Eli Lilly CEO: How GLP-1s Will Reshape America

Who gave you this intro? Did we give it to you?

Okay.

Yeah, sure. Well, this is an important year, as you said, we turned 150. It's a long time ago. Founded by a colonel from the Civil War who was a pharmacist. It was the fifth company he founded. The first four failed. I think that's an interesting lesson in entrepreneurship. But you know, he saw atrocities during the war, mostly the off-battlefield deaths from infections and terrible medical care, and he wanted to do something about it. So he created a company that would do something new for the first time. We would list the ingredients of every medicine on the bottle, which was a novel idea at the time, and then he signed every bottle himself, and that's like the signature of the company. That's the brand of the company now, was his signature. So the idea was quality and like transparency, and his first hire was a scientist. So it was kind of the first iteration of a modern pharma company a long, long time ago, before the FDA existed, etc. Along the way, you know, we reinvented ourselves many, many times. That's sort of how the business works. Every product we make goes off patent and goes to zero. So we have to keep inventing things to stay relevant. And there's been a lot of big inventions through history, including today, as you mentioned, with GLP-1 therapies, which are making the company famous again.

Yeah. Well, I tend to agree with you. I think it's a pretty profound thing that we could medically modify weight and obesity at a lot of scale. The drugs are unique in a few properties here. Scott, one is usually we get drugs that work on average, but they work for some people and not for others. That's sort of the more common pattern for medicine. But here, pretty much universally, products like Zepbound or our new oral, they work. People lose weight. Almost everybody who takes them loses weight. That's an interesting thing. And then of course people like to lose weight. That's another interesting thing. Most people, when you have a chronic disease and your doctor gives you a medication, you take it, you feel a little bit worse and you definitely feel a little poorer, but you don't feel any different. You're told that you're mitigating some long-term thing. But with these drugs, of course, they change your chronic disease risk, or they actually change the chronic disease if you have a comorbidity. But people also like being on them. I think that's a very different property than we're used to seeing. Those things all combined, and the fact that obesity is kind of like a nodal health condition for more than 200 chronic diseases, I think gives us a shot. If we can make enough and get them to people through the channels of healthcare, which we could talk about, which are deeply broken, then you know, we can make a huge difference in longevity, life expectancy, and suffering.

Yeah, I think, you know, there's probably a lot of ways to reduce the deficit. We could talk about that, but I think you have to make a difference in entitlement programs. Of course, changing the Social Security construct is super difficult and hard to imagine. Changing the costs of Medicare and Medicaid can't happen without changing the obesity rates. I think that's roughly right because of the downstream chronic diseases, which are now 80% of all healthcare costs. And the data we use is that about a third of all healthcare is obesity-related. So $1.4 trillion a year. That's about the size of the Defense Department proposal that Trump just put in, and nobody likes. So could you make it zero? I don't know. That'll take a lot of time, but we certainly should start mitigating it. And the medicines themselves are quite a bit cheaper than treating the disease. I think that's been demonstrated.

Yeah. Well, I mean, obesity is sort of upstream of a lot of things. What are those things we think about? You know, obvious, like first-order effects, like your metabolic health, diabetes, your cardiovascular health. These are not new ideas using incretins. By the way, GLP-1 is one of many words we're going to learn in a family of these proteins that your gut signals your body about being fed. We're going to exploit more of them, including double, triple, and quadruple-acting ones. But anyway, that family of hormones, of course, affects metabolic factors like how you metabolize fat and how you process sugar. The second thing, which is interesting, is inflammation. So you could also say, in addition to obesity, America is in an inflammatory crisis. If we look at asthma, if we look at psoriasis, if you look at arthritis, I mean, these are chronic inflammatory conditions. And it turns out that obesity and inflammation are close travelers. And we have now done studies, including with our most powerful medicine, which we hope to launch next year, the triple-acting retatrutide, that basically demonstrated that for knee pain, a common form of arthritis, it was the most powerful pain-reducing agent ever tested pharmacologically. And so that's quite interesting because you think of all the people we know in our lives who have pain, back pain, etc., and might also be overweight, that that's a very interesting target. And then there's these kind of third-level or two-step-away things that are hard to explain fully biologically today, but we know are there. You know, we observe in trials addiction and kind of the consumption of like hedonic activity and substances, smoking, gambling, online shopping are mitigated. They're not eliminated, which is an interesting thing, but they're reduced. And that occurred spontaneously when Novo Nordisk and Lilly were doing studies, and now we're actually studying it prospectively. I think obviously if we could get rid of those kinds of people with the extreme form of those vices, that's going to be a good thing for society and healthcare costs. And then, you know, I think the final one is cancer, which is, there's some publications recently that are observational. These are going to be very difficult studies to kind of do prospectively in a double-blinded way because they will take a very long time. But it also turns out being obese for several types of cancer really increases your risk. Colorectal cancer, breast cancer in particular. And now they've looked backwards and said it turns out people who've been using GLP-1 drugs for treating their diabetes for five or six years seem to have lower rates of cancer. So that's another extremely positive spillover effect.

