Dave Ricks, CEO of Eli Lilly, on GLP-1s and the business of pharma

You spend more on medical R&D than Germany does.

Yeah, we're at the nation state level.

It'll be, yeah, $14 billion this year.

Can you imagine this?

Like, we go to a restaurant tonight

and a bottle of, like, a hundred dollar Napa Cabernet

is like $14,000.

But then the waiter says, "Don't worry,

that's not your copay."

Yeah.

I have like at least one or two AIs running

every minute of every meeting I'm in

and I just am asking it science questions.

Which one do you use for science?

Either Claude or the xAI.

What would you guess the average caloric consumption

per day in America is?

3,600 calories.

Yeah.

Isn't that incredible?

I'm the 11th CEO of the company.

That's one less than popes in that period of time.

Where did you learn to pour?

I actually learned in Ireland.

Okay, do you want me to leave it down?

You're the expert here.

Okay, oscillate this way.

That's an excellent pint.

Yeah.

Dave Ricks is CEO of Eli Lilly,

which is now a $700 billion company

and the world's most valuable pharma company.

Eli Lilly is 150 years old.

They grew up as the first company

to mass produce insulin in the 20th century.

But today most of the company's business

is in the new GLP-1 diabetes and weight loss drugs

where they've become the market leader.

Simultaneously, Eli Lilly is upending the traditional model

by selling directly to their consumers over the internet

with LillyDirect

rather than through the traditional middleman.

All right, cheers.

Cheers. Cheers.

Thanks for coming.

Good to be here. I'm very impressed

that you came and you just poured

your own pint. Poured my own pint, yeah.

Major flex. Have glass, will pour.

Exactly. Well, actually a good place to start.

Tell us about your NVIDIA announcement that you just had.

Yeah, so today at the, what's it called,

GTC conference they have,

they unveiled that we're well underway,

actually it should be done by the end of the year,

but building a supercomputer on-prem for us

really just to run proprietary drug discovery models.

We think it's the biggest

biologically-focused supercomputer there is.

And certainly the biggest pharma's done

with B300s, the latest chip set.

And, yeah, we're only constrained by power,

like everyone else.

But, yeah, we've built a bunch of tools,

we'll run them on that,

and scientists use it to sort of co-invent, co-develop.

Focus mostly on chemistry to begin with,

but we'll expand from there.

And so is the idea here you have some target,

you've had some challenges actually drugging it,

and so you give it to one of these new chemistry models

and you ask it whether it can come up with something

totally orthogonal beyond what—

Correct, yeah. A human might have tried.

So take a really good popular example

is like GLP-1.

So that's a hormone peptide that we all excrete.

It engages targets that are what we call

G protein-coupled receptors.

So they're hard to drug targets on the outside of cells.

And to try to mimic a big huge protein

with a very small chemical

is a complicated undertaking.

And by the way, do only that

and not other things that are untoward.

And so this is sort of a frontier of drug discovery

that's been tough and very empirical.

That's a hot area for this kind of technology

because these strange arrangements of atoms

don't look like other drugs that have come before,

but they do follow the principles of organic chemistry

and seem to engage these targets effectively.

I don't know of one

that's come through the machine-driven discovery process,

which is really machine plus human,

that's made it to the clinic yet,

but they're coming.

And I think that's exciting

because those have been structures that are,

they don't exist in nature,

and yet the machines are alien

and they can predict these interactions.

I'm always struck by Derek Lowe's arguments

where he's always sounding this note of caution I guess

about the optimism

and maybe what he might view as boosterism

around AI and biomedicine

where, as I see at least, his two claims

are, one, it's really hard to select the targets

and AI doesn't help you that much there.

No.

And then so much fails at, like, human toxicity.

And again, at least so far,

AI has not been all that helpful at that step.

Yes. Do you agree with him

or is he overrating, you know, these particular challenges

and maybe underrating the challenges that AI does help solve

or, you know, thoughts on that argument?

Probably we need to create the equivalent

of what got created with human language,

which is a more complete repository of biological knowledge

to train against

before the machines get a lot better.

And today, I don't know, I would estimate

we might know 10%-15% of human biology.

So the machine's not going to be good at all

until we get way above 50%.

That probably requires,

you know, robotic 24/7 experiments

just to create training data sets

and, you know, sort of this kind of big lift effort.

The kind of thing actually NIH should be doing right now,

I would think.

But that effort's not ongoing, at least in our country.

But I think if that gets going, I think we'll know more

and the machines get better at the harder big problems,

system prediction.

Patrick and I did not,

well, just didn't finish any college.

So not only don't have a, you know, formal training

in computer science,

but don't have formal training in anything.

You did not come up through the science side of Eli Lilly,

but you seem extremely comfortable with the science.

What has been your method for ingesting all this stuff,

like, and especially as you're essentially

making science decisions at the end of the day

with the top-level capital allocation decisions?

Just how do you learn? No, that's right.

I think we probably make three or four

important decisions a year

and they're all science.

I don't know. Stay curious.

Mm-hm. Read.

Read what?

I read a lot of medical journals.

I go to conferences where data is presented.

I spend time with our scientists.

Stay curious.

Yeah. Yeah.

Now I have like at least one or two AIs running

every minute of every meeting I'm in

and I just am asking it science questions.

So you found for your learning ChatGPT or whatever your—

I don't use that one for science.

ChatGPT's too verbal. Wait, so which one

do you use for science?

I tend to use either Claude

or the xAI one.

I find it more terse

and the references actually check out more often.

Sometimes the AIs produce references

and they're actually not the thing that it said

and that takes too much work to go cross reference.

So for an autodidact, presumably the emergence of LLMs

has been transformative for you.

Yeah, well, I think for learning,

that's a whole nother topic we could talk about,

but you have to sort of question

the, like, pedagogical kind of method period.

If you can just learn continuously—

It's mastery learning for everyone.

Yeah yeah exactly.

So you take advantage of that.

But, you know, early in my career,

I started in our business development M&A group

and I spent my whole time with scientists

looking at little companies and projects in other companies

and trying to understand what they were worth.

Well, then you have to understand what they do

and, you know, I found that part of the industry,

I didn't expect that when I came to Lilly.

I came to the company accidentally by the way.

But when I found that, I was like, "Wow."

I loved it.

This is so interesting.

And then I had a moment

where one of the projects I worked on

became a medicine in the US

and my mother was diagnosed with a condition

and she got put on it.

And so then that's the magic.

It's like, okay, you can work on things that change people,

but the people you care about, that's—

You saw the full

end-to-end impact. That's what purpose is.

Yeah exactly.

From lab, exactly.

So special.

Your four big decisions a year

that are kind of grounded in science,

how quantitative versus qualitative do these end up being?

Are you Rick Rubin, where it's all taste based

and you just like the feel of this direction?

Or are you Billy Beane where it's a "Moneyball" type,

you know, the ROI pencils and—

I think the system does a lot of the Billy Beane.

I think that's a change at Lilly

that's made us more successful.

I think we've actually put together a decision process

that's quite a bit more rigorous than it used to be

and that leads to fewer bad decisions.

That's good.

So that's sort of like the bumpers on the bowling alley

that you put up.

But then within that,

whether it's a strike or a single pin,

that's a little bit of the judgment and taste.

And there, though, you know, wisdom of crowds,

I think we have a great leadership team

and we all come with equal voice and sort of debate.

We actually have a rule to like never decide in one meeting.

So you're asking about the day,

but we, like, come back to it,

think about what others said

and kind of push it again.

And are you deciding?

Ultimately yes.

Nothing happens unless I say go,

and if I don't like it, then it definitely doesn't go.

But people will often persuade me

and I definitely change my mind.

And some of these are projects within the company.

So what's the structure of the industry?

We have huge expenditures on R&D,

I think more than any other sector,

as a percent of revenue,

we'll spend almost 25% of sales this year.

I like your way— On R&D.

I like your way of putting it

that you spend more on medical R&D than Germany does.

Yes, yeah, we're at the nation state level.

It'll be, yeah, $14 billion this year.

Total NIH,

which is the biggest thing on earth that spends money,

is 40.

So that's— It's up there.

It's getting close, yeah.

But some of those are projects

we've been working on it for a while

and now we have a data set,

now we need to make a decision to go to the final stage.

The final stage of testing,

the average drug costs $3.5-4 billion to make.

More than 60% of that is the last step.

So that call is the big one.

The earlier ones of, like, go forward,

okay, it's a lot of small things that add up.

You can waste a lot of money if you do that poorly,

but, you know, there's a portfolio, so that's unlikely.

But usually we're carrying five to 10 projects

in the latest phase and those are—

And so you're saying like the phase III trial—

Phase III, exactly. That's the question.

Yeah, that's the question.

What to test it in, how to test it,

what's the design of that,

go,/no-go, against that criteria.

And that stage, yeah, is going to be burning

a billion plus a year.

So it's a big investment.

Per program.

Yeah, and, of course, the returns

on most drugs that make it through that

are not positive.

So it's not just can you get through that,

but will you produce something useful enough

to create excess value for society

but also the company

to keep the whole thing running?

That's the exercise.

Okay, so to this point, the dynamics

and the funding of clinical trials determine

so much of the portfolio dynamics for you.

I think anyone who comes across

these clinical trial figures and mechanics asks themselves,

"Why?" How could this be?

Yes.

So I looked at— It's a great question.

I looked at the numbers.

So apparently the median clinical trial enrollee,

it now costs $40,000.

You know, the median US wage is $60,000.

So we're talking two thirds.

Why and why couldn't it be a 10th or a hundredth

of what it is?

Yeah, brilliant question,

and one we've spent a lot of time working on.

We've done a lot of things

to improve the drug development process.

So taking a systems approach.

And I think one of the reasons

Lilly has probably the highest return on investment in R&D

in the industry

is because not the picking of winners and losers,

but actually the process by which we run it.

I think that's at least as valuable as what we've done.

And we can come back to that if you want.

But the piece we've really not moved

is the enrollment of clinical trials,

this is going to sound super arcane when I go through it,

and the cost, which is escalating about 7%-8%

over the last decade.

That's about the same as the healthcare system.

And that's not an accident.

When people go, "Why does a trial cost so much?"

Well, we're taking the sickest slice

of the healthcare system that are costing the most

and we're ingesting them,

we're taking them out of the healthcare system

and putting them in a clinical trial.

Typically we pay for all care.

So we are literally running the healthcare system

for those individuals.

And that is, in some ways,

for control,

because you want to have the best standard of care,

so your experiment is properly conducted

and it's not just left to the whims

of hundreds of individual doctors

and people in Ireland versus the US

getting different background therapies.

So you standardize that, that costs money

because you're sort of leveling up a lot of things.

But then also, in some ways,

you're paying a premium

to both get the treating physicians

and having a great care to get the patient.

We don't offer them remuneration,

but they get great care,

an inducement to be in the study

because you're subjecting yourself quite often,

not all the case,

but to something other than the standard of care,

either placebo or this,

or in more specialized care,

often it's standard care plus X

where X could actually be doing harm, not good.

So people have to go into that in a blinded way.

And I guess the consideration is you'll get the best care.

Of the $40,000, how much of that should I look at

as inducement and encouragement for the patient

and how much should I look at it

as the cost of doing things

given the regulatory apparatus that exists?

The patient part is like the level up part

and I would say 20%-30% of the cost of studies

typically would be this.

So you're buying the best standard of care.

You're not getting something less.

That's medicine costs,

you're getting more testing, you're getting more visits.

And then there is a premium that goes to institutions,

not usually to the physician, the institution,

to pay for the time of everybody involved in it

plus something.

We read a lot about it in the NIH cuts,

the 60% Harvard markup or whatever.

There's something like that in all clinical trials too.

Overhead coverage whatnot.

But it's paying for things that aren't in the trial.

US healthcare is famously the most expensive in the world.

Yes. Do you run trials

outside the US?

Yeah, actually most.

Most of it, yeah. So, yeah.

I mean, we want to actually do more in the US.

This is a problem, I think, for our country.

Like, take cancer care where you think,

"Okay, what's the one thing

the US system is really good at?"

Like if I had cancer, I'd come to the US.

That's definitely true.

But only 4% of patients who have cancer in the US

are in clinical trials,

whereas in Spain and Australia, it's over 25%.

And some of that is because they've optimized the system

so it's easier to run and then enroll,

which I'd like to get to, people in the trials.

But some of it is also that the background of care

isn't as good.

So that level up inducement is better for the patient

and the physician.

Here, the standard's pretty good.

So people are like, "Meh, do I want to do something

where there's extra visits and travel time?"

There's another problem in the US,

which is we have really good standards of care

but also quite different performing systems

and we often want to place our trials

in the best performing systems that are famous,

like MD Anderson or the Brigham,

and those are the most congested with trials

and therefore they're the slowest and most expensive.

So there's a bit of a competition for place

that goes on as well.

But, overall, I would say,

like, in our diabetes and cardiovascular trials,

many, many more patients are in our trials

outside the US than in

and that really shouldn't be other than cost of the system,

and to some degree, the tuning of the system,

like I mentioned with Spain and Australia,

toward doing more clinical trials.

For instance, like, here in the US,

everywhere, you get ethics clearance, we call IRB.

The US has a decentralized system,

so you have to go to every system you're doing a study in.

Some countries, like Australia, have a single system.

So you just have one stop

and then the whole country is available to recruit,

those types of things.

You said you want to talk about enrollment?

Yeah, yeah, it's fascinating.

So drug development time in the industry

is about 10 years in the clinic,

a little less right now.

