禮來公司 (LLY) 2002 Q1 法說會逐字稿

At this time all participant lines are in a listen-only mode. Later, there will be questions and answers, instructions will be given at that time.

If you should require assistance during the call, please press zero, then star. As a reminder, the call is being recorded.

I would now like to turn the call over to Director of Investor Relations, Mr. Simon Harford. Please go ahead sir.

Good morning, good afternoon in Europe, and good evening in Asia and Australia, and thank you very much for joining us for Eli Lilly and Company's first quarter 2002 earnings conference call. Each of you should have received the related earnings press release, and the supporting materials for this call via fax, email or on the Web site.

Before we turn to the quarterly results, I would like to officially introduce the newest member of Eli Lilly's investor relations team. Over the past few weeks many of you have had the opportunity to meet Heidi Straub, who is our newest Manager of Investor Relations.

Heidi will work with Craig and me to provide answers that matter to investors. Please join me in welcoming Heidi to investor relations.

Following my prepared remarks about manufacturing, the pipeline and first quarter performance, John Lechleiter, Executive Vice President, Pharmaceutical Products and Corporate Development, will join Heidi, Craig and I during the opening Q&A. John will take questions regarding current and pipeline products, and the IR team will address any other questions you may have.

During this conference call, we anticipate making projections and forward-looking statements. These estimates are being made based upon our best judgment at this time.

For example, we have made assumptions concerning the company's efforts to resolve the good manufacturing practices use identified in the last Form 483 and warning letter, and their potential impact on the company.

We have also made assumptions about the timing of the launches of new products, including Cialis, Forteo, atomoxetine and duloxetine.

Actual results may differ materially due to various factors, in particular, the timing and the nature of the resolution of the GMP issues will depend on the ability of the company to demonstrate to the satisfaction of the FDA, the quality and the reliability of its manufacturing controls and procedures.

The company's results may also be affected by the continued growth rates of our newer products, by the uptake of Xigris following its recent launch, and by the impact of exchange rates.

As you well know, there are no guarantees in the pharmaceutical business. For more information on these and other factors that may affect our results, you can see Exhibit 99 to our Forms 10-K and 10-Q.

You can access a live web cast of this conference call at www.lilly.com. In addition to the live web cast, an internet based replay will be available on our newly upgraded investor relations web site at www.investor.lilly.com, and the web cast and presentations until April the 22nd, 2002, following today's call.

Before I discuss the results of the first quarter, I will review some of the key events that have recently taken place during the last three months, and provide an update on both manufacturing and the pipeline. First, Xigris has now been approved in five more countries this year, Israel, Australia, Switzerland, Mexico and Argentina.

Including these five, we expect the number to grow to 25 countries by the end of the year.

We announced the creation of the LillyAnswers Patient Assistance Program in March, which is intended to assist seniors and people with disabilities enrolled in Medicare, who most need help in purchasing vital prescription drugs.

The centerpiece of the program, the LillyAnswers Card, allows this group of patients without prescription drug coverage to pay a flat fee of $12 for a 30-day supply of any Lilly retail drug. LillyAnswers will provide eligible Medicare beneficiaries access to Lilly's portfolio of retail products, such as Evista, Humalog, Humulin, Prozac and Zyprexa.

Lilly sold the U.S. rights to the Darvon and Darvocet end family of pain products to NeoSan Pharmaceuticals, the commercialization business unit of aaiPharma. Under the terms of the agreement, NeoSan has acquired the product line for $211.4 million plus other considerations.

The purchase price is subject to potential reductions based on initial product sales performance. Lilly will amortized the purchase price on the revenue line over the expected three year period in which Lilly will manufacture the products for NeoSan.

The strategic alliance between Isis Pharmaceuticals Inc., and Lilly was honored with the Breakthrough Alliance Award of 2002.

The award was presented at the All License 2002 Conference in San Francisco last week.

As promised, let me update you on the latest situation with manufacturing.

In recent months, we have been working diligently to raise our manufacturing operations to the highest quality standards globally. We have conducted extensive internal reviews of readiness across all of our sites globally, and have shared our assessments with the FDA.

The FDA is currently conducting inspections in several Lilly manufacturing facilities in Indiana.

At one facility, the FDA is inspecting the

and duloxetine bulk processes, and parts of the

manufacturing process. At the other site, the FDA is inspecting our dry products facility where Cialis, among other products, is manufactured and fill-finished.

In addition, the FDA is conducting a re-inspection and a general GMP inspection of our sterile parenteral facility. Given these inspections are ongoing, it is premature and inappropriate to speculate on the results.

