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

Summary

Cheeky Pint: Dave Ricks, CEO of Eli Lilly, on GLP-1s and the Business of Pharma

Podcast: Cheeky Pint
Host: John Collison (cofounder of Stripe), with Patrick Collison
Guest: Dave Ricks, CEO of Eli Lilly
Date: November 11, 2025

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Overview

This episode features an engaging and highly technical conversation between Stripe's John and Patrick Collison and Dave Ricks, the CEO of Eli Lilly—the world’s most valuable pharma company. The discussion ranges from the company’s GLP-1 leadership (diabetes and weight loss drugs), innovations in drug discovery and development, the economics of pharma, regulatory and pricing debates, the rise of direct-to-consumer drug models, the state and culture of U.S. healthcare, global competition (notably from China), and the distinct interplay between biotech and big pharma.

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Key Themes & Discussion Points

1. Eli Lilly’s Supercomputing & AI-Driven Drug Discovery

• Eli Lilly’s Nvidia Partnership: The company has partnered with Nvidia to build a massive, proprietary, biology-focused supercomputer for drug discovery using B300 chipsets.
  • "We think it's the biggest biologically focused supercomputer there is... Scientists use it to sort of co-invent, co-develop, focus mostly on chemistry to begin with." (Dave Ricks, 00:41)
• AI’s Current Limitations in Biomedicine: Dave stresses AI’s promise but notes the field’s limitation due to incomplete biological data—biology's language model hasn't been built yet.
  • "I would estimate we might know 10 to 15% of human biology. The machine's not going to be good at all until we get way above 50%." (Dave Ricks, 03:26)

2. Learning, Leadership, and Scientific Decision-Making at the Top

• Self-Education: Despite not being a scientist by training, Dave voraciously learns via medical journals, conferences, and now LLMs—favoring Claude and xAI over ChatGPT for scientific queries.
  • "Now I have at least one or two AIs running every minute of every meeting... I just am asking it science questions." (Dave Ricks, 04:46)
  • "I tend to use either Claude or the XAI one. I find it more terse and the references actually check out more often." (Dave Ricks, 05:09)
• Decision-Making Style: Lilly’s top decisions are increasingly quantitative and process-driven but still require judgment, wisdom of crowds, and rules like “never decide in one meeting.”
  • "I think the system does a lot of the Billy Beane [Moneyball]. We've actually put together a decision process that's quite a bit more rigorous... That's sort of like the bumpers on the bowling alley." (Dave Ricks, 06:44)

3. Clinical Trials: Costs, Duration, and Reform

• Why Trials Are So Expensive: Major cost drivers are providing gold-standard care to enrollees (often the sickest), regulatory demands, and healthcare system inefficiencies.
  • "We're taking the sickest slice of the healthcare system... we are literally running the healthcare system for those individuals." (Dave Ricks, 09:55)
• Enrollment Challenges: Half of drug development time is waiting for enrollment—a problem Dave analogizes to Taylor Swift selling out concerts in seconds, but there’s “no easy way” to fill an Alzheimer’s trial.
  • "If Taylor Swift can sell out a concert in a few seconds, why can't I fill an Alzheimer's study?" (Dave Ricks, 14:38)
• Innovations in Recruitment: Direct-to-patient and database-driven recruitment has shown promise, especially in preventative and early-stage studies.
  • "We've executed one of these at scale... our Alzheimer's prevention study... fastest accrued Alzheimer's study in history." (Dave Ricks, 16:59)

4. The Regulatory “Ratchet,” Risk Aversion, and Societal Tradeoffs

• Delays and Overregulation: Regulatory responses to past drug scares (e.g., Vioxx, Avandia) have led to ever-increasing evidence and process requirements, often not reassessed as technology improves.
  • "Each time [a problem] occurs there was intervention ... Let's require more information or rebalance the risk benefit." (Dave Ricks, 20:26)
  • "Regulatory are added but never taken away." (Dave Ricks, 22:03)

5. GLP-1s: Metabolic Disease, Prevention, & Broad Therapeutic Potential

• Glucose-Lowering Superstars: GLP-1 drugs (including tirzepatide/Mounjaro/Zepbound) are blockbuster diabetes and obesity treatments. Lilly is a market leader.
• Economic Payoff: New studies show GLPs are cost-effective—offsetting costs in as little as two years—undermining the “prevention is hard to pay for” insurance argument.
  • "Within a two year time frame... you can break even basically on total medical costs." (Dave Ricks, 24:27)
• Stigma & Coverage: Stigma around obesity affects coverage; Dave pushes back, arguing for recognition of genetic/environmental roots.
  • "We're conditioned to think of someone who's overweight as someone who is not disciplined. The data does not show that." (Dave Ricks, 26:00)
• Mechanisms & Non-Weight Loss Effects: The team explains how GLP-1s modulate gut/brain signals, reducing inflammation and improving risk profiles for cardiovascular, neurodegenerative, and possibly joint and autoimmune conditions.
  • "Inflammation markers drop precipitously early ... There's a marker called CRP... in weeks, that starts to drop really like 60, 70%." (Dave Ricks, 86:30)

6. Business Models: GLP-1s, Gene Therapies, and Pricing Innovation

• Recurring vs. One-Time Revenue: Traditional drugs are recurring; gene therapies are “one and done” and challenge how value is priced and recouped.
  • "It would be...like a shrink wrap software world...all your value has to be captured upon that invoice. That is how we price all medicines." (Dave Ricks, 29:37)
  • "[Gene therapy]...it's conceivable one could create a licensing concept...like SaaS: we'll do the procedure for free, and as long as it's working, you will deposit X." (Dave Ricks, 30:39)

7. U.S. Pharma Pricing, Global Cost-Sharing, and Perverse Incentives

• The “Spread” Problem in U.S. Drug Distribution: Dave exposes how U.S. drug pricing mediates huge cost disparities, rewarding middlemen (PBMs), penalizing cash payers, and causing public distrust.
  • "Why [was insulin $275 list]? We were competing on the spread. And so you have the spread." (Dave Ricks, 40:49)
• Free-Rider Problem: U.S. pays for global R&D; other countries “free ride” and get drugs cheaper post-U.S. launch. Dave proposes a “One Fair Price” concept tied to GDP per capita for global pricing equity.
  • "The idea would be that manufacturers introduce at the price they want...restricted by only a couple things: [price tied to GDP per capita in other countries]." (Dave Ricks, 45:31)
• Opaque Healthcare Economics: The U.S. system is riddled with prices that “mean nothing,” undermining true market function.
  • "One of the biggest shortcomings...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." (David Ricks, 47:35)

8. Direct-to-Consumer Disruption: Lilly Direct

• Building Direct Relationships: Eli Lilly's move to sell directly (e.g., Zepbound, Insulin) is a critical business model evolution, disintermediating PBMs/pharmacies and mirroring how Stripe enables direct digital commerce in other industries.
  • “Today we'll annualize in the billions of dollars. I think it's the largest prescription platform online in terms of revenue." (Dave Ricks, 102:32)

9. Biotech vs. Pharma & The Rise of China

• Three Models: Biotech explores, big pharma scales; Lilly uses a hybrid org: small, autonomous discovery units (like 400-person centers in San Diego) inside a scaled global org.
  • "The act of invention has diseconomies of scale." (Dave Ricks, 60:41)
  • "Let them cook school of pharma innovation." (Dave Ricks, 62:26)
• China’s Advances: Chinese biotech now accounts for nearly 30% of drug pipeline activity; Dave expresses concern about patent “clones” and U.S. IP vulnerability, especially with “first to file” patent rules and widespread patent publication.
  • "You've created basically a shadow generic industry and undermined the patent system itself. I don't think that's a great thing." (Dave Ricks, 71:14)

10. Generic Industry, Quality Concerns, and Global Supply

• Generics as a Success and Vulnerability: While generics have democratized access and reduced prices, almost all are made offshore (India, China), and quality/fraud concerns persist.
  • "There are no generics manufactured in the U.S. really...most of what you're taking is not actually the active ingredient." (Dave Ricks, 77:50)

11. Talent, Succession, & Organizational Longevity

• Internal Talent Pipelines: Dave attributes Lilly’s success in part to its 150-year discipline of internal development and succession, frequent role rotation, and a blend of internal and select external hires.
  • "We've had 150 years of that and I'm the 11th CEO of the company. That's one less than popes in that period of time." (Dave Ricks, 121:04)
  • On personal development: "Probably four or five times I was put in a job I had no business being in, but somebody thought I could learn it." (Dave Ricks, 123:29)

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Notable Quotes & Memorable Moments

• On the promise and limits of AI:

  • “We need to create the equivalent of what got created with human language—a more complete repository of biological knowledge to train against before the machines get a lot better.” (Dave Ricks, 03:26)

• On FDA approval ratcheting:

  • “Regulatory are added but never taken away. So the regulation is still there.” (Dave Ricks, 22:03)

• On U.S. drug pricing:

  • “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.” (Dave Ricks, 40:49)

• On the state of direct-to-consumer medicine:

  • “We sell more [Zepbound] than our insured business...The number one prescribed form is Zepbound self-buy.” (Dave Ricks, 93:42)

• On the challenge from China:

  • “If the monopoly [on drug IP] is debased by 30 Chinese biotechs who feed that patent into a computer...you've created basically a shadow generic industry and undermined the patent system itself.” (Dave Ricks, 71:14)

• On GLP-1’s evolving impact:

  • “If you carry around a backpack of 40 pounds extra every day, your knees will hurt more... We'll measure the inflammation in the joint plus there's a mechanical loading with being overweight.” (Dave Ricks, 87:12)
  • “Statins got to 40 million people branded...Has to be north of that.” (Dave Ricks, 94:57)

• Talent and Leadership:

  • “As a CEO, you have to do a lot of things that are very horizontal...but I learned by voraciously reading and doing and solving real problems that has made me more successful in this job.” (Dave Ricks, 123:29)

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Timestamps for Major Segments

| Time | Segment | |-----------------|-----------------------------------------------------------------------| | 00:41 | Eli Lilly’s Nvidia Supercomputer for Drug Discovery | | 03:26 | How AI and Biology Fall Short—and What Needs to Change | | 04:37 | Dave Ricks’ Self-Education & Using AI for Science | | 06:44 | Quantitative vs. Taste-Based Science & Capital Allocation | | 09:55 | Why Clinical Trials Are So Expensive | | 14:38 | Clinical Trial Enrollment & Industry Bottlenecks | | 16:59 | Direct-to-Consumer & Digital Trials: Learning from Alzheimer’s Study | | 20:26 | Regulation Ratchets and the Cost of Caution | | 24:27 | GLP-1s, Prevention, and Economic Rationale | | 29:37 | Comparing Recurring vs. One-Time Drug Pricing Models | | 40:49 | U.S. Drug Pricing Disparities & the "Spread" Problem | | 45:31 | Proposal for One Fair Global Drug Price | | 47:35 | Health Care Pricing—Why Numbers Don’t Mean Anything | | 60:41 | Innovation Org Models: Scale vs. Small Teams | | 66:34 | Biotech’s Rise in China | | 71:14 | Patent Cloning, China, and U.S. System Flaws | | 77:50 | The Global Generic Drug Industry and Quality Concerns | | 83:06 | GLP-1 Mechanisms—From the Gut to Inflammation Effects | | 93:42 | Direct-to-Consumer Drug Sales & Lilly Direct | | 100:33 | The Birth & Growth of Lilly Direct | | 121:04 | Talent, Succession, and Company Longevity |

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Tone & Language

• The conversation is sharp, witty, technical, and at times, irreverently honest. Dave Ricks is both visionary and pragmatic, frequently invoking metaphors across tech, sports, and organizational design. The hosts are deeply engaged, pushing on economic, policy, and technical fronts.

