禮來公司 (LLY) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the 2008 fourth quarter earnings 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 will turn the conference to our host to Vice President of Investor Relations of Eli Lilly, Mr.

Phil Johnson.

Please go ahead, sir.

Good morning.

Thanks for joining us for Eli Lilly and Company's fourth quarter 2008 earnings conference call.

I'm Phil Johnson, Vice President of Investor Relations.

I'm joined today by our Chairman and CEO.

John Lechleiter.

Our Chief Financial Officer, Derica Rice.

And by [Ronica Pletcher and Nick Lemmon] from the IR department.

You can access the earnings press release and supporting materials, a live web cast, an Internet based replay and a pod cast of this conference call at Lilly.com.

The replay, the supporting materials and pod cast will be available on our website through February 27th, 2009.

During this conference call, we anticipate making projections and forward-looking statements that are based on management's current expectations.

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.

Patent disputes, government investigations, governmental actions regarding pricing, importation and reimbursement.

Changes in tax law.

Acquisitions, business development transactions, the state of the financial markets, the impact of exchange rates and global macro-economic conditions.

For additional information about relevant risk factors, please refer to both Lilly's and ImClone's forms 10K and 10Q.

In addition, the information wer provide about our products in the pipeline is for the benefit of the investment community.

It is not intended to be promotional and it is not sufficient for prescribing decisions.

Now let me turn the call over to John.

Thanks, Phil.

We accomplished a great deal in 2008 making significant progress on our priorities.

Building a robust pipeline and transforming our business both to excel in an increasingly challenging health care environment, as well as to prepare for the patent expirations coming in the next decade.

In addition, we generated strong operating and non-GAAP financial results for the full year that included 9% sales growth driven primarily by volume.

Leverage between growth and sales and operating expenses.

An increasing growth margin percent and strong operating cash flow.

Starting with the financials, I will provide an overview of highlights from 2008.

As I have done in previous calls, I will focus my comments on the pro forma non-GAAP results which we believe provide insight into the underlying trends in the business.

This view assumes we owned ICOS as of January 1st, 2007, and it excludes certain items such as charges related to the ImClone acquisition and to resolution of the EDPA investigation into past US marketing and promotional practices for Zyprexa.

Ronica and Nick will provide more details later in the call.

For the year pro forma non-GAAP sales growth of 9% was driven primarily by a 4% increase in volume.

For the first time, we surpassed $20 billion in revenue with eight products and our Elanco animal health business exceeding $1 billion in annual sales.

Due to increasing gross margin as a percent of sales and operating expenses growing slower than sales, we leveraged our 9% sales growth into 14% EPS growth.

Delivering pro forma non-GAAP EPS of $4.02, at the top of our guidance range.

We also generated over $7 billion of operating cash flow, which enabled us to invest in our pipeline, to increase our dividend 4%, and to invest in our future through business development most notably by acquiring ImClone.

Fourth quarter pro forma non-GAAP sales were essentially flat.

Foreign exchange rates negatively impacted sales growth by 3%, while price and volume contributed 2% and 1% respectively.

We also saw a slowdown in sales volume growth in the fourth quarter.

The slowdown was driven by moderation in US demand and variances in customer buying patterns particularly affecting US Zyprexa and Elanco.

Despite an $80 million decrease in other income, fourth quarter pro forma non-GAAP EPS grew 19% to $1.07 due to increasing gross margin as a percent of sales and a year on year decline in marketing, selling and administrative expenses.

Turning to slide four, you can see a retrospective look in growth and sales relative to operating expenses and the trend in our gross margin percentage.

2008 marked the fifth consecutive year that sales growth outpaced operating expense growth.

In addition, we saw significant expansion in gross margin as a percent of sales.

We will continue our efforts to maintain growth in our total expense base, the sum of manufacturing, R&D and SG&A, at a rate lower than sales growth.

Thus generating operating leverage.

We also continue to be focused on transforming our cost structure more toward external spend versus internal spend and toward more variable expenditures versus fixed expenditures.

This is key to build flexibility into our cost structure as we approach the patent expirations of the next decade.

A very demonstrable example of these efforts is our management of internal Lilly head count.

For the past four and a half years we have consistently reduced Lilly head count primarily through attrition.

As shown in slide five, since mid-2004 we have reduced Lilly head count by nearly 5,400 or 12% from nearly 46,000 in July 2004 to 40,450 in December 2008.

I should point out that this includes the addition of 2,600 head count via acquisitions.

Achieving a net reduction of 5,400 while taking on 2,600 through acquisitions means that we have actually reduced Lilly head count by nearly 8,000 or 16%.

