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

• John You spend more on medical R&D than Germany does. David (00:00:00): Yeah, we're at the nation state level. It'll be $14 billion this year. Can you imagine this? We go to a restaurant tonight, and a bottle of, like a hundred dollar Napa cabernet is like $14,000. But then the waiter says, “Don't worry, that's not your copay.” I have at least one or two AIs running every minute of every meeting I'm in, and I just am asking it science questions. Patrick (00:00:23): Which one do you use for science? David (00:00:24): Either Claude or the xAI. John (00:00:27): How did you get the average caloric consumption per day in America? David 3,600 calories. John Yeah. Isn’t that incredible? David (00:00:34): I'm the 11th CEO of the company. That's one less than popes in that period of time. John Where did you learn to pour? David I actually learned in Ireland. Okay. Do you want me to leave it down? John You're the expert. Talk to me this way. Patrick That's an excellent pint. John (00:00:54): Dave Ricks is CEO of Eli Lilly, which is now a $700 billion company and the world's most valuable pharma company. Eli Lilly is 150 years old. They grew up as the first company to mass produce insulin in the 20th century. But today, most of the company's business is in the new GLP-1diabetes and weight loss drugs where they've become the market leader. Simultaneously, Eli Lilly is upending the traditional model by selling directly to their consumers over the internet with LillyDirect, rather than through the traditional middleman. John (00:01:22): Alright. Cheers. David Cheers. Patrick Cheers. John I'm very impressed that you came and you just poured your own pour pint. David Have glass, will pour. John (00:01:31): Exactly. Well, actually a good place to start: tell us about your NVIDIA announcement that you just had. David (00:01:36): Yeah, so today at the—what's it called—GTC Conference, they have unveiled that we're well underway actually, and 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 has done with B300's latest chip set and yeah, we're only constrained by power like everyone else. But yeah, we've built a bunch of tools, we'll run them on that. Scientists use it to sort of invent, co-develop— focus mostly on chemistry to begin with, but we'll expand from there. Patrick (00:02:16): And so is the idea here you have some target, you've had some challenges actually drugging it and so you give it to one of these new chemistry models and you ask it whether it can come up with something totally orthogonal beyond what a human might have tried? David (00:02:31): Correct. So take a really good, popular example like GLP-1. So that's a hormone peptide that we all excrete. It engages targets that are what we call G-protein-coupled receptors. So they're hard to drug targets on the outside of cells. And to try to mimic a big huge protein with a very small chemical is a complicated undertaking, and by the way, do only that and not other things that are untoward. And so this is sort of a frontier of drug discovery that's been tough and very empirical. That's a hot area for this kind of technology because these strange arrangements of atoms don't look like other drugs that have come before, but they do follow the principles of organic chemistry and seem to engage these targets effectively. I don't know of one that's come through the machine-driven discovery process, which is really machine plus human that's made it to the clinic yet, but they're coming. And I think that's exciting because those have been structures that are, they don't exist in nature and yet the machines are alien and they can predict these interactions. Patrick (00:03:39): 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, whereas 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 human toxicity. And again, at least so far, AI has not been all that helpful at that step. Patrick (00:04:11): Do you agree with him or is he overrating these particular challenges and maybe underrating the challenges that AI does help solve or thoughts in that argument? David (00:04:20): 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 is not going to be good at all until we get way above 50%. That probably requires robotic 24/7 experiments just to create training data sets and this kind of big lift effort, the kind of thing actually NIH should be doing right now, I would think. But that effort's not ongoing, at least in our country. But I think if that gets going, I think we'll know more and the machines get better at the harder big problems system prediction. John (00:05:08): Patrick and I did not—just didn't finish any college. So not only don't have formal training in computer science, but don't do 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 the stuff? Especially as you're essentially making science decisions at the end of the day with the top level capital allocation decisions, just how do you learn? David (00:05:32): 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. John Read what? David I read a lot of medical journals. I go to conferences where data is presented. I spend time with our scientists to stay curious. Yeah, now I have at least one or two AIs running every minute of every meeting I'm in, and I just am asking science questions. John (00:05:55): So you found for your learning ChatGPT or whatever your— David (00:05:58): I don't use that one for science actually, it’s too verbal. Patrick (00:06:02): So which one do you use for science? David (00:06:03): I tend to use either Claude or the xAI one. I find it more terse and the references actually check out more often. Sometimes the AIs produce references and they're actually not the thing that it said and that takes too much work to go cross reference. John (00:06:21): So for an autodidact, presumably the emergence of LLMs has been transformative for you? David (00:06:27): Well I think for learning, that's a whole other topic we could talk about, but you have to sort of question the pedagogical kind of method, period. If you can just learn continuously. John It's mastery learning for everyone. David Yeah, yeah, exactly. So you take advantage of that. But early in my career I started in our business development M&A group and I spent my whole time as a scientist looking at little companies and projects and other companies and trying to understand what they were worth. Well, then you have to understand what they do, and I found that part of the industry—I didn't expect that when I came to Lilly. I came to the company accidentally, by the way. But when I found that I was like, wow, I loved it. This is so interesting. And then I had a moment where one of the projects I worked on became a medicine in the US and my mother was diagnosed with a condition and she got put on it, and so then that's the magic. It's like okay, you can work on things that change people but the people you care about that's— Patrick (00:07:18): You saw the full end to end impact. David (00:07:20): Exactly. From the lab… Exactly. John (00:07:24): You have four big decisions a year that are 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 you Billy Beane where it's a Moneyball type, the ROI pencils and— David (00:07:39): I think the system does a lot of the Billy Beane. I think that's a change at Lilly that's made us more successful. I think we've actually put together a decision process that's quite a bit more rigorous than it used to be and that leads to fewer bad decisions. That's good. So that's sort of like the bumpers on the bowling alley that you put up. But then within that, whether it's a strike or a single pin, that's a little bit of the judgment and taste and there though, 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 never decide in one meeting. So you're asking about the day, but we come back to it, think about what others said and kind of push it again. Patrick (00:08:24): And are you deciding? David (00:08:26): 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&D, I think more than any other sector in percent of revenue. We'll spend almost 25% of sales this year on R&D. John (00:08:48): I liked your way of putting it, that you spend more on medical R&D than Germany does. David (00:08:53): Yes. Yeah, we're at the nation state level. It'll be $14 billion this year total. The total of NIH, which is the biggest thing on earth that spends money on, is 40. So it's getting close. 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, 4 billion to make, more than 60% of that is the last step. So that call is the big one. The earlier ones—there are a lot of small things that add up. You can waste a lot of money if you do that poorly, but there's a portfolio, so that's unlikely. But usually we're carrying five to 10 projects in the latest phase and those are— Patrick (00:09:35): The phase three trial phase? That's the question. David (00:09:38): 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 is going to be burning a billion plus a year, so it's a big investment per program. Yeah, and of course the returns on most drugs that make it through that are not positive. So, it's not just can you get through that, but will you produce something useful enough to create excess value for society but also the company to keep the whole thing running. That's the exercise. Patrick (00:10:11): 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— David “How could this be?” Yes, that's a great question. Patrick I looked at the numbers. So, apparently the median clinical trial enrollee now costs $40,000. 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? David (00:10:50): 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 we have taken a systems approach and I think one of the reasons Lilly has probably the highest return on investment in R&D in the industry is because—not the picking of winners and losers—but actually the process by which we run it. I think that's at least as valuable as what we've done and we can come back to that if you want. But the piece we have really not moved is the enrollment of clinical trials. This is going to sound super arcane when I go through it and the cost, which is escalating about seven, 8%. That's over the last decade. That's about the same as the healthcare system and that's not an accident. When people go, “Why does a trial cost so much?” Well, we're taking the sickest slice of the healthcare system that are costing the most. And we're ingesting them. We're taking them out of the healthcare system and putting them in a clinical trial. Typically we pay for all care. So we are literally running the healthcare system for those individuals and that is in some ways for control, because you want to have the best standard of care so your experiment is properly conducted and it's not just left to the whims of hundreds of individual doctors and people in Ireland versus the US getting different background therapies. So you standardize that, that costs money because sort of leveling up a lot of things, but then also in some ways you're paying a premium to both get the treating physicians and have great care to get the patient. We don't offer them remuneration, but they get great care and 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. Patrick (00:12:51): 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? David (00:13:02): The patient part is the level up part and I would say 20, 30% of the cost of studies typically would be this. So you're buying the best standard of care, you're not getting something less. That's medicine costs, you're getting more testing, you're getting more visits, and then there is a premium that goes to institutions, not usually to the physician, the institution to pay for the time of everybody involved in it plus something. We read a lot about it in the NIH cuts, the 60% Harvard markup or whatever. There's something like that in all clinical trials too. Overhead coverage, whatnot. But it's paying for things that aren't in the trial. Patrick (00:13:40): US healthcare is famously the most expensive in the world. Yes. Do you run trials outside the US? David (00:13:44): Yeah, actually most. I mean we want to actually do more in the US. This is a problem I think for our country. Take cancer care where you think, okay, what's the one thing the US system's really good at? 