禮來公司 (LLY) 2005 Q4 法說會逐字稿

Ladies and gentlemen, thank you standing by. Welcome to the fourth-quarter 2005 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session; instructions will be given at that time. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Mr. Jim Ward. Please go ahead, sir.

Good morning and thanks for joining us for Eli Lilly and Company's fourth-quarter 2005 earnings conference call. I am Jim Ward, Executive Director of Investor Relations. Today, I'm joined by Jim Greffet, our new Manager of Investor Relations. Jim will be replacing Craig Hartman. I know you'll enjoy working with Jim, and I hope he will be able to meet many of you in person over the next several months.

You can access the earnings press releases and supporting materials, a live webcasts and an Internet-based replay of this conference call at Lilly.com. The replay and supporting materials will be available on the Web until February 24.

During this conference call, we anticipate making projections and forward-looking statements that are based on management's current expectations, but actual results may differ materially due to various factors. For example, our results may be affected by competitive developments, the timing and success of new product launches, regulatory and legal matters, government investigations, governmental actions regarding pricing, importation and reimbursement, change in tax law, and the impact of exchange rates. For additional information about the factors that affect our business, refer to Exhibit 99 to our Forms 10-K and 10-Q. In addition, the information we provide about our products and pipeline is for the benefit of the investment community. It's not intended to be promotional and is not sufficient for prescribing decisions.

I would like to take a moment to discuss some of the key events that have taken place in the last three months. Lilly submitted Byetta for the treatment of Type II diabetes in Europe. This submission timing was earlier that Lilly's original submission target of the first half of 2006. Lilly disclosed encouraging Phase II results for both enzastaurin from non-Hodgkin's lymphoma and Factor Xa inhibitor for thrombotic disorders. Lilly and Alkermes signed an agreement to develop and commercialize inhaled formulations of parathyroid hormone. This marks the third collaboration between the companies.

Lilly licensed from Kyowa Hakko an anticancer drug candidate that inhibits the mitotic kinesin Eg5. Lilly received an exclusive license to develop and sell the compound worldwide, except in Japan, with Lilly and Kyowa Hakko sharing rights in certain Asian countries. As part of Lilly's ongoing effort to increase productivity and reduce its cost structure, the Company finalized decisions that resulted primarily in non-cash charges for the write-down of certain assets with no future use. Some of the impaired assets have been replaced by newer, state-of-the-art buildings and equipment that are expected to further increase the Company's productivity and its manufacturing and R&D effort.

Now, I would like to turn your attention to Slide number 3, as I summarize our adjusted financial results for the fourth quarter. Before I review the income statement, I'd like to remind you that because Lilly adopted stock option expensing as of the beginning of 2005, stock option expense has been included in the cost of products sold, SG&A and R&D expenses for 2005 results. We did not recognize stock option expense in 2004. As a result, line item comparisons on Slide 3 do not include stock option expense in 2004. However, on Slide 4, we provide a comparison to pro forma 2004 results, including stock option expense. We've also provided a separate spreadsheet in our IR Web site Financial Workbook that estimates stock option expense by line item, by quarter, for 2004 so investors can make like-to-like comparisons.

Moving onto the income statement, worldwide sales for the quarter grew 6% to $3.879 billion. Gross margin was 76.8% of sales, a 60 basis point improvement compared to the fourth quarter of 2004. Including stock option expense in '05 only, total operating expenses increased by 11% for the quarter. This increase in total operating expenses resulted from an increase of 8% in SG&A and a growth of 15% in R&D expenses.

Operating income increased 1%. Other income and deductions was a contribution of $85 million in the fourth quarter. The tax rate was 18.3% for the quarter. This lower tax rate brings our effective tax rate to 21% for the year.

Finally, Q4 diluted earnings per share were $0.80. Adjusted EPS were $0.75 in Q4 last year. If stock option expense had been recognized in Q4 of 2004, adjusted EPS would have been $0.69. On a like-to-like basis, this represents 16% growth in earnings for the quarter.

