Believe what they do, not what they say. Is Eli Lilly really committed to innovation?

I had lunch with Bernard Munoz recently. Bernard has worked at Eli Lilly for over 29 years. Over his career he helped run Lilly affiliates in Portugal, Austria and France while with the Elanco Animal Health group. More recently he is working as an advisor in the corporate strategy area at Lilly Corporate Center in Indianapolis.

We met at a business function a couple of weeks ago. Bernard introduced himself as a consultant in “disruptive innovation.” I worked at Lilly for over 10 years. I learned a lot about pharmaceuticals, about marketing, about how to build a business in places like Japan and Eastern Europe and about the value of a robust process. What I also learned from Lilly was that change happens slowly in a large company. The fact that Lilly now had an internal consultant tasked with to bringing change to the organization was invigorating. We agreed to meet again to discuss.

Over a plate of Greek food I learned a ton about the current happenings in the pharmaceutical industry.

Bernard has been intrigued with innovation his whole life. His passion is beginning to be noticed by others. In December 2009 he published a paper in Nature Review titled “Lessons from 60 years of pharmaceutical innovation.” He followed the number of new molecular entities (NMEs) that have been approved since 1950 and looked at the changes year to year both in the number of new entities approved and the expense to make it happen. From 1950 to 2008 the FDA has approved 1,222 new drugs. On average the number of new drugs approved each year over this period is roughly the same. In 2008 21 NMEs were approved.

He documents that over the same period the cost of developing new drugs is rising at the exponential rate of 13.5% per year. Same number of products out each year, costs rising exponentially. If nothing changes this is an unsustainable situation.

Many large pharmaceutical companies estimate they need to produce an average of 2–3 NMEs per year to meet their growth objectives. The paper states that none of them has ever approached this level of output. The historical level is close to 1 per year. Bernard’s research points out that statistically the chance to getting to this level with the current pharmaceutical industry’s business model is very low.

There have been a few spikes and troughs over the years. Bernard’s conclusion is that this may have been more a function with the number of companies with applications outstanding. The more companies, the more applications, the more approved NMEs. His paper goes on to demonstrate that M&A activity in the pharmaceutical industry actually negatively affected the number of NMEs approved. In his words 1+1=1.

Bernard argues that we need to increase the number of companies developing NMEs. A larger number of companies accelerate the acquisition of knowledge creating what economists call a spillover – an industry wide benefit that enables all companies to be more effective. He also argues that the pharmaceutical industry needs to fundamentally change the way they develop new products.

Bernard and William Chin, formerly a colleague at Lilly and now at Harvard Medical School published a paper in Science Translational Medicine also in December 2009 titled “A Call for Sharing: Adapting Pharmaceutical Research to New Realities” that points out that today’s innovation increasingly stems from the aggregation of numerous small contributions. The authors argue that companies should compete in areas that offer a viable return on investment, and share where pre-competitive collaboration helps all of us discover new therapies more efficiently and effectively. The authors issue a call for the pharmaceutical industry and governmental agencies to “join hands and intensify sharing in order to help repower pharmaceutical innovation.”

To summarize the pharmaceutical business model is broken and it needs to be fixed. This is something many of us in the industry have been discussing for years. Costs are increasing, pricing pressure is increasing causing sales revenue per NME to decline and the number of new products being developed is not keeping pace with what is required. How much longer will investors continue to support pharmaceutical research? How can we keep the engine that is driving a large section of the economy alive and well?

Bernard told me he has been getting calls from groups in industry and in government requesting information about his ideas. Momentum is growing for change.

Great news - don't you think? Well here is the rest of the story

A senior executive at Lilly told Bernard Munoz this week that his job was being eliminated as of September 7, 2010!!

It is no secret that Lilly is facing patent expirations on a number of their most popular products. The company is cutting jobs. I have friends who have left the company and others who are looking over their shoulder not knowing if their job will be there tomorrow. What concerns me is that it appears Lilly has eliminated the position of a successful executive that has made and is making a name for himself discussing how to move the pharmaceutical industry forward. Lilly could have a voice at the table and they are choosing to turn it down.

Why? I think it is much better to participate in the discussion and be a part of potential solutions rather than wonder what will happen.

