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

Dave Ricks, the CEO of Eli Lilly, the world's most valuable pharmaceutical company, sits down with John and Patrick to discuss the complex business of drug development. Dave explains the true origin story of GLP-1s (from Gila monster saliva), why their potential goes far beyond weight loss to addiction and inflammation, and how "self-pay" has become the #1 way new patients get Zepbound. They cover the "shadow generic" industry undermining patents, the challenges associated with clinical trial enrollment, and what drove insulin list prices to $275 (while the net price was $40). This is a rare, candid look into the strategies, science, and future of pharma from one of the industry's most influential leaders. Timestamps (00:00) Introducing Dave Ricks (05:07) Making R&D decisions (10:10) Clinical trials (24:59) Drug pricing (32:43) Stimulating more R&D (54:15) Pros and cons of US healthcare (58:20) New pharma business models (01:05:53) Stripe and enterprises (01:07:00) China (01:16:31) Generics (01:22:37) GLP-1s (1:37:43) r/Peptides (01:41:25) LillyDirect (01:46:35) Why do investors love LLY?

• 0:00Speaker 00

  David Rix 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 Lilly Direct, rather than through the traditional middleman. All right. Cheers.

• 0:28Speaker 01

  Cheers.

• 0:29Speaker 00

  Thanks for coming. I'm very impressed that you came and you just poured your own pint.

• 0:34Speaker 01

  Poured my own pint, yeah.

• 0:35Speaker 00

  Major flex.

• 0:36Speaker 01

  Have glass, we'll pour.

• 0:37Speaker 00

  Exactly. Well, actually, a good place to start. Tell us about your Nvidia announcement that you just had.

• 0:41Speaker 01

  Yeah, so today at the, what's it called? GTC conference they have, they unveiled that we're well underway, actually. 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.

• 1:03Speaker 00

  Yes.

• 1:05Speaker 01

  With B300's latest chipset. 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.

• 1:22Speaker 00

  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?

• 1:31Speaker 01

  Yes.

• 1:33Speaker 00

  You ask it whether it can come up with something totally orthogonal beyond what the human might have tried?

• 1:37Speaker 01

  Correct. 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

• 2:21Speaker 01

  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, these interactions.

• 2:45Speaker 02

  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. 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. Do you, 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 in that argument?

• 3:26Speaker 01

  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 to 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

• 4:11Speaker 01

  big problems, system prediction.

• 4:14Speaker 00

  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?

• 4:38Speaker 01

  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, read.

• 4:46Speaker 00

  Read what?

• 4:46Speaker 01

  I read a lot of medical journals. I go to conferences where data is presented. I spend time with our scientists.

• 4:52Speaker 00

  Stay curious.

• 4:53Speaker 01

  Yeah. Now I have like a, at least one or two AIs running every minute of every meeting I'm in and I just am asking it science questions.

• 5:01Speaker 00

  So you found for your learning, ChatGPT or whatever your?

• 5:04Speaker 01

  I don't use that one for science, actually. It's too, too garbled.

• 5:07Speaker 00

  So which one do you use for science?

• 5:09Speaker 01

  I tend to use either Claude or the XAI one. I find it more terse and more, the references actually check out more often. Sometimes the AIs produce references and they're actually not the thing that it said.

• 5:24Speaker 00

  Yes, yes.

• 5:25Speaker 01

  And that takes too much work to go cross-reference.

• 5:27Speaker 00

  So for an autodidact, presumably the emergence of LLMs has been transformative for you.

• 5:32Speaker 01

  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, right? If you can just learn continuously.

• 5:42Speaker 00

  It's mastery learning for everyone.

• 5:43Speaker 01

  Yeah, yeah, exactly. So you take advantage of that. But you know, early in my career, I started in our business development M and A group and I spent my whole time as scientist looking at little companies and projects in other companies and trying to understand what they were worth. Well, they need 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, that's the magic. It's like, okay, you can work on things that change people, but the people you care about, that's

• 6:24Speaker 00

  You saw the full end to end impact.

• 6:26Speaker 01

  Yeah, exactly. From lab, exactly. So special.

• 6:29Speaker 00

  You have 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 Bean, where it's a Moneyball-type, you know, with the ROI pencils and?

• 6:45Speaker 01

  I think the system does a lot of the Billy Bean. 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. So, 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, we like come back to it, think about what others said and kind of push it again.

• 7:30Speaker 00

  And are you deciding?

• 7:32Speaker 01

  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've definitely changed 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 and D. I think more than any other sector is a percent of revenue. We'll spend almost 25% of sales this year.

• 7:53Speaker 00

  I like the way, I like the way of putting it, that you spend more on medical R and D than Germany does.

• 7:58Speaker 01

  Yes. Yeah, we're at the nation-state level. It'll be, you know, $14 billion this year. Total NIH, which is the biggest thing on earth that spends money on, is 40. So that's

• 8:09Speaker 02

  Up there.

• 8:10Speaker 01

  Getting close, yeah. But some of those are projects we've been working on 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 three and a half, four 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

• 8:41Speaker 02

  And so you're saying like the phase three trial?

• 8:42Speaker 01

  Phase three, exactly.

• 8:43Speaker 02

  That's the question.

• 8:44Speaker 01

  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.

• 9:00Speaker 02

  Per program.

• 9:00Speaker 01

  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.

• 9:17Speaker 02

  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?

• 9:33Speaker 01

  How could this be?

• 9:34Speaker 02

  Yes.

• 9:35Speaker 01

  That's a great question.

• 9:36Speaker 02

  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?

• 9:55Speaker 01

  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 and D in the industry is because not the picking of winners and losers. But the, 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 have really not moved is the enrollment of clinical trials. This sounds, this is gonna sound super arcane when I go through it. And the cost, which is escalating about seven, eight percent. That's, um, over the last decade, that's about the same as the healthcare system. And that's not an accident.

• 10:38Speaker 01

  When people go, what, what, 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 that, those individuals. And that is, in some ways, for control. Because you wanna 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.

• 11:19Speaker 01

  But then also, in some ways, um, 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.

• 11:57Speaker 02

  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.

• 12:07Speaker 01

  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 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.

• 12:46Speaker 02

  US healthcare is famously the most expensive in the world. Do you run trials outside the US?

• 12:50Speaker 01

  Yeah, actually, most.

• 12:52Speaker 02

  Most of it?

• 12:53Speaker 01

  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 US system's 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?

• 13:37Speaker 01

  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 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.

• 14:18Speaker 01

  For instance, like here in the US, you have, everywhere you get ethics clearance, 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 place, 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, the half of that seven is, we have a protocol open. That means it's an experiment we want to run. It's, 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?

• 15:02Speaker 01

  But we don't have enough people in the study. So you're in this 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, 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 a, 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, little A, program. That's a cholesterol subtype where there was nothing to do about it.