As always, rest assured once we know the outcome, we will update you. Additional inspections for duloxetine, atomoxetine, and Forteo are anticipated to take place in time for planned launches, which I will discuss in a moment.

I would like to take the opportunity to provide you also with an update on the pipeline. We are assuming the timelines for launch of all of our new products, which I am about to reference, may be dependent on lifting the March 2001 warning letter.

First, while we mentioned the Cialis pre-approval inspection is ongoing, keep in mind that this represents one critical step in the NDA review process. We still need to conduct label discussions with the FDA and we continue to expect a launch in the second half of 2002 as per our guidance.

Cialis has a couple of unique and important attributes that we have highlighted to you previously. First, Cialis has a broadened period of responsiveness.

Our clinical data show effectiveness at 24 hours post dose. Additionally, the rate and extent of absorption of Cialis is not affected by food.

At the upcoming AUA meeting in May, we will present an abstract entitled "

allows men with erectile dysfunction to have successful intercourse up to 36 hours post dose".

Second, we are encouraged by the progress we have made with the FDA on Forteo label and product use discussions.

Our goal is to gain approval and launch yet this year.

Third, to continue with our late-stage pipeline we now anticipate the timing of the final approval for atomoxetine will occur in the spring of 2003.

As many of you already know, we are conducting an additional small study of abuse potential to confirm existing data that indicate that atomoxetine should not be treated as a controlled substance, thus distinguishing it from any other drug for ADHD. We anticipate delivering the final report for this study to the FDA in September.

Since the FDA could take up to six months to review this data and make a final decision, we anticipate the timing of final approval to occur in the spring of 2003.

Fourth, we continue to plan for the launch of duloxetine for depression in late 2002 or early 2003.

Fifth, we have some important developments with Zyprexa and OFC and bi-polar disorders. Zyprexa is currently indicated for use in patients with acute mania associated with bi-polar disorder.

Additionally we have been pursuing bi-polar depression, and bi-polar maintenance indications to position Zyprexa as a foundation of treatment in the manic-depressive and maintenance phases of bi-polar disorder, unlike any other competitive therapy.

Clinical data that was recently analyzed suggests Zyprexa can be effective in bi-polar depression.

One of the two Zyprexa studies we conducted for bi-polar depression separated at end point. However, in both of the two studies, the combination of olanzapine and fluoxetine better known as OFC, had an even more pronounced effect.

The OFC data was so compelling, even in difficult to treat patients, that we have been encouraged by the FDA to submit OFC for bi-polar depression in 2002. OFC could therefore be the first product approved for bi-polar depression.

Remember that we previously anticipated filing OFC for treatment resistant depression as early as the end of 2002.

Our clinical results to date have been very interesting, but not supportive of a submission.

We will conduct further studies in TRD and now expect to submit OFC for an indication in treatment resistant depression in the second half of 2004.

As for bi-polar maintenance, our studies are still on track, and we continue to anticipate filing Zyprexa alone for this indication in 2003.

We will be sharing clinical data at the APA in May for all of our neuroscience molecules, including Zyprexa, OFC, duloxetine for depression and atomoxetine.

Sixth, we expect to file duloxetine for stress urinary incontinence in late 2002 in the U.S. and Europe.

Duloxetine, if approved, will be the first drug therapy for stress urinary incontinence.

Seventh, we will present important Phase III efficacy data for

our triple-mechanism anti-cancer agent at ASKO in May.

We are more confident than ever about this molecule's potential, and we are discussing our submission timeline and the possibility of a priority review with regulatory authorities in the U.S. and Europe. However, we are reverting to freeze-dried form of the product for commercial presentation, resulting in a delay in our submission to 2003.

Finally, PKC beta inhibitor, a potential first-in-class treatment for diabetic micro vascular complications remains on track. In March, a data-monitoring board conducted a scheduled safety review of our diabetic retinopathy and macular edema trials, which we plan to submit in Europe in 2003.

The monitoring board review confirmed that there have been no clinically significant safety concerns associated with the use of this experimental drug.

We expect to see efficacy data for the first time from the diabetic retinopathy trial late this year, and the macular edema trial early next year.

Additionally we intend to present data collected from a Phase II diabetic peripheral neuropathy study at the American Diabetes Association meeting in June of this year.

I would like to turn your attention to slide five as I summarize our financial results for Q1 starting with sales performance.

Worldwide sales for the quarter declined nine percent to $2.561 billion. Excluding sales of Prozac Daily worldwide, sales grew by nine percent in the first quarter.

