Eli Lilly and Company ($LLY)

Hi, everyone. Thank you so much for being with us today. It is my pleasure to be sharing the stage with Dan Skovronsky, Chief Scientific Officer as well as Chief Product Officer at Eli Lilly. We will be having hopefully an insightful conversation on the company and particularly given his role kind of the approach to R&D at Lilly and how that continues to evolve. While I have a long list of questions, and I'm really excited to ask Dan.

I also recognize that there's a bunch of people in this room that also have questions that might differ from mine. So we do have the Pigeonhole app. Please feel free to add any questions that you have of interest into that app, and I'll do my best to work them into the conversation. So please dive into that so that we get kind of the most robust conversation we can today. So with that, I want to start with a little bit of scene setting perhaps, Eli Lilly is and has just had a 150th birthday, a relatively old company, and it's certainly been around for a while. It has become a relative household name though in recent times, kind of now GLP-1s and certainly, even with a broader base of investors as its market pass kind of headed towards the trillion mark. That wasn't always the case there. Can you please start just by setting the scene for us on what makes Lilly unique relative to its peers and how we should thing among this company?

Yes. Thank you courting for that question, and thanks for having us here today, and thanks, everyone, for doing and spending time listening to us. The 150th anniversary really was like a chance for a reflection on this very question, what makes this company durable and successful in a way that actually to my knowledge, there is no other company that is both this old and is successful. At its core, it's just a kind of a durable idea, which is that the best way to improve human health is by application of science and science can lead to great medicines and combined with the idea that improving human health is valuable. So that's what Lilly's built on, improving human health through science, probably a lot of pharmaceutical companies would say the same thing. I would argue we live it better than most. And in the last, say, 10 or 15 years, we've been much more successful than other pharmaceutical companies. At the core of it is probably what I see is a very differentiated approach to R&D, maybe I just highlight a few of those elements, if I can, coordinate. First of all, we invest more in R&D, and we have invested more in R&D as a percent of our revenues than anyone else in this industry. We believe that's how we create values through research and development. But the way we do that is different. For one thing, we are -- we choose what to work on differently than our peers. We try and work on big medical problems that are at the intersection of on medical need and breaking science. And we try and tune out the noise of the industry, which is look what's working today, here's a fast-growing market. Why aren't you in it? I hear that sometimes from investors, I used to hear it a lot more. Now my peers hear it. And of course, they all follow into obesity because that's working or Alzheimer's disease because that's working. But those are paths that we cleared. We used to hear about immuno-oncology and most of their competitors followed the kind of lure of immuno-oncology and yet for most companies, it wasn't productive. So we pick our areas carefully. We try not to waiver from them and we persist in them. We've been working in diabetes and metabolic disease for 100 years. We've been working on oncology for 50 years, Alzheimer's for 30 years. And we just keep plugging away at hard problems because if a problem is worth solving in medicine, it's probably really hard and you're not going to solve it at your first attempt. And tirzepatide or Mounjaro and wasn't our first incretin. It was our third one to launch and probably our seventh or eighth that we tested in humans. And our Alzheimer's drug that we launched was probably a sixth 1 that we tested in humans. So these things take time, and we just have that persistence and long-term outlook that competitors lack for various reasons. Second is because we stay in these areas, we try and go really fast, and that's relatively new. I would say when I came to Lilly, we're among the lowest in the industry at drug development. We get these statistics every day -- every year from third parties who can just look at when you start a Phase I, Phase II, Phase III launch. And we decided about a decade ago that the #1 organizing principle for R&D was to try and be the fastest in every task we've optimized for speed, and we are now the fastest. For the last couple of years we've been #1 in the industry. We're about 3, 3.5 years faster than the average company. That means our products get to patients faster. That's great. But more importantly, it means we have faster learning cycles, which is important if you're going to stick in an area. You want to just keep learning and get better and better, more quickly than anyone else, and we do that. The next thing I just highlight that differentiated at Lilly and related to these other topics is our ability to invest in platforms, new ways of making medicines and new technologies. If you're focused on revenues in the next 2 or 3 years, it may not make sense to invest in a platform that's going to pay off 10 years from now or 15 years from now. We take the long-term outlook. We invest in these platforms. The first ever biotechnology product actually Lilly licensed technology from Genetic to make the first recombinant protein, which was human insulin. That's been a platform that's been extremely productive for us and others in the industry, and now we're building out other platforms like genetic medicines or cellular reprogramming. And then the last is we recognize we're part of an important ecosystem that is academia, it's biotechnology. It's other smaller pharma companies, it's government. And if that ecosystem is healthy for innovation, we'll do well. And so we invest a lot. We're one of the leading investors in capital for biotechnology companies. We give them [indiscernible] expertise. We make molecules. We share our artificial intelligence tools with the broader community to raise the tide of innovation. And as the biggest ship on that ocean, we think if the tide is improved, we'll do better, too. So those are kind of the core R&D philosophies at Lilly that I think each one is a bit different than competitors and kind of has led to where we are today.