• 15:46Speaker 01

  A lot of people have had it tested and it's high. You could say, hey, you're, you're high, would you like to do something now? But it's still a lot to be done there, and the data is 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?

• 16:12Speaker 02

  That's kind of what I want. I want to get an email, as you say. The system knows 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 some nice person will come every month or whatever.

• 16:35Speaker 01

  Or just telephonically.

• 16:36Speaker 02

  To take my vitals, exactly. And measure my blood pressure and what have you. Are all these intermediaries and the systems and 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 of the drug.

• 16:49Speaker 01

  Depends on the disease.

• 16:49Speaker 02

  Yeah, right, right. Well, I guess, yeah, so how much of it is there in fact intrinsically required, given the characteristics of the condition? And how much is it, this is how things are done?

• 16:59Speaker 01

  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 tele-visit.

• 17:43Speaker 01

  They got some diagnostic tests, blood-based, that went in and said, "Okay, this is the sort of an indicator you might have high amyloid, then you can go to get a PET scan. And if that was positive, you can 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 or comorbidities and so forth. They want to be in the study and I think they would like to prevent terrible conditions like Alzheimer's.

• 18:25Speaker 01

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

• 18:29Speaker 02

  So, do you know Paul Janssen?

• 18:31Speaker 01

  Yeah.

• 18:31Speaker 02

  Yeah, yeah. So.

• 18:32Speaker 01

  Explain who Paul Janssen is, come on.

• 18:33Speaker 02

  Paul Janssen, as I understand it, was behind the discovery, invention, what have you, of more medications than any other single.

• 18:41Speaker 01

  I think a Belgian guy.

• 18:42Speaker 02

  Exactly, yes, yes.

• 18:43Speaker 01

  Who invented a number of.

• 18:45Speaker 02

  Seventy-nine or eighty.

• 18:47Speaker 01

  The MVP of medicine.

• 18:48Speaker 02

  Michael Jordan of invention, 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.

• 19:06Speaker 01

  But that's how it's going to be.

• 19:07Speaker 02

  But that's how it's got to be. You know, 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 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.

• 19:25Speaker 03

  Nowadays, it would probably be very unlikely, though not necessarily impossible. Due to the financial implications or for other reasons? There are many major reasons, but I can tell you the main reason. The main reason is that it takes around 12 years between the discovery of a new medicine and commercializing it. In those days, it was one to two years. Also, back then, it cost much less than it does now. Today, we talk without batting an eye about spending many billions for a new medicine. And it is probably true. In my opinion, the majority, or at least a large percentage of that money, is wasted on tests that are imposed by the so-called authorities.

• 20:08Speaker 03

  It has a lot to do with development and very little to do with research. So you are saying it could take less than 12 years? Of course it can, that is self-evident.

• 20:20Speaker 02

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

• 20:22Speaker 01

  Yeah.

• 20:22Speaker 02

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

• 20:26Speaker 01

  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 man-made 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

• 21:08Speaker 01

  or indirectly to say, oh, no, let's require more information or rebalance the risk.

• 21:13Speaker 02

  No, absolutely, yes. We've had this ratchet. Have we gone too far?

• 21:16Speaker 01

  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 2,000-ots 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, both cardiovascular risks, and intervened with labeling and escalation until finally both companies actually removed the products from the market, withstood billions of dollars

• 22:00Speaker 01

  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 that's, there's like an ascertainment bias problem with these studies. There's also who is looking at this data. But that caused a 10-year chill in drug development. And the Avandi 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.

• 22:43Speaker 01

  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 right? 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 regulators 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 trisepotide to run them because they frequently demonstrate massive benefit on cardiovascular.

• 23:24Speaker 01

  And in some ways, it creates a barrier to entry for the next low cost Chinese program, whatever, because it's this big expensive thing.

• 23:31Speaker 00

  As with many regulatory.

• 23:32Speaker 01

  Yeah, exactly. 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 gonna ask.

• 23:54Speaker 00

  Yeah, let's talk about that. Because say with 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 create this challenge for reimbursement where, you know, not as many people reimburse GLPs for weight loss as you think would be rational. That just will always be the case with prevention. And so, how do you actually develop drugs that are commercializable and reimbursable?

• 24:27Speaker 01

  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 it's Stripe, you reimburse these medicines for your patients or for your employees, within two, you can break even basically on total medical costs. So, there's this group called Iser, 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 medicines, Terzepatide and Semaglutide, and they said, actually, they're both cost-effective at current pricing. In fact, Zepbound or Terzepatide was, the threshold they have is to save $100,000 per

• 25:08Speaker 01

  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, we're, 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.

• 25:48Speaker 01

  If the first medicine we had to treat metabolic conditions was Terzepatide in 1972, I have no doubt it would be reimbursed everywhere and broadly used in the system.

• 25:58Speaker 00

  But again, the ratcheting effect.

• 26:00Speaker 01

  Thing are 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 at, 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 is not disciplined. The data does not show that, actually.

• 26:45Speaker 01

  Like, our ancestors roaming the plains or the... Whatever the tundra of Ireland, walking across the ice bridge from Norway. We're 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, in today's environment, we're in the flip, the complete flip, especially here in the US. There's food everywhere, we walk.

• 27:16Speaker 00

  Can I ask you a stat? How could you guess the average caloric consumption per day in America is?

• 27:21Speaker 01

  3,600 calories.

• 27:23Speaker 00

  Yeah. Incredible.

• 27:25Speaker 01

  Yeah.

• 27:25Speaker 00

  That's a really high number.

• 27:26Speaker 01

  And here's an interesting stat. When you're on our medicine, how many fewer calories do you consume on average?

• 27:32Speaker 00

  On one of the GLP ones?

• 27:34Speaker 02

  You don't need to swing at that much to cause meaningful...

• 27:36Speaker 01

  800 calories a day.

• 27:37Speaker 02

  It's 800?

• 27:38Speaker 01

  Which is almost a meal.

• 27:39Speaker 00

  Yeah.

• 27:40Speaker 01

  If you go pull up to In-N-Out Burger.

• 27:42Speaker 00

  That's second breakfast right there.

• 27:43Speaker 01

  Yeah, it's second breakfast, exactly. So that's why people lose weight so successfully.

• 27:47Speaker 02

  No wonder all the food companies are so worried.

• 27:48Speaker 01

  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 counter-regulatory 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.

• 28:30Speaker 01

  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. Which is the miracle of it. People feel good and lose weight.

• 28:44Speaker 02

  If you have a medicine that is recurring and it presents a main income stream for Eli Lilly. Now, maybe nothing is truly recurring in the sense that 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.

• 29:04Speaker 01

  Yep, one and done.

• 29:05Speaker 02

  Exactly. Is it in practice possible to charge enough upfront such that as a company looking at its portfolio?

• 29:14Speaker 01

  His back there, indeed.

• 29:15Speaker 02

  Yeah, you are in fact neutral as to which it is because from first principle, it's for the patient. It's way better to do that.