The nine percent decline in total sales was the result of a one percent reduction due to price, a two percent decrease due to foreign exchange rates and a six percent decrease in volume. If you exclude Prozac Daily, volume increased 11 percent.

During the quarter, Zyprexa sales were up 29 percent to 819 million, Gemzar sales were a 198 million, or 14 percent growth compared to last year, and Evista sales grew by 19 percent to 178 million. Our diabetes care franchise grew four percent to 503 million.

Prozac sales, including Sarafem and Weekly, declined 70 percent to a 186 million when compared to the same period of 2001 when there was no generic competition, and finally Xigris sales were 22 million.

An income statement for the first quarter is provided on slide six.

Gross margin as a percentage of sales was 79.3 percent, a decline of 210 basis points over Q1 2001, due primarily to the decrease in Prozac sales. Operating expenses were flat as a result of lower incentive compensation, and general and administrative expense controls.

Operating income declined 25 percent, our non-operating income was a contribution of 56 million. The tax rate remained at 22 percent, diluted earnings per share was 58 cents, which represents a decline of 22 percent driven by the erosion of our Prozac sales.

We had no write-offs of goodwill under FAS-142 in the quarter. With these results we are just over halfway through the period of declining earnings that we have talked about since August of 2000.

Let's now look at these results in more detail beginning with our key growth products. Zyprexa sales results are shown on slide seven.

Sales total 819 million in the quarter, up 29 percent. This was the result of 23 percent growth in the U.S. and 42 percent growth in international markets.

We continue to be pleased with Zyprexa's unit growth, despite an increasingly crowded anti-psychotic market. Zyprexa's share of total prescriptions in the U.S. has increased for eight straight months to 27.5 percent in February.

Very importantly, Zyprexa's U.S. share of cash is the highest in the anti-psychotic category, commanding 45.9 percent of the market in February. Outside the U.S. we continue to see accelerating contributions to sales growth as these markets convert to atypicals.

Growth in key European markets was 22 percent in France, 61 percent in Italy, 28 percent in the U.K., and 43 percent in Germany.

Zyprexa's efficacy is the reason we continue to capture and retain new patients in schizophrenia after six years on the market. Schizophrenia is devastating, and 10-plus percent of patients diagnosed with the disease eventually commit suicide.

Under these circumstances, the widest range of therapeutic options are needed, and for many patients Zyprexa is the therapy of choice.

We received indication on Friday from the

in Japan that there likely will be a label change for Zyprexa in the Japanese market due to nine reported cases of severe hypoglycemia, the majority of whom had known or suspected diabetes, including two deaths from diabetic coma among the 137,000 patients treated with Zyprexa since the launch in Japan in June last year.

We would like to emphasize that the Ministry of Health, Labor and Welfare has not yet issued its formal instruction. However, it is likely the label change will include a contraindication for patients with diabetes or a history of diabetes.

We respect and share the

concerns for the well-being and safety of patients and recognize the Japanese agency's jurisdiction. However, we are not in agreement, since the label change might result in Zyprexa being withheld inappropriately from thousands of patients with diabetes and schizophrenia in Japan.

In the more than eight million treated globally with Zyprexa to date, there have been cases of diabetic ketoacidosis, but these have been very rare events as represented in our current global label including the U.S.,

, and Japanese labels. Both schizophrenia and bipolar disorders carry a two to four-fold higher risk for diabetes irrespective of antipsychotic treatment when compared to the general population.

It has been suggested that there is a slightly increased risk of hypoglycemia associated with the use of atypicals including Zyprexa.

However, it is important to keep in perspective that the benefits to schizophrenia patients far outweigh the very limited risk of hypoglycemia.

It is clear that any such label change would deny patients with diabetes and schizophrenia in Japan a valuable treatment option, and it is possible it will have a negative impact on the sales potential of Zyprexa in Japan.

As far as the rest of the world is concerned, we have contacted the major regulatory bodies and continue to believe existing labels in those countries fully address this topic.

Zyprexa is already recognized as the foundation for the long-term treatment of schizophrenia.

We expect to earn the same status for Zyprexa in the treatment of bipolar disorders, moving away from the perception of a treatment only for patients experiencing the manic phase of bipolar to a foundation of treatment for all phases of bipolar disorder.

The incidence of bipolar disorder among the adult population in major markets is greater than schizophrenia, although a lower percentage of patients are being treated today.

Bipolar disorder truly represents a significant growth opportunity as Zyprexa moves towards becoming a foundation of treatment.

To that end, we have recently received a positive opinion from the

to add

to our European label which will allow us to continue our strong growth for Zyprexa in Europe.

This positive opinion should lead to an approval in the coming months, and, as a result, provide a beneficial new treatment option for patients in Europe.

