The large and the agile

Explaining Lilly's current success...

I was kind of lucky to get to talk to Dan Skovronsky ‘before he was famous…’ Even three years seems a long time in our industry. Now, clearly, Lilly are everyone’s favourite example of getting things right, but it was obvious to us, with their performance on our Index across the past 10 years, that something was up. So, this conversation fortunately focuses on the principles of innovation, rather than the monster that Zepbound has become. So many of Dan’s principles align with our own (small teams, enabled to investigate optionality…) that it felt like talking to an IDEA team member, but I tried to get beyond that.

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This is a takeaway summary of the conversation. As a reminder of Dan’s background:

Dan Skovronsky is the chief scientific officer of Eli Lilly and Company. He serves as senior vice president of science and technology and president of Lilly Research Laboratories. He also has responsibility for global business development. In this interview, we discuss Lilly's remarkable performance on the 2021 Pharmaceutical Innovation and Invention Index, cultures of innovation, Lilly's approach to delegated decision making and biotech-like process, among other things. Dan joined Lilly in 2010 when the company acquired Avid Radiopharmaceuticals Inc., where he had been CEO since founding the company in 2004. At Lilly, Dan has held various roles, including vice president, tailored therapeutics; vice president, diabetes research; and most recently, senior vice president, clinical and product development. Dan completed his residency training in pathology and fellowship training in neuropathology at the Hospital of the University of Pennsylvania. He received his M.D. from the Perelman School of Medicine, University of Pennsylvania, in 2001 and his Ph.D. in Neuroscience from University of Pennsylvania in 2000. Dan earned a Bachelor of Science in molecular biophysics and biochemistry from Yale University in 1994.

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How does Lilly balance large-scale resources with agile innovation?

Lilly balances its large-scale resources with agile innovation by structuring its large portfolio of drug discovery projects into smaller teams that operate like biotech companies. Each team has its own leadership structure and board of directors, which empowers them to make quicker decisions and provides them with a greater sense of ownership over the project. This structure allows Lilly to maintain the stability and resources of a large pharmaceutical company, while fostering the focus and agility of a smaller biotech company.

Lilly also encourages innovation by:

• Dedicating teams within each function to focus on process improvement and innovation. This ensures that innovation is not limited to drug discovery, but is integrated into every aspect of the business.

• Setting goals and measuring innovation across the company. This includes both internal measures, such as employee surveys, and external measures, such as the value of the company's late-stage portfolio and the number of patients reached by its medicines.

By taking this approach, Lilly is able to leverage its large-scale resources to support a diverse portfolio of projects, while also creating an environment that encourages and rewards innovation. This combination has helped Lilly to become one of the most successful pharmaceutical companies in the world.

What external measures does Lilly use to assess innovation?

Lilly uses several external measures to assess its innovation, focusing on the value generated for patients and the company's performance relative to its peers. These measures include:

• Late-stage portfolio value: Lilly tracks the value analysts place on its late-stage drug portfolio, comparing its performance to other companies in the industry. This provides an external perspective on the perceived value of Lilly's innovation.

• Research and development productivity: Lilly measures the value created from research and development over long periods and compares it to the amount invested. This metric helps determine the productivity of its R&D efforts compared to other companies.

• Number of patients reached: Lilly monitors the number of patients who benefit from its launched medicines each year. This measure reflects the real-world impact of its innovations, going beyond just revenue figures.

• Timelines: Lilly has significantly reduced its drug development cycle times over the past decade, improving its speed and agility in bringing new medicines to market.

• Probability of success: Lilly assesses its probability of success at each stage of drug development, from Phase 1 to launch. The company aims to improve its success rate, particularly in late-stage development, to minimise costly failures and maximise its impact.

By monitoring these external measures, Lilly can gauge its innovation effectiveness and identify areas for improvement.

How does Lilly define "big" innovation?

For Lilly, "big" innovation refers to the development of groundbreaking medicines that significantly advance human health and rewrite medical history. These innovations are rare, occurring perhaps once a decade or less, and their impact is undeniable and lasting.

Dan describes these game-changing innovations as creating new chapters in human history, forever altering the treatment landscape for specific diseases. He cites examples from Lilly's history:

• Insulin: While not the discoverer, Lilly was among the first to recognize insulin's potential and collaborated with the discoverers to manufacture it, becoming integral to diabetes history.

