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

25:14And 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 there's sort of this incumbency problem in healthcare, like many things, but particularly in healthcare, where the last thing in is scrutinized the most. And the base stack of services and products we use is never revisited. It becomes standard of care. But displacing that in most therapeutic spaces and in the healthcare system in general is extremely difficult. I think we suffer from that here.

25:47If the first medicine we had to treat metabolic conditions was terzepatide in 1972, I have no doubt it would be reimbursed everywhere and broadly used in the system. But they get the ratcheting effect. Thing are just stacking on top of it, and it's difficult to remove benefits. It's easy to deny new ones. And that's true in government-funded systems, but also at 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.

26:37But I think we are conditioned to think of someone who's overweight as someone who is not disciplined. The data does not show that, actually. Like our ancestors roaming the plains or the whatever, the tundra of Ireland, walking across the ice bridge from Norway, we're in a background of starvation. And there are very few humans on earth that have a genetic background that has any limit on food consumption. It's irrational. It's a wasted piece of code. It did no good. Now, today, in today's environment, we're in the flip, the complete flip, especially here in the US. There's food everywhere. We walk.

27:15I came across your stat. What would you guess the average caloric consumption per day in America is? 3 ,600 calories. Yeah. That's incredible. Yeah. That's really - And here's an interesting stat. When you're on our medicine, how many fewer calories do you consume on average? On one of the GLP ones? You don't need to swing it that much to cause meaning - 800 calories a day. It's 800? Which is almost a meal. Yeah. If you go to pull up to In-N-Out Burger. That's second breakfast right there. Yeah, it's second breakfast. Exactly. So that's why people lose weight so successfully. No wonder all the food companies are so worried.

27:48And the trick is people lose the weight and they don't feel miserable. So here's the thing about being obese is people, when you start to gain a little bit of weight, your set point sort of readjusts. This is the missing code we have. And there's only one direction, which is up is better. And the more up you have, actually the more hunger it creates, hyperinsulinemia, which is a hunger-stimulating hormone, and it sort of starts to overwhelm the counter-regulatory system, which is incretins, GLP-1, GIP, the ones we were making medicines around, and you're out of balance, and there's no going back.

28:24And 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 of it. People feel good and lose weight. If you have a medicine that is recurring, and it presents an 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.

29:03It's one time. Yeah, one and done. Exactly. Is it in practice possible to charge enough upfront such that as a company looking at its portfolio, you are in fact neutral as to which it is? Because from first principles for the patient, it's way better to do it. I think you asked about a value perception problem. And I think we need to overcome that. We're doing that by studying and all these other conditions. People recognize these conditions and then 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. I'm talking about perception.

29:36I think he's talking about reality. Yeah, you're talking about actually pricing, which is why is it that the industry has evolved to have a unit pricing model? It would be, it's back to like a shrink wrap software world, right? Where you're basically just shipping a box and all your value has to be captured upon that invoice. That is how we price all medicines. You're currently in the SAS model, and tech people know that SAS is way better than the shrink-wrap software business model. Yes. And genetic medicines are shrink-wrap software. Exactly. Wouldn't you be crazy to go back, even though it's better for the patient?

30:07Yeah. So we have some genetic medicines coming, and we're thinking actively about this. For instance, we have a medicine development that will knock down your LDL, if it's safe enough, with a one undone PCSK9 edit in your liver. And presumably, that will last the rest of your life, and your LDLs will be between 20 and 40 forever. It looks like an amazing drug. Yeah. Of course, there's problems with these delivery systems. We have to rule out safety. But let's just say it works. How would one price that? Because you're displacing a medicine that costs, I don't know,$8 ,000,$9 ,000 per year. Right.

30:39We 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 SAS model, where you say, we'll do the procedure for free. And as long as it's working for you, you will deposit X amount in our bank account. and you're getting the value and we're getting paid for our research.

31:19If it doesn't work, so that invokes a warranty as well. That's an interesting idea and one we're thinking about for these more common, because so far gene therapy is mostly for uncommon things where they've just charged it and someone's paid. But for common gene therapy to really be unlocked, this has to be solved. 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 that we have ended up with.

32:00I sometimes think about off-label use is very valuable in the U.S. system. You can imagine another universe where we hadn't ended up with off-label use being permissible and things like this. 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? Well, yeah. Thanks for the question. I love to talk about this. So I think a lot about this. And I think if your point of view is that we want more new medicines, like that would be a better outcome for the world. And I am too.

32:40then I think there's definitely many flaws with the current system. Strangely, most of the discussions I have about this are actually we have, they don't say it out loud, but there's enough new medicine. And what we really have a problem is affording it. Now, interesting fact, in the US, the most expensive healthcare system in the world, we spend 10 cents on the dollar on medicine. The other 90 cents go through everything else that medicine's trying to prevent. Go back to 1965. I think it's even less than 10 cents. Branded medicines are eight. 2 % is generics, which is 90 % of the volume. That's an even better deal.

33:14We have to get to generics. Yeah, yeah. But go back to 1965, Medicare and Medicaid were invented. We've gained, I believe, eight life years of life expectancy since then. And most studies would say five or six of those are due to medicine. Yet think of the cumulative expenditures by taxpayers since that time. It's not even close. We should be saying, who can we give money to to do more research? Because this is clearly a better way to get through life. The direct way is the NIH. We could talk about that if you want. That has limitations because it's institutional government. But the private market self-funds, either through capital markets or through our R &D line.

33:50And there would be a lot more funding if we had an idea of price stability or a longer return period. That is definitely true. The patent system is what it is because of former rules. Moving it out in time seems exceedingly difficult in this climate. But actually - Despite the fact, of course, it's shrunk because of the longer approval timeline. It's de facto shrunk. Yeah. 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.

34:30Government price intervention always works out well. Yeah. Right. It doesn't produce surpluses. Let's put it that way. You don't get more medicines that way. So it's actually, it is collapsing, I think, in investors' mind. And you can see that in the capital markets. If you look at the large-cap farmers, not Lilly, but the other ones, the multiples, 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. Yeah. And then if you look at - Because of this. Venture, half of the rounds last year were down rounds. This is not a positive environment.

35:03Would 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 the competitive ecosystem and the ability for fast follow. 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. We've solved clinical trials separately.

35:37So they're not right back there. That's a way to get there, right? Is we could simplify the regulatory framework and have longer return periods and increase returns to investors and get more investment. That's actually a real idea. But typically in classes by sort of the horse race and accidents along the way, it's pretty uncommon you end up with one medicine. Often, you'll get many. We can talk about GLP-1s for a minute. we only have two right now, but there's probably 80 in clinical pipelines right now globally. We have 11 others, but there's probably 70 others not coming from Lilly. So there will be tons of competition.

