John Lechleiter has spent his entire 32-year career at Eli Lilly, and now he’s the CEO just as the company faces one of the bigger challenges in its history. Over a three-year stretch, Lilly will lose patent protection on five blockbuster drugs that generated $12.7 billion in sales last year—more than half of its revenues.
The pharma industry’s inability to produce a crop of innovative new medicines to replace the aging blockbusters is a well-worn narrative. But Lilly has taken heat for bucking a couple of popular coping strategies. One, it has resisted the urge to get tied up in a mega-merger like Pfizer/Wyeth, Merck/Schering-Plough, Roche/Genentech that often creates some kind of illusion of improved performance in the short term. Two, it has continued to ratchet up R&D spending to $4.9 billion last year even as other companies have turned to cost-cutting.
I met with Lechleiter to talk about the state of Lilly (NYSE: [[ticker:LLY]]) and the pharma business for about a half hour on Friday while he was in Seattle doing community outreach at the Washington Biotechnology & Biomedical Association’s annual meeting. We talked mostly about how pharma can get out of its current rut, and he was also willing to field a few questions that readers sent to me via Twitter.
It was a long conversation, so I’m breaking this into a special two-part edition of BioBeat. The second half of the chat will run tomorrow, featuring Lechleiter’s responses to the questions that readers relayed to me via Twitter.
Xconomy: You’ve made a decision to continue to invest in R&D at Lilly when a lot of other pharma companies are cutting back. Some on the Street are wondering why pharma companies are doing research at all, why not get out of that line of business? Give up, and in-license everything from biotech companies. Why continue doing research within Big Pharma?
John Lechleiter: I’ve been employed here 32 years, and we’ve been around 135 years as a company. Success has come, in general, from taking a long-term view. We invest in a steady and a patient way. We have a pipeline today of about 65 or so molecules, and most are coming from internal research. We work with partners, but it’s mainly driven by what I call our internal research engine. It’s the most exciting pipeline we’ve ever had. Many, but not all, of those pipeline molecules will mature into products. We’ve got to have the discipline and the courage to stay with that.
We can look back over the last 10 years and make a critique, whether it’s a Lilly critique or an industry-wide critique, which says we haven’t been as productive as we had hoped. But that doesn’t mean we should abandon ship. Industry always moves in cycles. Sometimes they are long cycles. Sometimes they are 10-year cycles. My own personal belief is that we are in a new era of higher research productivity. And that will be reflected in medicines that come out of our pipeline and other people’s pipelines.
The other thing is, new medicines just don’t grow on trees. There’s no universe of exciting molecules from “biotech” companies out there that are ready for the picking. If there was, you’d see even more deal activity than you currently see. Do we work with biotechs and academic institutions? Are we surveying that landscape? We are. But if I have to place a bet—and as a CEO you always have to place a bet—the bet I’m placing is that research efforts largely driven through our internal investment strategy, and working with partners around the world, is the best strategy for Lilly.
There’s no question we are focused on research productivity. I think we’ve achieved some pretty big gains. We are placing more than a dozen molecules a year, some years as high as 15-17 molecules, into clinical development. This is a huge step up from the kind of output we saw from our discovery efforts 10 years ago, and it augers well for the future.
X: But how many new FDA approved products have you introduced in the last, say, five years? Two?
JL: In the last five years, we haven’t had a lot. But in a period from 2002-2005, we
