem” – an environment where innovators can bring forth the benefits of medical breakthroughs for the nation and its people.

Let me begin with a brief look at where China stands today.

We are here at a time when rising incomes in China are driving dramatic growth in demand for health care … which is creating both opportunity and challenges. China has sought to balance its rapid economic development with the growing need to invest in the health and well-being of its people – taking major steps to reform health care systems and extend vital services to its citizens.

PhRMA supports China’s efforts to reform health care and improve patient access to high-quality care, including medicines. We understand the challenges confronting the Chinese government in expanding and deepening medical insurance coverage to 1.3 billion people in the face of strong pressures on funding. We acknowledge your impressive accomplishments in health care reform over the past several years despite significant challenges.

China recognizes that improved health care is an investment in people, the economy, and society, and it should not be seen as just another budget cost. As China’s population continues to age, greater investment in health care will bring both higher productivity and a better quality of life.

China today is the world’s 3rd-largest market for pharmaceuticals – and projected to become the 2nd-largest by 2017. Unfortunately, however, innovative medicines are not available to most Chinese patients until eight years on average after they reach the same population in the United States. We believe there are several reasons for this, most if not all of which could be addressed through policy changes undertaken in closer partnership with the private sector, as I will outline in my remarks this morning.

Even as China has worked to transform its health care system, the nation has also transformed itself into a growing center of biopharmaceutical research and development. In the past decade or so that I have been coming to China, an impressive array of companies have developed across the country – a vibrant mix of firms, large and small, as generic producers have been joined by a variety of biotech start-ups and other research-based enterprises.

According to a new study by Battelle – a global R&D organization – the net output of pharmaceutical manufacturing in China has increased more than 700 percent since 2000.

It’s no surprise that every multinational biopharmaceutical company is looking closely at China … certainly as a large and growing market, but also as a growing center of research and development.

PhRMA supports China’s goal to develop an innovative biopharmaceutical industry. PhRMA members have been long-term innovation partners with China, through continuous contributions to patient safety, drug quality, and treatment standards for Chinese patients.

PhRMA members have rapidly increased their investments in China R&D to 8 billion renminbi per year. This investment by PhRMA member companies accounts for more than 50 percent of R&D spending by China’s large and mid-size pharmaceutical industry … and creates approximately 3,000 direct high value-added R&D positions.

In addition, PhRMA members are helping to build innovative local Chinese companies by developing expertise, seeding talent, and taking them global.

And, as the work of pharmaceutical innovation is conducted more and more through R&D networks that span the globe, PhRMA members are integrating China into this global innovation system.

As China pursues its goals for improving health care and building a biopharmaceutical industry, the key to achieving both is innovation. Let me turn now to a discussion of why medical innovation is so important … and so powerful.

It bears repeating that medical innovation in the past century transformed the basic expectations of human life that had prevailed since the dawn of civilization. Tens of millions of death sentences were lifted and once dread diseases were cured or became manageable chronic conditions.

There’s no greater sign of this transformation than additional years of life itself. In 1950, life expectancy in China – for men and women combined – was about 40 years. This past August, the National Bureau of Statistics reported that a child born in China in 2010 could expect to live nearly 75 years. That’s an increase of nearly 90 percent over 60 years – an unprecedented jump!

Innovative medicines are a big reason we’ve gained these extra decades. An analysis by Columbia University Professor Frank Lichtenberg found that the launches of new medicines accounted for 40 percent of the increase in life expectancy during the 1980s and 1990s in 52 developed and developing countries. That’s five months of every additional year.

If the sole impact of biopharmaceutical innovations was additional decades of life and health, that would be an enormous contribution to society. But the economic payback from these gains is also difficult to overstate. That payback is years of productive work and economic value added – which outweigh the costs of treatment overwhelmingly, even if you resist quantifying the intrinsic value of being alive.

And there’s also compelling evidence that innovative medicines are the most cost-effective part of health care. Another study by Professor Lichtenberg found that for every $1 spent on new medicines for cardiovascular diseases in OECD countries, nearly $4 were saved in hospitalization and other health care costs.