Yeah. I mean, alcohol is the one everyone reports anecdotally because unlike smoking now in America, for good reason, you know, there's a lot more adults who drink, even casually or socially, and certainly a few that drink, you know, in an addictive way. These people happen to have landed on GLP-1 drugs like Zepbound and Mounjaro, and they report that they just consume less. We've now studied this again, observing their behavior, and it's true, they have fewer drinks. We've done a pilot study, like a phase two study it's called, with several hundred people with one of our pipeline medicines, and yeah, reduced consumption daily of alcohol. Why is it doing this? I think, you know, alcohol is a very close chemical structure to glucose, to sugar. It is a sugar. And probably for the same reason these drugs signal your brain and turn off the desire for nutrients, they do the same for alcohol. And it doesn't, I think people worry that this is also like a joy kill switch on joy, and we could talk about that too. That's not actually what we observe in the data. I think most people have fewer drinks. They just find less pleasure in having one more, if I can put it that way. And so they don't. And at the end of the day, you know, we've learned also, you know, alcohol is not that great for you. So it might be nice to have a glass of wine, but do you need five? And it seems like these drugs curb the desire for the second and third glass. So, yeah, that's a good thing. Well, we're pursuing a medicine called bimagrumab in phase three right now, which will seek to get indicated for alcohol use disorder. Is that a bigger market than obesity? I doubt that. I don't know who said that. I think there are people who do want to drink less. More likely this makes a big impact on the, you know, cost of treatment in our country, and maybe even preventing more people from being alcoholics, because hopefully we'll have so many people on the medicines for treating other chronic diseases or preventing chronic diseases that's ahead of us. But that's something we could look forward to.

