the solution. I think too much of the health care issues we re faced with as opposed to the problem.

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1 Introduction: Hi I m Sherrie Bossing and I manage Lilly s corporate brand and volunteer strategy worldwide. I m joined today with Dr. Jack Harris who is the Vice President responsible for US Medical Division, and Bart Peterson, Sr. Vice President of Corporate Affairs and Communications. Prior to joining Lilly Bart served 2 terms as Mayor of Indianapolis. And welcome gentlemen (thank you, thank you Sherrie), and excited to talk with you about some topics I think are of interest to many people outside of the walls of the pharma industry. Question 1 Sherrie - First of all Jack I d like to ask you a question.how would you describe the pharmaceutical industry and Lilly in particular with regards to its role in the discovery and development of medications? Answer 1 Jack - Well thanks Sherrie, R & D is the heart and soul of the Lilly enterprise, that s what we do, we develop new medicines. And never in the history of medicine in my opinion is that more critical than it is today. People expect a certain degree of health to be able to enjoy their lives and pharmaceuticals are a key part in providing a healthy lifestyles, healthy outcomes for individuals. The pharmaceutical industry is the soul, I would say the most important part of the medicine, discovery, innovation that occurs in the world. And in the US pharmaceutical industry clearly leads the world in its development of medicines. There is a lot of data that one can look at here for example most new medicines that come to the market 91 or all of your medicines 91% of those come from the pharmaceutical industry, and only about 9% come from technologies that are part of the national institute of health of the US government so when one compares how the industry does compared to the government as far as developing new drugs, it s really by far the industry. We spent a great deal of money in developing medicines the US pharmaceutical industry spends about 45 Billion dollars a year in R & D. This is in fact if you look at other countries around the world, this is a factor of almost 15 over the next country, the UK which is around 2 Billion dollars, so there is the US pharma industry is by far the most important driver in the innovation of new medicines. In addition to that you think that there is a lot of pills out there and there are a lot of medicines out there, but yet there is so much disease today that is yet to be effectively treated and certainly conquered. Some things like pain for example we are pretty good at in fact our cox-2 inhibitors have about an 80% efficacy against pain. But when you look at most diseases like diabetes, and depression, schizophrenia, cancer for sure the overall effectiveness of medicines in dealing effectively with those diseases is actually quite poor, which leaves lots of rooms for further discovery and innovation in the years to come. Medicines have a proven track record of decreasing health costs in the long run, of allowing people to have better activities of daily living and enjoy their lives to more fruition and really a part of

2 the solution. I think too much of the health care issues we re faced with as opposed to the problem. Question 2 Sherrie - So if you were thinking about value of pharmaceuticals and the average person who is questioning the cost of pharmaceutical products versus innovation, would you describe the value aspect of that for somebody else to appreciate in the over aching price of healthcare in general. Answer 2 Jack - When one looks at the amount of money that a country like the United States spends on healthcare, for example in 2007 I believe the healthcare expenditure of the US was about 2.1 trillion dollars, that s a huge number. Pharmaceutical however, only represented about 10% of that 2.1 trillion dollars. In fact that 10% proportion of that US healthcare expenditures which has been attributed to the pharmaceutical industry is actually quite consistent. Over the last 40 years, it s been either less than 10% or around 10%, versus hospitals for around 30% and physicians and clinical services around 20%. But what happens when you look at coverage for the cost of healthcare it actually flips the other way. For insurance coverage it covers about, when people look at their out of pocket costs, the largest part of the healthcare picture is paying for pharmaceuticals and the smallest part is hospitals. So it s actually just the flip of that. Most the research shows that if you can effectively take medicines, in other words adherence to drugs, compliance, whatever you say, and people would use their drugs effectively and follow their doctor s instructions, they could cut dramatically the issues that are related to their diseases. Most of the diabetes in this country, I think less than 40% of patients with diabetes are actually adequately treated and so on and so forth for many of the diseases that we have. I think a big part of the issue is not only having good coverage and having good medicines but patients taking an active role in their own treatment as well. Bart - If I could amplify on something that Jack said about the co pays and how people actually see the cost of pharmaceutical to themselves to a much greater degree than they do any of the other costs of healthcare. So for example if you have major surgery you re going to see in most cases if you have good health insurance, you re going to see a very small share of the overall cost of that that is actually going to come out of your pocket and of course we good lord willing we don t have major surgery very often. Where as with pharmaceuticals you re in the pharmacy every month and you re seeing the % your seeing a portion of that come out of your own pocket. To the point where if you just ask people randomly and I ve been doing this just as a way of testing this non scientifically, just ask people what do you think is the % of the overall health care spend in the US is on pharmaceuticals and you ll get answers like 40, 50, 60 70%, that