We intend to continue to manage our head count diligently and transform our expense base moving forward.

Before I turn to a discussion of R&D progress in 2008, there is one other topic I would like to discuss.

I know that all of you are aware of the announced resolution of the EDPA investigation into past US marketing and promotional practices for Zyprexa.

I would like to re-iterate that the Company deeply regrets the past actions covered by the misdemeanor plea.

Our obligations in the corporate integrity agreement are clear.

We take them very seriously and we will ensure that Lilly is fully compliant.

As I mentioned earlier, in 2008 we made significant progress building a robust pipeline and transforming the way we conduct our business.

Let me touch on some of the highlights.

The life blood of our organization is our pipeline and our future success depends upon our ability to discover and develop innovative new drugs that are valued by patients, physicians and payors.

The efforts of our research organization in 2008 resulted in some significant achievements.

Delivering what is undoubtedly the largest and I believe most promising clinical pipeline in our history.

After having a record 16 new molecular entities enter clinical testing in 2007, we upped the pace in 2008, with 17 new molecular entities entering clinical it testing.

Our clinical stage -- NME portfolio now stands at 60 distinct NME's, double the number we had at the end of 2006.

We continued to build a robust biotech portfolio.

In fact, biotech molecules now represent almost half of our late stage Phase II and Phase III assets and represent 40% of our overall clinical portfolio.

Specific pipeline milestones in 2008 included approval of a Alimta for first line nonsquamous, nonsmall cell lung cancer in the US and Europe.

Approval of Cymbalta for fibromyalgia in the US and for generalized anxiety disorder in Europe.

Approval for Cialis for once daily use in the US and for Humalog quick Pen in the US, Japan and select international markets.

The European commission approval of Zypadhera our long acting injectable formulation of Zyprexa.

The CHMP recommendation for approval of Prasugrel in Europe for the prevention of athrothrombotic events in patients with acute coronary syndrome undergoing PCI.

The submission of Cialis for pulmonary arterial hypertension in the US, the EU and Japan and of Byetta of Mono therapy in the US.

The initiation of Phase III clinical trials for Prasugrel in the treatment of patients with acute coronary syndrome who are being medically managed and for our gamma[secretage] inhibitor in Alzheimer's disease.

And the initiation of a Phase Phase II, III adapted seamless trial for our GLP1 asset.

And we continued to transform how we do research and development in line with our fit net strategy.

In the third quarter, we sold our Greenfield laboratory site to Covance in a novel deal.

Under the terms of this multiyear deal, Covance will conduct pre clinical toxicology work for Lilly as well as expand its early stage clinical work and Phase II, III clinical trial support.

Covance has demonstrated it can expedite early stage development time lines and improve efficiency, enabling Lilly to lower drug development costs and speed the flow of new medicines.

At the same time we announced expanded relationships with Quintiles and I-3 which we will transfer clinical trial monitoring work in the United States to Quintiles and a significant segment of our data management work in the United States to I-3.

Also this year we announced a collaboration with Jubilant to create a joint venture called [Vanitous].

Extending our course development model in the emerging Indian marketplace.

Through this venture, Lilly will provide drug candidates to be advanced to proof of concept by Vanitous and will recede a right of first negotiation on non Lilly assets developed by the JV.

Those supplied by Jubilant or other third parties.

In addition, our financial performance in 2008 and our strong cash flow and balance sheet enabled us to make important investments in our pipeline and in our future through business development.

We completed a number of licensing deals including licensing transactions with BioMS, Transpharma, Transition Therapeutics and Decipherra Pharmaceutical and out licensing of US rights for the PAH indication for [Todalosphil] to United Therapeutics.

We also completed three acquisitions in 2008.

Our Elanco subsidiary acquired worldwide right to the dairy cow supplement Prosilac from Monsanto.

We acquired SGX Pharmaceuticals to enhance our drug discovery efforts.

And on November 24th, we completed the largest acquisition in our history, ImClone Systems.

The early returns from ImClone are positive.

Since our October 6th press release, announcing the acquisition of ImClone, the Company has received approval for first line head and neck cancer for Erbitux in Europe.

Received priority review from the FDA for Erbitux for first line recurrent or metastatic head and neck cancer.

Received FDA approval for multiproduct biologics production in the BB50 facility.

Submitted an SBLA to the FDA for Erbitux for advanced nonsmall cell lung cancer.

As we announced last week we subsequently have withdrawn the SBLA with the intention of resubmitting as soon as possible upon gathering additional data related to showing comparability of clinical trial and commercial material.

