Doesn’t this guy have a day job?
The diabetes device world isn’t the only wacky area of diabetes, as the business of diabetes drugs is just as wacky. As everyone knows Diabetic Investor has been less than thrilled watching Lilly (NYSE:LLY) go from a leadership position in diabetes to a third rate non-innovative company that seems to lack any sense of direction. While it may be hard for some to believe Diabetic Investor does not take any enjoyment out of chronicling the many mistakes Lilly has made over the past few years. Yet the facts speak for themselves and as Herbert Agar wrote; “The truth which makes men free is for the most part the truth which men prefer not to hear.”
Diabetic Investor was reminded of this while we read an interview with Lilly’s CEO John Lechleiter in Saturdays Wall Street Journal. In an article entitled “The Biomedical Century”, Mr. Lechleiter pontificates on many subjects expect the one that is near and dear to the hearts and wallets of Lilly shareholders which is; why after taking over the helm in April of 2008 has Lilly shares dropped nearly 25%. Nor does Mr. Lechleiter address why after taking the helm has their legacy diabetes franchise, once the most dominate and respected, fallen into such despair. Nor does he provide any explanation as to why Lilly has started an insulin price war which is only further pushing this market towards becoming a commodity style market. Nor does he explain why Lilly has chosen to develop a series of me-too, copycat, late to market diabetes drugs or how they could let a potential game changer slip away.
Perhaps the explanation comes from the article itself which states; “Mr. Lechleiter, who came to Lilly as an organic chemist in 1979 and became CEO in 2008, says the company is testing “whether innovation is sustainable over the long haul.” This seems a rather odd statement, especially from the CEO of a major drug company, a drug company that is supposed to be coming up with innovative new therapy options. Then again this statement isn’t that odd given that it’s coming from the CEO of Lilly, a company that has completely forgotten about innovation.
The article also states; “Fewer companies means fewer R&D departments, fewer scientists looking at the same problem from different angles, fewer teams capable of making the investments needed to run the regulatory gauntlet to get an idea into the pharmacy. While Mr. Lechleiter cautions that “far be it from me to criticize the direction any other company or any other enterprise has decided to take,” note that he is the only big pharma CEO with a scientific background.” Given how badly Lilly has performed since he took over Mr. Lechleiter would be wise to remember the old saying about people who live in glass houses. And while we’re happy to know that he is the only big pharma CEO with a scientific background, given is performance, compared to his peers, perhaps there is a good reason he’s the only big pharma CEO with scientific background and could well be the last.
It should be noted that this is not the first time Mr. Lechleiter has appeared in the WSJ or made public remarks about what’s wrong with the drug business these days. Just as he did in this most recent article Mr. Lechleiter points the finger of blame at everyone else but himself. Just as he has done before he blathers about the poor regulatory environment at the FDA, government price controls, the high corporate tax rate and on and on. As if Lilly would somehow do better if by some miracle these issues went away. Given the way he’s running the company and how he places blame everywhere expect where it belongs, it’s likely he’d find other issues to explain away his poor performance.
Let’s get real here Mr. Lechleiter, every other big pharma CEO is dealing with these exact same issues yet have somehow found a way to run their companies. Before you begin pontificating about all that ails the drug industry do a little scientific research and you’ll find that since you became CEO your peer group has outperformed you, in some cases by a wide margin. Check it out and compare the share performance of Pfizer (NYSE:PFE), GlaxoSmithKline (NYSE:GSK), Novo Nordisk (NYSE:NVO) and Sanofi-Aventis (NYSE:SNY) against how Lilly has performed from April 1, 2008 until the close of trading this past Friday (and you can throw in the Dow Jones Industrial Average as well) – and just where does Lilly place among this peer group – right where you would expect it be – DEAD LAST. Not only has Lilly underperformed its peer group, it’s also underperforming the market in general.
Now Diabetic Investor isn’t exactly sure how everyone else judges performance and granted share price should not be the only measure however it is a commonly used performance metric when determining CEO compensation and bonuses. When you add in the dismal performance of their core insulin franchise and where the company stands in the diabetes market, a market they at one time owned, the picture does not get any better and actually gets worse.
Given these facts it would seem to Diabetic Investor that either Mr. Lechleiter should step down as CEO so he can keep on pontificating or shut his mouth and get back to doing what he was hired to do which is run a large and once prestigious pharmaceutical company. Considering how Lilly has performed under his leadership, or lack thereof, Diabetic Investor would recommend the rubber chicken circuit as the pay isn’t bad and you can say whatever you want without being held accountable for performance. Come to think of it, that’s exactly what he’s doing now.