Super so be useful context setting and kind of the dynamics that are really driving a lot of your decision making. And I think we'll touch on a bunch of those throughout the conversation today. I do want to recognize that you're in a room of investors today. And in many ways, they're making similar portfolio decisions on equities that you're perhaps making on pipeline assets and drug discovery assets and opportunities to invest in either internal or through external through NA. As a portfolio manager of kind of the R&D spend of Lilly, how do you decide where that next R&D dollar goes balancing between perhaps the therapeutic areas, doubling down in some versus going after others, those newer opportunities like neurodegeneration, genetic medicine, pain that we're beginning to see more and more prevalent in your portfolio?

Yes. It's probably -- these are the most important decisions we make. And I think the thing for investors to know is we have to make these decisions 10 years in advance. For us, it takes about, say, 6 years, 6.5 years, maybe from first human dose to launch of a molecule. So before we have any sales. And before we can even start testing in humans, it's a couple of years of tinkering in the labs and with animals. So you're making decisions for 10 years away, if you make them -- by looking in the rearview mirror, you will always be a decade behind your competitors. A lot of our competitors are doing that today. So that's thought number one. And thought number 2 is you also -- because you can get good in certain areas, there's a tendency in this industry for companies to launch a really good product and then just try and protect that 1 product even from their own innovation for as long as possible. We don't do that either. So a core kind of asset allocation idea is invest in your own next-generation innovation that will cannibalize or obsolete your current innovation. Tirzepatide has made Trulicity, which was our biggest selling drug ever before we launch Zevidide has made more or less -- maybe it's not quite obsolete yet, but it's made a lot less used prior to its patent expiry. And we now have 3 next-generation incretins all in Phase III clinical trials that maybe will be better than tirzepatide, so I think that's one kind of asset allocation. The other is to recognize that over time, diseases get solved. And I hope that a few more generations of innovation in obesity, and that will be a [indiscernible] disease. And so we're already making asset allocation decisions to move more resources into other areas just as our competitors are doing the opposite, moving more into obesity to try and catch up to us. We see breaking science and huge opportunity in neuroscience, in oncology and immunology. And so we kind of have our thumb on the scale for those areas. If you took out incretins, Lilly would still be the fastest growing pharmaceutical company, so we're outgrowing our competitors in those other areas, but they're still relatively small. And so our goal is to scale those areas up to be kind of a mega size like we're doing in incretins.

Fantastic. Super, super helpful. I have one more really big picture question before we dive into some of the pipeline and particular products you have today, there's been a lot of this conference, and I think investors are spending almost all of their time thinking about AI, be it in health care or any other place. What is your overarching thesis on the role of AI in pharma and can you help describe anything that looks different at Lilly today in terms of drug discovery or R&D on account of kind of AI investments you're choosing to make.

Yes. Everything is different. We use AI in just about every step of the process, and it makes things better, faster, cheaper. In sort of the same way that personal computers did, I'm hedging a decade ago, just the work is easier and often less expensive. But the bulk of clinical development, the bulk of the 6 or 7 years it takes us to develop a drug is enrolling patients in clinical trials, finding the patients and [indiscernible] and then waiting for the -- treating them and waiting for their disease to progress or not based on the treatment. You can't do a 3.5-year Alzheimer's prevention study in 3 weeks because you have AI, it still takes the same amount of time. You can't screen 60,000 patients in the real world with AI. So I think the idea that AI is going to invent a drug and then tomorrow, we'll launch it probably won't work. It will make all these things work a little smoother, but it's not going to revolutionize them. It may change the economics and who gets paid for doing all these tasks. The place where it has the most potential in our business is on the drug discovery side. So the drug discovery right now is really hard, highly trained chemists kind of using their intuition and all of their knowledge to design a molecule. And right now, already, every chemist uses AI as a tool. So AI is learning alongside them and suggesting maybe make this structure instead of this one, and that's helpful. It's an important tool for chemists to discover molecules or for protein engineers to engineer an antibody or protein. So I see the greatest potential there. It's making that work more powerful. And of course, we're also reaching higher. So there are things that we would have said a few years ago, were undruggable and then because of improvements in technology, now we can drug them. And we have to because all the things that were easy to drug we solved. So the new problems are almost by definition are harder than the old problems, we need better and better tools. AI is one of those tools. But I'm going too long here. But just to finish the I thought, the problem is that the AI models that we all have today were trained on language and on the Internet. There's not a lot of biological or chemical data available to train models, like even known to humanity, there's not a lot. And of what is known to humanity. Most of it is sequestered behind the walls of a few big companies like Lilly. So I do see that data as a competitive advantage. We are increasing our own data that we have to train AI models for drug discovery extraordinarily quickly through our own experimentation through partnerships with other companies that are providing us with their data and return to access to our models. And finally, through kind of custom-built data factories that we're working on with NVIDIA that just massively produce experimental data to train models.

