The David Rubenstein Show: Eli Lilly CEO Dave Ricks

This is my kitchen table and also my filing system. Over much of the past three decades, I've been an investor. The highest calling of mankind I've often thought was private equity. And then I started interviewing. I watch your interviews because I know how to do some interviews. I've learned in doing my interviews how leaders make it to the top. I asked him how much he wanted, he said $250. I said fine, I didn't negotiate with him and I did no due diligence. I have something I'd like to sell and how they stay there. You don't feel inadequate now because being only the second wealthiest man in the world, is that right? One of the most transformative drugs on the market today are anti-obesity drugs. One of the leaders in producing those drugs is Eli Lilly. It has transformed itself over the last five years to a company that's now the most valuable pharmaceutical company in the world. I sat down with Dave Ricks recently to talk about its anti-obesity phenomenon and how it is transforming America. Let's talk about the phenomenon that's changed the world to some extent, which is the anti-obesity drug. Now, to make sure everybody is on the same page length, what is the name of your anti-obesity drug? Okay, so the name is Zep-Bound. The active ingredient is called terzepatide. So, by the way, who comes up with these names? Where do you get these names? Not me, David, not me. We can't have names that are similar to each other because doctors make prescribing errors. We can't have names that make claims about what the drug does. And we can't have names that only work in English, so we end up with these strange-sounding names. When was that discovered, and was that ever the intention when the drug was being developed? Yeah, pretty early on. So we launched the first GLP-1 medication in the world in 2005. It was called Exendatide. It was a twice-daily injection, and it was indicated for people with diabetes. But that was the first effort. On the cover of the next year, our annual report, is a woman who was using the drug, and she said, my diabetes is under control, and I noticed I'm losing a little weight. Actually, it was 2006. That's the cover of our annual report. But we had to improve the medicines to really make them effective for weight loss. One big improvement was to make them weekly. That's a convenience benefit, but even more important, the action of the medicine flatter, meaning more consistent through the day and night. When we had it twice a day, there were ups and downs. And one effect of GLP-1 medications is they cause nausea and other GI distress. That's a function of the up and down in your system. So when we made it weekly, it was flatter, and we could dose higher to see more weight loss. So that was sort of an accidental breakthrough of trying to make a more convenient form. Now, there's another company that is sort of in the same business, Novo Nordisk, which is in Denmark. And they have a similar product, and they have a product that does the same thing. One is for obesity, anti-obesity, and one is for diabetes. Correct. Is there really any difference in terms of the drugs? There are. There's no difference really between the drug that's named for diabetes versus named for obesity for either company. We do that for insurance reasons we could talk about. But terzepatide is the latest version. It has two modes of action. So right now, because you just ate lunch, your GI tract is communicating with the rest of your body. It's communicating with hormones or proteins and telling it that you've been fed and you need to absorb nutrients and other things that are essential to life because food is essential to life. What we're doing is boosting some of those signals with these medications. They're boosting the signal that you're full, boosting the signal that you no longer want to eat more, and boosting signals that you should absorb nutrients that you've consumed. And so ours does that with two different hormones, one called GLP-1 and a new one called GIP. Ozempic or semaglutide just uses GLP-1. But what the drug does is what? It tells your body you're full when you're maybe not as full as you used to be? It tells your body you're full, and it does that to the brain, the sense of saiety. Probably, we've learned over time, our sense of fullness becomes conditional. So as people eat more habitually, that signal kicks in later and later. And that's a cause and consequence of obesity. It does other things, too. It actually makes your stomach fuller because it slows gastric motility. So it slows down your nutrients, which seems counterintuitive. But when you eat, when our ancestors were alive 10,000 years ago, meals were rare, and you wanted to absorb all the nutrients out of it. So that signal said, absorb the nutrients. All right. I don't want to confuse people, but there are four different names that people should know for these drugs. Now, you have an anti-obesity drug, which is called what? Zep-Bound. And then you have a diabetes drug, which is called? Monjaro. Same medicine, different names. There was a study that just came out a couple of days ago, I think, that said one-on-one comparing the two, your drug, anti-obesity drug, loses weight more rapidly for people than the other product. Is that right? More rapidly and more. So 47 percent more. So after a year and a half, roughly, people on our drug lost 17 more pounds than on Wego. Why do people need to lose so much weight in this country? Our country has, as I got it right, 75 percent of the people are overweight and 42 percent are obese. When did all of a sudden we become so obese? Yeah. If you look at the epidemiology charts, it really seems to have started in the 60s. Growth in overweight and obesity in the country and really accelerated in the 80s and 90s. What are the reasons? How we live certainly is one of them. And energy expenditure has to be part of the story. What we eat, though, has probably a more important reason, not just the quantity, which has risen modestly through that period of time, but actually