禮來公司 (LLY) 2003 Q3 法說會逐字稿

Ladies and Gentlemen, thank you for standing by, and welcome to the Eli Lilly & Company third quarter results conference call.

At this time, all phone participants are in a listen-only mode.

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As a reminder, today's conference is being recorded.

I would like now to turn the conference to to your host, Mr. Simon Harford.

Please go ahead.

Good afternoon, and thank you very much for joining us for Eli Lilly & Company's third quarter 2003 earnings conference call.

I am Simon Harford, Executive Director of Investor Relations and I am joined today by my colleague, Craig Hartman, Manager of Investor Relations.

Heidi Straub from the IR team is absent today due to maternity leave.

Each of you should have received the related earnings press release and the supporting materials for this call by e-mail on on our Web site.

Following our third quarter performance review we will take your questions.

Craig, why don't you kickoff the prepared comments and I will, then, review the performance for the quarter and guidance going forward?

Thank you, Simon.

During this 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 practice issues and their potential impact on the Company.

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 reliability of its manufacturing controls and procedures.

We've also made assumptions about the timing of global launches of new products, including Cymbalta, Cymbiax, Duloxetine for stress UI, and Olympta.

The Company's results may also be affected by the continued growth rates of Zyprexa, Evista, Gemzar, Humalog and Xigris by the sales update of our recently launched products, Forteo, Strattera and Cialis and by the impact of exchange rates.

Actual results may differ materially, due to various factors.

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 the Company's latest Form 10-K and 10-Q.

You can access a live webcast of this conference call at lilly.com.

In addition to the live webcast, an Internet-based replay will be available on our IR website under Webcast and Presentations until November 19th following today's call.

I would like to take a moment to discuss some of the key events that have taken place in the last three months.

In August, Amylin and Lilly announced that in the first of three phase 3 studies Exenatide produced statistically significant dose-dependent reductions in the primary glucose control end point.

We also made three submissions to regulatory authorities.

In August, the Company completed its first European submission for Strattera for ADHD.

In September, Lilly successfully completed its rolling submission to the FDA for Olympta for malignant pleural mesothelioma.

Finally, we recently completed the European submission of Cymbalta for major depression.

Not only did the Company receive approvable letters for Duloxetine for stress UI and Cymbalta, but also we recently received an approvable letter for Zyprexa bipolar maintenance.

Final approval is contingent upon label discussions, including an additional analysis of existing data to support desired label claims.

We expect to submit this analysis in the coming weeks.

Therefore, we expect approval for bipolar maintenance sometime in the first half of 2004.

In mid-September the FDA requested updated product labeling for all atypical anti-psychotics to include a warning statement about the risk of hyperglycemia and diabetes.

The FDA made this request to Lilly for Zyprexa and to the manufacturers of Abilify, Clozaril, Geodon, Risperdal and Seroquel.

The FDA's decision to implement class labeling reinforces Lilly's long standing position that the risk for diabetes should be considered among patients with severe mental illness regardless of medication choice.

Now, I would like to turn your attention to slide No. 3 as I summarize our financial results for the third quarter.

Worldwide sales for the quarter grew a strong 13% to $3.139 billion.

Gross margin was 78.4% of sales, a 170 basis point decline compared to the third quarter of 2002.

Total operating expenses grew by 15% for the quarter.

This increase in total Opex resulted from 19% growth in SG&A and 8% growth in R&D.

Operating income increased 4%, compared to the third quarter of last year.

OID for the quarter was a deduction of $12.7 million.

The tax rate remained at 22% for the quarter.

Finally, Q3 diluted earnings per share of 66 cents was the result of strong global performance of Zyprexa, Strattera, Gemzar, Humalog, Evista, Cialis Forteo. 66 cents represents a 3% decline compared to adjusted earnings per share of 68 cents in the third quarter of 2002.

For your information, we have provided a reported earnings statement on Slide 4.

Details about our reported earnings are available in our earnings press release dated today, October 22, 2003.

Consistent with Lilly's past reporting practice, and in line with the SEC's Regulation G, Slides 5 and 6 show a reconciliation of the unusual item that affected our reported results in the quarter and year-to-date but were adjusted from earnings in order to help investors better understand our ongoing business.

There were no unusual charges in the third quarter of this year.

