Eli Lilly CEO John Lechleiter on Tackling the Pharmaceutical R&D Crisis (Part 1)

11/21/11Follow @xconomy

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had nine, if you count exenatide (Byetta) from Amylin Pharmaceuticals. There’s sort of an ebb and a flow. Unfortunately, unlike the fast food industry, I can’t just order up a replacement for the Big Mac to put on the menu overnight. I’d like to have more coming in at a time when we are beginning to lose patent protection on some of our products, but there’s going to be a lag.

I think our investors understand this industry has its ups and downs. In 2001, we lost our patent on Prozac, and in 2002, our sales declined. In 2002, we started launching new products, and in 2003, revenues grew. The challenge for Lilly, and it is a challenge for the industry, is that despite all of the changes we faced 10 years ago, is to show that we can sustain innovation over a long period of time. We’ve said to our investors, ‘Hey, the period from 2011 to 2014 is going to be pretty challenging for us.’ Here’s how we plan to get through that, and pay for our investment in research, and here’s the basis for which we’re going to grow once we get through that period. It will be based on new product launches from the pipeline that I mentioned.

X: You expect to enter an era of higher research productivity?

JL: We’re already in that. We’re seeing that.

X: What changed? What’s different now?

JL: A lot is different now. By the way, I don’t think this increased productivity is reflected in anybody’s stock price because investors are still saying, ‘Show me the results with launched products.’ I can have a very productive research organization, but it will be six to eight years before it translates into commercial products, unfortunately.

The reasons for increased research productivity are several-fold. Number one, it’s partnering. This is no longer an intramural exercise, but one in which we’re taking advantage of knowledge and tools through partnerships. It’s helping. For example, Lilly sold a preclinical testing site in Greenfield, IN, to Covance. We have a very significant partnership with Covance to work with them and do preclinical testing of our molecules in a way that’s very different from the way Lilly did that three or four years ago.

Secondly, the knowledge base we have is much bigger. In some cases, our knowledge of biological pathways now is akin to lights being turned on in a room versus groping around in the dark.

Third, the tools we have are better. Whether that’s imaging technology or computational science we can apply to these things. The fact that we can use X-ray diffraction technology through our SGX Pharmaceuticals acquisition in San Diego. [Through] the work they do with Argonne Labs in Chicago, we get crystal structures of targets on cell surfaces. The tools we have on hand to exploit the growing knowledge base is contributing to productivity improvement.

X: And you think we’ll see more FDA approved products 5-10 years from now because of this?

JL: Yes.

X: How many more? How much productive do you think things can get?

JL: That depends on how the narrow neck of the funnel manifests itself, and that of course is clinical testing. It depends on the strategies and regulatory challenges that one always faces in Phase 1, 2, and 3 clinical studies. It’s also going to be a function of how effective we can be at tailoring these therapies. Will we be able to describe, and how will we be able to describe, which patients these new therapies are best suited for? We are using genetic markers or biomarkers to make that determination. That’s something we’re very much involved in and committed to. It will have an impact on clinical stage productivity going forward.

X: Lilly has obviously continued to invest in R&D, but the mega trend here is against Big Pharma investment in R&D. Biotech venture capital is shrinking. The federal research budgets are getting tightened. Where do you think the drugs are going to come from over the long-term?

JL: An article published in the New England Journal of Medicine a couple months ago, in response to this always-asked question of where do medicines come from, this very erudite article said that 85-95 percent of medicines come from pharmaceutical or biotech companies. I think it’s incumbent on us to make sure we keep the ecosystem healthy and vibrant. We depend on universities, and the NIH and others to help develop the basic science that we exploit. This is true of any industry. But the fact is that if we expect to have medicines for treating Alzheimer’s, or be more effective at treating cancer, we have to hope we can sustain a healthy biopharma industry. Obviously, the U.S. leads the world now. We have global competitors, but the complexity of this work, and the capital required to do this task, will be something that stays with this industry. That’s why improving the productivity of research is exceedingly important.

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