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Summary Takeaways

• Eli Lilly’s success is rooted in relentless R&D efficiency, bold direct-to-consumer moves, and aggressive yet thoughtful capital allocation.
• GLP-1s are transforming obesity and metabolic medicine and look set to have cascading impacts across multiple therapeutic areas.
• Pharma’s future is threatened and energized by AI, regulatory inertia, and the emergence of China as a global innovation competitor.
• U.S. drug pricing is perversely structured, rewarding intermediaries and risking long-term system legitimacy.
• Organizational longevity at Lilly is driven by proactive internal talent development and hybrid models of innovation.

This episode is a masterclass in the intersection of science, business, technology, and policy as seen from the “Premier League” of drug discovery.

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For further details or to explore any segment, see the timestamped index above.

Transcript

[David Ricks]

Dave Ricks is CEO of Eli Lilly, which is now a $700 billion company and the world's most valuable pharma company. Eli Lilly is 150 years old. They grew up as the first company to mass produce insulin in the 20th century, but today most of the company's business is in the new GLP1, diabetes and weight loss drugs, where they've become the market leader. Simultaneously, Eli Lilly is upending the traditional model by selling directly to their consumers over the Internet with Lilly Direct, rather than through the traditional middlemen.

[Dave Ricks]

All right, cheers, cheers, cheers.

[David Ricks]

Thanks for coming. I'm pretty impressed that you came and you just poured your own pint.

[Dave Ricks]

Poured my own pint, yeah.

[David Ricks]

Major flex.

[Dave Ricks]

Have glass will pour.

[David Ricks]

Exactly. Actually a good place to start. Tell us about your Nvidia announcement that you just had.

[Dave Ricks]

Yeah, so today at the. What's it called, GTC conference, they have, they unveiled that we're well underway, actually should be done by the end of the year. By building a supercomputer on Prem for us really just to run proprietary drug discovery models, we think it's the biggest biologically focused supercomputer there is and certainly the biggest Pharma's done with B300's latest chipset. And yeah, we're only constrained by power like everyone else. But yeah, we built a bunch of tools, we'll run them on that. And scientists use it to sort of co invent, co develop, focus mostly on chemistry to begin with, but we'll expand from there.

[Patrick Collison]

And is the idea here you have some target, you've had some challenges actually drugging it, and so you give it to one of these new chemistry models and you ask it whether it can come up with something totally orthogonal beyond what a human might have tried.

[Dave Ricks]

So take a really good popular example is like GLP1. So that's a hormone peptide that we all excrete. It engages targets that are what we call G protein coupled receptors. So they're hard to drug targets on the outside of cells. And to try to mimic a big, huge protein with a very small chemical is a complicated undertaking and by the way, do only that and not other things that are untoward. And so this is sort of a frontier of drug discovery that's been tough and very empirical. That's a hot area for this kind of technology because these strange arrangements of atoms don't look like other drugs that have come before, but they do follow the principles of organic chemistry and seem to engage these targets effectively. I don't know of one that's come through the machine driven discovery process which is really machine plus human that's made it to the clinic yet. But they're coming and I think that's exciting because those have been structures that are. They don't exist in nature and yet the machines are alien and they can predict these, these interactions.

[Patrick Collison]

I'm always struck by Derek Lowe's arguments where he's always sounding this note of caution, I guess about the optimism and maybe what he might view as boosterism around AI and biomedicine, where as I see at least his two claims are one. It's really hard to select the targets and AI doesn't help you that much there. And then so much fails at like human toxicity. And again, at least so far, AI has not been all that helpful at that step. Do you agree with him or is he overrating these particular challenges and maybe underrating the challenges that AI does help solve or thoughts on that argument?

[Dave Ricks]

Probably we need to create the equivalent of what got created with human language which is a more complete repository of biological knowledge to train against before the machines get a lot better. And today I don't know, I would estimate we might know 10 to 15% of human biology. So the machine's not going to be good at all until we get way above 50%. That probably requires robotic 24. 7 experiments just to create training data sets and sort of this kind of big lift effort, the kind of thing actually NIH should be doing right now, I would think. But that effort's not ongoing, at least in our country. But I think if that gets going I think we'll know more and the machines get better at the harder big problems. System prediction.

[David Ricks]

Patrick and I did not well, just didn't finish any college. So not only don't have formal training in computer science, but don't have formal training in anything. You did not come up through the science side of Eli Lilly, but you seem extremely comfortable with the science. What has been your method for ingesting all this stuff? Especially as you're essentially making science decisions at the end of the day with the top level capital allocation decisions.

[Dave Ricks]

Just how do you know that that's right? I think we probably make three or four important decisions a year and they're all science. I don't know. Stay curious. Read.

[David Ricks]

Read what?

[Dave Ricks]

I read a lot of medical journals. I go to conferences where data is presented. I spend time with our scientists. Stay curious. Yeah, now I have like at least one or two AIs running every minute of every meeting I'm in and I just Am asking it science questions.

[David Ricks]

So you found for your learning ChatGPT or whatever your.

[Dave Ricks]

I don't use that one for science actually. It's too garbled.

[Patrick Collison]

Which one do you use for science?

[Dave Ricks]

I tend to use either Claude or the XAI one. I find it more terse and the references actually check out more often. Sometimes the AIs produce references and they're actually not thing that it said.

[Patrick Collison]

Yes, yes.

[Dave Ricks]

And that takes too much work to go cross reference.

[David Ricks]

So for an autodidact, presumably the emergence of LLMs has been transformative for you.

[Dave Ricks]

Yeah, well, I think for learning, that's a whole nother topic we could talk about. But you have to sort of question the pedagogical kind of method period. If you can just learn continuously, it's.

[David Ricks]

Mastery learning for everyone.

[Dave Ricks]

Yeah, yeah, exactly. So you take advantage of that. But early in my career I started in our business development MA group and I spent my whole time as a scientist looking at little companies and projects and other companies and trying to understand what they were worth. Well, then you have to understand what they do. And you know, I found that part of the industry. I didn't expect that when I came to Lilly. I came to the company accidentally, by the way. But when I found that, I was like, wow, I love that. This is so interesting. And then I had a moment where one of the projects I worked on became a medicine in the US and my mother was diagnosed with a condition and she got put on it. And so then that's the magic. It's like, okay, you can work on things that change people, but the people you care about.

[Patrick Collison]

You saw the full end to end effect.

[Dave Ricks]

Yeah, exactly. From lab. Exactly. So special.

[David Ricks]

You have four big decisions a year that are kind of grounded in science. How quantitative versus qualitative do these end up being? Are you Rick Rubin where it's all taste based and you just like the feel of this direction, or are you Billy Bean where it's a Moneyball type, you know, with the ROI pencils?

[Dave Ricks]

And I think the system does a lot of the Billy Bean. I think that's a change at Lilly that's made us more successful. I think we've actually put together a decision process that's quite a bit more rigorous than it used to be and that leads to fewer bad decisions. That's good. So that's sort of like the bumpers on the bowling alley that you put up. But then within that, whether it's a strike or a single pin, that's a little bit of the judgment and Taste and there though, you know, wisdom of crowds. I think we have a great leadership team and we all come with equal voice and sort of debate. We actually have a rule to like never decide in one meeting. So you're asking about the day, but we like come back to it, think about what others said and kind of push it again.

[Patrick Collison]

And are you deciding?

[Dave Ricks]

Ultimately? Yes. Nothing happens unless I say go. And if I don't like it, then that definitely doesn't go. But people will often persuade me and I've definitely changed my mind. And some of these are projects within the company. So what's the structure of the industry? We have huge expenditures on R and D, I think more than any other sector. As a percent of revenue, we'll spend almost 25% of sales this year.

[David Ricks]

I like jiraiyam of putting us that you spend more on medical R and D than Germany does.

[Dave Ricks]

Yes. Yeah, we're at the nation state level. It'll be $14 billion this year total NIH, which is the biggest thing on earth that spends money on is 40. So that's up there. It's getting close. Yeah. But some of those are projects we've been working on for a while and now we have a data set. Now we need to make a decision to go to the final stage. The final stage of testing the average drug costs 3.5 billion, 4 billion. To make more than 60% of that is the last step. So that call is the big one. The earlier ones of like, go forward. Okay. There are a lot of small things that add up. You can waste a lot of money if you do that poorly, but there's a portfolio, so that's unlikely. But usually we're carrying five to 10 projects in the latest phase and those are.

[Patrick Collison]

And so are you saying like the phase three trial?

[Dave Ricks]

Phase three, exactly.

[Patrick Collison]

That's the question.

[Dave Ricks]

Yeah, that's the question. What to test it in, how to test it, what's the design of that? Go. No go against that criteria. And that stage is going to be burning a billion plus a year. So it's a big investment per program. Yeah. And of course the returns on most drugs that make it through that are not positive. So it's not just can you get through that, but will you produce something useful enough to create excess value for society, but also the company to keep the whole thing running? That's the exercise.

[Patrick Collison]

Okay. So to this point, the dynamics and the funding of clinical trials determine so much of the portfolio dynamics for you. I think anyone who comes across these clinical trial figures and mechanics asks Themselves?

[David Ricks]

Why?

[Patrick Collison]

Yes.

[Dave Ricks]

That'S a great question.

[Patrick Collison]

I looked at the numbers. So apparently the median clinical trial enrollee, it now costs $40,000. The median US wage is $60,000, so we're talking two thirds.

[Dave Ricks]

Why?

[Patrick Collison]

And why couldn't it be a tenth or a hundredth of what it is?