• 29:20Speaker 01

  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 these conditions and then will insure. And because obesity is sort of this master switch, all these things, that's an achievable thing. It just costs a lot of R and D.

• 29:35Speaker 02

  I'm talking about perception. I think he's talking about reality.

• 29:37Speaker 01

  Yeah, you're talking about actually pricing, which is why is it that the industry has evolved to have a unit pricing model? It would be, it's back to like a shrink wrap software world, right? Where you're basically just shipping a box and all your value has to be captured upon that invoice. That is how we price all medicines.

• 29:54Speaker 02

  You're currently in the SaaS model and tech people know that SaaS is way better than the shrink wrap software business model. And genetic medicines are shrink wrap software. And it's like, wouldn't you be crazy to go back even though it's better for the patient?

• 30:06Speaker 01

  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. And then one undone 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.

• 30:26Speaker 02

  It looks like an amazing drug.

• 30:27Speaker 01

  Yeah, if it's, 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.

• 30:38Speaker 02

  Right.

• 30:39Speaker 01

  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 SARS 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.

• 31:23Speaker 01

  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 that they've just charged it and someone's paid. But for common gene therapy to really be unlocked, this has to be solved.

• 31:36Speaker 00

  It strikes me that 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.

• 31:50Speaker 01

  Yes.

• 31:51Speaker 00

  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.

• 32:10Speaker 01

  Yes.

• 32:11Speaker 00

  Do you think we need to spend more time trying to discuss and meta-edit the R and D system and incentive system that we have? Because it just has such a huge effect on people's quality of life?

• 32:26Speaker 01

  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 for the world.

• 32:38Speaker 00

  I'm pro-medicine.

• 32:39Speaker 01

  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 what 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 through everything else that medicine's trying to prevent. Go back to 1965.

• 33:07Speaker 00

  I think it's even less than 10 cents.

• 33:08Speaker 01

  Branded medicines are eight.

• 33:10Speaker 00

  Yeah.

• 33:10Speaker 01

  2% is generics, which is 90% of the volume. That's an even better deal.

• 33:14Speaker 00

  We've got to get to generics.

• 33:14Speaker 01

  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.

• 33:37Speaker 00

  Yes.

• 33:38Speaker 01

  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 and 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.

• 34:08Speaker 00

  Despite the fact, of course, it's shrunk because of the longer approval timelines.

• 34:12Speaker 01

  It's de facto shrunk.

• 34:13Speaker 00

  Yeah.

• 34:14Speaker 01

  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, seven years, you lose that ability to recoup investment in the same way.

• 34:29Speaker 00

  Government price intervention always works out well.

• 34:32Speaker 01

  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 multiples, the most compressed spend in 20 years. If you look at biotech, the XBI, I think half of the XBI is trading below cash. And then if you look at Venture, half of the rounds last year were down rounds. This is not a positive environment.

• 35:04Speaker 02

  Well, 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, so many opportunities for copycat molecules and therapeutics and so forth. And so, like, it, does it matter less what happens with patent windows because what actually matters is the competitive ecosystem, the ability for fast follow?

• 35:25Speaker 01

  Yeah, I, I think we end up with two competitive ecosystems. You have the, the on-patent one. And here, I think history would show, actually, within a 10-year period, which is typical recruitment time.

• 35:35Speaker 02

  We've solved clinical trials, you know, separately, so they're not really fast there.

• 35:38Speaker 01

  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.

• 36:24Speaker 01

  Now, they don't work until there's actually a biosimilar or generic event. Because here, the, it's not a, hey, I'm $100 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 as

• 36:52Speaker 02

  Yeah. Okay.

• 36:54Speaker 01

  90% lower.

• 36:56Speaker 01

  So there's no return.

• 36:57Speaker 02

  Okay, so in order to stimulate and to catalyze more R and D, you know, one thing we could do is we could extend the 20-year window.

• 37:07Speaker 02

  What else can we do?

• 37:07Speaker 01

  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 a price-for-value scheme.

• 37:24Speaker 02

  Because they're single payer?

• 37:25Speaker 01

  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 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, 5 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.

• 38:09Speaker 01

  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.

• 38:52Speaker 01

  And deciding that the smallest, 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.

• 39:06Speaker 01

  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 can 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 produce 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.

• 39:48Speaker 01

  Now negotiate with the 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.

• 39:57Speaker 00

  There's the much discussed, like maybe the top discussed topic in pharma that people know about generally is pharma pricing, the disparity between the US and internationally. Where, you know, all the cost is in R and 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 and D cost is borne by the US.

• 40:20Speaker 01

  Yes.

• 40:20Speaker 00

  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.

• 40:45Speaker 01

  Which no longer exists, by the way, because we fixed that.

• 40:47Speaker 00

  But that was like the hot topic.

• 40:48Speaker 01

  Yeah, it was a hot topic. 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. What do you mean? Okay, so insulin, so it was the latest versions were launched in the 90s and 2000s, but they got. Quite a long in their life cycle. As in, close to the end of the? Well, they were past their patent window, actually. But there were no competitors. Why? Because net pricing was pretty low. How could it be so low? Well, the incumbent players, mostly Novo and Lilly, go back to that on GLPs as well, same players, had a lot of CapEx in the ground.

• 41:32Speaker 01

  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... Who's getting the $235? Yeah, so the middle actors. And so, big PBMs like United Healthcare 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'll 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 these were...

• 42:15Speaker 01

  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, manufacture, 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 the 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 real... 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.

• 43:00Speaker 01

  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." 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 Lyspro, 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."

• 43:42Speaker 01

  This is a threat to our model. 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.

• 44:09Speaker 00

  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 that is kind of weirdly unpopular, at least in certain parts of the, you know, political discussion.

• 44:22Speaker 01

  But there's choice. Yeah. So, but you have a question about R and D. Actually, let me just answer that. So it is true. If you fund, 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 and D is paid for on the US launch. So here you're just margin gathering.

• 44:55Speaker 00

  But it's the free rider problem.

• 44:56Speaker 01

  But it's the free rider problem.

• 44:57Speaker 02

  But to John's point, this seems increasingly politically untenable.

• 45:00Speaker 01

  I agree.

• 45:01Speaker 02

  Americans are waking up to this.

• 45:02Speaker 01

  We should get rid of it. It's actually not good for our industry either. Because you get a skewing, in addition to the social problem. So what does everyone do? They tune the R and 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 problem?

• 45:22Speaker 02

  Yeah, well, we're 25% of GDP, but nonetheless.

• 45:26Speaker 01

  Okay, 25%, we'd be a much better improvement over 90.

• 45:29Speaker 02

  When you say we should get rid of it, we should solve this. How?

• 45:31Speaker 01

  Yeah. So I pitched this idea to this administration, actually, which I call the one fair price.

• 45:37Speaker 00

  We're good branding.

• 45:38Speaker 01

  Yeah, yeah, yeah. We're learning. I need a price.