Gemzar sales were 198 million for the quarter, up 14 percent.

Gemzar sales growth was affected by U.S. wholesaler buying patents. Strong underlying demand for Gemzar in the U.S. was marked by wholesaler stocking in the first quarter of 2001 and wholesaler de-stocking in the first quarter of this year.

Inventory at the wholesaler level is now at normal levels.

Gemzar's growth continues to be driven largely by use in non-small cell lung cancer, which in the U.S. market now accounts for 29 percent of patients' first-line usage and 31 percent of all patient usage in this indication.

Some important phase III non-small cell lung cancer data will be presented at

in May. Almost 60 countries have now approved Gemzar for use in bladder cancer.

Gemzar's global presence is only one reason we continue to be bullish about its long-term growth potential. Gemzar's sales growth will also be driven by a stream of new combinations in tumor types.

In breast cancer, we have completed enrollments in a 500-patient phase III study of Gemzar and

versus

alone. We expect to file our submission in Europe late this year.

Our phase III registration trial in ovarian cancer is nearing full enrollment, and we are on track for a submission in Europe in 2003.

Turning now to Evista, Q1 sales reached 178 million or 19 percent growth.

We continue to see heavy competition among the osteoporosis agents, but there are already signs that Evista's performance in the U.S. has been bolstered by our agreement with

. This agreement has allowed us to add over 500 experienced sales reps to match Merck's market-leading share of

.

We also continue to reinforce Evista's fracture efficacy profile and cardiovascular and breast cancer benefits with new publications. As a result, our U.S. sales growth for the first quarter rebounded to 16 percent with a particularly good performance in the month of March.

We continue to be pleased with Evista's solid performance in overseas markets where growth was 33 percent in Q1. Contributions to international growth from major markets includes Spain -- up 34 percent, the U.K. -- up 40 percent, Germany -- up 71 percent, and Canada -- up 25 percent.

We anticipate a launch in Japan and other major market in 2003.

Global diabetes care sales which is primarily

grew four percent in the quarter to 503 million.

This included 42 percent Humalog growth to 177 million, offset by a 14 percent decline in Humalog's 235 million.

Lilly's revenue from Actos was 74 million for the quarter, representing a growth rate of 15 percent.

Actos' total

share has steadily increased to 8.8 percent in February -- the latest data available.

In the U.S., Humulin prescriptions have been effected primarily by competition from

in the

segment of the market.

We expected this basal insulin to take share from our long-standing Humulin line of products and will probably continue to do so. At the same time,

is not mixable and only addresses fasting glucose.

As a result, many patients are augmenting

therapy with a mealtime rapid-acting insulin such as Humalog or are switching to a premixed insulin such as Humalog mixtures.

Outside the U.S., Humalog sales grew by 33 percent and Humulin sales declined 10 percent. Many of you have asked recently about our European insulin sales.

The top five European markets represent approximately 15 percent of global Humulin sales and 21 percent of global Humalog sales which although important, does not have a large effect on our overall sales performance. In Q1, we continued to see growth in insulin sales in that market driven by switching from Humulin to Humalog.

Actos growth in the first quarter was temporarily negatively affected by the terms of our contract and by a wholesaler stocking program implemented by

. Actos growth comparisons in the coming quarters will be affected by wholesaler stocking in Q2 of last year and the timing of the annual promotional payment from

.

As we mentioned earlier, Xigris sales were 22 million in its first full quarter. The Xigris uptake curve has been shaped by two key factors in hospitals -- first, concern over the potential risk of bleeding has kept some physicians from trying the product.

Importantly, anecdotal evidence suggests bleeding rates are comparable to the incidence of bleeding in the

trial which was only slightly higher than placebo and most bleeds were manageable. Additionally, the

data and experience to date suggests Xigris has a very favorable risk benefit profile.

Second, some physicians are looking for the perfect patient, while others continue to refine their understanding of which patient should receive Xigris. In November, we expressed our belief that physicians would need time to gain experience with the product when Xigris was approved with a narrower than anticipated label.

Given these challenges to the uptake to date, we will be closely monitoring the acceleration of Xigris sales growth in the coming months relative to our expectations for the product.

That being said, we are seeing positive trends that support our belief that this product will be a great commercial success.

Consistently, once physicians use the product and have a successful experience, they tend to use it again. In fact, 95 of our top 100 accounts have made an initial purchase of the product, and 86 percent of those have reordered.

Many physicians that have used Xigris are attributing lives being saved directly to the product.