On Slide 4, we have provided a Q4, 2005 income statement that is compared to adjusted earnings, including stock option expense, in Q4, 2004. When adjusting for options, you can see that operating expense growth in the fourth quarter was 7% year-on-year and operating income increased 9%.

We have provided a reported earnings statement on Slide 5. Details about our reported earnings are available in today's earnings press release.

Slides 6 and 7 show reconciliation of the items that were adjusted from reported earnings to help investors better understand our ongoing business. 2004 year-to-date earnings were adjusted to exclude $603 million in charges for asset impairments, restructuring and other special charges; a $362 million in-process R&D charge for the acquisition of Applied Molecular Evolution; a $465 million charge for tax expense on the American Jobs Creation Act repatriation; and a $30 million charge for acquired in-process R&D related to the in-license of [prevansarin] from Merck Kg. In addition, pro forma stock option expense has been included in 2004 and would amount to $362 million before tax.

2005 year-to-date earnings are adjusted to eliminate the $1.073 billion charge related to product liability litigation, the $172 million charge for asset impairments, and the $22 million after-tax charge relating to the adoption of the FASB FIN 47. On a like-to-like basis, our adjusted EPS grew at 11% for the year.

A summary of the geographic breakout of the effect of price, rate and volume our sales for the quarter and year could be found on Slides 8 and 9. Q4 topline growth of 6% was a result of an increase due to price of 1%, a 1% decrease from exchange rates, and an increase in volume of 7%. For the year, revenue growth of 6% was a result of 1% increase due to price, 1% increase due to rate, and 3% increase due to volume. Remember, wholesaler destocking has an unfavorable impact of over 1% on corporate sales or over 2% on U.S. sales.

Now, Jim Greffet will walk you through product sales and the income statement.

For the quarter, worldwide Zyprexa sales declined 5% versus last year to $1.032 billion. Worldwide sales were roughly flat with Q3. Sales in the U.S. declined 15% to $464 million, due to lower underlying demand versus last year. Sales outside the U.S. were up 6% to $568 million. Excluding the effect of exchange rates, sales outside the U.S. grew 9%. As expected, global Zyprexa sales decreased modestly by 5% for the year.

Turning now to Slide 11, Strattera sales declined 8% to $168 million in the fourth quarter. Sequentially, sales were up $27 million over Q3.

On Slide 12, Cymbalta sales in the fourth quarter were $229 million, up 25% or $46 million sequentially from Q3. Q4 sales overseas, primarily from Germany, the UK, Brazil and Mexico, were $16 million. We expect launches of Cymbalta in Italy in Spain early this year and a launch in France by year-end. Worldwide Evista sales were $265 million, up 3% compared to Q4 of 2004. U.S. Evista sales increased 1% to $170 million. Sales for Evista overseas increased 6% to $95 million.

Slide 14 shows quarterly Forteo sales of $118 million, up 59% over Q4 of last year. U.S. sales were up 43% to $81 million, driven primarily by strong growth in prescription demand. International sales of Forteo were $37 million.

Onto Slide 15 -- Q4 diabetes care revenue increased 11% to $750 million. Our diabetes care franchise revenue is primarily made up of Humulin, Humalog, Actos, and Byetta. Total Byetta sales for Q4 were $49 million. Lilly reports half of the gross margin from U.S. sales of Byetta, plus sales of pens, to Amylin. The sum of these two items totaled $26 million. Global Humalog sales grew 9% to $309 million, driven primarily by higher prices. Actos revenue was up 20% to $155 million. Lilly's Actos revenue is based on the terms of the agreement with Takeda and varies from quarter to quarter. As a result, Lilly's Actos revenue will not necessarily track with product sales. Humulin sales for the quarter were up 1% to $247 million, driven by higher prices.

