lilly (eli) (lly) earnings report: q2 2015 conference call...
TRANSCRIPT
CompanyName:EliLillyandCoCompanyTicker:LLYSector:HealthCareIndustry:Drugs
EventDescription:Q22015EarningsCallMarketCapasofEventDate:94.96BPriceasofEventDate:86.22
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Lilly(Eli)(LLY)EarningsReport:Q22015ConferenceCallTranscriptThefollowingLilly(Eli)conferencecalltookplaceonJuly23,2015,09:00AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
JohnLechleiter;EliLillyandCompany;Chairman,President,CEOPhilJohnson;EliLillyandCompany;IRDericaRice;EliLillyandCompany;CFODavidRicks;EliLillyandCompany;President-LillyBio-MedicinesSusanMahony;EliLillyandCompany;President-LillyOncologyEnriqueConterno;EliLillyandCompany;President-LillyDiabetesJanLundberg;EliLillyandCompany;President-LillyResearchLaboratoriesEricSiemers;EliLillyandCompany;DistinguishedMedicalFellowChitoZulueta;EliLillyandCompany;SVP,President-EmergingMarketsJeffreySimmons;EliLillyandCompany;President-ElancoAnimalHealth
OtherPart icipants
SeamusFernandez;LeerinkPartners;AnalystTimAnderson;Bernstein;AnalystJohnBoris;SunTrustRobinsonHumphrey;AnalystJamiRubin;GoldmanSachs;AnalystMarkSchoenebaum;EvercoreISI;AnalystChrisSchott;JPMorgan;AnalystStephenScala;CowenandCompany;AnalystAndrewBaum;Citigroup;AnalystTonyButler;GuggenheimPartners;AnalystTonyButler;GuggenheimPartners;AnalystGreggGilbert;DeutscheBank;AnalystColinBristow;BofAMerrillLynch;AnalystVamilDivan;CreditSuisse;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
Ladiesandgentlemen,thankyouforstandingby.WelcometotheQ22015earningscall.
(OperatorInstructions)
Asareminder,today'sconferencecallisbeingrecorded.I'dnowliketoturntheconferenceovertoJohnLechleiter.Pleasegoahead.
JohnLechleiter (Chairman,President,CEO):
Goodmorning.ThankyouforjoiningusforEliLillyandCompany'ssecondquarter2015earningsconferencecall.I'mJohnLechleiter,Lilly'sChairman,PresidentandCEO.Joiningmeontoday'scallare
CompanyName:EliLillyandCoCompanyTicker:LLYSector:HealthCareIndustry:Drugs
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DericaRice,ourChiefFinancialOfficer,Dr.JanLundberg,PresidentofLillyResearchLaboratories,Dr.SueMahony,PresidentofLillyOncology,EnriqueConterno,PresidentofLillyDiabetes,DaveRicks,PresidentofLillyBio-Medicines,ChitoZulueta,PresidentofEmergingMarkets,JeffSimmonswhoisPresidentofElancoAnimalHealth,andIlissaRassner,BradRoeblingandPhilJohnsonofLilly'sIRteam.We'realsojoinedbyDr.EricSiemers.EricisadistinguishedmedicalfellowforourAlzheimersdiseaseteam.HeisdialinginfromWashingtonwhereheisattendingtheAlzheimersAssociationInternationalConference.
Duringthisconferencecall,weanticipatemakingprojectionsandforward-lookingstatementsbasedonourcurrentexpectations.Ouractualresultscoulddiffermateriallyduetoanumberoffactorsincludingthoselistedonslide3,andthoseoutlinedinourlatestForms10-Kand10-QfiledwiththeSecuritiesandExchangeCommission.Theinformationweprovideaboutourproductsandpipelineisforthebenefitoftheinvestmentcommunity.Itisnotintendedtobepromotional,andisnotsufficientforprescribingdecisions.
Lilly'spositivemomentumcontinuedinthesecondquarter,aswedeliveredsolidunderlyingbusinessperformancewithproductivityimprovementsdrivingbottomlineleverage,withdouble-digitoperatingincomeandEPSgrowth.
Andweagainsawsignificantpipelineprogress,includingmultipleregulatoryapprovalsandsubmissionsalongwithpositivePhase2andPhase3dataread-outs.Asusual,Iwillbegintoday'scallbyhighlightingkeyeventsthathaveoccurredsinceourfirstquarterearningscallinlateApril.
Weseenadvancesonanumberoffronts,startingwithcommercialmilestones.InJapan,webeganpromotionofCyramzaforgastriccancer.Thegastriccancerindicationinthismarketrepresentsasignificantopportunityforthisproduct.HereintheUS,webeganpromotionofCyramzaforsecond-linemetastaticcolorectalcancerfollowingFDAapprovalofthisindication,thedayafterourlastearningscall.
Ontheregulatoryfront,weachievedanumberofmilestones.Indiabetes,wereceivedapprovalinJapanforTrulicity,ouronce-weeklyGLP-1receptoragonistforthetreatmentoftype2Diabetes.WealsoreceivedFDAapprovalforHumalogU-200KwikPenforthetreatmentoftype1andtype2Diabetes.
IncollaborationwithBoehringerIngelheim,wereceivedEuropeanCommissionapprovalforSynjardy.Thisisasingle-pilltherapythatcombinesempagliflozinandmetforminforthetreatmentofadultswithtype2diabetes.
HereintheUS,theFDAissuedaCompleteResponseLetterforSynjardy,andBoehringerIngelheimhasalreadysubmittedtheirresponse.Wearepleasedtheresubmissionwasgrantedatwomonthreview,andwe'rehopefulwewillbeabletobringthisproducttomarketintheUSyetthisyear.
Movingtooncology,asImentionedamomentago,wereceivedFDAapprovalforCyramzainsecond-linemetastaticcolorectalcancer.WealsocompletedoursubmissionforthesameindicationinJapan.
Inaddition,theFDAOncologicDrugsAdvisoryCommittee,ODAC,reviewedthedatasupportingoursubmissionfornecitumumabincombinationwithgemcitabineandcisplatinforuseinfirst-linetreatmentofpatientswithadvancedsquamousnon-smallcelllungcancer.Wewereencouragedbytheconstructivediscussiononthebenefitriskprofileofnecitumumab.Webelievenecitumumabrepresentsameaningfuladvancementintreatment.
AndmovingtoourBio-Medicinesbusiness,wesubmittedixekizumabinEuropeforthetreatmentofmoderatetosevereplaquepsoriasisfollowingourUSsubmissioninthefirstquarter.Clearly,thiscontinuestobeanexcitingandbusytimeforourregulatorycolleaguesacrosstheglobe.
Ontheclinicalfront,wepresenteddetailedPhase3dataonthreedifferentmolecules,andhighlighted
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thesedataoninvestorcalls.FirstwasthepresentationofPhase3dataforbasalinsulinpeglisproinpatientswithtype1andtype2diabetesattheADAmeeting.Aswestatedinthepast,we'vedecidedtodelayregulatorysubmissiontogenerateadditionalsafety-relateddata.
Nextwasthepresentationofdatafromthefirsttwoofourfourpivotaltrialsforbaricitinibinrheumatoidarthritisatthe[EULAR]meetinginRome.We'reencouragedbythePhase3datawe'veseentodateandwelookforwardtothedataread-outsfromthefinaltwopivotaltrialslaterthisyear.
LastwasthepresentationofPhase3dataforixekizumabinmoderatetosevereplaquepsoriasisattheWorldCongressofDermatologymeeting.Webelieveixekizumabhasdemonstratedacompellingbenefitriskprofileinclinicalworktodate,andthatixekizumabcouldhelppatientswithmoderatetosevereplaquepsoriasisbettermanagetheirdisease,andimprovetheirqualityoflife.
Further,webelievethatthelevelofefficacyandthesafetyprofiledemonstratedbybiologicagentstargetingIL-17Ainpsoriasisrepresentameaningfulimprovementtocurrentlyavailabletherapeuticoptions,andcouldbeacatalystforgreateruseofbiologicsinthetreatmentofthisdisease.
Justyesterday,attheAlzheimersAssociationInternationalConference,wepresentedtwoyearextensiondatafromtheEXPEDITION-EXTtrial.Webelievethedataareconsistentwithapotentialdiseasemodifyingeffectofsolanezumabonunderlyingdiseaseprogression,andwelookforwardtocompletionoftheEXPEDITION3studyinlate2016.
ApartfromthesePhase3datadisclosures,wealsohadsomeearlierstagedatapresentationsthatgarneredinvestorinterest.Specifically,attheASCOmeeting,wepresentedPhase2dataforolaratumabinsofttissuesarcoma.WhileattheAmericanHeadacheSocietymeeting,wepresentedinitialPhase2bdataonourCGRPmonoclonalantibodyinepisodicmigraine.Weareenthusiasticabouttheopportunityforbothofthesemolecules.Dericawillprovideanimportantupdateonolaratumablaterinthecall.
Onthebusinessdevelopmentfront,weannouncedfiveoncologydealsspanningcollaborationswithAstraZeneca,BioNTech,Dana-FarberCancerinstitute,SarahCannonResearchInstitute,andImmunocore.Thisisconsistentwithcommentsthatwemadeearlierthisyear,thatyoushouldexpecttoseeusincreasethelevelofourbusinessdevelopmentactivitythroughpartnerships,licensingandacquisitionsateverearlierstagesofdevelopment.
Inaddition,westruckadealwithSanford-BurnhamMedicalResearchInstituteintheareaofimmunology,andweannouncedasalescollaborationagreementinJapanwithSumitomoDainipponPharmaforTrulicity.
Inothernews,wereceivedapositiverulingfromtheUKCourtofAppealswhichheldthattheAlimtavitaminregimenpatentwouldbeindirectlyinfringedbyagenericcompetitor.ThisrulingreversedtheinitialUKCourt'sdecisiongrantingdeclarationsofnon-infringementinFrance,ItalyandSpain.WeannouncedplanstoestablishanewdrugdeliveryanddeviceinnovationcenterinCambridge,Massachusetts.TheLillyCambridgeInnovationCenterinKendallSquarewillhelpattracttopscientistsandbioengineers,aswellasenhanceourbusinessdevelopmentpresenceintheBostonarea.Andjustthismorning,weannouncedplanstoeffectivelydoubleourresearchpresenceatourLillyBiotechnologyCenterinSanDiego,California.
Onthefinancialside,wetookadvantageofverylowEuropeaninterestratestoissueEUR2.1billionofdebt,whileretiring$1.65billionofhighercouponUSdebt.Finally,inthesecondquarter,werepurchased$125millionofstock,leaving$3.3billionremainingonour$5billionplan.Inaddition,duringthesecondquarter,wedistributedover$500milliontoshareholdersviaourdividend.
Weremaincommittedtoprovidingarobustdividend,andtoreturningexcesscashtoshareholdersvia
CompanyName:EliLillyandCoCompanyTicker:LLYSector:HealthCareIndustry:Drugs
EventDescription:Q22015EarningsCallMarketCapasofEventDate:94.96BPriceasofEventDate:86.22
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sharerepurchase.Andnow,I'llturnthecallovertoPhilforadiscussionofourfinancialperformanceforthequarter.
PhilJohnson (IR):
Thanks,John.BeforeIdiscussourQ2results,itmaybehelpfultoreviewsomekeyfeaturesofourpresentationofGAAPresultsandnon-GAAPmeasures.WheninterpretingourGAAPresultsandthegrowthratesversus2014,keepinmindthat2014doesnotincludeNovartisAnimalHealth,while2015includestheoperatingresultsofthisbusiness,aswellasallthecostsassociatedwiththeacquisition.