Third quarter and year-to-date 2002 earnings were adjusted for the $84 million charge for acquired in process R&D related to the Lilly/Amylin collaboration on the development and commercialization of Exenatide.

On Slide 6, for a year-to-date 2003 reconciliation, you can see a 23 cent charge after tax or a $354 million pretax charge which was adjusted from earnings in the first quarter for asset impairments, restructuring, and other special charges.

We discussed these adjustments during the first quarter earnings call.

Now, I will turn it over to Simon, who will discuss the drivers behind our financial performance.

Thanks, Craig.

Let me start by summarizing the geographic breakout of the effective price, rate and volume on our sales for the quarter.

As Slide 7 demonstrates, our topline growth of 13% benefited from a 1% increase due to price, a 3% increase due to exchange rates, and an increase in volume of 8%.

The 3% exchange rate benefit was driven primarily by dollar weakness compared to last year.

Sales of our leading growth products, Zyprexa, Gemzar, Evista, and Humalog, grew 16% in the quarter and grew 12% excluding the benefit of exchange rates.

Strattera, Cialis nonjoint venture sales and Forteo contributed combined sales of $151.4 million.

Turning to Zyprexa, the results are on Slide 8.

Total Zyprexa sales grew 16% to $1.128 billion in the quarter.

U.S. sales grew 4% due to continued competitive pressures.

U.S.

Zyprexa sales growth also benefited slightly from wholesaling stocking in the quarter.

Sales outside of the United States were up a very strong 44%.

Excluding the favorable impact to exchange rates, sales outside the U.S. grew 32%.

Zyprexa continues to deliver strong results in markets outside of the U.S.

This success is primarily driven by Zyprexa's strong profile sales growth rates in some of the top markets, excluding the effect of the exchange rates, were Germany, 91%;

France, 57%;

Japan 43%; and the U.K. 37%.

We expect this strong growth for Zyprexa to continue overseas.

As you know, the Cunningham VA study released in August showed comparable rates of diabetes among atypical anti-psychotics in schizophrenic veterans.

This finding was consistent with many other studies that Lilly has cited in its conversations with the FDA and prescribers on the topic of diabetes risk in this patient population.

In addition, given the FDA requested class labeling for all atypical anti-psychotics on the topic of diabetes risk, we have an opportunity to improve patient care by ensuring prescribers understand that the risk for diabetes is no longer a reason to choose one atypical over the other.

We're in the process of disseminating this information as rapidly and broadly as possible.

We saw a considerable market share decline in the first half due to the misperception around the topic of diabetes.

The reinvigoration of our messages around facts on diabetes risk for schizophrenic patients, as well as the results of the VA study, have helped to slow the rate of market share loss in Q3.

As a result, in the United States, total Zyprexa scrip volume was essentially flat in the third quarter compared to the same period last year.

Class labeling will further substantiate our position, although it will take time to change the misperception in the marketplace.

Going forward there are several catalysts that may improve our competitive position with Zyprexa.

We have seen solid demand for the Xigris formulation, which we recently relaunched in the United States and Q3 sales of this formulation in the U.S. were $41 million.

We expect to gain approval for Cymbiax and the bipolar maintenance indication for Zyprexa in the first half of 2004.

Upon resolution of manufacturing issues, we'll be able to launch the rapid-acting intramuscular formulation of Zyprexa.

Last, we continue to be fully committed to maintaining our market leading share of voice in the U.S.

On Slide 9 you can see Gemzar sales were $250.6 million for the quarter, up 27%.

U.S. sales increased 30% and benefited in part from wholesaler destocking in the third quarter of 2002.

International sales were up 24% and exceeded our sales in the U.S.

Moving on to Evista, Q3 sales grew 10% to $240 million.

U.S. sales grew 4% and international sales were up 32%.

We see continued declines in the postmenopausal health market due to the results of the WHI trial and the resulting exit of patients from the prevention market.

Fewer patients are receiving prevention treatments and are waiting until they have developed osteoporosis or a fracture related to osteoporosis for treatment.

The primary impact of this change is in the prevention segment, which is where much of the Evista's use has been historically.

This change in patient and prescriber behavior has negatively affected Evista description growth recently.

On the other hand, the treatment of the osteoporosis segment is growing.

Evista has been used to a lesser extent for treatment, so the product is only benefiting moderately from growth in this sector.