We're running a little less than seven at Lilly.

So that's the optimization I spoke about.

But actually, half of that seven is we have a protocol open.

That means it's an experiment we want to run.

We have sites trained,

they're waiting for patients to walk in their door

and to propose, "Would you like to be in the study,"

but we don't have enough people in the study.

So you're in the serial process, diffuse serial process,

waiting for people to show up

and you think, "Wow, that seems like

we could do better than that.

If Taylor Swift can sell out a concert in a few seconds,

why can't I fill an Alzheimer's study?

There seem to be lots of patients."

But that's healthcare.

It's very tough.

We've done some interesting things recently

to work around that.

One thing that's an idea that partially works now

is culling existing databases

and contacting patients.

Proactive outreach. Right,

where you have, like, their lab values from,

where before there wasn't a treatment,

now there is one being studied,

would you like to be a part of it?

That's something we're doing now

with our Lp program.

That's a cholesterol subtype

where there was nothing to do about it.

A lot of people have had it tested and it's high.

You could say, "Hey, you're high.

Would you like to do something now?"

But it's still a lot to be done there

and the data that's sitting in electronic health records

in our country

is very poorly organized.

So it would be good to optimize that.

I think the other

is actually just go directly to the patients.

So who has the most interest?

It's usually the patient.

And then physicians and their institution

may not be in the trial

or they might not be interested

in spending much time on this and people—

That's kind of what I want.

I want to get an email, as you say,

you know, the system knows, you know, my health data

and what conditions I have and so forth,

and be told that a package will be arriving tomorrow

with a drug.

I can take the drug if I want to,

if I want to participate in this trial.

You can include whatever disclosures.

And, you know, some nice person

will come every month or whatever and take—

Or just telephonically visit you.

Yeah. Take my vitals, exactly,

and measure my blood pressure and what have you.

Are all these intermediaries in the systems

in, you know, the hospitals and so forth,

are they required intrinsically

for the kinds of trials you want to run?

Obviously varies a little bit on the condition or the drug.

Depends on the disease.

Yeah, yeah. Right, right.

Well, I guess, yeah, so how much of it

is there in fact intrinsically required

given, you know, the characteristics of the condition

and how much is it this is how things are done?

Yeah, what you described is actually a great vision

for where we want to go.

We've executed one of these at scale,

which is fully enrolled,

which was our Alzheimer's prevention study.

It's a more complicated medicine.

It's an infused medicine.

But we ran this with one investigator in the United States

and we screened over 80,000 people.

By the way, it's the fastest accrued

Alzheimer's study in history,

even though it's pre-Alzheimer's.

It's people with the amyloid precursor protein,

but not dementia.

It's fully enrolled.

We've treated people,

actually no one's left on treatment.

We're just watching them now,

because the treatment's a nine-month course

to deplete amyloid

and see if that can prevent the symptoms.

So that was a very successful trial.

Just what you said.

They got instructions to be in the study.

There was a televisit.

They got some diagnostic tests, blood-based,

that went in and said,

"Okay, this is sort of an indicator

you might have high amyloid,"

then you can go to get a PET scan, and if that was positive,

you could be enrolled in the study.

Pretty successful.

So we'd like to replicate that.

I think one very interesting thing in the future of medicine

is that I think we will have a lot more

preventative medicines in the future.

And I think this type of study in particular

is well suited to prevention

because you have sort of the people

who are worried about their wellness,

so they're motivated.

They have means.

They're in the middle of their life.

They're working.

They don't have complications of comorbidities and so forth.

They want to be in the study,

and I think they would like to prevent

terrible conditions like Alzheimer's.

So that's an exciting new chapter we can push.

So you know Paul Janssen?

Yeah. Yeah yeah.

So-

Explain who Paul Janssen is. Come on.

Paul Janssen, as I understand it,

was behind the discovery, invention, what have you,

of more medications than any other single—

I think a Belgian guy.

Yeah exactly yes yes.

I think it's— Who invented a number of—

79 or 80 approved— The MVP of medicine.

Michael Jordan of the NIH. Beyond MVP.

Yes.

Okay, so amazing guy.

When some outsider comes

to the clinical trial process and system

and just the development pipeline overall,

maybe they naively think, "Wow, this seems so torturous,

so expensive, so bureaucratic," what have you.

But that's how it's gotta be.

But that's how it's gotta be.

You know, or if they think it can be otherwise,

you might think that they're naive, right?

There's a video interview with Janssen from,

I think it's from the '90s,

it's from, you know, quite a while ago,

I mean, he's dead now,

where he's recounting the history of his career.

He started the company in 1953.

We could go go back to doing it the way we used to

and it's kind of a,

it's a societal choice to make it so bureaucratic.

I guess it's an explicit and implicit one.

The explicit part is through time, there have been accidents

and nothing is perfect.

We probably have 2,000 manmade approved medicines

versus natural products or vitamins or other things

and maybe 400 unique mechanisms.

So there's clustering.

Within those, there have been problems

and there's also been problems

that turned out not to be problems.

And so our detection ability is flawed.

Because of that, I think each time that occurs,

there was intervention in the system,

which is sort of a global consensus,

but mostly the developed economies

kind of harmonize their systems

either directly or indirectly

to say, "Oh, no, let's require more information

or rebalance the risk-benefit."

We've had this ratchet.

Have we gone too far?

I think that it's a function

of what the technology is at the moment.

And I think in past times, yes.

You can take the 2000s in the US

where there were two big controversial drug approvals

that were later retracted,

the Vioxx situation with Merck

and then Avastin from GSK.

These were both drugs that were for different uses,

pain and diabetes,

but through a detection requirement that the agencies,

because now we have electronic records,

we can look at things,

picked up what they thought was a trace of risk for both,

cardiovascular risks,

and intervened with labeling and escalation

until finally both companies actually removed the products

from the market,

withstood billions of dollars in product liability suits,

only to find later under a different analysis

that there was nothing to be seen there.

Both of them.

And I think there's like an ascertainment bias problem

with these studies.

There's also who was looking at this data.

But that caused a 10-year chill in drug development.

And the Avandia one we know well,

we work in diabetes,

actually caused a policy change.

And the policy change

was you must rule out cardiovascular risk

prior to market entry.

And as you may know, some conditions like diabetes

have a more continuous variable you're measuring

and so studies can be short and cheaper, glucose levels.

Other studies like cardiovascular event studies

are not a continuous variable,

it's a binary variable,

and you have to wait for natural history to occur

to pile up enough variables

to have a statistical difference.

Those are four to five-year undertakings.

So there, you just bought four or five years of extra time

before you could get any new diabetes medication.

We got better at doing them, but that was expensive.

Now, has that...

That's the explicit.

The implicit is the regulatory problem.

There must be a name for this problem

some smart person's given it,

but regulatories are added but never taken away.

So the regulation is still there.

Now, by happy accident,

we are all now really pleased

with, like, incretins like our tirzepatide to run them

because they frequently demonstrate

massive benefit on cardiovascular

and, in some ways, it creates a barrier to entry

for the next low-cost Chinese program or whatever

'cause it's this big expensive thing you have to—

As with many regulatory—

Yeah, exactly. Right.

So is it right?

No, we're imperfect as people

and certainly as decision-makers at a collective level.

I would also say the technology for seeing early signals

has changed and improved, including computer technology,

and it's probably worth a reassessment.

Paying for prevention, you were going to ask.

Yeah, let's talk about that

because say with, you know, GLPs in the weight loss context,

they economically pay off over a very long time horizon,

but if you're looking at a short time horizon

of an insurer or an employer, they don't necessarily,

and so that's created this challenge for reimbursement

where, you know, not as many people

reimburse GLPs for weight loss

as you think would be rational.

Yep.

That just will always be the case with prevention.

And so how do you actually develop drugs

that are commercializable and reimbursable?

Yeah, well, in the obesity case,

I'll take a little bit issue with your first assertion

and then add two other problems.

The data actually is becoming more clear

that within actually a two-year timeframe,

and I hope at Stripe, you reimburse these medicines

for your patients, or for your employees.

Within two years,

you can break even basically on total medical costs.

So there's this group called ICER,

which is funded by someone who hates our industry

and the insurance companies,

and they analyze all new drugs

and usually seeking to prove that they're not worth it.

That's sort of their mission in life.

They just analyzed our medicine,

tirzepatide and semaglutide,

and they said, "Actually, they're both cost effective

at current pricing."

In fact, Zepbound, or tirzepatide, was,

the threshold they have

is to save a hundred thousand dollars per person per year

in downstream health costs,

and it was twice as effective as that

at the current pricing.

And the current pricing isn't going to stay,

let's be honest.

There'll be more competition.

The government wants to lower our prices.

So, you know, I think we're in a good place there.

Now, the two other problems

are there's sort of this incumbency problem in healthcare,

like many things, but particularly in healthcare,

where the last thing in is scrutinized the most

and the base stack of services and products we use

is never revisited.

It becomes standard of care.

But displacing that in most therapeutic spaces

and in the healthcare system in general

is extremely difficult.

I think we suffer from that here.

If the first medicine we had to treat metabolic conditions

was tirzepatide in 1972,

I have no doubt it would be reimbursed everywhere

and broadly used in the system.

But they get the ratcheting effects.

But then you're just stacking on top of it

and it's difficult to remove benefits,

it's easy to deny new ones,

and that's true in government-funded systems

but also, you know, big insurers.

I think the other thing that's going on with this one

and why we're spending so much energy

exploring, you know, real indications

for comorbid diseases that go with obesity,

which is so far pretty successful,

is that the idea of just treating someone

who's overweight or obese without any other illness,

to many people I think exposes a bias we have

about that particular condition.

That if it wasn't something you could see,

you might not have.

But I think we are conditioned

to think of someone who's overweight

as someone who's not disciplined.

The data does not show that actually.

Like our ancestors roaming the plains of whatever,

the tundra of Ireland,

walking across the ice bridge from Norway,

were in a background of starvation

and there are very few humans on earth

that have a genetic background

that has any limit on food consumption.

It's irrational.

It's a wasted piece of code.

It did no good.

Now, today, in today's environment,

we're in the flip, the complete flip,

especially here in the US,

where there's food everywhere we walk.

I came across your stat,

what would you guess the average caloric consumption

per day in America is?

3,600 calories.

Yeah.

Yeah. Isn't that incredible?

Yeah, that's a really incredible.

And here's an interesting stat.

When you're on our medicine,

how many fewer calories do you consume on average?

On one of the GLP-1s? Yeah.

You don't need to swing it that much

to cause meaningful—

800 calories a day.

Oh my God. 800?

Which is almost a meal.

Yeah. If you go pull up

to In-N-Out Burger—

That's second breakfast right there.

It's second breakfast. Exactly.

So that's why people lose weight so successfully.

No wonder all the food companies are so worried.

And the trick, yeah, yeah.

And the trick is people lose the weight

and they don't feel miserable, right?

So here's the thing about being obese is people,

when you start to gain a little bit of weight,

your set point sort of readjusts.

This is the missing code we have.

And there's only one direction, which is up is better.

And the more up you have

actually the more hunger it creates.

Hyperinsulinemia, which is a hunger-stimulating hormone.

And it sort of starts to overwhelm

the counterregulatory system,

which is incretins, GLP-1, GIP,

the ones we are making medicines around,

and you're out of balance and there's no going back.

And interestingly, even when people lose weight,

that balance still seems to be off,

which is why if you've ever gone on a crash diet,

you feel like shit constantly.

You want to hurt people.

You're angry.

And on these medicines, that doesn't happen.

Yes.

Which is the miracle.

People feel good and lose weight.

If you have a medicine that is recurring

and it, you know, presents some income stream

for Eli Lilly,

now, maybe nothing is truly recurring

in the sense that, you know, all patent protection ends,

but nonetheless, there's something on an ongoing basis

and I guess there are various ways to extend that,

then some genetic medicine comes along.

It's one time.

Yep, one and done. Exactly.

Is it in practice possible to charge enough upfront

such that as a company looking at its portfolio—

Pays back the R&D?

Yeah, you are in fact neutral as to which it is?

Because from first principles, for the patient,

it's way better to do that— I think you asked

about a value perception problem,

and I think we need to overcome that.

We're doing that by studying

and all these other conditions

people recognize as conditions

and then we'll insure.

And because obesity is sort of this master switch

to all these things,

that's an achievable thing.

It just costs a lot of R&D.

I'm talking about perception.

I think he's talking about reality.

Yeah, you're talking about actually pricing,

which is, why is it that the industry's evolved

to have a unit pricing model?

It's back to like a shrinkwrap software world, right?

Where you're basically just shipping a box

and all your value has to be captured

upon that invoice.

Right. Yes.

That is how we price all medicines.

You're currently, you know, in the SaaS model

and, you know, tech people know that SaaS is way better

than the shrinkwrap software business model.

Yes. And genetic medicines

are shrinkwrapped software. Exactly.

Exactly. You know,

wouldn't you be crazy to go back

even though it's better for the patient?

Yeah, so I think,

so we have some genetic medicines coming

and we're thinking actively about this.

For instance, we have a medicine development

that will knock down your LDL if it's safe enough

in a one and done PCSK9 edit in your liver

and presumably that will last the rest of your life

and your LDLs will be between 20 and 40 forever.

It looks like an amazing drug.

Yeah.

Of course, there's problems with these delivery systems,

we have to rule out safety, but let's just say it works.

How would one price that?

Because you're displacing a medicine

that costs, I don't know, $8,000-$9,000 per year.