[Dave Ricks]

Yeah, brilliant question. And one we've spent a lot of time working on. We've done a lot of things to improve the drug development process. So taking a systems approach, and I think one of the reasons Lilly has probably the highest return on investment in R and D in the industry is because not the picking of winners and losers, but actually the process by which we run it. I think that's at least as valuable as what we've done. And we can come back to that if you want. But the piece we have really not moved is the enrollment of clinical trials. This is gonna sound super arcane when I go through it. And the cost, which is escalating about 7, 8%, that's over the last decade. That's about the same as the healthcare system. And that's not an accident when people go, why does a trial cost so much? Well, we're taking the sickest slice of the healthcare system that are costing the most and we're ingesting them, we're taking them out of the healthcare system and putting them in a clinical trial. Typically, we pay for all care. So we are literally running the healthcare system for those individuals. And that is in some ways for control, because you want to have the best standard of care. So your experiment is properly conducted and it's not just left to the whims of hundreds of individual doctors and people in Ireland versus the US getting different background therapies. So you standardize that. That costs money because you're sort of leveling up a lot of things. But then also in some ways, you're paying a premium to both get the treating physicians and having great care to get the patient. We don't offer them remuneration, but they get great care and inducement to be in the study because you're subjecting yourself quite often, not all the case, but to something other than the standard of care, either placebo or this or in more specialized care. Often it's standard care plus X, where X could actually be doing harm, not good. So people have to go into that in a blinded way. And I guess the consideration is you'll.

[Patrick Collison]

Get the best care of the $40,000. How much of that should I look at as inducement and encouragement for the patient and how much should I look at it as the cost of doing things, given the regulatory apparatus that exists?

[Dave Ricks]

The patient part is like the level up part. And I would say 20, 30% of the cost of studies typically would be this. So you're buying the best standard of care, you're not getting something less. That's medicine costs. You're getting more testing, you're getting more visits. And then there is a premium that goes to institutions, not usually to the physician, the institution to pay for the time of everybody involved in it. Plus something we read a lot about it in NIH cuts, the 60% Harvard markup or whatever. There's something like that in all clinical trials too. Overhead coverage, whatnot. But it's paying for things that aren't in the trial.

[Patrick Collison]

US healthcare is famously the most expensive in the world.

[Dave Ricks]

Yes.

[Patrick Collison]

Do you run trials outside the us?

[Dave Ricks]

Yeah, actually, most.

[David Ricks]

Most, yeah.

[Dave Ricks]

I mean we want to actually do more in the us this is a problem, I think, for our country. Like take cancer care, where you think, okay, what's the one thing the US system's really good at? Like, if I had cancer, I'd come to the U.S. that's definitely true. But only 4% of patients who have cancer in the U.S. are in clinical trials, whereas in Spain and Australia it's over 25%. And some of that is because they've optimized the system so it's easier to run and then enroll, which I'd like to get to people in the trials. But. But some of it is also that the background of care isn't as good, so that level up inducement is better for the patient and the physician. Here the standard's pretty good. So people are like, meh, do I want to do something where there's extra visits and travel time? There's another problem in the US which is we have really good standards of care, but also quite different performing systems. And we often want to place our trials in the best performing systems that are famous like md, Anderson or Brigham, and those are the most congested with trials and therefore they're the slowest and most expensive. So there's a bit of a competition for place that goes on as well. But overall, I would say like in our diabetes and cardiovascular trials, many, many more patients are in our trials outside the US than in. And that really shouldn't be other than cost of the system and to some degree the tuning of the system, like I mentioned with Spain and Australia toward doing more clinical trials. For instance, like here in the US Everywhere you get ethics clearance Called irb. The US has a decentralized system, so you have to go to every system you're doing a study in. Some countries, like Australia, have a single system, so you just have one stop, and then the whole country is available to recruit those types of things.

[Patrick Collison]

You said you want to talk about enrollment.

[Dave Ricks]

Yeah, yeah. It's fascinating. So drug development time in the industry is about 10 years in the clinic, a little less. Right now we're running a little less than seven at Lilly. So that's the optimization I spoke about. But actually, the half of that seven is we have a protocol open. That means it's an experiment we want to run. We have sites trained. They're waiting for patients to walk in their door and to propose, would you like to be in the study? But we don't have enough people in the study. So you're in the serial process, diffused serial process, waiting for people to show up. You think, wow, that seems like we could do better than that. If Taylor Swift can sell out a concert in a few seconds, why can't I fill an Alzheimer's study? There seem to be lots of patients, but that's healthcare. It's very tough. We've done some interesting things recently to work around that. One thing that's an idea that partially works now, is culling existing databases and contacting patients right where you have, like, their lab values from a where before there wasn't a treatment. Now there is one being studied. Would you like to be a part of it? That's something we're doing now with our LP program. That's a cholesterol subtype where there was nothing to do about it. A lot of people have had it tested, and it's high. You could say, hey, you're high. Would you like to do something now? But it's still a lot to be done there. And the data is sitting in electronic health records in our country is very poorly organized, so it would be good to optimize that, I think. The other is actually just go directly to the patients. So who has the most interest? It's usually the patient. And then physicians and their institution may not be in the trial, or they might not be interested in spending much time on this.

[Patrick Collison]

That's kind of what I want. I want to get an email, as you say, the system knows my health data and what conditions I have and so forth, and be told that a package will be arriving tomorrow with a drug. I can take the drug if I want to. If I want to participate in this trial, you can include whatever Disclosures and some nice person will come every month.

[Dave Ricks]

Or whatever works telephonically.

[Patrick Collison]

Take my vitals. Exactly. And measure my blood pressure and what have you. Are all these intermediaries in the systems, in the hospitals and so forth, are they required intrinsically for the kinds of trials you want to run? Obviously it varies a little bit on the condition of the drug.

[Dave Ricks]

Depends on the disease.

[Patrick Collison]

Yeah, right. Well, I guess, yeah. So how much of it is there in fact intrinsically required given the characteristics of the condition and how much is it? This is how things are done.

[Dave Ricks]

Yeah. What you described is actually a great vision for where we want to go. We've executed one of these at scale, which is fully enrolled, which was our Alzheimer's prevention study. It's a more complicated medicine, it's an infused medicine. But we ran this with one investigator in the United States and we screened over 80,000 people. By the way, it's the fastest accrued Alzheimer's study in history. Even though it's pre Alzheimer's. It's people with the amyloid precursor protein, but not dementia. It's fully enrolled. We've treated people. Actually, no one's left on treatment. We're just watching them now because the treatment's a nine month course to deplete amyloid and see if that can prevent the symptoms. So that was a very successful trial. Just what you said. They got instructions to be in the study, there was a televisit, they got some diagnostic tests, blood based, that went in and said, okay, this is sort of an indicator you might have high amyloid. Then you can go to get a PET scan and if that was positive, you could be enrolled in the study. Pretty successful. So we'd like to replicate that. I think one very interesting thing in the future of medicine is that I think we will have a lot more preventative medicines in the future. And I think this type of study in particular is well suited to prevention because you have sort of the people who are worried about their wellness. So they're motivated, they have means, they're in the middle of their life, they're working, they don't have complications of comorbidities and so forth. They want to be in the study and I think they would like to prevent terrible conditions like Alzheimer's. So that's an exciting new chapter we can push.

[Patrick Collison]

So do you know Paul Jansen?

[Dave Ricks]

Yeah, yeah, yeah.

[David Ricks]

So explain who Paul Janssen is. Come on.

[Patrick Collison]

Paul Jansen, as I understand it, was behind the discovery, invention, what have you of more medications than any other single.

[Dave Ricks]

I think A Belgian guy.

[Patrick Collison]

Exactly. Yes, yes. I think it's. Who invented a number of 79 or 80.

[David Ricks]

MVP of Medicine, Michael Jordan of invention. Yes.

[Patrick Collison]

Okay, so amazing guy. When some outsider comes to the clinical trial process and system and just the development pipeline overall, maybe they naively think, wow, this seems so torturous, so expensive, so bureaucratic, what have you.

[David Ricks]

But that's how it's gotta be.

[Patrick Collison]

But that's how it's gotta be. You know, if they think it can be otherwise you might think that they're naive. Right. There's a video interview with Janssen from. I think it's from the 90s. It's from quite a while ago. I mean, he's dead now. Where he's recounting the history of his career. He started the company in 1953.

[Dave Ricks]

Nowadays it would probably be very unlikely, though not necessarily impossible due to the financial implications or for other reasons. There are many major reasons, but I can tell you the main reason. The main reason is that it takes around 12 years between the discovery of a new medicine and commercializing it. In those days it was one to two years. Also back then it cost much less than it does now. Today we talk without batting an eye about spending many billions for a new medicine. And it is probably true, in my opinion, the majority or at least a large percentage of that money is wasted on tests that are imposed by the so called authorities. It has a lot to do with development and very little to do with research. So you are saying it could take less than 12 years? Of course it can. That is self evident.

[Patrick Collison]

We could go back to doing it the way we used to. And it's a societal choice to make it so bureaucratic.

[Dave Ricks]

I guess it's an explicit and implicit one. The explicit part is through time there have been accidents and nothing is perfect. We probably have 2000 man made approved medicines versus natural products or vitamins or other things and maybe 400 unique mechanisms. So there's clustering within those. There have been problems and there's also been problems that turned out not to be problems. And so our detection ability is flawed because of that. I think each time that occurs there was intervention in the system, which is sort of a global consensus. But mostly the developed economies kind of harmonize their systems either directly or indirectly to say, oh no, let's require more information or rebalance the risk benefit.

[David Ricks]

No, absolutely, we've had this ratchet.

[Patrick Collison]

Have we gone too far?

[Dave Ricks]

I think that it's a function of what the technology is at the moment. And I think in past times yes, you can take the 2000 in the US where there were two big controversial drug approvals that were later retracted. The Vioxx situation with Merck and then Avastin from gsk. These were both drugs that were for different uses, pain and diabetes. But through a detection requirement that the agencies, because now we have electronic records, we can look at things. Picked up what they thought was a trace of risk for both cardiovascular risks and intervened with labeling and escalation until finally both companies actually removed the products from the market, withstood billions of dollars in product liability suits, only to find later under a different analysis that there was nothing to be seen there both of them. And I think that's there's like an ascertainment bias problem with these studies. There's also who is looking at this data. But that caused a 10 year chill in drug development and the Avandia one we know well, we work in diabetes actually caused a policy change. And the policy change was you must rule out cardiovascular risk prior to market entry. And as you may know, some conditions like diabetes have a more continuous variable you're measuring. And so studies can be short and cheaper glucose levels. Other studies, like cardiovascular event studies are not a continuous variable. It's a binary variable. And you have to wait for natural history to occur to pile up enough variables to have a statistical difference. Those are four to five year undertakings. So there you just bought four or five years of extra time before you could get any new diabetes medication. We got better at doing them, but that was expensive. Now has that. That's the explicit. The implicit is the regulatory problem. There must be a name for this problem, some smart person's given it. But regulatories are added but never taken away. So the regulation is still there. Now by happy accident, we are all now really pleased with incretins like our Tirzepatide to run them because they frequently demonstrate massive benefit on cardiovascular and in some ways it creates a barrier to entry for the next low cost Chinese program or whatever because it's this big.