Fantastic. Super, super helpful. And interestingly, we had gotten a question that we come through asking about is there a scenario in where that proprietary data becomes table stakes and kind of where are some of the other competitive moats. But I think you're saying kind of this data is actually incredibly important competitive mode.

I think so. What we found is that when we use models that haven't been traded on a lot of real data, they don't perform very well and they don't perform differently than each other, by the way, but when they're trained on data, that's when they become really powerful tools.

Fantastic. And I think that perhaps even further emphasizes if you're willing to be persistent in a certain disease area or a certain category or modality that training algorithm perhaps even if...

That's right. Because the training is local. So it's like in that space that you're working in the training matters.

So perhaps diving into kind of, I guess, one of the most talked about topics at Lilly, which is the incretin franchise, perhaps that sometimes the absence of anything else. [indiscernible] have transformed what people expect from obesity care for the nonscientists in the audience. You've always got a number of other assets in the pipeline that are going to continue to contribute to this portfolio. What could the future of obesity treatment look like as we think about pills, triple agonist, muscle preservation, combinations, long acting kind of what's the next frontier in your mind?

Yes. Well, I think maybe just start with what is the problem we're trying to solve. I think we want to eradicate obesity in the world and also alleviate the burden of metabolic disease, cardiovascular and other diseases that are caused diabetes that are caused by obesity. How are we doing on that goal, not so well, even here in the United States, where utilization is the highest utilization rates of incresins to obesity are less than 10%. And so the most important thing we can do is solve the obstacles for broader utilization of these medicines, which are a combination of things. It's cost for sure and access, and we're working on that with the deals with the government and with payers, including some that were announced today. Good progress there. It's people don't want an injection, not because they don't -- because the needle is painful, it's actually not painful for more people, but because it seems like they're sick, if they're taking an injection. That's the perception people and doctors have to -- so we probably need pills. We just launched one a couple of months ago. We're excited about that, that are easy to use and fit in people's lives. Some people have side effects from these drugs, so we need medicines with fewer side effects. We've got one of those in Phase III, we have a medicine in Phase III that in earlier clinical trial, the weight loss looked very similar to Zebound, [indiscernible], but the tolerability looked very similar to placebo. If that reproduces in Phase III, we could have -- this is a laurel lenti, our amylin agonist. It's kind of unique in the industry and having these properties. That could be a game changer for people who find kind of the GI tolerability as a reason not to take these drugs. I think longer-acting drugs will have a role too, and we're working on those. We'll eventually probably move in the maintenance setting from once a week to once a month or even longer duration. Our strategy here is not to guard our core franchise or core molecules. Our strategy is to have the best molecule in each of these applications, whether it's better tolerability, less frequent dosing, more weight loss, many people need more than the 20%, 25% we can offer today and our latest drug offered 30% in clinical trials. There'll be people from that's important. Each of these areas we aim to, and I think we're on track to have the best next-generation molecule. So far, we've only launched 2, tirzepatide Zepbound and -- or for [indiscernible] , which is fund the oral pill. But as I said before, 3 more in Phase III and then many more behind that in early clinical trials.

Fantastic. It's a very exciting time -- perhaps just on 1 of those 3 that's in the pipeline, what is the most exciting or underappreciated non-obesity indication that you're currently testing GLP-1s in [indiscernible] has a long list, obviously.