3 the sort of common perception out there and everybody is shocked when you tell them it s only 10%. Question 3 Sherrie Well on that note, why don t we just speak about healthcare reform and what you re seeing with healthcare reform, do you see a shift in that perception changing over time? Answer 3 Bart Well, I don t know if we re going to see a real shift, I mean obviously it s something we ve been talking about. But with healthcare reform we re gonna to see some things change, assuming that it actually does happen and that it happens in the right way, and by the right way I mean is provides access to good quality medical care for everybody but also preserves the opportunity for medical innovation. We think healthcare can be done right or it can be done wrong. If it is done in a way that stifles medical innovation the kind of work that s done by the scientists at Lilly, and at the other pharmaceutical and biotech companies. By the way I think it s critical to point out that sometimes people confuse the biotech industry and pharmaceutical industry and think they are two separate things they re really more or less the same thing. Lilly is the 5 th largest biotech company in the world, so as we look forward to healthcare reform that will provide coverage for everybody that will make sure that everybody has access not only to medicines but also to primary care physicians, specialists, hospital care, all of those things, and also rewards innovation to make sure that companies like Lilly and the whole pharmaceutical and biotech industry will continue to make these very substantial investments in R & D, then I think we will advance both important goals. Access for everybody and also make sure that today s healthcare system, we don t want to give today s healthcare system to everybody, we want to make sure that every year going forward the healthcare system continues to get better and better and better. 10 years from now we don t want to have 2009s healthcare system. Sherrie - Very good point Jack - You know one point about the concern about healthcare reform is the institution of things like price controls on pharmaceuticals. Actually government research shows that if you have a price control system on pharmaceuticals as opposed to the competitive system that we have today, you will decrease substantially the number of new drugs which are introduced through regulatory approval each year into the environment, this is a major concern when there aren t things like price controls and patients have immediate access to the drugs once they are approved versus in other countries where there is a perhaps lengthy period by which price is negotiated with the government, then therefore during that period patients don t have access to the latest medications.

4 Questions 3 - Sherrie To address the question that many people have, why do medications cost so much? Would you gentlemen like to just give the explanation that you share with your colleagues and patients. Answer 3 Jack If I could start, the development of drugs is a very lengthy and expensive process. The facts are quite staggering in fact. It takes about 5,000-10,000 new chemicals that are screened to get to one drug that actually gets to the marketplace and can benefit patients. As the drugs go from initial screening to pre clinical testing to clinical testing and then ultimately to FDA submission, the attrition rate of these is incredible. I believe that one of the statistics that I saw was that only about 1 in 10,000 new ideas, new chemicals that are discovered by a scientist let s say, or invented by a scientist actually ever get to the marketplace. #1 it s a hugely unsuccessful venture from a statistical perspective or percentage. Secondly the time that it takes to do this is quite long. The typical discovery and development process runs usually between years from the time the drug is first invented or discovered until the time it gets to the marketplace.so the drugs you get today that are approved were actually work began on them some 15 years ago. The attrition of that, how many of those drugs never make it, you lose tremendous amounts of money as you invest in things that never provide any value to anyone, the company or the patients that are there. Thirdly the effect of the patent life that we have on our products is 20 years. The total patent life is 20 years, but the effective patent life is that time frame from which you can actually reap the benefits of your product and realize revenue from the product. So someone who invents a new device that is not a pharmaceutical a better vacuum cleaner, they can apply for a patent a 20 year patent and have it on the market in 1 year Sherrie - so they have the same patent? They have the same patent, they have 19 years to sell it. In our business we may have 5, 7, 8 years whatever depends on how quickly we were able to get that, on top of that the value that you get back from a pharmaceutical doesn t really peak until later in its lifecycle because it has to have this period of acclimation by the healthcare environment, doctors have to get comfortable with it, so these are all the factors that weigh into it when less than 40% of the drugs that you actually get approved ever return or re coop the R& D cost that you had for that product in the first place. Bart That s a fascinating statistic. Jack - It s incredible. Bart - The significant majority of all approved drugs, those that actually get on to the market never re coop the cost of that went into creating them. So all of the R & D costs, plus all of what amounts to profit that allows you to have investors in the first place, comes from a relatively small number of drugs.