Forournon-GAAPmeasures,wenowexcludeamortizationofintangibles.Andtoprovideyouabetterideaoftheunderlyingtrendsinourbusiness,we'veadjustedournon-GAAPmeasuresfor2014toexcludetheexpenseassociatedwithamortizationofintangibles,andtoincludeNovartisAnimalHealthasifwehadclosedtheacquisitionofJanuary1,2014.Thisplaces2014onthesamebasisuponwhichwearereportingfinancialsthisyear.
Nowlet'slookatourresultsforthequarter.Slide8providesasummaryofourGAAPresults.I'llfocusmycommentsonournon-GAAPadjustedmeasurestoprovideinsightsintotheunderlyingtrendsinourbusiness.Sopleaserefertotoday'searningspressreleaseforadetaileddescriptionoftheyear-on-yearchangesinoursecondquarterGAAPresults.
Movingtoslide9.YoucanseethatQ2revenuewasnearly$5billion.Thedecreaseof4%comparedtoQ22014reflectssignificantforeignexchangeheadwinds.ExcludingFX,ourQ2revenuewas[4]%onanon-GAAPbasis.
Aswediscussedbefore,thisyearwewillstillfeelthenegativeeffectofalossofUSexclusivityforCymbaltaandEvista.ThisquartersalesofthosetwoproductintheUSdeclinedbyover$110million.ExcludingtheunfavorableimpactofforeignexchangeratesandCymbaltaandEvistaintheUS,therestofourworldwiderevenueincreased6%thisquarter.
Grossmarginasapercentofrevenueincreased2.5percentagepoints,goingfrom76.7%to79.2%.Thisincreasewasdrivenbythefavorableimpactofforeignexchangeratesoninternationalinventorysold,whichincreasedcostofsalesinQ2lastyear,butdecreasedcostofsalesinQ2thisyear.
ExcludingthisFXeffect,ourgrossmarginpercentdeclinedby1percentagepoint,goingfrom77.2%inlastyear'squarterto76.2%thisquarter.Asonpriorcalls,youwillseeasupplementaryslideprovidingourgrossmarginpercentforthelast10quarterswithandwithoutthisFXeffect.
Wecontinuetodriveproductivityimprovementsacrossourbusiness.Totaloperatingexpense,definedasthesumofR&DandSG&Adeclinedby7%,orover$200millioncomparedtoQ22014.Marketing,sellingandadministrativeexpensesdeclined8%,whileR&Ddeclined5%.
Thereductioninmarketing,sellingandadministrativeexpenseswasduetothefavorableimpactofforeignexchangerates,costreductionsinthecombinedAnimalHealthorganization,andongoingcostcontainmenteffortsacrossLilly,partiallyoffsetbymarketingexpensestosupportrecentproductlaunches.ThereductioninR&Dexpensewasdrivenprimarilybythefavorableimpactofforeignexchangerates.
Asimpliedbyourfullyearguidance,wedoexpectthelevelofR&Dspendtobehigherfortheremainderoftheyear,aswestartPhase3trialsfortanezumab,ourCGRPmonoclonalantibody,olaratumab,andadditionalindicationsforCyramza.
Otherincomeandexpensewasincomeof$29millionthisquarter,andourtaxratewas20.8%,adecreaseof2.3percentagepointscomparedtothesamequarterlastyear.Thisdecreasewasprimarily
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duetoadiscretetaxbenefitrealizedinthisquarter.
AlsoourtaxrateinbothperiodsdidnotincludethebenefitofcertainUStaxprovisions,includingtheR&Dtaxcreditasthoseprovisionshadlapsed.Atthebottomline,netincomeincreased20%,whileearningspershareincreased22%,reflectingthebenefitofoursharerepurchases.
Slide10containsnon-GAAPadjustedinformationforthefirsthalfoftheyear,whileslide11providesareconciliationbetweenreportedandnon-GAAPEPS,andyou'llfindadditionaldetailsontheseadjustmentsonslide21.
Nowlet'stakealookattheeffectofprice,rateandvolumeonrevenue.Onslide12,intheyellowboxatthebottomofthepage,you'llseethetotalrevenuedeclineof4%onanon-GAAPbasisthatImentionedearlier.ThesignificantstrengtheningoftheUSdollaragainstmanyforeigncurrenciesdrovethisdecline,asyouseethe8%negativeeffectfromFXthisquarter,withafavorablevolumeeffectof3%,andfavorablepriceeffectof1%.
Bygeography,you'llnoticethatUSpharmarevenueincreased3%drivenbyprice,partiallyoffsetbyvolume.Andininternationaloperations,Australia,CanadaandEurope,orACE.You'llseethattherewasadeclineinrevenueof19%thatwasalmostentirelydrivenbythenegativeeffectofforeignexchange,whileonaconstantcurrencyorperformancebasis,ACErevenuedecreasedjust1%.ThisdecreasewasdrivenbyasubstantialreductioninEuropeanCymbaltasales,resultingfromalossofdatapackageexclusivity.
InJapan,pharmarevenueincreased14%intotal,whileonaconstantcurrencyorperformancebasis,itincreased37%.Thesizeofthisincreasewasinfluencedbyaweakcomparisonperiod.RecallthatinQ12014,weexperiencedsubstantialwholesalerbuyinginadvanceofanincreaseinthelocalconsumptiontax,whichledtoacorrespondingreductioninwholesalerbuyinginQ22014.Consequently,theperformancegrowthof10%forthefirsthalfofthisyearismorereflectiveoftheunderlyingtrendsinJapan.
Turningtoemergingmarkets,wesawarevenuedeclineof15%,drivenbyanegativeforeignexchangeeffectof12%.Onaperformancebasis,emergingmarketsalesdeclined4%,drivenbylowersalesinChinaandthenegativeeffectoftheBrazilhumulintenderwehadlastyear.Thisquarter,ourpharmarevenueinChinadeclined16%drivenbylowervolume.
Onanon-GAAPbasis,whichadjusts2014asifwehadcompletedtheNovartisAnimalHealthacquisitiononJanuary1ofthatyear,ElancoAnimalHealthrevenuedeclined4%.Excludingthenegativeeffectofforeignexchange,Elancorevenueincreased3%.
Movingtoslide14,you'llseetheeffectofchangesinforeignexchangeratesonourQ22015results.Thisquarter,asmentionedearlier,FXwasatoplineheadwind,reducingrevenueinUSdollarsby8percentagepoints.Intermsofcostofgoodssold,however,FXprovidedasubstantialbenefit,whichledtoFXhavingessentiallynoimpactonoperatingincomeandEPSgrowth.Atthebottomoftheslide,youcanseethatournon-GAAPEPSinthesecondquartergrew22%,withandwithoutFX.
Slide15showsourpipelineasofJuly20,withchangessinceourlastearningscallhighlighted,greenarrowshowingprogression,andredarrowshowingattrition.Intermsofadvancement,you'llseethatourCGRPmonoclonalantibodyhasmovedintoPhase3,withtheinitiationofpivotaltrialsinclusterheadache,andweinitiatedPhase2testingforanoncologymolecule.
WealsoterminateddevelopmentofouroralglucagonreceptorantagonistfordiabetesinPhase2,aswellasforfivePhaseImolecules.Withthatupdate,I'llnowturnthecallovertoDerica.
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DericaRice (CFO):
Thanks,Phil.Asonourpriorcalls,I'llrecaptheprogresswe'vemadeonthekeyeventsweprojectedfor2015,andthenreviewour2015financialguidance.
Turningtoslide16,youwillseethatamajorityofeventsanticipatedfor2015havealreadyoccurredinthefirstsixmonthsoftheyear,withthevastmajoritybeingpositive.Sinceourlastearningscall,we'veachievedanumberofadditionalmilestones.
WeinitiatedPhase3trialsforCyramzainbothfirst-line,EGFRmutationpositivenon-smallcelllungcancer,andinsecond-lineurothelialcancer,aswellasforourCGRPmonoclonalantibodyinclusterheadache.
AsJohnmentionedearlier,wehadanumberofdetaileddatadisclosuresatmedicalmeetingsforbasalinsulinpeglispro,baricitinib,ixekizumab,andsolanezumab.
YouwillalsoseethatweupdatedtheregulatorysubmissionscategorytoreflectJapanesesubmissionforramucirumabforsecond-linemetastaticcolorectalcancer,andEuropeansubmissionofixekizumabforpsoriasis.AsweannouncedonourIxekizumabinvestorcall,we'veaddedaneventtoourkeyeventlistforthesimultaneoussubmissionofixekizumabinJapanforbothpsoriasisandpsoriaticarthritis.
EarlierJohnmentionedthepresentationatASCOofthePhase2dataforolaratumabinsofttissuesarcoma.Thesedatawerecompelling,andincludedatenthmonthoverallsurvivalbenefitinpatientsinthetreatmentarmthatreceivedolaratumab.
IampleasedtoannouncethatbasedontheongoingdiscussionswiththeFDA,weintendtosubmitUSandEuropeanregulatoryapplicationsforolaratumabinsofttissuesarcomabasedonthesedata,basedonthesePhase2data.WehopetocompletetheUSsubmissionbeforetheendof2015.
Asaresult,youwillseeanewitemonourlistofkeyeventstoreflectthispositivedevelopment.Inaddition,theFDAhasgrantedolaratumabbreakthroughdesignation.We'repleasedthatolaratumabisthethirdImClonemoleculefollowingCyramzaandnecitumumabthathasgeneratedpromisingclinicaldata,andthatcanhelppatientswithcancerlivelonger.
YouwillalsoseenewcheckmarkstoreflectthreeapprovalsJohndiscussedearlier,Japaneseapprovalforramucirumabinsecond-linegastriccancerandDulaglutidefortype2Diabetes,andintheUSapprovalforHumalogU-200KwikPen.
Finally,intheothersection,you'llseeagreencheckmarkforthepositiveAlimtarulingfromtheUKCourtofAppeal,andwenowhaveadateformidNovemberfortheappealshearingattheEuropeanPatentOffice.
Wenotedinthepastthat2015isanotheryearwherewe'refocusedondemonstratingsuccessfulexecutionofourinnovation-basedstrategy.We'repleasedwiththeprogresswemadeinthepastfewyearsandsofarthisyear,andbelievethisprogresssolidifiesournear-tomedium-termgrowthprospects.
Turningtoour2015financialguidance.We'veraisedthebottomendofourrevenuerangetoreflectthesolidunderlyingperformanceforthefirstsixmonthsoftheyear,andthelaunchtrajectoriesofJardiance,TrulicityandCyramza.
Wehavealsomodestlyincreasedtherangeforournon-GAAPotherincometoreflectnetgainsoninvestmentsrealizedtodate,andaddedanewlinefortheGAAPotherincomethatreflectsthedebtrepurchasecharge.ToreflectthediscretetaxbenefitbookedinQ2,we'vereducedournon-GAAPtaxratebyabout50basispoints.OurGAAPtaxratealsoreflectstheimpactofthedebtrepurchaseandthe
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BioNTechcharges.
Atthebottomline,weraisedournon-GAAPEPSrangeby$0.10,andnowforecastfullyearnon-GAAPEPStobeintherangeof$3.20to$3.30pershare.OurnewGAAPEPSrangeof$2.20to$2.30persharehasbeenupdatedforthissame$0.10increase,aswellastheQ2chargeswebookedforthedebtrepurchaseandtheBioNTechdeal.