Yes. I probably give you 2 answers, and they're both categories rather than individual indications. But one thing which is really kind of neat is -- when we started on this journey, we thought about incretins as drugs that work in the pancreas. That's how they were discovered as hormones that caused the pancreas to make more insulin. But that's not actually the main pharmacology of these drugs. The main pharmacology is in the brain. They are brain receptors for GLP and GIP, Amlin and glucagon and the main pharmacology is through regulation of brain pathways involved in food and food craving. And so I'm really excited about other brain applications. It turns out that when we evolved as human beings, craving food and having like a huge drive to get food and then store that as calories as an important survival advantage. It's not today, obviously. And so those pathways are really hardwired in our brain. And they're hijacked by drugs of addiction and they're hijack by diseases. And so we think that by modulating these pathways with incretins, we could have a powerful impact on addiction, depression, schizophrenia, -- these are all underway. And so I'm excited to see that. The second is that it turns out that metabolism and your immune system are closely linked. And it's been profound to see the anti-inflammatory effects of these medicines in patients, we can measure that in the blood. And we raised the hypothesis that if these drugs are decreasing inflammation, could they be used in autoimmune diseases. And so now we've tested it in Phase III trials for psoriasis and psoriatic arthritis, we have trials ongoing inflammatory bowel disease and asthma. And in the first two trials that read out, it worked kind of profoundly well and quickly. In other words, people's immune diseases, autoimmune diseases improved before they lost weight on these medicines. Again suggesting there's an important anti-inflammatory effect. So we have customized molecules that are tuned for the brain and other ideas for the immune system. But I think we're going to [indiscernible] [Audio Gap] see rather than a particular disease.

Absolutely. And with all those profound kind of potential impacts as well, the launch of the oral is especially important because it's how to expand access gives you the volume kind of capability that perhaps is a little bit more challenging with injectables. You've obviously begun the launch inside the U.S. I'm sure you guys are getting a non-dolurry of questions from people in this room about that nonstop. But you also have the upcoming launch ex-U.S. as well. How do you think -- what do you think the role of [indiscernible] will be in the oral market? Will it be kind of the primary choice? Will that be exclusively ex-U.S. or kind of in the U.S., do you think that this is going to be the foundational product...

Yes, I think it will be foundational globally. Maybe the name Batra are thinking a foundational daily oral Fund for treatment of obesity. The reason I say that is because this was designed to be easy to use for patients. There's no food to water restrictions as you take it like any other medicine any time a day. And then in clinical trials, we showed benefits across all of the most important things that primary care doctors worry about. So when you go to see your primary care physician, check your blood sugar or your A1c, yes, we have clinical data in type 2 diabetes, and we're going to get it approved for that in the future. Check your weight, yes, of course, that's what it's approved for. Your blood pressure, yes, we have trials ongoing it lowers your blood pressure. And check your cholesterol, yes, it lowers your triglycerides and your LDL. So here you have in a single easy-to-use pill kind of an improvement in all of the main health parameters that we care about in the primary care setting. So I see this as a foundational medicine across all of those indications. We're not there yet. We have to get those approvals. But that's coming. And this is probably where most people will start their treatment journey. And for many people, it should be adequate because of those attributes here in the U.S. and around the world. And that's paired with kind of manufacturing platform, it's just a normal small molecule, so we can make it at scale. It doesn't require refrigeration or biotechnology and we have adequate supply to launch around the world. This is the medicine that we've actually, in our history, submitted for approvals globally, the fastest sort of parallel path in every country that we focus on and those approvals start rolling in later this year and early next year and look forward to seeing the uptake around the world.

Absolutely. Very exciting when Access has been such a challenge for these products to date. I'm going to perhaps pivot a little bit back outside the GLP-1s and give everyone a break from that topic. This week, Lilly announced 3 new acquisitions. It's also been a very acquisitive year so far for you all. And so we'll continue this conversation more broadly as well. But these were 3 new acquisitions this week with the vaccines companies. totaling just under $4 billion. This hasn't really, at least to the outside observer, hasn't been an area of focus necessarily for Lilly. Why is now the right time to enter this market? And why specifically these vaccines? What makes you excited about this particular opportunity?