• Penicillin: Lilly was a leading manufacturer of penicillin during World War II, significantly contributing to the war effort and the history of antibiotics.

• Vinca Alkaloids: Lilly's scientists played a key role in isolating these compounds, sourced from periwinkles in Madagascar, which revolutionised cancer chemotherapy.

• Cephalosporins: Lilly discovered the first, second, and third generations of cephalosporins, contributing significantly to the advancement of antibiotics.

• Prozac: This medication changed how mental illness, particularly depression, is perceived and treated. Its impact was so profound that it was featured on the cover of Time magazine.

• I’d cite Cymbalta too, that I worked on - taking an average antidepressant into a set of pain studies was a great success and a testament to a team that was open to optionality very early in development

Skovronsky believed Lilly had potentially already achieved this level of innovation with its COVID-19 therapies (this was 2021) and sees potential for future "big" innovations in Alzheimer's disease and diabetes and obesity treatments.

These "big" innovations are not easily predicted. Lilly aims to achieve them by:

• Focusing on ambitious goals and pursuing research that has the potential for substantial breakthroughs.

• Maintaining humility about their ability to predict which projects will become game-changers.

• Launching a diverse portfolio of new medicines, acknowledging that it's difficult to predict which ones will ultimately rewrite medical history.

Essentially, Lilly defines "big" innovation as the creation of medicines that have a profound and lasting impact on human health, leading to paradigm shifts in the treatment of diseases.

What external measures does Lilly use to assess innovation?

Lilly employs several external measures to evaluate its innovation, focusing on the value generated for patients and how the company performs against its industry peers. These measures provide a comprehensive view of Lilly's innovation effectiveness and highlight areas for potential improvement.

Here are some of the key external measures Lilly utilises:

• Late-stage portfolio value: Analysts routinely assess the value of pharmaceutical companies' drug pipelines, and Lilly actively tracks how its late-stage portfolio is valued compared to its competitors. This offers a valuable external perspective on the perceived worth of Lilly's innovations. Currently, Lilly holds the top position with the highest valued portfolio in the industry.

• Research and Development (R&D) Productivity: Lilly measures the value generated from its R&D efforts over extended periods and compares it to the investment made. This metric provides crucial insights into the efficiency and effectiveness of its R&D compared to other companies in the industry.

• Number of Patients Reached: Beyond just looking at revenue figures, Lilly monitors how many patients benefit from its launched medicines each year. This measure underscores the tangible, real-world impact of Lilly's innovations on patients' lives.

• Timelines: Over the past ten years, Lilly has made significant strides in reducing its drug development cycle times, effectively increasing the speed at which it can bring new medicines to patients. They have successfully removed five years from their R&D process. This agility is a key marker of innovation within the company.

• Probability of Success: Lilly rigorously assesses the likelihood of success for its drug candidates at each stage of development, from Phase 1 trials through to launch. The company strives to improve its success rate, especially in the later, more expensive stages of development, to minimise costly failures and ensure resources are directed towards the most promising projects.

What internal changes did Lilly make regarding clinical trials?

Lilly implemented several key internal changes to its clinical trial processes, driven by the need for greater agility and patient-centricity. These changes were accelerated during the COVID-19 pandemic, which forced the company to adapt to new challenges and explore innovative approaches. Here are some of the key internal changes:

• Decentralized and Virtual Trials: Lilly embraced the use of technology to decentralize its clinical trials, shifting away from the traditional model of patients having to visit clinics or academic centers for assessments. They adopted telemedicine for patient consultations and arranged for imaging studies and blood draws to be conducted closer to patients' homes or even at their homes by sending nurses. This move towards decentralized trials makes participation easier for patients and broadens access to diverse patient populations.

• Focus on Patient Experience: The shift towards decentralized trials is part of a broader effort to improve the overall patient experience in clinical trials. By reducing the burden on patients and offering more convenient options for participation, Lilly aims to make its trials more attractive and accessible, ultimately leading to faster recruitment and better data collection.

These changes represent a significant departure from the traditional, often rigid, structure of clinical trials. Lilly's willingness to adapt and innovate in this area highlights its commitment to finding more efficient and patient-friendly ways to develop new medicines.

How does Lilly measure the success of its innovation efforts?