We're are addressing the changes in the market with a three-prong strategy.

First, we will reinforce Evista's bone efficacy with new data.

Second, we will highlight the importance of preventing progression of osteoporosis in reducing fracture risk in postmenopausal women.

Finally, the market is well acquainted with the need for bone quantity as measured by bone mineral density.

We will continue to educate patients and physicians about the importance of bone quality and its positive affect on long-term efficacy.

On Slide 11 we report the performance for our diabetes care franchise, which is made up of primarily Humulin, Humalog, and Actos.

Q3 sales for the franchise grew 3% to $588.7 million.

Humulin increased 3% to $264.5 million, Humalog grew by 12% to $240.2 million, and Actos revenue declined 18% to $67.1 million.

Humalog total prescription share has been 6% year-to-date and was essentially flat in Q3.

The launch of Nova's mixtures produce late in 2002 has had some effect on Humalog mixtures prescription share in the U.S.

Humalog mixtures has lost share to a much greater extent, however, from Lantus.

Lantus is being used as a first-line agent replacing not only our long-acting Humulin products but also Humalog mixtures.

We do continue to see rapid acting analogs, like Humalog rapid acting, being used in combination with Lantus but only about 1/3 of the insulin used by diabetics is in a rapid acting form.

We expect even more competition next year from a new rapid-acting product.

Underlying Actos product sales grew strongly with total script growth of 10% in Q3.

The decrease in Actos revenue to Lilly is due to the contract terms with Takeda.

Remember Lilly's share of revenue from the agreement with Takeda will vary quarter to quarter depending based on contract terms.

Lilly's Actos revenue will not necessarily track with product sales.

As a result, it is difficult to make quarterly comparisons for Actos revenue.

Xigris sales were $37.8 million in the quarter, up 78%.

U.S. sales grew 24% to $24.4 million.

Outside of the United States sales were $13.4 million.

Our launch of Strattera for Attention Deficit Hyperactivity Disorder continues to be strong.

Strattera sales were $108 million in the third quarter.

We continue to see excellent acceptance by patients' payors and all physician specialties.

We were very pleased with Strattera's performance through the summer months.

Strattera's prescription volume was steady while the market volume dropped due to traditional seasonality.

As a result, Strattera's share of total prescriptions increased over 5 percentage points from May to September.

As of the end of September, the number of prescriptions written for Strattera exceeded 2 million since launch, and our monthly total prescription share for September reached 16.3%.

Strattera has been gaining prescription volume rapidly since the start of the school year and continues to gain total prescription market share as indicated by weekly prescriptions trends.

Total weekly prescriptions increased by about 2/3 from approximately 57,000 at the end of June to 95,000 at the end of September.

In the adult segment we've seen steady volume and market share growth, but still view this as a longer term growth opportunity.

Specifically, we saw a significant increase in prescriptions written by primary care physicians resulting from our direct-to-consumer advertising campaign.

Strattera also enjoyed growth in prescriptions written across all physician specialties.

We have regulatory decisions pending for Strattera in Canada, Australia, New Zealand and Europe.

Forteo sales in the U.S. were $21.6 million in the third quarter, up from $14 million in Q2.

We continue to be pleased with sales and prescription trends which are driven by the efficacy image of Forteo.

Physicians have long understood the role of PTH and bone formation and bone turnover.

They tell us that they see dramatic results quickly with Forteo.

Patients feel stronger, have less back pain, and are able to resume everyday activities.

Our first launch in Europe will commence in the near future, and we will continue to launch Forteo country by country well into 2004.

On Slide 15 you will see Cialis sales for the quarter.

Total global product sales for Cialis were $50.2 million.

Cialis sales were recorded in Lilly's revenue line shown on the graph on Slide 15, were $21.8 million.

These are sales in the Lilly-only territories.

As a reminder, Lilly records 50% of the operating results from the Lilly JV territories, which are North America and Europe in other income and deductions.

Lilly recorded a loss of $10 million for Q3 on its share of the joint venture operating results recorded in other income and deductions.

Cialis is now being sold in more than 45 countries, and more than one million patients have used Cialis since our first launch in February of this year.

Our launches in Europe, Brazil and Australia have been particularly successful.

As of August, Cialis had captured unit market shares of 29% in Germany, 28% in France, 28%, also, in Italy, 21% in Brazil, and 34% in Australia.