Slide 16 shows Cialis sales. Total global sales were up 38% to $211 million in the quarter. Cialis sales in the Lilly territories that are recorded in Lilly's revenue line were $45 million. Sales in the Lilly ICOS joint venture territories were $166 million. Sales in the U.S. were up 55% to $82 million. As a reminder, Lilly records 50% of the operating results from the Lilly ICOS JV territories, which are North America and Europe, in other income and deductions on an after-tax basis.

Slide 17 reports Xigris sales of $52 million in the fourth quarter, down 6%.

On Slide 18, you can see Gemzar sales were up 7% to 353 million for the quarter. Sales in the U.S. were flat at $155 million, while sales outside the U.S. increased 13% to 198 million.

Moving now to Alimta, you'll find the results on Slide 19. Alimta sales in the fourth quarter were $136 million, a sequential increase of 14 million over Q3 reported sales. U.S. sales were $87 million, and sales outside the U.S. were $49 million.

Slide 20 summarizes the quarterly sales amounts and growth rates of our leading pharmaceutical product, (indiscernible) animal health. As you can see from the charts on Slide 21, the topline contribution from Lilly's nine newer products was $791 million in Q4, or 20% of our sales. In addition, Cialis sales from the JV territories were $166 million for the quarter. On Slide 22, you'll see new products contributed 18% of sales for the year.

Now, let's look at the rest of the income statement. Gross margin as a percentage of sales in the fourth quarter was 76.8%, an improvement of 60 basis points over Q4 2004. The increase was due primarily to favorable impact of foreign exchange rates, favorable product mix, and lower factory inventory losses, partially offset by higher manufacturing expenses. Although it was not a major driver on the year-on-year expense growth, Q4 2005 cost of products sold includes stock option expense.

Looking at Slide 24, you can see that SG&A was up 8% to $1.19 billion for the quarter. This increase was primarily due to increased incentive compensation and benefits expense, the adoption of stock option expensing, and increased marketing expenses in support of newer products. The comparison benefited from a contribution to the Lilly Foundation during Q4, 2004. Adjusting for pro forma stock option expense in 2004 would result in a 4% increase in Q4 SG&A, year-on-year.

R&D expense, shown on Slide 25, grew 15% to 810 million and was 21% of sales. The year-on-year increase is primarily due to the Q4 2004 reimbursement of R&D expenses from DI triggered by the European approval of Cymbalta, increased incentive comp and benefits, increased discovery expense, and the impact of stock option expense, which was not included in Q4 2004.

Slide 26 summarizes the fourth-quarter other income and deductions. Total other income and deductions resulted in a net contribution of $85 million in the quarter. As you can see, the majority of income comes from sustainable items such as net interest income, Cialis JV profits, and periodic out-licensing. In fact, when comparing the prior year, Q4 benefits by $28 million includes Cialis JV income, while the year comparison benefits by $90 million.

Slide 27 shows year-to-date other income and deductions. The adjusted tax rate is 18.3% for the quarter, leading to a 21% effective tax rate for the year. Barring any surprises in product mix or tax legislation, we believe this rate should be sustainable over the next couple of years.

Jim will now discuss our financial guidance for 2006 and Q1.

There are no changes to annual guidance provided on December 9. As a reminder, annual sales should grow 7 to 9% over 2005. Gross margin percentage is expected to improve modestly. Total OpEx is expected to grow in the mid single digits with R&D remaining at the top of the industry as a percent of sales.

Other income should be in the range of 175 to $275 million. The effective tax rate is expected to be 21%. EPS is expected to be $3.10 to $3.20 for the year, which is an increase of 8 to 11% over 2005 adjusted EPS. For the first quarter of 2006, we expect EPS of $0.73 to $0.75, which represents growth of 7 to 10% versus prior year.

This concludes our financial review for the fourth quarter. We will now take your questions. Operator, the first caller, please.

Thank you. (OPERATOR INSTRUCTIONS). Carl Seiden, UBS.

