Early in his tenure as Chairman and CEO of Eli Lilly (LLY), Sidney Taurel had his Prozac moment. The antidepressant was accounting for nearly a quarter of all of Lilly's sales and even more of its profits. Then in mid-2001, Prozac lost its U.S. patent protection. Sales plunged so much that it took Lilly more than a year to bounce back.
Now, Lilly is hooked on another drug. The $13.86 billion company is getting a third of its sales and perhaps half its net income from its Zyprexa anti-psychotic. This time, though, Taurel thinks he can avoid a stumble. His plan: Pump out so many new drugs that their sales will more than compensate for Zyprexa's inevitable fall. He may pull it off. Lilly has three other products with annual sales of more than $1 billion. And Strattera, a pill for attention deficit hyperactivity disorder, should join the blockbuster club next year.
But Taurel has plenty of other worries. Some of Lilly's other new drugs are falling short of expectations. Meantime, the Indianapolis-based drugmaker, like its brethren, is feeling besieged as more patients turn to outlets in Canada for cheaper medicines. And now the FDA is proposing a new safety board that would monitor drugs. A red flag on the panel's Web site could tank even a blockbuster's sales (see BW, 2/28/05, "Pfizer's Funk").
Taurel, 56, a 33-year Lilly veteran who moved up to CEO in 1999, has been on the road pitching his plan to reform the U.S. health-care system. While in Chicago, he sat down with BusinessWeek Senior Correspondent Michael Arndt for an interview. Here are edited excerpts of their conversation:
Q: The FDA has been criticized for approving drugs that we later find out may have serious problems. What do you think about the agency's new safety board?
A: In general, the intention is the right one -- to provide more transparency and to ensure that consumers are informed on a timely basis. But the devil will be in the details. For example, I'm concerned that the Web site might pass on information prior to the agency having concluded anything, including a causal relationship between an adverse event and the drug itself. That could hurt patients. By that I mean patients may overreact and stop taking their medication as soon as they see there has been one event, even though it may be totally unrelated to the drug.
The biggest point I want to make on this is there's no such thing as a totally risk-free drug. Every drug has side effects, and it's always a question of weighing the risks vs. the benefits. Today, I'm concerned the debate is too much on the risks, without putting them in balance with the benefits.
Q: Do you think consumers generally understand that?
A: The biggest debate is on drugs where the need for the drug is debated. In these cases, the benefit itself is being debated, so any side effects become sort of unacceptable. We don't get that sort of debate for cancer drugs, for example. People understand that they have very major side effects because they often will kill the healthy cells along with the cancer cells. But because they keep people alive longer, people will say, "This is a risk I'm willing to take."
Q: You've been making speeches lately about the need to reform the U.S. health-care system. What's wrong with the system today?
A: We have good quality medicine, but the system by which we fund and deliver that care is really unhealthy. You should look at three symptoms, which are quite worrisome. One is unequal access to care. If you're employed or you're elderly or have a very low income, you get health care. If you don't meet those criteria, you don't. So you have 45 million people who don't have health-care coverage.
The second is escalating costs. During the period of the 1990s, managed care was successful at curbing the growth of health-care costs, but if you look at the last six years, they've been growing at double-digits. And the third big problem is quality. A study by the Institute of Medicine shows that between 44,000 and 98,000 people die every year because of medical error.
What are the root causes? The main one is that the person who has the need and who consumes is not the person who pays. The patient does not feel the pinch of the cost, and therefore tends to overconsume. On the other side of the equation, the payers will try everything they can to limit the costs, very often not looking at the long-term impact on quality.
Q: So how do you solve this?
A: Some people would say this is a very complex problem and the only solution is a government solution, which is what happened in a lot of other countries. I don't personally believe that's the right solution. The free-market system, which has been so good for this country in terms of innovation, quality, lower costs, and so on, can be put to use in the health-care system. What we need to do is help introduce market mechanisms.
Nobody should be allowed to look at health care as if it's free because that implies you don't check your consumption. Health-savings accounts are a step in the direction.
Q: But there are differences between drugs and other consumer purchases. If you're buying a car, you have the choice of dozens of models. But if you have an illness, you may have the choice of only a couple of drugs.
A: This is less and less true. It's very rare that you have only one drug which works for a given disease. Look at all the competition there is now in AIDS drugs or in Cox-2 inhibitors or antidepressants. The No. 2 or 3 products come much, much quicker than before.
Q: Lilly has been very much on the forefront in the industry's fight against imported drugs. You say it's over safety. But a cynical consumer is going to hear that and say: You're against imports only because they undermine your U.S. price.
A: There's a significant safety issue. We have seen ourselves examples of insulin which was not properly refrigerated so it was subpotent. We have seen subpotent Zyprexa, too. Counterfeiting is a growing business around the world. Imports would also be a way for terrorists to send us some very dangerous stuff.
There's a second reason why this is a bad policy. The main benefit for consumers is to take advantage of price controls which exist in other countries. If we want to have price controls in this country, let's have the debate, rather than hypocritically avoid the debate and go through the backdoor to take advantage of what I think are the misguided price-control policies of other countries like Canada. Why are they misguided? Because they've killed innovation. Do you know of any new drug that has come out of Canada?
Q: Right now, Lilly is deriving an outsize percentage of its sales and net income from Zyprexa. Are you at a risk of being in the same situation you were once in with Prozac?
A: We've launched eight drugs in the last three years, which is a record, I think, in our industry and certainly in our company history. We introduced seven products in a whole decade prior to that.
Of those eight products, four have been very successful: Cialis, Strattera, antidepressant Cymbalta, and Alimta, a drug for mesothelioma and nonsmall-cell lung cancer. Some of the others have been disappointing. So altogether, there's a record that is good. Outstanding? No, but good.