Thanks. And you're highlighting a bigger trend here, which is we're quite active in BD, last year, we were the most prolific dealmaker in the industry, and we've been on that trajectory for a couple of years. We just believe that there's great ideas outside our walls, and we should bring them in. But we also believe that we should bring them in early stages because we can add a lot of value that way. So we do more deals than anyone else, but we don't necessarily spend more money because other companies are buying kind of fully cooked late-stage things that are near commercial, it's not that we'll never do that, but our typical deal is earlier stage. These vaccine deals exemplify a few of those themes, a large unmet medical need, technology platforms that we're going to invest in the long term. Here, I think we're motivated by breaking science that shows that there are long-term sequela of acute infection with certain viruses, so just in the last couple of years, like 2 of the most amazing discoveries in infectious disease were that EBV, [indiscernible], the virus that causes infectious mononucleosis also causes multiple sclerosis. And if you don't have EBV infection, you probably won't have multiple sclerosis. And we all just tolerate EBV infection in mono and so our shoulders say there's nothing we can do. But there is, we can create a vaccine, and we want to do that. It doesn't seem like anyone else is on track to get that done. And so we're excited to harness breaking science to do that. The similar observation with [indiscernible] zoster virus, VZV which causes chickenpox in kids and shingles in adults when the virus comes back. There is a vaccine against that. We've learned that shingles is linked to stroke and vaccination can protect against stroke and dementia, just startling research that shows that vaccination and shingles protects against incidence of dementia many years, decades later. So this link between acute infection and chronic disease is powerful. We should all be vaccinating against these viruses to prevent those chronic diseases, but the shingles vaccine that we have today, it offers great protection, but a lot of people don't use it because there's pretty significant side effects of fever, chills pain at the injection site. And then some people who get it only get 1 dose, which is no good. You don't get the protection once you get the second dose. So this company that we're acquiring developed a technology that allows in a head to trial, they showed that their vaccine has the same kind of protection as the standard one, but has lower -- much lower rate of these side effects. So that sounds like a good idea to us. And I just imagine a future where vaccination will be much more common for these kinds of adult diseases that then cause a chronic illness as we get older, that's 2 of them. And then the third one is bacterial vaccines. Everyone reads about bacterial resistance to antibiotics and one of the most common is [indiscernible] , and that's the #1 cause of hospital infections after a patient has surgery that are often quite bad and sometimes antibiotic resistant. The theory here is we could immunize against them before people go for surgeries and then not worry about the post op infections. So that's the third idea.

Fantastic. Lots of kind of long-term chronic longevity oriented questions.

Yes. Yes, it's sort of linked to the rest of our business. And this is not that we have an ambition to compete with the vaccine companies today where they are but we want to invest where they're not investing for the next generation of important pathogens.

Perhaps within your internal pipeline or the things you've brought in outside of the GLP-1s, which pipeline assets are you most excited about and perhaps feel that they aren't getting enough attention from the three or investors or other communities that should be paying attention?

I'd probably highlight 3 kind of near-term big ideas and then maybe 1 or 2 that are a bit longer term. Let me just start with Alzheimer's disease. We have a drug to treat Alzheimer's disease. It's doing well in the marketplace. Still early days, but that's a really important advance. But what we have ongoing now with that drug and another one, we have 2 drugs in Phase III clinical trials for prevention of Alzheimer's disease. These are people like all of us, hopefully, who don't have any cognitive impairment, but they are above the age of 50 or 55, and they've agreed to have a blood test. And if they're blood test -- we invented this blood test to do this trial, which took many years. If the blood test is positive for PT217, it means they have Alzheimer's pathology happening in their brain, it just hasn't caused symptoms yet. And then we're treating them with a fixed duration of treatment. So they finish therapy. And we hope that they'll have a lower risk of getting Alzheimer's disease symptoms after that. These trials take many years of follow-up, as we were saying earlier, but they're ongoing now, and I can't wait to see that data. The first one reads out next year. I can envision a future where we're all screened like every year, just like we're screening for cholesterol or high blood sugar or hypertension. We're all also screened for Alzheimer's risk. And if it's positive, we have a treatment, they can lower your risk. That's a huge opportunity. If the risk adjusted, it may not work. But if it does work, expect Lilly to be a leader there. Another huge kind of society changing opportunity is in cardiovascular disease, and we're working here on Lp(a), which is probably the second most important risk factor for heart disease after LDL-cholesterol. But unlike cholesterol, your diet doesn't matter, your exercise doesn't matter. You are born with either high risk of high levels of LPA or low levels of LPA. 15% of people have high levels of LPA and they're at risk for heart decks. I think we can change that. So we have 2 drugs in large Phase III trials there and then we're working on other heart disease kind of ideas, including PCSK9 gene editing. We recently shared data on that with a single dose of drug we can give people a lifetime of protection from high cholesterol levels and probably a lifetime protection from heart attacks. It's early, but it looks like the science is going to work. It's our job to shape society to accept once in a lifetime drug and figure out how to pay for it and things like that, but the science looks good. So the cardiovascular prevention, I think it's just a way of keeping people healthier and living longer. And then the third that I'll highlight is what we're doing in early breast cancer. This is in the adjuvant breast care setting. We already have one drug approved, which is our Verzenio CDK4/6 inhibitor. But now we're testing in the extended adjuvant setting after people are done with CDK 4/6 our oral SERD. This is a pill that inhibits -- it causes the estrogen receptor to be degraded and inhibits endocrine signaling in these tumors. And if that works in the setting, that's really a huge opportunity for long duration treatment in one of the most important cancers in the world and certainly in women with breast cancer. So excited about those. Those are all kind of near-term readouts in the next year or 2 that I think at any other company, any one of those would be the biggest opportunity that they're working on. We have all of them.