Thanks very much and good morning, guys. A question on Cymbalta, Jim -- at your December analyst meeting, there was a lot of focus on I guess adjusting the strategies to try to get marketshare going again. Can you just talk about when those changes were made and, as a result, just roughly from a timing perspective, knowing these things can't be precise -- but when do you think we should be seeing evidence of that in terms of marketshare growth for Cymbalta? Thanks.

Okay, thanks, Carl, for the question. Regarding Cymbalta, we are doing a number of things in order to help with the sales trend. First of all, as we discussed in December, we've launched a very successful non-branded DTC campaign for Cymbalta, and that began the beginning of Q4. In fact, I can tell you, over the past month, Carl, Cymbalta's brand recognition has nearly tripled amongst the targeted patients, so that's really good news.

Also, at the beginning of January, we rolled out what we're calling our Sales Force for the Future, which is our sales force reorganization. That should help benefit all of our neuroscience products, but especially Cymbalta; it's going to be adding some additional details behind Cymbalta. As well, we began promoting the VP NT indication to primary care physicians at the end of the third quarter. With that, we are able to call on roughly 25,000 more targeted physicians.

So, as you mentioned, Carl, a lot of this takes time to gain some traction. Also, there's a possibility of a little bit of disruption within the sales force as we reorganize, but we're looking forward over the next few months to have this begin giving us new and improved script trends.

Next caller, please?

Dave Moskowitz, Friedman, Billings.

Thanks for the question. Just on the Medicaid dual-eligible population, we are hearing stories about those patients not having access and certainly not -- the sicker schizophrenic patients not understanding how to make the switch from between the two plans. I'm wondering what impact you guys are seeing and sort of what's baked into your expectations in regards to the dual-eligible switch to Medicare. Thanks.

Okay, thanks, David. Overall, we think, for 2006, the switch is going to be benefiting Zyprexa. In the near-term, there is a little bit of transition difficulties, as you mentioned. However, we're not hearing any anecdotal stories that would say that it's affecting the patients in too strong of a way right now. In fact, there's been some steps taken to ensure that all patients have access to their medicine over the next month or so as they go through this transition. So, we're not expecting any unfavorable volume decreases as a result.

Next caller, please?

Tim Anderson, Prudential Securities.

Thank You. A couple of questions -- yesterday, on their earnings call, Bristol-Myers said certain international markets in schizophrenia had slowed, specifically citing the UK as one of those markets. I'm hoping you could comment on what you're seeing here and why this might be occurring.

Second, again, Merck yesterday was on the wire saying it was considering biotech acquisitions. I'm wondering if you can update us on your thinking about how acquisitions fit into your list of priorities.

Okay, thanks, Tim. In terms of Zyprexa overseas, we are still very pleased, for instance, with how Zyprexa is doing in Q4. We had single digit growth throughout Europe, and in Japan, we had over 25% growth in Q4; then in Central and Eastern Europe, we had 24% growth. So in general, overseas, we are very pleased with the performance of Zyprexa.

In terms of where we see market trends going, it is true in Western Europe that market growth in general for antipsychotics is slowing. We are seeing roughly 2 to 5% growth across the various markets of Western Europe, and UK would be one of those that is on the low end. We are seeing flat to just very slight growth overall. So, it's a mixed bag in terms of how each country within Western Europe is doing, but for 2006, we will continue to see some slight growth for the overall market.

Now, in terms of your question with biotech acquisitions or acquisitions in general, as you know, we have a philosophy of looking to organic growth for our strategy. We still do look opportunistically for various opportunities that might arise, for instance acquiring some technology or in-licensing candidates and so forth, but we're not looking to make any large acquisitions.

Next caller, please?

David Risinger, Merrill Lynch.

Thanks very much. I have two questions. First of all, with respect to Exenatide LAR, I think your comment was last summer that the Company would comment on whether or not it was moving the products into Phase III by the end of 2005, and there was no comment, so it appears that it's not moving into Phase III soon. I guess my concern is that if it doesn't move into Phase III soon, it may not be approved until the next decade. So, if you could comment on the LAR timing, that would be helpful.