• 45:43Speaker 01

  OFP. Yeah. But the idea would be that manufacturers introduce it at the price they want. They are restricted by only a couple of 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. So, because the ability to pay, I think, should largely be borne by more wealthy nations.

• 46:07Speaker 02

  Okay.

• 46:08Speaker 01

  That's where the surplus is.

• 46:09Speaker 02

  You introduce a drug that costs a hundred dollars in the US.

• 46:11Speaker 01

  Yes.

• 46:11Speaker 02

  You're saying it should cost, you know, on the order of, uh, you know, seventy dollars in the UK or whatever.

• 46:17Speaker 01

  Yeah. It's thirty percent less GDP per capita. We would introduce it seventy. 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 seventy. Right? And we have to, we have to charge them what we think it's worth.

• 46:36Speaker 02

  And you could do that today.

• 46:37Speaker 01

  We could.

• 46:38Speaker 02

  So what, you know, why don't just do it? Why do you need a compact?

• 46:41Speaker 01

  That's fix number one. Fix number two is that the reimbursement system in the US, starting with the US government itself, we 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 and D. Presumably, companies would look at the global opportunity, or at least the developed countries,

• 47:26Speaker 01

  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.

• 47:36Speaker 00

  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 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 failures.

• 47:55Speaker 01

  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, fourteen thousand dollars. But then the waiter says, don't worry, that's not your copay.

• 48:07Speaker 00

  Yeah.

• 48:07Speaker 01

  And it's, oh, 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.

• 48:29Speaker 00

  But if you're saying you'd pull on this thread quite a bit, and you know, the next admin should, of just the numbers should mean something. Like, the FCC does this a lot. You know, they say that for consumers, numbers should be trusted. And yet, we kind of let the healthcare system.

• 48:43Speaker 01

  Yeah, there's no pre, post, and 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.

• 48:55Speaker 00

  Well, we've introduced regulations over the last couple of years mandating some degree of transparency here for how those work.

• 49:01Speaker 01

  Total failure. Yeah. If you look up in your region, who is 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.

• 49:21Speaker 00

  It's like the Hitchhiker's Guide to the Galaxy.

• 49:22Speaker 01

  It's a non-searchable.

• 49:23Speaker 00

  Beware of the leopard.

• 49:25Speaker 01

  You know, file, flat file with everything they have. That doesn't work.

• 49:30Speaker 00

  It's malicious compliance.

• 49:31Speaker 01

  Yeah, or facial, or whatever. And it's, 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."

• 49:45Speaker 00

  I generally ask that before I consume things.

• 49:48Speaker 01

  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, "Gosh, I should have asked what that cost." 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.

• 50:33Speaker 01

  No one else. 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.

• 50:51Speaker 00

  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. 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.

• 51:35Speaker 00

  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, 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 have, they ask their doctor about them. And it leads to more usage. But yes, 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?

• 52:03Speaker 01

  Yeah. Well, I, not having grown up in a system like Ireland, but I lived in Canada for a while, six years, so I was treated in that, I've seen it, yeah. I find it weird the other way 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.

• 52:46Speaker 01

  The US and China have something like 70% of all diagnostic capacity in the world.

• 52:52Speaker 01

  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, your flu vaccine, like just get in and get out.

• 53:37Speaker 01

  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 costs. 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.

• 54:20Speaker 01

  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, the best healthcare systems get the worst behaved people because the coverage is better. So I think we, 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 is 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.

• 55:03Speaker 01

  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 nonlinearly. Because of that. So why is it expanding? Yeah, because of new drug technologies. Two main ones.

• 55:46Speaker 01

  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 precisely 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 little a earlier, so that's a kind of cholesterol, it'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'm not,

• 56:29Speaker 01

  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 GOP ones, 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 that 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.

• 57:14Speaker 02

  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 and D. I think the, I mean, to some extent, you can bucket biotech and pharma separately. Obviously, the lines blur, but 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, 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

• 57:57Speaker 02

  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, whatever 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 and D capabilities and

• 58:42Speaker 02

  you're vertically integrated and you have economies of scale and so on and so forth. Are we shifting there? Where between those poles ought we be? How is it changing? Just thoughts in that whole landscape.

• 58:53Speaker 01

  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, be, because the capital markets are 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 viable.

• 59:27Speaker 02

  The hybrid.

• 59:28Speaker 01

  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.

• 1:00:13Speaker 01

  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, spreading out our labs. Scale's bad. And I think our idea was 300 or 400 people about right with a focused mission, allow for some deviation, put some outposts out there. The act of invention has these economies 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.

• 1:00:55Speaker 01

  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 and not the Indiana supercenter? I think it's good to be 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 who 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. When sanctioned in what way?

• 1:01:39Speaker 01

  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. Yes. 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 funded.

• 1:01:58Speaker 00

  Have you guys formalized that like Google 20% time? Or there are some people are just doing curiosity or?

• 1:02:02Speaker 01

  It depends on the area, but we have this allowable variation idea. We're skunk.

• 1:02:08Speaker 02

  Is that the phrase allowable variation?

• 1:02:10Speaker 01

  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 them cook. And let's see what happens. That certainly worked. We built a big site.

• 1:02:26Speaker 02

  Let them cook school of farm innovation.

• 1:02:28Speaker 01

  Yeah, it's the thing.

• 1:02:31Speaker 02

  I can see this as a book.

• 1:02:33Speaker 01

  A lot of farm innovation is iterative, right? So the other problem is people quit too soon. So back to GLP-1s, this story has 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 a dual acting, it'll be better. We wouldn't have gotten the right answer.

• 1:03:18Speaker 02

  This is all about your internal innovation.

• 1:03:19Speaker 01

  Yes, so that's running.

• 1:03:20Speaker 02

  Yeah, where did the biotechs appear?

• 1:03:22Speaker 01

  And why do we do this? One, it is productive for us. And I do think we've built the capability to frankly make more 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 know-how 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 nother invention loop to refine it further.

• 1:04:05Speaker 01

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

• 1:04:08Speaker 00

  So what you're buying is the proof that there's something here, but not necessarily the specific.

• 1:04:12Speaker 01

  Exactly. And if they haven't disclosed it, and that they've got a lead, that's very interesting. But we actively cultivate a 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.

• 1:04:47Speaker 00

  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 Lilly Direct, patients can buy treatments like Monjaro 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

• 1:05:32Speaker 00

  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.

• 1:05:54Speaker 02

  So we just mentioned we're in San Francisco in the Bay Area. The Bay Area, of course, used to have a vibrant electronics manufacturing industry.

• 1:06:00Speaker 01

  It left.

• 1:06:02Speaker 02

  Yeah, companies like...

• 1:06:03Speaker 01

  There's still the Ampex sign and some of the old...

• 1:06:06Speaker 02

  Yes, but...

• 1:06:07Speaker 00

  Their child.