36:10But the history shows that back to this medicine incumbency, once two or three sort of get in the works of things, unless you're kind of different, nobody really uses it. And pricing strategies have not worked. Now, they don't work until there's actually a by a similar or generic event. Because here, it's not a, hey, I'm$100 and you're 90. Typically, a generic event, you'll lose 97 % of your pricing the day your patent expires. So this is a fantastic deal for society, but a terrible situation for an inventor. And if you came along late, hoping to induce competition, maybe even were half off the originator.

36:51Now you're half off is 90 % lower. So, there's no return. So, in order to simulate and to catalyze more R &D, one thing we could do is we could extend the 20-year window. What else can we do? 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 XUS markets, I would point out a few of the commonwealth markets are different. They've tried to implement a price for value scheme. Because they're single payer? Well, most are single payer outside the US, but because they chose that path instead of a negotiated outcome or something.

37:31But 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, et cetera, get a very good deal as well, approximating the government.

38:06And then smaller insurers and smaller employers get a worse and worse deal. That's the way we do it. But what it means is that manufacturers compete mostly not on value, but on the pricing offering, on sort of the difference between the spread, between the list price and whatever that person got. Making it even worse, a number of intermediaries in that system that bulk buy take their returns on the percent off list. So the higher the list, the better they do. And I think that's a terrible incentive. these PBMs, and there's some group purchasing organizations like this. That should go away. And I think health is different than other commodities.

38:47It 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 can be informed by really independent intermediaries who study these things, look at all the claims records, look at how people do on the medicine, weigh the risks and benefits, and produce pricing.

39:24That happens in lots of other markets, bond pricing. Lots of people do this for a living, just not in medicine. I think that could be a useful tool in the US system so that if you produce a truly surprising and positive clinical trial result, you could actually charge more. And that would induce other people to say, oh, let me go for higher risk, more valuable indications instead of just do the base that gets you in the door. Now negotiate with the commercial team to drive more return. Oh, the patent clock's running out. Let's go to the next medicine. I think that's not a great system right now.

39:57There's the much discussed, like maybe the top discussed topic in pharma that people know about generally is pharma pricing, the disparity between the US and internationally, where all the cost is in R &D, the cost of actually producing the drugs is fairly low. And so single payer healthcare systems internationally pay very low prices. And so the R &D cost is borne by the US. And the biggest problem is not only like at the margin, maybe You have fewer drugs developed because this phenomenon, 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.

40:45Which no longer exists, by the way, because we fixed that. But that was like the hot topic for such a long time. And that's a classic example of this commercial environment I spoke about. I mean, our actual net on insulin really hasn't changed. It's like$30 or$40. But the list price got up to$275. Why? We were competing on the spread. And so that just drove this huge... So you're competing on the spread. What do you mean? Okay. So insulin. So the latest versions were launched in the 90s and 2000s, but they got quite along in their life cycle. Because... As in close to the end of the... Well, they were past their patent window, actually.

41:19But 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, we'll come back to that on GLPs as well, same players, had a lot of capex in 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 we were - Who's getting the 235? Yeah, so middle actors. And so big PBMs like UnitedHealthcare Runs and CVS and Express Scripts, we're offering to employers and others, the government as well, we will create an auction.

42:04And in this auction, we'll get a take on the percent we save you off the list price. And you'll get a lower price than you could on your own. And we will create an auction by, and 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, 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 a high list price and a low net price. So we competed on this.

42:37What did we do? We kept raising the list price and modestly lowering our net price. That was how the market evolved. And after 10 years, you had this huge bubble, gross to net bubble. And who was paying? Okay, so you weren't real - No real payers, but the person who walked in the pharmacy with no insurance. They had to pay that. That's outrageous. That's what I mean. That should not exist. We were able to disarm that through a number of actions. But the critical first one was we went to the government and we said, we don't want this problem anymore. We're an innovative company. It looks bad for you.

43:07It 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 Lily on the bottle. It says Insulin Lice Pro, which is the generic name. And we priced it really cheap, like a third of the regular product. Similar net price, actually, but quite a bit less. Interesting fact, that launched. All these insurance companies and mental people called me and said, why did you do this? I said, well, because we're trying to lower insulin prices. They said, don't.

43:42This 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. You know, I think we can get into differences between the US healthcare system and the rest of the world where the U.S. has a very vibrant private health care system that is kind of weirdly unpopular, at least in certain parts of the political discussion.

44:22But there's choice. That's amazing. R &D. Actually, let me just answer that. So it is true. If you fund, if you went out and said, hey, I want to back some biotechs, and they sent you their business plan, 80 % to 100 % of the revenue in return they'll pitch you on is the U.S., meaning there is no return outside the U.S. if you start at the point of origin of the idea. Now, once we get to the market with a product, it's not sensical to not market it in these countries at whatever price you can get because your R &D is paid for on the US launch. So here you're just margin gathering. But it's the free rider problem.

44:56But it's the free rider problem. But to John's point, this seems increasingly politically untenable. I agree. Americans are waking up to this. We should get rid of it. It's actually not good for our industry either because you get a skewing in addition to the social problem. So what does everyone do? they tune the R &D model to the US healthcare problems, when actually we're 5 % of the world population. So shouldn't we tune it to the global health problems and reward the global health problem? Yeah, well, we're 25 % of GDP, but nonetheless. Okay, 25 % would be a much better improvement than over 90.

45:28When you say we should get rid of it, we should solve this, how? Yeah, so I pitched this idea to this administration, actually, which I call the one fair price. You're good, Brandon. Yeah, yeah, yeah. We're learning. I need a hat. I need a hat. Yeah, yeah. OFP. Yeah. But the idea would be that manufacturers introduce at 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 sensical to the GDP of those countries, GDP per capita. Because the ability to pay, I think, should largely be borne by more wealthy nations.

46:07That's where the surplus is. You introduce a drug that costs$100 in the US. Yes. You're saying it should cost on the order of$70 in the UK or whatever. Yeah. It's 30 % less GDP per capita. We would introduce it 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 100. We can not sell it there, but not because we're lowering it below 70. We have to charge them what we think it's worth. And you could do that today. We could. So why do I just do it? Why do you need a compact? That's fix number one. Fix number two is that the reimbursement system, starting with US government itself, we need to get rid of all discounts and rebates so that the product moves through the channel physically at one price and is reimbursed at that same price.