FinallyIwanttopointoutweownsharesofReceptos,andyou'veundoubtedlyseenCelgene'soffertobuyReceptosfor$232pershare.Atthistime,itisnotcleartouswhenadealmaygetdone,andwe'venotmadeadeterminationofwhatwewilldowithourshares.We'llmonitorthissituation,andwewillincorporateanynecessarychangesintoourfutureguidanceupdates.
Insummary,whileoursecondquarterrevenuereflectstheimpactofforeignexchangeheadwindsandthelingeringeffectsofUSpatentexpirationsforCymbaltaandEvista,weremainontracktoreturntogrowthin2015,drivenbyexcellentprogressinourinnovation-basedstrategy.
Wehadsolidunderlyingbusinessperformance,andourcontinuedfocusonproductivityandcostcontrolsdrovestrongleverageatthebottomline,whileprovidingthecapacitytofullyinvestinournewproductlaunchesandtopursueadditionalpromisingpipelineopportunities.Thissolidbusinessperformancewastheprimarydriverforincreasingournon-GAAPEPSguidance.
Withtangibleresultsfromourinnovation-basedstrategy,weaimtodriverevenuegrowth,andexpandmarginsthroughoutthebalanceofthisdecade.
Aswediscussedinthepast,you'llseeussharpenourfocusonareaswherewearebest-positionedtocompeteandwin,andwewillcontinuetofindwaystoincreaseproductivity,anddotheworkofpharmaceuticalR&Dbetter.Thisconcludesourpreparedremarks.NowI'llturnthecallovertoPhiltomoderatetheQ&Asession.Phil?
PhilJohnson (IR):
Great.Thankyou,Derica.Leah,ifyoucouldprovidetheinstructionsfortheQ&Asession,we'llgetstartedwithcaller'squestions?
QUESTIONS&ANSWERS
Operator :
Certainly.
(OperatorInstructions)
OurfirstquestionisfromthelineofSeamusFernandezwithLeerink.
SeamusFernandez (Analyst-LeerinkPartners):
Thanksforthequestion.Socongratulationsonastrongquarter.Derica,maybeyoucanjust,oroverallifyouguyscangiveusyourthoughtsonhowyouseetheprogressionofAlimtasalesoutsideoftheUSgoingforward?
Sortofex,ifwejustkindofexcludethecompetitivelandscapeandthinkaboutitindependentjustwiththecourtrulings,howyouseethatgoingforward?Andwhatamountofsalesisactuallyreflectedandrepresentedbythat,howdurableyouthinkthatis?
Thesecondquestion,aswethinkabouttheevacetrapibopportunity,ifyouguyscouldgiveusany
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additionalcoloryoucouldprovideonthenumberofevents,thepoweringofthestudy?Iknowyousaid15%powerinthepast,buthistoricallywhenwe'veseenstudieslikethis,it'sconservativelypowered.
So15%at95%or98%reductionwouldimplysomewherebetween1,400and1,600events,soitwouldbereallyhelpfultounderstandhowconservativelypoweredyour15%assumptiononevacetrapibis?
Andthenlastly,on--Ithink,olaratumabintermsofthemarketopportunityinsofttissuesarcoma,canyoujustgiveusaquickupdateonyourthoughtsthere,intermsofthepatientsizeintheUSandthenalsoglobally?Thanksalot.
PhilJohnson (IR):
Great,Seamus.Thankyouforthequestions.I'llgoaheadandactuallyprovidesomecontext,onyourfirstquestion.OnAlimtaOUSrevenueandsomeoftheexposuresthere,andthenDave,ifyou'lltalkaboutthesecondquestionforevacetrapibpower?Andthen,Sueifyou'llhandletheolaratumabquestion.
SoSeamusforOUS,ifwegobacktotheguidancecallearlyJanuary,wehadmentionedthatlastyearwehadabout$880millioninAlimtasalesinEurope.Wehadindicatedabout$80millionofthatamountwouldalreadybesubjecttolossofexclusivityinmarketswherewedidnothaveacompoundpatent,orthelongerdatedvitamindoseregimenpatent.Oftheremaining$800million,about$175millionwasrepresentedbyGermany,withtherestbeingtheotherEuropeancountriesofwhichFranceisthelargestbyfar,followedbyGermany.
AndthenItalyandSpain,withUKbeingclearlythesmallestofthem.Sohopefully,justthinkingaboutrulingswe'vehadsofarinGermanyandrulingsoutoftheUKCourt,thatprovidesyousomebasistounderstandthelevelofexposurethat'sthere.
ForJapan,Idon'thavelastyear'snumber,butIdohavethisquartersnumberinfrontofme,sincewealsohavelitigationongoinginJapan.Wehad$67millioninQ2.Wehad$57millionofAlimtarevenueinJapaninQ1.TheemergingmarketsbusinessisasimilarsizetoJapan,wherewehadabout$63millioninrevenuethisquarter,about$63millionlastquarteraswell.
SothemajorexposurereallyisforOUS,theEuropean,bothlitigationinspecificcountriesthatisongoing.Andaswementionedonthecallearlier,theoutcomeoftheEuropeanpatentofficeappealhearingthatwilloccurinNovember.Dave?
DavidRicks (President-LillyBio-Medicines):
Sure.Seamus,thanksforthequestiononevacetrapib.Whatwe'vesaidinthepastiswe'repoweredtoshowaneffectsizeonLDLalone,andsoyourrangethereisaboutright.
Idon'tthinkwe'vegottenintotheexactnumberofevents,andIwouldremindtheinvestorsweextendedthetrialbysixmonths,whichwaspartofourQ1communication,whichactuallyaddstotheeventtotalthatwe'llsee.Soinasensethatmayincreasethepoweringofthestudy,althoughnotmarkedly.
SothestudywasdesignedtoshowaneffectonLDLalone,usingtheOxfordcurvethatwe'veseenplayoutthroughtime.Weestimateabouta30%reductioninLD,sothusthemid-teensMACEoutcome,andthatislookingatthequintupleendpoint.
Wealsohaveaminimumthresholdforthetripleheartendpointsofdeath,MIandstroke,andwebelievewehaveampleeventsnow,aswelookatthedatacominginmidnextyear.
PhilJohnson (IR):
Sue?
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SusanMahony(President-LillyOncology):
Yes,withregardstoolaratumab.Sowiththesizeofthemarketit's,there'sabout11,900patientswhoarediagnosedwithsofttissuesarcomaintheUS.Fordrugtreatment,there'sabout5,800intheUS,andthenOUS,about5,000again.
Ithinktheimportantthinghereisthattherereallyhasn'tbeenanythingapprovedorshowninoverallsurvivaladvantageinaboutthreedecadesinthistreatment,inthistreatmenttype.
Soit'sabigunmetneed,andwe'reveryexcitedbythedatathatwehave,andtheopportunitytobringolaratumabhopefullytopatients.SowehaveannouncedthatwewillbefilingbasedondiscussionswiththeFDAintheUS,andwealsoanticipatedoingthatinEuropetoo.WealsoareplanningtoinitiateaPhase3studyoverthenextfewmonthsinQ3,andtodosomepediatricstudies.SoasIsaywe'reexcitedabouttheopportunityforthismolecule.
PhilJohnson (IR):
Justarealquickadd-ontothat,Seamus.Ithinkclearly,andforgoodreasonthere'sbeenalotofinterestintheinvestmentcommunityonimmuno-oncologyagentsthathaveshowndurableresponsesforanumberofpatients.
Whilethisisnotinthatniceshinypennyofimmuno-oncology,thekindofbenefitthatwesawforoverallsurvivalisquitestriking.You'retalkingabout25monthsofoverallsurvival,comparedto15monthsonthecomparatorarm.Sowhilethisisasmallerpatientpopulation,orphandrugessentiallytypeofpatientpopulation,we'reveryenthusiasticaboutthedatawe'veshowntodate.Leah,nextcallerplease?
Operator :
ThenextquestionisfromthelineofTimAndersonfromBernstein.
T imAnderson (Analyst-Bernstein):
Yes,thankyou.Afewquestions.Onsolanezumab,obviouslytheAAICdatapresentedyesterday,I'mwonderingifyoucantalkaboutthatinthecontextofEXPEDITION3?
Andhowyouwillbe--Ishouldsayhoworwhetheryouwillbeincorporatingadelayedstartdesignintothattrial,andreallyisthatsomethingthatyouwouldlikelyneedforapprovaloristhatsomethingthatcouldcomelater?Inotherwords,isitaregulatorynecessitytoshowresultsonadelayedstartdesign,orisitmoreofalabelingmatter?
SecondquestionisonAmyvid,yourADimagingagent,kindofaroundingerrorcommercially,butitseemsthatPETimaginginthefuturecouldhaveissomerealvaluewhenithelps,whenitcomestohelpingruleinAlzheimer'sdisease?
Isthereanunappreciatedcommercialopportunityofsomepointinthefuturewiththeproduct?Andthen,lastquestionjustondiabetes.IfIlookatsaleslevelsofvariousproducts,itseemedtotrackbelowwhatIwouldhaveexpectedindifferentgeographies.AndI'mwonderingifthatspeakstoanincreasedlevelofpriceerosionthatmighthaveimpactedresults?
PhilJohnson (IR):
Great,Timthanksforthequestions.Dave,ifyoucanhandlethesolanezumabEXPEDITION3andAmyvidquestions?Andthen,Enriquethediabetesquestions,andobviously,Chito,ifyouwanttomakeanycommentsingrowthinemergingmarketsfordiabetesproducts,pleasedochimein.Dave?
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DavidRicks (President-LillyBio-Medicines):
Great.Thanks,Tim,forthequestions.I'lltryandhandlethese,andifIgetintrouble,myexpertsalsoonlinecanhelp.FirstregardingthedataweshowedyesterdayontheEXPEDITION-EXTorextensionstudy,thisisaverylong-termsetofdatawiththedrugeffectinAlzheimer's.AndIthinkwewerepleasedtoseethatthesafetyoftheproductcontinuestolookverygoodinthispopulation.
We'rehappythatthedelayedstartimpactwehadhopedtoseewasdisplayed,inthatthelaterpatientscomingontosolanezumabafterthe18monthblindedperiod,didinfactnotcatchupastestedstatistically,butalsonumericallyvisible,andthatthetreatmenteffectappearedtopersist.Soonthebackofthatthough,it'simportanttonotethat,that'sonlyimportantifEXPEDITION3ispositive.Thisdoesnotrepresentabasisforsubmissionor--becauseit'snotablindedassessment.ButIthinkthoseareencouragingsignsforus.
Andasyouknow,andwe'vesaidmanytimesoncallslikethis,wethinkincludedanumberoffeaturedinEXPEDITION3,whichgiveusagoodshottoreallythoroughlytestthequestionofsolanezumabinmildpatients.
IncludingyourquestiononPETscreening.SoI'lljumptothat,whichiswebelievethatit'sessentialtoeliminatefromthesestudies,andinclinicalpracticetojustscreenforamyloidinpatientswhohavedementiatoreallydefinetheunderlyingcause.And,ofcourse,that'sconsistentwithAlzheimer'sdiseaseversusothertypesofdementia.Rightnow,AmyvidisavailablecommerciallyintheUSandmanyEuropeanMarkets.Itisnotamajorproductforustoday.Asyouknowit'snotreimbursedbytheCMSintheUS,forinstance.
