Lilly, Anthem show high risk, high reward strategy can pay off

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Hoosiers have a reputation for being risk averse.
We like to see what works well elsewhere, and see what doesn’t, and then chart a safe, steady course.
But Eli Lilly’s John Lechleiter and Anthem’s Joe Swedish—a couple of transplants to the state—are making national news this week for leading their Indiana-based companies to take huge risks—and are being handsomely rewarded for doing so.
Lechleiter, who grew up across the Ohio River in Louisville, has seemed like a riverboat gambler when it comes to finding the world’s treatment for Alzheimer’s disease.
First, back in 2008, Lechleiter made the decision to push two Lilly drugs quickly into expensive Phase 3 clinical trials.
That move looked foolish in 2010 when one the clinical trial of those drugs, samegacestat, had to be halted because it was actually making things worse for Alzheimer’s patients.
"That was the toughest period," Lechleiter told the Indianapolis Star. "That was when we had to find our true grit."
It wasn’t looking much better in 2012 when the other drug, known as solanezumab, failed to reach its primary goal in two Phase 3 trials—which was to slow the rate of decline in patients with both mild and moderate Alzheimer’s disease.
But while Lilly’s researchers were presenting  slides on the solanezumab data to him, including on just how the patients with mild Alzheimer’s had fared, Lechleiter interjected.
“Well, you've got a real effect here,” he said, according to a Bloomberg News report.

When regulators at the U.S. Food and Drug Administration said those data weren’t enough to approve solanezumab for the market, Lechleiter doubled down on his Alzheimer’s bet. He approved another Phase 3 clinical trial of solanezumab, this time in only mild Alzheimer's patients. Lilly has not said how much that decision cost, but the typical Phase 3 clinical trial will set a company back by hundreds of millions of dollars, according to research by the Tufts Center for the Study of Drug Development.
But so far, Lechleiter’s bet appears to be paying off. Investor excitement about the Alzheimer’s is a big reason Lilly’s shares have surged more than 40 percent this year. Lilly’s shares closed Thursday at $86.76 apiece—levels the stock, whena adjusted for dividend payments, hasn’t seen since 2000.
And on Wednesday, the company said its latest study of the drug gave even stronger evidence that it is altering the course of Alzheimer’s disease—albeit modestly—which is something no other drug has even been shown to do in a Phase 3 clinical trial.
Analysts still question whether solanezumab has enough effect to be meaningful to patients, but with no other effective drugs on the market, they still figure it will be the biggest blockbuster in Lilly’s history—with sales between $5 billion and $10 billion.
Swedish, a Virginia native, already took a huge risk—jumping from a more than 35-year career running hospitals to take the tiller at Anthem, the nation’s second largest health insurer.
But then he continued Anthem’s history of audacious mergers—roughly the same strategy the company has used for the past 25 years to turn from a struggling single-state Blue Cross plan into an industry behemoth.
It would have been easier for Swedish, who is likely close to retirement, to sell Anthem to Cigna, which has a CEO that’s 20 years younger—and walk away with tens of millions in golden parachute payments.
But that’s not his nature. He’s a big-game hunter (or, more precisely, a big fish hunter).
When I first interviewed Swedish back in April 2013, he talked about how “managing at scale” was one of the key skills he had developed in his career. And he clearly was interested to put it to use.
So instead of cashing out, Swedish has worked for a year to strike a $48 billion merger with Cigna. Investors like the deal. And analysts say it’s critical for insurers to get bigger if they want to survive and thrive in the new Obamacare era.
Just consider the size of this deal—the largest in the history of the health insurance industry and certainly the largest in Indiana. It’s nearly twice as large as the deal in 2006 when Indianapolis-based Guidant sold itself to Boston Scientific Corp. And its nearly three times larger than the mammoth deal a decade ago between Anthem and California-based WellPoint.
Not only that, Swedish has fought hard to remain CEO. If he’s fighting just as hard to keep the Anthem headquarters in Indianapolis, the $48 billion deal would make Indianapolis home to one of the nation’s 20 largest companies, according to Fortune magazine’s annual Fortune 500 ranking.
The wealth and talent that come with a major corporate headquarters would be a huge boon for a city that has, for decades, been mostly bereft of major corporate headquarters and, more often than not, seen its promising companies acquired—rather than be the acquirers.
Keeping the CEO local is a good way to make that happen, concluded former Arvin Industries CEO Bill Hunt in his recent “mea-culpa” about his role in transferring the Arvin headquarters from Indiana to Ohio.
“In closing, I largely concur with your conclusion that the “nitty-gritty details of a deal can make all the difference to a community,’” Hunt wrote in response to an IBJ editorial about the Anthem-Cigna deal. “The ‘nitty-grittiest’ detail is the selection of the CEO at the date of merger. From that decision most of the consequences flow.
“I sincerely hope,” he added, “Anthem remains an ‘anchor tenant’ in the Indiana business community.”
Indeed, the state needs to hang on to all riverboat gamblers and big-game hunters it can.

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