• 1:06:07Speaker 02

  Exactly, but you mentioned Cypress Semiconductor and people don't really know what you're talking about these days. The biotech sector started here in the 70s, I guess, and is still today reasonably vibrant, although to your point, it's had a tough maybe a couple of years. Chinese, the share of the global drug pipeline that was Chinese 10 years ago was, I think, in the small, single digits.

• 1:06:29Speaker 01

  Approaching zero.

• 1:06:29Speaker 02

  Yeah, exactly, right. And now I think it's high 20s approaching a third.

• 1:06:34Speaker 01

  30%.

• 1:06:35Speaker 02

  Okay, so now it 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?

• 1:06:47Speaker 01

  I wouldn't predict that outcome, but I think we should ring the alarm bell right now.

• 1:06:52Speaker 02

  Is it bad?

• 1:06:54Speaker 01

  It's not great, I would say. I think for two reasons.

• 1:07:00Speaker 02

  But if they can do it better and faster and cheaper and we get the drugs, isn't that awesome?

• 1:07:05Speaker 01

  That is good, especially if the last part's true. But I think the economy around biopharma is, I think, has some unique properties that should make us want to own it. One is it is in the knowledge economy. To me, sort of the pinnacle.

• 1:07:20Speaker 02

  Paradigmatic knowledge economy.

• 1:07:21Speaker 01

  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 is, requires a lot of talent. So it tells you how you're doing, I think, in a way. That 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?

• 1:07:53Speaker 02

  Okay, so is it kind of shadow passing over the country if biotech?

• 1:07:57Speaker 01

  And it's rewarded. I mean, these are well-paying jobs. These are, 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 eighty percent 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

• 1:08:32Speaker 00

  I mean, the EU saw this with all the battles.

• 1:08:35Speaker 01

  Yeah. The EU had a huge controversy. And they're friendly and we had open trading. But they 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

• 1:09:20Speaker 01

  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, still a big hub. We want to keep those.

• 1:09:33Speaker 00

  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.

• 1:09:48Speaker 01

  Yes.

• 1:09:48Speaker 00

  But still the same action. And the huge amount of that coming out of the Chinese biotech sector. Doesn't that

• 1:09:54Speaker 02

  But I think also some real, like, this, I have an estimate that that seems real and good and novel.

• 1:09:58Speaker 01

  Also a real innovation. That's an interesting one.

• 1:10:00Speaker 00

  But don't the clones effectively erode the patent system? And, you know, we would think shortening the patent life to fifteen years would be bad and/or ten years. And this is shortening the patent life effectively.

• 1:10:11Speaker 01

  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, the 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 because 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, 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,

• 1:10:55Speaker 01

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

• 1:11:14Speaker 00

  So was the shadow generic industry basically launched by first to file? Because we published the instruction manuals? I didn't realize that. And do you think, is it your view, you just switch back?

• 1:11:23Speaker 01

  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 have been an IP space that's been mined and people around the idea. But you had an insight that actually unlocked the truth. And there's a, 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?

• 1:12:06Speaker 01

  That's really the most valuable step in that case. I, 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 three. That's a $3 billion ticket. These copycats aren't going to do it. They're certainly not going to do it with US, in US data. And that'll be more or less constrained to 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.

• 1:12:47Speaker 01

  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.

• 1:13:15Speaker 02

  And the electronics manufacturing industry went to China for pretty straightforward reasons.

• 1:13:21Speaker 01

  Costs.

• 1:13:22Speaker 02

  Exactly. It's very labor intensive and I guess raw material intensive and 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?

• 1:13:45Speaker 01

  Yeah, well, I'm not sure it's going. That's why I say I'm not sure the story is over yet.

• 1:13:50Speaker 02

  We're not eclipse, but like, but you know, a significant share of it has gone to China.

• 1:13:54Speaker 01

  I mean, China has a robust software industry. It just, they have, we have a two world, two internet world. And they have their, I don't know how well Stripe does in China, but I would guess not very well.

• 1:14:05Speaker 02

  We're not domestic.

• 1:14:06Speaker 01

  Yeah, okay, well, or Adobe, I'm on the board of that company and I can tell you they're de minimis sales in China.

• 1:14:13Speaker 02

  But a lot of usage.

• 1:14:14Speaker 01

  But well, and there are tools domestically that have been built around that that have their own economy. We could, that could be a state that this is driving into where there's sort of medicines that grow up in the world where we, 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 were deeply uncomfortable. In fact, they didn't even approve, they had rights to the biotech Pfizer vaccine for almost the entirety of their pandemic. They never approved it. Why?

• 1:14:55Speaker 01

  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.

• 1:15:25Speaker 02

  I don't know when exactly the generics industry 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 scrupleness 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 and 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.

• 1:16:09Speaker 02

  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

• 1:16:21Speaker 01

  Cipla.

• 1:16:21Speaker 02

  Yeah, for rampant fraud and falsification and abuse of the biosimilarity analyses and so forth. Which, obviously, is bad, but you, 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 kind of subjective version of

• 1:17:04Speaker 02

  that 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?

• 1:17:29Speaker 01

  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.

• 1:17:47Speaker 02

  I mean, you say the generic industry in the US. Do you mean those manufactured in the US or consumed in the US?

• 1:17:50Speaker 01

  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 like 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. There, I don't know any product you 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.

• 1:18:35Speaker 01

  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 have, 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 was expired, generics could enter freely and could get on the market.

• 1:19:22Speaker 01

  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, in a, 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.

• 1:20:06Speaker 01

  So you can do pretty simple laboratory experiments and absorption experiments in a small number of people. This is to do 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, 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 more, 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, in the prior iteration of that technology and our EPA,

• 1:20:50Speaker 01

  it became non-economic to make these medicines in the US, or Ireland for that matter. We, there are some Eastern European companies. There are some, 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 It's not the situation.

• 1:21:29Speaker 00

  So GLPs obviously were initially researched. The initial R and D was done for diabetes.

• 1:21:36Speaker 01

  Yes.

• 1:21:37Speaker 00

  And then it was noticed during the clinical trials that people were losing weight.

• 1:21:41Speaker 01

  Yes.

• 1:21:41Speaker 00

  And so now I think the big societal discussion, like Pat was talking about, the information is a Silicon Valley tech publication.

• 1:21:48Speaker 01

  Yeah.

• 1:21:48Speaker 00

  And they're on a survey about GLP-1s and half of readers of the information are on GLP-1s.

• 1:21:53Speaker 01

  In this part of the country.

• 1:21:55Speaker 00

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

• 1:21:56Speaker 01

  Yeah.

• 1:21:56Speaker 00

  Anyway, so there's the weight loss.

• 1:21:58Speaker 02

  But maybe in Silicon Valley is some kind of harbinger of things to come.

• 1:22:01Speaker 01

  Could be, potentially.

• 1:22:02Speaker 00

  Early adopters. So there's this big weight loss discussion and you know, that's the Ozempic is obviously, you know, different brand name for a different drug. But people are very familiar with this. 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.