[Patrick Collison]

Expensive thing you have to do, as with many regulatory.

[Dave Ricks]

So is it right? No, we're imperfect as people and certainly as decision makers at a collective level. I would also say that technology for seeing early signals has changed and improved, including computer technology. And it's probably worth a reassessment. Paying for prevention. You were going to ask.

[David Ricks]

Yeah, let's talk about that. Because say with GLPs in the weight loss context, they economically pay off over a very long time horizon. But if you're looking at A short time horizon of an insurer or an employer. They don't necessarily. And so that's create this challenge for reimbursement where not as many people reimburse GLPs for weight loss as you think would be rational. That just will always be the case with prevention. And so how do you actually develop drugs that are commercializable and reimbursable?

[Dave Ricks]

Yeah, well in the obesity case I'll take a little bit issue with your first assertion and then add two other problems. The data actually is becoming more clear that within actually a two year time frame, and I hope it's stripe, you reimburse these medicines for your patients or for your employees within two year, you can break even basically on total medical costs. So there's this group called ICERB which is funded by someone who hates our industry and the insurance companies and they analyze all new drugs and usually seeking to prove that they're not worth it. That's sort of their mission in life. They just analyzed our medicine, Tirzepatide and Semaglutide and they said actually they're both cost effective at current pricing. In fact, Zepbound or Tirzepatide was the threshold they have is to save $100,000 per person per year in downstream health costs. And it was twice as effective as that at the current pricing. And the current pricing isn't going to stay, let's be honest, there'll be more competition. The government wants to lower our prices. So I think we're in a good place there. Now the two other problems are 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. If the first medicine we had to treat metabolic conditions was tirzepatide in 1972, I have no doubt it would be reimbursed everywhere and broadly used in the system.

[David Ricks]

But again, the ratcheting effects, things are.

[Dave Ricks]

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. But I think we are conditioned to, 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, were 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.

[David Ricks]

I came across your stat. What would you guess the average caloric consumption per day in America is?

[Dave Ricks]

3,600 calories.

[Patrick Collison]

Yeah.

[David Ricks]

Isn't that incredible?

[Dave Ricks]

Yeah, that's a really good. And here's an interesting stat. When you're on our medicine, how many fewer calories do you consume on average.

[David Ricks]

On one of the GLP1s, you don't.

[Patrick Collison]

Need to swing at that much to.

[Dave Ricks]

Cause meaningful 800 calories a day. It's 800, which is almost a meal.

[David Ricks]

Yeah.

[Dave Ricks]

If you go and pull up to In N Out Burger, it's second breakfast right there. Yeah, it's second breakfast, exactly. So that's why people lose weight so successfully.

[Patrick Collison]

No wonder all the food companies are so worried.

[Dave Ricks]

And the trick is people lose the weight and they don't feel miserable. Right. 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, GLP1 GIP, the ones we were making medicines around. And you're out of balance and there's no going back. And interestingly, even when people lose weight, that balance still seems to be off, which is why if you've ever gone on a crash diet, you feel like shit constantly. You want to hurt people, you're angry. And on these medicines, that doesn't happen, which is the miracle of people feel good and lose Weight.

[Patrick Collison]

If you have a medicine that is recurring and presents some income stream for. For Eli Lilly. Now, maybe nothing is truly recurring in the sense that all patent protection ends, but nonetheless there's something on an ongoing basis and I guess there are various ways to extend that. Then some genetic medicine comes along. It's one time.

[Dave Ricks]

Yeah, one and done.

[Patrick Collison]

Exactly. Is it in practice possible to charge enough upfront such that as a company looking at its portfolio pays back the R and D? Yeah. You are in fact neutral as to which it is because from first principles for the patient, it's way better to do.

[Dave Ricks]

I think you asked about a value value perception problem and I think we need to overcome that. We're doing that by studying and all these other conditions people recognize as conditions and then we'll insure. And because OBC is sort of this master switch to all these things, that's an achievable thing. It just costs a lot of R.

[David Ricks]

And D. I'm talking about perception. I think he's talking about reality.

[Dave Ricks]

Yeah, you're talking about actually pricing, which is. Why is it that the industry's evolved to have a unit pricing model? It would be. It's back to like a shrink wrap software world. 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.

[Patrick Collison]

You're currently in the SaaS model and tech people know that SaaS is way better than the shrink wrap software business model. And genetic medicines are shrink wrap software. Wouldn't you be crazy to go back even though it's better for the patient?

[Dave Ricks]

Yeah. 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. And then 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.

[Patrick Collison]

It looks like an amazing drug. Yeah.

[Dave Ricks]

If it's. 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, eight, nine thousand dollars per year.

[Patrick Collison]

Right.

[Dave Ricks]

We need to innovate that pricing model. Why haven't we? It's mostly because the consumption side has no capability to do this. Particularly governments have built all back to the regulatory incumbency problem, built all this stack of rules around the idea that I Buy one unit, I pay X, whereas here you buy one unit and we want money over time. What is that? But it's conceivable that one could create a licensing concept stealing from the Sask 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 if 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.

[David Ricks]

It strikes me that we're describing, you know, 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.

[Dave Ricks]

Yes.

[David Ricks]

Which there but for the grace of God go we. You know, the patent time horizon is an arbitrary number that, you know, we have ended up. I sometimes think about, you know, off label use is, you know, very valuable in the US system. You can imagine another universe where we hadn't ended up with off label use being permissible and things like this.

[Dave Ricks]

Yes.

[David Ricks]

Do you think we need to spend more time trying to discuss and meta edit the R and D system and incentive system that we have because it just has such a huge effect on people's quality of life?

[Dave Ricks]

Well, yeah, thanks for the question. I'd 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. I'm pro my world. Yeah. And I am too. Then 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, it's even less than 10 cents. Branded medicines are 8.2% is generics, which is 90% of the volume. That's an even better deal. We have to get to generics. 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 institutional government, but the private market, self funds either through capital markets or through our R and D line. And there would be a lot more funding if we had an idea of price stability or a longer return period. That is definitely true. The patent system is what it is because of former rules. Moving it out in time seems exceedingly difficult in this climate.

[David Ricks]

But actually despite the fact of course it's shrunk because of the longer approval.

[Dave Ricks]

Time, its de facto shrunk. And then actually the Biden administration passed a rule in the inflation reduction act to actually have government price intervention in the US at five years plus two. So basically around seven years you lose that ability to recoup investment in the.

[Patrick Collison]

Same way government price intervention, it always works out well.

[Dave Ricks]

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 pharmas, not Lilly, but the other ones, the multiple is the most compressed it's been in 20 years. If you look at biotech, the XBI, I think half of the XBI is trading below cash. And then if you look at venture, half of the rounds last year were down rounds. This is not a positive.

[Patrick Collison]

Would extending the patent duration actually work? Because you referenced earlier this dynamic where especially with biologics, there are now so many opportunities for copycat molecules and therapeutics and so forth. And so does it matter less what happens with patent windows? Because what actually matters is the competitive ecosystem, the ability for fast follow.

[Dave Ricks]

Yeah, I think we end up with two competitive ecosystems. You have the on patent one and here I think history would show actually within a 10 year period, which is typical recruitment time.

[Patrick Collison]

We've solved clinical trials separately, so they're there now.

[Dave Ricks]

Okay, so that's a way to get there, right, is we could simplify the regulatory, 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 GLP1s 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. But 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 biosimilar 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, you maybe even were half off the originator. Now you're half off is 90% lower. So there's no return to that.

[Patrick Collison]

Okay, so in order to simulate and to catalyze more R and D, one thing we could do is we could extend the 20 year window.

[Dave Ricks]

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 ex US markets, I would point out a few of the Commonwealth markets are different. They've tried to implement a price for value scheme 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. But the US we have a multipayer model. But it's devolved to the situation where actually it's very commercial kind of thing, where there's a price point, a manufacturer launches that 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 $5 cents a nickel on medicine, not 10 cents because they get lower pricing per unit. Big insurers like United Healthcare, et cetera, get a very good deal as well, approximating the government. And then smaller insurers and smaller employers get a worse and worse deal. That's the way we do it. What it means is that Manufacturers compete mostly not on value, but on the pricing offering, on sort of the difference between the 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. It probably has a much more important social role. And deciding that the smallest, the little guy gets the worst deal and the big guy gets the best deal to me feels unethical. So I would be for a system that there is one price point people can say yes or no to that, that's one way to have value as an employer. You could say, that's not worth it, we're not going to pay for that, and this one is worth it. That 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 that happens in lots of other markets. Bond pricing, lots of people do this for a living, just not in medicine. And I think that could be a useful tool in the US system so that if you 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.

[David Ricks]

There's the much discussed, 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 and D. The cost of actually producing the drugs is fairly low. And so single payer health care systems internationally pay very low prices. And so the R and D cost is borne by the U.S. yes. 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.

[Dave Ricks]

Which no longer exists by the way, because we fixed that.

[David Ricks]

But that was like the hot topic.

[Dave Ricks]

Yeah, it was a hot topic.

[David Ricks]

In a lot of context.

[Dave Ricks]

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. And so you have the spread.

[Patrick Collison]

What do you mean?

[Dave Ricks]

Okay, so Insulin. So it was. The latest versions were launched in the 90s and 2000, but they got quite along in their life cycle because as.

[Patrick Collison]

In close to the end of the.

[Dave Ricks]

Well, they were past their patent window, actually. But there were no competitors. Why? Because net pricing was pretty low. How could it be so low? Well, the incumbent players, mostly Novo and Lilly, come back to that on GLPs as well. Same players had a lot of capex 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 who's getting the 235? Yeah, so the 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. And in this auction we'll get a take on the percent. We save you off the list price and you'll get a lower price than you could on your own. And we will create an auction by. And these were. 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. What did we do? We kept raising the list price and modestly lowering our net price. That was how the market evolved. And after 10 years, you had this huge bubble, gross to net bubble. And who was paying?

[Patrick Collison]

Okay, so you weren't complaining.

[Dave Ricks]

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, it looks terrible. And it's also producing these unfair outcomes. We're going to. Because no generic has applied for a copy of our medicine or biosimilar, we will create our own. So we launched our own biosimilar. It says Lilly on the bottle, it says Insulin Lispro, which is the 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 middle people called me and said, why'd you do this? I said, well, because we're trying to lower income prices. They said, don't. This is a threat to our model. I don't care. We have a higher calling. 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 wolfing, 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.