Filed an IND for a new antibody for acute leukemia which will represent ImClone's sixth clinical stage antibody when it enters the clinic in the near future.

And participated in the FDA advisory committee discussing the use of [Caraz] status to identify patients most suited to receive treatment from Erbitux.

So it's been a busy and productive year and one that sets a strong base for a promising 2009.

And we will be busy again this year with a number of important milestones and decisions that we eagerly anticipate including European approval of Prasugrel.

FDA action on Byetta monotherapy and on the Byetta label update including potential changes to the language on acute pancreatitis.

As we have stated in the past, while a causal association can rarely be established or disproved based on post marketing reports, an association between Exenitide and pancreatitis is expected.

Amylin and Lilly continued to conduct investigations to further understand this issue.

We continue to recommend that doctors follow the guidance provided in the product labeling.

We look forward to the FDA advisory committee for Prasugrel regarding our submission for ACS-PCI on February 3rd.

Submission to the FDA for Exenitide once weekly in the first half of the year.

Submission to the FDA for Arzoxifene our next generation serum in the fourth quarter.

Resubmission of Cymbalta for chronic pain in the US in the first half of the year.

Reporting Phase III results for Dirucotide in secondary progressive multiple sclerosis and Phase II results for relapsing remitting multiple sclerosis.

Presenting data from our Phase II dose finding study of [M-glu-23] for schizophrenia.

Initiation of Phase II trial for our A-beta antibody for Alzheimer's disease and for Cialis for benign prostatic hyperplasia.

Initiation of Phase III trials for ImClone's 11-F8 and A12 for cancer.

And submission of an IND for a seventh ImClone antibody to enter clinical development.

Now, let me turn the call over to Ronica and Nick for a more detailed review of our financial results starting with the review of the sales performance of key products.

Ronica?

Thanks, John.

Slide ten shows sales worldwide Zyprexa sales, which decreased 10% in Q4 to $1.147 billion.

Sales in the US decreased 4% to $584 million driven by lower demand caused in part by variations in wholesalers buying patterns.

Partially offset by increased net effective selling prices.

International sales were down 15% to $563 million driven by decreased demand, the unfavorable impact of foreign exchange rates and to a lesser extent lower prices.

Demand outside the US was unfavorably impacted by generic competition in Canada and Germany.

Offset by solid growth in Japan.

We were pleased that the Federal Supreme Court in Germany re-established the Company's Zyprexa patent that had been declared invalid in 2007 by the German federal patent court.

As a result of this ruling, generic Olanzapine has been withdrawn from the German market.

As this ruling occurred in mid-December, it did not impact our Q4 Zyprexa sales in Germany.

Moving on to slide 11, Cymbalta sales in the third quarter were $721 million, up 15% compared to the fourth quarter 2007.

US sales increased 10% to $603 million driven primarily by higher demand and to a lesser extent increased prices.

International sales totaled $118 million, an increase of 46% driven primarily by higher demand, partially offset by the unfavorable impact of foreign exchange rates.

Higher OUS demand reflects both increased demand in established market as well as recent launches in new markets including France, Canada, and Australia.

On slide 12, Humalog sales grew 11% to $458 million.

US sales increased 11% to $275 million.

Driven by increased net effective selling prices and to a lesser extent increased demand.

Sales outside the US increased 10% to $183 million driven by demand partially offset by the unfavorable impact of foreign exchange rates.

Slide 13 shows Cialis sales were up 7% in the quarter reaching $369 million.

Sales in the US were up 11% to $148 million.

Driven by higher prices while sales outside the US increased 4% to $221 million driven primarily by higher demand, partially offset by the unfavorable impact of foreign exchange rates.

Moving to slide 14, Alimta sales in quarter were strong coming in at $319 million an increase of 31% over Q4, 2007.

US sales increased 28% to $161 million due primarily to increased demand.

Sales outside the US were up 33% to $157 million due primarily to increased demand, partially offset by the unfavorable impact of foreign exchange rates and lower prices.

On slide 15, Humulin sales for the fourth quarter were down 4% to $262 million.

US sales were flat at $101 million due to higher net affective selling prices offset by lower demand.

International sales decreased 6% to $161 million.

Driven by the unfavorable impact of foreign exchange rates.

Slide 16 shows quarterly Forteo sales of $194 million down 2% over Q4 last year.

US sales declined 10% to $125 million driven by decreased demand and to lower net effective selling prices.

Partially offset by wholesaler buying patterns.

International sales of Forteo were up 16% to $69 million due to higher demand, partially offset by the unfavorable impact of foreign exchange rates.

