Eli Lilly: The Issues With Drug Development and Regaining the Public's Trust

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Video title: Eli Lilly: The Issues With Drug Development and Regaining the Public's Trust
Released on: December 07, 2009. © PharmaVentures Ltd
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In this episode of PharmaTelevision News Review, Paul Larsmon talks with Gino Santini, Vice President, Corporate Strategy, at Eli Lilly.

Filmed at BIO-Europe 2009, they discuss:

• Eli Lilly's CEO's controversial statement on drug development
• how to fix the fundamental issues with drug development
• motivation behind mergers
• how biotechs can impress Eli Lilly
• how Eli Lilly can help biotechs
• regaining the public's trust by increasing transparency
• justifying the cost of new drugs
Eli Lilly CEO's controversial statement on drug development.
Paul Larsmon:
Hello and welcome to BIO-Europe 2009 here in the Austrian capital of Vienna. With me is Gino Santini, who is Senior Vice President of Corporate Strategy and Business Development at Eli Lilly, Gino Santini welcome. Your CEO has just said that the historical approach to drug development is broken and that's quite a big statement, what do you mean by that?
Gino Santini:
Well I think the joint statement comes from a very clear observation with all the investment that both big pharma and including biotech is making on innovation, right now we are at the point where it becomes more and more difficult to replace all the products that we lose patent in the next two-years more specifically about big pharma for instance when you think about the budgets that we spend every year and the number of new molecular entities that budget manages to produce in line to the marketplace that you can say that the performance is pretty poor. And a number of reasons for that, one is the regulatory environment has become more challenging with the FDA and other one number of companies have had more than in the past more failures in the late phases of development where the success rate of products in Phase III has decreased significantly in the last few years. And all of that has increased the average cost of what putting a molecule to market. On top of it you also have a challenge that where accounted to the past when you have a patent of product that is approved by the FDA, you put it on the market and you have a reasonable expectation of commercialize success, now commercial success has become just as risky as, as the technical success because of the old challenges from payers and around the world and in the US. So this business has become a lot more difficult, so an imperative is to how do you continue to create innovation which we believe exist and the opportunity is still there money in a much more efficient and effective way.
How to fix the fundamental issues with drug development
Paul Larsmon:
So if the old process of drug development is broken the big question is how do you fix it?
Gino Santini:
That's a good question, and I think we are all working on it. The solution is not obvious. And probably the " the recipe is different depending who you're talking about. When we look at it from the perspective of big pharma obviously the big large organizations and the large infrastructure that we have is not an efficient way to create innovation. And, and again you go back to the $4 billion that Lilly spends in R&D every year and what we will be able to provide as an output that equation doesn't, doesn't come out right. And so one of the things that we are doing and we have recently announced our own internal organization that along with the creation of the five internal business units that should provide more focus and more good decision making and more close knit to the customers that decision has come along also the decision to create a development centre of excellence, which is an organization internally that will still serve all the business units, but in fact it's totally focused on creating a very, very efficient development machine. And by that I am talking, applying all the learning's from the critical chain methodologist, so something that as you put a molecule into their system you have the guarantee that all the processes are really aligned up to produce maximum efficiency on how that development process is taking place. Now in order for that to be efficient it has to have a finite capacity. And we have determined that the finite capacity will only be able to in fact serve one portion of our work " a pipeline. So what we are doing in the mean time is to identify alternative vehicles through which we can develop molecules in most of the cases utilizing external capabilities either external companies or external organizations as well as in many cases external investors that will still help us to bring forward as large portfolio as possible without utilizing the internal resources and have that as a buffer and external capacity that will really help us to continue to play bigger than our size what otherwise will let us do.
motivation behind mergers
Paul Larsmon:
You've clearly decided that you are definitely not going to go down the Pfizer, Wyeth route of [PharmaDeals ID = 32282] large acquisitions, merger takeovers?