Then, separately, in terms of the 1.4 billion in [flat] CapEx spending in '06, it was my impression that you were winding CapEx down because you are just not launching a lot of new products right now. So could you just frame for us what the 1.4 billion in CapEx is being spent on, since companies multiple times your size, like Pfizer for example, only spend about 2 billion in CapEx annually? Thank you.

Okay, in terms of Exenatide LAR, we do anticipate being able to give you more color commentary on that, along with Amylin, in the near future. What we have talked about recently is our new manufacturing site that's going to be put in place in Ohio for the manufacturing of LAR. As we said in the press release, that's going to be able and to begin going through validation by the end of 2008. So, we are still working with Amylin and the FDA in terms of the trial design, but I would not read the fact that we haven't given you a specific update yet on beginning Phase III as any trouble. It's just that we are working through exactly what the trials need to entail, and then we will be getting back with investors in terms of the startup timing.

Now, in terms of your question regarding CapEx, keep in mind just a few things to put things in context. Lilly is a company that has not gone through a lot of merger and acquisitions, so therefore, we haven't taken on a lot of excess capacity as some of our competitors have, in fact so those that you mentioned. So, we're not in the position of rationalizing manufacturing capacities as many of our peers are. Also, something that's unique about Lilly is that we have a very large capacity for biologics and producing our biotech products that we have and will continue to have in the future. That's actually driving a lot of our capital spending. Specifically with our insulin franchise, we just finished a large facility in Puerto Rico that's actually come online now in January, and that's to produce bulk Humalog, and then we're looking forward into 2006, included in the 1.4 billion that you mentioned, we will have new insulin facilities this time though for the manufacturing of cartridges for the fill/finish. That's going to take place both in Virginia as well as Italy.

So between adding some additional manufacturing capacity for new products, beefing up the manufacturing capacity for insulin, as well as adding new R&D capacity and capabilities, that's what's driving our 1.4 billion. We are convinced that we can keep a very close eye on that and do as much as we can to drive productivity and perhaps even benefit from our Six Sigma efforts to keep that well in hand in the future.

Next caller, please?

Tony Butler, Lehman Brothers.

Thank you, and good morning, Jim. I believe, in the December analysts meeting, reference was also made about some additional incentives around the insulin market, which really was undertaking. Can you comment to the extent of the timing of when those initiatives occurred and whether or not you are seeing gains in share, particularly as it applies to the U.S. If not, when might you expect that?

Okay, thanks, Tony. You are right. Lilly is determined to be a leader in diabetes care, as we discussed in December. To that end, we are significantly adding a lot of resources to market Humalog, not only in the U.S. but also overseas. For instance, in the U.S. just recently, we've doubled the number of sales calls that we are able to make throughout the country, as well as, as I mentioned, we've added a lot for manufacturing capacity for our bulk Humalog. We're in the process of adding capacity for the fill/finishing as well. Outside the U.S., we aim to also be a premier diabetes company. Specifically, we're looking to be number one in China, as well as beefing up our efforts in Europe and Japan. Within that, we're adding some new delivery devices, beginning with some new reusable pens that will be launched in Japan and Germany.

So, again, just like with our additional efforts with Cymbalta, this will take some time, but I think, over the next couple of quarters, you can expect to see Humalog share growing.

Next caller, please?

Chris Schott, Banc of America.

Yes, just two quick questions -- first, on Strattera, now that you've had some time to assess the impact, can you talk about the impact you are seeing from the labeling change we saw in that product? Then secondly, on Arxxant, could we just get an update there on the timeline for the filing? Are you progressing, basically still on track for a February submission?

Okay, thanks, Chris. In terms of Strattera, actually it's still a little bit early to say exactly how that's trending. So far, we haven't seen a large impact from the label change. Scripts seem to be on a similar trajectory as before the label change, and we expect '06, obviously when you're doing a sales comparison, to benefit from not having the impact of wholesaler destocking that we saw in the first half of 2005.