46:56You have to select that price. And here you're not price discriminating anymore. You have to sort of look at all the equities around that and say, this is the fair price that I select, and I'm going to live with that, just like other commodities and things we buy every day. And there's no skimming of that number. And with that, then, I think you would have two good outcomes. You would have a fair decision about who pays for the R &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.

47:32And if they price too high because it's indexed, they would not be able to do that. 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. Like just a number that you see, they're all lies. And that kind of has to lead to market failures. Yeah, could you imagine this? Like we go to a restaurant tonight and someone gives us a wine list and a bottle of like $100 Napa Cabernet is like$14 ,000. But then the waiter says, don't worry, that's not your copay.

48:08It's, oh, what's my copay? I can't tell you. We enjoy the wine, we have a nice dinner. Four weeks later, you get a letter in the mail that starts at the top by saying, this is not a bill. But it says the$14 ,000, and then there's a number of deductions, and it says, this is not a bill, don't pay this. And then later, you get an actual bill. This is healthcare pricing. But it feels like you'd pull on this thread quite a bit, and the next admins should, of just the numbers should mean something. Like the FCC does this a lot. They say that for consumers, numbers should be trusted. And yet we kind of let the health care system off.

48:43Yeah, there's no pre-posting of pricing. Now, with drugs, there is. So one of the things we get criticism, I push back, is like, well, because you can know a list price of a drug. Actually, the other 90%, you mostly can't know the price. Well, we've introduced regulations in the last couple of years mandating some degree of transparency here. Have those worked? Total failure. Yeah. If you look up in your region who has actually complied, compliance is terrible. Most major hospital systems have not complied. Or if they have, they put on a website somewhere a coded database that is impossible to interpret with ICD-10 codes and price points that consumers cannot digest.

49:21It's like the Hitchhiker's Guide to the Galaxy. It's a non-searchable. Beware of the leopard. You know, file, flat file with everything they have. That doesn't work. It's malicious compliance. Yeah, 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 asked, what's this cost? And the person gets irritated with me. Like, why are you asking that? I'm like, I don't know. I generally ask that before I consume things. I had a situation, my physician is attached to a hospital. Here's another terrible thing about U.S. health care, is that the federal rules require payment differences based on site of care.

50:00So if you're an outpatient clinic, which is theoretically cheaper, the reimbursement is lower, not because it's less valuable, but because it's cheaper to deliver. We punish that. We reward where it's more expensive, in a hospital complex. So my doctor's there. He's like, hey, you can get a blood draw downstairs. Why don't you go do that now and then come back up? So I went down there. They drew my blood. Five minutes later, I went to his office, the result was there. And I'm like, 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?

50:29Like, 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, you know, I think people are insulated from those costs, but in strange ways. Some things are deductible, some are not. And so it's really very difficult to make informed consumer economic decisions in health, and we need to improve that. The other thing I observe about the U.S. healthcare system, so Patrick and I both grew up in Ireland, moved here for college, and the U.S. has a very vibrant private healthcare system, which is different from kind of many other countries which have, you know, public government run and funded healthcare systems.

51:09What I notice is people just have a weird reaction to private healthcare. Private hospitals people think are weird despite the fact that, you know, you have much shorter wait times in the US than you have in many other countries because we have more kind of hospitals and all these new private outpatient kind of specialty clinics. But the biggest one is when people come to the US, they're shocked by pharma advertising. And, you know, they put on a sports game and just like the break comes and it's all pharma ads. And my understanding is that there's, again, a significant pro-social defense of this, which is many of these drugs are shown through all the extensive trials that, you know, we make you guys do to have a significant health benefit.

51:46And 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, you know, private for-profit healthcare. And so do you have a view on where this goes, what we can do about it? Yeah. Well, not having grown up in a system like Ireland, but I lived in Canada for a while, six years, so I was treated in that. I've seen it. Yeah. I find it weird the other way, because that's your conditioning. I think there's good and bad to both.

52:19I think actually we were talking about prevention earlier. To some degree, primary care. What I experienced in that country was pretty good quality care, very standardized, which has a confidence boosting thing when it's the same for everybody. That also in specialty care is implemented, but actually to kind of a negative result because take like diagnostics. 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.

53:03Why? Because I think they're focused on cost of delivery and evenness instead of exceptional care. So I think we've moved on that axis of like, let's offer something that could be the best and charge for it. Yet for common conditions, we've also moved on that axis unnecessarily. And so here you end up with hard, you know, oak floored primary care offices and beautiful drapery and furniture. That's the basis of competition instead of actually, it's quite a simple thing. You need your flu vaccine, like just get in and get out. And there's a third thing coming, which you touched on, which is prevention and self-care.

53:41And 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 sort of the chronic disease. And those institutions and those funding models are really poorly suited to that. And particularly so if behaviors have an input into that.

54:19Don'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 answer has produced kind of an institutional rationing model that seems very fair but actually produces poor outcomes for acute conditions. And the U.S., which is very expensive, also is unfair, but produces good outcomes for acute conditions, probably just the same for everything else, but costs too much.

55:03That, I think, needs to be addressed. In the future, and here, medicines plus information, I think, can play a really big role in disease prevention. In the past, we haven't been able to make... The age-old problem in medicine is this thing we call therapeutic index. That's the difference between a dose which is harmful and one which is helpful. And a therapeutic index that's small is difficult. You have to very precisely dose and people have differences. So it requires a lot of attention. But over time, the techniques we make drugs with, that therapeutic index, the TI we call it, is expanding and expanding non-linearly.

55:40Because of that. So why is it expanding? 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 prescenely 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.

56:18And the side effects look totally benign. That's a really wide therapeutic index, right? So now when you have that, you can think, well, my trials, I can run faster because I 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 glimpse of these. These are more invasive than what I just described, but pretty safe. People know how to treat themselves. You certainly know if you have overweight or obesity. You don't need a doctor to tell you that.

56:53And platforms like our direct platform have really taken off because it's self-paid, but people skip all this other morass in getting the 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 is getting solved. I think for prevention, that's an intriguing future, direct to consumer. 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.

57:33I think the, I mean, to some extent, you can bucket biotech and pharma separately. Obviously, the lines blur, but there's kind of two poles. And I think it's very striking the extent to which, as far as I can see at least, the introduction of new medicines, new molecular entities, whatever, is increasingly dominated by biotechs. And you would know the numbers better than me, but I think that around two-thirds both of the revenue and also of the, just by count, the introductions themselves are attributable to biotechs rather than to pharma. And so I guess I'm just curious how you think about this landscape.