Right.

We need to innovate that pricing model.

Why haven't we?

It's mostly because the consumption side

has no capability to do this.

Particularly governments have built all,

back to the regulatory incumbency problem,

built all this stack of rules

around the idea that I buy one unit, I pay X.

Whereas here you buy one unit

and we want money over time.

What is that?

But it's conceivable that one could create

like a licensing concept,

stealing from the SaaS model,

where you say, "We'll do the procedure for free,

and as long as it's working for you,

you will deposit X amount in our bank account

and you're getting the value

and we're getting paid for our research.

If it doesn't work,"

you know, so that invokes a warranty as well.

That's an interesting idea

and one we're thinking about for these more common,

because so far gene therapy is mostly for uncommon things

where they've just charged it and someone's paid,

but for common gene therapy to really be unlocked,

this has to be solved.

It strikes me that we're describing,

you know, we're discussing how people's lives are affected

by all these treatments

and what pharma companies can produce,

which are themselves downstream

of what pharma companies can afford to invest in,

which there but for the grace of God go we,

you know, the patent time horizon is an arbitrary number,

that, you know, we have ended up with...

I sometimes think about, you know, off-label use

is, you know, very valuable in the US system.

You can imagine another universe where we hadn't ended up

with off-label use being permissible and things like this.

Do you think we need to spend more time

trying to discuss and meta edit

the R&D system and incentive system that we have

because it just has such a huge effect

on people's quality life?

Well, yeah, thanks for the question.

I love to talk about this.

So I think a lot about this

and I think if your point of view

is that we want more new medicines,

like, that would be

a better outcome— I'm from that world.

Yeah, yeah, and I am too.

Then I think there's definitely many flaws

with the current system.

Strangely, most of the discussions I have about this

are actually we have,

they don't say it out loud, but there's enough new medicine,

and where we really have a problem is affording it.

Now, interesting fact, in the US,

the most expensive healthcare system in the world,

we spend 10 cents on the dollar on medicine.

The other 90 cents go to everything else

that medicine's trying to prevent.

Yep.

Go back to 1965—

I think it's less than 10 cents.

Branded medicines are eight.

2% is generics, which is 90% of the volume.

That's an even better deal.

We have to get to generics. Yeah, yeah.

But go back to 1965,

Medicare and Medicaid were invented.

We've gained, I believe, eight life years

of life expectancy since then,

and most studies would say five or six of those

are due to medicine.

Yet think of the cumulative expenditures

by taxpayers since that time.

It's not even close.

We should be saying, "Who can we give money to

to do more research?

Because this is clearly a better way to get through life."

The direct way is the NIH.

We could talk about that if you want.

That has limitations because institutional government.

But the private market self funds,

either through capital markets or through our R&D line,

and there would be a lot more funding

if we had an idea of price stability

or a longer return period.

That is definitely true.

The patent system is what it is because of former rules.

Moving it out in time seems exceedingly difficult

in this climate,

but actually— Despite the fact,

of course, it's shrunk

because of the longer approval timelines.

It's de facto shrunk.

And then, actually, the Biden administration passed a rule

in the Inflation Reduction Act

to actually have government price intervention in the US

at five years plus two.

So basically around seven years,

you lose that ability to recoup investment

in the same way.

Government price intervention always works out well.

Yeah right.

It doesn't produce surpluses, let's put it that way.

You don't get more medicines that way.

So it's actually, it is collapsing,

I think, in investors' mind.

And you can see that in the capital markets.

If you look at the large cap pharmas,

not Lilly, but the other ones,

the multiple is the most compressed it's been in 20 years.

If you look at biotech, the XBI,

I think half of the XBI is trading below cash.

Yeah.

And then if you look at— Because of this.

Venture, half of the rounds last year were down rounds.

This is not a positive environment.

Would extending the patent duration actually work?

Because you referenced earlier this dynamic

where, you know, there are,

especially with biologics,

there are now so many opportunities

for copycat molecules and therapeutics and so forth.

And so, like, does it matter less

what happens with patent windows

because what actually matters

is the competitive ecosystem, the ability for fast follow?

Yeah, I think we end up

with two competitive ecosystems.

You have the on-patent one,

and here I think history would show

actually within a 10-year period,

which is typical recruitment time.

We've solved clinical trials, you know, separately.

So they're now— Okay, so it could be,

that's a way to get there, right?

Is we could simplify the regulatory framework

and have longer return periods

and increase returns to investors

and get more investment.

That's actually a real idea.

But, typically, in classes

by sort of the horse race and accidents along the way,

it's pretty uncommon you end up with one medicine.

Often you'll get many.

We can talk about GLP-1s for a minute.

We only have two right now,

but there's probably 80

in clinical pipelines right now globally.

We have 11 others,

but there's probably 70 others not coming from Lilly.

So there will be tons of competition.

But the history shows that,

back to this medicine incumbency,

once two or three sort of get in the works of things,

unless you're kind of different,

nobody really uses it

and pricing strategies have not worked.

Now, they don't work

until there's actually a biosimilar or generic event

because here, it's not a,

"Hey, I'm a hundred dollars and you're 90."

Typically, a generic event,

you'll lose 97% of your pricing the day your patent expires.

So this is a fantastic deal for society,

but a terrible situation for an inventor.

And if you came along late hoping to induce competition,

you maybe even were half off the originator.

Now you're half off is 90% lower.

So there's no return on that at all.

Okay, so in order to stimulate

and to, you know, catalyze more R&D,

you know, one thing we could do

is we could extend the 20-year window.

What else can we do?

Either you can get it quicker to market

or extend the market.

I think pricing for value is a good idea to consider.

So, today, particularly in the United States

and in many ex-US markets,

I would point out a few of the,

you know, the Commonwealth markets are different.

They've tried to implement at a price for value scheme.

Beause they're single payer?

Well, most are single payer outside the US,

but because they chose that path

instead of a negotiated outcome or something.

But the US, we have a multi-payer model,

but it's devolved to the situation

where actually it's a very commercial kind of thing

where there's a price point a manufacturer launches at,

really nobody pays that price.

There are then many, many price points below that.

The lowest is defined by law.

It's Medicaid.

Actually the law is called Medicaid Best Price.

So state Medicaid,

they spend 5% of their dollar,

five cents a nickel on medicine, not 10 cents,

because they get lower pricing per unit.

Big insurers like UnitedHealthcare, et cetera,

get a very good deal as well, approximating the government.

And then smaller insurers and smaller employers

get a worse and worse deal.

That's the way we do it.

What it means is that manufacturers compete

mostly not on value,

but on the pricing offering,

on sort of the difference between the spread

between the list price and whatever that person got.

Making it even worse,

a number of intermediaries in that system that bulk buy

take their returns on the percent off list.

So the higher the list, the better they do.

And I think that's a terrible incentive.

These PBMs

and there's some group purchasing organizations like this.

That should go away.

And I think health is different than other commodities.

It's probably has a much more important social role

and deciding that the little guy gets the worst deal

and the big guy gets the best deal

to me feels unethical.

So I would be for a system

that there is one price point.

People can say yes or no to that.

That's one way to have value.

As an employer, you could say, "That's not worth it.

We're not going to pay for that.

And this one is worth it."

That could be informed by really independent intermediaries

who study these things,

look at all the claims records,

look at how people do on the medicine,

weigh the risks and benefits,

and produce pricing.

That happens in lots of other markets.

Bond pricing, like, lots of people do this for a living,

just not in medicine.

And I think that could be a useful tool in the US system

so that if you produced a truly surprising

and positive clinical trial result,

you could actually charge more,

and that would induce other people to say,

"Oh, let me go for higher risk, more valuable indications

instead of just do the base that gets you in the door,

now negotiate with a commercial team to drive more return.

Oh, the patent clock's running out.

Let's go to the next medicine."

I think that's not a great system right now.

There's the much discussed,

like, maybe the top discussed topic in pharma

that people know about generally

is pharma pricing

and the disparity between the US and internationally

where, you know, all the cost is in R&D,

the cost of actually producing the drugs is fairly low.

And so single-payer healthcare systems internationally

pay very low prices

and so the R&D cost is borne by the US.

And the biggest problem is not only, like, at the margin,

maybe you have fewer drugs developed

because this phenomenon

because, you know, you have fewer returns.

I think honestly the biggest problem

is the social issues it creates in the US

where it turns people against pharma

and, you know, the insulin price disparities

between the US and Canada and things like that.

Which no longer exist by the way

because we fixed that, but yes.

But that was like the hot topic for—

Yeah, it was a hot topic.

For such a long time. And it needed to be fixed.

And that's a classic example

of this commercial environment I spoke about.

I mean, our actual net on insulin really hasn't changed.

It's like $30 or $40,

but the list price got up to $275.

Why? We were competing on the spread.

And so that just drove this huge,

and so the individual— When you say the spread,

what do you mean?

Okay, so insulin,

so the latest versions were launched in the '90s and 2000s,

but they got quite along in their lifecycle because—

As in close to the end of the—

Well, they were past their patent window actually,

but there were no competitors.

Why? Beause net pricing was pretty low.

How could it be so low?

Well, the incumbent players,

mostly Novo and Lilly,

we can come back to that on GLPs as well, same players,

had a lot of CapEx in the ground.

And to start a new insulin company made no sense

at the net prices we were achieving.

Yet at the same time, the public viewed this

as this outrageous price gouging

because list prices,

if we were getting about $40 a month of therapy,

were like $270.

And so we—

So who's getting the 235?

Yeah, so middle actors.

And so big PBMs like UnitedHealthcare runs and CVS

and Express Scripts were offering to employers and others,

the government as well,

"We will create an auction,

and in this auction, we will get a take

on the percent we save you off the list price

and you'll get a lower price than you could on your own.

And we will create an auction by..."

and this is actually a highly interchangeable class.

They're not exactly the same substance,

but they are pretty close.

And so they could do this more easily

and they'll say, "We'll just pick one,

and every January, manufacturer, mail us your best deal,"

and the best deals that tended to win,

we learned through time,

were those that had the biggest spread

between the high list price and a low net price.

So we competed on this.

What did we do?

We kept raising the list price

and modestly lowering our net price.

That was how the market evolved.

And after 10 years, you had this huge bubble,

gross to net bubble,

and who was paying?

Okay, so you weren't— No real payers.

But the person who walked in the pharmacy with no insurance,

they had to pay that.

That's outrageous.

That's what I mean. That should not exist.

We were able to disarm that through a number of actions.

But the critical first one was we went to the government

and we said, "We don't want this problem anymore.

We're an innovative company" 'Cause it looks bad for you.

It looks terrible.

And it's also producing these unfair outcomes.

We're going to,

because no generic has applied

for a copy of our medicine or biosimilar,

we will create our own.

So we launched our own biosimilar.

It says Lilly on the bottle.

It says Insulin Lispro, which is the generic name.

And we priced it really cheap,

like a third of the regular product.

Similar net price actually,

but quite a bit less.

Interesting fact, that launched,

all these insurance companies and middle people called me

and said, "Why'd you do this?"

I said, "Well, because we're trying

to lower insulin prices."

They said, "Don't.

This is a threat to our model."

It's like, "I don't care."

Like, we have a higher calling.

And in the first year,

no formularies covered this.

So it was really only for that cash payer.

No insurance company picked it up

even though it was dramatically cheaper.

Now it's about half of the volume,

but still half not,

because that model of this margin spread model

is still there.

But we largely have defanged that problem

by introducing a copy of our own medicine.

You know, I think we can get into differences

between the US healthcare system

and the rest of the world

where the US has a very vibrant private healthcare system,

but it's kind of weirdly unpopular

at least in certain parts

of the, you know, political discussion.

But there's a choice.

Yeah, so but taking about R&D. No, it's amazing.

Actually let me just answer that. So it is true.

If you went out and said,

"Hey, I want to back some biotechs,"

and they sent you their business plan,

80% to 100% of the revenue and return they'll pitch you on

is the US.

Meaning there is no return outside the US

if you start at the point of origin of the idea.

Now, once we get to the market with a product,

it's not sensical to not market it in these countries

at whatever price you can get

because your R&D is paid for on the US launch.

So here you're just margin gathering—

But it's the free-rider problem.

But it's the free-rider problem.

But to John's point,

this seems increasingly politically untenable.

Americans are— I agree.

Americans are waking up to this.

We should get rid of it.

It's actually not good for our industry either

because you get a skewing

in addition to the problem, the social problem.

So what does everyone do?

They tune the R&D model to the US healthcare problems

when actually we're 5% of the world population.

So shouldn't we tune it to the global health problems

and reward the global health problems?

Yeah, well, we're, you know, 25% of GDP,

but nonetheless— Yeah, okay.

Okay, 25% would be a much better improvement

over 90. When you say

we should get rid of it, we should solve it...

Yeah. How?

Yeah, so I pitched this idea

to this administration actually,

which I call the one fair price.

So— Good branding.

Yeah yeah yeah.

We're learning.

I need a hat. One fair price.

OFP. That's it, yeah.

But the idea would be that manufacturers introduce

at the price they want.

They are restricted by only a couple things.

One is that they will need to introduce it

in other developed economies

in a price band that's sensical

to the GDP of those countries.

GDP per capita.

Because the ability to pay

I think should largely be borne by more wealthy nations.

Okay, so you're saying— That's where the surplus is.

You introduce a drug

that costs $100 in the US.

You're saying it should cost,

you know, on the order of, you know, $70 in—

So, say, Britain, $70 in the UK or whatever.