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, “Do I want to do something where there's extra visits and travel time?” There's another problem in the US which is, we have really good standards of care but also quite different performing systems and we often want to place our trials in the best performing systems that are famous, like MD Anderson or the Brigham. And those are the most congested with trials and therefore they're the slowest and most expensive. So there's a bit of a competition for place that goes on as well. But overall, I would say in our diabetes and cardiovascular trials, many, many more patients are in our trials outside the US than in and that really shouldn't be other than cost of the system. And to some degree the tuning of the system, like I mentioned with Spain and Australia toward doing more clinical trials. For instance, here in the US, everywhere you get ethics clearance, we call it IRB. The US has a decentralized system, so you have to go to every system you're doing a study in. Some countries like Australia have a single system, so you just have one stop and then the whole country is available to recruit those types of things. Patrick (00:15:31): You said you want to talk about enrollment? David (00:15:32): Yeah, yeah. It's fascinating. So drug development time in the industry is about 10 years in the clinic, a little less right now. We're running a little less than seven at Lilly, so that's the optimization I spoke about. But actually, half of that seven is we have a protocol open, that means it's an experiment we want to run. We have sites trained, they're waiting for patients to walk in their door and to propose, “Would you like to be in the study?” But we don't have enough people in the study. So you're in the serial process, diffuse serial process, waiting for people to show up. You think, “Wow, that seems like we could do better than that. If Taylor Swift can sell at a concert in a few seconds, why can't I fill an Alzheimer's study? There seem to be lots of patients.” But that's healthcare. It's very tough. We've done some interesting things recently to work around that. One thing that's an idea that partially works now is culling existing databases and contacting patients. Patrick (00:16:27): Proactive outreach. David (00:16:28): Where you have their lab values,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. A lot of people have had it tested and it's high. You could say, “Hey, you're high, would you like to do something now?” But there's still a lot to be done there and the data is sitting in electronic health records and 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 that physicians and their institution may not be in the trial or they might not be interested in spending much time on this — Patrick (00:17:06): People, 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 participate in this trial. You can include whatever disclosures and some nice person will come every month or whatever and take— David (00:17:29): Or just telephonically. Patrick (00:17:31): Take my vitals, exactly, measure my blood pressure and what have you. Are all these intermediaries in the systems, in the hospitals and so forth, are they required intrinsically for the kinds of trials you want to run? Obviously it varies a little bit on the condition of the drug. David It depends on the disease. Patrick 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”? David (00:17:54): 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 now. We've treated people, actually no one's left on treatment. We're just watching them now because treatment's a nine month course to deplete amyloid and see if that can prevent the symptoms. So that was a very successful trial. Just what you said, they got instructions to be in the study. There was a televisit, they got some diagnostic tests, blood based, that went in and said, “Okay, this is 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 could be enrolled in the study.” Pretty successful. So we'd like to replicate that. I think one very interesting thing in the future of medicine is that, I think we will have a lot more preventative medicines in the future. And I think this type of study in particular is well suited to prevention. Because you have sort of the people who are worried about their wellness, so they're motivated, they have means they're in the middle of their life, they're working, they don't have complications of comorbidities and so forth. They want to be in the study and I think they would like to prevent terrible conditions like Alzheimer's. So that's an exciting new chapter we can push. Patrick (00:19:23): So you know Paul Janssen? David (00:19:25): Yeah. Patrick (00:19:25): Yeah. John (00:19:26): Explain who Paul Janssen is. Come on. Patrick (00:19:28): Paul Janssen, as I understand it, was behind the discovery, invention, what have you, of more medications than any other single— David (00:19:35): I think a Belgian guy. Patrick (00:19:37): Exactly, yes. David He invented a number of— Patrick Seventy nine or 80 approvement— John The MVP of medicine. Patrick Michael Jordan. David (00:19:43): Beyond the MVP. Patrick (00:19:44): 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—” John (00:20:00): “But that's how it's going to be.” Patrick (00:20:01): But that's how it's got to be if they think it can be otherwise, you might think that they're naive. There's a video interview with Janssen from, I think it's from the nineties—it's quite a while ago, he's dead now—where he's recounting the history of his career. He started the company in 1953. Paul Janssen [video clip] Nowadays, it would probably be very unlikely, though not necessarily impossible. Interviewer [video clip] Due to financial reasons or other implications? Paul Janssen [video clip] 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 or 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.” It has a lot to do with development and very little to do with research. Interviewer [video clip] So you are saying it could take less than 12 years? Paul Janssen [video clip] Of course it can, that is self-evident. Patrick (00:21:27): We could go back to doing it the way we used to and it's a societal choice to make it so bureaucratic. David (00:21:33): I guess it is 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 or indirectly to say, “Oh no, let's require more information or rebalance the risk benefit.” Patrick (00:22:21): We've had this ratchet, how have we gone too far? David (00:22:23): 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 2000-aughts 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 in product liability suits, only to find later under a different analysis that there was nothing to be seen there. Both of them. And I think there's 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 Avandia one we know well we worked in diabetes, actually caused a policy change. The policy change was you must rule out cardiovascular risk prior to market entry. And as you may know, some conditions like diabetes have a more continuous variable you're measuring, and so studies can be short and cheaper—glucose levels. Other studies, like cardiovascular event studies, are not a continuous variable. It's a binary variable and you have to wait for natural history to occur, to pile up enough variables to have a statistical difference. Those are four to five year undertakings. So there you just bought four or five years of extra time before you could get any new diabetes medication. We got better at doing them, but that was expensive. Now 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 regulations are added but never taken away. So the regulation is still there. Now by half the accident, we are all now really pleased with incretins like our tirzepatide to run them because they frequently demonstrate massive benefit on cardiovascular. And in some ways, it creates a barrier to entry for the next low-cost Chinese program or whatever. It's this big expensive thing you have to do. Patrick (00:24:38): As with any regulatory— David (00:24:39): 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 going to ask. John (00:25:01): Yeah, let's talk about that because 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 created this challenge for reimbursement where 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? David (00:25:34): Yeah. Well in the obesity case, I'll take a little bit of issue with your first assertion and then add two other problems. The data actually is becoming more clear that within a two year timeframe—and I hope at Stripe, you reimburse these medicines for your employees—within two years can break even basically on total medical costs. So there's this group called ICER, which is funded by someone who hates our industry and the insurance companies, and they analyze all new drugs. And usually, seeking to prove that they're not worth it. That's sort of their mission in life. They just analyzed our medicine, tirzepatide and semaglutide, and they said actually they're both cost effective at current pricing. In fact, Zepbound, or tirzepatide, was—the threshold they have is to save a hundred thousand dollars per person per year in downstream health costs and it was twice as effective as that at the current pricing. And the current pricing isn't going to stay, let's be honest, there'll be more competition. The government wants to lower our prices, so I think we're in a good place there. Now the two other problems are that 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 the standard of care, but displacing that in most therapeutic spaces and in the healthcare system in general is extremely difficult. I think we suffer from that here. If the first medicine we had to treat metabolic conditions was tirzepatide in 1972, I have no doubt it would be reimbursed everywhere and broadly used in the system. John (00:27:06): But they get the ratcheting effects. David (00:27:07): They 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 big insurers. I think the other thing that's going on with this one, and why we're spending so much energy exploring real indications for comorbid diseases that go with obesity, which is so far pretty successful, is that the idea of just treating someone who's overweight or obese without any other illness to many people, I think, exposes a bias we have about that particular condition. That if it wasn't something you could see, you might not have. But I think we are conditioned to think of someone who's overweight as someone who's not disciplined. The data does not show that, actually. Our ancestors roaming the planes or 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 today in today's environment, we're in the flip, the complete flip, especially here in the US where there's food everywhere we walk. John (00:28:23): I came across your stash. What would you guess the average caloric consumption per day in America is? David (00:28:30): 3,600 calories. John (00:28:31): Yeah, isn’t that incredible? David (00:28:33): And here's an interesting stat: when you're on our medicine, how many fewer calories do you consume on average? John On one of the GLP ones? Patrick You don't need to swing it that much to cause meaningful— David 800 calories a day, it's 800, which is almost a meal. If you go pull up to In-N-Out Burger—, John That's second breakfast right there. David Second breakfast, exactly. So that's why people lose weight so successfully. Patrick No wonder all the food companies are so worried. David And the trick is, people lose the weight and they don't feel miserable. So here's the thing about being obese. When you start to gain a little bit of weight, your set point sort of readjusts, this is the missing code we have. And there's only one direction, which is, “up is better” and the more “up” you have actually the more hunger it creates. Hyperinsulinemia, which is a hunger stimulating hormone and it sort of starts to overwhelm the counterregulatory system, which is incretins, GLP-1, GIP, the ones we are making medicines around. And you're out of balance and there's no going back. And interestingly, even when people lose weight, that balance still seems to be off, which is why if you've ever gone on a crash diet, you feel like shit constantly. You want to hurt people, you're angry. And on these medicines that doesn't happen, which is the miracle and people feel good and lose weight. Patrick (00:29:51): If you have a medicine that is recurring and it presents some 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. David (00:30:11): Yeah, one and done. Patrick (00:30:12): Exactly. Is it in practice possible to charge enough upfront such that as a company looking at its portfolio— John (00:30:21): It pays back the R&D? Patrick (00:30:22): Yeah, you are in fact neutral as to which it is because from first principles for the patient it's way better to do. David (00:30:28): I think you asked about a value perception problem and I think we need to overcome that. We're doing that by studying and all these other conditions people recognize as conditions and then we'll ensure. And because obesity is sort of this master switch to all these things, that's an achievable thing. It just costs a lot of R&D. John (00:30:43): I'm talking about perception. I think he's talking about reality. David (00:30:44): Yeah, you're talking about pricing, which is, why is it that the industry's evolved to have a unit pricing model? It would be, it’s back to like a shrink wrap software world 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. Patrick (00:31:01): 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. It's like wouldn't you be crazy to go back even though it's better for the patient? David (00:31:16): So we have some genetic medicines coming and we're thinking actively about this. For instance, we have a medicine in development that will knock down your LDL if it's safe enough, and then one-and-done PCSK9 edit in your liver, and presumably that will last the rest of your life and your LDLs will be between 20 and 40, forever. Patrick (00:31:33): It looks like an amazing drug. David (00:31:35): 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 dunno, eight, $9,000 per year. 