what's in our food has changed. And I think that's also attributed to this. All right. So back to the drug. When you realized it could lose weight, did you get the FDA to say, yes, it can be prescribed for losing weight or it's still you can't get that prescribed for you? No, no. As of last year, we launched it's for weight loss. And do insurance companies reimburse people for the cost of these drugs? Some do. More should. So as of today, the federal government actually has a prohibition on reimbursing any of these drugs, which is a problem, I think, although the Biden administration just as advanced rulemaking to change that. That's good news. And we hope the next administration will continue that process. So if losing weight makes you healthier, why would people who care about insurance reimbursement, Medicare, nothing, not insist on paying for this because it would make you healthier and therefore you don't have other diseases that they have to reimburse you for? I think in four or five years, we'll look back and say, yeah, that's what should have happened. And it's silly that we don't pay for what is already known to be a primary contributor to poor health, which is excess body weight. But, you know, people have different motives and incentives. Maybe your employer has a stronger interest in your long term health. That's probably why many have stepped forward. And then evidence. Our job is to make the evidence to produce the evidence that we're not just having people lose weight, but losing weight with our medicine causes improved health. And we have many studies out this year that are demonstrating that. So to take this medicine, you have to inject yourself. Correct. Well, why not just go to a pill? Great idea. We're working on that. The injection that you have to inject because it's a protein. And if we orally take proteins, your body thinks it's food and it breaks up proteins. So you cannot really take these drugs orally. You have to bypass the GI tract, even though it's affecting and go right to the bloodstream. But we are working on a pill. We'll have some data actually as early as next year for it's a GOP one only. It's a single acting. It's not going to be as good as terse appetite or is that bound to be about as good as those epic, we hope. And this would be a once daily pill. Some people say that if you go on this drug, you have side effects that are not completely desirable. Is that true? All drugs that work have side effects and sometimes untoward effects. And we have to warn against both of those. That's why we do controlled studies and measure them carefully. Many people have mild to moderate GI distress when they start. That's why we titrate. We started a low dose. We recommend a low dose and go up slowly. Almost everybody stays on the drug and goes through that. And by the third or fourth month, really don't have any effects anymore of that at all. Let's suppose you take the drug and say I've lost weight. I'm very happy with my body now. I'm going to get off the drug. Some people say that there are. It's very difficult to not regain the weight. That's right. And science tells us that there's a reason for that. Some people do maintain the weight reduction or stay in that range. They have to change a lot about how they live, burn more energy, eat different foods. So we can all try that. I think we should all try that, actually. But some people cannot. And there's a recent paper in Nature that actually told us why, which is that once you have become obese, your fat cells learn that that's their new state and they defend that state. And so they're actually wanting more energy and that sends signals to your brain and so forth. So once we as adults gain weight and have that on for a while, it's very, very difficult to reset your thermostat, if you would, to reset that level. So for now, we do recommend if they can't people cannot maintain weight loss off the drug to go back on the drugs and use them chronically. Talk about Eli Lilly itself. When was this company started? 1876. So it started by a colonel, Eli Lilly, who served in the Civil War. He was a pharmacist by training, led an infantry and artillery company and was a prisoner of war in Alabama, actually. And he saw firsthand the atrocities of medical care in the Civil War. So he started a company with a pledge to say everything that's in this is on the label. If it's in there, you know about it. Transparency. And that then evolved into a company that embraced the scientific method and began to really adopt the methods of the modern industry has, which is then taking natural products, which is what most medicines were in 1876, and refining them into what we think of as a medicine now. When Eli Lilly evolved over the years in the 20th century, what were its big products? Yeah. So insulin really was the birth of the modern company. And this was obviously a terrible condition, type one diabetes and a breakthrough. And we were part of commercializing that around the world, invented the manufacturing method and created that business that was followed by actually penicillin. So during World War Two, Lilly was commissioned as one of the manufacturers for antibiotics for the army. And we, from there, then iterated for 40 years antibiotics, including still some that are used today, like vancomycin, which is the last line of defense for the worst infections. Prozac we're famous for, which has really brought modern psychiatry into the fold. And of course, now Manjaro and Zepf found. What are the human problems you're working on in the future? Alzheimer's, I assume, is one of them. Absolutely. Yeah. So we think about our company. Of course, we use scientific methods to create medicines to solve tough problems. We're not really interested in niche problems. We think we're here because we're a big company to do hard problems that are scalable. That's sort of where it makes our business work, but also has the most human impact. So we select these diseases that are common and tough. So you mentioned Alzheimer's neurodegenerative conditions are the most frightening