John Lechleiter, the CEO of Eli Lilly and Company, in an editorial published in the Wall St. Journal on May 14, 2009 wrote “U.S.-based private industry is the heart and soul of this innovation drama, investing $58 billion in research and development for new medicines in 2007 alone…. Biomedical innovation is not incompatible with the health-care reform goals of universal access, quality improvement and cost control. On the contrary, without new, more effective medicines -- along with new devices and diagnostic tools, and better treatments and surgical techniques -- it will be impossible for larger numbers of Americans to obtain better health care at a manageable cost.”

I think Lechleiter gets the message that Munoz and Chin are preaching that industry, universities and government need to come up with creative solutions to get better medical solutions to the marketplace. I don't know if the message is flowing down to his staff. I wonder if the bureaucracy at Lilly will wise up and get it before more innovators like Bernard Munoz are forced to do their work outside of the company.

Is Lilly committed to innovation?? The proof is in what they do - not what they say.

If you would like to read either of the papers referenced above please follow the links or send me an email at rjbydlon@earthlink.net.

I am interested in your thoughts. Please comment below.

Until next time – all the best!

RolandB

Game changing innovation needs a risk-taking environment

In the April 26th Indianapolis Star Michael Goldsby the executive director of the Entrepreneurship Center at Ball State University wrote a very good My View column titled “The game has changed for entrepreneurship.” Dr. Goldsby, an expert on the field, makes the argument that currently policy makers and companies view entrepreneurship as primarily composed of small business startups and that this is a mistake. By only looking at small business we are missing a large segment of the economy since continuous improvement coupled with continuous innovation is the magic formula for a company’s success. He states that companies of all sizes need entrepreneurial thinking to compete successfully in the 21st Century and suggests that schools must craft curricula to teach creative problem solving and innovation that can and will be used to drive innovation in small and large companies.

I agree with everything he is saying. Problem solving, how to effectively manage risk, and more importantly how to think creatively are critical skills that should be taught in every management school in the country. I also add that we won’t succeed in converting our medium to large companies into entrepreneurial powerhouses until we seed and grow a culture with current company management that promotes rapid experimentation and accepts short term failures as a learning event to prepare for long term success.

So why is entrepreneurship composed of mainly small business start-ups? I think a small company is an ideal climate for entrepreneurial thought. The stakeholders are usually willing to bet the farm and risk their jobs and financial wealth on an idea. Successful entrepreneurs have passion and are able and willing to focus on the key success factors for getting a product or service to their customers. The management team is a critical piece of the puzzle. Successful management team members are judged not on what they have done in the past but what they can contribute in the future. Each member must be willing to roll up their sleeves and participate in multiple tasks for the venture to succeed. It is OK to fail as long as information is learned. Timelines are short. Milestones are measured in weeks or months. Who knows where anyone will be in 5 years. The key is to enjoy the moment. If the basics are done right success will follow.

So how does a large company foster an entrepreneurial culture? Many years ago I started my post MBA career at a large company here in Indianapolis. At the time one of the selling points to join the company was that it was managed by consensus. I got an excellent education in business and worked with some of the best individuals I know but one thing I learned very early on was that consensus did not promote or reward risk taking. If 100% of the decision makers had to agree that an innovative idea was worthy of a risk before it was approved there was usually one member willing to kill or postpone it until one of our competitors tried it first. Decision makers were worried about failure. Some found it was much easier to go along with the status quo than try something different and find him or her knocked off their career track.

That is not to say that entrepreneurship in large companies will never happen. 3M is known for spinning off numerous companies based on internally developed technology. Apple over its lifetime has continuously reinvented its product line to lead the field.

I agree with Dr. Goldsby that if large companies in Indiana embrace the role they play in an entrepreneurial society the entire state will thrive. The challenge is how can we encourage them to do so.

1. The first thing is that the company must make a long term strategic decision from the top down that in order to promote game changing innovation they need to accept diversity of thought in their organization and also provide a safety net for entrepreneurs that try but fall short of a goal.
   
2. Second they need to cross pollinate by hiring or contracting with individuals from businesses outside of their traditional environment to provide input to product and/or business development teams. A pharmaceutical company could benefit by hiring someone with a consumer goods background, an airline could hire an individual with an expertise in promoting widgets who also flies a lot, a company wanting to compete using social media should add a few 20-something employees that text their friends rather than call them. These new members should encourage companies to think outside the status quo and consider non-traditional change.
   
