Speeches & Presentations

Financial Times U.S. Healthcare and Life Sciences Conference
Innovation: The Long Run

John C. Lechleiter, Ph.D.

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

June 6, 2012

New York City, New York

Thank you, Andrew [Jack].

It’s a pleasure to welcome you to this side of the Atlantic and to be a part of the Financial Times’ inaugural U.S. Healthcare and Life Sciences Conference. I’m confident that you will establish this as yet another premier FT event, and I’ll do my best to get it off on the right foot.

I’d like to frame today’s discussions on health care and the life sciences with a long-term perspective on medical innovation.

It was nearly a century ago that the economist John Maynard Keynes famously said, “In the long run, we are all dead.”

Now, if that seems a bit negative for a conference on health, let me quickly add that our long run is currently a lot longer than it was in Keynes’ day!

More to the point, I believe that if we are to advance innovation … and longevity … it is absolutely necessary to take the long view, to resist the temptation to focus exclusively on the current crisis and instead to attempt to see our decisions and actions from the perspective of those who will come after us.

At a time when the pharmaceutical innovation model has been pronounced dead … when the value of medical innovation is being discounted by hard-pressed health care payers … my industry must continually make the case for innovation. I have argued many times in the past that innovation offers immediate benefits that must be weighed against current costs … the benefits of access to new and better treatments and the economic value that derives from that. But today I want to focus on the fact that innovation delivers even greater benefits … truly profound returns … in the long run.

This morning I’ll review how medical innovation has played a key role in the astounding gains in human life expectancy of the past century. Further, I’ll argue that innovation is indispensable to the long-term sustainability of health care systems around the world.

Then I’ll discuss how innovative pharmaceuticals can and will continue to contribute to these critical goals … well beyond the current challenges facing our industry and the immediate economic and financial pressures that our health care systems face.

What’s required are health care policies, guided by a long-term perspective, that provide access to a continuing flow of innovative medicines to help meet the growing needs of people around the world.

And, while I’ll focus mainly on the United States, the issues surrounding health care reform are at the top of the agenda in every single country I’ve visited in recent years.

Let’s look first at the contribution of innovative pharmaceuticals to human life expectancy and health.

In 1900, the average American life expectancy was 47. In 2000, it was 78. That’s an increase of 66 percent in one century – unprecedented in human history. Similar and in some cases even more dramatic gains have been achieved in countries around the world.

While there are many factors that have contributed to the astonishing increases in longevity, pharmaceutical innovation has played a significant role. An independent analysis of disease data and death rates from 52 countries found that new medicines alone accounted for 40 percent of the increase in life expectancy during the 1980s and 1990s.

And people are living not just longer, but better. A 2006 study found that, from 1982 to 2005, the prevalence of chronic disability among elderly Americans dropped by more than 25 percent. We’re living longer and more active lives.

It’s important to note, however, that the 20th century increase in life expectancy did not follow a straight line upwards. By mid-century, life expectancy leveled off. The big gains from fighting infectious diseases had been accomplished … and medicine had few weapons to combat other major killers – such as heart disease and cancer. In fact, those diseases were on the rise as people lived longer.

The plateau in life expectancy led one researcher to lament in 1969 that, quote, “Modern medicine has little to offer for the prevention or treatment of chronic and degenerative diseases that dominate the pathological picture of advanced societies.”

He turned out to be about as right as the Decca Records executive who rejected the Beatles by reportedly saying “Guitar music is on the way out.”

In fact, starting around the time of the Beatles, a revolution in medical technology led to a resurgence in the growth of life expectancy.

  • In 1975, the five-year survival rate in the U.S. for all cancers together was 50 percent—a coin toss. Today, the five-year survival rate is nearly 70 percent—more than two out of three cases. In all, life expectancy for cancer patients has increased by three years since 1980.
  • The death rate from coronary heart disease in the U.S. has declined by about two-thirds since it peaked in 1968. There are one million Americans who lived through the 2011 calendar year – one million – who would have instead died last year at the 1960s rate
  • And in the 1980s and 1990s, pharmaceutical science marshaled its resources to fight a new threat: HIV/AIDS. Since the approval of the antiretroviral treatments in 1995, the U.S. AIDS death rate has dropped by more than 80 percent.

In other words, by the end of the century, medical innovation staged a comeback against the pessimists and vindicated the long-term perspective.