For all our tremendous progress, however, much more remains to be done.

To take one example: the population of China – like that of many nations – is aging. In 1990, about 5-1/2 percent of China’s population was 65 years old and older. By 2025, that percentage is predicted to surpass 13 percent – more than double. And by 2050, it’s predicted that the elderly share of the population will nearly double again, to 23 percent.

As a result, China … like other countries around the world … is facing the prospect of rapidly rising costs of health care for an aging population.

Furthermore, the combination of longer lives and changing lifestyles has led to an explosion of non-communicable diseases – NCDs – such as heart disease, cancer, chronic respiratory diseases, and diabetes. And we must be ready to tackle the diseases that come with little warning, such as the H1N1 virus and infections caused by resistant microorganisms.

Clearly, we need new and ongoing breakthroughs to prevent a human and economic catastrophe from these challenges to health.

Fortunately, there has never been a more opportune moment to pursue advances in medicine, and to take advantage of an avalanche of new knowledge about disease biology and human genetics. Indeed, I believe we’re on the threshold of what will someday be known as the biomedical century, as the combination of new scientific insights, along with the application of new tools and advanced technologies, creates the potential to revolutionize our work!

Today, PhRMA member companies have some 3,200 medicines currently in development to address pressing health needs such as cancer, diabetes, Alzheimer’s disease, and other scourges. The industry’s pipeline of potential new medicines is growing … with a 15 percent increase in company-reported projects in the clinic in just the past five years.

The challenge, and the opportunity, for China today is to realize its great potential to participate in the global innovation economy of the future, and to bring the full benefits of innovative medicines to Chinese patients.

And that leads to the heart of my remarks this morning.

To achieve its goals, China must create an environment that supports innovation.

Like our natural environment, the innovation ecosystem contains many necessary and interdependent components. Take away any single element and the system collapses.

Let me briefly outline three essential elements of the innovation ecosystem in China:

  • Foremost is solid intellectual property protection, without which the work of innovation is not possible and cannot be sustained.
  • A second requirement is policy that supports fair pricing and timely reimbursements of medicines.
  • And a third critical element is a 21st century regulatory framework that is transparent, predictable, and aligned with global frameworks.

The first necessity – intellectual property protection – is the lifeblood of any enterprise that derives value from ideas.

It takes more than a decade, and well over a billion dollars, to bring a new medicine from the lab to the pharmacy, and companies that pursue this work need assurance of a fair opportunity to recoup their investment. A robust intellectual property system provides the certainty innovators need in order to take risks and make investments necessary to develop new products and technologies.

China has taken an essential first step in intellectual property protection, developing a patent regime aligned with international systems.

Beyond that, an integrated approach to establishing, protecting, and enforcing intellectual property is necessary for innovation to thrive in China, as in any country. Regulatory agencies need to be aligned and to play a role in enforcement, preventing registration of generics when patents are in place. Legal proceedings must be prompt, fair, and transparent to add to the predictability of enforcement.

Of particular importance to biopharmaceutical innovation, China must embrace the concept of “regulatory data protection.” A significant portion of the investment necessary to bring a medicine to market is in the development of the clinical trial data package, required by regulatory agencies to prove that the product is safe and efficacious.

Regulatory data protection is an independent intellectual property right, recognized by the World Trade Organization and reflected in the domestic laws of many countries. Where this right is established and well enforced, we have seen amazing progress in biopharmaceutical innovation.

By protecting the enormous investments required to develop a new medicine, effective measures for protecting patents and data packages would be a catalyst for innovation, and industry development in this country. These policies are important, not only for investment by multinationals like Lilly and other PhRMA member companies, but also for Chinese companies to grow and thrive.

The second component of the innovation ecosystem is policy that supports fair pricing and timely reimbursements of medicines. This means reimbursement levels that are commensurate with the value the medicines provide and that allow recovery of the enormous investments in R&D.