Fantastic. You've mentioned a couple of times through this conversation so far kind of platform orientation. You've also mentioned kind of some of the gene editing opportunities. It does look like Lilly has been kind of doubling down on genetic medicine. We're seeing a number of kind of preclinical and early clinical acquisitions over the last kind of quite a few years, actually. What is the rationale? Where do you see the greatest promise in the application here? And particularly, if you're thinking about kind of the challenges that exist in deploying the science, both scientifically but also commercially as you just raised. What gives you confidence that you can succeed here?

Yes. I think it's actually inevitable that genetic medicines will play a hugely important role in human health. Actually, for the first, say, 50 years of my company in the first thousands of years of medicine, nearly all medicines were things that we extracted from the natural world like we ground up plants or we extracted insulin from animals. That was how we got drugs and then people started filling with chemistry, and then that was how we got drugs and all drugs actually became either natural products or chemicals. And then as I said earlier, Lilly was the first to make a biotechnology we could reprogram cells to make drugs for us. And those drugs aren't made out of atoms. They're made out of amino acids, proteins, and that turned out to be a huge idea. Now we realize we can make drugs out of nucleic acids, DNA and RNA is inevitable that this will be a huge part of how we treat disease. Other things don't necessarily go away, although natural products are kind of pretty small today, but it opens up a whole vast area of biology of targets that we just couldn't address any other way. It also gives us durability of drugs that could be given once a year or once a lifetime. And finally, the most amazing thing about genetic medicines is these are drugs that are programmable. So with synthetic chemistry, every molecule, it's like a work of art that chemists have to create because you made 1 great one, then when you work on the next one, it's like starting from the beginning again. But with these, you can take a drug for 1 disease and just change the genetic code of it and have a drug for another disease if you've solved all of the other problems. And the other problems are, how do you get it to the cell of interest, how do you make it safe? How do you manufacture it? And so we're sort of knocking out all of those problems. And as we do, I think we'll have a platform that can scale across a large number of diseases. Yes, I can give you an example. We made a drug that resource hearing and kids who are born death and it's amazing. It works. These kids are born without a certain gene in their ear. We can put it back in and solve that problem. That's a pretty small opportunity. Not for the people who are affected, it's life changing. But overall, that's rare. But because we did it for 1 cause of hearing loss, it's not so much easier to do it for the next one. We solved how to get it in the air, how do you get it expressed how to get always to do is change the DNA code and we're solving a second and a third and a fourth caused a hearing loss. And then as we solve those problems, that technology platform continues to improve. And what we're really working on at the same time is what if we had a genetic medicine a ear that can restore hearing in age-related hearing loss because probably half of us will eventually have a loss of hearing as we get older and to my knowledge, no one else is working on that. But that's how the technology platform could build as we reprogram these medicines.

Wonderful. It's super exciting to see kind of that immediate meaningful impact on kind of a patient that has such an acute challenge, but the potential being much, much larger.

Yes. That's kind of like the perfect win-win scenario. And it's how we think about these rare diseases. I don't think we're going to propel Lilly's growth by 1 million POP drugs for rare diseases will help these patients, but then we'll also learn better and better science and we can apply to common diseases, which is where we ought to spend most of the time.

Wonderful I do want to jump back to M&A a little bit.

Sure.

You meant that Lilly has been one of the most prolific in this space. In some ways, you've been the most prolific, but you also haven't been spending as much as some of your peers said as well. And so can you talk a little bit about kind of what makes kind of the rack type of acquisition for Lilly? How do you consider those parameters? Is there ever an instance where you would go large? And another question that came in on this topic, is kind of the toleration of China. There are obviously a lot of innovation, research occurring now outside the U.S. and Europe. I think we've seen early stage number of clinical trials in China is outpacing many other regions now. As you look at assets in that space, do you change the type of diligence you're doing? Is there any extra scrutiny that you're bringing to those opportunities? And evaluating and bringing them into Lilly?