• 1:22:29Speaker 01

  Yes.

• 1:22:30Speaker 00

  You lost weight. What do you think is going on there?

• 1:22:33Speaker 01

  Explain. So first of all, it's different from what you just described as this accident. Because actually we knew and we were involved with, we'd launched the first GLP-1 in the world.

• 1:22:42Speaker 00

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

• 1:22:45Speaker 01

  It's not totally rational, but, but I can tell you that because, so GLP-1 is, let's go all the way back. What, 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. It's not how we work. So, and it's back to this basic system of survival, which is nutrition.

• 1:23:07Speaker 00

  John's very aware of this.

• 1:23:08Speaker 01

  Nutrition.

• 1:23:09Speaker 00

  It's George Dorfstein.

• 1:23:09Speaker 01

  When you eat a meal, which hopefully we'll do later, our, our body, our gut actually communicates with our body, hey, food's on board. You don't have to eat as much, maybe you're, 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 I, if you feed someone an equivalent amount of pure sugar versus stick it in their veins or arteries.

• 1:23:47Speaker 00

  Hmm.

• 1:23:48Speaker 01

  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 terzepatide, which is zebrantinmuncharo. GLP makes up semaglutide, which is ozempic, and was also exendatide. 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. The longer-lasting action was the invention. Was the invention.

• 1:24:32Speaker 01

  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. In the, 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 memetic of human GLP-1. And he, 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

• 1:25:14Speaker 01

  who was one of the first patients with a quote, says, "My diabetes is under control and my patients 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.

• 1:25:58Speaker 01

  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, intrazepatide, 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,

• 1:26:43Speaker 01

  but now we worry about it, which are diabetes, type 2 diabetes, not the type 1 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 are more unrelated, but actually have a big, not a perfect Venn diagram, but close enough. One is like sleep apnea. It's like 70% of people with sleep apnea actually have overweight or obesity. Polycystic ovarian disease. 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,

• 1:27:28Speaker 01

  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 a 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 sixty, seventy percent. Why is that happening? It's dislocated from the drug effect.

• 1:28:09Speaker 01

  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 to the end of this year in chronic knee pain. It's going to work. And that's a weird thing is, wait a minute, GLP-1. But if you follow that logic train, it actually makes good sense.

• 1:28:39Speaker 00

  There's also inflammation causing the chronic knee pain.

• 1:28:41Speaker 01

  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 forty pounds extra every day, your knees will hurt more.

• 1:28:51Speaker 00

  So sorry.

• 1:28:51Speaker 01

  In the brain ones, sorry, yeah.

• 1:28:52Speaker 00

  So you're just saying that being over-sated causes inflammation, which then causes all these ostensibly unrelated downstream issues.

• 1:29:03Speaker 01

  And you see this in chronic inflammatory diseases. So think of, well, the signature one is a skin disease called hydranus supertiva, 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 our monoclonal antibodies you inject, and they cost four thousand dollars 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, TALTS and Zepbound. That will read out this fall. And I'm certain we'll show a boost in efficacy with the weight loss.

• 1:29:48Speaker 01

  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 RA. We have studies going in Crohn's and colitis as well. The brain stuff. Brains? Yeah, yeah. 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,

• 1:30:29Speaker 01

  which is what GLP-1 should be saying, or GIP, which is more of a lipid mechanism. It's just saying, you're satiated. Mm-hmm. That signal gets translated into down-regulating dopamine and the desire for dopamine. And so like cigarette smoking drops precipitously. The antihypertrophic effect, yeah. Yeah, right. And opioid use disorder will test alcohol drops precipitously. Shopping. Yeah, your cheeky pint. Exactly. You 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 brain, which may be related to this axis, or there's another theory of, which is sort of, I don't know, people out here like do podcasts about,

• 1:31:11Speaker 01

  hey, I take micro doses of Zepbound and I feel like I can code longer, or whatever, right? They're back to your pieces of experimental hacking your body. 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. Right. But they're actually, their brain, they feel their brain functioning in a sharper way.

• 1:31:53Speaker 01

  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.

• 1:32:22Speaker 02

  So neurodegenerative disease, Crohn's disease, psoriasis, cardiovascular disease.

• 1:32:26Speaker 01

  Joint disease.

• 1:32:27Speaker 02

  Joint disease, exactly, all the diseases. What fraction of the population, let's say the population over 35?

• 1:32:34Speaker 01

  Yes.

• 1:32:35Speaker 02

  Will be on a GLP-1 in 15 years?

• 1:32:40Speaker 01

  Well, today, in the US, we probably have 10 million people, maybe 12, if we include the compounded market, the non-approved drugs.

• 1:32:48Speaker 02

  Yeah.

• 1:32:52Speaker 02

  The official company line.

• 1:32:53Speaker 01

  Exactly, well, yeah. But it's really a fraction of the adult population. And even if you just take obesity, it should be 100 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 cost, 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 this, 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. It is, actually, the number one prescribed form of these medications is ZEP-bound self-buy.

• 1:33:32Speaker 01

  We sell more than that than our insured business on new patient starts and more than all of WeGo.

• 1:33:37Speaker 02

  That's very interesting.

• 1:33:38Speaker 01

  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.

• 1:34:22Speaker 01

  And we're only treating 10 or 12 million Americans, maybe 20, 30 globally. So to get to have a billion people globally, that's not the path. 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. 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 than that. 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.

• 1:35:03Speaker 01

  Well, you asked about consumer advertising and I think actually we, people hate the commercial part of our business. I have to admit, like sometimes I dislike it. When I'm, I never watch TV except when I'm traveling and I'll flip on CNBC in the morning while I'm getting ready. Especially on the West Coast because I'm up at like 6 or 5:30. And I'm like, are you kidding me? 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.

• 1:35:48Speaker 01

  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 a medicine promoted, it's half that. We have an internal goal to half 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. Alarms presumably help here. Could be, yeah. If we can get in the, if we can get through the, the problem of convoluting the facts.

• 1:36:27Speaker 02

  You need to have education seminars for the.

• 1:36:31Speaker 01

  If they weren't so trained on Reddit.

• 1:36:33Speaker 02

  Right.

• 1:36:33Speaker 01

  It might be a little better. Let's train them on the New England Journal of Medicine.

• 1:36:36Speaker 02

  Okay, you've mentioned Reddit and you just mentioned the microdosing of terzepotide in Silicon Valley.

• 1:36:43Speaker 01

  Yeah. Not recommending, not indicated.

• 1:36:46Speaker 02

  Understood. Yes. Do not ask your physician.

• 1:36:49Speaker 01

  Exactly.

• 1:36:51Speaker 02

  But my understanding is the avant-garde Silicon Valley denizens, you know, the frontier is really in Chinese peptides.

• 1:36:59Speaker 01

  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're get, you should be getting better nutrition through your food than through supplements anyway. And it's betted in the price at least. You may have to buy more expensive food.