Slide 17 shows worldwide Byetta sales for the quarter were $187 million, a 2% increase.

US Byetta sales increased 8% by a $163 million while in OUS Byetta were $24 million compared to $7 million in Q4 2007.

Lilly reports half of the gross margins for the US sales of Byetta plus sales Pens to Amylin and 100% of international sales.

Total Byetta revenue recognized in Lilly's income statement was $103 million, a 12% increase.

Slide 18 shows the revenues from the products Lilly has launched this decade.

Alimta, Byetta, Cialis, Cymbalta, Forteo, Strattera, Sybyax, Xigris, and Yenthreve.

These products collectively grew 10% reaching $1.9 billion or 37% of our sales.

Before looking at the rest of the income statement, let's look at slide 19 which shows the impact of price, exchange rates and volume on the sales results presented on a pro forma non-GAAP basis as if we had owned ICOS for all of 2007 and excluding ImClone revenue after the closing date.

For the quarter, Lilly's flat sales growth was driven by a negative foreign exchange impact of 3%.

A favorable price impact of 2%.

And by a 1% favorable impact from volume growth.

Increase net of effective selling prices in the US and increased volume outside the US were offset by the unfavorable impact of foreign exchange rates and to a lesser extent lower US volume.

On the full year basis Lilly's 9% sales growth performance was driven by a volume growth of 4% and a favorable rate impact of 3% and by a favorable price impact of 2%.

Slide 20 presents the price rate, volume analysis on a reported basis.

Now, Nick will discuss the income statement.

To facilitate your analysis of our results, we are providing two distinct views of the income statement.

One view shows our reported results according to generally accepted accounting principles.

This view reflects our earnings from the Lilly/ICOS joint venture, net of tax and OID through January 2007.

After that date, all ICOS and Cialis related revenue and expenses are shown in their respective line items of the income statement.

This view also includes ImClone's operating results after the acquisition date.

It also includes all charges taken for significant items.

The pro forma non-GAAP view uses GAAP methodology to restate our results as if Lilly owned ICOS as of January 1st, 2007.

In addition, this will exclude the impact of charges taken for significant items.

It also excludes all impacts of the ImClone acquisition including ImClone's operating results after the acquisition date.

We will focus on pro forma non-GAAP results as we feel it provides better insights into the underlying trends in our business.

Slide 22 shows the income statement for Q4 and the full year 2008.

Focusing on the quarter, sales were essentially flat at $5.2 billion.

Gross margin as a percent of sales in the quarter was 82.6% an increase of 7.1 percentage points compared to Q4, 2007.

Substantially all of this increase was due to the impact of the rapid decline of the Euro compared to the US dollar during the fourth quarter of 2008 which resulted in a benefit to cost of sales.

Marketing selling and administrative expenses decreased by 2% to $1.7 billion.

The decrease was due to the impact of foreign exchange rates and decreased advertising costs, partially offset by increased Prasugrel prelaunch activities as well as funding for the Lilly foundation.

Research and development expenses were $1 billion or 20% of sales.

Compared with the fourth quarter of 2007.

Research and development expenses grew 9% due primarily to increased late stage clinical trial and discovery research costs.

You can see that the expansion of our gross margin percent drove a robust 26% increase in operating income.

The adjusted effect of tax rate on pro forma non-GAAP basis was 20.1% for the quarter.

Net income and fully diluted earnings per share showed growth of 19%.

Below the operating income growth rate due to other income.

Slide 23 shows fourth quarter other income and deductions which decreased by $80 million to $48 million of net expense primarily due to other expense totaling $55 million from the writeoff of securities of certain banks affected by the financial crisis and the write down of various equity investments.

Slide 24 shows our reported EPS as well as significant items affecting net income and earnings per share.

These items include; pre-tax charges and net expenses totaling $4.73 billion or $4.46 per share after tax, related to the acquisition of ImClone systems.

This amount includes a charge of $4.685 billion for in process research and development as well as ImClone operating results subsequent to the acquisition, incremental interest costs and amortization of the intangible assets associated with Erbitux.

A charge of $80 million or $0.05 per share for asset impairments, restructuring and other special charges.

And a tax benefit of $136.9 million or $0.13 per share based on the determination that a portion of the $1.415 billion third quarter charges related to federal and state investigations into past US marketing and promotional practices for Zyprexa is tax deductible.

For information we have provided a reported earnings statement on slide 25.

Details about a reported earnings are available in our earnings press release dated today, January 29th, 2009.

Now let me turn the call over Derica to update you in our financial guidance.

Thanks, Nick.