Gino Santini:
Well, we have looked at mergers for a long time. In fact we have gone back, if you wish even in the late '90s to review whether that should be a strategy for us and we have always come to the conclusion for all hosts of reasons that it wasn't worth while. We have never identified huge gains in competitiveness following a merger. I will give you one piece of data, which is not well known but in fact that holds true and it held true 10-years ago and it's still hold true, you are not going to find two companies who merge and their market share grows. It has never happened. And I am, and I " I am confident that will not happen in the future. Now I don't think that is the result of the merger, I think that is the reason why they merge in the first place, but it tells you that in fact a merger really the main reason for a merger is really to obtain operational efficiencies and by combining the two companies that you manage to eliminate duplications, but in fact that gives you the excuse to do a huge rationalization of the infrastructure that you have there, just because what a " there is too much capacity in the system and that's one way to eliminate part of that capacity. Now merger provide also lot of disruption, they don't provide a lot of value for shareholder or at least they provide value for shareholders of the company that is acquired, but not so much value for the shareholders of the acquiring company. So for all host of reasons we have continued to be not interested in mergers you can never say never, but the reality right now you're definitely not part of our strategy, we prefer to try to experiment and the " and come up with a new model on how to run a pharma company both on the R&D side and at the commercial level. And one in two words, we are actually working very hard to transform our company from being ethical fully integrated pharmaceutical company into a fit-net a fully integrated pharmaceutical network and that means is on top of what we wanna continue to do internally and we need to try to continue to maximize the efficiency of what we do internally along the lines that I explained before, but we also want to create a network of partnerships to be able to continue to develop a portfolio of molecules not utilizing our own internal capabilities and money by utilizing all of those that network of partnerships both at the operational at the financial level that you can develop outside.
how biotech's can impress Eli Lilly
Paul Larsmon:
There are plenty of small and medium size biotech's here today who would like to be part of that network, what are they need to do to impress Lilly?
Gino Santini:
Well there are number of things that we have done including with, with the smaller biotech's, for instance I see in the future probably a much more symbiotic relationship between the smaller biotech's or startup company and large companies like Big Pharma for instance, there could be situations where the small biotech needs money or needs non-diluted financing and we are very willing to provide that diluting financing through some kind of option deals where they receive money from Lilly in exchange for an option to bring the money back on the backend. We have done deals like the ones that we have done with some Indian or Chinese companies like Nicholas Piramal [PharmaDeals ID = 26307], [PharmaDeals ID = 29463] , Suven [PharmaDeals ID = 31951], [PharmaDeals ID = 25143] or Hutchison [PharmaDeals ID = 28114] where they have taken Lilly molecules, they will develop then on with their money and their own capabilities internally obviously we provide the technical support, but they do it on their own. And again we can bring the molecules back if they are successful for obviously a milestone payments and royalties on the backend and that's so far resulted in a very win, win situation. So there are, there are ways that we can collaborate. And other thing that we are doing, and this could be interesting for many of the biotech's that exist out there are we have our own internal virtual development tool that is called Chorus. In Chorus which is a group of 25 people that really that has the purpose of doing development work up to proof of concept in a very nimble and fast way totally outside the walls of Lilly utilizing this network of advisors or CRO's and we have a track record in our Chorus of about 25 molecules that is being very positive a number of those molecules have been brought back into the Lilly portfolio because they were successful and when you look at what it took to get to their proof of concept you can say that both part it's have the money, have the time of a full blown internal development process. So, that is particularly important for the molecules that fail, because you don't want to spend a lot of money and time with the molecule that fail with the molecule that succeed this rate that you might have to redo some more, but there is a lot of savings in utilizing that. We are really expanding the capacity by cloning Chorus by two or three times, and we will have that development machine that can be made available to external molecules or may be you may could be made available for people that provide external financing. So we see a model there where you have a molecule you do not need to create a company to develop that molecule, why don't you put into Chorus we might even find external financing for it and you get to proof of concept in a much more efficient and faster way that you would otherwise do. This could be a candidate for instance for the number two or three molecules in many of the biotech companies that by the finish they need to focus on their lead compound and they have to leave on the shelf number two and number three because they don't have the resources or the time or the money to do that. Well this is one fast way to get to the answer that you will like to have and then decide whether to move forward the molecule or sell it at a much higher price.
how Eli Lilly can help biotech's
Paul Larsmon:
Because when we were speaking earlier you said that you thought that biotech's do have problems which you can help resolve?