conditions. Most people think about Parkinson's, ALS, Alzheimer's and the science we've been investing there for 30 years. We just launched our first medicine. And so now we're getting revenue after 30 years on that project. And we're working on a prevention study for that same medicine, which could really transform Alzheimer's. We think other neurodegenerative conditions like Parkinson's, ALS, etc., are becoming more tractable with science. And you'll see us invest heavily in that area going forward. Are you concerned about the new administration coming into power? Have you met with President-elect Trump? Talk about your issues. Health care is always a topic. And so then our role in it and medicine affordability is a key area. I think everyone would like the U.S. to have a strong biopharma industry that invents amazing medicines like Cephound and makes them here like Lilly does. But at the same time, we want our things to be cheap and accessible to all. OK, that's hard to solve for all those things, but we can make progress. Like one example is we were known for the insulin pricing challenges we had. And insulin was overpriced in the U.S., according to the critics. And we were able to bring that price down. I think there are solutions. And by engaging, we can find them. Have you met with anybody in the new administration yet? Yeah, I think it was reported last week we had a dinner down in Florida. How was that like? Did they serve up fattening food or they don't do that with you? Probably shouldn't say too much about it, but it was all you could imagine and a little bit more. Let's talk about your own background. Where were you born? Yeah, I was born in Bloomington, Indiana. So Hoosier by birth. But my dad was a grad student at IU at the time, and we quickly left and moved to California. My mom was from California and I grew up in the Bay Area and then followed in their footsteps and went to Purdue University back in Indiana. And what did you study there? So I started studying business and engineering, ended up with a degree in industrial management, which combines those two. And then went to work for IBM in New York. I joined. It was the stock was at an all time high. When I left, it was an all time low. They had a tough time in the early 90s. She went to join Eli Lilly in what year. So I left IBM to follow my girlfriend, who's now my wife, who was going to medical school at Indiana University. So, again, back to Indiana. And I needed something to do there. So I decided to enroll in their MBA program and I got an MBA. Of course, medicine is a four year degree. MBA is two. So I still needed something to do in Indiana. So I joined Lilly. What was your position in the beginning? Yeah, I was in the department that looked at M&A transactions and in the finance and business development group. And great introduction. Did you ever say I'm going to be the CEO someday or something like that? Not then. I actually really was thinking I'll be here for two years and then we'll be off to Chicago or San Francisco and do something different. But I fell in love with the company. I mean, it's a it's a amazing place. It's a very humanistic culture, but yet very rigorous and scientific. So it's demanding smart people, but people are nice to each other. It's the Midwest. And I fell in love with the mission, which is what could be better than making medicine for people. I worked on a medicine to collaborate and bring into the company for diabetes. And right as I was leaving that job, my mother was diagnosed with diabetes and she was put on that medicine. And so, you know, the sort of the point of what we do just became super salient for me. And I said, this is not a bad way to spend my time. I said to my wife, let's stay here. When did you realize that you were on a track to be the CEO? Was it five years before later? Well, so I worked in that job and then I had some jobs running markets. I ran our Canadian business and I went to China for two and a half years and ran our Chinese business. And I was suddenly called back from China by the CEO, who was a new CEO. And he said, you need to come run our U.S. business. I said, John, don't you want me to finish the job? He said, you need to come back. I think that was the point where I was sort of being cultivated for something bigger. You now have three children. Yeah. For a while, I've had three children. Yes, they're young adults now. OK. All right. But are any of them interested in weight reduction programs or things like that? Well, so my son is he's an A.I. consultant. So not so much. My daughter is actually getting a master's in cell biology and interested in med school. So she's thinking about medicine and medical science. And we talk a lot about the weight loss drugs. And my youngest son is a geology student at Purdue. So we'll see what he does. So what do you do for relaxation and stay in shape? You're not on one of these drugs, I think, because you look very fit and exercise a lot. Yeah, I'm not. But I would never hesitate to be on one if I needed it. But the best medicine is prevention. And so, you know, paying attention to exercise is something I've always cared about. It's a way I reduce stress, too. So I love running. Now I don't run anymore, but I do other things. I like hiking. I love backcountry skiing in the outdoors, play golf. Being outside is where I find both fitness and peace. You've had an astounding success at Eli Lilly. Suppose a president of the United States said you should be the secretary of HHS or something like that. What would you say? You know, the company, as you pointed out graciously, is really doing well. But, you know, we really have a strong desire to do even more. And we're just at the beginning of this weight loss story. You know, right now there's six or seven million Americans who are taking these medicines or 110 million with obesity. We need to build more plants and develop more data, get better insurance coverage. Then there's the whole world to cover. It's projected in five years there'll be a billion people on the planet who have obesity. And it's going to