[David Ricks]

You know, I think we can get into differences between the US healthcare system and the rest of the world where the US has a very vibrant private healthcare system that is kind of weirdly unpopular. At least in certain parts of the, you know, political discussion, there's a choice.

[Dave Ricks]

Yeah, it's amazing about R and 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 and return they'll pitch you on is the US Meaning there is no return outside the US if you start at the point of origin of the idea. Now once we get to the market with a product, it's not sensical to not market it in these countries at whatever price you can get because your R and D is paid for on the US launch. So here you're just margin gathering.

[David Ricks]

But it's the free rider.

[Dave Ricks]

But it's the free rider.

[Patrick Collison]

But to John's point, this seems increasingly politically untenable.

[Dave Ricks]

I agree.

[Patrick Collison]

Americans are waking up.

[Dave Ricks]

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 and D model to the US health care 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.

[Patrick Collison]

Yeah, well, we're 25% of GDP, but nonetheless.

[Dave Ricks]

Okay, 25% would be a much better important.

[Patrick Collison]

When you say we should get rid of it, we should solve this.

[Dave Ricks]

How? Yeah. So I pitched this idea to this administration, actually, which I call the one fair price. Yeah, yeah, yeah. We're learning. I need a fair price.

[David Ricks]

Yeah, yeah.

[Dave Ricks]

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. So. Because the ability to pay, I think, should largely be borne by more wealthy nations. Okay, so you're saying that's where the surplus is.

[Patrick Collison]

You introduce a drug that costs $100 in the U.S. yes. You're saying it should cost on the.

[Dave Ricks]

Order of.

[Patrick Collison]

$70 in the UK or whatever.

[Dave Ricks]

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.

[Patrick Collison]

And you could do that today?

[Dave Ricks]

We could.

[Patrick Collison]

So why don't you just do it?

[Dave Ricks]

Why do you need a contract fix number one? Fix number two is that the reimbursement system, starting with the US Government itself, would need to get rid of all discounts and rebates so that the product moves through the channel physically at one price and is reimbursed at that same price. You have to select that price. And here you're not price discriminating anymore. You have to sort of look at all the equities around that and say, this is the fair price that I select and I'm going to live with that, just like other commodities and things we buy every day, and there's no skimming of that number. And with that, then I think you would have two good outcomes. You would have a fair decision about who pays for the R and D. Presumably companies would look at the global opportunity, or at least the developed countries, and set a price that might be a little lower in the US than normal because they want to sell to Europe because there's more volume available. And if they price too high because it's indexed, they would not be able to do that.

[David Ricks]

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.

[Dave Ricks]

Yeah. Could you imagine this? Like we go to a restaurant tonight and someone gives us the wine list and a bottle of like $100 Napa caberne, like $14,000. But then the waiter says don't worry, that's not your co pay, it'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 health care pricing.

[David Ricks]

But it feels like you would pull on this thread quite a bit and you know the next admin should of just the numbers should mean something like the FTC does this a lot. You know, they say that for consumers numbers should be trusted and yet we kind of let the health care system operate.

[Dave Ricks]

Yeah. 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 most every of the other 90% you mostly can't know the price.

[Patrick Collison]

Well, we've introduced regulations in the last couple of years mandating some degree of transparency here for how those work. Yes.

[Dave Ricks]

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 ICD10 codes and price points that consumers cannot digest.

[Patrick Collison]

It's like the hitchhiker's getting.

[Dave Ricks]

It's a non searchable beware of the leopard file, flat file with everything they have.

[Patrick Collison]

It's malicious compliance.

[Dave Ricks]

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 ask what's this cost? And the person gets irritated with me. Why are you asking that? I'm like I don't know.

[David Ricks]

I generally ask that before I consume things.

[Dave Ricks]

I had a situation. My physician is like attached to a hospital here's another terrible thing about US Healthcare is that the federal rules require payment differences based on site of care. So if you're in 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? Like, 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 health care. And then I think people are insulated from those costs, but in strange ways. Some things are deductible, some are not. And so it's really very difficult to make informed consumer economic decisions in health. And we need to improve that.

[David Ricks]

The other thing I observe about the US healthcare system, so Patrick and I both grew up in Ireland, moved here for college, and the US 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. What 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 U.S. 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 we make you guys do to have a significant health benefit. And then it leads to them being prescribed more by doctors. Because people actually ask their doctors, they do in fact do the thing in the ad, they ask their doctor about them and it leads to more usage. But yet people just find the whole thing weird. Private, for profit healthcare. And so do you have a view on where this goes, what we can do about it?

[Dave Ricks]

Yeah, well, not having grown up in a Ireland, but I lived in Canada for a while, for 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. I think actually we were talking about prevention earlier to some degree, primary care. What I experienced in that country was pretty good quality of care, very standardized, which has a confidence boosting 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.

[David Ricks]

Yeah.

[Dave Ricks]

But your chance of finding a tumor or something is much, much higher in those two countries than Ireland or certainly the uk. And that's not a good outcome. Why? Because I think they're focused on cost of delivery and evenness instead of exceptional care. So I think we've moved on that axis of like let's offer something that could be the best and charge for it. Yet for common conditions we've also moved on that access unnecessarily. And so here you end up with hard oak floored primary care offices and beautiful drapery and furniture. That's the basis of competition instead of actually it's quite a simple thing. You need your flu vaccine, just get in and get out. And there's a third thing coming which you touched on, which is prevention and self care. And I actually think that if we think of the funding mechanism in our country, but also in Europe and Europe's system has problems going forward. It was really built on an acute care model when most illness and death was accidents, things we couldn't solve. It was basically treat them as best you can and people were going to expire. That's what a hospital did. We've of course now evolved well beyond that. I think that's 30% of US costs now, 70 is primary care and 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, don't we want people before they get the disease to modify their behavior? Well, how do you charge for that? And so there's a little bit of a selection problem that the best health care 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 Europeans produced kind of an institutional rationing model that seems very fair but actually produces poor outcomes for acute conditions in the us which is very expensive, also is unfair, but produces good outcomes for acute conditions. Probably just the same for everything else, but cost too much. That I think needs to be addressed in the future. And here, medicines plus information I think can play a really big role in disease prevention. In the past we haven't been able to make the age old problem in medicine 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 nonlinearly because of that.

[David Ricks]

Sorry, why is it expanding?

[Dave Ricks]

Yeah, because of new drug technologies. Two main ones. One is going to the root of disease, whether it be genetic or RNA blocking medicine. So a lot of diseases have excess protein. We can now really pristinely block RNA production of the protein and the disease without a lot of side effects goes away. And by the way, these medicines happily also have sort of this catalytic effect, so they last a really long time. I mentioned LP earlier. So that's a kind of cholesterol that's untreatable. Today we're developing a medicine that will be a once or twice a year treatment for this and the side effects look totally benign. That's a really wide therapeutic index. 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 GLP1s 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. And platforms like our Direct platform have really taken off because it's self paid. But people skip all this other and 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.

[Patrick Collison]

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 and D. I think the. 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. I 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 leave 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 and D capabilities and you're vertically integrated and you have economies of scale and so on and so forth. Are we shifting there? Where between those poles ought we be? How is it changing just thoughts in that whole landscape?

[Dave Ricks]

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, look, we're good at clinical trials, everything before that just gobble it up. As companies mature because the capital markets are so terrible, as I described, it's a liquidity event for the investors. They go back and try something earlier and then sort of the hybrid of fully integrated plus, I don't think anyone's really pursuing just fully integrated anymore. I think your head's in the sand if you're doing that. We're running the third one.

[Patrick Collison]

The other two are the hybrid.

[Dave Ricks]

Yeah. Why do we make that choice? I think we observe a few things. First of all, while it's true that the origin of. I think it's a little more than half of medicines approved in the last 10 years have come from biotech. Hardly any of those traveled all the way through biotech because there are, as we talked about earlier, huge checks to Write and risks to take. And the biotech investor base is not interested in those risks, those very binary large checks. Whereas we can absorb them, we can run a portfolio across many of those. There's also scale economies in clinical trials. There is no doubt in my mind we are faster, more robust, probably cheaper than actually every biotech out there trying to do their own early phase clinical trials and manufacturing and distribution globally. So those things benefit scale. What doesn't it is discovery, it's the early phase. I think that's a more diffuse undertaking. What we've done, starting with my predecessor maybe 15 years ago is we started putting diverse, 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.

[Patrick Collison]

The act of invention has diseconomies of scale.

[Dave Ricks]

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.

[David Ricks]

Why is it good to be small? Why is it good to have the 400 person center in San Diego, not the Indiana super center?

[Dave Ricks]

I think it's good to be big on clinical trials because you, you're doing global reach. It's a scaled operation, manufacturing, distribution, discovery, I don't know. Now we have people who look across and I think there is a benefit in being in a tribe but I think it's also good to have some independence. There's a long list of pretty compelling inventions that came out of Lilly that were not sanctioned projects. And so that tells you something. The curiosity and sort of the scientific.

[David Ricks]

Endeavor were sanctioned in what way?

[Dave Ricks]

Meaning it had a budget and had a number and a name and whatever or pointed at like oh here's a target, go put a team around that and come up with a medicine that does work. But sometimes someone just says by the way, I didn't tell you but I've been working on this thing over here and it seems pretty interesting. And then we fund it.

[David Ricks]

Have you guys formalized that, like Google, 20% time or there are some people who are just doing curiosity or it.

[Dave Ricks]

Depends on the area. But we have this allowable variation idea where skunks are.

[Patrick Collison]

Is that the phrase allowable variation?

[Dave Ricks]

No, that's my word. But basically you just turn away and see what happens. And we don't manage the budgets down to the nickel at these sites. And if you get good people, it's like let them do their thing, let them cook and let's see what happens. That certainly worked. We built a big site.

[Patrick Collison]

The let them cook school of farm innovation.

[Dave Ricks]

Yeah, yeah. It's the thing.

[Patrick Collison]

I can see this as a book.

[Dave Ricks]

A lot of pharma innovation is iterative. Right. So the other problem is people quit too soon. So back to GLP1s. This story has been going. We launched the first GLP1 twice a day injection in 2006. People say, oh Dave, when did you know like Zeppelin would be huge? I'm like, I don't know, 2016, 2017. It was a long time ago. We've been on this story for a long time. And it was protein engineering and making better molecules that could be dosed higher that led us to get to more weight loss effects and then harnessing two mechanisms. So that's not like light bulb single scientists in a dark lab, like 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 hand.

[Patrick Collison]

This is all at your internal innovation invention.

[Dave Ricks]

Yes. So that's running.

[Patrick Collison]

Yeah.