58:09I mean, maybe there's some view where the role of, in an extreme, one role of pharma would be to be a kind of private equity portfolio manager, where you take stock of the landscape and you look at who's doing well, whose approach you believe in, et cetera, and you have the risky innovation be done by earlier stage entities, by venture capitalists, what have you, and then you bet on winners, you go and scale them, and you distribute them. One model. Traditional model is actually, no, you have all these internal R &D capabilities and you're vertically integrated and you meet economies of scale and so on and so forth.

58:46Are we shifting there? Where between those poles ought we be? How is it changing? Just thoughts in that whole landscape. 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.

59:22I think your head's in the sand if you're doing that. We're running a third one. The other two are viable. The hybrid. Yeah. And why do we make that choice. I think we observe a few things. First of all, while it's true that the origin of, I think it's a little more than half of medicines approved in the last 10 years have come from biotech, hardly any of those traveled all the way through biotech. Because there are, as we talked about earlier, huge checks to write and risks to take. And the biotech investor base is not interested in those risks, those very binary, large checks. Whereas we can absorb them, we can run a portfolio across many of those.

59:58There'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 300 or 400 people, about right, with a focused mission, allow for some deviation, put some outposts out there.

1:00:38The act of invention has to see economies of scale. Yeah. So we started in San Diego. We built a monoclonal antibody biotech hub there. It's produced like a third of the medicines we've made since we started. Hugely successful. There's 400 employees. So it's like a biotech, but it has some benefits. 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. Why is it good to be small? Why is it good to have the 400-person center in San Diego and not the Indiana super center? I think it's good to be big on clinical trials because you're doing global reach.

1:01:12It's a scaled operation, manufacturing, distribution. Discovery? I don't know. Now, we have people who look across, and I think there is a benefit in being in a tribe, but I think it's also good to have some independence. There's a long list of pretty compelling inventions that came out of Lilly that were not sanctioned projects. And so that tells you something, that curiosity and sort of the scientific endeavor. When sanctioned in what way? Meaning it had a budget and had a number and a name and whatever, and it was, or pointed at, Like, oh, here's a target. Go put a team around that and come up with a medicine.

1:01:49That 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. Have you guys formalized that like Google 20 % time or there are some people are just doing curiosity? It depends on the area. But we have this allowable variation idea. Is that the phrase, allowable variation? 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.

1:02:24And let's see what happens. That certainly worked. We built a big site here. The let them cook school of farm innovation. Yeah. It's a thing. I can see this as a book. A lot of farm innovation is iterative, right? So the other problem is people quit too soon. So back to GOP-1s. is this story's been going, we launched 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.

1:03:03So that's not like light bulb, single scientists 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 a dual acting, it'll be better. We wouldn't have gotten the right answer. This is all about your internal innovation. So that's running. Yeah. Where did the biotechs appear? And why do we do this? One, it is productive for us. And I do think we've built the capability to frankly make more molecules with more drug-like properties. So by the time you get to that expensive escalation of clinical trials, the drug's behaving like a drug. Some of that we talked about earlier with AI and other tools we can equip.

1:03:41So these things tend to work. These things don't. It's pretty empirical still. We don't know all of biology. Some of it's just know-how of the chemists and the scientists. But I think when we buy biotechs, often we love the target idea. We love the novelty of what they did. It's just rather imperfect. It's an 80-20 they've done. And we will often take that invention, cycle back, and do a whole other invention loop to refine it further so that it is what we call a big pharma asset. So what you're buying is the proof that there's something here, but not necessarily the specific. Exactly. And if they haven't disclosed it and they've got a lead, that's very interesting.

1:04:15But 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 watch list ever growing because of China of entities we don't have an interest in, but are doing interesting things. And we want to we have all their events mapped out and we're watching pretty much every clinical or preclinical readout, every patent posting in the industry. We have a way to monitor. For most of its 150-year history, Eli Lilly's relationship with patients has been through pharmacies and other intermediaries.

1:04:53But that's changing. As Dave mentions, with Lilly Direct, patients can buy treatments like Manjaro and Z-Bound 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.

1:05:29Or 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 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 slash enterprise.

1:05:53So 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. It left. Companies like - So the Ampex side. Yeah, exactly. Some of the old Fairchild. Fairchild. Exactly. But you mentioned Cypress semiconductor, and people don't really know what you're talking about these days. The biotech sector started here in the 70s, I guess, and is still today reasonably vibrant, although to your point, it's had a tough maybe a couple of years. Chinese, the share of the global drug pipeline that was Chinese 10 years ago was, I think, in the small single digit.

1:06:29Approaching zero. Yeah, exactly. Right. And now, I think it's high 20s approaching a third. 30%. Okay. It's amazing. Now it is, in fact, 30%. Where does this go? And is there a U.S. biotech sector in 20 years? Or like electronics manufacturing, does the whole thing just go to China? I wouldn't predict that outcome. But I think we should ring the alarm bell right now. Is it bad? It's not great, I would say. I think for two reasons. One, if they can do it better and faster and cheaper and we get the drugs, isn't that awesome? That is good, especially if the last part's true. But I think the economy around biopharma, I think, has some unique properties that should make us want to own it.

1:07:15One is, it is in the knowledge economy. To me, sort of the pinnacle sport. Paratomatic knowledge economy. It's the premier league of knowledge economy. You guys find to know people. I mean, the diversity of skill sets needed to do it well at the highest level of their game is extreme. I don't think it exists. Maybe rocketry. Maybe there's a few other things like this. But it requires a lot of talent. So it tells you how you're doing, I think, in a way. Can you integrate these? Can you train people, attract them from abroad, like you folks, or train them here and put them together in a way that produces new value?

1:07:53Okay, so it's a kind of shadow passing over the country if biotech... 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 also 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.

1:08:32And we're in an extorted position. Yeah, the EU has a huge controversy. And they're friendly, and we had open trading. But they have 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 in very, very quickly.

1:09:12I 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, still a big hub. We want to keep those. 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.

1:09:49and the huge amount of that coming out of the Chinese biotech sector. Doesn't that... But I think also some real... I have an SMB that seems real and good. Also real innovation. That's an interesting one. 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. Yeah, I think that practice is what I'm talking about with this sort of refine and replicate. And our own patent system forces this, right? So we have a, in 2011, the US changed the patent system to first to file versus first to invent.