Lilly ICOS continue to plan for FDA approval of Cialis late this year.

Turning now to the income statement.

Slide 16 summarizes the quarterly sales amount and growth rates of our leading pharmaceutical products plus animal health.

As you can see, the Prozac family of products declined 19% to $154.2 million.

ReoPro decreased 5% to $88.2 million and Humatrope increased 12% to $93.5 million.

In addition, anti-infectives declined 16% to $111.5 million.

Also, worldwide sales of animal health products increased 4% to $174.5 million.

Slide 17 shows a decrease in our gross margin for the quarter.

Gross margin is the percentage of sales in the third quarter with 78.4%, a decrease of 170 basis points over Q3 of last year.

This decrease was due primarily to costs associated with quality of improvements, as well as growth and capacity in Lilly's manufacturing operations and to the impact of foreign exchange rates partially offset by a favorable product mix.

Looking at Slide 18 you can see that SG&A was $963.4 million for the quarter, an increase of 19%.

The increase in SG&A expense was attributable to marketing expenses in support of the new and anticipated product launches.

R&D expenses shown on Slide 19 were $568.1 million, or 18% of sales.

Our investment in R&D increased 8% for the quarter due to higher clinical trial expense.

Slide 20 summarizes the third quarter other income and deductions.

Total other income and deductions resulted in a net deduction of $12.7 million in the quarter.

OID declined due to less income from out licensing of development stage products and partner products and development and lower interest income.

Also contributing to the decline were miscellaneous asset write-offs or write-downs in the normal course of business, including certain equity investments that have been determined to be other than temporarily impaired under current accounting rules.

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

Turning now to the balance sheet, accounts receivable decreased by $4.1 million from December 2002.

The level of infantry reported on our balance sheet at the end of the quarter increased by $204.3 million compared to December 2002.

The increase was primarily attributable to the build-up of inventory for new product launches and growth products and exchange rate re-evaluation of inventories overseas resulting from dollar weakness.

Now, I would like to highlight some milestones that we expect in the coming months.

We understand that the FDA is in the final stages of its overall assessment of our manufacturing status, and we expect to gain clarity prior to the end of the year.

After we have revolved our manufacturing issues to the satisfaction of the FDA and have had a successful preapproval inspection, we will update our approval and launch timelines for Cymbalta.

Aside from Cymbalta, we are anticipating final FDA approval of several innovative new medicines and indications in the coming months.

First, we expect to receive marketing authorization for bipolar maintenance of Zyprexa in the European Union in Q4.

Lilly ICOS continued to anticipate the U.S. approval of Cialis late this year.

We expect final FDA approval for Cymbiax for bipolar depression and Olympta for mesothelioma in the first half of 2004.

Beyond mesothelioma, we remain on track to complete our U.S. submission for second line nonsmall cell lung cancer and our European submission for both malignant pleural mesothelioma and second line nonsmall cell lung cancer by the end of the year.

We expect to see the results from the remaining two pivotal trials for Exenatide yet this year.

If the results are positive in the remaining trials, we would submit Exenatide for type 2 diabetes in mid-2004.

Turning now to our financial guidance for the fourth quarter and the full year 2003.

Previously, Lilly had provided 2003 normalized earnings per share guidance of $2.55 to $2.60.

We are now comfortable with the earnings per share consensus of $2.58 for the full year 2003, which would imply earnings per share of 67 cents for the fourth quarter.

The full year earnings guidance excludes the asset impairments, restructuring and other special charges that were incurred during the first quarter of this year.

The Company notes that if the first quarter unusual items were not excluded, then the reported earnings per share guidance for 2003 would be $2.35.

In addition, our guidance for Q4 in the full year excludes future unusual items.

The Company is not aware at this time of any material unusual items that will occur in the remainder of 2003.

I would like to provide you with line item guidance which supports our expected adjusted earnings per share for the full year.

First, we anticipate low, double digit sales growth.

We expect gross margin to contract about 200 basis points for the full year, including the increment long-going annual costs of approximately $200 million compared to 2002 levels as part of the conscious strategy to ensure quality improvements in growth and capacity in our manufacturing operations.

SG&A expenses are expected to grow in the mid- to high teens.

R&D expenses are expected to grow in the high single digits and still be at the top of the industry in terms of the percent of sales.