Gino Santini:
Well I don't pretend to claim that we can resolve of the " the issues of biotech, the observation though is that, biotech are some wonderful entities. And then the one thing that the biotech have is when you create an organization that is totally focused on one project you can get a lot of dedication and there is (indiscernable) evidence that when you have a small team, fast decision making they have to work with relatively little money they can be very, very effective and very efficient and fast. The issues that in aggregate and the realties when you look at the aggregate number that doesn't seem to show, while you have some great success stories but you also have a the non-great success story a number of failures and also we see " and we see that particularly during our partnering process. We see a number of projects that have been kept alive a lot longer that they would have ever lived inside the portfolio of a big pharma. And if you think about this kind of humor [ph] I mean in big pharma you have a big portfolio to manage, you have budget constraints what doesn't meet the threshold, gets cut. I mean there is always some internal advocacy but the reality of the budget constraint is pretty obvious and you have to prioritize. I don't think biotech's have really an efficient way and opportunity to manage a portfolio may be the investors think they do, but in reality a management team of a biotech company would love to continue to invest on a project probably longer than it deserves. In the aggregate I believe that, that creates and inefficiency in the current small biotech system. The system that I described before where you have an organization like Chorus where the 25 people in Chorus they manage 15 projects and they're not rewarded for success they're rewarded for finding the truth and when they find the truth that there is nobody that has an incentive to continue to invest in something when it's not worth for anyone. So that unbiased opinion of this development organization hopefully will address some of that inefficiency issue that is probably intrinsic of the current biotech market.
regaining the public's trust by increasing transparency
Paul Larsmon:
Now in that speech recently your CEO identified some of the major challenges and one of them was he said that he felt that pharma had lost the trust of the public, now if you lose the trust of the public how do you get it back, that's a big job isn't it?
Gino Santini:
Well this is a big job and probably we have reached the trough [ph] of that two, three-years ago when, when in fact we were the subject of a number of those Qoute and Qoute scandals associated with our promotional practices, associated with the non-disclosure of some of the clinical data that obviously the public media took on and made sure that they were exposed, but I think the pharma industry on aggregate owns a good part of that responsibility. In the last several years we have taken some significant steps. Our relationships with our customers particularly with the physicians through the adoption of the good promotional practices which are a lot more restricted than they used to be in the past where you virtual eliminate all the entertainment, you virtual eliminate all the activates that were really very difficult to justify in the public eye. So all of that has been eliminated. There now you have the -- has been introduced already every clinical trial that is run goes into a big public database so therefore nobody will have an opportunity not to disclose data of a clinical trial even if the data are not in support of, of their products. So that has created a lot of transparency on the dissemination of scientific data. And as of recently Lilly has been the first company to actually introduce the system whereby we publish and I believe most other companies will actually follow soon and they've said that, but where we put on a public database every dollar that we pay to every healthcare professional for professional services that they provide to us. They're legitimate[ph] because they do provide a service that we need and require to develop our product, but all of that it would be totally public information and therefore we increased the level of transparency. I am confident that as we continue to do that we eliminate some of the sore points that has tainted the image of our industry.