Yeah, it's 30% less GDP per capita,

we would introduce it at 70.

Okay.

Those countries can say yes or no,

but we would basically sign a compact

that would say, "That's our deal.

We think it's worth a hundred."

We can not sell it there,

but not because we're lowering it below 70.

We have to charge them what we think it's worth.

And you could do that today.

We could.

So, you know, why not just do it?

Why do you need a compact? That's fix number one.

Fix number two is that the reimbursement system in the US,

starting with the US government itself,

would need to get rid of all discounts and rebates

so that the product moves through the channel physically

at one price

and is reimbursed at that same price.

You have to select that price.

And here you're not price discriminating anymore.

You have to sort of look at all the equities around that

and say, "This is the fair price that I select

and I'm going to live with that,"

just like other commodities and things we buy every day.

And there's no skimming of that number.

And with that then,

I think you would have two good outcomes.

You would have a fair decision

about who pays for the R&D.

Presumably companies would look at the global opportunity

or at least the developed countries

and set a price that might be a little lower

in the US than normal

because they want to sell to Europe

because there's more volume available.

And if they price too high, because it's indexed,

they would not be able to do that.

What you're describing is an instantiation

of what I view as the general phenomenon.

One of the biggest shortcomings

of the US healthcare system in my view

and one of the biggest critiques you can have

is none of the numbers mean anything.

Like, just a number that you see, they're all lies.

And that kind of has to lead to market failure essentially.

Yeah, could you imagine this?

Like, we go to a restaurant tonight

and someone gives us the wine list

and a bottle of like a hundred dollar Napa Cabernet

is like $14,000.

But then the waiter says, "Don't worry,

that's not your copay."

Yeah.

And so what's my copay?

"I can't tell you."

We enjoy the wine.

We have a nice dinner.

Four weeks later, you get a letter in the mail

that starts at the top by saying, "This is not a bill,"

but it says the $14,000

and then there's a number of deductions.

And it says, "This is not a bill. Don't pay this."

And then later you get an actual bill.

This is healthcare pricing. But it feels like you could

pull on this thread quite a bit

and, you know, the next admin should,

of just the numbers should mean something.

Like, the FTC does this a lot.

You know, they say that for consumers,

numbers should be trusted

and yet we kind of let the healthcare system off the hook.

Yeah, there's no pre posting of pricing.

Now, with drugs, there is.

So one of the things we get criticism, I push back,

is, like, "Well, because you can know

a list price of a drug."

Actually most every, the other 90%,

you mostly can't know the price.

Well, we've introduced regulations

in the last couple of years

mandating some degree of transparency here

for healthcare. Yes.

Total failure. Have those worked?

Yeah.

Look up in your region who has actually complied.

Compliance is terrible.

Most major hospital systems have not complied.

Or if they have, they put on a website somewhere

a coded database that is impossible to interpret

with ICD-10 codes and price points

that consumers cannot digest.

It's like "The Hitchhiker's Guide

to the Galaxy." It's a non-searchable—

Beware of the Leopard.

You know, file, flat file,

with everything they have.

That doesn't work. It's malicious compliance.

Yeah, or facial or whatever.

And so that's not working and we need to have that.

I've actually gone to like an imaging center

and I asked, like, "What's this cost?"

And the person gets irritated with me.

Like, "Why are you asking that?"

I'm like, "I don't know."

Like...

I generally ask that

before I consume things. I want to know what it costs.

I had a situation,

my physician is like attached to a hospital.

Here's another terrible thing about US healthcare

is that the federal rules require payment differences

based on site of care.

So if you're an outpatient clinic,

which is theoretically cheaper,

the reimbursement is lower,

not because it's less valuable,

but because it's cheaper to deliver.

We punish that.

We reward where it's more expensive in a hospital complex.

So my doctor's there,

he's like, "Hey, you can get a blood draw downstairs.

Why don't you go do that now and then come back up?"

So I went down there, they drew my blood.

Five minutes later, I went to his office,

the result was there,

and I'm like, "Oh, I should have asked what that costs."

So on my way out, I asked. They're like, "That was $650."

I'm like, "For a blood draw?

Like, that's insane."

And they ran it in their own lab there.

No one asks.

And I think that's a major, major pricing problem

we have in healthcare.

And then, you know, I think people are insulated

from those costs,

but in strange ways.

Some things are deductible, some are not.

And so it's really very difficult

to make informed consumer economic decisions in health

and we need to improve that.

The other thing I observe about the US healthcare system,

so Patrick and I both grew up in Ireland,

moved here for college,

and the US has a very vibrant private healthcare system,

which is different from kind of many other countries

which have, you know, public government-run

and funded healthcare systems.

And what I notice is people just have a weird reaction

to private healthcare.

Private hospitals people think are weird

despite the fact

that, you know, you have much shorter wait times in the US

than you have in many other countries

because we have more kind of hospitals

and all these new private outpatient

kind of specialty clinics.

But the biggest one is when people come to the US,

they're shocked by pharma advertising.

And, you know, they put on a sports game

and just, like, the break comes and it's all pharma ads.

And my understanding is that there's, again, a significant

pro-social defense of this,

which is many of these drugs are shown

through all the extensive trials

that, you know, we make you guys do

to have a significant health benefit,

and then it leads to them being prescribed more by doctors

because people actually ask their doctors,

they do in fact do the thing,

they ask their doctor about them,

and it leads to more usage.

But yet people just find the whole thing weird.

You know, private, for-profit healthcare.

And so do you have a view on where this goes?

What we can do about it?

Yeah.

Well, not having grown up in a system like Ireland,

but I lived in Canada for a while,

for six years,

so I was treated in that

and I've seen it, yeah, I find it weird the other way.

Totally. Because that's

your conditioning.

I think there's good and bad to both.

I think actually, we were talking about prevention earlier,

to some degree primary care,

what I experienced in that country

was pretty good quality of care, very standardized,

which has a confidence boosting thing

when it's the same for everybody.

That also, in specialty care, is implemented

but actually to kind of a negative result,

because take, like, diagnostics.

The US and China have something like 70%

of all diagnostic capacity in the world.

That's crazy. Yeah.

But your chance of finding a tumor or something

is much, much higher in those two countries

than Ireland or certainly the UK.

And that's not a good outcome. Why?

Because I think they're focused

on cost of delivery and evenness

instead of exceptional care.

So I think we've moved on that axis

of, like, let's offer something that could be the best

and charge for it,

yet for common conditions,

we've also moved on that axis unnecessarily.

And so here you end up

with hard, you know, oak-floored primary care offices

and beautiful drapery and furniture.

That's the basis of competition

instead of actually, it's quite a simple thing,

"You need your flu vaccine.

Like, just get in and get out."

And there's a third thing coming, which you touched on,

which is prevention and self-care.

And I actually think that if we think

of the funding mechanism in our country,

but also in Europe,

and Europe's system has problems going forward,

it was really built on an acute care model

when most illness and death was accidents,

you know, things we couldn't solve.

It was basically treat them as best you can

and people were going to expire.

That's what a hospital did.

We've, of course, now evolved well beyond that.

I think that's 30% of US cost.

Now 70% is primary care

and sort of, you know, the chronic disease.

And those institutions and those funding models

are really poorly suited to that,

and particularly so if behaviors have an input into that.

Don't we want people before they get the disease

to modify their behavior?

Well, how do you charge for that?

And so, you know, there's a little bit

of a selection problem

that, you know, the best healthcare systems

get the worst behaved people

because the coverage is better.

So I think it is time for a rethink of the whole thing.

And I would think of those three different things

and try to solve for them differently.

Right now, we pretty much have one answer,

and the Europe answer has produced

kind of an institutional rationing model

that seems very fair

but actually produces poor outcomes for acute conditions.

And the US, which is very expensive,

also is unfair

but produces good outcomes for acute conditions.

Probably just the same for everything else,

but costs too much.

That's I think needs to be addressed.

In the future,

and here, medicines plus information

I think can play a really big role in disease prevention.

In the past, we haven't been able to make...

the age old problem in medicine

is this thing we call therapeutic index.

That's the difference between a dose which is harmful

and one which is helpful.

And a therapeutic index that's small is difficult.

You have to very precisely dose

and people have differences,

so it requires a lot of attention.

But over time, the techniques we make drugs with,

that therapeutic index, the TI we call it, is expanding

and expanding non-linearly.

Because of that—

Sorry, why is it expanding?

Yeah, because of new drug technologies.

Two main ones.

One is, going to the root of disease,

whether it be genetic or RNA blocking medicine.

So a lot of diseases have excess protein.

We can now really pristinely block

RNA production of the protein

and the disease, without a lot of side effects, goes away.

And by the way, these medicines happily

also have sort of this catalytic effect.

So they last a really long time.

I mentioned Lp earlier.

So that's a kind of cholesterol that's untreatable today.

We're developing a medicine

that will be a once or twice a year treatment for this

and the side effects look totally benign.

That's a really wide therapeutic index, right?

So now when you have that,

you can think, "Well, my trials I can run faster

because I don't have worries about treatment.

They can be cheaper.

I can charge less and get it to more people at scale.

And I actually don't really need a healthcare system."

And here, maybe back to the GLP-1s,

that's giving us a little bit of glimpse of these.

These are more invasive than what I just described,

but pretty safe.

People know how to treat themselves.

You certainly know if you have overweight or obesity.

You don't need a doctor to tell you that.

And platforms like our direct platform have really taken off

because it's self-paid,

but people skip all this other morass

and getting the, "This is not a bill," piece of paper.

They're just like, "Here's my visa card number.

Yeah, charge me 500 bucks,

but my problem's getting solved."

I think for prevention,

that's an intriguing future, direct to consumer.

We're here in the great city of South San Francisco,

the home of Genentech

and to some significant extent of the US biotech sector.

And we're talking a whole bunch

here in this conversation

about fostering and inducing

and creating adequate incentives for R&D.

I think the,

I mean, to some extent,

you can bucket biotech and pharma separately.

Obviously the lines blur,

but, you know, there's kind of two poles.

And I think it's very striking the extent to which,

as far as I can see at least,

the introduction of new medicines,

you know, new molecular entities, whatever,

is increasingly dominated by biotechs.

And you would know the numbers better than me,

but I think that around two thirds,

both of the revenue

and also of the, just by count,

the introductions themselves,

are attributable to biotechs rather than to pharma.

And so I guess I'm just curious

how you think about this landscape.

I mean, maybe there's some view where the role of,

in an extreme, one role of pharma

would be to be a kind of private equity portfolio manager

where you take stock of the landscape

and you look at who's doing well,

whose approach you believe in, et cetera,

and you have the risky innovation be done

by earlier stage entities,

by venture capitalists, what have you,

and then you bet on winners, you go and scale them,

and you distribute them.

One model.

Traditional model is actually,

no, you have all these internal R&D capabilities

and you're vertically integrated

and you have economies of scale

and so on and so forth.

Are we shifting there?

You know, where between those poles ought we be?

How is it changing?

Just thoughts on that whole landscape?

Yeah, well, I think there's three models

that have emerged.

One is the biotech that grows up.

Another is the outsourced early model you're describing

where we just say, "We're good at clinical trials.

Everything before that,

just gobble it up as companies mature."

You know, because the capital market is so terrible

as I described,

it's a liquidity event for the investors.

They go back and try something earlier.

And then sort of the hybrid of fully integrated plus.

I don't think anyone's really pursuing

just fully integrated anymore.

I think your head's in the sand if you're doing that.

We're running the third one.

The other two are reliable— That hybrid?

Yeah. And why do we make that choice?

I think we observe a few things.

First of all, while it's true that the origin of,

I think it's a little more than half of medicines

approved in the last 10 years have come from biotech,

hardly any of those traveled all the way through biotech

because there are, as we talked about earlier,

huge checks to write and risks to take

and the biotech investor base

is not interested in those risks,

those very binary large checks.

Whereas we can absorb them,

we can run a portfolio across many of those.

There's also scale economies in clinical trials.

There is no doubt in my mind we are faster, more robust,

probably cheaper than actually every biotech out there

trying to do their own early phase clinical trials

and manufacturing and distribution globally.

So those things benefit scale.

What doesn't?

It is discovery.

It's the early phase.

I think that's a more diffuse undertaking.

What we've done, starting with my predecessor

maybe 15 years ago,

is we started putting diverse,

spreading out our labs.

Scale's bad.

And I think our idea was 300 or 400 people, about right,

Allow for some deviation.

As in you think the— Put some outposts out there.

The act of invention has diseconomies of scale.

Yeah, so we started in San Diego.

We built a monoclonal antibody biotech hub there.

It's produced like a third of the medicines we've made

since we started.

Hugely successful.

There's 400 employees.

So it's like a biotech, but it has some benefits.

They don't have to spend any time with venture capitalists

or raising money or fussing over CapEx

and, you know, ups and downs in the markets.

Why is it good to be small?

Why is it good to have the 400-person center

in San Diego— It's interesting, you know?

And not the Indiana super center—

I don't know.

I think it's good to big on clinical trials

because you're doing global reach.

It's a scaled operation, manufacturing, distribution.

Discovery, I don't know.

Now, we have people look across,

and I think there is a benefit in being in a tribe,

but I think it's also good to have some independence.

There's a long list of pretty compelling inventions

that came out of Lilly

that were not sanctioned projects.

And so that tells you something,

that curiosity and sort of the scientific endeavor—

Weren't sanctioned in what way?