OID should contribute approximately $70 to $90 million in income.

The tax rate should remain essentially constant.

Finally, to summarize our Q3 results, we delivered strong double digit sales growth for the third consecutive quarter.

Strattera, Cialis and Forteo, continued their successful launch performance in the third quarter on the market, Strattera quarterly sales have surpassed 100 million and we have also been productive on the pipeline front, very encouraging data from zan tide 3 recent submissions and approval from the FDA as we mentioned we're also anticipating several new product approvals in the coming month and expect to receive by the year end the FDA's overall manufacturing assessment which is relevant to the approval of Cymbalta for depression and as we just said we're committed to meeting consensus UpS2.58 for a normalized basis for the full year, 2003.

This concludes our financial review for the the third quarter.

With that, Craig and I will take your questions.

AT&T first caller, please.

Ladies and Gentlemen, once again, if you wish to ask a question, please press star, then, one on your phone keypad.

You'll hear a tone indicating you'll been placed in queue and you may remove yourself any time by pressing the pound question.

We ask you limit yourself to one question and if you have additional questions, press star and one, again, to place yourself back in the queue.

And our first question comes from the line of Steve scalea with SG Cowen, please go ahead.

Thank you.

I noticed several differences in the guidance that you provided just a few minutes ago versus what you provided back in July, including less pressure on the gross profit margin, more growth in SG&A and less OID contribution.

Could you go 3 each one of those and tell us why you have now perceived a change in that guidance?

Yeah.

Steve.

This is Simon.

In terms of the gross margin, we've previously said an expectation of a contract action of 200 to 250 basis points.

We still have the 200 million inkre mmentle that we talked about, versus 2002, included in the new number of contract action of 200 basis points so the rest is basically just a slightly better product mix than we had anticipated in terms of the gross margin line In terms of SG&A expense we have previously said mid teens we're now saying mid to high teens.

It's purely a factor of having, sort of, a -- sort of made our forecast more formal as we get closer to the end of the year and obviously we continue to invest in those products which are -- have been launched since the beginning of this year, especially Strattera, which is doing extremely well, as well as Sealis, overseas and we continue to meet to invest, quite frankly, in some of the other major current growth products.

And prepare for the new product Ladies and Gentlemens.

So that's why there's a slight bit of varbility there.

In terms of OID, we moved down, approximately, 50 million dollars, and that reflects that in the third quarter, we, as we went through the quarter we realized that we had some write-downs of as sets based on, sort of, normal accounting.

There was nothing individual, which was that material, but when you added them up, they came to about 50 M. and, so, that mum ber has been subtracted out of what was our previous guidance.

So that's where the differences are.

Next caller, please?

?

We'll now go to the line of David Risinger with Merrill Lynch.

Please go ahead.

Thank you very much.

My question relates to Cymbalta.

Simon, if you could comment on whether you were on a two month or 6 month approvalable clock since you responded to the approvalable letter and in addition in in terms of the Cymbalta inventory you commented in July you had to get suf inventory for a launch are you at suf inventory level today, and, if not, could you comment on the scale-up issues?

Thank you.

Yeah.

In terms of Cymbalta, basically, whethers it a two or six month clock, I really can't answer that question at the moment, as part of the approvable letter that we received on September 29.

We do have to provide a complete response.

But what that will exactly mean, given that we still got the hurdle to overcome of the overall manufacturing assessment and the pAI still remains to be clarified at this stage.

So, I can't really comment.

And in terms of preparations for launch from a manufacturing standpoint, what we told you previously and on the Q2 earnings call was that Cymbalta is a pretty complex product to manufacturer and as we also said on the Q2 earnings call we have need to ensure that there are suf efficientient inven 4 levels prior to the Ladies and Q2 call we warned you we may have a difference in terms of the timing of the full-scaled launch, at that point in time, we were predicted for Q1, versus the approval of Q4 because we needed to have time to build inventory.

We don't provide specific data on inventory at products at any given point in time, we will, however, provide you with an update on the timelines once we have, A., received the overall assessments from the FDA and the manufacturing situation.

And, B., once a pAI has been scheduled and is taking place.

Obviously, David, if we discovered at that time that there were going to be differences between the launch timeline and the approval timeline as we did back in Q2 we would appraise you of that situation at that point in time.