As I noted earlier, we acknowledge the great challenge of expanding access to health care for China’s 1.3 billion people. We note the critical role that cost-effective generic medicines can play in meeting the needs of Chinese patients. Indeed, generic medicines are the legacy of research-based pharmaceutical companies, and we want to help ensure that Chinese patients have access to high-quality generics.

At the same time, as China’s standard of living rises, meeting the changing health care demands of the Chinese people will require ongoing biopharmaceutical innovation. Just one example is the growing need for treatments to address non-communicable diseases like diabetes. To carry on this work, the inventors of new medicines depend on regulation that provides a fair return for the therapeutic and economic value those medicines provide – recognizing, of course, that payers have every right to demand evidence of that value. Negotiations between seller and buyer should be direct and open, and reimbursement mechanisms need to be regular, predictable, and timely.

Transparent and predictable government pricing and reimbursement systems at the central, provincial, and local levels would improve patient access to new, safe and effective treatments. It would also allow business planning for long-term supply of medicines and encourage investment in R&D.

The final component of the ecosystem is a 21st century regulatory framework.

From the perspective of innovator companies, a “state-of-the-art” regulatory approval system will have the following characteristics – it will be: timely … predictable, consistent, and transparent … scientifically rigorous … and harmonized with international standards. Let me briefly touch on each of these.

First, it’s important that the system be timely since there are far too many conditions for which currently available therapy is inadequate … or nonexistent. When new treatments don’t reach patients in a timely manner, it’s not just the sponsoring company that’s affected – there are also serious costs to individuals, to families, and to society.

The regulatory system also needs to be predictable, consistent, and transparent. Innovators need to know in advance the criteria and procedures that guide the process … and all stakeholders should be able to understand the rationale for the decisions that follow.

Next, the system needs to be scientifically rigorous. This requires expertise that understands the constantly evolving science and ensures that regulatory standards are up-to-date … and applied uniformly.

Finally, China needs a regulatory framework that is harmonized with international standards and best practices. This is particularly important for clinical trials, where potential new medicines are tested in large populations of patients.

Disease knows no boundaries, nor does good science, and pharmaceutical R&D is increasingly conducted through global networks. Aligning Chinese regulatory practices and timing with international partners will enable more effective sharing of research and results. A key goal would be to include China in global drug development programs followed by near simultaneous submission, registration, and approval of new medicines.

There are a number of specific steps China can take to speed up this 21st century regulatory framework. China should:

  • shorten the clinical trial application review process timeline;
  • ensure that the State Food and Drug Administration has necessary funding and is equipped with the latest technology, adequate staffing, and scientific expertise to better meet the demands it faces; and
  • harmonize process and regulatory requirements to standards set by the International Conference on Harmonization.

Such a regulatory framework has clear benefits to China, including:

  • enhanced access to innovative new medicines to improve public health;
  • regulation that better promotes domestic innovation and readies the local industry to compete on the global stage;
  • and increased foreign investment.

In conclusion, every country wants to share in the benefits of the biotechnology revolution, but all countries are not equally prepared to do so. As nations around the world compete for investment in R&D, China is well-positioned to take advantage of innovation-driven growth.

PhRMA welcomes the opportunity to work with the Chinese government and local companies to achieve a shared vision of China as a leading global innovation partner, and to reach our joint aspirations for the benefit of Chinese patients.

Innovative medicines have a critical role to play in helping China meet its health care challenges, and we look forward to the opportunity to bring more new medicines to patients in China. In addition, we strive to be a reliable partner in finding innovative solutions to the challenges of health care reform.

Building on the considerable progress China has made in recent years, PhRMA member companies are ready to contribute to the development of an ecosystem to support innovation in China.

If all of the elements of the ecosystem I’ve described come together, then there is every reason to believe that China will become a leader in biopharmaceutical innovation … generating economic activity, jobs, and investment, and helping secure the tremendous benefits of innovative medicines for every Chinese citizen.

Thank you very much.

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