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 a licensing concept stealing from the SaaS model where you say, “We'll do the procedure for free and as long as it's working for you, you'll 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, that invokes a warranty as well. That's an interesting idea and when we're thinking about these more common— because so far gene therapy is mostly for uncommon things—where they've, they've just charged it and someone's paid. But for common gene therapy to really be unlocked, this has to be solved. John (00:32:45): 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. Which, there but for the grace of God go we. The patent time horizon is an arbitrary number. Thus we have ended up with— I sometimes think about off-label use, it’s 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. David (00:33:20): Yes. John (00:33:20): Do you think we need to spend more time trying to discuss and meta edit the R&D system and incentive system that we have, because it just has such a huge effect on people's quality of life? David (00:33:35): 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. That would be a better outcome for the world, then I think there's definitely many flaws with the current system. Strangely, most of the discussions I have about this are, 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 is trying to prevent. Go back to 1965— Patrick (00:34:16): I think you can say less than 10 cents. David (00:34:18): Branded medicines are eight, 2% is generics, which is 90% of the volume. That's an even better deal. John (00:34:23): We have to get to generics. David (00:34:24): 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 do more research, because this is clearly a better way to get through life. The direct way is the NIH. We could talk about that if you want. That has limitations because of institutional government, but the private market self-funds, either through capital markets or through our R&D line and there would be a lot more funding if we had an idea of price stability or a longer return period. That is definitely true. The patent system is what it is because of former rules. Moving it out in time seems exceedingly difficult in this climate— John (00:35:19): Despite the fact of course it's shrunk because of the longer approval timelines. David (00:35:21): It's de facto shrunk. And then actually the Biden administration passed a rule in the inflation reduction act to actually have government price intervention in the US at five years plus two. So basically around seven years you lose that ability to recoup investment in the same way. Patrick (00:35:39): Government price intervention always works out well. David (00:35:41): 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 collapsing, I think, in investors' minds. And you can see that in the capital markets. If you look at the large cap pharma—not Lilly—but the other ones, the multiple is the most compressed it’s been in 20 years. If you look at biotech, the XBI, I think half of the XBI is trading below cash. And then if you look venture, half of the rounds last year were down rounds. This is not a positive environment. Patrick (00:36:12): Would extending the patent duration actually work? Because you referenced earlier this dynamic where especially with biologics, there are now so many opportunities for copycat molecules and therapeutics and so forth. And so does it matter less what happens with patent windows? Because what actually matters is that competitive ecosystem, the ability for fast follow. David (00:36:34): Yeah, I think we end up with two competitive ecosystems. You have the on-patent one, and here I think history would show actually within a 10 year period, which is typical recruitment time. Patrick (00:36:44): We've solved clinical trials separately— David (00:36:46): Okay. So it could be that's a way to get there, right? And 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-1,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. There will be tons of competition, but history shows that—back to this medicine incumbency—once two or three get in the works of things unless you're kind of different, nobody really uses it. And pricing strategies have not worked. Now they don't work until there's actually a biosimilar or generic event because here it's not a, “Hey, I'm a hundred dollars and you’re 90.” Typically, a generic event, you'll lose 97% of your pricing the day your patent expires. So this is a fantastic deal for society, but a terrible situation for an inventor and if you came along late hoping to induce competition, you maybe even were half off, the originator now you're half off is 90% lower, there's no return. Patrick (00:38:06): Okay, so in order to stimulate and to catalyze more R&D, one thing we could do is we could extend the 20 year window. What else can we do? David (00:38:17): 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 commonwealth markets are different they've tried to implement a price for value scheme. John Because they're single payer? David (00:38:34): Well most are single payer outside the US, but because they chose that path instead of a negotiated outcome or something. But in the US, we have a multi-payer model, but it's devolved to the situation where actually it's a very commercial kind of thing, where there's a price point a manufacturer launches at, really nobody pays that price. There are then many, many price points below that. The lowest is defined by law, it's Medicaid. Actually the law is called Medicaid Best Price. So state Medicaid, they spend 5% of their dollar, 5 cents, a nickel on medicine, not 10 cents because they get lower pricing per unit. Big insurers like UnitedHealthcare get a very good deal as well approximating the government and then smaller insurers and smaller employers get a worse and worse deal. That's the way we do it. What it means is that manufacturers compete mostly not on value but on the pricing offering, on sort of the difference between the 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 from other commodities. It probably has a much more important social role 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, people can say yes or no to that. That's one way to have value. As an employer you could say that's not worth it, we're not going to pay for that and this one is worth it. That could be informed by really independent intermediaries who study these things. Look at all the claims records, look at how people do on the medicine, weigh the risks and benefits and produce pricing. That happens in lots of other markets. Bond pricing, lots of people do this for a living, just not in medicine. And I think that could be a useful tool in the US system, so that if you produced a truly surprising and positive clinical trial result, you could actually charge more and that would induce other people to say, “Oh, let me go for higher risk, more valuable indications instead of just do the base that gets you in the door, now negotiate with 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. John (00:41:06): Maybe the top discussed topic in pharma that people know about, generally is pharma pricing and the disparity between the US and internationally. Where all the cost is in R&D, the cost of actually producing the drugs is fairly low. And so single payer health care systems internationally pay very low prices. And so the R&D cost is borne by the US and the biggest problem is not only at the margin, maybe you have fewer drugs developed because 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 the insulin price disparities between the US and Canada and things like that. David (00:41:54): Which no longer exist by the way, because we fixed that. John (00:41:57): But that was the hot topic for such a long time. David (00:41:59): 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-$40, but the list price got up to 275. Why? We were competing on the spread. And so that just drove this huge— Patrick The spread, what do you mean? David Okay, so insulin. So the latest versions were launched in the nineties and 2000s, but they got quite along in their life cycle— Patrick (00:42:25): Because, as in close to the end of the— David (00:42:26): 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, come back to that on GLPs as well, same players, had a lot of CapEx on the ground. And to start a new insulin company, made no sense at the net prices we were achieving. Yet at the same time, the public viewed this as this outrageous price gouging because list prices, if we were getting about $40 a month of therapy, were like $270. And so— Patrick (00:42:58): Who's getting the $235? David (00:43:00): So middle actors. And so big PBMs like UnitedHealthcare, 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 these, 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 the manufacturer mail us your best deal.”And the best deals that tended to win, we learned through time, were those that had the biggest spread between the high list price and a low net price. So we competed on this, what did we do? We kept raising the list price and modestly lowering our net price. That was how the market evolved. And after 10 years you had this huge bubble, with gross to net bubble, and who was paying? Patrick (00:43:57): Okay, so you weren't real— David (00:43:58): No real payers, but the person who walked in the pharmacy with no insurance, they had to pay that. That's outrageous. That's what I mean. That should not exist. We were able to disarm that through a number of actions. But the critical first one was we went to the government and we said, “We don't want this problem anymore. We're an innovative company.” Patrick (00:44:15): It looks bad for you. David (00:44:16): It looks terrible. And it's also producing these unfair outcomes. We're going to, because no generic has applied for a copy of our medicine or biosimilar. We will create our own. So we launched our own biosimilar. It says Lilly on the bottle it says insulin lispro, which is the name. And we priced it really cheap, like a third of the regular product, similar net price actually. But quite a bit less. Interesting fact: that launched all these insurance companies and middle people called me and said, “Why'd you do this?” I said, “Well, because we're trying to lower insulin prices.” They said, “Don't. This is a threat to our model.” I don't care. 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. John (00:45:19): I think we can get into differences between the US healthcare system and the rest of the world, where the US has a very vibrant private healthcare system, but it's kind of weirdly unpopular. At least in certain parts of the political discussion. David (00:45:31): But there's a choice. Yeah, about R&D, actually, let me just answer that. So it is true. If you went out and said, “Hey, I want to back some biotechs.” And they sent you their business plan, 80 to a 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 sensible to not market it in these countries at whatever price you can get. Because your R&D is paid for on the US launch. So here you're just margin gathering. John (00:46:04): But it's the free rider problem. Patrick (00:46:06): But to John's point, this seems increasingly politically untenable. Americans are waking up to this. David (00:46:12): We should get rid of it. It's actually not good for our industry, either. Because you get a skewing in addition to the problem, the social problem. So what does everyone do? They tune the R&D model to the US healthcare problems when actually we're 5% of the world population. So shouldn’t we tune it to the global health problems? And reward the global health problems. Patrick (00:46:31): Yeah, well, we're 25% of GDP, but nonetheless. David Okay, 25% would be a much better improvement. Patrick When you say, “We should get rid of it, we should solve this.” How? David (00:46:40): So I pitched this idea to this administration actually, which I call, “the one fair price.” John Good branding. David But the idea would be that manufacturers introduce the price they want. They are restricted by only a couple things. One is that they will need to introduce it in other developed economies in a price band that's sensible to the GDP of those countries, GDP per capita. Because the ability to pay, I think should largely be born by more wealthy nations. That's where the surplus is. Patrick (00:47:18): You introduced a drug that costs a hundred dollars in the US. David (00:47:20): Yes. Patrick (00:47:21): You're saying it should cost on the order of $70, in the UK or whatever? David (00:47:26): Yeah, it is 30% less GDP per capita. We would introduce it at 70. Those countries can say yes or no, but we would basically sign a compact that would say, “That's our deal. We think it's worth a hundred. We can not sell it there, but not because we're lowering it below 70.” And we have to charge them what we think it's worth. Patrick (00:47:46): And you could do that today? David We could. Patrick So why don't you just do it? Why do you need to come back? David (00:47:51): That’s fix number one. Fix number two is that the reimbursement system in the