Yes. Thanks. Those are all really excellent questions maybe starting with the first one, which is like how do we evaluate and what are we looking for business development and the second one was like would we consider really big things and the third is the China question. So starting with how we evaluate to business development, I think it's different than other companies, actually. Most of my peers actually start with like a commercial forecast and an NPV and we do that. Of course, we have to do that. But that's actually pretty low in the priority list. The reason why and this is true of every company in our industry, is if you look at forecasted sales versus actual sales and you can do your forecast the day you launch it and then actual sales 5 years later, there's no correlation. And none of us, that analysts, internal companies are good at forecasting individual drugs in a way that correlates with the reality. But we do get it right in bulk. If we're forecasting a group of 5 or 10, like there's not a bias to our forecast. There's just too much noise in there. So we take -- we do those kinds of assessments. We take that with a grain of salt. What we're really interested in is, is there unmet need or people suffering is their great science. And are they great people? Because if they're great people, they're not going to choose to spend their time working on bad science. And so that's like a quick test. Great people are going to gravitate to great ideas. So the team and the science are our first priority and then understanding how that will translate into helping people that are suffering from important unmet medical needs. We tend to like ideas that have multiple kind of asset potential, not just one asset that we buy and then dissolve the team. Sometimes we'll do those deals if the asset is compelling enough. But I prefer a team and a platform that can continue to boost our output over time and then kind of compound the returns on business development. Again, that's a more patient approach that requires a company to have a longer-term outlook and probably more willingness to invest OpEx over time rather than just buy something that's fully done. Would we ever do a big deal? Sure. We're not constrained here by capital or access to capital but most of the big deals are actually commercial stage assets. And then you have to believe either you're better at selling them than anyone else or you see a sales forecast that's higher than anyone else that might happen until Lilly, there could be commercial stage assets that have that fit. But it's harder to imagine you would have to have -- we would have to have a different hypothesis why Lilly could make a better commercial case than anyone else on a particular asset. And I haven't seen those. So we don't -- haven't done those deals. The China question is a really important one. As you point out, the innovation in China is rapidly progressing. You can see that year-over-year, just a huge change in what's possible in China. The speed of drug discovery and drug development is intense there. There's a lot of innovation coming, some of it is me too innovation or be better like a new version of a drug that is different in some way, but it's kind of an incremental change rather than like a whole new class of drugs. So we see a lot of that. But also that kind of innovation now because it's faster and cheaper allows kind of an empiric innovation where you can make 5 different things and test them all in humans and see which one really works the best. Whereas in the U.S., because development time and cost is higher, we would spend more time to find out what's the best one and only test that one in humans. So that empiric innovation that's possible in China seems to be important. So we're spending more time looking at China innovation. Of course, we diligence it carefully. At the same time, though, is spending more time thinking about what can we learn to make innovation here in the U.S. and other countries in the world better. I think the industry is best served if China gets better and the U.S. gets even better and China gets better. And we can compete with each other, but innovation ecosystem is going to be approved around the world. And this is a moment to do that here in the U.S. and I think there's good momentum behind that to make it easier to do drug discovery and drug development in the United States but this is still where most of the best ideas come from, and we can continue to accelerate them.

One other question that's come through on -- from the audience is just diving into kind of some of your AI comments around that data model but also then tying it to M&A, kind of you're getting in data rooms, you're looking at external innovation all of the time kind of -- are you using your own internal scientific knowledge and integrating that with or using that to assess the best assets? I mean there is a little bit of a drug out there that kind of every time is a new category of GLP-1, Lilly seems to be holding the best one. And so as you kind of look at this, kind of how is it that Lilly's able to do that? And how are you kind of integrating and perhaps building more...

Well, I would say on the GLP-1 story, it's not an AI answer there. It's just -- we've been at this a long time, and we've learned a lot of lessons, and we may not share them all broadly all the time. But when the time is right, we do have some of the best molecules because we've been working. We launched the first incretin in the world in the 1980s, I think, it's been a long time. And we've iterated many, many times and tested a lot of things in humans and in animals. We know a lot. So I don't know if we've really done any business development meaningful in this space because when we look at things on the outside, we're like, "Oh, yes, that's fine, but we have something better that we've been working on for a couple of years already." So that's a story of just persistence and focus, but I do think it's kind of a generalizable theme that we're -- we feel best at business development when it's an area already of strength at Lilly because then we have internal scientists who've been working in the lab and they're like, "Oh, yes, that molecule is good. We've been trying to make something like that for the last 3 years." That is the best kind of diligence from we're experts. We have to be the most cautious when we move into a new area, like vaccines, do we really -- are we expert enough to evaluate the technology outside and really know what's good and bad. And so sometimes in those areas, even a year or more before we do the BD, we'll start hiring the scientific team so that we can do the kind of valuation that we need to do to make sure that we're smart and we have good taste in what we buy. It's hard.