Iwouldframethis,Iguessinthreeways,it'susefulforpatients,fortreaters,andforourCompany.Oneis,thesaleswouldbeexpectedtoincreaseofAmyvidshoulddisease-modifyingagentsbecomeavailable,includingsolanezumabbecauseIexpectmostofthoselabelsand/orpairrequirementswillforcepatientstohaveconfirmedamyloidosistobeeligible.That'sgoodnewsbutprobablystillwouldn'tbeamassiveundertakingintermsofrevenueimpactfortheCompany.
Butit'salsoimportanttolookatthePETcapabilitieswehaveintwootherframes.Oneisasadrugdevelopmenttool,andreallyoperationally,beingabletomanageaclinicalnetworkofsitesthathasreadyaccesstothe--thePEThasreallyhelpedusenrollstudiesquickly,andmakesurethatwecanscanpatientsinatimelyway,keeptheminthestudy,andsynchronizethatcomplicatedmachinethatallowsustogetEXPEDITION3doneforinstance,andfuturestudieslikethebaseprogramwithAZ.
Andthenfinally,andparticularlyforsomethinglikeour[tau]tracerwhichisinPhase2,theseareveryusefuldrugdiscoveryandscientifictoolstohelpusaccelerateandmakegooddecisionsaboutearlierphaseAlzheimer'sprograms.Andso,thesearereallyessentialpartsofourtotalAlzheimer'svision,andwe'lltalkmoreaboutthatinDecemberatourinvestormeetingfocusedonAlzheimer's.
T imAnderson (Analyst-Bernstein):
Great,thankyou.
PhilJohnson (IR):
Enrique?
EnriqueConterno (President-LillyDiabetes):
Sure.Soaswelookatourdiabetesbusiness,therewereanumberofone-timeeventsthatareimpactingthequartertoquarterresults.AndIthoughtfirstwouldsay,thattheunderlyingbusinessfundamentals
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aregood.Notjustwhenitcomestovolume,butwehavenotseenanysignificantchangeswhenitcomestocontractingoradditionalpricepressuresoverandabovewhatwe'reseeingbefore.
LetmespeaktoHumalogforasecond.InQ2oflastyear,wehadsignificantadjustmentrelatedto--apositiveadjustmentsrelatedtomanagedMedicaid,thatwasabout5pointsintermsoftheimpactwhenwelookatthecompareofQ2of2015versusQ2of2014.
WehadalittlebitofdestockingalsointheUSaswelookatQ2,butifwelookatthebusinessfundamentalswecontinuedtofeelgoodaboutourprospects.
WealsohadsomeanomalieswhenitcomestoTradjenta.Andinthisparticularcase,thereweretwoimportantadjustmentsthathavebeenmadeoverthelastyearorso.WemadeanadjustmentinQ3of2014,thatbasicallyanegativeadjustmentinQ3of2014forTradjentasales,becausewehadnotaccruedenoughwhenitcomestoourrebates.WeweregettingmoreofourbusinesscomingfromMedicarethatwehadinitiallyestimated.
Andthen,inQ2of2015,wehadanegativeadjustment.Inessence,wehadoverstatedsomeofoursalesinthefirsthalfof2014,andwehaveinacertainwayunderstatedoursalesinthefirsthalfof2015.Tomakethissimpler,thebottomlineis,ifweweretonormalizeforsomeoftheseone-timeeffects,andweweretoreassigntheaccrualstotherightquarter,ournetsaleswouldbegrowingthecaseofTradjentaintheUS,above15%.Clearly,wehaveaverysignificantvolumegrowth.
PhilJohnson (IR):
Great.Leah,nextcallerplease?
Operator :
ThenextquestionisfromthelineofJohnBoriswithSunTrust.
JohnBoris (Analyst-SunTrustRobinsonHumphrey):
Thanksfortakingthequestions.WiththecommerciallaunchactivityheightenedinJapan,canyoumaybejustwalkusthroughtheopportunitiesforCyramza,Trulicitythere?Andthetypeofpricingifyou'vereceivedanyinnovationtypepricingonCyramzaforgastriccancerthere,inyourrelationshipwithTrulicityandhowyoulaunchthere?
SecondquestionontheCGRPantibody,canyoumaybejustwalkthroughwhatthesignificantpointsofdifferentiationarerelativeto,(inaudible)whoalsohavecompetitiveantibodieshere?Andwiththerolloutofthisearlierthananticipatedinclusterheadaches,justyourthoughtsonwhenyoumightbeinapositiontocompletethoseclinicals?
Andthen,thethirdandfinalquestionforJohnLechleiter,justonthepoliticalfront,canyoumaybeaddresstwoissuesthatseemtobetakingcenterstageinWashington,mostnotablyrepatriation,andyourthoughts--whetherwe'regoingtoseesomethingthathappenstherealongwithtaxreformgoingforward?Thanks.
PhilJohnson (IR):
Great.John,thanksforthequestions.You'vegotagood[smattering]ofthemanagementteaminvolvedhere,solet'ssee.Sue,ifyou'llstartofftalkingaboutJapan,Cyramza,howwe'reperceivingthat,anyupdatewe'vegotonpricingthere?We'llstickwithJapan,andmoveovertoEnriqueforcommentsonTrulicity,includingtherecentlyannouncedpartnershipforthecommercializationoftheproductthere.Dave,fortheCGmonoclonalantibodyquestions,andthenJan,thelasttwoquestionsonrepatriation
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andtaxreform.SoSue,pleasestart?
SusanMahony(President-LillyOncology):
Sure,okay.Yes,sowelaunchedCyramzaonthe22ofJune,andwedoseethisasareallygoodopportunityforCyramza,giventheunmetneedthereisinJapan,andgiventhenumberofpatientswhoaretreatedinJapanwithgastriccancer.
Weestimateabout16,000patienceinJapanaretreatedinthesecond-linegastricversus,about6,000,4,000to6,000intheUS.Sotheopportunitythereisgreat.Thefeedbackthatwe'vegotfromthoughtleadersisgood,andtheinitialfeedbackfromthesalesforceagainisverypositive.Soit'searlyday,22ofJunelaunch.
Wedidgetaslightsalesbuy-in,butclearlywe'llbetrackingthesalesgoingforward.Fromapricingperspective,yes,wehavegottheprice.The[vial]priceforthe500milligramisJPY355,000,andforthe100-milligramit'saboutJPY75,000.Sowe'llgiveyoutheexactdetailsonthat,butwefeelgoodaboutthepricinggoingintoJapan.
PhilJohnson (IR):
Great.Enrique?
EnriqueConterno (President-LillyDiabetes):
Sure.AswehavesaidbeforewhenitcomestoTrulicity,overallexpansionoftheGLP-1classiscriticalforus.JusttoquoteafewnumbersintheUS,whenwelookatnewpatientgrowth,thatnumberisnowcloseto50%,5,0.Whenwelookatfourweeks,onfourweeksyear-on-yearor13weeksyear-on-year,soweareclearlyverypleasedwiththat.
WhenitcomestoJapan,thisisevenmoretrue.JustbecauseinJapantheGLP-1classhasthelowestpenetrationintype2diabetesofanymajormarket.Nowforustoaccomplishthis,wehavedecidedtopartnerwithDainipponSumitomo,inordertohavetheappropriatereachwhenitcomestothesmallclinics,andthisisgoingtobecriticalforus.
PhilJohnson (IR):
Great,thankyou.Dave?
DavidRicks (President-LillyBio-Medicines):
Yes,soonCGRP,we'reexcitedaboutthisprogram.Asitwasannouncedtoday,wedidinitiatetheclusterprogramsinbothchronicandepisodicinQ2.Wedon'thaveanexacttimingatthispointfortheread-out.It'senrollmentdependentJohn,butwewouldhopetobeabletoenrollthosestudiesrapidlygiventheunmetneed,andthenbeabletosubmitthosetoregulatorsasquicklyaspossible.
We'llgiveupdates,aswebegintoseealittlemorerateonthat,andyoucanlookatClintrials.govtoo,whichweupdatereligiouslyonthesepoints.
Thatisoneofthesourcesofdifferentiationwemightseeforourprogramversusotherswhichisindications.Atthispoint,Ijustwanttoemphasizethatthere's--it'sabigmarket.There'sabout14millionmigrainerswhocouldbenefitfromapreventivejustintheUS.AndCGRPneutralizationappearstohaveaveryprofound,andsofarlooksrelativelysafemethodforalleviatingthesufferingfromthiscondition.
Sothereisprobablyroomforanumberofplayers.ReallywearegoingtohavetowaittoseethePhase3programsplayout,andoftenthingslikedoseselectionandfrequency,etceterawillbedifferent,and
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we'llseewhocomesupwiththebestdatapackageattheend.Rightnow,we'refocusedonexecutionandgettingintheclinicwiththePhase3programinthecomingmonths,andareexcitedabouttherecentPhase2read-outwesaw.
PhilJohnson (IR):
Jan,doyouhaveanythingtoaddonCGRP?
JanLundberg (President-LillyResearchLaboratories):
Well,Ithinkweareseeingseveralantibodieshavingmoreorlesssimilarresults,whichIthinkisencouragingfortheclassassuch.Thenthestudieshavebeensomewhatdifferentinrelationtothenumberofmigraineheadachedaysthathasbeenthefocus.
Somestudieshavebeentheepisodicclassicaldefinitionof4to14,othershavebeen8to14,andtherecouldpotentiallybeadifferenceoftheeffectsoftheseagents,dependingonhowmanymigrainedaysyouhave.Butthinkoverall,weareveryencouragedaboutthisclassforthislargeindicationinallaspects.
PhilJohnson (IR):
Great,thankyou.John?
JohnLechleiter (Chairman,President,CEO):
John,thanksforyourquestion.IthinkspeakingforLillyintermsofthepotentialfortaxreform,we'reencouragedbymanyoftherecentsoundingsthathavecomefromWashington.We'vebeenforaslongasI'vebeenCEOandI'msurebeforethatadvocatingforcorporatetaxreforms,wehaveanuncompetitivetaxsysteminthiscountry.ItputsAmericancompaniesatadisadvantage.
ItactuallydiscouragesinvestmentintheUnitedStates.Sowewouldbeveryanxioustoseeasystemthattakesaterritorialapproachtotaxation.Andif--aspartofthat,weenableissomerepatriation,obviouslywewouldbebroadlyinfavorofthat.
Thedevilisalwaysinthedetails,butwe'rehopefulthatshortofcomprehensivetaxreformthatcurrentevents,theimpetusfortheHighwayTrustFundetcetera,mightspuractionhere.Andwe'remorethanreadyandwillingtoparticipateintheconstructivediscussion.
PhilJohnson (IR):
Great.Thanks,John.Leah,ifwecangotothenextcaller?
Operator :
Certainly,andthatisJamiRubinwithGoldmanSachs.
JamiRubin (Analyst-GoldmanSachs):
Thankyou.John,justaquickquestionforyou.Youhadmentionedinyourpreparedremarks,yourgrowinginterestindealactivitybutmostlyconfinedtopartnerships,licensingdealsetcetera.Canyouelaboratealittlefurtheraroundthat?
Andinyourmindisthere,doesthismeanthatyouarenotgoingtomakeacquisitions,butratherfocusonpartnershipslicensingdeals?Andifyou--iftheanswerisyou'renot--thatyouareinterestedacquisitionactivity,istherealimitastohowbigyouwouldgoandwouldyouconsiderusingyourequityjustgivenwhereyourmultipleis?Iwouldthinkthatthatwouldbesomethingthatwouldbeadvantageoustoyou
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now.
Andthenaquestionforyou,Derica.You'vepreviouslyguidedtotheFXbenefitongrossmarginsthisyeartounwindnextyear,assumingexchangeratesremainconstant.Canyouupdateusonwhattoexpectintermsofthemagnitudeofthatimpact?Thanksverymuch.