As you might expect, we continue to hear miracle stories of lives being saved from all regions of the country, and we have shared a few stories with you, such as the story of a young woman whose lifesaving experience with Xigris was recently featured in "Cosmopolitan" magazine.

Slide 12 summarizes the sales amounts and growth rates of our leading pharmaceutical products, plus animal health for the quarter. In addition to those products that I have already talked about,

declined 17 percent to 92 million, and

increased five percent to 78 million in Q1.

Also, worldwide sales of animal health products in the first quarter were 168 million, an increase of two percent when compared with the same quarter last year. The next slide provides the geographic breakout of the impact of price, rate and volume on the sales growth for the first quarter.

As this slide demonstrates, nine percent top line decline for the quarter was the result of a one percent reduction due to price, the two percent unfavorable exchange rate effect, and a decline in volume of six percent.

The next slide, number 14, shows a decline in our gross margin for the quarter.

Gross margin in the first quarter as a percentage of sales was 79.3 percent, a decline of 210 basis points over Q1, 2001. The decline was driven by the decrease in Prozac sales, although strong growth in our other higher-margin products helped offset some of the reductions.

Looking at slide 15, you can see that we spent 777 million in SG&A for the quarter, an increase of one percent. The modest growth in SG&A expense was attributable to general and administrative expense controls, and lower incentive compensation. Selling and marketing expense for the quarter grew seven percent. Growth in selling and marketing expense was on-track in the first quarter, as important investments were made to maintain fair practice leading

, and to prepare for the launch of new products.

As we have previously indicated, we will make the necessary investments in underlying selling and marketing capabilities throughout the course of 2002 to ensure the successful launches of our new products. At the same time, working to reduce general and administrative expenses.

R&D expense, shown on slide 16, declined two percent, to 503 million, or nearly 20 percent of sales.

The decline in R&D expense is a result of lower incentive compensation expense, and lower late-stage clinical trial costs, given more products were awaiting regulatory approval during the current quarter. Our industry-leading investment relative to our size, reflects our continued commitment in the innovation side of our strategy.

Overall, operating expense was flat for the quarter, primarily driven by lower incentive compensation.

Slide 17 summarized the first quarter non-operating income and deductions.

In Q1, other income and deductions resulted in the net contribution of 56 million, compared to a net contribution of 35 million in Q1 of last year. The Q1 contribution of 56 million was primarily driven by net interest income.

As for the tax rate, it remained at 22 percent for the quarter.

To summarize our financial results for the first quarter, the top line was down nine percent. Excluding Prozac daily, sales increased nine percent. Gross margin declined by 210 basis points, operating expenses were flat, and fully diluted EPS declined by 22 percent t0 58 cents.

Let me now provide you with Q2 and full year 2002 income statement guidance. Guidance for the full year remained unchanged, although I will review the details with you again. This guidance excludes unusual items, and assumes Xigris sales accelerate in line with our expectations in the coming months.

.

First, we anticipate low to mid-single digit top line growth for the full year. We expect gross margin to contract roughly in the range of 100 basis points fro the full year. SG&A expenses are excepted to grow at least in the mid-single digits, underlying marketing and selling expenses will increase more strongly, as we maintain the marketing momentum for our current growth products, and as we invest in the launch of our new products.

But please remember that the heavy launch costs associated with

are reflected in other income and deductions. R&D expenses are expected to grow in the low single digits, but still be at the top of the industry in terms of percent of sales.

Non-operating income should contribute at least 100 million in income. The tax rate should remain constant at about 22 percent. We remain comfortable in the range of $2.70 to $2.80 earnings per share for the year.

We are also comfortable with a range of earnings of 61 to 63 cents per share for the second quarter. We continue to target the high teens earnings growth in 2003, assuming accelerating growth in Xigris sales, and the timely launch of

,

,

, and

for depression.

With that,

,

, Heidi and I will take your questions. Return it to AT&T; first caller please.

Thank you. Ladies and gentlemen, if you wish to ask a question, please queue up by pressing the number one on your touch-tone phone. If you using a speakerphone, please pick up hour handset before pressing the number

You may remove your line from queue at any time by pressing the pound key.

Our first question is from

from UBS Warburg. Please go ahead.

Hi, good morning.

Simon, just on the assumptions here in terms of Xigris accelerating. What are the key steps in terms of getting that out, and getting that ramped accelerating?

And what is your timeframe to get that done, and the steps you're taking to go there?

Sure, C.J. Heidi, would you like to answer?

Sure. The first thing that we talked about in the past is peer-to-peer sessions, where you're actually getting physicians who are experienced with the product to interact with those who are trying to get at the learning curve on patient identification.