So far, we’ve seen the role of innovation in extending healthy human life. Yet medical innovation has an equally critical role in sustaining health care systems.

According to the annual report of the Trustees for Medicare, released a few weeks ago, the Medicare trust fund will be exhausted by 2024, only 12 years from now – nine years before the Social Security Trust fund. Note that this is the best case for Medicare under current law, and it depends on some dubious projected savings. For example, the Trustees assume that a reduction of nearly one-third in Medicare payment rates for physician services will be implemented in 2013. This is highly doubtful.

Of course, the pressures of aging populations are not limited to the U.S. In a recent visit to Japan, I called attention to the fact that when Japan first counted the number of people over the age of 100, back in 1963, there were 153. As of last September, the number was 48,000. By 2050, according to UN estimates, Japan is expected to have as many as 800,000 to 1 million centenarians … and 40 percent of the Japanese population will be 65 or older. One major consequence, according to McKinsey & Co., is that demand for medical care in Japan will triple in the next 25 years.

In Europe, rising health care costs for aging populations are contributing to the severe strains on the social welfare model that have been reflected in roiled world financial markets this year.

Back here in the U.S., the Alzheimer’s Association says that by 2050 – without effective treatments – more than 13 million Americans will be afflicted by the disease, and costs in the U.S. alone could surpass $1 trillion a year!

But what if we do find effective treatments? One study found that new treatments that could delay the onset of Alzheimer’s disease for five years would save U.S. government health care programs $140 billion a year by 2030.

Michael Milken has pointed out that the U.S. once faced similarly bleak projections for the costs of treating polio. In the early 1950s, the cost of polio care in the U.S. was predicted to be $100 billion by the year 2000. And that was in the days when a billion was a billion! Thanks to the advent in 1954 of the polio vaccine … a vaccine, I am proud to add, that Lilly was among the first companies to manufacture … the cost of treating polio in the United States in the year 2000 was in fact about $100 million, so the prediction was way off … by 99.9 percent!

Here are just a few examples from the recent past of dramatic cost savings from new medicines:

  • The power of new cardiovascular medications in the past 30 years to prevent or delay heart disease already has eliminated the need for hundreds of thousands of costly surgeries and hospitalizations each year.
  • Other medicines have enabled thousands of patients with mental illness to avoid institutional confinement for months or years.
  • And a 2005 study in the U.S. found that it cost half as much to treat patients with diabetes who adhered to their prescribed course of medicine compared to those who didn’t.

Last year, the Journal of the American Medical Association reported that when seniors who didn’t have comprehensive prescription drug coverage received coverage through Medicare Part D, they saved an average of $1,200 per year in hospital, nursing home, and other medical costs. That translates into $12 billion per year in savings across Medicare. And that’s real savings.

In fact, Columbia University economist Frank Lichtenberg has estimated that every dollar that Medicare spends on new medicines saves $6 in other health care costs, primarily for hospitalizations and physicians’ services.

What’s more, these new medicines eventually become available in the form of low-cost generics … compounding the savings to the health care system. A report prepared by IMS Health found that generic medicines saved consumers and government in the U.S. more than $900 billion over the last decade. And, according to Michael Kleinrock of IMS, patent expirations over the last half-decade are one of the main reasons why Medicare spent $50 billion less than federal officials projected five years earlier. Kleinrock says the average daily cost of drugs dropped one-third from 2005 to 2010, and should drop another third between now and 2015.

If all that were not enough to make the case for pharmaceutical innovation, there’s also its direct and immediate contribution to a strong economy that can support a robust health care system. According to Battelle, a U.S.-based research institute, U.S. biopharmaceuticals are a $900 billion industry that directly and indirectly supports some four million American jobs, including more than 650,000 jobs in the industry itself. The average biopharma wage is nearly twice the U.S. private sector average, $119,000 versus $64,000 … reflecting the value created by pharmaceutical innovation.

So it’s essential that we never lose our focus on the long-term benefits of medical innovation … its contribution to human health and its indispensable role in sustainable health care ... as we seek our way through today’s challenges.

Innovative pharmaceuticals can and will continue to contribute to these critical goals … but it’s going to take courage and discipline to maintain a long-term perspective that sees over the horizon of the immediate pressures on our industry and our health care systems, exacerbated by the global economic crisis.