5 Jack Absolutely, when you think about pharmaceutical profits, the profits that the pharmaceutical industry are actually comparable to other major industries, financial industries, credit card, Google, computer, software industries. They re actually quite comparable to those. It s a very high risk low yield very expensive endeavor without being able to charge a premium price for our products we won t have the revenues to invest back into R & D, which for a company like Lilly is about 3.5 billion dollars per year. That is some 15 million dollars every day that we put into our R&D machine again with the yield that we described earlier. Sherrie and with all of the unmet medical needs that remain out there, it appears that the need is vast and therefore the funding to provide for the future cures of many illnesses that are going to require medicines is largely unmet. Jack It s never been more important. Bart - You think about the generic industry which is a good industry and certainly has made healthcare cost increases less than they would have been otherwise, but the generic industry is entirely dependent upon the innovation the R&D driven pharmaceutical and biotech industries because without somebody inventing something in the first place you can t copy it so there are costs, all these costs Jack was talking about 15 million dollars a day at Lilly in R & D none of those costs are born by the generic industry, they simply make the product, they simply copy the product after they patent has expired that the innovators have created in the first place. Question 4 - Sherrie And these costs seem to be going up year by year for innovation. Is there anything going on with the FDA partnering with the pharma industry, or us being more creative to develop drugs faster, more efficiently. Answer 4 -Bart Well you know, we have faced this issue head on here at Lilly and what we have said is we ve simply got to get these critical medicines to people quicker. It s important for us as a business, but it s more important for the health of the people of the world to be able to get these medicines through the pipeline, through the discovery and the development process and the approval process and get them to people quicker. I think the FDA here in the United States is very focused on trying to figure out ways to do that, they do believe that we they need to move quicker as well as us to move quicker, and that the creation at Lilly of the development center of excellence, is all about that it s all about moving these medicines through the pipeline quicker so that they get to patients quicker. Jack The FDA is a good partner, the FDA has the same overall goal as the pharmaceutical industry which is to speed new medicines to patients. They have their challenges as well, you know you asked about the cost going up in a way some of the

6 low hanging fruit has been already picked, when I mentioned pain therapy earlier, I m talking about your every day bumps and bruises and things like that. But lets look at something like cancer for example, a staggering and very sobering statistic that in their lifetime 1 out of every 2 males in this country will have a diagnosis of cancer. And 1 out of every 3 females. That s an incredible number and the ability to effectively treat cancer, we haven t got our arms around that today.in fact cancer drugs are typically only about 25% effective if you put everything into one big bucket and say how did we do. About 25% is a tremendous opportunity but yet even with today s high tech technology, everything that we know and all the great science we have today we re still only about 25% there, similar for alzheimers disease, diabetes, depression things that I mentioned earlier, a little bit better, but not anywhere where they need to be.and the cost of developing therapies to attack these diseases is going up because they are more and more complicated diseases that we re facing. The cost of technology of clinical testing and things like that that we have to do in our clinical trials, fees that we pay investigators all of these things are going up with inflation and the increasing cost of the world, so drugs are getting more expensive to develop, and in some cases they are taking longer to develop, and the diseases that we re going after are more difficult so the challenges are quite significant. Bart Jack, even with these challenges we have made progress against cancer significantly. We ve made progress against these other diseases. How does that sometimes that progress is measured pretty incrementally, particularly in the case of cancer, but in some other cases there are really significant breakthroughs for example redefining serious mental illness as and it s treatment as Lilly did back in the 1980 s, so why is it that some diseases progress is only incremental and some you can have these major breakthroughs that sort of change the whole paradigm? Jack What a great question. I did not want to come across as being negative, I m just trying to put the challenges out. The life expectancy of people has increased in this country from 68 years in the 1960 s to 78 years in 2007, so that s you know 10 years that you get to live longer on average and I think that s tremendous, a lot of that is reflected in the advance we ve made in pharmaceuticals and healthcare in general. One of the reasons I think that we have seen better efficacy for things like depression or better outcomes let s say is because the drugs are safer. One of the reasons that many patients with depression wouldn t take their drugs in the olden days, lets say the 50 s, and 60 s and such is because the drugs had a lot of side effects, and they made people very tired, they made them gain weight, in some cases made increased their depression and drugs today are safer than that, they re still not perfectly safe of course but they are safer so patients will take them more diligently and then get the benefit

7 from them so it s kind of a paradoxical relationship between that. I think that with things like targeted therapy and tailored therapeutics which Lilly is very interested in were able to better define what the actual target that we need to go after in the human body to treat a certain disease is, so by doing that and being more focused on the attack, with the pharmaceutical we can eliminate the unwanted effects on other parts of the body, so you can better tailor the drug to an individual or to an individual disease and result in a better efficacy outcome in that case as well. Question 5 - Sherrie I think it s interesting that many times though in the newspaper you ll see articles that I think really kind of influence how people think about pharmaceuticals when you see a biotech company being criticized for the cost of their medicines, so despite the fact that it s a great innovation when individuals who can t afford their medicines can t access this new innovation, how is Lilly addressing this. Answer 5 - Bart That s very important we talk about the cost that goes into creating these medicines and the chances of success and how you have to pay for all of the failures with those relatively few successes and all that adds up to fairly significant expense, right.so regular people just can t afford those kinds of treatments and so what are we able to do about that? A couple of things, first of all the reason we ve supported healthcare reform at Lilly in general provided that it supports medical innovation is because we believe that with million uninsured Americans, we have a huge unmet need there, and those folks don t have the ability to access pharmaceuticals through the traditional system at an affordable price. Secondly however, we haven t waited for healthcare reform. What we have done is that we have had a patient assistance program for many years here at Lilly that if you meet certain income criteria you will be able to get your medications from Lilly for free. And we have just increased that cut off from, it use to be 200% of the federal poverty line, in other words twice as much as what s being defined as being in poverty, we ve increased that to 300%, so now we re taking it up considerably making many more people eligible for our patient assistance program so that people are uninsured or underinsured and aren t able to afford the pharmaceuticals that they need to be healthy, and in some cases even to save their lives, they re going to be able to access those through Lilly at a much many more of them I should say are going to be able to access those pharmaceuticals through Lilly. That s a pretty exciting thing. Sherrie that is exciting. Jack yah these are significant numbers. The pharmaceutical industry in a 2 year period from provided about 11 billion dollars worth of free medicines to people through patient access programs this effected around 15 million people, and for Lilly we had I believe 250 million dollars worth of drugs that we provided through the