In terms of the Arxxant filing, things are very much on track there. We mentioned in December that we anticipate filing that submission in February and that's still the case. We will keep you posted on that as we get into the month of February and have some other results to discuss.

Next caller, please?

James Kelly, Goldman Sachs.

Two questions, if I may, one on Zyprexa and one on Gemzar. Zyprexa came in a little lighter and I guess we could debate what, I don't know, modestly means, but I'm just interested in what sort of points we're looking for to see for a stabilization in share and how we should be assessing that.

Also, on Gemzar, I think it's been flat roughly for about three quarters now, and just any color on what's been driving that and what could drive that to growth. I mean that in the U.S., where it's been flat for three quarters. What could drive that to future growth from here? Thanks.

Okay, thanks, Jim. In terms of Zyprexa, so we feel that things are stabilizing if you look at the absolute script trends, both the new script trends as well as the total scripts. If you look at that on a month-to-month basis, that appears to be heading in the right direction.

As I mentioned earlier, when we realign our sales force in neuroscience, we also anticipate that that's going to help Zyprexa reach targeted physicians more productively, and we are still very enthusiastic about the [KD] results and using those [KD] results along with health outcome studies. I think those physicians are really seeing the efficacy as well as the cost-effectiveness of Zyprexa.

In terms of Gemzar, we are very pleased with the performance of the product, especially on a global basis. Keep in mind, this is about a ten-year-old product and continues to do very nicely.

In terms of looking for growth, it depends on how things progress, looking at, for instance, ovarian and breast cancer, and we would see those, if we are successful with approvals there, to also help (indiscernible) the growth in the future.

Next caller, please?

Steve Scala, S.G. Cowen.

Jim, I'm wondering if you would provide more detail on the change in the Actos revenue in September of this year. Specifically, I have four questions. What is just the magnitude of the tail royalty, and is it stable or does it decline during the year as you receive it?

Secondly, do you receive it for three years or some other length of time?

Third, have you provided a date in September when this occurs? Is it early or late in September?

Then lastly, is it correct that it's about 10% of your current net income?

Okay, quite a bit there, Steve. In terms of the Actos stream, first I want to point out that this affects U.S. Actos only; it has no impact on the way that we are promoting Actos in the markets overseas that we have. The starting point of the change is the end of September, 2006. That is when we lose the fee for details that we currently have from Takeda. Then this tail of royalties as you describe it, takes place for the following 36 months. At the end of each 12-month period, the amounts of payment steps down until, by the time you are out into 2009, it's a relatively small number. What we will be able to do, Steve, is, as we have a better understanding of our 2006 sales with Actos, we will be providing very specific guidance for Actos revenue so that everyone will be able to update their financial models and so forth, because the royalty that we will be receiving is based off of the 2006 sales, so we will go forward with that.

In terms of the percentage, I'm not going to give a specific amount but I can tell you that 10% is too high.

Next caller, please?

Catherine Arnold, Credit Suisse.

Thanks a lot. Your partnerships did well, sequentially, so I'd like to just ask you two questions about those. First of all, in the Amylin partnership, Byetta sequential sales were higher than I think we were broadly expected, and I'd like you to put that in context with your sampling intensity. That's obviously been an important part of your launch period. I wondered if you could comment if the demand that the numbers reflect -- demand consistent with sampling preferences, if there's anything else that we should be aware of in that result.

Then secondly, in regards to the ICOS JV, I wondered if you could comment if you thought that the performance was in line or above your expectations and how you thought about that in terms of your '06 guidance.

Okay, thanks, Catherine. We are very pleased with how we are operating with our partnership, so I'm glad you pointed that out. We're very pleased with the performance Byetta. I think in general -- and we can test this went Amylin reports out their results next month as well, but in general, I think the Byetta demand is fairly reflected with the sales that you're seeing. Clearly, we are sampling in such a way that we are able to have as many physicians as possible gain experience with the product, and this is having some impact on sales but I don't think out of the ordinary, in terms of having any material shift with the sales that are reflected versus the demand.