The pressures are formidable. In recent years, our industry has been mired in a slump in R&D productivity. The cost of developing a new medicine has skyrocketed, from about $320 million in the mid-1980s to $1.2 billion in the early part of this century. Yet new drug approvals were significantly lower in the first decade of this century than they were in the 1990s.

And we continue to face the patent expirations to which I alluded a moment ago. In fact, our industry is in the midst of a five-year period when branded medicines with sales of $150 billion worldwide are losing patent protection. This is great news for consumers, but it will translate into a negative impact of about $25 billion in annual R&D spending by the industry by the end of this period.

Partly as a result of these forces, over the past 20 years, 26 major independent pharma companies have consolidated into nine.

Lilly is not immune to down cycles in pharmaceutical R&D. Right now, we’re in a period when a number of our key medicines are losing patent protection in the U.S. and other markets.

There’s no doubt that the discovery and development of innovative medicines is today more than ever a complex, risky endeavor. That’s presumably why some investors are encouraging companies like ours to slash their R&D budgets, and some even argue that our industry’s innovation model should be blown up!

And yet, while our industry and our company face daunting pressures, we have every reason to believe that we can succeed if we keep our eyes on the long run.

Indeed, while our company currently faces the greatest challenge in its history, we have weathered similar periods on several occasions … just in the 33 years I’ve been at Lilly. On an even longer time horizon, Lilly is one of only about 50 U.S. companies that have appeared on the Fortune 500 list every year since it was first published in 1955. Another 2000 or so have come and gone.

And right now the opportunities for innovation are real and compelling. The science and tools available to us continue to advance every day, providing us with the important substrate for our work.

Indeed, 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.

Now, there’s no assurance that any of these potential medicines will reach patients … or that any of them will have the impact of the polio vaccine … but the potential is extraordinary, and this is no time to give up on innovation.

Innovation requires long-term thinking – especially in an enterprise that typically requires more than a decade to bring a new medicine to patients. We’ve stayed the course through challenging times in the past by following the science, and we need to maintain that same perspective today. To paraphrase Mark Twain, I expect that rumors of our demise will prove to be greatly exaggerated.

But, of course, there is no guarantee. Just as we’re taking a long-term view of our own business, we’re also urging policy makers to take a long-term approach that preserves our ability to contribute the benefits of medical innovation.

Unfortunately, however, it’s hard to focus on long-term benefits when you’re facing a severe and immediate fiscal crisis. As a result, many of the “solutions” proposed to lengthen the fiscal life of health care systems involve denying patients access to new treatments that can extend human life … or withholding from innovators the return they need to sustain their challenging work.

PhRMA and its member companies have long supported health care policies that alleviate the pressing problems of access and affordability to high-quality health care services and preserve the potential of innovation to meet health care needs. We must do both. In fact, there is no way to lower costs over the long run without innovation.

We recognize that there is no perfect or permanent solution. So, no matter how the Supreme Court rules on the Affordable Care Act, the debate will go on, and we will continue to engage. PhRMA will work with policy makers … across the political spectrum and around the world … year after year … to find answers that make the best use of the capabilities we bring to the table.

We’re in this for the long run.

We will advocate for positive policies that are in the best interest of patients, and we will continue to explain how misguided policies – such as the Independent Payment Advisory Board – can have a damaging effect on access and future medical progress. We and many other organizations across the healthcare spectrum have called for repeal of IPAB. IPAB’s goal may be to slow the growth of health care spending – which we agree with – but a board that focuses only on cost cutting – not on quality and health outcomes – can have dangerous or potentially fatal consequences for patients and for biopharmaceutical R&D.

Regardless of the outcome of the Supreme Court’s ruling, we can’t go back to some mythical health care Garden of Eden, where doctors made house calls and treatment was “take two aspirin and call me in the morning.” There are very real reasons why health care reform remains an issue of great interest – including the tens of millions of Americans who, for practical purposes, lack meaningful access to many of the medicines we produce.

In our ongoing efforts, we will guided by a core set of principles. We will advocate health care reforms that enhance patient access to good health care and medicines; provide consumer choice through market-based competition; promote prevention and evidence-based disease management; foster future medical innovation; and maintain high standards of quality and safety.