US, starting with the US government itself, would need to get rid of all discounts and rebates so that the product moves through the channel physically at one price and is reimbursed at that same price. You have to select that price. And here you're not price discriminating anymore. You have to sort of look at all the equities around that and say, “This is the fair price that I select and I'm going to live with that.” Just like other commodities and things we buy every day and there's no skimming of that number. And with that I think you would have two good outcomes. You would have a fair decision about who pays for the R&D. Presumably companies would look at the global opportunity or at least the developed countries and set a price that might be a little lower in the US than normal because they want to sell to Europe because there's more volume available. And if they price too high because it's indexed, it would not be able to do that. John (00:48:46): What you’re describing is an instantiation of what I view as the general phenomenon. One of the biggest shortcomings of the US healthcare system in my view, and one of the biggest critiques you can have, is none of the numbers mean anything. Just a number that you see. They're all lies. And that kind of has to lead to market failure, essentially. David (00:49:04): Yeah. Can you imagine this? We go to a restaurant tonight and someone gives us the wine list and a bottle of like a hundred dollar Napa cabernet is like $14,000. But then the waiter says, “Don't worry, that's not your copay.” So what's my copay? “I can't tell you.” We enjoy the wine. We have a nice dinner. Four weeks later you get a letter in the mail that starts at the top by saying, this is not a bill. But it says $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. John (00:49:38): But it feels like you could pull on this thread quite a bit, and the next admin should, or just the numbers should mean something. Like the FTC does this a lot. They say that for consumers, numbers should be trusted. And yet we kind of let the healthcare system off. David (00:49:52): Yeah, there’s no pre-posting of pricing. 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 the other 90%, you mostly can't know the price. Patrick (00:50:04): Well, we've introduced Regulations in the last couple of years mandating some degree of transparency here for healthcare. Have those worked? David (00:50:11): Total failure. Patrick (00:50:11): Yeah? David (00:50:13): 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. Patrick It's like the Hitchhiker's Guide to the Galaxy. “Beware of the leopard.” David It's a non-searchable flat file with everything they have. Patrick (00:50:39): It's malicious compliance. David (00:50:40): Or facial or whatever. So that's not working and we need to have that. I've actually gone to an imaging center and I ask, “What's this cost?” And the person gets irritated with me. “Why are you asking that?” I'm like, “I don't know.” John “I generally ask that before I consume things.” David I had a situation, my physician is 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 is like, “Hey, you can get a blood draw downstairs, why don't you go do that now and then come back up. So I went down there, they drew my blood. Five minutes later I went to his office, the result was there and I'm like, “Oh, I should have asked what that costs.” So on my way out I asked, they're like, “That was $650.” I'm like, “For a blood draw, that's insane.” And they ran it in their own lab there, no one asked. And I think that's a major, major pricing problem we have in healthcare. And then 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. John (00:52:00): The other thing I observe about the US healthcare system, so Patrick and I both grew up in Ireland, moved here for college. John (00:52:11): And the US has a very vibrant private healthcare system, which is different from many other countries which have public government run and funded healthcare systems. And what I notice is people just have a weird reaction to private healthcare. Private hospitals, people think are weird despite the fact that you have much shorter wait times in the US than you have in many other countries because we have more hospitals and all these new private outpatient specialty clinics. But the biggest one is when people come to the US, they're shocked by pharma advertising. And they put on a sports game and just like the break comes and it's all pharma ads. And my understanding is that there's again a significant pro-social defense of this, which is that many of these drugs are shown through all the extensive trials that we make you guys do to have a significant health benefit. And then it leads to them being prescribed more by doctors because people actually ask their doctors, they do in fact do the thing, they ask their doctor about them. And it leads to more usage. But yet people just find the whole thing weird. Private for-profit healthcare. And so do you have a view on where this goes, what we can do about it? David (00:53:13): Well, not having grown up in a system like Ireland, but I lived in Canada for a while, for six years, so I was treated in that. David (00:53:20): I've seen it. Yeah. I find it weird the other way because that's 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 diagnostics, the US and China have something like 70% of all diagnostic capacity in the world. That's crazy. 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 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 oak floored primary care offices and beautiful drapery and furniture. That's the basis of competition instead of, actually it's quite a simple thing. You need your flu vaccine, just get in and get out. And there's a third thing coming which you touched on, which is prevention and self-care. And I actually think that if we think of the funding mechanism in our country, but also in Europe. And Europe’s system has problems going forward. It was really built on an acute care model when most illness and death was accidents, 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 the chronic disease. And those institutions and those funding models are really poorly suited to that. And particularly so if behaviors have an input into that. Don’t we want people before they get the disease to modify their behavior? Well how do you charge for that? And so there's a little bit of a selection problem that the best healthcare systems get the worst behaved people because the coverage is better. So I think it is time for a rethink of the whole thing and I would think of those three different things and try to solve for them differently. Right now we pretty much have one answer and the Europe answers produced a 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 cost too much. That 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, this thing we call therapeutic index. That's the difference between a dose which is harmful and one which is helpful. And a therapeutic index that's small is difficult. You have to very precisely dose and people have differences. So it requires a lot of attention. But over time, the techniques we make drugs with that therapeutic index, the TI we call it, is expanding and expanding non-linearly. John Sorry, why is it expanding? David Yeah, because of new drug technologies, two main ones. One is going to the root of disease, whether it be genetic or RNA-blocking medicine. So a lot of diseases have excess protein. We can now really pristinely block RNA production of the protein and the disease, without a lot of side effects, goes away. And by the way, these medicines happily also have sort of this catalytic effect. So they last a really long time. I mentioned LP little A earlier. So that's a kind of cholesterol that's untreatable today. We're developing a medicine that will be a once or twice a year treatment for this. And the side effects look totally benign. That's a really wide therapeutic index. So now when you have that, you can think, “Well my trials, I can run faster. I don't have worries about treatment. They can be cheaper. I can charge less and get it to more people at scale and I actually don't really need a healthcare system.” And here maybe back to the GLP-1s, that's giving us a little bit of a 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 are overweight or obese, 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 a “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. Patrick (00:58:23): We're here in the great city of South San Francisco, the home of Genentech, and to some significant extent of the US biotech sector. And we're talking a whole bunch here in this conversation about fostering and inducing and creating adequate incentives for R&D. I think 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 of the revenue and also of 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,in an extreme, one role of pharma would be to be a kind of private equity portfolio manager where you take stock of the landscape and you look at who's doing well, whose approach you believe in, et cetera. And you have the risky innovation be done by earlier stage entities, by venture capitalists, what have you. And then you bet on winners, you go and scale them and you distribute them. One model, the traditional model, is actually you have all these internal R&D capabilities and you're vertically integrated and you have economies of scale and so on and so forth. Are we shifting there? Where between those poles ought we be? How is it changing? Just thoughts in that whole landscape? David (01:00:03): 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 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 reliable. Patrick The hybrid? David Yeah. Why do we make that choice? I think we observe a few things. First of all, while it's true that the origin of, I think it's a little more than half of medicines approved in the last 10 years have come from biotech. Hardly any of those traveled all the way through biotech. Because there are, as we talked about earlier, huge checks to write and risks to take. And the biotech investor base is not interested in those risks, those very binary large checks. Whereas we can absorb them, we can run a portfolio across many of those. There's also scale economies in clinical trials. There is no doubt in my mind we are faster, more robust, probably cheaper than actually every biotech out there trying to do their own early phase clinical trials and manufacturing and distribution globally. So those things benefit scale. What doesn't? It is discovery, it's the early phase. I think that's a more diffuse undertaking. What we've done, starting with my predecessor maybe 15 years ago, is we started spreading out our labs. Scale's bad. And I think our idea was three or 400 people, about right, with a focused mission allow for some deviation. Put some outposts out there. Patrick (01:01:47): The act of invention has diseconomies of scale. David (01:01:50): So we started in San Diego, we built a monoclonal antibody biotech hub there. It's produced a third of the medicines we've made since we started. Hugely successful. There's 400 employees, so it's like a biotech, but it has some benefits. They don't have to spend any time with venture capitalists or raising money or fussing over CapEx and ups and downs in the markets. John (01:02:12): Why is it good to be small? Why is it good to have the 400 person San Diego and not the Indiana Supercenter? David (01:02:18): 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 is 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— John (01:02:47): Weren't sanctioned in what way? David (01:02:48): Meaning it had a budget and had a number and a name and whatever,or pointed at like, “Oh, here's a target. Go put a team around that and come up with the medicine.” That does work. But sometimes someone just says, “By the way, I didn't tell you but I've been working on this thing over here and it seems pretty interesting.” And then we fund it. John (01:03:06): Have you guys formalized that Google 20% time or there are some people are just doing curiosity? David (01:03:11): It depends on the area, but we have this allowable variation idea. Where skunk—, Patrick (01:03:17): Is that the phrase, “allowable variation”? David (01:03:19): 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 here— Patrick (01:03:35): The “let them cook” school of pharma innovation. David (01:03:37): Yeah, it's a thing. Patrick (01:03:40): I can see this as a book. David (01:03:42): A lot of pharma innovation is iterative. So the other problem is people quit too soon. So back to GLP-1. This story has been going, we lost the first GLP-1 twice a day injection in 2006. People say, “Oh Dave, when did you know 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 not like, light bulb, single scientist in a dark lab. “I've got it!” It's teams just grinding on a theme. And if we had directed that like “Oh, make it dual acting, it'll be better.” We wouldn't have gotten the right answer. Patrick (01:04:27): This is all at your internal innovation. David (01:04:29): Yes, so that’s running. Patrick (01:04:29): Where did the biotechs appear? David (01:04:31): Why do we do this? One, it