8 patient assistance programs just last year.so it s making a big difference to a lot of people. Bart I might add that we feel a sense of responsibility for the entire globe and one of Lilly s projects has been in multi drug resistance tuberculosis which is not something you hear much about in the United States, but in many developing areas of the world it s a very, very significant problem that kills far too many people every year and Lilly and has made a commitment to both provide free medicines as well as provide expertise and organizing ability and all kinds of things as part of our MDR-TB initiative, which is simply about being a better citizen of the world and recognizing that we have something to offer that s unique and we want to make that available to people who suffer from this terrible disease around the world. Sherrie Great, in fact it s interesting that you say that something we re not too familiar with here in the US because just recently on TV they said before you take a certain kind of treatment be tested for TB so the fact that they re even recommending that folks continue to be tested for TB goes to show it s not a disease that couldn t affect any and all of us. That s very interesting. Question 6 - Sherrie I would like to close in just asking you all to describe what you would tell a potential candidate who is considering the pharmaceutical industry as a place to establish a part or all of their career. Answer 6 Jack Well, as I mentioned earlier, the work we do is very complex, very challenging, but at the same time it has a tremendous sense of purpose we are there for patients with disease and in many cases that s ourselves, our families and our friends. The difficulty that we have in developing new drugs, the flip side of that is the great opportunity that there is to do wonderful things, and so you re never bored here. Another thing I think is very important is that Lilly is a company that s 130+ years old. A company like that is build on tremendous values, the way the company has been structured over the years, what it means to work here, what our purpose is in the community, in the global community as well, so you can really trust that we have an employment structure and we have career opportunities in development of our employees in things that have worked for us for 130 years and that says a lot in today s commercial environment. It s very exciting that for an individual to be at Lilly for 5, 10, 20, 30 years, it s very common and very exciting as you wind up doing things that you really have never done before. I started as a research physician 20 years ago and I ve been through a number of different assignments and had opportunities to travel the world, to lead people, to recruit incredible talent and to make a real difference in the products that our company makes and the healthcare solutions that are available for

9 people all over the planet. I ve never had that plan when I started with the company, but those are the things the company has afforded me. It s a tremendous opportunity. Sherrie I d like to hear Bart s perspective being rather new to the company. Bart I can speak with first hand experience having spend the first 51 years of my life not working in the bio pharma industry and for the last several months having joined Lilly. You know, it is a sense of mission and one of the things that I ve loved is talking to Lilly people who have been here for a long time and they still have that same passion and sense of mission that they probably came to the company with, if not stronger and that s a remarkable thing to have been with the same company or in the same industry for decades and literally have that sense that when you wake up in the morning and when you go to bed at night you can feel really good about yourself and about what you re doing and that you re contributing to the welfare of mankind that s pretty special. That s why I wanted to come to Lilly, when I was mayor of Indianapolis and every time I was around Lilly people and I was giving a speech I would always say you know, to have the best and the biggest company in our city and in our state be a company that is so important to the health and to the welfare of real human beings, that it s a company that does something good every single day, that makes me very proud as the mayor of this city. Now that I m here it s the same feeling I have every day, I mentioned waking up in the morning, going to bed at night, thinking about what it is your doing with yourself, with your career, with your life, it s something you can be very proud of and we are making a difference, It s these really are miracles that are occurring, and to see people s lives be changed, to see their lives be changed for the better because of the work of the scientists of at Lilly, because of the work of the people that work in the development of discovered drugs, those that help get those pharmaceuticals actually to people, the sales staff, the marketing people, the people who touch the company in every single way. Everybody feels like what they re involved with really matters, and that is pretty special. Sherrie It is great. Thank you. Thank you both so much for spending some time this morning with us to talk about this, and continue with your passion that s what makes the company so great is people like you. Jack Thanks Sherrie, it was a real pleasure. Bart Thank you.