Yeah, I don't see them as opposing. So just to ground in fact, it is true, I think the list price of the highest-priced form of Zepbound and Mounjaro is $1,086. So $1,086, that's the list price. Almost nobody pays that. Actually, pretty much nobody pays that. We have lowered, and Lilly launched this program called LillyDirect almost two years ago, which basically, the healthcare system, without going down a rabbit hole unless you want to, you know, is this system where the biggest actors get the lowest price and the individuals pay the most. It's a totally regressive pricing model, and typically the individuals who have to go outside the system to buy themselves have the lowest quality insurance for a reason. It's because their job is not supporting high-quality insurance, or they don't have a job at all. So, you know, to address that, we created this direct model where we just said consumers can buy from the company, skip the healthcare system, normal channels, these pharmacy benefit managers and retail pharmacy, and we'll offer you the same price we offer the biggest players. So that price has been falling because those big players negotiate with us. So now it's $399 kind of maximum for Zepbound. It's come down 60% since we launched. And Fondeo, the oral one we just launched, starts at $159 and goes up to $349. So the prices are falling kind of markedly, and I suspect that will continue due to competition and due to capacity. When we launched these drugs, you may have read, we ran out. There were shortages. It wasn't that we stopped shipping. There was just more demand than supply. We've invested a lot to fix that, about $50 billion in new factories in the US, some of which are online, some which will continue to come online in the next couple years. We shouldn't have a supply problem anymore, so that will allow prices to fall. And then, you know, the other thing in this conflict narrative, which is generally true for pharma, which is broadly criticized for high prices, but typically for like a, I don't know, breakthrough cancer medication or something, for a severe condition, you know, prices are pretty inelastic. People have to buy. And so there is this sort of conflict that sets up. It's interesting in this category we observe something pretty different, that prices are pretty elastic, that the more we lower the price, the more users we get, and it's not one-to-one. We tend to have done a little bit better by lowering the price. So that's the path we're on, and that's what we want to do. Of course, the alignment in the other decision makers in healthcare isn't perfect. You know, like let's just take state Medicaid. You raised this point. The largest obese population or percent of the total population is in Mississippi. 78, 79% of adults are obese, and they also have the highest Medicaid enrollment, and they're one of the poorest states in the country. But we just managed to cut a deal with them to provide our products in their Medicaid program. I think that's going to have a profound impact on the health status of Mississippi. And yes, we lowered the price, and they found money in the state budget, and they bought into a business case that said, okay, within a couple years we should start to see a return on this, lower hospital costs, etc. We need to get through that, and I think because of the history of the industry, which is more, I would say, extractive on pricing, as you're pointing out, I think there's a trust gap with some of these players. You know, we've got work to do, no doubt. One big group that's going to turn on July 1st, that I think is a seminal date here, is the Medicare population. So starting July 1st, for $50 out of pocket a month, every senior in America can buy our medicine for $50 a month. That's going to change accessibility for 70 million people very quickly. That'll be interesting to watch as well and make a big difference. But we're not done. We've got to keep working this. But I actually think there's a lot more alignment than what you portrayed in your question, especially with this category. And we're happy to be the one that, you know, makes enough to supply that market. And if the price comes down another 50% and we sell two and a half times more, we're happy. Our job isn't to maximize price. It's to drive return. And here there's a big volume opportunity.

Yeah. Okay, there's a lot to unpack here. Well, okay, let's just start with the science. What is a peptide? A peptide is a chain of amino acids that occurs, you know, in nature. You can also synthetically make these chains. If you have a longer chain, we also call it a protein. The lexicon is interesting because the word peptide in our business is like, you know, the next word you might say is chemical. Like it's a very generic term for something nature uses to signal and do its work. There's nothing special about that word. And it's been resurrected more recently because online marketing has made it sound like there's some extra special thing to using that word. And I find it fascinating that now you see like Chinese peptides, like that's a good thing. I don't think that's a good thing. Mostly I call these unstudied medicines. That's sort of the best way to put it. Some are naturally occurring substances that people have identified and isolated and are selling as sort of quasi-medicine without clinical trials or safety data, certainly without an FDA approval. I think we have the FDA for a reason. Back to the origin story of Lilly, like what's in it and what does it do? That's sort of why we started the company 150 years ago. We don't know the answer to any of those questions when you buy peptides online. So we're not a big fan of this kind of, you know, air-quote peptide business. We're actually in the real peptide business. You know, tirzepatide, the ingredient of Mounjaro and Zepbound, is a peptide, but we engineered it to do something very specific. We spent billions of dollars to study its safety in animals and pre-clinical models, then humans. Then we proved its efficacy. Then we went to regulators around the world and got it approved.

Third parties agree with our data, and now we monitor safety very carefully. And if you have an adverse event, we report it publicly. We're transparent about that. So, you know, these people involved in this business are mostly buying, you know, unproven things and selling them to individuals online. They don't bear any of those responsibilities, and I don't think it's a very good idea, to be honest. Now, some of them could turn out to do something. A number of the popular ones claim to be like mimetics of the human growth hormone. I'm not sure taking that chronically is a great idea, to be honest. Growth hormone is, you know, pro-tumor growth as well. So I'd be concerned about that. And then some of them also, you know, have some sort of magic elixir properties, unproven and unpublished.