is productive for us and I do think we've built a 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 the 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 other invention loop to refine it further so that it is, what we call it, like a big pharma asset. John (01:05:17): Buying is the proof that there's something here but not necessarily the specific solution. David (01:05:21): Exactly. And if they haven't disclosed it and they've got a lead, that's very interesting. But we actively cultivate, kind of a proximate satellite group of companies, that are doing this independent of us but we have ownership stakes in. And then of course, we have a watchlist ever growing because of China, of entities we don't have an interest in but are doing interesting things, and 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. John For most of its 150-year history, Eli Lilly's relationship with patients has been through pharmacies and other intermediaries, but that's changing. As Dave mentions, with LillyDirect, patients can buy treatments, like Mounjaro and Zepbound, directly from the company and get them delivered right to their door. And they're not alone, at Stripe, we're seeing a new playbook emerge where established businesses who used to sell via complex distribution chains are now building direct digital relationships with their customers. And with Stripe, that's much more likely to succeed. It's happening across all industries, not just in healthcare. Media companies, like FOX Sports, they used to reach viewers only through traditional cable bundles, but now they've built a global direct-to-customer streaming platform on Stripe. Or Ford, they're selling cars and trucks online through Stripe, and not just through dealerships. Some companies, they're creating entirely new products to take directly to their customers. So Fender, the guitar company, they created a tuition marketplace that has enabled millions of guitar classes already. Large enterprises are creating better direct offerings than ever before with Stripe. Learn more at stripe.com/enterprise. Patrick (01:05:56): So we just mentioned we're in South San Francisco in the Bay Area. The Bay Area of course used to have a vibrant electronics manufacturing industry and— David (01:06:04): It left. Patrick (01:06:05): Companies like— John (01:06:06): There's still the APX sign, some of the old— David (01:06:10): Fairchild. Patrick (01:06:10): Exactly. But you mentioned Cyprus Semiconductor and people don't really know what you're talking about these days. The biotech sector started here in the seventies I guess and is still today reasonably vibrant. Although to your point, it's had a tough couple of years. The share of the global drug pipeline that was Chinese 10 years ago was, I think in the small single digits. David (01:06:32): Approaching zero. Patrick (01:06:32): Yeah, exactly. Right. And now I think it's high twenties, approaching a third. David (01:06:37): It’s 30%. Patrick (01:06:38): 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? David (01:06:50): I wouldn't predict that outcome, but I think we should ring the alarm bell right now. Patrick (01:06:54): Well, is it bad? David (01:06:55): It's not great, I would say. I think for two reasons, one— Patrick (01:07:04): But if they can do it better and faster and cheaper and we get the drugs, isn't that awesome? David (01:07:06): That is good, especially if the last part's true. But I think the economy around biopharma 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. Patrick (01:07:23): Paradigmatic knowledge economy. David (01:07:24): It's the premier league of knowledge economy. You guys fund and know people. I mean the diversity of skillsets needed to do it well at the highest level of their game is extreme. I don't think it exists. Maybe rocketry, maybe there's a few other things like this, but it requires a lot of talent. So it tells you how you're doing, I think in a way. That 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? Patrick (01:07:56): So it's a kind of shadow passing over the country if biotech— David (01:08:00): And it's rewarded. I mean these are well paying jobs. There's a big economic footprint that goes with that and increasingly we're putting manufacturing near it. So it actually has a trickle down that's pretty significant as well. And then it invokes security concerns. And you can imagine if we had the COVID pandemic in that case, basically 80% of the medicines and vaccines that worked were produced in the United States. China produced some of those things. None of them really worked. We didn't import them. But imagine if that was flipped— John (01:08:35): The EU saw this with all the battles. David (01:08:36): 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 sown now though is the iterative derivative, which is a big part of the substrate of the industry. They are refining and becoming experts very, very quickly. I think that's not all bad. There'll be more competition. There's an effect in China where their own sort of price competition defeats their own industries. And you're kind of seeing that in biotech as well, the race to the bottom on pricing. But I think we want a national competency here. And I think this has been a hub. Boston is still a big hub. We want to keep those. John (01:09:36): But there's this new phenomenon where—my understanding, please correct me—is that traditionally you develop a molecule, you patent the molecule. Now there's the growth of these clones where you can have the molecule be trivially different enough for patent purposes, but still the same action and the huge amount of that coming out of the Chinese biotech sector. Doesn't that— Patrick (01:09:57): But I think also some real, Ivonescimab seems real and good and novel— John (01:10:01): Also real innovation. David That's an interesting one. John But don't the clones effectively erode the patent system? And we would think shortening the patent life to 15 years would be bad, and or 10 years. And this is shortening the patent life effectively. David (01:10:14): 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, in 2011, the US changed the patent system to first to file versus first to invent. You used to be able to invent and sit on your patent and all you had to do is prove, it was messy court cases, because your lab notebook said, “Oh, it was October of 2017 and mine says 2018.” Well, which was right? But now you rush to file and the government, I think, has 12 months that they sit on that inspection. David (01:10:42): And then the patent, what is a patent? It's a degree to publish your finding to make it a public good, in return for that monopoly. But if the monopoly is debased by 30 Chinese biotechs who feed that patent into a computer, the computer then can imagine chemical structures that have one or two atom differences that don't fit within the patent and then make that substance, test it, it works just the same. You've created basically a shadow generic industry and undermine the patent system itself. I don't think that's a great thing. John (01:11:16): So was the shadow generic industry basically launched by first to file because we published the instruction manuals? I hadn't realize that. Patrick (01:11:23): And do you think, is it your view if you just switched back? David (01:11:26): No, what I would do is if we want to sort of like an America first patent system, or Europe first, we should do two things. We should create a belt and suspenders so that some patents are tricky to write. So there might've been an IP space that's been mined and people are around the idea, but you had an insight that actually unlocked the truth. And there's a thin strip, but you have to carefully navigate this concept called prior art and get that patent to stick. People tend to constrain it more and you leave room at the edges. Should we make the basis a reward to investors? The patent filer, the patent writer, that's really the most valuable step in that case. I don't think so. So a belt and suspenders would be, say independent of a patent, we'll give you 12 years. If you produce primary data on this product all the way through phase three, that's a $3 billion ticket. These copycats aren't going to do it. They're certainly not going to do it with the US and US data. And that'll be more or less constrained in markets that don't care about that issue and don't have this data exclusivity provision. This already exists in biologics by the way in small molecules. And this problem we're talking about is mostly a small molecule problem. The other thing we should do is, say if you are in a league of nations that really respect IP, those nations will extend this confidentiality period beyond the patent inspection period. That society will get the recipe well in time for a generic company to copy it later. But why does it have to be every 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. Patrick (01:13:18): And the electronics manufacturing industry went to China for pretty straightforward reasons. David Cost. Patrick Exactly. It's very labor intensive and I guess raw material intensive, and for 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? David (01:13:48): Well, I'm not sure it’s going. Patrick (01:13:50): The story isn’t over yet, but we're not at eclipse. But a significant share of it has gone to China. David (01:13:56): I mean China has a robust software industry. We have a two-internet world and they have their— I don't know how well Stripe does in China, but I would guess not very well. John (01:14:08): Not domestically. David (01:14:08): Yeah, okay. Or Adobe, I'm on the board of that company and I can tell you they have de minimis sales in China. John But a lot of usage. David Well, and there are tools domestically that have been built around that that have their own economy. That could be a state that this is driving into where there's sort of medicines that grow up in the world where there's perhaps more transparency, where the regulatory systems are more confidence-in instilling, and we perhaps reform our patent system to protect that. And China has their own version, and there's good reasons they would want to do that, because if we own all the medicines and there is another crisis, I'm sure they would be deeply uncomfortable. In fact, they didn't even approve. They had rights to the BioNTech Pfizer vaccine for almost the entirety of their pandemic. They never approved it. Why? I think it was a national pride issue. Didn't want to be beholden. It was a German invention, actually. But yeah, so again, it intertwines with 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. Patrick (01:15:27): 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 scrupulous and stringency around clinical trials for new molecules and introductions and so forth. My understanding is that for generics, a lot of the external validation certification happens at the manufacturing plant level, not at the individual drug level. And that for the individual drugs, it is substantially a case of self-certification and presentation of one's own data, as opposed to external audits. And there have been many cases of documented fraud and malfeasance here. The largest generic manufacturer in India, I forget its name, paid a half a billion dollar fine in 2013 for— David (01:16:23): Cipla. Patrick (01:16:24): Yeah, for rampant fraud and falsification and abuse of the biosimilarity analysis and so forth. Which obviously is bad, but 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 subjectively and experientially, switching back to the branded pharmaceutical and things going back to normal, as it were. And so there's some kind of subjective version of the generic is in fact not directly substitutable. I know nothing about this domain. This is all just observed from afar. I guess I'm curious for your thoughts here, does the generic industry actually work as well as we think it does? How much fraud is there in actuality when your kids or family or friends or whatever are taking a generic, do you advise them to exercise some caution? Thoughts in this whole space? David (01:17:31): 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. Patrick (01:17:49): When you say the generic industry in the US, do you mean those manufactured in the US or consumed in the US? David (01:17:53): There are no generics manufactured in the US, really. Patrick (01:17:54): Okay. David (01:17:55): So those that are licensed in the US and sold here. That said, and I say that because take an invention like statins, or HIV drugs, or we invented Prozac, still the standard of care in treating depression, it's like 3 cents a day. I dunno any product you buy for 3 cents a day, but 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 eighties researching Prozac and still today there's tens of millions of people benefiting. That's a public surplus that should make us want more of those inventions. But anyway, digression. So in the eighties 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 seventies, sixties, the day you launched you'd be in court. And by nature those cases are you have to defend all comers and if one gets through you lose. So it's a very asymmetrical problem and it wasn't good. So