Lilly takes a multifaceted approach to measuring the success of its innovation efforts, utilising both internal and external measures to gauge its performance.

Internally, Lilly focuses on:

• Employee perception of innovation: Lilly conducts regular surveys to gauge how innovative employees feel the company and their teams are. They also measure how connected employees feel to the company’s purpose of creating medicines that improve lives. This internal perspective helps assess the overall culture of innovation within the company.

Externally, Lilly measures success by examining:

• Late-Stage Portfolio Value: Lilly closely tracks how industry analysts value its late-stage drug portfolio, comparing it to competitors. This external perspective provides insights into the perceived value of its innovation. Currently, Lilly holds the top spot with the highest valued portfolio in the industry.

• Research and Development (R&D) Productivity: Over long periods, Lilly compares the value generated from R&D efforts against the amount invested. This metric helps determine the productivity of its R&D in comparison to other companies.

• Number of Patients Reached: Moving beyond just revenue figures, Lilly monitors how many patients benefit from its launched medicines each year. This measure highlights the tangible, real-world impact of its innovations.

• Timelines: Lilly has significantly reduced its drug development cycle times, taking five years out of its R&D process over the last decade. This increased speed to market is a key indicator of successful innovation.

• Probability of Success: Lilly rigorously assesses the likelihood of success for its drug candidates at each stage of development, from Phase 1 trials to launch. The company strives to improve its success rate, particularly in later, more costly stages of development. This minimises costly failures and ensures resources are appropriately allocated to the most promising projects.

By combining internal and external perspectives, Lilly aims to build a comprehensive understanding of its innovation success. This allows the company to identify areas for improvement and ensure that its efforts are translating into real-world benefits for patients.

How does Lilly's approach to innovation differ from that of biotech companies?

Lilly's approach to innovation, while embracing some aspects of the biotech model, differs significantly due to its size, resources, and established infrastructure. Here's a breakdown of the key differences:

Resources and Stability: As a large pharmaceutical company, Lilly possesses a significant advantage in resources, both financial and human. This allows for:

• Dedicated Innovation Teams: Unlike smaller biotech firms where everyone is focused on a single product, Lilly can dedicate specific teams within each function to focus solely on innovating processes and technologies.

• Investment in Expertise and Technology: Lilly can invest heavily in developing deep functional expertise and acquiring cutting-edge technologies, fostering a higher level of sophistication and capability.

• Long-Term Vision and Sustainability: The stability of Lilly's resources allows for a long-term approach to innovation, enabling the company to pursue ambitious, long-range projects that may take years to yield results.

Organisational Structure and Decision Making: Lilly recognises the limitations of traditional, hierarchical pharma structures and has adopted a more decentralised, biotech-inspired model:

• Internal "Biotech" Units: Lilly operates acquired biotech companies, like Loxo Oncology, as independent units within the company, preserving their agile, focused culture.

• Project-Based Teams with "Boards": Internally developed molecules are managed like "small companies" with dedicated leadership teams and "boards of directors" responsible for multi-year budgeting and go/no-go decisions. This promotes faster decision-making and greater team engagement.

Conviction and Focus: While Lilly values the conviction and focus often seen in biotech companies, its approach is necessarily more diversified:

• Balancing "Moonshots" and Sustaining Innovation: Lilly pursues both groundbreaking, "game-changing" innovations and smaller, incremental improvements. This balanced approach ensures a steady stream of new medicines while aiming for revolutionary breakthroughs.

• Portfolio Diversity: Lilly maintains a diverse portfolio of projects to mitigate risk and increase the chances of success, recognizing that predicting "game-changers" is difficult.

Challenges of Scale: Despite efforts to incorporate biotech agility, Lilly faces challenges inherent to its size:

• Bureaucracy: Bureaucratic structures can hinder innovation, requiring constant effort to streamline processes and empower teams.

• Maintaining Agility: Scaling the focused, entrepreneurial spirit of biotech across a large organization is an ongoing challenge. Lilly addresses this through decentralised decision-making and empowering project-based teams.

Overall, Lilly aims to leverage its strengths as a large company while integrating the agility and focus of biotech companies. This hybrid approach allows them to pursue ambitious, long-term innovation goals while maintaining a steady flow of new medicines to benefit patients worldwide.