That depth of knowledge can be incredibly important. Another angle just to pose a couple of questions on the market for health care is changing. We're seeing Lilly Direct become a larger and larger portion of the -- at least the incretin business today and kind of bringing Lilly closer and closer to the patients who use the products. Is this trend influencing how you think about R&D dollars, how you think about different therapeutic markets, how you think about opportunities? And what is it guiding you towards these days?

Yes. It's a trend we're betting on. I think it's real. I think it's generally good or I mean we were part of creating the trend with our work on incretins and Lilly Direct. More than 1 million people use Lilly Direct to get their medicines. That's kind of a shockingly big number for consumer health platform. But I think even independent of that, there's a movement towards people taking more interest and more control and investing more in their own health, particularly in staying healthy. That's great, actually, as long as the people are getting reasonable information, that's not always the case. Sometimes people are misled by fraudulent actors in the Internet or whatever, but at the same time, there's better information that's available to patients than ever before, and AI is going to help -- is helping already accelerate people learn about that. And so I'm excited about that trend. We've catalyzed it with incretins and with Lilly Direct. And I'm excited about seeing what else we can do to reach patients directly and maybe move a little bit away from a paternalistic style of medicine, which is the doctor always knows best and just listen to what your doctor said, but let patients take some ownership of their health care decision. And that -- so when we see opportunities that could fit into that trend, we like them a little bit more. But of course, I don't expect that the next best cancer drug is going to be sold direct to consumers to Lilly Direct. I think for serious diseases and complicated treatment paradigm, of course, we're going to need the best doctors in the world to manage patients. But there are other areas of health that are probably easier to manage that patients can take more control over.

Fantastic. We've got a couple of minutes left, and I want to make sure that we end kind of big picture and longer term. I know you and I were speaking earlier this morning about kind of these 3 big questions that investors tend to be asking about Lilly kind of one is how big is that leadership position and how big is that TAM in the obesity space? The second is, where is that next leg of growth come from? And then the third is kind of does the terminal value kind of inflect for this company as you think about drug discovery capabilities, AI, embedding and kind of the focus and the way that you're deploying your R&D investments today? I think with pressures like kind of patent cliffs and other things on the horizon, it causes investors to kind of continue to ask these questions. And so I want to pose to you kind of what needs to go right for Lilly's revenue and earnings per share to grow through the 2030s and particularly, which of the fact that are most within the company's control to ensure the success.

Yes. Thanks. So these are the right questions. I feel good about where we are in the incretin space. I think not worried about patent expiries. It's technical obsolete because we'll have better, better molecules that matters here. So that's good. What has to go right though, is we have to grow this space from 1 in 10 Americans and the U.S. is like 10% of the obesity problem around the world. So it's like we're something like 1% of obesity penetration today. We need to change that. And that's a big lift to go from 1% penetration to 5%, 10%, 50% of obesity patients getting treated. I think it's possible. We've seen it in other chronic diseases -- these are great medicines, and we have the potential, but there's work ahead to do that in the U.S. and around the world. So that is the right. Second, is we can't fall into the traps that other large pharmaceutical companies have fallen into when they had mega blockbusters. And those traps are like protect that asset, don't try and cannibalize it, don't invest in anything else, keep investing in that one. We've already pushed all of our R&D funding beyond tirzepatide. Even though it's the biggest product ever in its industry, we're investing in the next-generation products and the next after that to avoiding those mistakes, even though from a short-term kind of financial optimization standpoint, probably every incremental dollar spent on [indiscernible] will have the best return in the next couple of years. But in the long term, that will be a fatal area, which we've seen others make. The next, I think, is just to be open and investing in breaking science in other areas for the long term. This industry works, investing in science to solve medical problems works in the long term. But it doesn't work when everyone piles on in the short term on the same ideas in the rearview mirror, and we need to avoid that. And that's kind of the siren song that's always in the background. So I think if we can do those things and at the same time, kind of stay humble and have really hard-working motivated people in our company, which we're lucky to have today. I think we will have a sustained period of growth that hasn't been seen before in any company in this industry. That's our goal. We're focused on this problem, and we're committed to doing something that's never been achieved before.

Thank you, Dan. Have a wonderful evening.

Thank you all so much for joining us.

Thank you.