3. Finally companies should not expect to change overnight. Mount Everest is not climbed in a day or even a week. The process takes months and involves conquering numerous milestones to get to the top. The road to game changing innovation is littered with hazards. Successful companies are the ones that do their homework, provide a supportive environment, take calculated risks and allow their employees to spread their wings and enjoy the process.

Until next time - all the best!

RolandB

BizTown – the entrepreneurs of the future!

I had the opportunity recently to be a mentor at the Junior Achievement BizTown. For about a day I watched as 100 entrepreneurs created and ran a “town”. They came from a wide variety of backgrounds. Some came from families rich in financial wealth, others qualified for school lunch programs. Some were taking many of their classes in Spanish or French, others were Hispanic where English was their second language. What the students (the citizens) discovered was the joy of learning how business worked and how one business depended on others. They got along. They had fun. What I learned was that I can learn a lot about life from a group of 5th graders.

For those of you not familiar with BizTown it is a simulation where about 80-120 students run a town and all of the businesses that make the economy run. There are businesses that make and sell interesting things, there are banks that loan money to the businesses and collect interest on the loans, there is a power company that sells utilities, there is a newspaper company and sells advertisements and produces and sells an actual paper, there is a radio station with DJs that sells air time to businesses in the town for commercials, there is a post office (FedEx), a Steak and Shake restaurant where students can buy popcorn and soda, the Peyton Manning Wellness Center where students go for medical checkups and learn how to eat healthy, and a city hall where the mayor and police keep the peace. Each company has a payroll. Each company pays taxes. The employees are paid with checks, they pay income taxes, they cash their checks at the bank where they receive a small amount of cash and deposit the rest into their checking account. They use the checking account to pay for the interesting things sold at the retail stores.

This all happens between 9:30 AM and 2:00 PM. Each day a different group of students enjoy the opportunity at the facility. A group of five JA staff make sure the town “runs” correctly. Adult mentor volunteers assist in each business to answer questions. The student citizens make the decisions, do the legwork, sweat a bit and have a lot of fun.

The day I was there we had students from the International School, Saint Phillip Neri and Saint Anthony. Most of the citizens were in 5th grade. Over the previous few weeks each student had filled out a resume and had interviewed for the job they wanted. Each business had a Chief Executive Officer (CEO) and a Chief Financial Officer (CFO) along with 4-6 supporting roles. Each student had a job description so they knew what was expected of them before arriving.

Our citizens came from much different backgrounds. The International School of Indiana is a private school in Indianapolis. According to their website http://www.isind.org/ the yearly tuition is $13,050 per year. Students pick a language track in either Spanish or French and learn most of their coursework in that language. Saint Anthony is an inner city school supported by the Archdiocese of Indianapolis. The average family income is $14,000 per year. Approximately 90% of the student body is Hispanic and most of the students qualify for free school lunches. Very few of the students pay tuition. What I found fascinating and encouraging was that all of the student/citizens regardless of what school they were from participated as equal members. They all worked hard, they communicated, and the system worked.

I’m sure many of the students learned a lot about business, about teamwork, about leadership and a few life skills like how to balance a checkbook. What I experienced as a mentor was how well the students got along, how well the students were prepared by their teachers for the day’s activities, how well they performed in their roles, how hard they worked, and in many ways how once they understood the rules they policed themselves. I learned that our youth when given the opportunity rise to the occasion.

As a marketer I am often the champion for the voice of the customer. The following are the top 10 reasons for BizTown as recorded in JA BizTown Newspaper by the citizen staff.
1. It is fun.
2. You learn how to be an adult.
3. You learn how to do jobs.
4. You learn how to control money.
5. You learn how to write checks.
6. You learn how to balance a checkbook.
7. You learn how to handle breaks.
8. You learn different jobs.
9. You get to spend money and shop.

….. and the final reason

10. You get two paychecks!

What is the value to this adult volunteer of experiencing entrepreneurial spirit in a group of 5th grade students – Priceless!

If you have an interest please consider making an investment in the future by giving some of your time and/or your financial treasure to support a good cause like JA BizTown. It is worth the effort.

Until next time - All the best!

RolandB