JohnLechleiter (Chairman,President,CEO):
Okay,Jamie.I'llstartoff.Thanksforthequestions.Ithinkwhatwecalledoutatthebeginningoftheyearwas,oursentimentfavoringdealsdoneateverearlierstages.Ithinkthisisnotinconsistentwiththetrendyouseeearlierintheindustry.
Ithinkintermsoflaterstagedealsormaybeevenlargersizedeals,we'regoingtobeguidedfirstandforemostbythetherapeuticcategorieswherewe'vechosentocompete.Andagain,Ithinkwesortofoutlinedthatquitedistinctlyatthebeginningoftheyear.
Thatwouldbediabetes,oncologyandneurodegenerationwithemerginginterestandpresenceinpain,andinautoimmunediseaseagaindependingontheoutcomesofclinicalstudies.Obviously,wefiledixekizumab.Wefullyintendtomoveintothat--thepsoriasisanglefromanautoimmuneperspective,oncewegainapprovalforthatmolecule.
Soifyougoback,andyoulookatthedealswe'vedonesinceIbecameCEOin2008,theonesthatstandoutobviouslyareImClone.WethinkwecouldhaveasmanyasthreemoleculesfromthatthenexistingImCloneportfolio,thatwilleventuallybeonthepharmacyshelfthataugmentedandsupplementedapresencewealreadyhadinoncology.
ThesecondbiggestdealinthatperiodoftimewastheNovartisAnimalHealth.WehavebeenbuyersobviouslyontheAnimalHealthside,goingbackatleasttothedealwithMonsantotoacquireBSTinthemiddleofthelastdecade.Weveryclearlyaimtocontinuetobuildthatbusiness,boththroughorganicandinorganicmeans.
Inbetweenyouhaveavarietyofsmallerdeals.Avidisagoodexampleofauniqueopportunitywesawtoacquiretechnology,thatasDavesaidearliergivesusarealboost,andIthinkacompetitiveadvantageintheAlzheimer'sspace.
Ithinkintermsofthinkingaboutwhatwould--themagnitudeofsomethingLillymightconsider.IthinkthattheNovartisandImClonedealskindofdefinethat.Butatthesametime,wearen'tanxioustogooutandpayinflatedpricesforthehotpropertyofthemoment.
There'sIthinkabitofabubblerightnow,withrespecttovaluationsonsomeofthesmallercompaniesorthesmallerentitiesandbiotech.AndIthinkit'sbetteruseofour--betterforourshareholdersandbetteruseofourshareholdersequitytofocusfirstandforemostonourinternalefforts,whicharequitestrong,andIthinkquiterobustinallthesetherapeuticareas.Inwhich,wewillcontinuetoaugmentandsupplementaggressivelybytheseearlierstagepartnerships.
PhilJohnson (IR):
Thanks,John.Derica?
DericaRice (CFO):
Jami,inregardstogrossmarginwesaidthat,eachquarterwetrytoneutralizetheimpactofFXingrossmargin,bytheadditionalslidethatweprovidethatkindofshowsyouthenormalrunrate.Andobviously,thisyearwe'rerunningslightlyabovethemid70%s.Whatwesaidwhenwe--whenIthinktowards2016,
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tofocusyouall,youshouldbethinkingaboutthat75%rangeofgrossmarginbeingnetofFX.
PhilJohnson (IR):
Great.Thanks,Derica.Nextcallerplease?
Operator :
NextquestionisfromthelineofMarkSchoenebaumwithEvercoreISI.
MarkSchoenebaum(Analyst-EvercoreISI):
Hey.John.Hey,guys.Congratulationsonthestockthisyearbytheway.IwasintriguedbyJohn'scommentsthatthere'sabitofabiotechbubble,sinceIcoveredbiotechaswell.Thatscaredme.Youruinedmyday.Butanyway,actuallyIdohaveaquestionforJohn,kindofbuildingonJohnBoris'questions.JustasIknowyou'reverytunedintoWashington.
Justthisgeneralquestion.Thiscomesupallthetime,butIfeellikethevolumeshaveturnedupalittlebit,onthepricepointforcancerdrugs,giventhepaceofinnovationthere.I'djustlovetohearyoutalkaboutyourlong-termviewonthat,notyouroneortwoyearkindofview.
Butmaybeputonyour10yearcap,andjustkindofaskthequestion,arethecurrentpricepointsforcancerdrugssustainable,ifthecurrentpaceofinnovationcontinues,andhowyouthinktheindustryisgoingtoreacttoanypricingpressureyoumightsee?
Andthenjustonixekizumab,theIL-17antibody.Clearly,theAstraZenecaAmgenannouncementonthe--[Amgen]announcedthattheywerewaitingforAstraZeneca,butontheirdecisiontopulloutofthepartnershipbecauseofthesideeffectprofileisabigpositiveforyouguys.
Iwasjustwonderingifyoucouldspeakin,ifyou'dbewillingtospeakinmorequantitativetermsaboutwhatthatmightmean?Howmanypatientsyouthinkcouldultimatelybeonthedrugetcetera.Thislookstomelikeitcouldbeamulti-billiondollaradditiontoyourout-yearnumbers,andIjustwanttoknowifI'mtotallyonthewrongtrackornot?Thankyouverymuch.
PhilJohnson (IR):
Mark,thanksforthequestions.SoJohn,ifyou'llstartoff,andwe'llgotoDavefortheixekizumabquestion.
JohnLechleiter (Chairman,President,CEO):
Hi,Mark.I'msorryifIruinedyourday.I'lltrytomakeitupinsomeway.
MarkSchoenebaum(Analyst-EvercoreISI):
Noproblem.
JohnLechleiter (Chairman,President,CEO):
Okay.Withrespectto--alotofmediaattentionandpoliticalkindofattentiontothepricepointforcancerdrugs.Look,Ithinkfirstandforemostuptothepointwherewehavedata,whichdoesnotincludethisyear,wedidastudythatdatesbacktolastyearlookingattheproportionofdrugspend,aspartofthetotalcostoftotalcancercare.It'sremainedremarkablyconsistentoveralongperiodoftime.
Soputanotherway,whiletodaywehearalotaboutthecostofcancermedicines,IamnotsureI'veeverheardanybodycomplainaboutthecostofthatlongstayinthehospitalthatmanyofourdrugs,these
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cancerdrugshelptominimize,ortoeliminate.Andthat'sbecausehospitalstaysarecoveredbyinsurance.
Ithinkthequestionis,what'sthecosttothepatient,andhowcanweinsurethatmorepatientshaveaccessthat--affordableaccesstocancermedicine,justlikethey'vegotthroughtheirinsurancepolicies,affordableaccesstodaytootherformsofcarethatarerequiredforpeoplewithcancer.
Intermsofhowwelookatthisinthelonghaul,Ithinkwe'regoingtohavetowaitandseehowthisplaysout.Wearealreadyseeinginmanyoftheseclassestwoormorecompetitorsemerging.
Weknowwhenotherclassesofmedicines,thediabeteswillbeoneexamplewe'refamiliarwith,weseeintensecompetitionthathasresultedinlowerneteffectivepricesbasedonnegotiationsthatwemustundertakewithpayersandinsurersinthatspace.Obviously,wehaven'tsortofseenthatplayoutinquitethesamewayinoncology.ButIthinkweshouldbeencouraginginnovation,becauseinnovationbegetscompetition,ratherthandiscouraginginnovationbythreateningthingslikepricecaps,etcetera.
Foracancerpatient,cancermedicinesparticularlysomeofthesenewwhatyoumightcallbreakthroughtherapiesthatweallknowabout,representthehighestqualityandmostmedicallyeffectiveapproachwehaveinour[armamentaria]withanyotherintervention.
Sothecallingtheseoutfor--beingsimplybasedonprice,failstolookattheincrediblevaluethatthesedrugsbring.Notjustintermsofavoidingorminimizingothersystemcosts,butintermsofgettingpatientsthatpreciousadditionaltimeandqualityoflifethatissoimportant.
PhilJohnson (IR):
Great.Thanks,John.Dave?
DavidRicks (President-LillyBio-Medicines):
Yes,soMarkthanksforthequestiononixekizumab.Asitwasmentionedinthecalltext,wehavesubmittedintheUSandEurope,andshortlyinJapanandothermajormarkets.
We'reexcitedabouttheprogram.Intermsofourassets,that'swhatwe'refocusedon,whichisweseeadrugherethatisprovidingawholenewthresholdofefficacyforpatiencesufferingfrommoderatetosevereplaquepsoriasis.We'vereportedPASI100sashighas40%,andPASI90sinsortofunprecedentedrangeaswell.
Sowethinkwe'vegotagreatasset,andwehadaspecialcallinJuneaboutthisandansweredanumberofquestionsaboutthepsychiatricsafety.Andaswesaidthen,wedon'tseeanimbalancenumericallyorstatisticallyacrossarms,whetheritbeactive,comparators,orthetwodosesofIxekizumab.Sowe'reproceedingthroughtheregulatoryprocess.Ofcourse,weneedtogetthroughthatwithallofthecaveats.
Intermsofthemarketopportunityinpsoriasis,dependingonhowyoucountitwithPSAornot,Ithinkyouwouldsaythere'sa$4billionto$6billionopportunityrightnowglobally.
AndIwouldjustpointout,thatinourestimates,lessthanthetreatmentratewithbiologicsinmoderatetosevereplaquepsoriasisisprobablylessthanhalfofRA.Sothere'sjustahugeamountofpossibilityforgrowthofbiologicsasaclassinthisspace.Ourvisionforthatisthatthenewer,moreeffectivetherapieswillbeagreatwaytodriveinterestingreatertreatmentinthedermatologycommunity.
Wethinkpatientswilldemanditthroughtime.Andthecaveatthereis,ofcourse,thenormalaccessandregulatoryprocessesarewhatstandsbetweenusandthatopportunity.Wedon'tknowwhatwillhappen
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withthe--IguessformerAmgenasset.We'refocusedonourprogram,andwethinkthere'samplegrowthforanumberofassetsinpsoriasis,andwelikeourproduct.
PhilJohnson (IR):
Thanks,Dave.Leah,ifwecangotothenextcaller?
Operator :
Certainly,it'sthelineofChrisSchottwithJPMorgan.
ChrisSchott (Analyst-JPMorgan):
Great.Thanksverymuchforthequestions.Maybethefirstoneonsolanezumab,andmorebroadlyonAlzheimer's.Iguess,comingbackfromAAIC,someofthefeedbackfromthemeetingisthatthe[Ras]signalseem--seeingsomecompetitiveproductsislargelyasymptomatic,andmaybeabletobetreatedthrough.Iguess,Iwouldjustbeinterestedinyourthoughtson[Ras],andwhatthatcouldmeanforthecompetitivelandscape?
Andmaybepartofthatanswer,ifyoucouldtalkalittlebitmoreaboutyouguystargeting[AB]monomerAbetaversusplaque,giventhatdoyouhaveproductsgoingafterbothinthepipeline?
Secondquestionwasalongertermquestionondiabetes.Therehasbeensomemarketconcernthatthiscategoryonlybecomesmorecompetitiveovertime,andyou'regoingtoseeevenmorepricepressuregoingforward.Youguysobviouslyhaveadifferentiatedportfolio.Buthowdoyouthinkabouttheriskofanevenmoreconservativepayerenvironmentinthiscategorygoingforward?Thanksverymuch.