Next caller, please.

and we'll now go to the line of tim think Anderson with Prudential.

Please go ahead.

a couple of questions on Cymbalta.

Has the progress with this issue in getting it to market, been slower than what you would expected back at the meeting, maybe a little bit less than two months ago and understand the process here, is there a particular order this has to happen?

It sounds like the overall assessment has to happen before the pAI and sounds like both, indeed, need to happen before you get final approval to launch this product.

All right.

David, I don't think that this is coming to market more slowly than what we would have anticipate whd we talked to you on September 5 at the analysts meeting.

And what we have said is that we, like, as you know, that we need to receive the overall assessment, from the FDA, on our manufacturing status.

And we've also said we expect the pAI0 occur sometime after we receive that assessment, one after the other and we do, in fact, need both to gain final approval for the product.

So, we have said that prior to the end of the year, we would receive that final assessment from the FDA.

And we still feel confident that that's going to happen.

Next caller, please.

Now go to the line of C.J.

Sylvester with UBS.

Please go ahead.

Hi.

I know you guys rrnlt willing to really -- aren't willing to give, really, 2004 guidance, just refresh my memory in terms of the margin substantialance what's in the cost of good really fixed in terms of the manufacturing improvements that you're making and how much of that is likely to carry over in to 2004?

And, secondly, on Evista, what point do we, one, see breast cancer prevention data, is that early '04?

And depending on the data, is there submission close thereafter and something clearly in your mind totally revitalizes this France chies or still dealing with the prevention issues you talked about in the earlier comments, where the prevention market is contracting?

What we've said to date is that we have 200 million in this year, which is over and above the level we have in 2002, which was specifically related to, sort of a couple of things.

The GMp compliance, as well as some expenses related to expansion of our facilities, which could not be capitalized.

Remember, we have facilities being built, for example, down in Puerto Rico as well as in Virginia and some technical sort of capability expenses.

I think, you know, we haven't provided guidance of the 2004, what we have said is that we would expect at least that amount to continue through for the foreseeable future but more specific gross margin guidance we'll obviously give when we give the guidance for 2004, probably on the January earnings call, if not slightly earlier.

In terms of prevention, C.J., I think you're renks renksing the core trial.

And the primary sp incidents of breast cancer or prevention of breast cancer and we said previously and we're stiging to that we'll be able to publish results sometime in 2004 and we're still anticipating that.

And, yes, we do think that this is important data and significant information, once we get all of the right patient expos urs and able to submit for indication in breast cancer down the the road.

But the data that we would receive from this trial is not going to be sufficient for a pub mission.

Next caller, please.

We'll now go to the line of Tony Butler with Lehman Brothers, please go ahead.

Yes, thank you.

Simon.

The individuals who are providing SS on a global GMp issues, are they from Washington and/or are they from a consortium above the Detroit regional office and those from Washington?

Thank you.

Yeah.

I think it's fair to say that the people who are involved in the whole assessment process comes from both the real nal oftion in Detroit as well as from the central office in Washington.

Which is part of the normal process that you -- you work, basically, once you have received an inspection, the inspectors, then, write a report which gets passed on to the regional office.

The regional office, then, evaluates that, typically, will, then, work with the central office, making a recommendation, and, then, the two offices will work together to come to the final, that's overall assessment that they wish to provide back to a company.

Next caller, please?

from the line of Mara Goldstein, with CIBC word markets.

Please go ahead.

Thank you.

Actually, just following up on the comments that you just made, Simon.

Are you able toal us, sort of, which stage in that process you're at with the different groups of the agency?

And, then, I wanted to ask you, on Cymbalta you mentioned fs it's a complex product to manufacturer could you give us a relative where Cymbalta falls in a gross margin compared to Zyprexa or Evista?

Oh, boy.

That -- the second one, the answer is, I really can't give any specifics in terms of product gross margin.

And, quite frinkly, we don't do that for more competitive reasons more than anything else.

Buts it a fairly complex product to make.

It's more complex than, Zyprexa or Strattera or Sealis, let's put it like that, I can't comoant the gross margin specifically.

In terms of the stage of the process that we are at, I think it's fair to say that this thing has worked its way fairly well down the road within the agency, and that's why we are very confident that we will have something to report bit end of the year in terms of the overall assessment.