become a much bigger problem in the developing world than it ever has been in America. So we have a lot of work to do to make the biggest impact we can. We had to stop the study because people were losing too much weight to stay in it. At first this was seen as like an alarming thing. But, of course, we began to process that as, wait a minute, this could be something very special. When you have drugs that are very, very popular, you often have people that make counterfeit or copycat drugs. What about for this? Do you have to worry about counterfeit drugs coming in that are trying to say the same thing? It's a terrible problem right now, actually, because I think consumers don't really know the dangers or the difference. Today, the FDA and the government has allowed this to sort of grow. And, of course, a weight loss medication that's effective would be a popular thing for people to go around the health care system and seek treatment on their own. But the data we have is that 80 percent of these medicines are coming out of China from unapproved and unregulated sources. We recently, with Borders and Customs, seized a big batch that was shipped in dog food. People then reformulate them and sell them locally in med spas and other outfits. But you really don't know what's in that vial. We buy them and test them. We find bacteria, plant material, viruses, fungus. You do not want to be using. But how much more expensive are your drugs than the counterfeit ones? In other words, if somebody wants to use your product, ZepBound, how much does it cost a month? You can buy ZepBound direct from Lilly for $3.99 for the starter dose. $3.99? No. This is a valuable innovation, David. $399 a month, which is about $100 a week. I know that's a sacrifice for many, but that's without insurance. With insurance, most people pay $25 a month. So that's the importance of insurance. That's why we buy insurance, to shield us from our health costs. The online ones are as cheap as $100. But these are companies that want all the benefits of being a drug company but bear none of the responsibilities. So let's talk about the company today. How many employees do you have? 44,000. And you're headquartered in Indianapolis? Yes, correct. And where do you manufacture your drugs? Are they mostly in the U.S. or mostly overseas? Mostly in the U.S., a large majority in Europe as well. So those are our two big bases for production. And in the U.S., we're building lots of plants right now, mostly to support ZepBound and Monjaro. When did you all realize this is so transformative that you're going to become the most valuable pharmaceutical company in the world by a factor of four or five times? It's hard to know exactly what the scale of something is. The story of Terzapotite or ZepBound for me is this. In 2016, I was named as the incoming CEO. And that fall, one of our scientists in the diabetes group called me about some early results they were receiving from a Singaporean site we had that was doing a phase one study with Terzapotite, the ingredient, and ZepBound. And we had to stop the study because people were losing too much weight to stay in it. And at first, this was seen as like an alarming thing. But of course, we began to process that as, wait a minute, this could be something very special. So we sped to the next stage of development, phase two, where you try to show safety and efficacy in a bigger study. And I remember in a kind of a moment, I was showing my daughter around the colleges. We were at Cal Berkeley standing outside the Lawrence Hall of Science. And I got a phone call. And the team just got off the plane, got the results, and showed that people were losing over 20% body weight in a longer study. That was in April of 18. We disclosed those results later that year. And you could probably argue a lot of the run up in Lilly was just execution from that moment forward. Did you take the credit for this? Are you the person responsible for this happening or not? Of course. As a CEO, you have a role in all this. But it would be way overstating the role if I took credit. So the credit goes to the scientists to begin with. We have a lot of incumbent capabilities. Like how do you take a protein like GLP-1, which in the natural body lasts only a few seconds, and make it into a week-long injection? So that's a pharmacology exercise that's difficult. And we have people who can do that. And we have people who can do the clinical trials and everything else to see the opportunity and go for it. We have people who make it every day, 24-7. We run our factories. So it's a giant team sport. Where do you want to take your company now? You can't find any drug that's going to be more successful than the one you have. Is this, you're just going to keep promoting this drug? First of all, within the obesity metabolic health space, I think there's two things I'm very excited about. One is we have tercepatide manjaros that are found on the market. We have 11 other pipeline projects aimed at the same problem, but in different ways. So we have a triple-acting medicine that's in phase 3. For those that have even higher body weight or more severe health problems, we have the oral project. Nine others beyond that. We think this is going to be a very large segment with many different types of medicines for different conditions and different situations people might find themselves in. We're going to exploit that fully. The second thing is we've talked a lot about cardiovascular health, diabetes, these conditions that ones think about with being overweight. But these medicines, we think, and we aim to prove, can be useful for other things we don't think about connected to weight. These are often called anti-hedonics. So they are reducing that desire cycle. So next year, you'll see Lilly start large studies in alcohol abuse and nicotine use, even in drug abuse. And then beyond that, David, we need to make important medicines for the long haul, old company. We plan to be here another 150 years plus. And I mentioned my excitement about brain health. I think that's really the next frontier.