In terms of the ICOS joint venture, we are again very pleased with those results, pleased with the profitability that we are now seeing in the joint venture. I would say that this is in line with expectations and thus far, we wouldn't have any change in terms of how we set up our 2006 guidance.

Next caller, please?

John Boris, Bear Stearns.

Yes, good morning, Jim. Thanks for taking my question. I just have two real quickly. The first one on Zyprexa in Japan -- you had indicated a growth rate there of 25%. Can you just update us on the competitive landscape there? Have any new atypicals been launched in that market or when you are anticipating the launch of any?

Then the second question, just on Cymbalta -- are you still anticipating an FDA panel in the summer on adult suicidality? There was a study that was released also, a 65,000-patient study, from the NIMH. Can you just comment on how that might help to shape that panel going forward and also help your efforts to potentially regrow the antidepressant market?

Okay, thanks, John. In terms of Japan, we are very confident in terms of being able to keep strong growth in Japan. As I think I mentioned in December, we've recently added in fact another sleeve of sales reps in Japan in order to help bolster our marketing efforts there. If I'm not mistaken, I believe it's [abilicide] that's launching Q1, '06, so that will add some competitive noise into the system for Japan.

As regards Cymbalta, it's our best estimate that the FDA will still plan on conducting a panel regarding adult suicidality some time in the middle of 2006. I thought it was very interesting, as you alluded to, the study that was done looking at suicidality with adults and the use of antidepressants. Certainly, I think that's a very positive study that helps shape opinion and hopefully will help influence the panel discussion as they are appropriately weighing the benefit/risk profile of the use of antidepressants. Hopefully, if that goes well, that would help to stabilize if not begin growing the antidepressant market in the future.

Next caller, please?

Chris Shibutani, JP Morgan.

On Cymbalta, I think, in the past, you've given us some detail on the mix of indications that the drug is being prescribed for. I apologize if you may have covered this before, but between the DPMT and the depression indication, as well as between the specialists and generalists.

Then on (indiscernible), the clinical trials that are ongoing there, can you just update us whether the enrollment progress -- I think I believe in December you mentioned you were about halfway enrolled -- what our expectations should be, particularly coming through the first part of this year. A lot of the recent controversy in that particular category has been the potential for a generic. Can you remind us of what you think the clinical trial that you're doing for prasugrel may reveal that will give that product some differentiation in the event that either plavix is obviously still out there or potentially a generic product? Thanks.

Okay, thanks, Chris. In terms of usage of Cymbalta, we believe that roughly 15%, perhaps as much as 20%, but 15%-plus is being used for the DPMT indication. I don't have at my fingertips the split between specialists and generalists, but I can tell you that Cymbalta is really gaining good script coverage in both categories.

In terms of prasugrel, the enrollment is going along very nicely. We don't have any specific new numbers to update you with in terms of percentage, but what I can share with you is that we had excellent enrollment, in fact record enrollment, in mid-January. We look at this and track it on a weekly basis, so that is a very positive sign and we're very pleased with how things are trending and see no need whatsoever to update our submission timing that we had given earlier, which is second half of '07.

In terms of the potential for a generic, we believe that prasugrel is a excellent product, whether there is a generic Plavix or not. Just as a reminder, as we discussed in December, we aim to prove, in the Phase III clinical studies, that prasugrel versus Plavix is more consistent, it has a faster onset of action, and it has a higher inhibition of platelet aggregation. We think that's going to be a very compelling story for physicians, regardless of whether there happens to be a generic competitor in the marketplace.

Next caller, please?

Jami Rubin, Morgan Stanley.