• 1:37:39Speaker 01

  But that same tranche or the edge of that has 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 terzepotide 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.

• 1:38:22Speaker 01

  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 terzepatide, even though you can buy six different dosage forms to customize, they need a dose in between these six. Or, "Oh, the efficacy is boosted by vitamin XYZ."

• 1:39:05Speaker 01

  By the way, we recently sent to the FDA studies of these vitamin combinations that showed 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. And it's like, peptides USA, which is the opposite of what it is. 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.

• 1:39:49Speaker 00

  At some point through that process, you would suggest there are several clues as to how this deal advised it.

• 1:39:53Speaker 01

  Yeah, and it's not going to end well. And there are people who've had chronic kidney failure and liver, permanent liver damage, and I wouldn't do it. For 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. They're gonna, either through insurance coverage, which is expanding every day, or just through competition.

• 1:40:17Speaker 00

  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.

• 1:40:27Speaker 01

  Yes, here we are.

• 1:40:28Speaker 00

  We're working together on the Eli direct stuff. Maybe you can talk a bit about that.

• 1:40:32Speaker 01

  Yeah, so this, I mean, talk about accidental experiments. So this came out, back to the insulin story. I was, 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

• 1:40:50Speaker 02

  Oh, this is very inspiring.

• 1:40:51Speaker 01

  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 that 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,

• 1:41:34Speaker 01

  but in short form of like de-escalating this insulin bubble and getting to sort of true pricing being 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-priced insulin because they couldn't make enough money on it. So I just looked at them and I 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.

• 1:42:17Speaker 01

  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 has 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, to 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.

• 1:43:02Speaker 01

  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.

• 1:43:11Speaker 02

  And it's an interesting example of how across so many different sectors and, you know, across every company's scale and stage, there is this interesting way in which all these ostensibly different models and different businesses are discovering.

• 1:43:27Speaker 01

  They leap, right? They leap across.

• 1:43:28Speaker 02

  Well, they're discovering the value of having a direct relationship.

• 1:43:31Speaker 01

  Yeah.

• 1:43:32Speaker 02

  With the end customer.

• 1:43:33Speaker 01

  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 great, what? This is a great business, a very low-cost business, very low-cost route to market.

• 1:43:52Speaker 02

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

• 1:43:54Speaker 01

  Yeah, exactly. I'm sure you are. You had this insight even before me. And so, yeah, that, 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 have gone after this a lot sooner because it's 20% of the financial economy in the country.

• 1:44:15Speaker 02

  Well, I think this podcast makes clear that there are nuances to this sector.

• 1:44:19Speaker 01

  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, fintechy PBM. And we're switching all our lives and we want more transparency, better data reporting. And the interoperability problem 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,

• 1:45:04Speaker 01

  that's not so popular anymore and we can just intermediates them easily.

• 1:45:09Speaker 02

  We've been having this conversation for quite some time and we haven't asked you

• 1:45:13Speaker 01

  With one beer.

• 1:45:15Speaker 02

  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?

• 1:45:28Speaker 01

  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 in cycle of this invention. I think Wall Street believes to

• 1:45:44Speaker 02

  This being?

• 1:45:45Speaker 01

  GLP-1s, which is driving probably 80% of the economic value of the company. Our market cap is about

• 1:45:50Speaker 02

  You think Eli Lilly is a GLP-1 company with a

• 1:45:54Speaker 01

  Sidecar.

• 1:45:55Speaker 02

  Sidecar in some other

• 1:45:57Speaker 01

  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 has been $100 billion, $200 billion. We're trading about $800. And that difference is the GLP-1 phenomena. I think Wall Street also believes that our R and D productivity has been higher. So every dollar we put through the income statement for R and 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.

• 1:46:39Speaker 01

  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 the patent cycle, a franchise. 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.

• 1:47:24Speaker 01

  And I don't think the payment system is 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.

• 1:47:32Speaker 00

  You said GLP's are one of the biggest drivers of the business. Eli Lilly is growing at about 30% right now revenues.

• 1:47:38Speaker 01

  Forty year to date.

• 1:47:39Speaker 00

  Oh, my God.

• 1:47:40Speaker 01

  We'll have earnings on. Yeah, actually, there's three. Here's a fun fact. There's three scaled large cap companies that have a rule of 80. Can you name them?

• 1:47:51Speaker 00

  It strikes you pretty well, but Nvidia must be.

• 1:47:54Speaker 01

  Nvidia is the highest. I think they're over 90. Margin plus growth.

• 1:47:59Speaker 00

  Core Weave? Not, I think not. You're talking to the CEO of Eli Lilly, please.

• 1:48:05Speaker 01

  So top 100.

• 1:48:06Speaker 00

  Small caps out of here.

• 1:48:06Speaker 01

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

• 1:48:12Speaker 00

  Genentech?

• 1:48:13Speaker 01

  Broadcom.

• 1:48:14Speaker 00

  Of course, yeah, of course.

• 1:48:16Speaker 01

  So the hardware guys in AI 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 Terseptide's US patent is late 30s or for Gopron, 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.

• 1:48:41Speaker 00

  Well, I was gonna ask some questions about that. So first off, Novo is growing in the teens. Just for two companies with GLP offerings that are working. Why are those growth rates so different?

• 1:48:50Speaker 01

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

• 1:48:53Speaker 00

  Okay, so just your products working better.

• 1:48:54Speaker 01

  Right now in the US, across all forms of GLP-1, on new patient capture, we're basically 70, 75% right now. So almost, 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.

• 1:49:16Speaker 00

  What would you guess Eli Lilly's PE is?

• 1:49:19Speaker 01

  Forward P?

• 1:49:20Speaker 00

  I was using trailing, but.

• 1:49:24Speaker 01

  Fifteen?

• 1:49:25Speaker 00

  Fifty. And five zero.

• 1:49:27Speaker 01

  Oh my god.

• 1:49:27Speaker 00

  So what I was gonna ask is, you know, we're talking here about-

• 1:49:31Speaker 01

  The sector is like twelve. So, yeah.

• 1:49:34Speaker 00

  No, exactly. Yeah, you're correct.

• 1:49:35Speaker 01

  You're close.

• 1:49:36Speaker 00

  Yeah, yeah.

• 1:49:37Speaker 01

  It was a very good game.

• 1:49:38Speaker 00

  I was thinking high end of the sector. Your priors were good.

• 1:49:40Speaker 01

  Yeah.

• 1:49:41Speaker 00

  Because that is correct for the rest of it. But where I was going with this is, if you're just listening 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?

• 1:49:58Speaker 01

  Well, I think the track record of success. We've been on a growth curve for twelve 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 and D business. The, 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 gonna win. Policy, this and that, the commercial strategies, that's the twenty. The eighty is this. And I think we do three things better than others. One, we talked about already, which is cycle time.

• 1:50:39Speaker 00

  Mm-hmm.