Meaning it had a budget

and had a number and a name and whatever and it was,

or pointed at, like, "Oh, here's a target.

Go put a team around that and come up with a medicine."

That does work,

but sometimes someone just says,

"By the way, I didn't tell you,

but I've been working on this thing over here

and it seems pretty interesting."

And then we fund it.

Have you guys formalized that, like, Google 20% time

where are some people are just doing curiosity or?

It depends on the area,

but we have this allowable variation idea where—

Is that the phrase, allowable variation?

No, that's my word.

But basically you just turn away and see what happens.

And we don't manage the budgets down to the nickel

at these sites.

And if you get good people,

it's like, "Let them do their thing,

let 'em cook,

and let's see what happens."

And that's certainly worked.

We built a big site here— The let them cook school

of pharma innovation.

Yeah.

Yeah, it's a thing.

I can see this as a book.

A lot of pharma innovation is iterative, right?

So the other problem is people quit too soon.

So back to GLP-1s, this story's been going,

we launched the first GLP-1 twice a day injection in 2006.

People say, "Oh, Dave, when did you know,

like, Zepbound would be huge?"

I'm like, "I don't know, 2016, 2017?"

It was a long time ago.

We've been on this story for a long time

and it was protein engineering

and making better molecules that could be dosed higher

that led us to get to more weight loss effects

and then harnessing two mechanisms.

So that's just, that's not like light bulb,

single scientist in a dark lab,

like, "I've got it."

It's teams just grinding on a theme.

And if we had directed that,

like, "Oh, make it dual acting.

It'll be better,"

we wouldn't have gotten the right answer.

This is all, like, your internal innovation essentially.

Yes, so that's running.

Where do the biotechs appear?

And why do we do this? One, it is productive for us

and I do think we've built a capability

to, frankly, make molecules with more drug-like properties.

So by the time you get to that expensive escalation

of clinical trials,

the drug's behaving like a drug.

Some of that we talked about earlier with AI

and other tools we can equip.

So these things tend to work, these things don't.

It's pretty empirical still.

We don't know all of biology.

Some of it's just knowhow

of the chemists and the scientists.

But I think when we buy biotechs,

often we love the target idea.

We love the novelty of what they did.

It's just rather imperfect.

It's an 80/20 they've done.

And we will often take that invention cycle back

and do a whole other invention loop to refine it further

so that it is what we call like a big pharma asset.

So what you're buying

is the proof that there's something here,

but not necessarily

the specific solution. Yeah, exactly.

And if they haven't disclosed it

and they've got a lead, that's very interesting.

But we actively cultivate

kind of a proximate satellite group of companies

that are doing this independent of us

but we have ownership stakes in.

And then, of course, we have a watch list,

ever-growing because of China,

of entities we don't have an interest in

but are doing interesting things

and we want to,

we have all their events mapped out

and we're watching pretty much

every clinical or preclinical readout,

every patent posting in the industry,

we have a way to monitor.

For most of its 150-year history,

Eli Lilly's relationship with patients

has been through pharmacies and other intermediaries,

but that's changing.

As Dave mentions, with LillyDirect,

patients can buy treatments, like Mounjaro and Zepbound,

directly from the company

and get them delivered right to their door.

And they're not alone,

at Stripe, we're seeing a new playbook emerge

where established businesses who used

to sell via complex distribution chains

are now building direct digital relationships

with their customers.

And with Stripe, that's much more likely to succeed.

It's happening across all industries,

not just in healthcare.

Media companies, like FOX Sports,

they used to reach viewers

only through traditional cable bundles,

but now they've built

a global direct-to-customer streaming platform on Stripe.

Or Ford, they're selling cars

and trucks online through Stripe,

and not just through dealerships.

Some companies, they're creating entirely new products

to take directly to their customers.

So Fender, the guitar company,

they created a tuition marketplace that has enabled millions

of guitar classes already.

Large enterprises are creating better direct offerings

than ever before with Stripe.

Learn more at stripe.com/enterprise.

So we just mentioned

we're in South San Francisco in the Bay Area.

The Bay Area, of course,

used to have a vibrant electronics manufacturing industry

and— Yep, it left.

Yeah, companies like—

There's still the APX sign.

Yeah, exactly. And, you know,

some of the old— Yes, but—

Fairchild. Exactly.

But you mention, you know, Cypress Semiconductor

and, you know, people don't really know

what you're talking about these days.

The biotech sector started here in the '70s, I guess.

Yeah, give or take. And is, exactly,

and is still today reasonably vibrant.

Although, to your point,

it's had a tough maybe couple of years.

The share of the global drug pipeline

that was Chinese 10 years ago

was I think in the small single digits.

Approaching zero. Yeah, exactly. Right.

And now I think it's high 20s,

approaching a third. A third.

It's 30%. Okay. It's amazing.

Now is in fact 30%.

Where does this go?

And is there a US biotech sector in 20 years?

Or like electronics manufacturing,

does the whole thing just go to China?

I wouldn't predict that outcome,

but I think we should ring the alarm bell right now.

Well, I mean, is it bad?

It's not great, I would say,

I think for two reasons. One— But if they can do it

better and faster and cheaper

and we get the drugs,

isn't that awesome?

That is good, especially if the last part's true.

But I think the economy around biopharma

I think has some unique properties

that should make us want to own it.

One is it is in the knowledge economy.

To me is sort of the pinnacle—

Paradigmatic knowledge economy.

It's the premier league of knowledge economy.

You guys fund and know people...

I mean, the diversity of skill sets needed to do it well

at the highest level of their game is extreme.

I don't think it exists,

maybe rocketry, maybe there's a few other things like this,

but it requires a lot of talent.

So it tells you how you're doing I think in a way.

Can you integrate these, can you train people,

attract them from abroad, like you folks,

or train them here

and put them together in a way that produces new value?

Okay, so there's a kind of shadow

passing over the country if biotech—

And it's rewarded.

I mean, these are well-paying jobs.

There's a big economic footprint that goes with that.

And increasingly we're putting manufacturing near it,

so it actually has a trickle down

that's pretty significant as well.

And then it invokes also security concerns.

And you can imagine if we had the COVID pandemic,

in that case, basically 80%

of the medicines and vaccines that worked

were produced in the United States.

China produced some of those things.

None of them really worked.

We didn't import them.

But imagine if that was flipped.

And we're in— I mean, the EU saw this

with all the battles, yeah. An extorted position.

Yeah, the EU had a huge controversy,

and they're friendly and we had open trading,

but they have had a reckoning as well.

And there's some things

you just want to have a national competency in.

So, anyway, I have a theory about the industry.

I think there are truly novel concepts

that require a little more time and work

and it is yet to be seen

whether China has perfected that

in a way where they can create their own local system.

What they've certainly shown now, though,

is the iterative derivative,

which is a big part of the substrate of the industry,

they are refining

and becoming experts in very, very quickly.

I think that's not all bad.

There'll be more competition.

You know, there's an effect in China

where their own sort of price competition

defeats their own industries,

and you're kind of seeing that in biotech as well,

the race to the bottom on pricing.

But I think we want a national competency here.

And I think this has been a hub.

Boston is still a big hub.

We want to keep those.

But there's this new phenomenon where,

my understanding, please correct me,

is that, you know, traditionally you develop a molecule,

you patent the molecule.

Now there's the growth of these clones

where you can have the molecule

be trivially different enough for patent purposes,

but still the same action

and there's a huge amount of that

coming out of the Chinese biotech sector.

Doesn't that— But I think also

some real, like, I mean

that seems real and good

and novel— Also real innovation.

That's an interesting one, yeah.

But don't the clones effectively erode the patent system

and, you know, we would think shortening

the patent life to 15 years would be bad, and/or 10 years.

And this is shortening the patent life effectively.

Yeah, I think that practice is what I'm talking about

with this sort of refine and replicate

and our own patent system forces this, right?

So we have a, in 2011, the US changed the patent system

to first to file versus first to invent.

You used to be able to invent and sit on your patent

and all you had to do is prove,

it was messy court cases 'cause your lab notebook said,

"Oh, it was October of 2017

and mine says 2018.

Well, which was what," right?

But now you rush to file.

And the government I think has 12 months

that they sit on that inspection

and then the patent, what is a patent?

It's a degree to publish your finding, right?

To make it a public good in return for that monopoly.

But if the monopoly is debased by 30 Chinese biotechs

who feed that patent into a computer,

the computer then can imagine chemical structures

that have one or two atom differences

that don't fit within the patent,

and then make that substance, test it, works just the same,

you've created basically a shadow generic industry

and undermined the patent system itself.

I don't think that's a great thing.

So was the shadow generic industry

basically launched by first to file

because we published the instruction manuals?

Yeah. I hadn't realized that.

And do you think, is it your view if you just switch back?

No, what I would do is,

if we want a sort of like an America-first patent system,

or Europe first,

we should do two things.

We should create a belt and suspenders so that,

some patents are tricky to write.

So there might've been an IP space that's been mined

and people are around the idea,

but you had an insight that actually unlocked the truth

and there's like a thin strip,

but you have to carefully navigate this concept

called prior art

and get that patent to stick.

People tend to constrain it more

and you leave room at the edges.

Should we make the basis a reward to investors,

the patent filer, the patent writer?

That's really the most valuable step in that case.

I don't think so.

So a belt and suspenders would be, say,

independent of a patent,

we'll give you 12 years

if you produce primary data on this product

all the way through phase III.

That's a $3 billion ticket.

These copycats aren't going to do it.

They're certainly not going to do it in US data.

And that'll be more or less constrained in markets

that don't care about that issue

and don't have this data exclusivity provision.

This already exists in biologics by the way,

so all we have to do is, in small molecules,

and this problem we're talking about

is mostly a small molecule problem.

The other thing we should do is say,

"If you are in a league of nations that really respect IP,

those nations will extend this confidentiality period

beyond the patent inspection period,

that society will get the recipe well in time

for a generic company to copy it later,

but why does it have to be 12 months?"

That's a super short time in drug development.

How about six years?

Then that product is well into the clinic,

the copycat nation can spin up in China,

but it's not going to make a difference.

So I think that those two solutions together

would be what I'd recommend.

And the electronics manufacturing industry went to China

for pretty straightforward reasons.

You know, it's—

Cost. Exactly.

It's very labor intensive

and I guess raw material intensive

and, you know, just lots of reasons,

it's cheaper in China.

But the software production industry has not.

That is still here.

To your point, biotech is an extremely knowledge

and tacit expertise intensive space.

Why is that one going to China?

Yeah, well, I'm not sure it's going,

that's why I say I'm not sure it's,

the story's over yet. Well, it's relevant.

We're not eclipsed,

but, you know, a significant share of it has gone to China.

I mean, China has a robust software industry.

We have a two internet world

and they have their,

I don't know how well Stripe does in China,

but I would guess not very well.

Well, not domestically.

Yeah, okay, well, or Adobe.

I'm on the board of that company

and I can tell you they have di minimis sales in China.

But a lot of usage.

Well, and there are tools domestically

that have been built around that

that have their own economy.

That could be a state that this is driving into

where there's sort of medicines that grow up in the world

where there's perhaps more transparency,

where the regulatory systems are more confidence instilling,

and we perhaps reform our patent system to protect that

and China has their own version,

and there's good reasons they would want to do that

because if we own all the medicines

and there is another crisis,

I'm sure they would be deeply uncomfortable.

In fact, they didn't even approve,

they had rights to the BioNTech-Pfizer vaccine

for almost the entirety of their pandemic.

They never approved it.

Why?

I think it was a national pride issue.

Didn't want to be beholden.

It was a German invention actually.

But, yeah, so, again, it intertwines with,

you know, health emergencies are social crises

that politically are difficult to navigate, as we saw,

and having that competency is important.

So I totally respect their desire to build this.

We have brilliant Chinese scientists in the world

and many of them work at our company

and were trained in the United States.

That's all good.

I just think we don't want it to move all offshore.

I don't know when exactly the generics industry,

like, really rose to be such a large share

of consumed pharmaceuticals today,

but I'm very curious about the quality control

and the attendant regulatory apparatus around it

where, I mean, as we've been discussing,

there's such scrupulous and stringency

around clinical trials for new molecules

and introductions and so forth.

My understanding is that for generics,

a lot of the external validation certification happens

at the manufacturing plant level,

not at the individual drug level.

And that for the individual drugs,

it is substantially a case of self-certification

and, you know, presentation of one's own data

as opposed to external audits.

And there have been many cases

of documented fraud and malfeasance here.

The largest generic manufacturer in India,

I forget its name,

paid a half a billion dollar fine in 2013 for—

Yeah Cipla.

Yeah, for rampant fraud and falsification,

abuse of the biosimilarity analysis and so forth,

which obviously is bad,

but, like, the apparatus and the FDA regime is such

that there are very obvious incentives for that to happen.

And then I'm very struck by how anecdotally and online,

there are so many reports

of people switching from brand name medication

to generic medication,

finding them to be very different,

you know, subjectively and experientially,

switching back to the branded pharmaceutical,

and, you know, things going back to normal as it were.

And so there's some some kind of subjective version

of, you know, the generic is, in fact,

not, you know, directly substitutable.

And so I guess, I mean, I know nothing about this domain.

This is all just observed from afar.

I guess I'm curious for your thoughts here.

Like, does the generic industry actually work

as well as we think it does?

How much fraud is there in actuality?

You know, when your kids or family or friends or whatever

are taking a generic,

you know, do you advise them to exercise some caution?

Thoughts in this whole space?