What personal motivators drive Dan Skovronsky's career?

Dan Skovronsky's career is driven by a deep desire to make a tangible, positive impact on the lives of patients worldwide. He is motivated by the opportunity to translate scientific advancements into effective medicines that alleviate suffering and improve human health.

Here are some key personal motivators that drive Skovronsky:

• Maximising Impact: Throughout his career, Skovronsky has sought opportunities to broaden the reach and impact of his work. Starting as a clinician with a limited number of patients, he transitioned to academic medicine, where he could influence a larger group through research and publications. His move to the biotech industry allowed him to focus on developing specific drugs, while his current leadership role at Lilly provides the platform to impact millions of patients globally through the development and launch of numerous new medicines.

• Challenging Scientific Pursuits: Skovronsky finds inherent satisfaction in tackling complex scientific problems and contributing to breakthroughs in medicine. He sees this as a key driver in choosing a career path dedicated to turning scientific discoveries into tangible treatments for diseases like Alzheimer's and diabetes.

• Meaningful Work that Benefits Humanity: Skovronsky believes that the pharmaceutical industry offers a unique opportunity to engage in work that is both intellectually stimulating and inherently beneficial to humankind. He sees the development of life-saving and life-improving therapies as a profoundly rewarding pursuit.

• Empowering Others: Skovronsky's leadership style is centred around empowering individuals and teams to take ownership and drive innovation. He recognises the importance of creating an environment where individuals feel connected to their work and can see the direct impact of their contributions. This is reflected in Lilly's adoption of decentralised decision-making processes and the formation of "biotech-like" units within the company.

How does Lilly try to change its processes vs the way that other pharma companies do?

Lilly distinguishes itself from other pharmaceutical companies by actively challenging the traditional, often rigid, structures and processes common in the industry. While many companies adhere to conventional methods, Lilly embraces a more agile and decentralised approach, drawing inspiration from the biotech model.

Here's how Lilly's approach to changing processes differs:

• Embracing Uncertainty and Empowering Teams: Unlike companies that rely heavily on predictions and centralised decision-making, Lilly empowers its project teams to operate with more autonomy. This is achieved by structuring internal teams like "small companies," each with its own leadership and "board of directors" responsible for multi-year budgeting and go/no-go decisions. This shift away from the traditional six-monthly reviews and reliance on committees allows for faster decision-making and greater adaptability in the face of uncertainty.

• Delegating Decision-Making to Foster Agility: Lilly recognises that centralising decisions in a large, diverse portfolio can lead to inefficiencies and delays. By delegating decision-making authority to project teams with specific expertise, the company fosters a more agile and responsive culture. This stands in contrast to companies that maintain centralised control, potentially slowing down progress and hindering innovation.

• Actively Seeking and Implementing Process Improvements: Lilly goes beyond simply acknowledging the need for change; it actively seeks out and implements process improvements. The company dedicates teams within each function to focus on innovation, constantly seeking ways to enhance efficiency and effectiveness. This proactive approach to process improvement sets Lilly apart from companies that may be more resistant to change or slower to adopt new methods.

• Learning from the Biotech Model: Lilly recognises the value of the biotech model, particularly its agility, focus, and entrepreneurial spirit. The company actively incorporates these elements into its own processes, both through acquisitions like Loxo Oncology, which are allowed to maintain their distinct operating models, and by restructuring internal teams to function more like independent biotech units. This willingness to learn from and adapt successful models from outside the traditional pharma structure is a key differentiator for Lilly.

• Cultivating an Innovation Culture: Lilly actively measures and cultivates a culture of innovation within the company, going beyond simply measuring financial outcomes. They regularly assess employee perceptions of innovation and their connection to the company's mission. This focus on creating an environment where employees feel empowered and inspired to innovate is crucial to driving meaningful change within the organization.

In conclusion, Lilly's commitment to challenging the status quo and adopting a more dynamic and decentralised approach to process improvement sets it apart from many other pharmaceutical companies. This willingness to embrace change, empower teams, and learn from different models is a key driver of its success in bringing innovative medicines to patients.

What have been the visible highlights that show how successful Lilly has been?