And also, managing the risk of bleeding. And then also initiating continuing medical education programs, not just towards physicians, but also the pharmacists and the nurses.

And I would just add an addition to that, C.J., that in terms of ramp-up, we clearly need to see an acceleration in Q2 in terms of our expectations in line with our internal forecasts, going forward.

That will be important.

Next caller, please?

The next question is from

with Lehman Brothers.

Yes, good morning, thank you.

Just a couple of brief questions, Simon. One is, can you -- or would you -- provide us with some idea of what Zyprexa does? The percent of international sales in Japan? And then, a question for

on

? The additional trial, can you give us some idea of what this trial looks with respect to size?

And more importantly, should we expect any changes from what's currently available in the data set as it relates to patients who may become addicted? Thanks.

, would you like to go first, and then I'll comment on the Zyprexa for international sales?

Sure.

, the trial that we're currently in the process of conducting is a small in-patient study, several dozen patients.

These are people who are substance abusers and we're basically looking at

, compared to a placebo and other drugs, in terms of trying to confirm the data that we already have in hand, that

does not cause any kind of addiction, or addiction-related problems. So it is confirmatory. All the data that we have continues to suggest that this drug is going to be unlike any others in the class.

However, we've agreed with FDA that we need to complete this study before they're going to give us the final go ahead on the label.

As far as your other question is concerned,

, international Zyprexa sales were 264 million of the 819 global sales.

That's about 32 percent. And Japan in Q1 represented about eight percent of international sales, but growing, obviously.

Next caller, please?

with Deutsche Bank.

Morning, Simon.

Just a couple of follow-ups, I guess.

Could you give us number one, some idea of whether, you know, there are also discussions ongoing on Zyprexa and these reports in Japan with other regulatory agencies, obviously specifically the U.S. and then just secondarily can you give us some sense in the second quarter of the order of magnitude that we should be looking for, for Xigris numbers to hit your own internal forecast?

Let

first of all maybe comment on the situation with Zyprexa in Japan.

And then Heidi will comment in the Xigris sales forecast.

since we've launched the product we've been in continuous discussions with regulators all over the world as we continue to refine and update our label.

The events referenced in Japan are not new events, and we continue based on the discussions as recently as the end of last week, with our top people within the review division at the FDA and also within the European regulatory world. We continue to believe that our labels, based on the global data, in those two parts of the world, will continue to stand as they are and support the use of -- continued use of Zyprexa in patients with diabetes.

As far as the Xigris sales go, we don't provide product-specific sales, but we are expecting an increase over the current rate. As Simon said, we're expecting acceleration.

And the other point I guess that I would make

is that, you know, we need to see that acceleration starting to happen in Q2, if the consensus number of 250 million for the year, approximately is not to be a stretch.

with Goldman Sachs.

Thanks, good morning. A question about Forteo and a question about Cialis.

On Forteo, there was a large pre-clinical confirming study to try to take a look at what was happening with the bone cancers. I was wondering what the status of that was.

And also, on Cialis, there's been some concern about the length of the half-life. Could you talk a little bit about, have you talked with the regulators at all about emergency room procedures should someone have been taking Cialis and then shows up in the emergency room, with let's say chest pain.

Have we been talking a little bit about how that could get handled so the regulators will get comfort with that? Thanks.

Say

would you like to update

?

Yeah

, on Forteo we did, we do have ongoing some additional studies, pre-clinical studies in rats, trying to gain some additional information about the nature of the interaction with Forteo, the development of the osteo sarcomas.

At this point in time, that study's in the process of completing, FDA's been kept abreast of the timetable -- we'll be sharing that information with FDA later in the year.

In parallel with that obviously, we continue to have very productive discussions with FDA around the label and the use of the product in the target population.

With respect to Cialis, we don't expect to see, or to be requested to take any sort of extraordinary action or extraordinary measures with, in terms of the longer half-life of Cialis and what it may, you know, what that may have to do with drug interactions. We expect that we're going to have the same kind of labeling in this area as the competitors based on the effect of the class.

Thank you

. Next caller please?

with SG Cowan.

Thank you.

First, what is the nature of the abstract submitted to the ADA regarding PKC, of which I believe there are six? Secondly, what is the status of the fourth study of PKC which became public in March, but apparently never started?

And then lastly, when does the composition of matter patent on duloxetine expire?

OK, let me go ahead and answer those.

As far as the nature of the abstract is concerned at the ADA, we really haven't gone

yet into a lot of detail behind what exactly will be presented as far as that is concerned. You know that there is obviously going to be as we've said, the Phase II peripheral neuropathy data.