I think on the whole,

the generic environment in the US,

which is the most developed

in the sense of percent of medicines consumed

and the cheapest in the OECD,

has been largely a positive outcome

because it's made effective medicines abundant

at very, very low cost.

When you say the generic industry in the US,

do you mean those manufactured in the US

or consumed in the US? There are no generics

manufactured in the US really.

So those that are licensed in the US and sold here.

That said, and I say that

because, you know, take an invention like statins

or HIV drugs or we invented Prozac,

still the standard of care in treating depression,

it's like three cents a day.

I don't know any product you can buy for three cents a day,

but, you know, that's an incredible value for the system.

And back to the return on investment thing,

somehow we have not articulated this very well,

but the fact that we spent money

in the '80s researching Prozac

and still today

there's tens of millions of people benefiting,

that's a public surplus

that should make us want more of those inventions.

But anyway digression.

So in the '80s also,

there was a change in the policy in the US

which was a trade to basically make it easier

for generics to enter the market after patent expiry

in exchange for less patent litigation.

So there was a structured path to litigation.

It wasn't just a free for all.

It used to be in the '70s, '60s,

the day you launched, you'd be in court,

and by nature, those cases are you have to defend all comers

and if one gets through, you lose.

So it's a very asymmetrical problem and it wasn't good.

So we traded that for certainty in a time window

and a structured path to patent litigation.

But the day after the last valid patent expired,

generic could enter freely

and could get on the market with a clearer bar,

a lower bar perhaps.

There's two deviations that can occur.

One is, it's the so-called 5% rule

where plus or minus 5% of the active ingredient

and some dosages in some people

are more sensitive than that

and I think some of those people have an effect.

Also, there's this,

particularly in a dry product, in a pill,

there's excipients, which are the other ingredients.

Most of what you're taking

is not actually the active ingredient.

Some of them are buffering compounds,

some of them affect absorption rate.

So those two things combined do lead to different effects.

And there is no requirement

for small molecule chemical medicine

to show proof of efficacy of any kind.

So you can do pretty simple laboratory experiments

and absorption experiments in a small number of people.

This is due to like PK

but not efficacy. Yeah, exactly.

And that is what they all do.

None of them do efficacy.

So that makes them cheap

and it makes them, plenty of them coming.

But it has this side effect.

I think it might be useful

to have a way to flag medicines

that before they go generic

have this known dosing sensitivity.

You know, again, back to the less binary regulatory,

you know, a little more judgment where there's a dial.

I think the manufacturing problems you mentioned are real.

In the quest for low cost, it all moved offshore.

These are basically chemical plants

and in the prior iteration of that technology and our EPA,

it became non-economic to make these medicines in the US

or Ireland for that matter.

There are some eastern European companies,

there's a big Israeli company,

there's several Indian companies,

and many Chinese companies that are in this business.

That's where these drugs come from.

I think that is not so stable either.

And we probably should pay a little bit more for generics.

You sometimes read about injectable generics in particular

that run short.

That's a more complicated manufacturing process,

so if you do it cheaply, you run into more problems.

We probably should pay a little premium for resilience.

Right now, that's not the situation.

So GLPs obviously were initially researched,

the initial R&D was done for diabetes.

Yes.

And then it was noticed during the clinical trials

that people were losing weight.

And so now I think the big societal discussion,

like Patrick and I were talking about,

"The Information" is a Silicon Valley tech publication

and they ran a survey about GLP-1s

and half of readers of "The Information" are on GLP-1s.

In this part of the country. Exactly.

As you can tell, it's not a normal region.

Anyway, so there's the weight loss—

But maybe in as much as Silicon Valley

is some kind of harbinger of things to come.

Could be, early adopters. Potentially.

So there's this big— Tech forward.

Weight loss discussion

and, you know, that's the,

Ozempic is obviously, you know, a different brand name

for a different drug,

but people are very familiar with it.

But now it seems like we are starting to figure out

there are all these other potential benefits of GLPs

that do not seem to be fully explained by the weight loss.

And so there's the cardiovascular benefits,

there's potential Alzheimer's links, there's fertility,

there are all these things

that aren't just, "You lost weight."

What do you think is going on there?

Explain.

Yes. So first of all,

it's different from what you just described as this accident

because actually we knew

and we were involved with the,

we launched the first GLP-1 in the world.

You're saying this is the triumph of rational design.

It's not totally rational,

but I can tell you that because the,

so GLP-1, let's go all the way back,

it's a super family of things we call incretins.

These are hormones that signal our brain

and other tissues from our gut.

We always think about our brain being in charge.

That's not how we work.

And it's back to this basic system of survival,

which is nutrition— John's very aware

of this.

Nutrition. It's a joint oversight.

When you eat a meal, which hopefully we'll do later,

our gut actually communicates with the rest of the body,

"Hey, food's on board.

You don't have to eat as much."

Maybe you get a satiation signal.

Your fat cells are told to absorb free fatty acids.

Your liver kicks into gear

to release glycogen and other things.

So all that process is,

insulin is released to absorb the nutrients,

is kicked off by incretins.

This was discovered in 1971 basically,

called the incretin effect.

It was a scientist who noticed

that if you feed someone an equivalent amount of pure sugar

versus stick it in their veins or arteries,

that their insulin levels, their metabolic processes,

rev up a lot faster.

Interesting. It's called the incretin effect.

So that the local process of ingestion through the gut

created this other thing.

That scientist and others then isolated GLP-1

and another one called GIP, actually isolated first.

GIP and GLP make up tirzepatide,

which is Zepbound and Mounjaro.

GLP makes up semaglutide, which is Ozempic,

and was also exenatide.

The problem with these hormones is our own versions

have a half-life of like five minutes.

So they don't make very good drugs.

If you take that protein and sequence it,

people did this,

you'd have to walk around with an infusion all day.

So the longer-lasting action was the invention.

Was the invention.

And the first one that was,

before we really knew

how to do protein engineering systematically,

which we can do now,

it was found in nature actually,

famously, in the saliva of a Gila monster.

So randomly some zoologist was testing

the interesting properties of Gila monsters and noticed,

and profiled all these proteins,

and one of them was a mimetic of human GLP-1.

And, you know, did a literature search and found that.

Another scientist found that paper

and said, "That's interesting.

Let's test that compound,"

a few different amino acids,

and sure enough, it lasted about four hours half-life.

So we can make it a twice a day injection.

We made that into a medicine for diabetes.

And on the cover of our annual report in 2006,

there's a woman who was one of the first patients

with a quote, says, "My diabetes is under control

and my friends say I'm losing a little weight."

That was 2006.

So this overnight phenomenon

of Ozempic and everything else, old story.

Why didn't we do it then?

Well, we needed to get the dosages higher.

And it turns out that this mechanism,

which is common for a lot of hormones,

has a threshold effect for efficacy.

You have to get above a certain level in your blood,

and certainly to lose weight and really suppress appetite,

have to get that number up,

but a peak-to-trough effect on side effects.

So the up-down part causes the nausea,

but the absolute level causes the effect.

So how do you separate those things?

You need a flat long-acting.

It wasn't just convenience.

So we made a once a week GLP-1 called dulaglutide.

We stuck the protein, the native sequence,

to the backbone of basically a monoclonal antibody

to extend its life.

Novo Nordisk did a similar thing.

That became semaglutide and Ozempic.

And then we put the original two hormones together,

GIP/GLP, in tirzepatide,

which is better than those in terms of weight loss

and A1C control and everything else.

And so with those tools, we're now exploring this terrain

of what is linked to this pathway.

I would say most of what we know and have proven

is actually right on the obesity target.

So if you think overweight has these untoward,

chronic overweight, untoward effects,

our ancestors weren't chronically overweight.

They were chronically starving.

So we didn't worry about this, but now we worry about it.

Which are diabetes, type II diabetes,

not the type I form of children,

cardiovascular health, atherosclerosis,

stroke, MI, peripheral artery disease,

kidney and liver diseases, fatty liver diseases.

These are all sort of right on that target.

Adjacent to that are other conditions

we think of more unrelated

but actually have a big,

not a perfect Venn diagram, but close enough.

One is like sleep apnea.

So like 70% of people with sleep apnea

actually have overweight or obesity.

Polycystic ovarian disease is a,

young women get this and they don't ovulate,

they can't have babies.

So that's a fertility problem.

So the circle widens.

I think the two,

and there are more of those

which are being studied and looked at.

The two interesting things

which are more incidental to the mechanism

but are definitely on the mechanism

are the brain things and the inflammation things.

So if you look at people's blood values

for cholesterol or glucose,

over the course of three to six, eight months,

on the medicine,

they fall pretty straight line with weight.

But inflammation markers drop precipitously early.

There's a marker called CRP, C-reactive protein,

which is a marker for heart attack risk.

In weeks, that starts to drop, really like 60%-70%.

Why is that happening?

It's dislocated from the drug effect.

But probably the stress of effectively overeating,

not by our modern definition

but by our ancestral definition,

is causing inflammation

and reducing that by having more fasting basically,

lower calorie levels,

reduces inflammation.

We have a study reading out toward the end of this year

in chronic knee pain.

It's going to work.

And that's a weird thing is,

"Well, wait a minute, GLP-1, chronic,"

but if you follow that logic train,

it actually makes good sense.

Also inflammation causing the chronic knee pain.

Inflammation plus,

and we'll measure the inflammation in the joint,

plus there's a mechanical loading with being overweight.

If you carry around a backpack of 40 pounds extra every day,

your knees will hurt more.

So, sorry— But then the brain ones,

sorry, yeah, go ahead. Well, I was just going to,

so you're just saying

that being over-sated causes inflammation,

which then causes

all these ostensibly unrelated downstream issues.

Yeah, and you see this in chronic inflammatory diseases.

So think of, well, the signature one is a skin disease

called hidradenitis suppurativa.

A terrible name.

But people get basically boils,

and it's almost completely correlated

with excess body weight.

And we have very expensive inflammatory drugs

that have fancy targets

and are monoclonal antibodies you inject

and they cost $4,000 a month

or you can just lose weight.

And so people are using Zepbound our drug in this

and they don't have this condition anymore.

Another one which has high correlation

is psoriasis actually.

So we're doing a study

with our psoriasis drug Taltz and Zepbound.

That will read out this fall

and I'm certain will show a boost in efficacy

with the weight loss.

And that is not because of the weight loss per se.

It's the inflammatory effects.

So it's pretty interesting.

And there's a lot of these adult diseases

that are inflammatory in their root.

Of course, we'll study RI.

We have studies going in Crohn's and colitis as well.

So the brain stuff.

So clearly these drugs go to the brain

and they signal the brain.

I think the scientists say the major mechanism of that

is actually not in the brain,

but there's a part of your brain stem

exposed to the blood system, like your ganglion root,

and it is detecting these hormones on purpose,

which are satiety,

but the signal being communicated to your nerve cells

isn't as pristine as, like, "Stop eating pure sugar,"

which is what GLP-1 should be saying,

or GIP, which is more of a lipid mechanism.

It's just saying, "You are satiated."

That signal gets translated into downregulating dopamine

and the desire for dopamine.

And so like cigarette smoking drops

precipitously. effects.

Yeah right.

And opioid use disorder will test,

alcohol drops precipitously. Shopping, everything.

Yeah, your cheeky pint.

It'd have to be a zero alcohol pint.

Shopping gambling.

These things have been observed anecdotally.

These studies are being spun up and worked on.

The category of brain,

which may be related to this axis

or there's another theory of, which is sort of,

I know people out here like to do podcasts about,

"Hey, I take microdoses of Zepbound

and I feel like I can code longer," or whatever, right?

Back to your pieces of experimental hacking your body.

There is a—

I'm sure there are people in Silicon Valley

experimenting abundantly with this.

There is a theory of this

that, actually, the glucose lowering mechanism,

and your brain only eats glucose,

it doesn't eat any other substance,

it's unique tissue that way,

of having ketonic, kind of low glucose chronically

actually improves brain acuity.

And so people are probably experiencing this.

They might be lean already

and taking a GLP-1 and getting leaner,

but they're actually,

they feel their brain functioning in a sharper way.

There's an interesting study that Novo Nordisk is doing

with their oral form of semaglutide

that'll read out pretty soon

in patients who have early dementia.

That may work and it may work for the same reason.

It may also work because you reduce strokes,

which is back to the cardiovascular axis.

But, yeah, I think we've stumbled upon here

kind of a broad footprint, a broad impact zone,

of what these types of medicines can do.

And there's many more coming.

So neurodegenerative disease, Crohn's disease,

psoriasis, cardiovascular disease.

Joint disease. Joint disease, exactly.

All the diseases.

What fraction of the population,

let's say the population over 35,

will be on a GLP-1 in 15 years?

Well, today in the US,

we probably have 10 million people, maybe 12,

if we include the compounded market,

the non-approved drugs. I was going to ask about that.

That's the official company line.

Exactly. Well, yeah.

But it's really a fraction of the adult population,

and even if you just take obesity,

it should be a hundred million.

We have a long, long way to go.

And I think we talked

at the beginning of the conversation about coverage.

That's, of course, both a real cost burden on people

but also kind of an endorsement thing.

And physicians are busy

and don't have time to write all the forms

to get it covered.

So, I mean, the popularity of the direct channel

where people with some means,

I mean, $500 a month is a big ask.

It's a car payment.

But a fair swath of the US can afford that.

Actually, the number one prescribed form

of these medications is Zepbound self-buy.

We sell more than that than our insured business.

Wow. New patient starts,

and more than all of Wegovy.