we traded that for certainty in a time window and a structured path to patent litigation. But the day after the last valid patent expired, generic could enter freely and could get on the market with a clearer bar. A lower bar perhaps. There's two deviations that can occur. One is the so-called “5% rule” where plus or minus 5% of the active ingredient and some dosages in some people are more sensitive than that. And I think some of those people have an effect. Also, there's this particularly in a dry product, in a pill, there's excipients, which are the other ingredients. Most of what you're taking is not actually the active ingredient. Some of them are buffering compounds, some of them affect absorption rate. So those two things combined do lead to different effects and there is no requirement for small molecule chemical medicine to show proof of efficacy of any kind. So you can do pretty simple laboratory experiments and absorption experiments in a small number of people. Patrick (01:20:14): This is due to like PK, but not efficacy. David (01:20:17): Yeah, exactly. And that is what they all do. None of them do efficacy. So that makes them cheap and it makes them plentiful, but it has this side effect. I think it might be useful to have a way to flag medicines that before they go generic have this known dosing sensitivity. Again, back to the less binary regulatory, more a little more judgment where there's a dial. I think the manufacturing problems you mentioned are real. In the quest for low cost, it all moved offshore. These are basically chemical plants and in the prior iteration of that technology and our EPA, it became noneconomic to make these medicines in the US or Ireland for that matter. There are some eastern European companies, there's a big Israeli company, there's several Indian companies and many Chinese companies that are in this business. That's where these drugs come from. I think that is not so stable either and we probably should pay a little bit more for generics. You sometimes read about injectable generics in particular that run short. That's a more complicated manufacturing process. So if you do it cheaply, you run into more problems. We probably should pay a little premium for resilience. Right now that's not the situation. John (01:21:34): So GLPs obviously were initially researched, the initial R&D was done for diabetes, and then it was noticed during the clinical trials that people were losing weight. And so now, I think, the big societal discussion, like Pat and I were talking about. The Information is a Silicon Valley tech publication and they ran a survey about GLP-1s and half of readers of The Information are on GLP-1s. David In this part of the country. John Exactly. As you can tell, it's not a normal region anyway, so the weight loss— Patrick (01:22:04): But maybe in this much of Silicon Valley is some kind of harbinger of things to come— David Early adopters. John (01:22:09): So there's this big weight loss discussion and Ozempic is obviously a different brand name for a different drug, but people are very familiar with it. But now it seems like we are starting to figure out there are all these other potential benefits of GLPs that do not seem to be fully explained by the weight loss. And so there's the cardiovascular benefits, there's potential Alzheimer's links, there's fertility, there are all these things that aren't just, you lost weight. What do you think is going on there? David (01:22:38): 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 launched the first GLP-1 in the world. Patrick (01:22:48): You're saying this is the triumph of rational design. David (01:22:51): It's not totally rational, but I can tell you that because… So GLP-1, let's go all the way back. It's a super-family of things we call incretins. These are hormones that signal our brain and other tissues from our gut. We always think about our brain being in charge. It's not how we work. And it's back to this basic system of survival, which is nutrition. Patrick (01:23:12): I think John's very aware of this, it's a joint oversight. David (01:23:13): When you eat a meal, which hopefully we’ll do later, our body, our gut actually communicates, “Hey, food's on board, you don't have to eat as much.” Maybe you get a satiation signal. Your fat cells are told to absorb free fatty acids. Your liver kicks into gear to release glycogen and other things. So all that process, insulin is released to absorb the nutrients, is kicked off by incretins. This was discovered in 1971, called the incretin effect. It was a scientist who noticed that if you feed someone an equivalent amount of pure sugar versus stick it in their veins or arteries that their insulin levels, their metabolic processes rev up a lot faster. It's called the incretin effect. So that the local process of ingestion through the gut created this other thing. That scientist and others then isolated GLP-1, and another one called GIP, actually isolated first. GIP and GLP make up tirzepatide, which is Zepbound and Mounjaro, GLP makes up semaglutide which is Ozempic and was also exenatide. The problem with these hormones is our own versions have a half-life of like five minutes. So they don't make very good drugs. If you take that protein and sequence it, people did this, you'd have to walk around with an infusion all day. John (01:24:35): So the longer lasting action was the invention. David (01:24:37): Was the invention. And the first one that was, before we really knew how to do protein engineering systematically, which we can do now. It was found in nature actually, famously in the saliva of a Gila monster. So randomly some zoologists was testing the interesting properties of Gila monsters and noticed in profiled all these proteins and one of them was a mimetic of human GLP-1. And he 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 so we can make it a twice a day injection. We made that into a medicine for diabetes. And on the cover of our annual report in 2006, there's a woman who was one of the first patients with a quote that says, “My diabetes is under control and my friends say I'm losing a little weight.” That was 2006. So this overnight phenomenon of Ozempic and everything else, old story, why didn't we do it then? Well, we needed to get the dosages higher. And it turns out that this mechanism, which is common for a lot of hormones, has a threshold effect for efficacy. You have to get above a certain level in your blood and certainly to lose weight and really suppress appetite have to get that number up. But a peak to trough effect on side effects. So the up-down part causes the nausea, but the absolute level causes the effect. So how do you separate those things? You need a flat, long acting. It wasn't just convenience. So we made a once a week GLP-1called dulaglutide. We stuck the protein, the native sequence to the backbone of basically a monoclonal antibody to extend its life. Novo Nordisk did a similar thing that became semaglutide and Ozempic and then we put the original two hormones together, GIP/GLP in tirzepatide, which is better than those in terms of weight loss and A1C control and everything else. And so with those tools, we're now exploring this terrain of what is linked to this pathway. I would say most of what we know and have proven is actually right on the obesity target. So if you think chronic overweight has these untoward effects, our ancestors weren't chronically overweight, they were chronically starving. So we didn't worry about this, but now we worry about it, which are diabetes—type two diabetes, not the type one form of children—cardiovascular health, atherosclerosis, stroke, MI, peripheral artery disease, kidney and liver diseases, fatty liver diseases, these are all sort of right on that target. Adjacent to that are other conditions we think of as more unrelated, but actually have not a perfect Venn diagram, but close enough. One is like sleep apnea. So like 70% of those people with sleep apnea actually have overweight or obesity. Polycystic ovarian disease, as young women get this and they don't ovulate, they can't have babies. So that's a fertility problem. So the circle widens. And there are more of those which are being studied and looked at. The two interesting things which are more incidental to the mechanism, but are definitely on the mechanism, are the brain things and the inflammation things. So if you look at people's blood values for cholesterol or glucose over the course of three to six, eight months on the medicine, they fall pretty straight line with weight. But inflammation markers drop precipitously early. There's a marker called CRP, C-reactive protein, which is a marker for heart attack risk. In weeks that starts to drop,like 60, 70%. Why is that happening? It's dislocated from the drug effect, but probably the stress of effectively overeating, not by our modern definition but by our ancestral definition, is causing inflammation and reducing that by having more fasting basically, lower calorie levels reduces inflammation. We have a study reading out toward the end of the year in chronic knee pain. It's going to work. And that's a weird thing. Well wait a minute, GLP-1 chronic, but if you follow that logic train, it actually makes good sense. John (01:28:44): There's also inflammation causing the chronic knee pain? David (01:28:46): Inflammation plus, and we'll measure the inflammation in the joint. Plus there's a mechanical loading with being overweight. If you carry around a backpack of 40 pounds extra every day, your knees will hurt more. John (01:28:58): So you're just saying that being over-sated causes inflammation, which then causes all these ostensibly unrelated downstream issues? David (01:29:08): And you see this in chronic inflammatory diseases. So think of, well the signature one is a skin disease called hidradenitis suppurativa.A terrible name, but people get basically boils and it's almost completely correlated with excess body weight. And we have very expensive inflammatory drugs that have fancy targets and are monoclonal antibodies to inject and they cost $4,000 a month, or you can just lose weight. And so people are using Zepbound our drug in this and they don't have this condition anymore. Another one which has high correlation is psoriasis actually. So we're doing a study with our psoriasis drug Talz and Zepbound that will read out this fall and I'm certain we'll show a boost in efficacy with the weight loss. And that is not because of the weight loss per se, it's the inflammatory effects. So it is pretty interesting and there's a lot of these adult diseases that are inflammatory in their root. Of course we'll study RI. We have studies going in Crohn's and colitis as well. John (01:30:08): But the brain stuff— David (01:30:09): 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 “Stop eating pure sugar,” which is what GLP-1 should be saying or GIP, which is more of a lipid mechanism. It's just saying, “you are satiated.” That signal gets translated into downregulating dopamine and the desire for dopamine. And so, like cigarette smoking drops, precipitously. John (01:30:51): Yeah. David (01:30:52): Right? And opioid use disorder will test, alcohol drops precipitously— John Shopping, everything. David 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 of brain, which may be related to this axis. Or there's another theory of, people out here do podcasts about, “Hey, I take micro doses of Zepbound and I feel like I can code longer, or whatever.” They're back to your pieces of experimental hacking your body. John I am sure there are people in Silicon Valley experimenting abundantly with this. David There is a theory of this, that actually the glucose lowering mechanism in your brain only eats glucose. It doesn't eat any other substance, it’s unique tissue in 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 in taking a GLP-1 and getting leaner, but they're actually they feel the brain functioning in a sharper way. There's an interesting study that Novo Nordisk is doing with their oral form of semaglutide that'll read up 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. Patrick (01:32:27): So neurodegenerative disease, Crohn's disease, psoriasis, cardiovascular disease, joint disease. All the diseases. What fraction of the population, let's say the population over 35 will be on a GLP-1 in 15 years? David (01:32:45): Well today in the US we probably have 10 million people, maybe 12 if we include the compounded market and non-approved drugs. John (01:32:57): I was going to ask about that. David (01:32:58): But it's really a fraction of the adult population and even if you just take obesity, it should be a hundred million. We have a long, long way to go. And I think we talked at the beginning of the conversation about coverage. That's a course both a real cost burden on people, but also kind of an endorsement thing. And physicians are busy and don't have time to write all the forms to get it covered. 