We will also continue to make the case, as I’m doing today, that incentives to discover and develop new medicines are crucial to improving health, quality of life, and productivity. Medicines account for only a fraction of health care spending … about 10 percent in the United States. … but they can have a big impact on costs throughout the system.

Achieving those breakthroughs is not easy, and it’s not guaranteed. Many of the diseases we’re tackling today have defied treatment throughout human history. And, as I noted earlier, many companies are losing patent protection on their top branded medicines, depleting revenues needed to fund soaring R&D costs.

Without a supportive policy environment … one that reflects a long-term perspective on the role of medical innovation in health care … there is in fact no guarantee that the work of discovering and developing new medicines will go on at all.

Europe provides a cautionary case study. During the 1970s, four large European countries – France, Germany, Switzerland and the UK – accounted for 55 percent of new chemical entities produced by major nations, while the U.S. share was 31 percent. Since then, Europe has adopted policies that plainly undermine innovation, including burdensome assessment processes that make it difficult to obtain market access and adequate reimbursement for new medicines. In the most recent decade, 2001 to 2010, there was a complete reversal in production of NCEs, with the U.S. producing 57 percent, while the four European countries’ share fell to 33 percent.

So, when it comes to health care policy, we will continue to speak up for policies that sustain and encourage innovation and against those that would undermine it. What we’ve heard referred to as an “ecosystem” of innovation has several indispensable elements, including:

  • intellectual property protection;
  • open access to health care markets and market-based pricing; and
  • a regulatory system that keeps pace with 21st century science.

These issues are the subject of another speech. Let me simply acknowledge the work of the U.S. Food and Drug Administration … and, in particular, Commissioner Hamburg … in setting the stage for broad bipartisan support for legislation to reauthorize the Prescription Drug User Fee Act – which has passed both houses of Congress overwhelmingly in the past two weeks. We’re encouraged by provisions in the PDUFA legislation to reduce review times and improve the number of first-cycle approvals, and we’re optimistic that the conference committee can work out differences in time to send the bill to the President before July 4th.

In conclusion, the long-term impact of biopharmaceutical innovations goes beyond additional decades of life and health … beyond savings to the health care system … reaching across the entire economy. The payback from new medicines 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!

Of course, medical innovation can’t solve all the problems facing the world’s health care systems. Structural reforms to entitlements will continue to be necessary … but those reforms will be more palatable … and therefore more politically achievable … with the improved care and outcomes made possible by innovation.

The challenges won’t go away; in fact, the pressures will only increase. It would be a grave mistake to sacrifice the long-term benefits of innovation to meet immediate budget pressures … to somehow settle for the innovation we have now … to embrace so-called “solutions” that simply accept a shrinking of health care and focus on parceling out the misery.

In fact, these choices are full of peril. Given the evolving nature of diseases like HIV/AIDS, or the possible emergence of an unforeseen danger like H1N1, and the tenacity of some diseases of aging such as cancer and Alzheimer’s disease, we need more innovation, not less. The good news is, time and time again, medical innovation has reset the standard for what we can expect from the health care system … and from human life.

Indeed, I believe we are only at the beginning of what will be known as the biomedical century. We’ll look back a hundred years from now and say the 20th century was the century of chemistry and physics, and the 21st century was the century of biomedicine. As you’ll hear later today, we’ve already crossed the frontier of personalized medicine, and I believe that the combination of new insights into human biology, along with the application of new tools and advanced technologies, has the potential to revolutionize our work more in the next 10 years than in the past 50!

Yes, innovation can be messy and unpredictable. So can life. Innovation often proceeds in fits and starts. It is usually incremental in nature, with one small advance building on another, often creating a snowball effect.

In the crisis of the moment, we need to keep our wits about us … to maintain a healthy optimism rather than a destructive fatalism … recognizing that we’re in this for the long term … that the work of innovation is never finished, the challenges of human health and health care never fully resolved.

This is about making life not only longer but better … for the generations that will follow us, as Keynes might say, in the long run.

  • Only through innovation can we sustain the last century’s progress in longevity and quality of life…
  • Only through innovation can we make progress against the scourges we know, and those to come...
  • And only through innovation will we be able to sustain robust health care systems that provide ever improving care and outcomes to rapidly aging populations.

More than 30 years of experience in the industry tells me we can do this. For the sake of patients here and around the world … today and tomorrow … we must do this.

Thank you ever so much.

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