1:10:24You used to be able to invent and sit on your patent. And all you had to do is prove, it was messy court cases, because your lab notebook said, oh, it was October of 2017, and mine says 2018, well, which was what, right? But now you rush to file. And the government, I think, has 12 months that they sit on that inspection. And then, what is a patent? It's a degree to publish your finding, right? To make it a public good. in return for that monopoly. But if the monopoly is debased by 30 Chinese biotechs who feed that patent into a computer, the computer then can imagine chemical structures that have one or two atom differences that don't fit within the patent, and then make that substance, test it, works just the same.

1:11:08You've created basically a shadow generic industry and undermine the patent system itself. I don't think that's a great, great thing. So was the shadow generic industry basically launched by first to file because we published the instruction manuals. I hadn't realized that. And do you think, is it your view, if you just switch back? No. What I would do is, if we want a sort of like an America first patent system or Europe first, we should do two things. We should create a belt and suspenders so that some patents are tricky to write. So there might've been an IP space that's been mined and people around the idea, but you had an insight that actually unlocked the truth, and there's like a thin strip.

1:11:50But 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 of 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 to 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 in US data. And that'll be more or less constrained to markets that don't care about that issue and don't have this data exclusivity provision.

1:12:32This already exists in biologics, by the way. So all we have to do is in small molecules. And this problem we're talking about is mostly a small molecule problem. The other thing we should do is say, if you are in a league of nations that really respect IP, those nations will extend this confidentiality period beyond the patent inspection period. That society will get the recipe well in time for a generic company to copy it later. But why does it have to be 12 months? That's a super short time in drug development. How about six years? Then that product is well into the clinic. The copycat nation can spin up in China, but it's not going to make a difference.

1:13:12So I think that those two solutions together would be what I'd recommend. The electronics manufacturing industry went to China for pretty straightforward reasons. Cost. Exactly. It's very labor intensive and I guess raw material intensive and just lots of reasons it's cheaper in China. But the software production industry has not. That is still here. To your point, biotech is an extremely knowledge and tacit expertise intensive space. Why is that one going to China? Yeah. Well, I'm not sure it's going. That's why I say I'm not sure the story's over yet. We're not at Eclipse, but a significant share of it has gone to China.

1:13:54I 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. We're not big domestically. Yeah, okay. Or Adobe, I'm on the board of that company, and I can tell you they have de minimis sales in China. But a lot of usage. 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 instilling.

1:14:32And we perhaps reform our patent system to protect that. And China has their own version. And there's good reasons they would want to do that. Because if we own all the medicines and there is another crisis, I'm sure they were deeply uncomfortable. In fact, they didn't even approve. they had rights to the 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.

1:15:09And 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 we're trained in the United States. That's all good. I just think we don't want it to move all offshore. 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 scrupulousness and stringency around clinical trials for new molecules and introductions and so forth.

1:15:49My understanding is that for generics, a lot of the external validation and certification happens at the manufacturing plant level, not at the individual drug level. And that for the individual drugs, it is substantially a case of self-certification and 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 rampant fraud and falsification and abuse of the biosimilarity analyses 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.

1:16:38And 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. And so I guess I'm, I mean, I know nothing about this domain. This is all just observed from afar. I guess I'm curious for your thoughts here. Like, does the generic industry actually work as well as we think it does?

1:17:18How much fraud is there in actuality? You know, when your kids or family or friends or whatever are taking a generic, you know, do you advise them to exercise some caution? Thoughts on this whole space? I think on the whole, the generic environment in the US, which is the most developed in 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. I mean, you say the generic industry in the US, do you mean those manufactured in the US, or consumed in the US? There are no generics manufactured in the US, really.

1:17:52So those that are licensed in the US and sold here. That said, and I say that because, you know, take an invention like statins or HIV drugs, or we invented Prozac, still the standard of care in treating depression. It's like three cents a day. I don't know any product you buy for three cents a day, but you know, that's an incredible value for the system. And back to the return on investment thing, somehow we have not articulated this very well. But the fact that we spent money in the 80s researching Prozac, and still today, There's tens of millions of people benefiting. That's a public surplus that should make us want more of those inventions.

1:18:33But anyway, digression. So in the 80s also, there was a change in the policy in the US, which was a trade to basically make it easier for generics to enter the market after patent expiry in exchange for less patent litigation. So there was a structured path to litigation. It wasn't just a free-for-all. It used to be in the 70s, 60s. The day you launched, You'd 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.

1:19:12But the day after the last ballot patent was 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 it's the so-called 5 % rule, where plus or minus 5 % of the active ingredient. And some dosages in some people are more sensitive than that. And I think some of those people have an effect. Also, there's this, 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.

1:19:51Some 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. This is to do like PK, but not efficacy. Yeah, exactly. And that is what they all do. None of them do efficacy. So that makes them cheap, and it makes plenty of them coming, 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.

1:20:33Again, back to the less binary regulatory, 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 non-economic to make these medicines in the US or Ireland, for that matter. There are some Eastern European companies. There's a bigger 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.

1:21:09And 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. So GLPs obviously were initially researched. The initial R &D was done for diabetes. Yes. And then it was noticed during the clinical trials that people were losing weight. Yes. 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're on a survey about GLP-1s, and half of readers of the information are on GLP-1s.

1:21:53In this part of the country. Exactly. As you can tell, it's not a normal reader. Anyway, so there's the weight loss. But maybe in as much as Silicon Valley is some kind of harbinger of things to come. Could be, potentially. Early adopters. So there's this big weight loss discussion, and that's the, Ozempic is obviously a different brand name for a different drug, but people are very familiar with this. But now it seems like we are starting to figure out there are all these other potential benefits of GLPs that do not seem to be fully explained by the weight loss. And so there's the cardiovascular benefits.

1:22:25There'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? Explain. So first of all, it's different from what you just described as this accident. because actually we knew, and we were involved, we launched the first GLP-1 in the world. You're saying this is the triumph of rational design? 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.

1:22:59We 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. When you eat a meal, which hopefully we'll do later, our gut actually communicates with our body, 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. All that process, insulin is released to absorb the nutrients, is kicked off by incretins. This was discovered in 1971, basically, called the incretin effect. It was a scientist who noticed that if 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.

1:23:53Interesting. It's called the incretin effect, so that the local process of ingestion through the gut created this other thing. That scientist and others then isolated GLP-1 and another one called GIP, actually isolated first. GIP and GLP make up terzepatide, which is zepan and manjaro. GLP makes up semaglutide, which is azempec, and was also exendetide. The problem with these hormones is our own versions have a half-life of like five minutes, so they don't make very good drugs. If you take that protein and sequence it. People did this. You'd have to walk around with an infusion all day. The longer lasting action was the invention.