[Dave Ricks]

Where do the biotechs appear and why do we do this one? It is productive for us and I do think we've built a capability to frankly make more molecules with more drug like properties. So by the time you get to that expensive escalation of clinical trials, the drug's behaving like a drug. Some of that we talked about earlier with AI and other tools we can equip. So these things tend to work. These things don't. It's pretty empirical still. We don't know all of biology. Some of it's just 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 like a big pharma asset.

[David Ricks]

So what you're buying is the proof that there's something here but not necessarily the specific stake.

[Dave Ricks]

Exactly. And if they haven't disclosed it and they've got a lead, that's very interesting, but we actively cultivate kind of a proximate satellite group of companies that are doing this independent of us, but we have ownership stakes in. And then of course we have a 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 pre clinical readout, every patent posting in the industry. We have a way to monitor.

[David Ricks]

For most of its 150 year history, Eli Lilly's relationship with patients has been through pharmacies and other intermediaries. But that's changing. As Dave mentions, with Lilly Direct patients can buy treatments like Mounjaro and Zepbound directly from the company and get them delivered right to their door. And they're not alone. At Stripe, we're seeing a new playbook emerge where established businesses who used to sell via complex distribution chains are now building direct digital relationships with their customers. And with Stripe, that's much more likely to succeed. It's happening across all industries, not just in healthcare media companies like Fox Sports. They used to reach viewers only through traditional cable bundles, but now they've built a global direct to customer streaming platform on Stripe or Ford. They're selling cars and trucks online through Stripe and not just through dealerships. Some companies, they're creating entirely new products to take directly to their customers. So Fender, the guitar company, they created a tuition marketplace that has enabled millions of guitar classes. Already large enterprises are creating better direct offerings than ever before with Stripe. Learn [e-mail] Enterprise.

[Patrick Collison]

So we just mentioned we're in South San Francisco in the Bay Area. The Bay Area, of course, used to have a vibrant electronics manufacturing industry and it left. Yeah, companies like.

[David Ricks]

Still the Ampex side.

[Patrick Collison]

Yeah, exactly.

[Dave Ricks]

Some of the old, yes, but Butchild.

[Patrick Collison]

Exactly. But you mentioned, you know, Cyprus Semiconductor and you know, people. People don't really know what you're talking about these days. The biotech sector started here in the 70s, I guess, and is exactly. 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 approaching zero. Yeah, exactly right. And now I think it's high twenties approaching a third.

[Dave Ricks]

30%.

[Patrick Collison]

So maybe it now is in fact 30%. Where does this go? And is there a US biotech sector in 20 years or like electronics manufacturing? Does the whole thing just go to China?

[Dave Ricks]

I wouldn't predict that outcome. But I think we should ring the alarm bell right now.

[Patrick Collison]

Well, I mean, is it bad?

[Dave Ricks]

It's not great. I would say I think for two reasons. One, but if they can do it.

[Patrick Collison]

Better, faster and cheaper and we get the drugs, isn't that awesome?

[Dave Ricks]

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. One is it is in the knowledge economy. To me, sort of the pinnacle paradigmatic knowledge economy. It's the premier league of knowledge economy. You guys find and 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 that 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.

[Patrick Collison]

Okay, so it's a kind of shadow passing over the country if biotech and it's rewarded.

[Dave Ricks]

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. And I mean the EU saw this with all the distorted position. Yeah, the EU had a huge controversy and they're friendly and we had open trading, but they had a reckoning as well. And there's some things you just want to have a national competency in. So anyway, I have a theory about the industry. I think there are truly novel concepts that require a little more time and work. And it is yet to be seen whether China has perfected that in a way where they can create their own local system. What they've certainly shown 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. I think that's not all bad. There'll be more competition. There's an effect in China where their own 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 and I think this has been a hub. Boston still a big hub. We want to keep those.

[David Ricks]

But there's this new phenomenon where my understanding, please correct me, is that traditionally you develop a molecule, you patent the molecule. Now there's the growth of these clones where you can have the molecule be trivially different enough for patent purposes, but still the same action. And there's a huge amount of that coming out of the Chinese biotech sector, doesn't that?

[Patrick Collison]

But I think also some real. I have an semap that seems real and good and not really also real innovation.

[Dave Ricks]

That's an interesting one.

[David Ricks]

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.

[Dave Ricks]

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. You still invent and sit on your patent. And all you had to do was 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. You've created basically a shadow generic industry and undermined the patent system itself. I don't think that's a great thing.

[David Ricks]

So was the shadow generic industry basically launched by. First of all, because we published the instruction manuals. I hadn't realized that.

[Patrick Collison]

And do you think. Is it your view? He just switched back.

[Dave Ricks]

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 have been an IP space that's been mined and people are around the idea. But you had an insight that actually unlocked the truth and there's like a thin strip. But you have to carefully navigate this concept called prior art and get that patent to stick. People tend to constrain it more and you leave room at the edges. Should we make the basis 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 say independent of a patent. We'll give you 12 years if you produce primary data on this product all the way through phase three. That's a $3 billion ticket. These copycats aren't going to do it. They're certainly not going to do it with U.S. 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. This 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. So I think that those two solutions together would be what I'd recommend.

[Patrick Collison]

The electronics manufacturing industry went to China for pretty straightforward reasons.

[Dave Ricks]

Cost.

[Patrick Collison]

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?

[Dave Ricks]

Yeah, well, I'm not sure it's going. That's why I say I'm not sure. At least at a relatively the story's over yet.

[Patrick Collison]

We're not eclipsed. But a significant share of it is.

[Dave Ricks]

I mean China has a robust software industry. It just 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 domestically. Yeah, okay, well. 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 and we perhaps reform our patent system to protect that. And China has their own version. And there's good reasons they would want to do that, because if we own all the medicines and there is another crisis, I'm sure they 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. And having that competency is important. So I totally respect their desire to build this. We have brilliant Chinese scientists in the world and many of them work at our company and we're trained in the United States. That's all good. I just think we don't want it to move all offshore.

[Patrick Collison]

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 us where the. I mean, as we've been discussing, there's such scrupulousness and stringency around clinical trials for new molecules and introductions and so forth. My understanding is that for generics a lot of the external validation 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 Cipla. Yeah. For rampant fraud and falsification and abuse of the biosimilarity analyses and so forth, which obviously is bad. But you, the apparatus and the FDA regime is such that there are very obvious incentives for, for that to happen. And then I'm very struck by how anecdotally and online there are so many reports of people switching from brand name medication to generic medication, finding them to be very different, subjectively and experientially switching back to the branded pharmaceutical and things going back to normal as it were. And so there's some kind of subjective version of the generic is in fact not directly substitutable. And so I guess I know nothing about this domain. This is all just observed from afar, I guess. I'm curious for your thoughts here. Does the generic industry actually work as well as we think it does? How much fraud is there in actuality when your kids or family or friends or whatever are taking a generic, do you advise them to exercise some caution? Thoughts on this whole space?

[Dave Ricks]

I think on the whole, the generic environment in the U.S. which is the most developed in the sense of percent of medicines consumed and the cheapest in the OECD, has been largely a positive outcome because it's made effective medicines abundant at very, very low cost.

[Patrick Collison]

And when you say the generic industry in the U.S. do you mean those manufactured in the U.S. or consumed in the U.S?

[Dave Ricks]

There are no generics manufactured in the U.S. really. So those that are licensed in the U.S. and sold here. That said, and I say that because, you know, take 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 3 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. But 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 in a structured path to patent litigation. But the day after the last valid 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 in a. Particularly in a dry product, in a pill, there's excipients, which are the other ingredients. Most of what you're taking is not actually the active ingredient. Some of them are buffering compounds, some of them affect absorption rate. So those two things combined do lead to different effects. And there is no requirement for small molecule chemical medicine to show proof of efficacy of any kind. So you can do pretty simple laboratory experiments and absorption experiments in a small number of people.

[Patrick Collison]

This is due to pk, but not exactly.

[Dave Ricks]

And that is what they all do. None of them do efficacy. So that makes them cheap and it makes them 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. Again, 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 are some. There's a big Israeli company, there's several Indian companies and many Chinese companies that are in this business. That's where these drugs come from. I think that is not so stable either. And we probably should pay a little bit more for generics. You sometimes read about injectable generics in particular that run short. That's a more complicated manufacturing process. So if you do it cheaply, you run into more problems. We probably should pay a little premium for resilience right now. That's not the situation.

[David Ricks]

So GLPs obviously were initially researched. The initial R and D was done for diabetes.

[Dave Ricks]

Yes.

[David Ricks]

And then it was noticed during the clinical trials that people were losing weight. And so now I think the big societal discussion like we're talking about the Information is a Silicon Valley tech publication and they're on a survey about GLP1s. And half of readers of the information are on GLP1s in 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.

[Patrick Collison]

In the search of Silicon Valley is some kind of harbinger of things to.

[Dave Ricks]

Come could be potentially adopters.

[David Ricks]

So there's this big weight loss discussion and you know that's the Ozempic is obviously a different brand name for a different drug. 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, there's potential Alzheimer's links, there's fertility. There are all these things that aren't just you lost weight. What do you think's going on there?

[Dave Ricks]

Explain. Yes. So first of all, it's different from what you just described as this accidents because actually we knew and we were involved with. We launched the first GLP1 in the world.

[Patrick Collison]

You're saying this is the triumph of rational design?

[Dave Ricks]

It's not totally rational, but I can tell you that because. So GLP1 is. Let's go all the way back. It's a super family of things we call incretins. These are hormones that signal our brain and other tissues from our gut. We always think about our brain being in charge. It's not how we work. So, and it's back to this basic system of survival, which is.

[David Ricks]

John is very aware of this.

[Dave Ricks]

It's nutrition. When you eat a meal, which hopefully we'll do later, our gut actually communicates with us, the 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. So all that process, insulin is released to absorb the nutrients is kicked off by incretins. And 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. Interesting. It's called the incretin effect. So that the local process of ingestion through the gut created this other thing that scientists and others then isolated GLP one and another one called GIP actually isolated first. GIP and GLP make up tirzepatide, which is Zeppelin and Manjaro. GLP makes up semaglutide, which is ozempic and was also exentatide. 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.

[David Ricks]

The longer Lasting action was the invention.