That's very interesting. Yeah.

So that's why I was,

the concept of like, "Okay, for preventative,

maybe it should be on us.

And how do we just make that cost effective and easier?"

And certainly there's a cost of your time

and shopping online and having a telehealth appointment

is much more convenient.

So the number has to go way up.

The oral project I mentioned is a key part of that

because we've literally already made billions of doses

and we are capacity constrained in some sense

on the injectable systems.

Unfortunately, there's not a good learning curve left.

We've sort of built the scaled plants.

We just have to build more of them.

We've built six or seven of these mega plants

that produce hundreds of millions of these injection systems

and we're only treating 10 or 12 million Americans,

maybe 20, 30 globally.

So to get to half a billion people globally,

that's not the path. The orals have to work.

We can't keep stamping out these.

It'll take too long.

The orals have to work, they have to be approved.

They're not going to be as good

as these multi-acting injectable hormones,

but we can probably stratify people.

If you need to lose a lot of weight, okay, start there.

And maintenance with the oral is going to be a key segment.

I would guess by the time we go generic,

it will be a large proportion of adults.

Statins got to 40 million people branded.

It's a little more than that now.

Has to be north of that.

It's interesting that all the growth in statins happened

even while it was branded.

You know, you'd expect a big bump after it went generic.

Well, you asked about consumer advertising

and I think actually,

people hate the commercial part of our business.

I have to admit, like, sometimes I dislike it.

I never watch TV except when I'm traveling

and I'll flip on CNBC in the morning while I'm getting ready

or especially on the West Coast

'cause I'm up at like 6 or 5:30

and I'm like, "Are you kidding me?

Like, how many ads are we running, and everyone else?"

And often it's the same drug class like this.

This cannot be productive.

I have to say, 70% of our spend now is not on linear TV.

So mostly advertising is more served up

and in your search sequence

and increasingly we're interested

in, like, generative AI optimization.

But still you do it. Why do you do it?

Because it works.

Like, it's still a productive spend.

But also promotion to physicians,

which consumers don't see,

is a big part of what we do.

And we do studies and we disseminate them

and we run education programs.

Mostly if left to their own,

and there's been studies on this

of medical inventions that are not promoted.

Yeah, they won't actually be adopted.

It's about a 16-year path to full adoption.

With the medicine promoted, it's half that.

We have an internal goal to halve that again,

to get to four years to full, whatever it is, get to it

on a global scale.

I think it's ambitious but serves a purpose.

LLMs presumably help here.

Could be, yeah.

If we can get in the,

if we can get through the problem

of convoluting the facts.

Yeah, you need to have education seminars

for the LLMs. For the LLMs, yeah.

If they weren't so trained on Reddit,

it might be a little better.

Let's train them on the New England Journal of Medicine.

Well, okay, you've mentioned Reddit.

And you just mentioned the microdosing of tirzepatide

in Silicon Valley.

Yeah.

Not recommending, not indicated.

Understood. To be clear.

This is not a promotional setting.

Do not ask your physician.

Exactly.

But my understanding

is the avant-garde Silicon Valley denizens,

you know, the frontier is really in Chinese peptides.

Yeah frightening.

So here we're getting into the compounding.

So, of course, there's probably always been

a segment of society

that was comfortable using unapproved things.

We have a large supplement industry in this country

that has some proximity to this MAHA thing, by the way.

Most supplements have no evidence

that they're going to help you.

I take a multivitamin,

but I really don't believe in anything else.

And I think if you're eating correctly,

you should be getting better nutrition through your food

than through supplements anyway.

And it's embedded in the price at least.

I mean, you may have to buy more expensive food.

But that same tranche or the edge of that is gone to this.

What is a Chinese peptide?

It's an unapproved medicine that's never been tested in man

and is made in a Chinese lab.

It might be what you say.

This is basically the same source

for the tirzepatide compounded that people get.

People buy that from things

that look like legitimate companies,

some are publicly traded even,

that formulate them and are violating our patent.

And maybe under FDA supervision or not these plants,

most not.

I know of one that's been inspected.

It had a nasty, what we call 483

with lots of inspection findings.

I certainly wouldn't do that,

but, of course, I run a company that does this legitimately.

My problem with those companies is less about trying to,

I like the fact that people could shortcut

the pain in the butt of the healthcare system and go direct

and we see the phenomena

of what the internet's done to commerce

could apply to health.

I think that's net a good thing.

What I don't like is they're stealing my IP.

Partly people got in this business,

the rule that guides this,

actually they technically should not be doing, some do.

The big ones don't.

They say, "Oh, we're not following that rule.

We're following a different rule, which is customization."

All these patients who need tirzepatide,

even though you can buy six different dosage forms,

they need a dose in between these six,

or, oh, the efficacy is boosted by vitamin XYZ.

By the way, we recently sent to the FDA

studies of these vitamin combinations

that show they actually augment the peptide.

So they're making a new drug never approved.

Not a good idea.

And then you have the folks you're talking about

who are served by an industry

started when I think steroids became a big deal

and the bodybuilding craze.

They're all based in like Long Beach these places.

And it's like Peptides USA,

which is the opposite of what it is, right?

It's Chinese peptides.

And they'll sell things to you

that say, "Not for human use."

Literally, that's how they protect themselves legally.

And you're injecting,

you're putting saline in

and you're putting this white powder in your body

that says, "Not for human use."

Really a terrible idea.

I know some people find success with it.

At some point through that process,

you would suggest there are several clues

as to how ill-advised it is.

Yeah, and it's not going to end well.

And there are people who've had chronic kidney failure

and permanent liver damage.

And I wouldn't do it.

The difference between that

and today buying a real thing for $500

seems like a relatively large risk

for the cost savings we're achieving.

And I'm telling you today,

we're going to bring these prices down,

either through your insurance coverage,

which is expanding every day,

or just through competition, for sure.

And your direct stuff.

I mean, we've talked about it once or twice.

You're here in South San Francisco,

the headquarters of not only,

or, you know, the place of Genentech,

but also payments innovation.

And so you— Yes, here we are.

We're working together on the Eli Direct stuff.

Maybe you can talk a bit about that.

Yeah, I mean, talk about accidental experiments.

So this came out, back to the insulin story,

the person who was running our US business,

commercial business directly, retired.

And I didn't have a suitable candidate internally.

So I thought it'd be a good idea

to go back to that job I used to do

and be the CEO at the same time.

The team— Oh, this is very inspiring.

The team in the US

didn't find this inspiring or a good idea,

but I was, you know, kind of the business was changing

and the rise of the consumer,

communication on digital channels.

We were pretty old school at that time

and I wanted to modernize it.

And so I dug in and one of the ideas that came out of that

was, "Hey, why don't we stand up our own pharmacy

and sell directly to patients?"

And then people were like,

"Well, first of all, the existing pharmacies,

and there's only like three of them,

will hate us.

And so that seems like a bad idea.

And secondly, we know nothing about running a pharmacy

so we're going to make mistakes and hurt people."

So we kind of parked it.

A few months later, though, we were in this process

I described in long form earlier,

but in short form of, like, deescalating this insulin bubble

and getting to sort of true pricing in the market.

And one of the fights we were having

was with a large PBM company

that also owns a pharmacy chain.

And we were worried that they actually,

a different pharmacy chain actually threatened

not to carry our low-price insulin

'cause they couldn't make enough money on it.

So I just looked at him

and said, "This is what this was for,

this idea that's been on the shelf.

We cannot be beholden to this.

We have to have a route to market ourselves,"

which we had not had

since the company was founded as a pharmacy,

actually a freestanding pharmacy before any regulation.

So it was scary,

but we cobbled it together with partners

and now we do more of it ourselves.

And the first idea was, like, make sure people

who need insulin to survive

can get it at the lowest price.

We sold a little bit, but not much.

Then we launched our migraine medicine,

which was having trouble getting insurance coverage,

sold a little bit more.

Then we launched Zepbound

and we said, "Ah, this feels like the killer app

for a direct-to-patient experience

because the diagnosis step is dead easy."

Everybody knows,

everyone knows the biomarker tool in their bathroom.

It's called the scale.

They can know if the drug's working,

and we can offer telehealth post-pandemic at scale,

it was out there, a third party,

to advise patients if that was the right choice

or if the Novo product was the right choice or nothing.

And so we put that together

and, boom, this thing really grew pretty quickly.

Today, we'll annualize,

you know, in the billions of dollars.

I think it's the largest prescription platform online

in terms of revenue.

We run it on Stripe I think.

And going north from here.

And it's an interesting example

of how across so many different sectors

and, you know, across every company scale and stage,

there is this interesting way

in which all these ostensibly different models

and different businesses are discovering—

They leap, right? They leap across.

Well, they're discovering the value

of having a direct relationship with the end customer.

And, of course, I'm on the board of Adobe,

a software company,

which is, this is now in the final stage of evolution

in the software industry,

but I found it fascinating when I first arrived

that 90% of the revenue was off a website that they ran.

I thought that was, "What?

This is a great business."

A very low-cost business.

Very low-cost route to market, global.

We're very in favor of selling stuff on websites.

Yeah, exactly. I'm sure you are.

You had this insight even before for me.

And so, yeah, you know, that leap is happening.

Now, healthcare has been a hard problem for tech, I think,

which is interesting,

because you have all this bricks and mortar mess.

You have a lot of state level insurance regulation.

You'd think FinTech would've gone after this a lot sooner

'cause it's 20% of the financial economy in the country.

Well, I think this podcast makes clear

that there are nuances to the sector.

Exactly.

I guess so, yeah.

But, you know, I think people with longer money

are starting to do it.

We actually ourselves just moved our PBM

from a traditional one

to this sort of new tech, fintech-y PBM

and we're switching all our lives

and we want more transparency, better data reporting,

and the interoperability problem that is why PBMs rose,

which was that you had a card,

like a physical card

that had your insurance number on it in 1992

and you went into a pharmacy in Phoenix

versus one in LA

and you couldn't get your prescription filled,

they solved that problem with old tech.

That's a pretty easy problem

to solve these days with technology.

But what they built on the back of that

was a system of negotiating and capture, rent taking,

that's not so popular anymore

and we can disintermediate them easily.

We've been having this conversation for quite some time

and we haven't asked you—

With one beer.

Well, we can rectify that,

but we haven't asked you maybe one of the first questions

that we ought to have asked you,

which is Eli Lilly is the largest pharma company

in the world.

Why?

Well, in simple terms,

we are kind of a rare situation right now

in that our growth rate is high

and our profitability is expanding

and we are in an early cycle of this invention.

I think Wall Street believes—

This being? GLP-1s,

which is driving probably 80%

of the economic value of the company.

Our market cap is about— You think Eli Lilly

is a GLP-1 company

with a sidecar— Sidecar.

Of some other of some other stuff?

Yeah, that's probably trading like other,

okay, so in our sector today,

let's pick a company like Bristol Myers or Pfizer.

These are big companies

with revenues not so different from ours

and we compete with them in these other spaces.

Their market cap's between $100-$200 billion.

We're trading about $800 billion,

and that difference is the GLP-1 phenomena.

I think Wall Street also believes

that our R&D productivity has been higher.

So every dollar we put through the income statement for R&D

or through an acquisition,

we get a little bit of a premium, a management premium on.

I think most of the sector is treated the opposite way,

which is that that's actually probably going

to destroy value in some way.

And I think the other thing that's out there

is this belief that perhaps,

for those that are really long our stock,

our belief that perhaps this cycle could be different,

this cycle starting with GLP-1s,

but that you could create,

back to the route to market and the consumer,

much more of a self-pay branded business

that has staying power beyond—

Franchise value. The patent cycle.

Franchise value. Thank you.

And I think so far, the evidence is pointing that way.

Have we fully evolved to a mature version of that? No.

Have we created like an ecosystem around ourselves

like Apple has done?

No no.

Those are all opportunities for us,

but you can kind of see them.

And self-care is an innate desire,

and I don't think the payment system's

going to fully cover all this,

but a lot of people are willing to pay

and it's not just the US.

It's a global phenomenon.

You said GLPs are one of the biggest drivers

of the business.

Eli Lilly's growing at about 30% right now revenues?

40% year-to-date. Oh, wow.

We'll have earnings on,

yeah, actually here's a fun fact.

There's three scaled large cap companies

that have a rule of 80.

Can you name them?

Stripe's doing pretty well, but—

NVIDIA must be—

NVIDIA is the highest.

I think they're over 90.

Margin plus growth.

CoreWeave?

I think that's,

considering you're talking the CEO of Eli Lilly, please.

So top hundred market small caps out there.

Okay okay yeah yeah yeah.

So it's based quite close to where we're sitting.

Genentech? Broadcom.

Of course. Yeah, of course.

So the hardware guys and AI are killing it.

But I think what's interesting to me,

they're trading at multiples above ours,

there's a belief that their cycle

is somehow longer than ours.

And I think tirzepatide's US patent is late '30s,

orforglipron, the oral, beyond that.

So, yeah, that's my pitch to investors.

But we're in that club as well.

Will we stay there forever?

Obviously no,

but, you know, I think that's one of the reasons

we're worth more. Well, I was going to ask

some questions about that.

So first off, Novo is growing in the teens.

For two companies with GLP offerings that are working,

why are those growth rates so different?

We're taking most of the growth in the market.

Okay, so just

your product's working better. It's a share.

Right now in the US, across all forms of GLP-1,

on new patient capture,

we're basically 70%-75% right now.

So almost three to one.

And then if you, it's a high carryover business.