In terms of the status of the fourth PKC study which was sort of released inadvertently a month ago, that essentially was a second study for macular edema to potentially support a U.S. submission. The study for macular edema for the European submission as well as the diabetic retinopathy study continue as I mentioned in my text, on plan and we will have the efficacy data late this year, and hope to submit in Europe in the first half of next year.

But as far as that specific study was concerned, quite frankly we decided to not start that study at this point in time until we have the results from the macular edema study for Europe. It made more sense from a trial design standpoint, as well as, quite frankly, you know, we have to balance priorities.

As far as the compound patent situation is concerned for duloxetine, we have a compound patent which expires in 2008 and we then have numerous other method of use patents out too to 2015 time frame, which we feel very good about. Next caller please?

with Robertson Stephens.

Thanks, good morning everyone.

Just in terms of duloxetine, a follow on, we've seen the Phase II data for the, for SUI, when will we see the pivotal results? And regarding Alimta in the new formulation, are additional clinical trials being run with that new formulation, and if so, what are they specifically and when can we expect the results?

And are they, do they necessarily need to be positive for submission or approval? Thank you

.

, this is

. We're going to share results in a late-breaking news forum at the AUA meeting in May for the first of three pivotal Phase III trials for duloxetine for stress urinary incontinence.

So in about a month's time, you'll see the first Phase III data for that indication. In terms of Alimta, basically we've done most of our clinical studies with the freeze-dried preparation.

We had developed a liquid preparation to facilitate ease of use a little bit, and we had some stability problems with the liquid presentation at sort of the 11th hour, so we're going back to the formulation that we've done all our studies with, I think providing everyone hopefully with the assurance that there's not going to be any kind of formulation related glitch here. However, having to do that and supply the necessary data to the FDA, validation information et cetera, is going to delay the timing of at least the chemistry part of that filing.

OK, thank you. Next caller please.

with Capital Research.

Good morning.

I have three questions. First, if you could just review the wholesaler inventory status of your major products.

Secondly, I was wondering if you could just discuss the whole issue about Medicaid discounts and Zyprexa, which is a major product for the Medicaid population. And thirdly, regarding the inspections, are these inspections because you felt you were ready to be inspected and invited the FDA in, or are these inspections that the FDA set on their timetable?

OK. First of all,

, on wholesaler inventory, and then I'll discuss Medicaid discounts and

will then comment on the inspections.

Sure

on inventory with Zyprexa just in

we really don't have very excess inventory, very marginal amounts by the end of the first quarter.

As far as the Medicaid discounts for Zyprexa are concerned, obviously we do provide discounts, we don't go into all of the details, but I think it's suffice to say that what we have seen with Zyprexa, even in those states which are beginning to create these sort of prior authorization list, is that Zyprexa has to date been very well positioned due to the strength of the data around its efficacy, and therefore be feeling that it should not be part, in many of these states, of prior authorization lists.

Obviously there are mounting pressures across the states, but we feel we are well positioned with Zyprexa. And finally

in terms of the inspections?

, your question relative to the inspections, as we've kept the FDA very closely informed of where we stand in terms of readiness for these pending pre-approval inspections for the products that Simon mentioned earlier.

Obviously, FDA can choose to come in and inspect any of our facilities at any time for any reason. And we -- it's our -- it's our hope that the ongoing inspections not only complete the pre-approval process for some of our products, but also help restore the overall confidence that the FDA has in Lilly's ability to manufacture all of its products the very highest and most current standards.

Thank you,

. Next caller, please?

with Bank of America Securities.

Yes, you state that the 270 to 280 earnings per share range is dependent on Xigris sales accelerating in line with your expectations.

Does that mean if Xigris sales don't start to accelerate, that even the low end -- the 270 number would be in jeopardy because 270 -- 280's a wide range that would encompass a couple hundred million dollars in incremental Xigris sales?

And I know that you don't like to give comments on individual products, but so that we understand what you're meaning by that statements because I'm assuming it's significant because you include it, what type of Xigris sales are you assuming for the year?

OK,

, would you like to comment?

Sure.

, as you know, we don't give product-specific sales guidance. And we haven't for Xigris for the year.

However, you know, current estimates on the street are about 250 million and -- for the year. And it's going to be a stretch if we don't see acceleration even within the second quarter in the sales that we've seen to date.

Yes, I mean the bottom line is if we don't start to see the acceleration, then it could potentially impact -- hence, the comment.

Next caller, please?

, Merrill Lynch.