[Dave Ricks]

Was the invention and the first one. That was before we really knew how to do protein engineering systematically, which we can do now. It was found in nature, actually famously in the saliva of a Gila monster. So randomly some zoologist was testing the interesting properties of Gila Gila monsters and noticed and profiled all these proteins and one of them was a memetic of human GLP1. 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. So we could make it a twice a day injection. We made that into a medicine for diabetes. And on the COVID 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, but a peak to trough effect on side effects. So the up down part causes the nausea, but the absolute level causes the effect. So how do you separate those things? You need a flat long acting. It wasn't just convenience. So we made a once a week GLP1 called Dulaglutide. We stuck the protein, the native sequence, to the backbone of basically a monoclonal antibody to extend its life. Novo Nordisk did a similar thing that became semaglutide and Ozempic. And then we put the original two hormones together, GIPGLP and Tirzepatide, which is better than those in terms of weight loss and A1C control and everything else. And so with those tools we're now exploring this terrain of what is linked to this pathway. I would say most of what we know and have proven is actually right on the obesity target. So if you think overweight has these 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 1 form of children. Cardiovascular health, atherosclerosis, stroke, MI peripheral artery disease, kidney and liver diseases, fatty Liver diseases, these are all sort of right on that target. Adjacent to that are other conditions we think 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. Polycystic 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. So if you look at people's blood values for cholesterol or glucose over the course of three to six, eight months on the medicine, they fall pretty straight line with weight. But inflammation markers drop precipitously early. There's a marker called CRP C reactive protein, which is a marker for heart attack risk. In weeks, that starts to drop 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. We 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. Wait a minute. GLP1 chronic. But if you follow that logic train, it actually makes good sense. There's also inflammation causing the chronic inflammation plus. And we'll measure the inflammation in the joint plus there's a mechanical loading with being overweight. If you carry around a backpack of 40 pounds extra every day, your knees will hurt more. So. Sorry, the green ones. Sorry. Yeah, go ahead.

[David Ricks]

Well, I was gonna. So you're just saying that being overstated causes inflammation, which then causes all these ostensibly unrelated downstream issues.

[Dave Ricks]

And you see this in chronic inflammatory diseases. So think of. Well, the signature one is a skin disease called hydronatus 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 Zeppelin, 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 Tulce and Zepbound that will read out this fall and I'm certain we'll show a boost in efficacy with the weight loss. And that is not because of the weight loss per se. It's the inflammatory effects. So it's pretty interesting. And there's a lot of these adult diseases that are inflammatory in the root. Of course we'll study ra. We have studies going in Crohn's and Colitis as well.

[David Ricks]

So the brain stuff.

[Dave Ricks]

Brains. Yeah. 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 saety. But the signal being communicated to your nerve cells isn't as pristine as like stop eating pure sugar, which is what GLP1 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, percentage effect. Yeah. Right. And opioid use disorder will test alcohol drops precipitously.

[David Ricks]

Shopping.

[Dave Ricks]

Yeah, your cheeky pint turned out to be a 0. Alcohol pint. Shopping, gambling. These things have been observed anecdotally. These studies are being spun up and worked on the 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 microdoses of Zepbound and I feel like I can code longer or whatever. Right. They're back to your thesis of experimental hacking your body.

[Patrick Collison]

I'm sure there are people in Silicon Valley experimenting abundantly with this.

[Dave Ricks]

There is a theory of this that actually the glucose lowering mechanism and your brain only eats glucose, it doesn't eat any other substance is unique tissue. That way of having ketonic kind of low glucose chronically actually improves brain acuity. And so people are probably experiencing this. They might be lean already and taking a GLP1 and getting leaner, but they're actually their brain. They feel the brain functioning in a sharper way. There's an interesting study that Novo Nordisk is doing with their oral form of semaglutide that'll read 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. And there's many more coming.

[Patrick Collison]

So neurodegenerative disease, Crohn's disease, psoriasis, cardiovascular disease, Joint disease. Joint disease, Exactly. All the diseases. What fraction of the population, let's say the population over 35 will be on a GLP1 in 15 years.

[Dave Ricks]

Well, today in the US we probably have 10 million people, maybe 12 if we include the compounded market, the non approved drugs. Yeah.

[David Ricks]

The official company lines.

[Dave Ricks]

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. And I think we talked at the beginning of the conversation about coverage. That's of course both a cost, 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 this, I mean the popularity of the direct channel where people with some means, I mean $500 a month is a big ask. It's a car payment. But a fair swath of the US can afford that. It is actually the number one prescribed form of these medications is Zepbound self buy. We sell more than that than our insured business. A new patient starts and more than all of WeGovy. That'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, we 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, the orals, we can't keep stamping out these, it'll take too long. The orals have to work, they have to be approved. They're not going to be as good as these multi acting injectable hormones. But we can probably stratify people if you need to lose a lot of weight. Okay, start there. And maintenance with the oral is going to be a key segment. I would guess by the time we go generic it will be a large proportion of adults. Statins got to 40 million people branded. It's a little more than that now. Has to be north than that.

[David Ricks]

Interesting that all the growth in statins happened even while it was branded. You'd expect a big bump after it went generic.

[Dave Ricks]

Well, you asked about consumer advertising and I think actually people hate the commercial part of our business. I have to admit, like 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? How 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 mostly advertising is more served up and in your search sequence. And increasingly we're interested in like generative AI optimization. But still you do it. Why do you do it? Because it works. It's still a productive spend. But also promotion to physicians which consumers don't see is a big part of what we do. And we do studies and we disseminate them and we run education programs mostly if left to their own. And there's been studies on this of medical inventions that are not promoted.

[Patrick Collison]

Yeah, they won't actually be adopted.

[Dave Ricks]

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.

[David Ricks]

Purpose and alums presumably help here could be.

[Dave Ricks]

Yeah, if we can get in the. If we can get through the. The problem of convoluting the facts.

[Patrick Collison]

You need to have education seminars for the.

[Dave Ricks]

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.

[Patrick Collison]

Okay, you've mentioned Reddit and you just mentioned the microdosing of tirzepatide in Silicon Valley.

[Dave Ricks]

Not recommending, not indicated.

[David Ricks]

Understood.

[Patrick Collison]

Yes. Do not ask your physician. Exactly. But my understanding is the avant garde Silicon Valley denizens, the frontier is really in Chinese peptides Yeah, frightening.

[Dave Ricks]

So here we're getting into the compounding. So of course there's probably always been a segment of society that was comfortable using unapproved things. We have a large supplement industry in this country that has some proximity to this Maha thing. By the way, most supplements have no evidence that they're going to help you. I take a multivitamin, but I really don't believe in anything else. And I think if you're eating correctly, you should be getting better nutrition through your food than through supplements anyway. And it's embedded in the price at least. You may have to buy more expensive food. But that same tranche or the edge of that has gone to this. What is a Chinese peptide? It's an unapproved medicine that's never been tested in man and is made in a Chinese lab. It might be what you say. This is basically the same source for the tirzepatide 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 maybe under FDA supervision or not these plants most not. I know of one that's been inspected. It had a nasty what we call 483 with lots of inspection findings. I certainly wouldn't do that. But of course I run a company that does this legitimately. My problem with those companies is less about trying to. I like the fact that people could shortcut the pain in the butt of the health care 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 not 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. Some do the big ones don't they say, oh, we're not following that rule. Following a different rule, which is customization. All these patients who need tirzepatide, even though you can buy six different dosage forms 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, they'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 at.

[Patrick Collison]

Some point through that process. You would suggest there are several clues as to how this will advise it.

[Dave Ricks]

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. 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. 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.

[David Ricks]

And your direct stuff, 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. Here we are, we're working together on the ELI Direct stuff. Maybe you can talk a bit about.

[Dave Ricks]

Yeah, so this, I mean, talk about accidental experiments. So this came out back to the insulin story. I was the person who was running our US business, commercial business, directly retired, and I didn't have a suitable candidate internally. So I thought it'd be a good idea to go back to that job I used to do and be the CEO at the same time. The team.

[Patrick Collison]

This is very inspiring.

[Dave Ricks]

The team in the US 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. And so I dug in and one of the ideas that came out of that was, hey, why don't we stand up our own pharmacy and sell directly to patients? And then people were like, well, first of all, the existing pharmacies, and there's only 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 that we're going to make mistakes and hurt people. So we kind of parked it. A few months later, though, we were in this process I described in long form earlier, but in short form of deescalating this insulin bubble and getting to true pricing, being in the market. And one of the fights we were having was with a large PBM company that also owns a pharmacy chain. And we were worried that they actually would. 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 said, this is what this was for. This idea that's been on the shelf. We cannot be beholden to this. We have to have a route to market ourselves which we had not had since the company was founded as a pharmacy, actually a freestanding pharmacy before any regulation. So it was scary. But we cobbled it together with partners and now we do more of it ourselves. And the first idea was like, make sure people who need insulin to survive can get it at the lowest price. We sold a little bit, but not much. Then we launched our migraine medicine which was having trouble getting insurance coverage. Sold a little bit more. Then we launched Zepbound and we said, oh, 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 Novo product was the right choice or nothing. And so we put that together and boom, this thing really grew pretty quickly. Today we'll annualize in the billions of dollars. I think it's the largest prescription platform online in terms of revenue. We run it on stripe, I think, and going north from here.

[Patrick Collison]

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, well, they're discovering the value of having a direct relationship with the end customer.

[Dave Ricks]

And of course I'm on the board of Adobe 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 what this is, a great business, a very low cost business, very low cost route to market.

[Patrick Collison]

We're very in favor of selling stuff on websites.

[Dave Ricks]

Yeah, exactly. I'm sure you are. You had this insight even before me. And so yeah, that leap is happening now. Health care is been a hard problem for tech, I think, which is interesting because you have all this bricks and mortar mess. You have a lot of state level insurance regulation. You'd think fintech would have gone after this a lot Sooner because it's 20% of the financial economy in the country.

[Patrick Collison]

Well, I think this podcast makes clear that there are nuances to the sector.

[Dave Ricks]

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 and you went into a pharmacy in Phoenix versus one in LA and you couldn't get your prescription filled. They solved that problem with old tech. That's a pretty easy problem to solve these days with technology. But what they built on the back of that was a system of negotiating and capture rent taking that's not so popular anymore and we can disintermediate them easily.

[Patrick Collison]

We've been having this conversation for quite some time and we haven't asked you.

[Dave Ricks]

With one beer we can rectify that.

[Patrick Collison]

But we haven't asked you maybe one of the first questions that we ought to have asked you. You, which is Eli Lilly is the largest pharma company in the world.

[Dave Ricks]

Why? 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 GLP1s which is driving probably 80% of the economic value of the company. Our market cap is up.

[Patrick Collison]

Do you think Eli Lilly is a GLP1 company with a sidecar? Sidecar, yeah.

[Dave Ricks]

That's probably trading like other. Okay, so in our sector today, let's pick a company like Bristol Myers or Pfizer. These are big companies with revenues not so different from ours. And we compete with them in these other spaces. Their market cap is between 1,200 billion dollars. We're trading about 800. And that difference is the GLP1 phenomena. I think Wall street also believes that our R and D productivity has been higher. So every dollar we put through the income statement for R and 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 GLP1s 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 patent cycle. A franchise buy. Thank you. And I think so far the evidence is pointing that way. Have we fully evolved to a mature version? No. Have we created 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.