justifying the cost of new drugs
Gino Santini:
The last point which I am not sure whether we will have a solution is the pricing issue. I am sure that the public will always have a hard time understanding and justify why the industry has to charge such high prices for some of the revolutionary innovative products that we introduce. I hope that at the market place and that's why this is an opportunity to actually make a pledge for let's continue to have a marketplace in this country and not that the healthcare reform will end up eliminated a free market. But I hope the market place takes care of all the products that have legitimate competition. Today if you want to introduce a cholesterol lowering agent you have to compete with the generics patents, and I think that marketplace is really working very well, there is pressure there that forces you to do that. Now however some of the new biologics they've require humongous amount of investment right now, the estimate is about between 1 and $1.5 billion on average to bring a product to market and the only way to continue to motivate the investors, to invest that type of money in a new product you see " you have the opportunity once the project is on the market to charge what the real value is. That is not an easy message for the masses [ph] that's not an easy message for the media, and this is one issue that we will as an innovation industry we will continue to need to grab up because obviously we are talking about health and health is given for granted by most people and the reality health in the future will continue to be more expensive than it is today if you want to have innovation. So all the other aspects we have taken care of the aspects of their pricing will be one that will continue to be a challenge for us.
Filling the pipeline with new innovative molecules and devicing new mechanism of business model on networking, partnerships and external financing
Paul Larsmon:
Okay. Later today you are gonna be sitting on a panel called "A Day in the Life of Experienced Dealmakers" what's so gear in the life of an experienced dealmaker like you have been?
Gino Santini:
Well, let me give you what our priorities are, priority number one for us at least at Lilly is " how do we fill the pipeline. The pipeline right now has some gaps and if you want to continue to enjoy the growth in the future that is consistent with our, our expected or on a long range plan, but we need more molecules, so this is the good news for the biotech in the audience that have new innovative molecules that have good value. We, we are really hungry for those, so whether it is through licensing deals or changing control we are really scouting the environment and we are really looking for, for those molecules to bring in. And so, and this is priority number one, however I am actually spending just as much time to really device those mechanisms that help us change that business model. In our case when we say the business model are producing innovation will need to come from a much more network environment, it means that working with partner, having partnerships, finding external financing for many of our products in decades the experience that we have through our own corporate venture fund has really taught us a lot in terms of how to relate with investors and how our investors relate to mechanisms to produce innovation that we are really leveraging now on the type of deals we are making to create that new company that I described to you before. So well half of my time again is spending to bring in molecules, the other half is in fact dedicated to how was the new model working and that implies in fact how do we deal with many of those molecules that do not fit in my internal capacity, but I have to locate and find a way to develop those outside of the Lilly walls. And again I am spending much time on, just as much time on that too.
Paul Larsmon:
Gino Santini, thank you very much for joining us.
Gino Santini:
You're welcome, been a pleasure.
Gino Santini
Vice President, Corporate Strategy
Gino Santini was named senior vice president of corporate strategy and business development in June 2007. He is a member of the company's executive committee and is also a member of the senior management council. Gino Santini was born in Cesena, Italy. He received a degree in mechanical engineering from the University of Bologna, Italy, in 1981 and a master of business administration degree from the University of Rochester in 1983. He joined Lilly in 1983 as a financial planning associate in Italy and has held various positions in the financial and marketing components in Italy and Indianapolis. In 1990, Gino Santini was appointed pharmaceutical director for the Lilly affiliate in Belgium, and in 1991, he was named general manager of Eli Lilly Compania de Mexico in Mexico City. He served as area director of Latin America from 1994 to 1995. In 1995, he became vice president of corporate strategy and business development with the responsibility for the public policy and development group added in early 1996. He was named president of the women's health business unit in 1997. In 1999, he became president of U.S. operations. Gino Santini is a past chairman of the board of the National Pharmaceutical Council. In addition, he serves on the executive board of Noble of Indiana, a nonprofit agency serving individuals with developmental disabilities in Central Indiana where he also served as board chairman. Mr. Gino Santiniwas recently named the 2009 campaign chairman for United Way of Central Indiana. He will also serve on the board of directors for United Way.
Eli Lilly
We were founded by Eli Lilly in 1876, and are now the 10th largest pharmaceutical company in the world. We have steadfastly remained independent, but not isolated. Across the globe, Lilly has developed productive alliances and partnerships that advance our capacity to develop innovative medicines at lower costs. Lilly is consistently ranked as one of the best companies in the world to work for, and generations of Lilly employees have sustained a culture that values excellence, integrity, and respect for people.