I think we're 60/40 on the total.

And so we're just getting most of the growth.

What would you guess Eli Lilly's P/E is?

Forward P/E?

I was using trailing, but. Most of the time, yeah.

15?

50. 5-0. Oh my god.

So what I was going to ask is,

you know, we're talking here about—

The sector's like 12.

So yeah. No exactly.

Yeah, you're correct.

Like very close.

It was a very good guess.

I was thinking high end of the sector.

Your priors were good

because that is correct for the rest.

But where I was going with this

is if you were to listen to this podcast,

I think you maybe come away thinking,

"Wow, pharma is hard.

Like, good god." You know, there's so many things

and, you know, things roll off patent

and we have the Chinese competitors and things like that.

So what is it that investors have confidence in?

Well, I think the track record of success.

We've been on a growth curve for 12 years or so.

It's certainly gone a little more hyperbolic lately.

But I think that builds confidence.

I would hope some management piece.

But also, you know, the ability

to predict where to move.

And I think if you say, "Okay, what's your recipe?"

It's an R&D business.

Everything else is around the edges.

So you have to create something better for people

that improves their health.

If you can do that, you're going to win.

Policy, this and that, the commercial strategies,

that's the 20.

The 80 is this.

And I think we do three things better than others.

One we talked about already, which is cycle time.

It's a basic concept,

but if you can make software faster than someone else,

you're going to win.

And the same in the drug business.

The second is prediction of where to tack the investment

and allocating a meaningful part

to ideas that may not be obvious today,

but actually are big problems without markets.

And we're drawn to those.

That is the third box—

As in without preexisting markets.

Yeah, I mean, there's illnesses,

but they're not medicines.

And I think a lot of companies don't work that way.

They look at, "Okay, where's our payment?

Where can I recoup my investment?"

Versus where is there a problem?

And maybe our situation

allows us to— Jensen Huang at NVIDIA

talks about how he loves $0 markets

and you're describing some

of the same things. Exactly.

Blue ocean things that are,

you know, there's no limit to human disease.

And actually the longer we help people live,

the more diseased they'll be.

So in a way, it's alike AI in that way

where it's like AI begets more AI.

It's just this growing machine.

And then I think discipline of the allocation

between the types of R&D that are extending the franchise,

these moonshots we just talked about

that could really actually create a new GLP-1-like category.

You know, we're doing this study now

that I think will be quite interesting

that is going to potentially show

you can slow Alzheimer's before it starts.

That's the kind of thing that could be a mega market.

And those have to not just help a lot of people,

but they have to save a lot of money for healthcare systems

in order to generate, I think, shared value.

And then you have to do the discipline

around the edges of, you know, the next clinical trial

for a cancer drug that's already working.

I think being multimodal in that

and really kind of balancing your bets

has been a key for our success.

Capital allocation I guess in a sense.

When people are debating drug pricing,

and they debate it a lot,

obviously the argument made

by people in the pharma industry,

which to be clear, I think both of us believe

has a lot of legitimacy,

is, "Well, if the returns aren't favorable,

we're not going to pursue the investments."

You'll never know if it was too expensive.

Exactly. Yeah.

Since society wants more drugs and not fewer drugs

and there are many diseases that have not been cured,

et cetera, et cetera.

And we've, of course, discussed these dynamics

extensively here just now.

In as much as GLP-1s represent

this enormous advancement and improvement

in Eli Lilly's just fundamental financials,

I mean, it's economically equivalent

to a 2x, 3x, 4x increase

in the realized drug price

of every drug across the board,

does that mean that people should now expect Eli Lilly

to be far more able to fund broad-based drug R&D

than it was in the past,

such that their estimate

for the prospective drug development

and, you know, bounties of drug discovery

over the next 10, 20, 30 years should be much larger

than the pre GLP-1 world?

I think so.

Although, we have to prove we can.

So we're going to try.

I have a belief that if you're not generating,

to generate double digit growth in the sector,

you need to invest at 20%-25% of sales in R&D.

That's sort of a positive return R&D stack.

And we're doing that. And you plan to hold

that ratio as revenue. Yeah, and this year,

we'll sell 60-some-odd billion.

So that's how you get to the 14 billion,

and next year, that'll grow by double digits,

and so we should try. But do you think,

if revenue goes to 120, you know—

I would try to spend 20% of that,

which which would then approximate the NIH.

And I think that's a frightening thing

because, well, how many ideas are out there?

So I think, of course, we should do more

of what we're good at.

We should be bounded by our own capabilities,

and we don't know everything about every disease,

we don't know everything about every modality,

but for the diseases we know the modalities,

we can fund more

and pursue a healthy portion of these bigger bets

on zero-value markets.

We can expand the franchise.

We can do the incremental things we have to do at scale,

and do them earlier actually.

I think that's quite an important thing.

Often we do serial clinical trials,

and by the end of the product lifestyle,

you get the final indication.

We're trying to stack them all into the beginning.

So that's expensive, but we're in a position to do that.

It's not risky actually.

So you're saying anyone who's on this,

you know, who's teetering on the brink

of purchasing a GLP-1,

especially in a self-pay mode or something like that,

and they worry maybe it's self-indulgent to do so,

you know, they should just go to the gym

or, you know, exercise willpower

and so forth. They're paying for medicine

that's going to help someone else.

You're saying that the purchase of this GLP-1

is also a kind of subsidy— Yeah, I mean,

back to the pricing. For cancer R&D.

And just to add on the R&D,

the other thing we're doing at some scale

is actually trying to create a ecosystem

around us of invention

that we can aid in a real way,

not just own part of it.

We have lots of deployed corporate venture.

But we've built these things called Catalyze360

or the Gateway Labs here in South San Francisco actually

where we host scale-ups, not startups.

And by host, I mean we offer our services.

So rather than hire some consultant

who retired five years ago

to help you with a particular problem,

we'll give you someone working on it right now.

And so it's sort of a loosely coupled model

without buying them.

Often the entrepreneurs leave,

we cultivate them and then maybe buy them if they're good.

You have to apply to get in.

So it's a competitive process.

We have I think seven or eight of these now

around the country

and even two in China and building one in London.

And we'll create a virtual version of this.

And that TuneLab tool, that AI tool I talked about earlier

is embedded in that as well.

So that's another way we can spend money in R&D

with other people

and kind of use other brains to develop what we're doing.

But I have to caveat,

this may not work actually, right?

There could be a frontier in what's possible

and we found it

and beyond that it's just waste.

I don't rule that out,

and I think it's an important caveat.

We'll know those signals in the next couple years

'cause our scale is getting to be bigger

than anyone's ever done.

Most of those experiments that have been run ended badly.

People mostly bought other companies at too high a price

and then the drug didn't work out.

We're not doing that.

But, you know, it'll be interesting to see.

And then, you know, if we quit,

we'll turn into like an Apple.

We'll just start buying back massive amounts of shares

and return cash to shareholders who invested

to create this surplus.

But it's important what you're saying about people buying

is that a quarter of every dollar you spend

is going to a research lab or a clinical trial

for a medicine you might not need

or for someone you don't know.

But that's the system by which we create new medicines,

and we'll try to use that wisely.

I don't take that responsibility lightly.

That's someone's money.

But maybe they'll have Alzheimer's someday

and we'll have a solution for that,

or maybe someone they know.

But that's the virtuous circle we try to drive.

Is it meaningful to talk about what fraction of R&D

is towards specific treatments?

Is, like, focused vertical R&D

versus I presume you do a lot of horizontal R&D.

Yeah platforms.

Yeah exactly platforms.

Because presumably it's even harder

to reason out the platforms and the payoffs there.

Well, there you need some scale.

There's a lot of platform companies

that get funded that are biotech.

Yeah, we have them in San Francisco.

And they are usually exploring a new platform

that's quite helpful.

That's important work they do.

And often we'll partner with them early

and try to develop that capability ourselves.

Basically, in our business,

there's two kinds of questions on early phase R&D.

One of them is this, is there a new platform

that can unlock targets we already know about

in new ways or in better ways

that create a whole field of drugs?

If you think of Genentech,

like, that was a company that exploded

based on monoclonal antibody technology

by tricking cells to make a human antibody

that solved disease.

30-year run of spectacular new medicines.

Or Gilead Sciences nearby,

which really started on this idea of virology

and new virology chemistry and small molecules.

So we want to be there at the early stages

because it is like a catching a wave thing.

If you're late, you miss it all.

And so that's a kind of investing we do

and that's a more scaled project.

And then the other kind is, like, picking targets

and looking in the broad space of biologic discovery

and say, "Okay, of the thousand things uncovered this year,

these 15 we think could be highly relevant

and we're going to put a team around those."

This isn't the Skunk Works kind of allowable deviation

or whatever I said earlier.

But it's a purposeful thing to say, "Let's drug hunt here.

Let's use the tools we have and assault those targets

with multiple ones of those tools

and see if we can get a drug out of it."

And sometimes we've actually come out

with like a small molecule and an antibody

and an siRNA.

Like we talked about Lp earlier.

That was the case there.

We discarded the antibody,

there is one that's been developed,

and we went after the small molecule and the siRNA.

They're both in phase III.

And so that was a case of very purposeful find a target,

attack the target, get a medicine to market.

So it's both.

And we need to hedge it that way I think.

And then, of course, we watch the outside

and sometimes we miss those two signals

and we end up buying companies later in their cycle

and saying, "Hey, we can add value through clinical trials

or manufacturing scale or something else."

Last question.

Eli Lilly is more than a hundred years old and—

150 in May. Oh, wow.

Okay, so coming up on your 150th birthday.

And I noticed that often

very tenured, successful companies

are quite serious about, and good at,

internal succession planning.

I think about, you know, Royal Dutch Shell

or, you know, companies like that,

and Eli Lilly.

You joined in what year?

1996.

Right, you joined in 1996.

Not as a hired CEO.

No, I was a BD, M&A.

Exactly. New hire.

And you were rotated across, you know, the business.

You ran China, you ran the US business.

Development. Exactly.

All these kind of roles.

What do you think Stripe, Silicon Valley companies,

should learn from Eli Lilly

and, you know, companies like Eli Lilly,

but that's where you have experience,

about talent planning and talent development?

Yeah, fabulous question.

I do notice differences,

at least on the board I'm on and observing other companies.

Some of that might be just the clock speed of the industry

and the technology

and some of it might be the newness of companies,

because if you haven't really seen the cycles play out,

hard to kind of see the value.

You got a problem, solve it,

you know, work on the next thing.

But probably even in your company,

which has been around long enough now,

I'm sure you have people

who are, you know, single-digit hires,

you know, first few people,

who've really been excellent

and what they're doing now

is nothing like what they started doing

and you should examine, like, what are those, why?

Was it the experience path they took?

Was it innate traits they have?

Combination of those things?

You know, we've had 150 years of that

and I'm the 11th CEO of the company.

That's one less than popes in that period of time.

So it is a special honor actually,

and it's not a lifetime appointment.

I can be fired any day.

But the first four were family members

and then we've had a lot of long-running successful

and only one external.

Really? Yeah.

And I think that's part of the success of the company

is that in scaled companies,

and we've scaled for a while,

you know, not one person cannot possibly

really lead the whole thing.

You have to know the role you have to play

and you have to have others around you that can do it.

By creating that environment,

giving up some of that,

you actually grow people

and you grow people in a special way.

A way that they know how to operate

in the unspoken operating system called culture.

And so they're more effective more quickly in new roles.

And they just know the domain, right?

'Cause there's so much to know.

They know the domain.

They also know the human domain

of how to solve problems without committees.

And, like, one of my things now as we grow so fast

is, like, keep headcount flat.

And that's makes me very unpopular

'cause people are like, "What?

Like, how do I get this work done?"

We are growing headcount in manufacturing.

That's a unit operation business.

Are you growing in R&D as you grow the spend?

Slightly but,

so we're growing R&D high teens, low 20s.

We're growing headcount in R&D single digits.

So where does the money go?

So the money goes to projects.

Yeah, and salary.

Trials and tribulations?

I believe in paying people well.

Yeah, so there's salary growth,

but clinical trials, new equipment, new laboratories.

Supercomputers from NVIDIA, that's expensive.

So we're really trying to keep that goodness

that can come from having most of the succession internal.

What I noticed when I took over, though,

was maybe that took over too much.

There is a balance.

I have tried to bring in at the leadership level

and other ranks, compete jobs externally,

and bring in outside voices that are the minority voice

and have to have those innate traits

and kind of a culture fit that can work,

but it stimulates you in ways that sometimes you're like,

"Yeah, that felt a little uncomfortable

'cause they came at it in a different way

or said it in a way that doesn't connect

with how we normally,

but actually they're making a good point."

So that's the blend we've tried to find.

And I look at my career

and probably four or five times I was put in a job

I had no business being in,

but somebody thought I could learn it

and that the output of that

would be good performance at the end, not at the beginning,

and then a better long-term thing for the company.

I'm so grateful for that

because that's like ultimate risk taking on people

and I would not be here without those successive jobs

where I was like, I never would've gotten them

if I applied externally,

but the company gave them to me.

And as a CEO, you have to do a lot of things

that are very horizontal

and I touch things that I had no experience in,

but I learned by graciously reading

and doing and solving real problems

that has made me more successful in this job.

A lot of companies say they're long-term oriented,

but I feel like this is a particular example

of revealed preference.

Yeah.

David, thank you. Awesome conversation.

Thanks for the beer. Yeah, great.

Thank you very much. Yeah.