PhilJohnson (IR):
Great.Chris.Thanksforthequestion.Sofirst,fortheAlzheimer'sdisease,theRassignalandisthistreatable?MaybeI'llaskJanifyouwanttostartoffwithafewcomments,andthenEricwemayseeifyouhaveadditionalcommentsyou'dliketoaddtothat.Jan,certainlyifyouwanttotalkabouttheplaquespecificapproachthatwe'vegotintheclinic,andthenEnriqueforthepricepressureinthediabetessegments.
JanLundberg (President-LillyResearchLaboratories):
Yes.Well,inrelationtoRassignalthatwasreported,Ithinkfirstit'sclearthatBiogenhasmuchmoreofthatthansolanezumab,whichyouknowIthinkisakeydifferencerightnow.Secondly,itwasclaimedthatyoucantreatthroughit.
Ontheotherhand,Biogenalsohaddrop-outsIthinktoalargeextentintheirtrials.SoitstillneedstobeseeninalargersituationthaninPhase3,whetherthisreallyholdstrue.Andmyviewisthatifyouhaveanagentthatdoesn'thaveverymuchofthis,that'sacompetitiveadvantageforsolanezumab.
IfyoulookatthetypesthenofmonomerABtoantibodiesversusplaqueantibodies,wehavebothtwoselectiveagenttheninLilly.SolanezumabtargetsthenthemonomerAbeta,whichisthenaprecursorinawaythentotheplaque.WehaveanagentinPhase1calledN3pGwhichisapyroglutamateplaque-specificantibody.
Andinpre-clinicalexperimentswehaveseen,asamonotherapyforN3pG,verygood,clearand[stand-offof]amyloiddepositsintransgenicmodelsthanofAlzheimer'sdiseaseinmice.Andit'sevenmoreefficaciousifyoucombineitwithanoral[BACE]inhibitor,whereyoumoreorlesshaveatotalclearanceofamyloidfromthesemicebrains.
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WhatwealsohaveseeninthepreclinicalexperimentsforN3pG,theplaquespecificantibodythatdidnotgivemicro-hemorrhagewhichiskindofrelatedtotheRassignalofthebrainedemathattheAlzheimerpatientshave.Andso,wehopethatwecouldhaveaplaquespecificantibodywithlessimpactthanonbrainedema,thanwhatwecurrentlyseewiththeBiogenmolecule.
PhilJohnson (IR):
Great.AndEric,doyouhaveanythingyou'dliketoaddforthediscussionaroundtheasymptomaticnatureof[RIA]abilitytotreatetcetera,ordoyoufeelithasbeenadequatelycovered?
EricSiemers (DistinguishedMedicalFellow):
Yes,I'llbrieflymentionIthinkthesearerelativelyearlydaysintermsofthefieldsortofunderstandinghowthatmaybemanaged.
Fortunatelywithsolanezumab,wehaven'treallyhadtodealwiththeissuetoomuchbecauseofit'sjusta0.5%inplacebo-treatedand1%insolanezumab-treated,withoutreallyanyassociatedsymptoms.Butforothermolecules,whereyoudohaveRIAthatmaybeasymptomaticintwo-thirdsofpeople,butit'sstillsymptomaticthatinone-thirdofthepeople.Sothat'ssomethingthatIthinkbroadlyinthefieldwe'lljustneedtogetmoreexperiencewith.Thanks,Eric.Enrique?
EnriqueConterno (President-LillyDiabetes):
Sure.It'sdifficulttospeculatewhenitcomestothepayerenvironmentanddiabetes.ButIthinkit'shelpfulforustobeabletolookback,[meal-timeinsulin]becausethatwasthefirstclassindiabetesthatwasunderpressure,whenitcomestothenarrowingofformularies,andthatstartedsometimein2009.
Throughthisperiodfrom2009totoday,whatwehavebeenabletoseeisthatHumalog,we'vebeenabletohavefairlystablenetpricesforHumalogoverthisperiod.Ifanything,theyareslightlyup,butclearlynotmuch.
SoIwouldsaythatyesitislikelythatthere'sgoingtobenarrowingofformulariesinothersegments,inthediabetesspace.ButIdonotexpectasignificantlydifferentbehaviorwhenitcomestosomeofthenetpricesandhowmeal-timeinsulinactuallybehaved.Sothat'sbasicallywhatIwouldofferthere.
PhilJohnson (IR):
Great,thankyou.Leah,ifwecangotothenextcallerplease?
Operator :
Certainly,it'sthelineofSteveScalawithCowenandCompany.
StephenScala(Analyst-CowenandCompany):
Thankyou,Ihavethreequestions.EvenatthehighendofyournewEPSisguidancerange,itimpliesaslightlydownsecondhalfafteraverystrongfirsthalf.OtherthanatoughercompareinQ4,whatisdrivingthesecondhalfweakness?ItseemslikeLillyissettingupforabetterthanexpectedsecondhalfaswell.
Secondly,onJardiance,theCVoutcomesdatainQ3--sinceitisQ3,isthedatainhouse,howwillitbereleased?AndEnrique,areyouanythingbutveryconfidentinthedata?Andthenlastly,whatdoestheloweringoftheADAS-cogdeltaattheEXPEDITION1and2,fromthe2.01inMarchtothe1.83inJuly,tellusaboutthepatientsenrolledand/orhowtheychangedovertime?Thankyou.
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PhilJohnson (IR):
Great.Steve,thankyouforthequestion.Soclearly,Dericatoyouonthefirstquestionrelatedtotheguidanceandthesecondhalfperformance.Enrique,fortheJardianceCVoutcomes,andthenDave,ifyouwanttokick-offtheresponsefortheADAS-cogquestionwereceived.Derica?
DericaRice (CFO):
Goodmorning,Steve.We'vehadreallysolidunderlyingperformanceinthefirstsixmonthsofthisyear,andweexpectthatsolidperformancetocontinueforthesecondhalfofthisyearaswell.
Whatyoushouldseealsointhesecondhalfoftheyear,andI'mgoingtokindofreflectonsomeofthecommentsthatPhilmadeinhisremarks,whereinthesecondhalf,wedoexpecttomakeincrementalinvestmentsinourR&Dpipeline,giventhepositivedataread-outsthatwe'veseen.
SowetalkedaboutthestartofPhase3trialsfortanezumab,ourCGRPmonoclonalantibody,olaratumabaswehighlightedearlier,aswellastheintenttoinvestinadditionalindications[Cyramza].Andaswecontinuetoseemorepositivedataread-outs,you'llseeusfullyinvestinginourpipelineopportunities.
AtthesametimeasyouheardSuesaywe'reinthemidstoflaunchinginJapanforCyramza,aswellastheongoinglaunchersinothergeographies.Sowewillfullyinvestbehindthataswell.Sowereallyareexpectingourtoplinemomentumtocontinue.You'llseeuscontinuetodriveproductivitygains,butwhatthatdoesisitgivesusthecapacitytomakethesekindsofinvestments,whilestillreturningtogrowththisyearandmarginexpansion.
PhilJohnson (IR):
Great.Thanks,Derica.Enrique?
EnriqueConterno (President-LillyDiabetes):
Soweexpecttoseethedatathisquarter,toseethedatasoon.Aswehavesaid,oncewehavetheopportunitytoseethedatawewillissueatoplinepressreleasewiththeresults.WeareplanningtoshowcasethoseresultsinSeptemberatEA,butthat'sasmuchasIcansharerightnow.
PhilJohnson (IR):
Great.Thankyou.Dave?
DavidRicks (President-LillyBio-Medicines):
Yes,asitrelatestothequestionofthe,Iguess,finalendpointdisplayedinthepooledmildEXPEDITION1and2,2.5yearsago,versuswhatwasdisplayedyesterday,you'rerightthereisasmalldifference.Ithinkyoumentioneditthere,intermsofwhatthoseabsolutenumbersare,andthedifference.
Thereasonforthis--andI'lltrytoputthisinverylayterms--isthestatisticaltechniquethatisbothpreferredbytheFDAsortofbyconsensus,andweuseinAlzheimer'sstudies,it'scalledMMRM.It'sdifferentthanothertechniquesyoumayhaveseenlikeLOCF.
Whatitdoesis,itreliesonallofthedataavailabletoestimatethemissingdata,andthistechniqueisthoughttoreducetype-1error,it'swhattheFDAprefers.
It'satechniqueweuseinbothassessmentsthatyou'rereferringto,becausethesecondassessmentincludesmoredata,thatisthecontinuingpatients,thenumberdoesmovearoundslightly.Thecoredataunderneath,itisidentical.Thatdatawaslockedin2012,andit'sthesamedata.
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Whatwe'redoingisestimatingmissingdatausingthestatisticaltechnique.SoI'mnotsurethere'smuchnewsorread-throughwiththat.Butifyou'dliketolearnmore,Steve,wecansetupabackgroundonwhythatoccurs.Thebottomlinetake-awayisIthinkthesame,thatthereisameaningfuldifferenceattheendofthe18months,andthatdifferencepersistedthroughtheopenlabelextension.
PhilJohnson (IR):
Great.Thanks,Dave.Leah,nextcallerplease?
Operator :
ThenextquestionisfromthelineofAndrewBaumfromCitigroup.
AndrewBaum(Analyst-Citigroup):
Thanks.Justreturningtothequestionofthebuildingoutyourimmuno-oncologyfranchise,wouldyoumentionsomeofthedealsyou'vedone?Iknowyou'vehaveatleasttwoveryexperiences,givenyou'reoncologists.Someofyourcompetitorsengagedinrathermorefreneticactivityinthisarea.
Soalongthoselines,threequestions.Numberone,intermsofpreclinical,onewouldnormallyaskaboutcompound,[anyperhapsveryfirst],fastinthiscategory?
Isthereanythingclosetotheclinicfromyourpreclinicalportfoliowithinthenext6to12months?Andsecond,whatisLilly'sinterestinadoptivecelltherapy,givenyourheartindividualwascloselyliesthatarea?Andthenfinally,shouldweassumethatyou'relargelyinthebuild-outinbio?OrasIsuspectyou'rejustgettinggoingintermsofbuildingoutfranchise?Manythanks.
PhilJohnson (IR):
Okay,great.Thankyouverymuchforthequestions.Ithink,Sueifyouwanttohandlethose?Janfeelfreetochimeinifyou'dliketocompleteanyoftheanswers.Sue?
SusanMahony(President-LillyOncology):
Yes,sure.Soasyouseen,wehavehadalotofactivity.Iwouldn'tsayisfrenetic,Ithinkthat'sthewordyouused,frantic.ButwehavegotfocusedactivityinthreeareasinourR&Dportfolioandstrategy.
We'refocusedoncellsignaling,themicroenvironmentandimmuno-oncology.Andwewillcontinuetofocusonthoseareasbecausewebelieveit'sgoingtoberationalcombinationsofmoleculeswithinthosethreeareas,soit'sgoingtobeimportantinthefuture.
Withregardstoimmuno-oncology,asyou'vesaidwehaveanumberofannouncementswemadeoncollaborationsoverthepast12monthsorso,andit'sreallyintwoareas.Oneisinpartnershipstocombineourpipelineandmarketedproductswith[IO]agents.Infact,wehaveseventrialseitherplannedorongoingincombinationwithIOagentswithfourdifferentcompanies.
Andthenwehaveourownclinicaldevelopment,wherewehavethreeagentsinclinicaldevelopmentonaTGFbeta,asmallmoleculeinhibitor,[RCXCL4]inhibitorandCSFR1antibody.Andthenwedohaveanumberofagentsindiscovery.Idon'tif[Jan]wantstocommentmore,butwehaveanumberofagentsindiscovery,andwedoseewecanbebringingsomeoftheIOagentsoutoverthecomingmonthsandyears.