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. The number one prescribed form of these medications is Zepbound self-buy. We sell more than that than our insured business in new patient starts and more than all of Wegovy. Patrick (01:33:42): That's very interesting. David (01:33:43): Yeah. So that's why the concept of 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. David (01:34:18): We've built six or seven of these mega plants that produce hundreds of millions of these injection systems and we're only treating 10 or 12 million Americans, maybe 20, 30 globally. So to get to half a billion people globally, that’s not the path. We can't keep stamping out these. It'll take too long. The orals have to work, they have to be approved. They're not going to be as good as these multi acting injectable hormones. But we can probably stratify people, if you need to lose a lot of weight, okay, start there. And maintenance with the oral is going to be a key segment. I would guess by the time we go generic, it will be a large proportion of adults. Statins got to 40 million people, branded. It's a little more than that now. Has to be north than that. John (01:35:02): It's interesting that all the growth in statins happened even while it was branded. You'd expect a big bump after it went generic. David (01:35:08): Well you asked about consumer advertising and I think actually people hate the commercial part of our business. I have to admit, sometimes I dislike it. I never watch TV except when I'm traveling and I'll flip on CNBC in the morning while I'm getting ready, especially on the West Coast cause I'm up at six 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 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 generative AI optimization. But still you do it. Why do you do it? Because it works. 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. Patrick (01:36:10): They won't actually be adopted. David (01:36:11): It's about a 16 year path to full adoption. With the 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. John (01:36:26): Alums presumably help here. David (01:36:26): Could be, yeah. If we can get through the problem of convoluting the facts. Patrick (01:36:33): You need to have education seminars for the alliance. David (01:36:36): They weren't so trained on Reddit, it might be a little better. Let's train them on the New England Journal of Medicine. Patrick (01:36:43): Okay, you've mentioned Reddit and you just mentioned the microdosing of tirzepatide in Silicon Valley. David (01:36:50): Not recommending, not indicated. Patrick (01:36:52): Understood. Do not ask your physician. But my understanding is the avant-garde Silicon Valley denizens, the frontier is really in Chinese peptides. David (01:37:05): Yeah, frightening. So here we're getting into the compounding. So of course there's probably always been a segment of society that was comfortable using unapproved things. We have a large supplement industry in this country that has some proximity to this MAHA thing. By the way, most supplements have no evidence that they're going to help you. I take a multivitamin, but I really don't believe in anything else. And I think if you're eating correctly, you should be getting better nutrition through your food than through supplements anyway. And it's embedded in the price at least, you may have to buy more expensive food. But that same tranche or the edge of that is gone to this. What is a Chinese peptide? It's an unapproved medicine that's never been tested in man and is made in a Chinese lab. It might be what you say. This is basically the same source for the tirzepatide compound that people get. People buy that from things that look like legitimate companies, some are publicly traded even, that formulate them and are violating our patent. And maybe under FDA supervision or not, these plants, most not. I know of one that's been inspected. It had a nasty, what we call 483 with lots of inspection findings. I certainly wouldn't do that, but of course I run a company that does this legitimately. My problem with those companies is less about trying to—I like the fact that people could shortcut the pain in the butt of the healthcare system and go direct. And we see the phenomena of what the internet's done to commerce could apply to health. I think that's net a good thing. What they 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, following a different rule, which is customization.” All these patients who need tirzepatide, even though you can buy six different dosage forms. ”They need a dose in between these six” or “Oh, the efficacy is boosted by vitamin X, Y, Z.” By the way, we recently sent to the FDA studies of these vitamin combinations that show they actually augment the peptide. So they're making a new drug, never approved, not a good idea. And then you have the folks you're talking about who are served by an industry started when I think steroids became a big deal. And the bodybuilding craze, they're all based in Long Beach, these places. And it's like peptides, USA. Which is the opposite of what it is, right? It's Chinese peptides and they'll sell things to you that say “not for human use”. Literally that's how they protect themselves legally. And you're injecting, you're putting saline in and you're putting this white powder in your body that says not for human use. Really a terrible idea. I know some people find success— Patrick (01:39:55): At some point through that process, you would suggest there are several clues as to how legal advice— David (01:39:59): And it's not going to end well. And there are people who've had chronic kidney failure and permanent liver damage and I wouldn't do it. The difference between that and today buying a real thing for $500 seems like a relatively large risk for the cost savings we're achieving. And I'm telling you today, we're going to bring these prices down. They're going to either through your insurance coverage, which is expanding every day or just through competition. John (01:40:23): 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 the place of Genentech, but also payments innovation. And so yes, we're working together on the Eli Direct stuff. Maybe you can talk a bit about that. David (01:40:38): Yeah, so this, I mean talk about accidental experiments. So back to the insulin story. The person who was running our US business, commercial business directly retired and I didn't have a suitable candidate internally, so I thought it'd be a good idea to go back to that job I used to do and be the CEO at the same time. Patrick (01:40:55): This is very inspiring. David (01:40:57): The team in the US didn't find this inspiring or a good idea. But the business was changing and the rise of 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 three of them, will hate us. And so that seems like a bad idea. And secondly, we know nothing about running a pharmacy, so we're going to make mistakes and hurt people.” So we kind of parked it a few months later though, we were in this process I described in long form earlier, but in short form of deescalating this insulin bubble and getting to sort of true pricing being the market. And one of the fights we were having was with a large PBM company that also owns a pharmacy chain. And we were worried that they actually, a different pharmacy chain actually threatened not to carry our low price insulin. They couldn't make enough money on it. So I just looked at them and said, “This is what this was for, this idea that's been on the shelf. We cannot be beholden to this. We have to have a route to market ourselves.” Which we had not had since the company was founded as a pharmacy, actually a freestanding pharmacy before any regulation. So it was scary, but we cobbled it together with partners and now we do more of it ourselves. And the first idea was like, make sure people who need insulin to survive can get it at the lowest price. We sold a little bit, but not much. Then we launched our migraine medicine, which was having trouble getting insurance coverage, sold a little bit more. Then we launched Zepbound and we said, “Ah, this feels like the killer app for a direct-to-patient experience because the diagnosis step is dead easy.” Everybody knows 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 in the billions of dollars. I think it's the largest prescription platform online in terms of revenue. We run it on Stripe, I think, and going north from here. Patrick (01:43:16): And it's an interesting example of how across so many different sectors and across every company scale and stage, there is this interesting way in which all these ostensibly different models and different businesses are discovering— David (01:43:33): They leap across. Patrick (01:43:34): Well, they're discovering the value of having a direct relationship with the end customer. David (01:43:38): And of course I'm on the board of Adobe Software company, which 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,"What? This is a great business. A very low cost business, very low cost route to market, global. Patrick (01:43:58): We're very in favor of solving stuff on websites. David (01:44:00): Yeah, exactly. I'm sure you had this insight even before me. And so yeah, that leap has 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 regulations. You think fintech would've gone after this a lot sooner because 20% of the financial economy in the country. Patrick (01:44:21): Well, I think this podcast makes clear that there are nuances to this sector. David (01:44:24): Exactly. But 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 that is why PBMs rose, which was that you had a card, like a physical card that had your insurance number on it in 1992 and you went into a pharmacy in Phoenix versus one in LA and you couldn't get your prescription filled. They solved that problem with old tech. That's a pretty easy problem to solve these days with technology. But what they built on the back of that was a system of negotiating and capture, rent taking that's not so popular anymore. And we can disintermediate them easily. Patrick (01:45:14): We've been having this conversation for quite some time and we haven't asked you— David With one beer. Patrick We can rectify that. But we haven't asked you 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? David (01:45:33): 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 early in cycle of this invention. I think Wall Street believes— Patrick (01:45:49): To this being? David (01:45:51): GLP-1s, which is driving probably 80% of the economic value of the company. Our market cap is about— Patrick (01:45:55): You think Eli Lilly is a GLP-1company with a— David (01:45:59): Sidecar. Patrick (01:46:00): Side car and some other stuff? David (01:46:02): 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 caps have been one $200 billion. We're trading about 800. And that difference is the GLP-1 phenomena. I think Wall Street also believes that our R&D productivity has been higher. So every dollar we put through the income statement for R&D or through an acquisition, we get a little bit of a premium, a management premium on. I think most of the sector is treated the opposite way, which is that that's actually probably going to destroy value in some way. And I think the other thing that's out there is this belief that perhaps, for those that are really longer stock, 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 value. 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 an ecosystem around ourselves like Apple has done? No. Those are all opportunities for us, but you can kind of see them. And self-care is an innate desire and I don't think the payment system 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. John (01:47:37): You said GLPs are one of the biggest drivers of the business. Eli Lilly is growing at about 30% right now, revenues? David (01:47:46): Forty, year to date,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? John (01:47:57): Stripe's doing pretty well, but— Patrick NVIDIA must be— David (01:48:00): NVIDIA is the highest. I think they're over 90, margin plus growth. Patrick CoreWeave? John (01:48:05): I think that's, you're talking to the CEO of Eli Lilly, please. Patrick (01:48:12): Yeah, yeah, yeah. David (01:48:15): It's based quite close to where we're sitting. Patrick (01:48:18): Genentech? David (01:48:18): Broadcom. Patrick (01:48:19): Of course, of course. David (01:48:21): So the hardware guys in AI are killing it. But I think what's interesting to me, they're trading at multiples above ours. There's a belief that their cycle is somehow longer than ours. David (01:48:30): And I think tirzepatide’s US patent is late thirties orforglipron upon 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 I think that's one of the reasons we're worth— John (01:48:46): Well, I was going to ask some questions about that. So first off, Novo is growing the teens just for two companies with GLP offerings that are working. Why are those growth rates so different? David (01:48:56): We're taking most of the growth in the market. John (01:48:58): Okay. So your product's working better. David (01:49:00): Right now in the US, across all forms of GLP-1, on new patient capture, we're basically 70, 75% right now, so almost three to one. And then it is a high carryover business. I think we're 60/40 on the total, and so we're just getting mostly growth. John (01:49:21): What would you guess Eli Lilly’sPE