[David Ricks]

You said GLPs are one of the biggest drivers of the business. Eli Lilly is growing at about 30% right now.

[Dave Ricks]

Revenues 40 year to date. We'll have earnings on. Yeah, actually here's a fun fact. There's three scaled large cap companies that have a rule of 80. Can you name them?

[David Ricks]

Stripe's doing pretty well but Nvidia must be.

[Dave Ricks]

Nvidia is the highest. I think they're over 90 margin plus growth.

[David Ricks]

Coreweaver, I think that's. You're talking to the CEO of Eli Lilly. Please.

[Dave Ricks]

Top hundred small caps out of here.

[David Ricks]

Okay. Yeah, yeah.

[Dave Ricks]

It's based quite close to where we're sitting. Genentech, Broadcom.

[Patrick Collison]

Of course. Yeah, of course.

[Dave Ricks]

So the hardware guy's in AI killing it. But I think what's interesting to me, they're trading at multiples above ours. There's a belief that their cycle's somehow longer than ours. And I think Terzepati's US patent is late 30s or forgot 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.

[David Ricks]

Well, I was going to ask some questions about that. So first off, Novo is growing in the teens. Just for two companies with GLP offerings that are working. Why are those growth rates so different?

[Dave Ricks]

We're taking most of the growth in the market.

[David Ricks]

Okay, so just your products working better.

[Dave Ricks]

Right now in the US across all forms of GLP1 on new patient capture. We're basically 70, 75% right now. So almost, almost three to one. And then if you. It's a high carryover business. We're. I think we're 60, 40 on the total and so we're just getting most of the growth.

[David Ricks]

What would you guess Eli Lilly's PE is forward B. Yeah, I was using trailing but 15:55:0.

[Patrick Collison]

Oh my God.

[David Ricks]

So what I was going to ask is, you know we're talking here about.

[Dave Ricks]

The sector is like 12 so.

[David Ricks]

Yeah, no, exactly, yeah, you're correct.

[Dave Ricks]

Like it was a very good game.

[David Ricks]

I was thinking high end of the sector. Your priors were good because that is correct for the rest of. But where I was going with this is if you're listening to this podcast, I think you maybe come away thinking, wow, pharma is hard. Good God, there's so many things and things roll off patent and we have the Chinese competitors and things like that. What is it that investors have confidence in?

[Dave Ricks]

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 and D business. Everything else is around the edges. So you have to create something better for people that improves their health. If you can do that, you're going to win. Policy this and that. The commercial strategies, that's the 20, the 80 is this. And I think we do three things better than others. One we talked about already which is cycle time. It's a basic concept but if you can make software faster than someone else, you're going to win. And the same in the drug business. The second is prediction of where to 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 as we.

[Patrick Collison]

Have pre existing markets.

[Dave Ricks]

Yeah, I mean there's illnesses but they're not medicines. And I think a lot of companies don't work that way. They look at okay, where's their payment, where can I recoup my investment versus where's their problem? And maybe our situation in video talks.

[Patrick Collison]

About how he loves zero dollar markets and you're describing some of the same.

[Dave Ricks]

Intuition, blue ocean things that are, you know, 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 and D that are extending the franchise, these moonshots we just talked about that could really actually create a new GLP1 like category. We're doing this study now that I think it'll be quite interesting that it's going to potentially show you can slow Alzheimer's before it starts. That's the kind of thing that could be a mega market. And those have to not just help a lot of people, but they have to save a lot of money for healthcare systems in order to generate I think shared value. And then you have to do the discipline around the edges of the next clinical trial for a cancer drug that's already working. I think being multimodal in that and really kind of balancing your bets has been a key for our success. Capital allocation I guess in a sense.

[Patrick Collison]

When people are debating drug pricing and they debate it a lot. Obviously the argument made by people in the pharma industry, which to be clear I think both of us believe has a lot of legitimacy is well if the returns aren't favorable we're not going to pursue the investments and you'll never.

[Dave Ricks]

Know if it was too expensive.

[David Ricks]

Exactly.

[Patrick Collison]

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 dynamics extensively here just now. Inasmuch as GLP1s represent this enormous advancement and improvement in Eli Lilly's just fundamental financials. I mean it's economically equivalent to a 2x3x4x increase in the realized drug price of every drug across the board. Does that mean that people should now expect Eli Lilly to be far more able to fund broad based drug R and D than it was in the past such that their estimate for the prospect of drug development and bounties of drug discovery over the next 10, 20, 30 years should be much larger than the pre GLP one world.

[Dave Ricks]

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 and D. That's sort of a good a positive return R and D stack and you plan to ratio as revenue and this year we'll sell 60 some odd billion so until you get to the 14 billion and next year that'll grow by double digits and.

[Patrick Collison]

But you think if revenue goes to.

[Dave Ricks]

120 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. We can expand the franchise, we can do the incremental things we have to do at scale and do them earlier. Actually I think that's quite an important thing. Often we do serial clinical trials and by the end of the product lifestyle you get the final indication. We're trying to stack them all into the beginning. So that's expensive but we're in a position to do that. It's not risky actually.

[Patrick Collison]

So you're saying anyone who's on this, you know, who's teetering on the brink of purchasing a GLP one especially in a self pay mode or something like that and they worry maybe it's self indulgent to do so, you know, they should just go to the gym or.

[Dave Ricks]

Exercise Willpower and they're paying for medicine.

[Patrick Collison]

I was going to say you're saying that the purchase of this GLP1 is also a kind of subsidy for cancer.

[Dave Ricks]

R and D. And I was just to add on the R and 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, we have lots of deployed corporate venture but we've built These things called catalyze360 or the gateway labs here in South San Francisco actually where we host scale ups, not startups. And by host I mean we offer our services. So rather than hire some consultant who retired five years ago to help you with a particular problem, we'll give you someone working on it right now. And so it's sort of a loosely coupled model without buying them, where often the entrepreneurs leave, we cultivate them and then maybe buy them if they're good. You have to apply to get in. So it's a competitive process. We have I think seven or eight of these now around the country and even two in China, 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 and 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. Right. There 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 years because our scale is getting to be bigger than anyone's ever done. Most those experiments that have been run ended badly. People mostly bought other companies at too high a price. And then the drug didn't work out. We're not doing that, but it'll be interesting to see. And then if we quit, we'll turn into an Apple. We'll just start buying back massive amounts of shares and return cash to shareholders who invested to create this surplus. But it's important. What you're saying about people buying is that a quarter of every dollar you spend is going to a research lab or a clinical trial for a medicine you might not need or for someone you don't know. But that's the system by which we create new medicines and we'll try to use that wisely. I don't take that responsibility lightly. That's someone's money. But maybe they'll have Alzheimer's someday and we'll have a solution for that. Or maybe someone they know. But that's the virtuous circle we try to drive.

[David Ricks]

Is it meaningful to talk about what fraction of R and D is towards specific treatments is like focused vertical RD versus. I presume you do a lot of horizontal R and D platforms. Yeah, exactly, platforms. Because presumably it's even harder to reason about the platforms and the payoffs there.

[Dave Ricks]

Well, you need some scale. There's a lot of platform companies that get funded that are biotech. Yeah, we just have. 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 rd. One of them is this. Is there a new platform that can unlock targets we already know about in new ways or in better ways that create a whole field of drugs? If you think of Genentech like 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, a new virology chemistry and small molecules. So we want to be there at the early stages because it is like a catching a wave thing. If you're late, you miss it all. And so that's the kind of investing we do. And that's a more scaled project. And then the other kind is like picking targets and looking in the broad space of biologic discovery and say, okay, of the thousand things uncovered this year, these 15 we think could be highly relevant. And we're going to put a team around those. This isn't the 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 like we talked about LP earlier. That was the case there. We discarded the antibody. There is one that's been developed, and we went after the small molecule and the sirna. They're both in phase three. And so that was a case of very purposeful find a target, attack the target, get a medicine to market. So it's both, and we need to hedge it that way, I think. And then, of course, we watch the outside and sometimes we miss those two signals and we end up buying companies later in their cycle and saying, hey, we can add value through clinical trials or manufacturing scale or what else?

[David Ricks]

Last question. Eli Lilly is more than 100 years old and 150 in May.

[Patrick Collison]

Oh, wow.

[David Ricks]

Okay. So coming up on your 150th birthday, and I noticed that often very tenured, successful companies are quite serious about and good at internal succession planning. I think about Royal Dutch Shell or companies like that. And Eli Lilly, you joined in what year?

[Dave Ricks]

1996.

[David Ricks]

Right. You joined in 1996. Not as a hired CEO.

[Dave Ricks]

No, I was a B.D. m. And a new hire.

[David Ricks]

And you were rotated across the business. You ran China, you ran the U.S. 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. But that's where you have experience about talent planning and talent development.

[Dave Ricks]

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 and 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. We've had 150 years of that and I'm the 11th CEO of the company. That's one less than popes in that period of time. So it was a special honor actually. And it's not a lifetime appointment. I can be fired any day. But the first four were family members and then we've had a lot of long running successful and only one external. Really. Yeah. And I think that's part of the success of the company is that in scaled companies, we've been scaled for a while, you know, there's not one person cannot possibly really lead the whole thing. You have to know the role you have to play and you have to have others around you that can do it. By creating that environment, giving up some of that, you actually grow people and you grow people in a special way, a way that they know how to operate in the unspoken operating system called culture. And so they're more effective more quickly in new roles.

[David Ricks]

They just know the domain because there's so much to know.

[Dave Ricks]

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 like keep headcount flat. And that makes me very unpopular because people are like what? How do I get this work done? We are growing headcount in manufacturing. That's a unit operation business.

[Patrick Collison]

Are you growing it in R and D as you grow the spend slightly.

[Dave Ricks]

So we're growing R and D high teens, early low 20s. We're growing headcount and R and D single digits.

[David Ricks]

So where does the money go?

[Dave Ricks]

So the money goes to projects. Yeah. And salary trials. And I believe in paying people well.

[David Ricks]

Yeah, yeah, yeah, yeah.

[Dave Ricks]

So there's salary growth, but clinical trials, new equipment, new laboratories, supercomputers from Nvidia. That's expensive. So we're really trying to keep that goodness that can come from having most of the succession 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. So that's the blend we've tried to find. And I look at my career and probably four or five times I was put in a job I had no business being in, but somebody thought I could learn it and that the output of that would be good performance at the end, not at the beginning. And then a better long term thing for the company. I'm so grateful for that because that's 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. And I touched things that I had no experience in, but I learned by voraciously reading and doing and solving real problems that has made me more successful in this job.

[David Ricks]

A lot of companies say they're long term oriented, but I feel like this is a particular example of revealed preference.

[Dave Ricks]

Yeah. David, thank you. Awesome conversation. Thanks for the beer.

[Patrick Collison]

Thank you very much.