1:24:32Was 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 zoologist was testing the interesting properties of Gila monsters and noticed and 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, half-life.

1:25:06So 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, 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.

1:25:44But 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-1 called dulaglutide. We stuck the protein, the native sequence, to the backbone of basically a monoclonal antibody to extend its life. Novo Nordis did a similar thing. That became semaglutide and nozempic. And then we put the original two hormones together, GIP, GLP, and trisepitide. which is better than those in terms of weight loss and A1C control and everything else.

1:26:21And so with those tools, we're now exploring this terrain of what is linked to this pathway. I would say most of what we know and have proven is actually right on the obesity target. So if you think overweight has these untoward chronic overweight, untoward effects, our ancestors weren't chronically overweight, they were chronically starving, so we didn't worry about this, but now we worry about it, which are diabetes, type 2 diabetes, not the type one form of children, cardiovascular health, atherosclerosis, stroke, MI, peripheral artery disease, kidney and liver diseases, fatty liver diseases.

1:26:59These are all sort of right on that target. Adjacent to that are other conditions we think are more unrelated, but actually have a big, not a perfect Venn diagram, but close enough. One is like sleep apnea. It's like 70 % of people with sleep apnea, actually have overweight or obesity, polycytic ovarian disease. Young women get this and they don't ovulate. They can't have babies. So that's a fertility problem. So the circle widens. I think the two, 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.

1:27:40So 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 really 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.

1:28:26We have a study reading out toward the end of this year in chronic knee pain. It's going to work. And that's a weird thing, is what wait a minute glp1 chronic but if you follow that logic train it actually makes good sense there's also also inflammation causing the chronic inflammation plus it will measure the inflammation in the joint plus there's a mechanical loading yes with being overweight if you carry around a backpack of 40 pounds extra every day your knees will hurt more so sorry just like rain ones sorry yeah so you're just saying that um being over sated causes inflammation which then causes all these ostensibly unrelated downstream issues.

1:29:03Yeah, and you see this in chronic inflammatory diseases. So think of, well, the signature one is a skin disease called hydronatis supertiva, a terrible name, but people get basically boils. And it's almost completely correlated with excess body weight. And we have very expensive inflammatory drugs that have fancy targets and are monoclonal antibodies you 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, TALTS and ZepBound.

1:29:42That 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's pretty interesting. And there's a lot of these adult diseases that are inflammatory in their root. Of course, we'll study RA. We have studies going in Crohn's and colitis as well. So the brain stuff. Yeah. So clearly these drugs go to the brain and they signal the brain. I think the scientists say the major mechanism of that is actually not in the brain, but there's a part of your brain stem exposed to the blood system, your ganglion root, and it is detecting these hormones on purpose, which are saiety.

1:30:23But the signal being communicated to your nerve cells isn't as pristine as like 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're satiated. That signal gets translated into down-regulating dopamine and the desire for dopamine. And so like cigarette smoking drops precipitously. And opioid use disorder will test alcohol drops precipitously. Shopping. Yeah, your cheeky pint. Exactly. You have to be a zero alcohol pint. Shopping, gambling, these things have been observed anecdotally. These studies are being spun up and worked on.

1:31:02The category brain, which may be related to this axis, or there's another theory of, which is sort of, I don't know if people out here like do podcasts about, hey, I take micro doses of ZepBound, and I feel like I can code longer or whatever, right? they're back to your pieces of experimental hacking your body. I'm sure there are people in Silicon Valley experimenting abundantly with this. There is a theory of this that actually the glucose lowering mechanism in your brain only eats glucose. It doesn't eat any other substance. It's unique tissue that way. Of having ketonic kind of low glucose chronically actually improves brain acuity.

1:31:43And so people are probably experiencing this. They might be lean already and taking a GLP-1 and getting leaner, but they're actually, their brain, they feel their 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 out pretty soon in patients who have early dementia. That may work, and it may work for the same reason. It may also work because you reduce strokes, which is back to the cardiovascular axis. But yeah, I think we've stumbled upon here kind of a broad footprint, a broad impact zone of what these types of medicines can do.

1:32:20And there's many more coming. So neurodegenerative disease, Crohn's disease, psoriasis, cardiovascular disease, joint disease, exactly, all the diseases. What fraction of the population, let's say the population over 35, will be on a GLP-1 in in 15 years? Well, today in the US, we probably have 10 million people, maybe 12, if we include the compounded market, the non-approved drugs. I'm gonna ask for that, yeah. Okay. The official company line. Exactly, well, yeah. But it's really a fraction of the adult population, and even if you just take obesity, it should be 100 million. We have a long, long way to go.

1:33:02And I think we talked at the beginning of the conversation about coverage. That's, of 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. So the popularity of the direct channel where people with some means, I mean,$500 a month is a big ask. It's a car payment. But a fair swath of the US can afford that. It is actually the number one prescribed form of these medications is ZEP-bound self-buy. We sell more than that than our insured business. A new patient starts, and more than all of we go.

1:33:37That's very interesting. Yeah. So that's why I was back, the concept of like, okay, for preventative, maybe it should be on us. And how do we just make that cost effective and easier? And certainly there's a cost of your time. And shopping online and having a telehealth appointment is much more convenient. So the number has to go way up. The oral project I mentioned is a key part of that because we've literally already made billions of doses. and we are capacity constrained in some sense on the injectable systems. Unfortunately, there's not a good learning curve left. We've sort of built the scaled plants.

1:34:12We just have to build more of them. We've built six or seven of these mega plants that produce hundreds of millions of these injection systems. 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. The oral stuff has to work. 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.

1:34:46I would guess by the time we go generic, it will be a large proportion of adults. Statin's got to 40 million people branded. It's a little more than that now. has to be north than that. It's interesting that all the growth and statins happened even while it was branded. You'd expect a big bump after it went generic. 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 because I'm up at like 6 or 5.30, and I'm like, are you kidding me?

1:35:22How many ads are we running and everyone else? And often it's the same drug class like this. This cannot be productive. I have to say, 70 % of our spend now is not on linear TV. So most of the 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.

1:36:04Yeah, they won't actually be adopted. 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. Alums presumably help here. Could be, yeah. If we can get through the problem of convoluting the facts. You need to have education seminars for the MLS. If they weren't so trained on Reddit, it might be a little better. Let's train them on the New England Journal of Medicine. Okay, you've mentioned Reddit, and you just mentioned the microdosing of trisepidide in Silicon Valley.