SoIthinkonthecelltherapy,yes,it'sanareawelookat.ItnotanareathatwearedrivingatthispointintimebutIthinkweneedtolookatallareasinIOandweseethisasthe--theIO,there'ssomanyunknownsatthemomentinIO,andourviewisthisisalongtermplan.
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We'regoingtobesmartinwherewefocused.We'vereallylookedattoseecellredirectionasanarea,andyoucanseethenumberofdealsthatwehavedoneareinthatarea.AndIthinkthatcoversthequestion.Anythingyouwanttoansweroradd,Jan?
JanLundberg (President-LillyResearchLaboratories):
Wellit'sevidentinimmuno-oncologythatwehaveseenthefirstgenerationofsingleagentslikethePD-1andPDL-1.Andwearepartofthesecondgenerationcoming,whenwearecombiningforinstancedifferentcheckpointsinhibitorsthaninto[bio]specificantibodies.
AndwealsoareverykeentoactivateTcellsinamorespecificwayusingtheImmunocoretechnology.SoIthinkwehavejustseenthefirstdooropenintheimmuno-oncologyfield,andthere'sverymuchmoretodo.
PhilJohnson (IR):
Great.Leah,nextcallerplease?
Operator :
NextquestionisthelineofTonyButlerfromGuggenheimPartners.
T onyButler (Analyst-GuggenheimPartners):
Yes,thanksverymuch.Threebriefquestions.Numberone,IamgoingtogobacktoTim'squestionon[solanezumab].ThediseasemodificationfromEXPEDITION3,isthatstillpotentiallya[claim]thattheFDAcouldgetyouorsomeotherstatisticsorclinicalinformationthatyoumayneedtoshowthem?
PhilJohnson (IR):
Tony,Iamnotsureifyouaregoingtohearme.We'rehavingarealhardtimemakingoutthequestion.Couldyourepeatit?Startagain?AreyouthereTony?
Operator :
Hislineisstillconnected.
T onyButler (Analyst-GuggenheimPartners):
Yes,hi.Isthisbetter?
PhilJohnson (IR):
Yes,itis.Thankyou.
T onyButler (Analyst-GuggenheimPartners):
Myapologies.SobacktoTim'squestiononsolanezumab.I'dliketojustunderstand,isEXPEDITION3itselfsufficientforadiseasemodificationclaimorwillotherclinicalinformationberequired?
Second,isthereany,orcouldyouelaborateonthebiologicalrationaleforaJAK1,JAK2,whichcouldbemorebeneficialinRA,orindroppingACRsourceversusananti-TNF?Andthird,Iguessto,Sue,asyouthinkaboutCyramzaatleastintheUS,andwe'llleaveoutCRCforthemoment,whereareyougettingthebesttractionwithrespecttonon-smallcelllungorgastric?Thankyou.
PhilJohnson (IR):
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Great,Tony.Thanksforthequestions.SoDaveifyou'lltalkaboutmaybethefirsttwo?Jan,feelfreetocomplementtheansweraswell?Andthen,SueforthequestiononCyramzaparticularlyhereintheUS,whatwe'reseeing.Dave?
DavidRicks (President-LillyBio-Medicines):
Yes.GoodquestiononEXPEDITION3.We'vedesignedthistobeastandalonepivotalstudytosupportregistrationofsolanezumabinAlzheimer'spatients.Intermsoftheexactclaimsunderneaththat,theFDAthemselveshaveadmittedthey'vebeenvague,andit'samovinglandscape.
BecausethescienceismovingsofastinAlzheimer's,I'mawareoftwoclearstatementsthey'vemade,andIthinkyesterday'sdatasupportsoneofthem.Whichwouldbe,inadditiontoamarkedchange,aclinicallyrelevantchangeinADAS-cog,andintheADLmeasures,theywould--orsomecompositethereof,tosupportdiseasemodification,theysaidtheywouldlookatsupporteddatainadelayedstartformat.AndIthinkthespeakeryesterdayspokeaboutthat.
Theyhaveaveryeleganttrialdesignthey'veproposed.Noonehasactuallyeverconductedsuchathing.Ourdatawhichisasortofdelayedstartishelpfulinthatregard.Tony,that'showIwoulddescribeit.
Andthenthey'vealsospentalotoftimetalkingaboutbiomarkers.Andofcourse,unlikeotherfieldswedon'tyethaveavalidatedbiomarkerfordiseaseprogressioninAlzheimer's,andweareconductingasubstudyinEXPEDITION3usingourtautracer.
Weseethisasaveryimportantpartof,notonlyEXPEDITION3programpotentiallytosupportdiseasemodificationandotherclaimsforsolanezumab,butalsotoadvancethefield'sunderstandingofhowtauprogressionmapstocognitivedeclineinpeoplewithconfirmedAmyloid,whichwedon'thavethatdatatoday.Sowe'llhavetowaitandseeonthespecificclaims.Ofcourse,we'vegotalotofironsinthefiretosupportsolanezumabinthatregard.Buttheregulatorandthewholefieldismovingratherrapidlyhere,soit'sdifficulttopredict.
OnbaricitinibandtheJAK1/2,andwhatisthe--Iguess,you'resaying,theoreticalbasis,whyitcouldbebetterthanananti-TNF?Bottomlineiswe'rerunningthatexperiment,andwewillseethatexperimentread-outinthefall.
Andwe'rereallygoingtohavetowaittoseewhetherbaricitinibcouldbebetterthanaTNF,orequalto,whichisthefirsttestwe'llrun.Therearelotsofplausibleexplanationswhyitcouldhappen,JAK1and2signaling.
Andwecontinuetopointthisout,thatJAK2signalingisimportanttohaveanIL-6likeeffect,aswellasGMCSF,bothofwhichwehavehumandatavalidatingthoseastargetsinRA.WhetherthatyieldsbetterthanTNF,whichisaquitedifferenttarget,isthetestwe'rerunning.
PhilJohnson (IR):
Thanks,Dave.Sue?
SusanMahony(President-LillyOncology):
AndwithCyramzaintheUSwe'reactuallyseeingagooduptakeinbothgastricandinlung.Aswelookatgastric,Imeanwelaunchedthesingleagentindicationearlierlastyear.Sothemajorityoftheuselastyearwassingleagent.
Thentowardstheendoflastyearwelaunchedacombo,andweseenowmoreuptakeincombination.
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Withgastric,therewasn'tanythingapprovedintheUSinthesecond-linetreatmentofgastriccancer.Soclearly,weareseeingthis,asallpeopleareseeingthis,asaadvanceandwe'reseeingagooduptake,goodfeedbacksofarabouttheexperiencepeoplearehavingaswell.
Inlung,welaunchedearlierthisyear,andweagainareseeinggooduptakeinthesecond-linepostplatinumpatients.Weseetheseasverytwodifferentopportunities,withthelungindicationbeingmuchlarger,butclearlyit'sgoingtobemorecompetitive.Thefeedbackwe'regettingispositive.About40%ofoursalesinQ2camefromlungindication,andwecontinuetoseeagoodopportunitytocontinuetogrowinlung,aswellastoexpandinggastricgoingforward.
PhilJohnson (IR):
Great.Thankyou,Sue.Leah,nextcaller,please?
Operator :
ThenextquestionisfromGreggGilbertfromDeutscheBank.
GreggGilbert (Analyst-DeutscheBank):
Thankyou.Threequickoneshere,firstperhapsforDr.SiemersorSue,orperhapsDave.HowwouldyousummarizehowactualAlzheimer'streaterstookthedatathatwaspresenteddowninDC?Ifthatwasatallonyouragendatokindoffeeloutfolksthatarenotjustclinicaltrialgurus?Perhapssecondly,Chito,cancommentonwhat'shappening?InChina,therehasaprettysuddenslowdownforpharmasalesfortheindustry.
Curiousifyoucouldcommentonthat,andhowlongthoseconditionsmightpersist?AndforDerica,werethereanymeaningfulwholesalerinventorylevelchangesinthequarterversuslastquarter?ItlookslikeARwasupabit.Thanks.
PhilJohnson (IR):
Yes,Gregg,thanksforthequestions.Sowe'llstartoffwithDaveonthefirstquestion,whomayseeifErichassomethingshewouldliketoaddasheisaboutatAAIC?AndthentoChito,ontheChinaquestion,andDericaforwholesalerinventoryimpactinthequarter.
DavidRicks (President-LillyBio-Medicines):
Yes.Gregg,thanksforyourquestion.
Ithinkthefield--aswetalkedtopractitioners,they'reobviouslyanxiouslywaitingforadiseasemodifyingagentintheabsenceofanywaytoslowdownthishorriblecondition,thequestionofclinicalmeaningfulnessalwayscomesup.Andtheresearchwe'vedone,wouldsaymostpractitionerswouldsayaone-thirdreductionoveran18monthperiodoftimeisquitemeaningful.
ButwehaveDr.SiemerswhoisonthelineherewhoÕsaneurologistandI'msurespoketomanyofyourcolleagues.
Eric,whatareyourviewsonhowthelayfieldisinterpretingthedata?
EricSiemers (DistinguishedMedicalFellow):
Yes.It'sagreatquestion.Ithinkgoingintothemeeting,wewonderedourselveswhetherthiswouldbeinterestingtoclinicaltrialofgurusorgeeksorwhateveryouwantedtosay.Orwhetheritwouldhavemoreofabroadinterest,andIthinktheanswerwasfairlybroad.AndIthinkthere'smaybetwomajor
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reasonsforthat.
Oneisthat,justbyshowingthesedelayedstartresults,Ithinkitwas--inasensesupportingwhatweinitiallyshowedintheplacebo-controlledperiod.
Nowofcourse,thatwasasecondaryoutcome.Wealwaysworryaboutthosealittlebit.Butthesedelayedstartresultswouldactuallyaddtothewaveofevidence,thatthoseresultsinfact,wehopewillbereplicatedinEXPEDITION3.
Theotherpieceisthatthiswholeconceptofdiseasemodificationhasbeen,ashasbeendiscussedissomethingwherethescienceisevolving.Therehasbeenfairlygoodagreementincludingbyregulators,thatthisdelayedstartdesigncanprovideevidenceofadiseasemodification.AndIthinkthedatawerereallyacceptedasevidenceofthat.
Again,it'sasecondaryanalysisfromEXPEDITIONandEXPEDITION2,butIthinkitgivesussomerealconfidencethatwe'llseeverysimilarresultsinEXPEDITION3.Andthat'sonestrongpieceofevidenceofadiseasemodification.
PhilJohnson (IR):
Great.Thanks,Eric.Chito?
ChitoZulueta(SVP,President-EmergingMarkets):
I'msureyou'veheardfromothercompanies,therehasbeenaprettysignificantdropinthemarketgrowthinChina.Ithinkasweallrecallfromthemid-teengrowthinthelastfewyears,year-to-dategrowthissomewherearoundsingle-digit.
Andifyoulookatthemulti-nationalcohortofcompanies,IthinkMaywasaround2%growthoverthesameperiodlastyear.NowIthinktheprimaryfactorthat'sdrivingtheslowdownisreallysomegovernmentinitiativesandpolicies,thatarecurtailingvolumegrowth.Andwe'reseeingmorehospitalsandinstitutionsshiftingtolowerpricegenerics.Soweseethiscontinuingatleastintheshort-term,astheriskpressurewithinthenationalgovernmenttocurtailexpenses.