is? David Forward PE? John I was using trailing. Patrick Fifteen? John Fifty. Patrick Five zero? Oh my God. John So what I was going to ask is we're talking here about— David (01:49:38): The sector's like, 12. John (01:49:39): Exactly. Yeah, you're close. Patrick I was thinking high end of the sector, John Your priors were good because that is correct for the rest. But where I was going with this is, if you were to listen to this podcast, I think you'd maybe come away thinking, “Wow, pharma is hard. Good god, there's so many things and things that roll off patent and we have the Chinese competitors and things like that.” So what is it that investors have confidence in? David (01:50:03): Well, I think the track record of success, we've been on a growth curve for 12 years or so. It's certainly gone a little more hyperbolic lately, but I think that builds confidence. I would hope some management piece. But also the ability to predict where to move. And I think if you say, “Okay, what's your recipe?” It's an R&D business, everything else is around the edges, so you have to create something better for people that improves their health. If you can do that, you're going to win policy, this and that. The commercial strategies, that's the 20, the 80 is this—and I think we do three things better than others. One we talked about already, which is cycle time. It's a basic concept, but if you can make software faster than someone else, you're going to win. And the same in the drug business. The second is prediction of where to attack 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— Patrick (01:51:10): As in pre-existing markets? David (01:51:12): Yeah. I mean there's illnesses, but they're not medicines. And I think a lot of companies don't work that way. They look at, “Okay, where's their payment? Where can I recoup my investment” versus “where's there a problem?” And maybe our situation— Patrick (01:51:27): Jensen Huang at NVIDIA talks about how he loves $0 markets and you're describing some of the same— David (01:51:32): Blue ocean things that are, there's no limit to human disease and actually the longer we help people live, the more disease they'll be. So it's like AI in that way where it's like AI begets more AI, it's just this growing machine. And then I think discipline of the allocation between the types of R&D that are extending the franchise. These moonshots we just talked about that could really actually create a new GLP-1cut like category. 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. And then you have to do the discipline around the edges of 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. Patrick (01:52:34): When people are debating drug pricing and they debate it a lot, obviously the argument made by people in the pharma industry—which to be clear I think both of us believe has a lot of legitimacy is— if the returns aren't favorable, we're not going to pursue the investments. David (01:52:54): You'll never know if it was too expensive. Patrick (01:52:55): Exactly. 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. In as much as GLP-1s represent this enormous advancement and improvement in Eli Lilly's just fundamental financials, I mean it's economically equivalent to a two X three X four X increase in the realized drug price of every drug across the board. Does that mean that people should now expect Eli Lilly to be far more able to fund broad-based drug R&D than it was in the past, such that their estimate for the prospective drug development and bounties of drug discovery over the next 10, 20, 30 years should be much larger than the pre GLP-1 world? David (01:53:50): I think so. Although we have to prove we can, so we're going to try. I have a belief that if you're not generating… To generate double digit growth in the sector, you need to invest at 20 to 25% of sales in R&D. That's sort of a positive return R&D stack. And— Patrick (01:54:08): You plan to hold that ratio as revenue— David (01:54:10): And this year we'll sell 60 some odd billion, that’s how you get to the 14 billion and next year that'll grow by double digits. Patrick (01:54:19): But if revenue goes to 120— David 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 bound by our own capabilities and we don't know everything about every disease. We don't know everything about every modality. But for the diseases we know, the modalities, we can fund more and pursue a healthy portion of these bigger bets on zero value markets. We can expand the franchise, we can do the incremental things we have to do at scale and do them earlier, actually. I think that's quite an important thing. Often we do serial clinical trials and by the end of the product lifestyle you get the final indication. We're trying to stack them all into the beginning, so that's expensive, but we're in a position to do that. It's not risky actually. Patrick (01:55:12): So you're saying anyone 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, they should just go to the gym or exercise willpower and— David (01:55:26): So they're paying for medicine for someone else. Patrick (01:55:27): Say, you're saying that the purchase, this GLP-1 is also a kind of subsidy back to the for cancer R&D. David (01:55:33): 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 it. We have lots of deployed corporate ventures, 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 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, 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 we’re building one in London. And we'll create a virtual version of this in that TuneLab tool, that AI tool I talked about earlier, is embedded in that as well. So that's another way we can spend money in R&D with other people and kind of use other brains to develop what we're doing. But I have to caveat, this may not work. There could be a frontier in what's possible and we’ve 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. Our scale is getting to be bigger than anyone's ever done. Most of those experiments that have been run ended badly, people mostly bought other companies at too high a price and then the drug didn't work out. We're not doing that, but it'll be interesting to see. And then if we quit, we'll turn into an Apple, we'll just start buying back massive amounts of shares and return cash to shareholders who invested to create this surplus. But it's important what you're saying about people buying is that a quarter of every dollar you spend is going to a research lab or a clinical trial for a medicine you might not need or for someone you don't know. But that's the system by which we create new medicines and we'll try to use that wisely. I don't take that responsibility lightly, that’s someone's money, but maybe they'll have Alzheimer's someday and we'll have a solution for that or maybe someone they know. But that's the virtuous circle we try to drive. John (01:57:52): Is it meaningful to talk about what fraction of R&D is towards specific treatments? Is like focused vertical R&D versus I presume we do a lot of horizontal R&D. David Yeah. Platforms. John Yeah, exactly. Platforms. Because part, it's even harder to reason out the platforms than the payoffs there. David (01:58:07): Well, there you need some scale. There's a lot of platform companies that get funded that are biotech. And they are usually exploring a new platform that's quite helpful. That's important work they do. And often we'll partner with them early and try to develop that capability ourselves. Basically in our business, there's two kinds of questions on early phase R&D. One of them is this: is there a new platform that can unlock targets we already know about in new ways or in better ways that create a whole field of drugs? If you think of Genentech, that was a company that exploded on monoclonal antibody technology by tricking cells to make a human antibody. That's all disease, 30 year run of spectacular new medicines. Or Gilead sciences nearby, which really started on this idea of virology and new virology chemistry and small molecules. So we want to be there at the early stages because it is like catching a wave. 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 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 skunkworks 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.” And sometimes we've actually come out with a small molecule and an antibody and an siRNA, 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 siRNA, 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 and sometimes we miss those two signals and we end up buying companies later in their cycle and saying, “Hey, we can add value through clinical trials or manufacturing scale or what else.” John (02:00:18): Last question. Eli Lilly is more than a hundred years old and— David (02:00:23): One fifty in May. John (02:00:24): Oh wow. Okay. So coming up on your 150th birthday, and I noticed that often very tenured successful companies are quite serious about, and good at, internal succession planning. I think about Royal Dutch Shell or companies like that. And Eli Lilly, you joined in what year? David (02:00:45): 1996. John (02:00:46): Right? You joined in 1996, not as a hired CEO. David (02:00:49): No, I was a BD, M&A. John (02:00:52): Exactly. David (02:00:52): New hire. John (02:00:53): And you were rotated across the business. You ran China, you ran the US business development. Exactly. All these kinds of roles. What do you think Stripe, Silicon Valley companies should learn from Eli Lilly, and companies like Eli Lilly, where you've experienced talent planning and talent development? David (02:01:10): 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 have to problem solve it, 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 single digit hires, 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 why. Was it the experience path they took? Was it innate traits? They have a combination of those things? We've had 150 years of that and I'm the 11th CEO of the company. That's one less than Popes in that period of time. So it 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 success and only one external. John (02:02:18): Really. David (02:02:19): 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, there's not one person who cannot possibly really lead the whole thing. You have to know the role, you have to play, and you have to have others around you that can do it. By creating that environment, giving up some of that, you actually grow people and you grow people in a special way, a way that they know how to operate in the unspoken operating system called culture. And so they're more effective more quickly in new roles. John (02:02:54): They just know the domain so much to know. David (02:02:56): They know the domain. They also know the human domain of how to solve problems without committees. And one of my things now is we grow so fast, is keep headcount flat. And that makes me very unpopular. People are like, “How do I get this work done”? We are growing headcount and manufacturing. That's a unit operation business. Patrick (02:03:17): Are you growing in an R&D as you grow the spend? David (02:03:19): Slightly. So we're growing R&D high teens, low twenties. We're growing headcount in R&D single digits. John (02:03:27): So where does the money go? David (02:03:28): So the money goes to projects. And salary. I believe in paying people. David (02:03:34): Yeah, so there's salary growth, but clinical trials, new equipment, new laboratories, supercomputers from NVIDIA, that's expensive. So we're really trying to keep that goodness that can come from having most of the succession internally. What I noticed when I took over though, was maybe that took over too much. There is a balance. I have tried to bring in at the leadership level and other ranks, compete jobs externally and bring in outside voices that are the minority voice and have to have those innate traits and kind of a culture fit that can work. But it stimulates you in ways that sometimes you're like, “Yeah, that felt a little uncomfortable. They came at it in a different way or set it in a way that doesn't connect with how we normally do, but actually they're making a good point.” So that's the blend we've tried to find. And I look at my career and probably four or five times I was put in a job I had no business being in, but somebody thought I could learn it and that the output of that would be good performance at the end, not at the beginning, and then a better long-term thing for the company. I'm so grateful for that because that's ultimate risk-taking on people. And I would not be here without those successive jobs where I was like, I never would've gotten them if I applied externally, but the company gave them to me. And as a CEO, you have to do a lot of things that are very horizontal and I touch things that I had no experience in, but I learned by graciously reading and doing and solving real problems that has made me more successful in this job. John (02:05:08): A lot of companies say they're long-term oriented, but I feel like this is a particular example of revealed reference. David (02:05:13): Yeah. John (02:05:14): David, thank you. David (02:05:15): You. Awesome conversation. Patrick (02:05:16): Thank you very much.