But you know, just stepping back, maybe, and just—I don't know if you want to get into this—but like, how do people feel about health care right now? I think it's sort of the COVID crisis and this phenomenon are sort of two sides of the same coin. People feel—I mean, health care is pretty much one of the worst consumer experiences we all have, right? We go somewhere, no one can tell you the price. You got to wait in line. You're treated pretty shabbily, and there's all this information asymmetry. So you can't—you don't feel informed to make decisions economically or for your own health. And there's something appealing to people with sort of either rejecting recommendations of authority or taking your own agency and going online, saying, 'I'm going to take control of my own health.' The problem here is people don't have biochemistry laboratories in their basement. They can't validate what they're reading online. They use these N-of-one anecdotes to say, 'Oh, it helped me.' That's not science. That's not—I mean, we know there's problems with relying on that to make decisions. So we need oversight of this to protect consumers. At the same time, I think we have to recognize the current system does a pretty terrible job of meeting people's needs—at least in this feeling of like control, financial and kind of health control—and I think people are reacting to that. That's why there's this booming business.

Yeah, it's a great question. I mean, I think these competitors, these companies you mentioned, they basically try to do the same thing we do. I think there's like three differences at Lilly that have allowed this bet to pay off. And people always ask me, like, with Mounjaro and Zepbound, when did you know this was going to be a big, big drug? My answer always surprises people because, like, in 2018—so that's one thing, Scott, which is pattern recognition and sort of the, you know, Wall Street terms, capital allocation—where do you place your bets? And I think we have a little different point of view than most companies about this. Now, all those names you're mentioning are buying up GLP-1 agonists and trying to follow us into this mega market. Of course, we're, you know, trying to extend our lead, but we're spending a lot more time on other markets. Now, why? Because by the time a medicine market is big, it's basically too late to invest. That's our point of view. Maybe we're wrong about that, but in this case, we were right. I can guarantee you in 2018, nobody was talking about the obesity market. No one was even investing in it, really. It was considered a non-market. And the history of the weight-loss drugs like fen-phen and these earlier drugs, which were withdrawn, was not a good one. But we made the bet because we saw profound biology. So that's point number one: is like, what is the science telling you? Two is, you know, are we working in areas that are very common? And here, like Lilly, is sort of at the time—and maybe now even more so—cuts against the general thesis of the industry, which is to focus on price maximization and serving, you know, really difficult diseases, but maybe diseases that only have a few patients. There was a big theme on that for the last 15 years in medicine, for some good reasons. But I think we're more attracted to, you know, the 'millions and billions served' idea. I think that's the, you know, doing things at scale is hard, and that's what a Lilly is for. We're a big company. We should go after those problems. The second thing is speed. So very early in my tenure, we undertook a series of programs to really change the clock speed of R&D. One of the reasons why that capital—the first point—is true is that everyone has patent lives. So a patent in the United States is 20 years long. When I began at Lilly, it was taking us 11 years to go from invention to the market, which means it took more time to get to the market than the time you had on your patent in total, which was a kind of a nutty setup. The whole industry was a little bit better than Lilly at the time. Well, we've now chopped five years out of our cycle time, and the rest of the industry is about the same. So we can start an idea later and beat people to market, or we can start at the same time and beat them profoundly. That gives you more time in market with patent protection. It gives you more time to exploit new uses of existing drugs, and of course to give return to shareholders. But by the time those patents expire, basically things go to zero. So like, Mounjaro in 2031 or 2032, their patent will expire in the US, and people will be able to buy this not for $300 a month, but for like $60 a month. That's what's going to happen because all the R&D costs no longer need to be amortized, and it becomes a commodity business. So in our business, you have to outrun not only your own patents, but everyone else's. And when a breakthrough like Mounjaro or Zepbound goes generic, all these followers are going to find it hard to differentiate their drug against something much, much cheaper. So you have to keep raising that bar, and then at some point you can't raise it anymore. But anyway, speed is valuable. Making good choices, of course, is valuable. And then the final is just execution. You know, Lilly is, I think, the only scaled drug company that's really never had a major merger. We have a very singular culture that starts with that origin story we talked about earlier. We're kind of based where no one else is. It's a little weird to some people on the coast that the most valuable biotech company in the world is in Indiana. That seems like something that shouldn't be true, but our isolation kind of helps us some. We don't have a lot of turnover. When we are lined up behind something, we can really execute well as a team, and we do have sort of a shared Midwest nice culture, but also a size of the company. We have less than 50,000 employees, where everyone at the leadership level, anyway, knows each other, and we can solve problems without having committee meetings. And I think that's been a benefit to the company as well.