1:36:44Not recommending, not indicated. Understood. Yes, do not ask your position. Exactly. But my understanding is the avant-garde Silicon Valley denizens, the frontier is really in Chinese peptides. 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.

1:37:27And 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 has gone to this. What is a Chinese peptide? It's an unapproved medicine that's never been tested in man and made in a Chinese lab. It might be what you say. This is basically the same source for the terzepatide compounded that people get. People buy that from things that look like legitimate companies. Some are publicly traded even that formulate them and are violating our patent and may be under FDA supervision or not these plants.

1:38:10Most 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 I don't like is they're stealing my IP. Partly, people got in this business. The rule that guides this, actually, they technically should not be doing.

1:38:46Some 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 terseptide, even though you can buy six different dosage forms because they need a dose in between these six. Or, oh, the efficacy is boosted by vitamin XYZ. 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.

1:39:25They're all based in like Long Beach. 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 with it. At some point through that process, you would suggest there are several clues. I would suggest you'll advise it. Yeah, and it's not going to end well. And there are people who have had chronic kidney failure and liver, permanent liver damage, and I wouldn't do it.

1:40:01So 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 insurance coverage, which is expanding every day, or just through competition. 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 the place of Genentech, but also payments innovation. Yes, here we are. We're working together on the Eli Direct stuff. Maybe you can talk a bit about that.

1:40:33Yeah, so this, I mean, talk about accidental experiments. So this came out back to the insulin story. The person who was running our U.S. business, commercial business, directly retired, and I didn't have a suitable candidate internally, so I thought it would be a good idea to go back to that job I used to do and be the CEO at the same time. Oh, this is very inspiring. The team in the U.S. didn't find this inspiring or a good idea. But I was, you know, kind of the business was changing and the rise of the consumer, communication on digital channels. We were pretty old school at that time and I wanted to modernize it.

1:41:07And so I dug in. And one of the ideas that came out of that was, hey, why don't we stand up our own pharmacy and sell directly to patients? And then people were like, well, first of all, the existing pharmacies, and there's only like three of them, will hate us. And so that seems like a bad idea. And secondly, we know nothing about running a pharmacy. So 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 de-escalating this insulin bubble and getting to sort of true pricing being in the market.

1:41:41And one of the fights we were having was with a large PBM company that also owns a pharmacy chain. And we were worried that they actually, a different pharmacy chain, actually threatened not to carry our low-priced insulin because they couldn't make enough money on it. So I just looked at him and I said, this is what this was for. This idea that's been on the shelf, we cannot be beholden to this. We have to have a route to market ourselves, which we had not had since the company was founded as a pharmacy, actually a freestanding pharmacy before any regulation. So it was scary, but we cobbled it together with partners and now we do more of it ourselves.

1:42:16And the first idea was like, make sure people who need insulin to survive can get it at the lowest price. We sold a little bit, but not much. Then we launched our migraine medicine, which was having trouble getting insurance coverage. Sold a little bit more. Then we launched ZepBound, and we said, ah, this feels like the killer app for a direct-to-patient experience because the diagnosis step is dead easy. Everybody knows. Everyone has the biomarker tool in their bathroom. It's called the scale. They can know if the drug's working, and we can offer telehealth post-pandemic at scale. It was out there to a third party to advise patients if that was the right choice or if the NOPO product was the right choice or nothing.

1:42:52And 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. 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... They leap, right? They leap across. Well, they're discovering the value of having a direct relationship with the end customer.

1:43:33And of course, I'm on the board of Adobe, a software company, which is, this is now in the final stage of evolution in the software industry. But I found it fascinating when I first arrived that 90 % of the revenue was off a website that they ran. I thought that was great. What? This is a great business, a very low-cost business, very low-cost route to market. We're very in favor of selling stuff on websites. Yeah, exactly. I'm sure you are. You had this insight even before me. And so, yeah, that leap is happening. Now, healthcare has been a hard problem for tech, I think, which is interesting because you have all this bricks-and-mortar mess.

1:44:07You have a lot of state-level insurance regulation. You'd think fintech would have gone after this a lot sooner because it's 20 % of the financial economy in the country. Well, I think this podcast makes clear that there are nuances to the sector. Exactly. I guess so, yeah. 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.

1:44:46And 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. We've been having this conversation for quite some time, and we haven't asked you - With one beer. We can rectify that. But we haven't asked you, maybe one of the first questions that we ought to have asked you, which is, Eli Lilly is the largest pharma company in the world.

1:45:26Why? Well, in simple terms, we are kind of a rare situation right now. in that our growth rate is high and our profitability is expanding. And we are in an early in cycle of this invention. I think Wall Street believes to this being GLP-1s, which is driving probably 80 % of the economic value of the company. Our market cap is about - You think Eli Lilly is a GLP-1 company with a - Sidecar. Sidecar. 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.

1:46:10Their market cap's between$1,$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 long our stock, our belief that perhaps this cycle could be different, this cycle starting with GOP-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 of franchise.

1:47:06Thank you. And I think so far the evidence is pointing that way. Have we fully evolved to a mature version of that? No. Have we created like an ecosystem around ourselves like Apple has done? No, no. Those are all opportunities for us, but you can kind of see them. And self-care is an innate desire. 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. You said GLPs are one of the biggest drivers of the business. Eli Lilly is growing at about 30 % right now revenues. 40 year to date. Oh, my God.

1:47:40We'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? Stripe's doing pretty well, but... NVIDIA must be... NVIDIA is the highest. I think they're over 90. Margin plus growth. CoreWeave? No, I think that's... You're talking to the CEO of Eli Lilly, please. So top 100 market caps out of here. Okay, yeah, yeah. So it's based quite close to where we're sitting. Genentech? Broadcom. Of course. Yeah, of course. So the hardware guys in AI are killing it. But I think what's interesting to me, they're trading at multiples above ours.

1:48:21there's a belief that their cycle is somehow longer than ours. And I think Tersepidide's US patent is late 30s, or foregropon 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. Well, I was going to ask some questions about that. So first off, Novo is growing in the teens. For two companies with GLP offerings that are working, why are those growth rates so different? We're taking most of the growth in the market. OK, so just your product's working better. Right now in the US, across all forms of GLP-1, on new patient capture, we're basically 70%, 75 % right now.