Next caller, please?

and we go to the line of Kenneth Kulju with Credit Suisse Boston, please go ahead.

Good evening.

I guess the first question I have is relating to Evista.

Obviously, MERCK had also sited some of the same challenges with the postmenopausal market with fosamax could you give aus better feel for the split between this prescriptions in the U.S., for prevention, versus treatment, and, walks us through, should we really be assuming that the product line is going to register healthy growth in '04?

Yeah, thanks, Ken.

In terms of the split between prevention and treatment, I don't have the exact figures, because, quite frankly, it's little bit difficult to track, per -- precisely.

Really, as you can tell from the comments in the prepared text, the vast majority of our sales come more from the prevention arena than from the treatment arena.

And that is part of the challenge that we have had over the last couple of months with this product.

I think going forward into 2004, it's really prema mature to predict at this point in time but fair to say that for the rest of this year, within the guidance that we have given for the Company, that its reasonable to assume that total scripts will probably be at similar-sort of levels for the growth in 36789 next caller, please.

the line of Bert henceler with Sun Trust.

Go ahead.

Thanks.

Thanks for taking the question.

My question is sie Zyprexa.

Simon, could you give us an idea of how much there was in the quarter and regarding class labeling for the atypicals, if there's a holdout as there appears to be from ur friends from Pfeizer, will you make that change and disseminate that information according to an updated label?

Just give me your thoughts in that regard.

In terms of Zyprexa, the topic of wholesaler stocking was really very minimal and it would have had in for 1 or 2 percentage point impact maximum for the quarter.

In terms of the topic of class labeling, you know, the agency clearly requested class labeling, based on a large and compelling body of evidence.

We have actually, already, adopted that label change.

We're wear that -- we're wear of other manufacturers of atypicals have not yet adopted the FDA's label change my undersomething the FDA did not impose any specific deadline on compliance but remember in an effort to keep up with Zyprexa and the treatment of Bipolar Disorder a number of the other competitive atypicals have applications for bipolar mania currently under review with the FDA.

Many with action dates either this quarter or next quarter.

So, we would expect that these approvals will be subject to the new class warning statement.

Also, recently, Health Canada requested that manufacturers get updated information on hyper glie seemia and value dating our position on this topic.

And, in fact, Health Canada indicated that the label will be required for new market entries as well as those currently approved in Canada.

So, you know, we'll have to wait and see what happens, but our expectation would be that, quite frankly, unless we see some for the of document to the contrary, or we see a new indication approved about the requested label change, sort of not included, that this is exactly as the agency suggested, to us, in their request, class labeling.

Next caller, please?

We'll now go to the line of Steve scalea with SG Cowen.

Please go ahead.

Thank you You mentioned the 2% price increase in the quarter I'm wondering if you could detail which products got price increases and given the seasonal dynamics would you expect the sales of Strattera to be up or down in Q4?

Would you repeat the last part of your question.

Given the soon aldynamics would you expect the sales of Strattera to be up, down in Q4?

Do you want to ask the question on price, Craig?

I'll deal with the Q1.

Sure, Steve.

The price increase that is we made in the quarter include zie gres up 3%, for theio, up 7%, HUMALOG up 9%, HUMALIN9 and 5%.

Humtrope 5%, rea pro up 3%, Strattera up 5%, Prozac weekly up 7%, and in terms of Strattera we haven't provided specific sales guidance for Strattera, Steve, but we saw rapid acceleration in or prescriptions volume with the start of the school year, which started in September and we'll have to watch prescriptions and see what happens.

I go as far to say we don'tgett give sales predictions but it's fairly safe to say when you went from 57,000 scrips, approximately a week at the end of June, to ,000 at the end of September, that 95,000 will roll through comfortable into the foarkts.

Next call r, please.

to the line of Mario Corso with Leerink Swann.

Please go ahead.

That you.

A couple of quick questions, Actos should we expect a lusm sum payment on the fourth quarter on that, as periodically happens?

And, in terms of manufacturing overall, I guess I'm trying to get a sense, you know, how you feel awaiting this, you know, this late year update, whether you feel optimistic going into it.

And, then, finally, you know, in terms of the Cymbalta launch timing it seems to me, given the timeline of the steps that have to take place that a Q1 launch potentially is looking less and less likely.

Is that a fair statement to make?

Or is it just premature to say that?

Thanks.