Thank you. Jim, just two quick questions -- one is a follow-up. On Zyprexa in Japan, as you know the (indiscernible), the Ministry of Health will impose price cuts. Given how well Zyprexa has done, I would imagine it's vulnerable. So if you could talk about what you expectations are and what impact that might have on future growth in Japan.

Secondly, your confidence in the insulin reacceleration plan for this year suggests you don't view pulmonary insulin as a major threat. On the eve of a potential FDA action for Exubera, I'm a wondering if you could talk about what impact you expect from pulmonary insulin and how that sort of plays into your strategy for 2006.

Okay, thanks, Jami. I don't have anything specific to say about Zyprexa price cuts in Japan, other than to say that we would be at risk for the usual mandatory price reductions as necessary and when that occurs, that we would update you in our quarterly conference call in the terms of the percentage cut that was made.

In terms of insulin reacceleration and the impact of pulmonary insulin, obviously we are very enthusiastic about inhaled insulin with the development of our own and we look for our own inhaled insulin to be quite successful when it hits the market. I think there's a lot of unknowns, though, in terms of Pfizer's pulmonary insulin. We will need to see how things go with their launch. We've yet to see what their pricing is. We need to see what the uptake will be with patients with the device that they are offering. So with all of those unknowns, it's a little difficult to predict. So what we're doing is putting our best foot forward with the efforts that I mentioned with our own Humalog to make sure that as many patients have access to Humalog and physicians understand the great benefit that Humalog offers in terms of controlling, very tightly, the blood glucose levels.

Next caller, please?

Scott Henry, Oppenheimer.

Thank you for taking the question. First, on Zyprexa, have you given any guidance into where inventory levels currently are? As well, are there any thoughts on -- among Medicaid patients on Zyprexa, what percent would be classified as dual-eligible? I don't know if you've given that data.

Just the final question, if you have any color on the economics of the prasugrel deal with Sankyo.

Okay, thanks, Scott. In terms of Zyprexa inventory levels, nothing unusual there. As you know, with our agreements we have what with our wholesalers/distributors, they are keeping just the minimal amount of inventory on-hand, and so we don't anticipate that there would be any type of significant inventory movements in the future.

In terms of the dual-eligibles for Zyprexa, we have tried to quantify that in the past. We believe, in general, about 20% of our U.S. patients are dual-eligibles.

The last question? The economics on the prasugrel deal -- basically this was a deal with Sankyo in which we will be co-promoting, primarily in North America, and we are looking at the rest of the world in order to determine whether we will be doing some co-marketing or co-promotions and it's roughly a profit-sharing split that we will have between Lilly and Sankyo.

So with that, I will wrap it up.

Thanks for everyone's participation today on the earnings call. To summarize, we expect to deliver strong revenue performance, since we have no major patent expirations, for the remainder of this decade, and we've nearly tripled our product portfolio with nine new product launches. Based on 2005 results, we now have five currently marketed products which have reached blockbuster status of $1 billion each. We are actively managing our operating expenses and are focused on increasing productivity in all areas of the Company. We've implemented a company-wide Six Sigma program and are managing our headcount down as we become more productive. In fact, headcount has dropped from its peak in mid-2004 of nearly 46,000 employees to 42,600 as of December '05 without the use of disruptive layoffs. We expect to submit Arxxant for diabetic retinopathy in February, while registration studies for prasugrel, Arzoxifene, inhaled insulin and [enzostorin] continue to progress nicely. Behind this next wave of near-term pipeline opportunities, we are studying a number of innovative, mid-stage molecules targeted at major unmet medical needs in areas such as diabetes, insomnia, Alzheimer's disease, and obesity.

So, with this profile, we expect 2006 EPS growth of 8 to 11%, which should approximately double the pharma industry average. Thank you.

Ladies and gentlemen, this conference will be available for replay after 11:00 AM today until February 3 at midnight. You may access the AT&T playback service at any time by diving 1-800-475-6701 and entering the access code of 804710. International participants may while 1-320-365-3844 and entering the access code of 804710.

That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.