• 1:50:40Speaker 01

  It's a basic concept, but if you can make software faster than someone else, you're gonna 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-

• 1:51:05Speaker 00

  That's in the pre-existing markets.

• 1:51:07Speaker 01

  Yeah. I mean, there's illnesses.

• 1:51:08Speaker 00

  Yeah.

• 1:51:09Speaker 01

  But they're not medicines. And I think a lot of companies don't work that way. They look at, okay, where's their payment? Where can I recoup my investment? Versus where's the, where's their problem? And maybe our situation allows us-

• 1:51:21Speaker 00

  Gentlemen at Nvidia talks about how he loves zero-dollar markets, and you're describing some of the same divisions.

• 1:51:27Speaker 01

  So, blue ocean things that are, you know, there's no limit to human disease. And actually, the longer we help people live, the more diseases there'll be. So in a way, it's like AI in that way, where it's like AI begets more AI. It's just this this growing machine. And then I think discipline of the allocation between the types of R and 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 it's 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.

• 1:52:12Speaker 01

  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.

• 1:52:28Speaker 02

  When people are debating drug pricing, and they debated 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.

• 1:52:48Speaker 01

  You'll never know. If it was too expensive.

• 1:52:51Speaker 02

  Exactly. Yes, and 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. Inasmuch 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 and D than it was in the past?

• 1:53:31Speaker 02

  Such a their estimate for the prospect of drug development and bounties of drug discovery over the next 10, 20, 30 years should be much larger than the pre-GLP-1 world.

• 1:53:44Speaker 01

  I think so, although we have to prove we can. So, we're gonna 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% to 25% of sales in R&D. That's sort of a good, a positive return R&D stack. And

• 1:54:02Speaker 02

  And you plan to

• 1:54:03Speaker 01

  We are doing that.

• 1:54:03Speaker 02

  Do that ratio as revenue.

• 1:54:05Speaker 01

  Yeah, and this year we'll sell 60-some-odd billion. So you can, that's how you get to the 14 billion, and next year that'll grow by

• 1:54:12Speaker 02

  Yeah.

• 1:54:12Speaker 01

  double digits. So, we should try.

• 1:54:15Speaker 02

  If revenue goes to 120, you know.

• 1:54:17Speaker 01

  I would try to spend 20% of that, 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're not, we don't know everything about every disease. We don't know everything about every modality. But for the diseases we know, the modality, we can fund more and pursue a healthy portion of these bigger bets on zero, 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 lifecycle, you get the final indication.

• 1:55:01Speaker 01

  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.

• 1:55:06Speaker 02

  Seriously, 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.

• 1:55:20Speaker 01

  They're paying for a medicine for someone else.

• 1:55:22Speaker 02

  You're saying that the purchase of this GLP-1 is also a kind of subsidy for cancer R&D.

• 1:55:27Speaker 01

  And I was just to add on the R&D. The other thing we're doing at some scale is actually trying to create an ecosystem around us of invention that we can aid, in a real way, not just own part of. We have lots of deployed corporate venture. But we've built these things called Catalyze 360 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 if, 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. Where often the entrepreneurs leave, we cultivate them and then maybe buy them if they're good.

• 1:56:10Speaker 01

  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 Toon Lab 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 and 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 of years, because our scale is getting to be bigger than anyone's ever done.

• 1:56:54Speaker 01

  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, for the, 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.

• 1:57:38Speaker 01

  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.

• 1:57:46Speaker 00

  Is it meaningful to talk about what fraction of R and D is towards specific treatments? Is like focused vertical R and D versus, I presume you do a lot of horizontal R and D?

• 1:57:56Speaker 01

  Yeah, platforms.

• 1:57:57Speaker 00

  Yeah, exactly, platforms. Because presumably it's even harder to reason about the platforms and the payoffs there.

• 1:58:01Speaker 01

  Well, there, that's, you need some scale. There's a lot of platform companies that get funded that are biotech.

• 1:58:06Speaker 00

  Yeah.

• 1:58:06Speaker 01

  Yeah. And they are usually exploring a new platform that's quite novel. 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 and 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, a new virology chemistry

• 1:58:51Speaker 01

  and small molecules. So we want to be there at the early stages because it is like catching a wave thing. If you're late, you miss it all. And so that's the 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 them, those targets with multiple ones of those tools and see if we can get a drug out of it.

• 1:59:34Speaker 01

  And sometimes we've actually come out with like a small molecule and an antibody and an sRNA, like we talked about LP little a 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 sRNA, they're both in phase three. 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. 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 what else?

• 2:00:13Speaker 00

  Last question.

• 2:00:15Speaker 00

  Eli Lilly is more than 100 years old and

• 2:00:17Speaker 01

  150 in May.

• 2:00:19Speaker 00

  Oh, wow. Okay, so you're 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?

• 2:00:40Speaker 01

  1996.

• 2:00:41Speaker 00

  Right, you joined in 1996, not as a hired CEO.

• 2:00:44Speaker 01

  No, I was a BD, M&A.

• 2:00:46Speaker 00

  Exactly.

• 2:00:47Speaker 01

  New hire.

• 2:00:47Speaker 00

  And you were rotated across, you know, the business. You ran China, you ran the US business.

• 2:00:51Speaker 01

  Development.

• 2:00:52Speaker 00

  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?

• 2:01:04Speaker 01

  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

• 2:01:46Speaker 01

  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 Pope's in that period of time. So it was 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.

• 2:02:13Speaker 00

  Really?

• 2:02:13Speaker 01

  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, there's not, one person cannot possibly really lead the whole thing.

• 2:02:27Speaker 00

  Yeah.

• 2:02:27Speaker 01

  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.

• 2:02:37Speaker 01

  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? Because there's so much to know. They know the domain. Yeah. They also know the human domain of how to solve problems without committees. And like, one of my things now is we grow so fast, is like, keep headcount flat.

• 2:03:03Speaker 01

  And that's, makes me very unpopular, because 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 and D as you grow the spend? Slightly, but it, so we're growing R and D, high teens, early, low twenties. We're growing headcount and R and D, single digits. So where does the money go? So the money goes to projects. Yeah, and salary. Trials and GPs. I believe in paying people well. Yeah, yeah, yeah. Yeah, so the salary, there's salary growth, but clinical trials, new equipment. Yeah. New laboratories, supercomputers from Nvidia. That's expensive. So, um, 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.

• 2:03:49Speaker 01

  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, because they came at it 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.

• 2:04:33Speaker 01

  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, whereas like, I never would have 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 touched 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.

• 2:05:02Speaker 00

  A lot of companies say they're long-term oriented, but I feel like this is a particular example of revealed preference.

• 2:05:08Speaker 01

  Yeah.

• 2:05:08Speaker 00

  David?

• 2:05:09Speaker 01

  Thank you.

• 2:05:10Speaker 00

  Awesome conversation.

• 2:05:10Speaker 01

  Thank you very much.