Lilly has achieved significant success in recent years, demonstrating its commitment to innovation and its ability to deliver valuable new medicines to patients. Here are some visible highlights of their success:

• Top-Ranked Late-Stage Portfolio Value: Lilly currently holds the highest-valued late-stage drug portfolio in the industry, as assessed by industry analysts. This demonstrates the market's confidence in Lilly's ability to develop and commercialise innovative and commercially successful therapies. It also validates Lilly's strategy of focusing on "game-changing" innovations while maintaining a diverse portfolio of projects.

• Substantial Reduction in Drug Development Timelines: Over the past decade, Lilly has made remarkable progress in accelerating its drug development processes. The company has successfully reduced its drug development cycle time by five years, a testament to its focus on efficiency and agility. This achievement underscores Lilly's commitment to bringing new treatments to patients faster.

• Improved Probability of Success in Drug Development: Lilly has significantly improved its probability of success in advancing drug candidates through the various stages of development, particularly in minimising costly late-stage failures. This success highlights the company's focus on data-driven decision-making and its ability to identify and invest in the most promising projects.

• Successful Integration of Biotech Acquisitions: Lilly's acquisition of Loxo Oncology stands as a prime example of its ability to effectively integrate biotech companies while preserving their innovative culture. Loxo Oncology, allowed to operate as an independent unit within Lilly, has achieved significant success, further bolstering Lilly's overall oncology portfolio. This demonstrates Lilly's understanding of the value of maintaining the unique strengths and agility of biotech companies within a larger organisation.

• Commitment to Employee Empowerment and Innovation: Lilly actively fosters a culture of innovation by empowering its employees and providing them with the autonomy and resources to pursue impactful projects. The company's internal measures, such as employee surveys that assess perceptions of innovation and connection to the company's mission, demonstrate a commitment to creating an environment that nurtures creativity and initiative.

• Leadership in the Fight Against COVID-19: Lilly played a crucial role in the global response to the COVID-19 pandemic. As the first company to develop and distribute monoclonal antibodies against the virus, Lilly made a significant contribution to saving lives and reducing the severity of the disease. This achievement showcased the company's scientific expertise, agility, and commitment to addressing urgent global health challenges.

In addition to these specific achievements, Lilly's continued financial performance, its ability to attract and retain top talent, and its positive reputation within the industry all point towards its overall success. Lilly's commitment to challenging traditional pharma approaches, embracing a more agile and decentralised model, and fostering a culture of innovation is demonstrably yielding positive results. This dedication to continuous improvement positions Lilly as a leader in the pharmaceutical industry, poised for continued success in the years to come.

What were my takeaways about innovation from the conversation?

• The Importance of Culture and Adaptability: Rea highlights that true innovation goes beyond simply implementing new technologies or processes. I emphasise the importance of fostering a culture that embraces change, encourages risk-taking, and values adaptability. I suggest that companies should be willing to learn from unexpected situations (asymmetric learning), such as those arising during the COVID-19 pandemic, and leverage those experiences to drive positive change.

• The Value of Decentralisation and Empowerment: Lilly's approach of delegating decision-making authority to smaller, more agile teams is uncommon in the pharmaceutical industry. I acknowledged the potential benefits of this decentralised model, noting that it can lead to faster decision-making and a greater sense of ownership and empowerment among employees. I’d contrast this with the traditional, hierarchical structures often found in large pharmaceutical companies, which can stifle innovation and slow down progress.

• The Need for Diversity of Approach: I continually challenge the industry's tendency to rely on a single approach to drug development, despite having diverse portfolios. Companies should experiment with different models and approaches, drawing inspiration from successful examples like the biotech industry or even organisations outside of pharma, such as Google X. This diversification of approach could lead to greater innovation and better outcomes for patients.

• The Human Element of Innovation: innovation is ultimately driven by people and their passion, commitment, and ability to collaborate effectively. Providing individuals with a sense of purpose, autonomy, and the opportunity to see their direct impact on projects can significantly enhance innovation. Leaders should focus on creating an environment that empowers and motivates employees, rather than relying solely on financial incentives.

• The Importance of Challenging Conventional Thinking: I appreciate Lilly's willingness to challenge the status quo and adopt unconventional approaches to drug development. Breaking away from traditional methods can be difficult, but it is essential for driving meaningful innovation. I encourage pharmaceutical companies to embrace uncertainty and experiment with new models to discover more effective ways of developing and delivering life-changing therapies.