Hi. Good morning. I was wondering on Darvon and Darvocet, you said the price was going to amortized over three years to revenue. I just want to know what the EPS impact will be over that three-year period and why wouldn't you be putting this in a discontinued

line versus putting it in revenues?

My second question is in Europe with inventories high on the insulin side from Novo, you know, isn't this going to be a -- you know, problem for your sales? I realize they're a small component, but, you know, it seems like, you know, an issue.

Thank you.

As far as the Darvon and Darvocet deal is concerned,

, it's fairly regular practice according to accounting principles to be able to spread that over the term of the agreement. So that's the way we're doing it.

Essentially what you will see between the $211 million revenue or payment being spread plus our sales to NeoSan, essentially there will be no impact in terms of EPS during the three-year period on a quarter-to-quarter basis.

As far as Novo is concerned and insulin, if you could just repeat the question again? I didn't quite hear.

I'm sorry. The gentlemen's line is no longer in queue.

Missed the question, so I'm not quite sure. Is it possible to get

back on the line again?

if you were to press number one again, he will be back on line. And there he is. One moment.

Sorry, Steve.

Oh, no problem. First of all, I'm still confused as to why $211 million with very little cost associated amortized over three years with no earnings impact -- number one.

And number two -- my question related to insulin was that, you know, Novo has talked about high inventory levels that are -- you know, won't this be more than just a little problem for your sales in Europe going forward? Thank you.

OK. Well, again, as far as the Darvon and Darvocet is concerned, I mean, relative to what we would have done had we not done this deal and just continued selling ourselves, the impact would essentially have been zero on the EPS.

As far as the situation with insulins in Europe is concerned, we have not seen high build-ups at all of insulins in the European market. Quite frankly, as far as the market growth is concerned, the data would suggest across at least the major markets that nothing unusual has happened to date that we are aware of.

We continue to see that sort of switch from Humulin to Humalog. So from our perspective, nothing has really changed dramatically in the marketplace in Europe.

Now, obviously, there are some variations from country to country, but overall, it seems pretty consistent with what we've seen to date. We do do some sort of shifting around of sales forces in Europe especially now, given that we have the pipeline of products coming online.

So there is some reallocation of resources, but the underlying business to date, certainly in that transfer from Humulin to Humalog, continues to go according to plan at this point in time. If that situation were to change, then we'll obviously keep you updated.

Next caller, please?

with Lehman Brothers.

Yes, thanks for taking an addition question,

.

Just one more time -- the trial design of this

studies and

and I'm just curious as to why does it strike me that that would be

or the population for which this drug would be used, why use existing drug abusers as a -- as a

control? Thanks.

This is a -- this is a standard approach to doing these trials.

The institution that we're working with has done many studies of this type for many types of drugs. In other words, this is a -- I won't say a boilerplate design, but it's a study that's specifically targeted to look for the possibility of abuse in a -- in what in this case would obviously be a vulnerable population.

I think it's important to point out that obviously this is not the target population for the drug. In studies involving literally thousands of individuals in our trial -- children, adolescents, and adults, we've seen no evidence of abuse potential in the -- all the clinical work that we've done to date, nor in any of the other special targeted abuse potential studies that we've done either with animal models -- and there are several, or with human subjects.

caller AT&T.

Tim Anderson, Prudential Securities.

Hi, this is Tim Anderson. A couple of questions -- can you put some numbers behind what you describe as high-teens growth for '03?

Is that 16 to 19 percent, or 17 to 19 percent, or what exactly?

And the second question is on manufacturing. Can you talk about the information technology side of the issues?

As I understand it, this is part of the problem that you guys are facing that could cross multiple plants. And it sounds like it could take a while to fix these systems.

And I'm wondering how much IT upgrade plays as -- into the potential holdups of any of your pipeline drugs.

OK, as far as the targeted high-teens growth is concerned, quite frankly, we're not going to be more specific at this point in time because within that range it remains somewhat of a moving target. As we get closer to the period, we will obviously be more specific.

As far as the IT side is concerned of manufacturing, information technology was certainly one of the things which was cited as needing improvement. That has obviously been one of the things that we have been working on diligently over the last three months, and will be reviewed as part of the current inspections.

But, again, we're not going to speculate on what the outcome will be or not until we know what the outcome is because it just doesn't make any sense to do so.

Thank you very much for joining us.

You can, if you so wish, access through our Web site the annual shareholders' meeting. It does have some particularly interesting video clips this year related to certain patients who have benefited from our drugs, specifically Zyprexa and Xigris, if you should care to watch.

And that will be available through the Web site. Otherwise,

and I will be available to take your calls in about 15 minutes time.

Thank you very much all for joining us, and speak to you soon.

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