Oh, mario, in terms of your questions, I think that the topic of Actos, we do not anticipate any major lump sum payment in the fourth quarter.

In terms of the manufacturing, and this late in the year, all I can say to you is, you know, we don't, obviously, now the outcome of every overall manufacturing assessment, yet.

But, that doesn't mean that we don't have discussions with the agency, which lead us to believe that we will know the outcome by the end of the year, because we suddenly believe we will.

So we're optimistic we'll know the outcome.

What that outcome will be, I think it's better for us to wait and find out once we've had feedback from the agency and, then, we'll talk about the timeline more specifically as we said for sim baflta.

The one other thing I'd say, Craig sort of gave you some of the price increases I think it's important to remember those are retail price increases and the that effective price increases tend to be less than that.

Next caller, please?

and we'll go to the line of David MOSKOWITZ.

Please go ahead.

Thraw .

Most of my questions were answered.

Going back to the price increases you mentioned as well as the inventory stocking Zyprexa, can you talk a little bit about the inventory policies with the buds today with MERCK renewing with wholesalers.

Can you talk about whether or not you engaged in the management agreement with wholesalers and give us an idea of what type of inventory you like to keep.

And at the tale end is there any wholesaling restocks on Gemzar or evis ar?

Thanks.

Let me comment.

In terms of the topic of inventory management, we do not have any sort of excessive stock at the wholesaler level.

We do have sometimes, some swings from quarter to quarter, which, naturally, sort of work themselves out within a quarter or so.

And -- but, on the line demand is pretty much our underlying demand.

Sort of minor swings from quarter to quarter.

And that's really all that I have to say.

I don't really have any comments in terms of how we do our agreements.

But, that's the situation and we feel very good about our forecasting ability and so forth with the inventory.

Next caller, please?

We'll go to the line of kneel swing with bocrim partners, please go ahead.

Hi, everyone.

Do you think that Strattera will be profitable in the fourth quarter, that's one topic.

And, maybe you can repeat with some update the penetration of the atypicals outside of the U.S., where the penetration is much lower thanes it in the U.S., and relating to sie -- Zyprexa, what is the nine-month growt and constant exchange?

You mentioned 3%, I -- 32%, I think, in the third quarter outside of the U.S.

And I think you also said, that type of growth, 30% or sloa -- so in constant exchange might be somewhat sustain able, if I'm wrong, correct me.

First the Strattera question, please?

Yeah.

Kneel, in terms of Strattera we really don't give sort of profit by products, but I think it's fairly safe to say that this -- the fact that Strattera has exceeded our expect tais this year has certainly been a positive and profitability-wise, the -- we're pretty pleased.

In terms of atypicals, outside of the united states, and the penetration, the pen penetration in western Europe is in the 15-20% range, which compares, more, with a sort of, 70-75% range in the United States.

So there's lots of room for growth in terms of Zyprexa outside of the united states.

And, I think that's important to bare in mind when you think that Zyprexa international sales were over 1 billion dollars last year and in the first nine months of this year, have grown at about 41% n including the exchange rate.

Obviously, it's slightly less than that I don't have the figure, exactly at-hand for year-to-date in local currency, but it's very strong.

So we're very optimistic about continued strong growth in local currency, internationally, going forward.

And we're not only seeing that in the top five markets in Europe, we're also see in Japan, where we mentioned that we grew about 43% in the quarter and there was much less exchange rate versus the YEN in this particular quarter impact involved.

So, it's a good growth story going forward overseas.

Next caller, please?

and we'll go to iris Fransconny with Piper Jaffray.

Please go ahead.

Threangs for taking my yes.

I've quick question on for theio, I remember correctly, correct me film's wrong, the expectations for the year were 80-100 million in years you had a current year-to-date 40 million is your expectation you're going to double that, basically, in the fourth quarter?

We've provided no guidance in terms of Forteo sales, as we have not done with any other products.

It's not our policy to provide specificked to guide aferns.

From our perspective and Lilly's plan we've actually exceeded our expectations and I think the fangt you see the ram part from 14ODD million in the second quarter to 21.6 million in the third quarter is good evidence that that ramp-up is happening in a robust rate and we're very pleased with that.

Great, thank you.

Next caller, please.

We'll go to the line of Dave of Merrill Lynch.

Please go ahead.

Thanks very much.