There'sdiscussionalsoincurtailingpricing,andlinkingtogetheralltypesofproductsfromtheoriginalbrandstothegenerics.Sothere'spressureonthevolumeside,andmovingforwardIthinkyou'llseemorepressureonpricing,particularlyforoffpatentbrands.Nowweneedtobalancethatwithamedium-termopportunitiesandlong-termpositiveopportunitiesinChina.
Wehaveobviously,verypositivedemographics,andthereisasincerecommitmentIbelievebythenationalgovernmenttoexpandhealthcarecoveragetoabroadersetoftheChinesepopulation.ButIthinkweshouldexpectthattheshort-termwillbechallenging,againbecauseofpoliciesrelatedtovolumecontrolinthehospitals,andpressurefororiginal[programs].
AsfarasLillyisconcernedIthinkthebettermeasuretolookatourperformance,wouldbetheyear-to-dateperformance,giventhequartertoquartervariabilityofwholesalerbuyingpatterns.
Andyear-to-date,wearebelowour5%butreallydrivenbyvery--adeclineinourgrowthinsomeofouroffpatentproducts,primarilyourneuroscience,oncology,andanti-infectiveproducts,againbecauseofvolumecontrol,butalsobecauseofthegenerics.
However,ifyoulookatourpatentedproducts,we'reverypleasedtoseestrongperformancefromCialisgrowingat23%,Forteogrowingatover50.Andouranalogbusiness--IknowtherewasaquestionearliertoEnrique--theanaloginsulinbusinessinChinaisgrowing12%year-to-date.
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Nowwe'regettingsignificantpricingpressureonthehumaninsulinside,wherelocalcompaniesarebeginningtowintheprovincialbids.Butonceagain,weanticipatepressureintheshort-term,butwe'reveryconfidentthatthemedium-tolong-termprospectsremainvery,verypositive.
PhilJohnson (IR):
Chito,thanksforthatcolor,andDerica,onthewholesalerchangesinthequarter?
DericaRice (CFO):
Sure,hi,Gregg.Asitpertainstowholesalers,therewasreallynothingunusualoruniqueasitpertainstowholesaleractivityinthequarter.
PhilJohnson (IR):
Great.Leah,ifwecangotothenextcallerplease?
Operator :
Certainly.ItisthelineofColinBristowwithBankofAmerica.
ColinBristow(Analyst-BofAMerrillLynch):
Thanksfortakingthequestions,andcongratsonthequarter.Acoupleofquickones.OnTrulicity,couldyoutalkabouttheprogressyou'vemadeintermsofaccess,andanyadditionalcoloryoucouldgiveonlaunchofTrulicityandJardiancethatwouldbehelpful?Andthennumbertwo,whatdoyouseeasapotentialimpactonthetrajectoryoftheSGLT2costs,andthenJardiancewithinthat,iftherewasapositiveCVbenefit?
WouldyouexpectaheavyasymmetricalbenefitforJardiance,ordoyouthinkthiswouldjustberead-throughasabenefitforeveryone?Andperhapsjustathirdquickoneonsolar.AnyadditionalupdatesweshouldexpectpriortotheEXPEDITION3read-out?Thankyou.
PhilJohnson (IR):
Great,Colin.Thankyouforthequestions.Obviously,we'llgotoEnriqueforthefirsttwoonsomeoftheaccessanduptakewe'reseeingforTrulicityandJardiance,aswellasthenwhattheimpactmightbepositiveofCVoutcomestrialforJardiance?Andthen,overtoyouDaveforthesolanezumabquestion,andany[RFPs]wehaveonthatprogramgoingforward.
EnriqueConterno (President-LillyDiabetes):
Sure.Sowearepleasedwiththeprogressthatwe'vemadewithbothTrulicityandJardiance.Wenowhaveabout70%accesswhenwelookatcommercialaccessintheUS,andabout30%inPartDwithTrulicity.AsIsharedearlierasIthinkforus,akeytobeabletogetlong-termvalueforthisproductistoensuretheGLP-1classisgrowing,andweclearlyseeasignificantaccelerationoftheGLP1-2class.
InthecaseofJardiance,thequestionissimilar,whenitcomestocontinuingtobasicallygetaccess.Iwouldsaythatwehave,differentlyfromtheGLP-1classwehaveseenaslowdown,asignificantslowdownwhenitcomestotheSGLT2class,whenitcomestonewpatientstartsthisyear.
Sothat'ssomethingthatwe'rewatching,ofcourse,veryclosely.Itisdifficulttospeculateonwhatrelativeshareofthebenefits,thisproportionofbenefitwouldwegeton,ifweweretohaveapositiveCVoutcomesresult.Clearly,thisisgoingtoprovidealifttotheentireclass,andwedoexpectthatwe'regoingtogetadisproportionateshareofthebenefit.Howmuch,Ithinkit'sdifficulttosay.
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PhilJohnson (IR):
Thankyou,Enrique.Dave?
DavidRicks (President-LillyBio-Medicines):
Yes,onsolan,whatwewillexpect--startingwithyesterday,anduntiltheendoftheEXPEDITION3studyis,therewillbesomescholarlyarticlesandotherdatacomingoutontheoriginalEXPEDITION1and2,includingthepoledmildpaper,wedoexpecttocomeout.
Alsohighlighttherewasaninterestingpresentationyesterday,lookingattheamyloidchangesusingamoremodernandacceptedmethod,whichdidshowadifferencebetweenactiveandplacebo.Sothesetypesofreanalysisandadditionaldatafillingoutthepicturefrom1and2willcontinue.
Butthebigdataread-outEXPEDITION3,whichwe'dguidepeopletoreallyfocus,onwon'thappenuntilafterlastpatientvisitanddataanalysis.Lastpatientvisit,weprojectQ4of2016.
JohnLechleiter (Chairman,President,CEO):
AndwehavemadethedecisionjusttocommunicateformallythatwewillnotconductaninterimanalysisforExpedition3.Sowewillrunthetrialtocompletion.Andenrollmentwentsoquicklyinthattrial,thatthere'sjustverylittletimeandbenefitforustogoahead,andgarnerfromdoingtheearlyread.We'llletthetrialplayout,andpreserveallthepoweringforthefinalread-outattheend.
ColinBristow(Analyst-BofAMerrillLynch):
Thanks,John.
JohnLechleiter (Chairman,President,CEO):
Iknowwe'regettingclosetothebottomofthehour,butLeah,we'vegotonemorecaller.We'rehappytotakethatquestion,beforewrappingupthecall.
Operator :
Certainly,andthatisfromVamilDivanfromCreditSuisse.
VamilDivan (Analyst-CreditSuisse):
Great.Thanksforsneakingmeinhere.Sojustacouplequickthings,Icould,maybesomedifferenttopicsthanwefocusedonsofar.OnejustontheAnimalHealthside,IthinkjustkindofposttheNovartisdeal.
JustifwecangetasensefromJeffashowheisviewingthatbusinessgoingforward,andkindofthegrowthweshouldexpectgoingforward?Ithinkitwas2%constantcurrencygrowththisquarteroryear-to-date.Sojustwanttoseehow--whathethinksthere?Second,justonthePCSK9,obviouslyalotofinterestandexcitementaroundtheindustryonthat,becausethefirstone'sclosetothemarket,andyouguysstillhaveyoursinPhase2.
AndifyoucanjustgiveanupdateonhowyouviewthatopportunityforLilly?Andthenthird,maybeit'sjustlittlebitearlyforthis,butjustaroundthedividend,withallofthepositivenewsyou'vebeenhavingoutofthepipeline,andinthekindofreturntogrowthyou'reseeing,howshouldwethinkaboutyourviewonthedividendgoingforward?Thankyou.
PhilJohnson (IR):
Great.Fantastic.Thanks,Vamil.Thanks.Andso,Jeffifyou'llstartusoff,andwe'llshiftovertoDaveforthe
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PCSK9question,andfinishupwithDerica.
Jef f reySimmons (President-ElancoAnimalHealth):
Yes,theoverallAnimalHealthbusinessElancoistrackingtoourplansandexpectations.Thisyearhasbeenfocusedonintegrationaftercomingoutofferaneraofalotofgrowth,we'replanningtoreturntothat.
Butthisyear'sbigfocushasbeenontheintegration.Ourpreviouslycommittedsavingslevelontheintegrationof$200millionby2017,2018.WhatIwouldsayis,weseethatasaminimumexpectation.
We'llhaveanAnimalHealthinvestorconferenceinDecemberinBoston,wherewewillgetintomoredetail.Butwhatwewouldsayistoday,we'reseeingourselvesmeetingandexceedingallofthekeymilestonesinNovartis.Andthatwillbeakeydriverinreturningtogrowth.
Soyes,wesaw3%growththisquarter,butwhatwewouldsay,isweseethecombinationoftheintegration,aswellasourpipelineandinnovationreturningusbacktotoptierindustrygrowth,oncewecomethroughtheintegration.We'llarticulatemoreofthesedetailsagaininBostonattheendoftheyear.
PhilJohnson (IR):
Thanks.Dave?
DavidRicks (President-LillyBio-Medicines):
Yes,ourPCSK9there'sreallynoupdatefromlastcall,wherewehadthequestion.WehaveourPhase2datacomplete.Wearelookingatourstrategicoptionsforthisprogram,recognizingthere'sthreecompetitorsaheadofus,andwewouldwanttoseedifferentiation,orperhapslookforotheroptionstohavethemoleculemoveforward.
PhilJohnson (IR):
Great.Thanks,Dave.Derica?
DericaRice (CFO):
Inregardstothedividend,we'reveryencouragedandexcitedaboutthecurrentperformanceofthebusiness.Andaswe'veseenusturningthetideandreturningtothisperiodofgrowthandmarginexpansion,itreallyisgivingusthecapacityasyou'veseenthisyear,toreturntomoreregularcadenceofdividendincreases,andweseethatgoingforwardovertime.
Andthenlikewise,youwillseeuscontinuealsotolooktosupplementthat,withreturningadditionalexcesscashtoshareholdersviaoursharerepurchaseprogram.
PhilJohnson (IR):
Great.Thanks,Derica.John,wouldyouliketogoaheadandconcludethecallforus?
JohnLechleiter (Chairman,President,CEO):
Sure,Phil.Weappreciateyourparticipationintoday'searningscall,andyourinterestinourCompany.Wehavereceivedpositivefeedbackontherecentcallswehostedtodiscussourdiabetesbusiness,andlatestagedatafromtwokeymoleculesinourBio-Medicinesbusiness,baricitinibandixekizumab.
Sobuildingonthatexperience,weplantohostaninvestoreventinBostonasJeffmentionedon
CompanyName:EliLillyandCoCompanyTicker:LLYSector:HealthCareIndustry:Drugs
EventDescription:Q22015EarningsCallMarketCapasofEventDate:94.96BPriceasofEventDate:86.22
©2014TheStreet,Inc.Al l R ightsReserved Page28of28
Tuesday,December8tohighlighttwootherareasofourbusiness,thatobviouslyaregeneratingsignificantinvestorinterest.Andthat'sAlzheimer'sandAnimalHealth.
Sowehopetheinformationweshareatthisupcomingeventwillbelikewisehelpfultoyou.Finallyifyouhavequestionswedidn'taddressintoday'scall,pleasecontactourIRteam.Icantellyouthattheyarestandingby,andwouldbehappytohelp.
So,haveagreatday.Thanksagainforjoiningus.
Operator :
(OperatorInstructions)
Andthatdoesconcludeyourconferencefortoday.
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