1:49:04So almost 3 to 1. And then it's a high carryover business. I think we're 60-40 on the total. And so we're just getting mostly growth. What would you guess Elinil's PE is? forward v I was using trailing 15 50 oh my god so what I was going to ask is we're talking here about the sector is like 12 exactly you're correct it was a very good game I was thinking high end of the sector your priors were good but where I was going with this is if you're listening to this podcast I think you may be coming away thinking wow pharma is hard. Like, good God, there's so many things, and things roll off patent, and we have the Chinese competitors and things like that.

1:49:54So what is it that investors have confidence in? 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 gonna win policy, this and that, the commercial strategies. That's the 20, the 80 is this.

1:50:35And 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 tack the investment and allocating a meaningful part to ideas that may not be obvious today, but actually are big problems without markets. And we're drawn to those. That is the third box. That's about pre-existing markets. Yeah. I mean, there's illnesses, but they're not medicines. And I think a lot of companies don't work that way.

1:51:13They look at, okay, where's their payment? Where can I recoup my investment? Versus where's their problem? And maybe our situation - Jensen in video talks about how he loves$0 markets, and you're describing some of those same contributions. 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 in a way, 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-1-like category.

1:51:54We're doing this study now that I think will be quite interesting that it's gonna 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.

1:52:28When 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 well, if the returns aren't favorable, we're not going to pursue the investments. You'll never know if it was too expensive. Exactly. Yes, and society wants more drugs and not fewer drugs, and there are many diseases that have not been cured, et cetera, et cetera. And we've, of course, discussed these in MX 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 2x, 3x, 4x increase in the realized drug price of every drug across the board.

1:53:22does 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-GLP1 world? 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 good, a positive return R &D stack. And we are doing that. And this year we'll sell 60 some odd billion.

1:54:08So you can tell you get to the 14 billion and next year that'll grow by double digits. And so we should try. If revenue goes to 120, you know. I would try to spend 20 % of that, which would then approximate the NIH. And I think that's a frightening thing because, well, how many ideas are out there? So I think, of course, we should do more of what we're good at. We should be bounded by our own capabilities. And we 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.

1:54:47We 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. 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.

1:55:20They're paying for a medicine for someone else. You're saying that the purchase of this GLP-1 is also a kind of subsidy for cancer R &D. And I was just to add on the R &D, the other thing we're doing at some scale is actually trying to create a 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 venture. But we 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.

1:56:00And 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, building one in London. And we'll create a virtual version of this. And 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, actually.

1:56:38There could be a frontier in what's possible, and we found it. And beyond that, it's just waste. I don't rule that out. And I think it's an important caveat. We'll know those signals in the next couple of years because our scale is getting to be bigger than anyone's ever done. 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 like an Apple. We'll just start buying back massive amounts of shares and return cash to shareholders who invested to create this surplus.

1:57:17But 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. Is it meaningful to talk about what fraction of R &D is towards specific treatments?

1:57:51Is like focused vertical R &D versus I presume you do a lot of horizontal R &D. Yeah, platforms. Yeah, exactly. Platforms. Because presumably it's even harder to reason about the platforms and the payoffs there. Well, there, you need some scale. There's a lot of platform companies that get funded that are biotech. Yeah, we just listen. Yeah. And they are usually exploring a new platform that's quite novel. That's important work they do. And often we'll partner with them early and try to develop that capability ourselves. Basically, in our business, there's two kinds of questions on early phase R &D.

1:58:23One 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 based on monoclonal antibody technology by tricking cells to make a human antibody that solved disease, 30-year run of spectacular new medicines. Or Gilead Sciences nearby, which really started on this idea of virology and new virology chemistry and small molecules. So we want to be there at the early stages because it is like catching a wave thing. If you're late, you miss it all.

1:58:59And so that's the kind of investing we do, and that's a more scaled project. And then the other kind is like picking targets and looking in the broad space of biologic discovery and say, okay, of the 1 ,000 things uncovered this year, these 15 we think could be highly relevant. And we're going to put a team around those. This isn't the Skunk Works kind of allowable deviation or whatever I said earlier. But it's a purposeful thing to say, let's drug hunt here. let's use the tools we have and assault them, those targets with multiple ones of those tools and see if we can get a drug out of it. And sometimes we've actually come out with like a small molecule and an antibody and an siRNA.

1:59:40Like 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. Last question.

2:00:14Eli Lilly is more than 100 years old. 150 in May. Oh, wow. Okay, so you're coming up on your 150th birthday. And I noticed that often very tenured, successful companies are quite serious about and good at internal succession planning. I think about, you know, Royal.Shell or, you know, companies like that and Eli Lilly. You joined in what year? 1996. Right, you joined in 1996, not as a hired CEO. No, I was a BD, M &A. Exactly. And you were rotated across the business. You run China. You run the US business. Exactly, all these kind of roles. What do you think Stripe, Silicon Valley companies should learn from Eli Lilly and companies like Eli Lilly?

2:01:01But that's where you have experience about talent planning and talent development. Yeah, fabulous question. I do notice differences, at least on the board I'm on and observing other companies. Some of that might be just the clock speed of the industry and the technology. and some of it might be the newness of companies. Because if you haven't really seen the cycles play out, hard to kind of see the value. You got a problem, solve it, 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.

2:01:37And what they're doing now is nothing like what they started doing. And you should examine, what are those, why? Was it the experience path they took? was it innate traits they have, combination of those things. You know, we've had 150 years of that. And I'm the 11th CEO of the company. That's one less than Pope's in that period of time. So it was a special honor, actually, and it's not a lifetime appointment. I can be fired any day. But the first four were family members. And then we've had a lot of long-running successful and only one external. Really? Yeah. And I think that's part of the success of the company is that in scaled companies, and we've scaled for a while, you know, there's not one person cannot possibly really lead the whole thing.

2:02:27You 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. And they just know the domain, right? Because there's so much to know. They know the domain. They also know the human domain of how to solve problems without committees. And one of my things now as we grow so fast is keep headcount flat.

2:03:31And that makes me very unpopular, 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 internal. 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 because they came at it a different way or said it in a way that doesn't connect with how we normally, but actually they're making a good point.

2:04:18So 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 like ultimate risk-taking on people. And I would not be here without those successive jobs where it was like I never would have gotten them if I applied externally, but the company gave them to me. And as a CEO, you have to do a lot of things that are very horizontal.

2:04:51And I touched things that I had no experience in, but I learned by graciously reading and doing and solving real problems that has made me more successful in this job. A lot of companies say they're long-term oriented, but I feel like this is a particular example of revealed preference. David, thank you. Awesome conversation. Thank you very much.