We reconfirm our 2009 earnings per share guidance range of $4 to $4.25.

Including the estimated dilution of $0.30 to $0.35 from the ImClone acquisition.

Excluding the estimated ImClone dilution, 2009 earnings per share for Lilly's base operations are expected to be in the range of $4.35 to $4.55.

This, too, is unchanged from what I shared with you at our meeting in December.

Now, moving forward, we will report our financial results including the impact of the ImClone acquisition.

Consequently, both earnings per share and line item guidance will focus on expectations for the Company's results including ImClone.

To provide meaningful yearly growth rates, 2009 non-GAAP results and guidance will be compared to 2008 pro forma non-GAAP results, restated as if Lilly had completed the ImClone acquisition on January 1st, 2008.

Now let me briefly step through our new line item guidance.

We expect volume growth in sales again in 2009 driven by Cymbalta, Alimta, Cialis, Humalog and the anticipated launch of Prasugrel.

As well as by the Elanco animal health division.

However, the negative impact of weaker foreign currencies and the impact of generic competition in certain markets fro Gemzar are anticipated to partially offset these positive impacts.

As a result, we expect low single digit sales growth on a pro forma non-GAAP basis and mid-single digit sales growth on a reported basis.

Gross margin as a percent is of sales is expected to increase driven by the strengthening dollar.

This increase could be more pronounced in the first half of 2009.

Marketing, selling and administrative expenses are projected to show flat to low single digit growth.

Research and development expenses are projected to grow in the high single digits on a pro forma non-GAAP basis and in the low double digits on a reported basis.

Due to higher interest expense and lower interest income from the ImClone acquisition, we expect our other income for 2009 to be a net loss of between $200 million to $250 million.

And the effective tax rate is expected to be approximately 22%.

Capital expenditures are expected to be approximately $1.1 billion.

And we expect continued strong operating cash flow.

This concludes our review of the fourth quarter and full year 2008.

Now I will turn the call over to Phil to facilitate the Q&A.

Operator, first caller, please.

Thank you.

(Operator Instructions) Thank you.

Our first question comes from the line of Tim Anderson, Stanford Bernstein, please go ahead.

Good morning, this is [Jay Olson] for Tim Anderson.

I have two questions.

First, can you update us on what impact you might expect to see from generic [Risprodal] and Zyprexa in 2009?

And secondly, can you tell us for Cymbalta how these sales break out between the depression indication and the fibromyalgia indication?

Thank you.

Tim, Let me take -- one, in terms of the impact of generic Risprodal, thus far we haven't seen a demonstrable effect.

In fact we continue to see some stabilization.

We did see in the fourth quarter a decline in the Zyprexa volumes.

I think it's too early to tell quite frankly in regards to if with the current economic pressures if payors will begin to drive greater generic substitution.

In regards to your second question.

Ronica?

On the second part of the question we've now started measuring both the fibro pain indication or fibro market and depression together.

We no longer split the two.

As of the last measure, we are about 6% of market.

And that's up from a 5.7% initiation.

One other thing we do look at, Jay, is the prescriptions for Cymbalta compared to the prescription for Lyrica to at least see general trends there.

We continue to see that Cymbalta prescriptions grow at a faster rate than Lyrica.

As you know, both of those have been weaker here in the fourth quarter than they had been in the prior quarters of 2008.

I was going to say on the same basis if you look at with reumotologists with fibromyalgia, we have captured about 25% of the new prescription share thus far.

That will be up at 10% to 15% not too long ago.

Next caller, please.

Our next question comes from the line of Catherine Arnold with Credit Suisse.

Please go ahead.

Thanks a lot.

Good morning.

I have two questions.

One I wanted to ask about is the Prasugrel panel and the trilogy study and was wondering if you could give an update on trilogy's enrollment?

And if you will be able to submit any of the interim safety data for panel and FDA consideration of overall safety of the product in particularly in the discussion on the 5-milligram dose?

And then I wanted an update on your M-glu program.

I think at your analyst meeting you said you had achieved data lock.

So I was wondering if we could look forward to the results of that buyer before the APA meeting and if you will be presenting them at your talk study?

Thanks.

I will take your question.

This is Phil.

So for Prasugrel the trilogy study started mid-last year enrollment of centers into the study is going quite well.

We will not anticipate being in a position to nor frankly needing to submit any data from trilogy to support the agency's review of Trident.

And for the M-glu-23 we are still working through exact timing for data release.

But I think you should expect to see from us data release both on -- definitely on the dose ranging study for the M-glu-23 Phase II program.

I don't know if pre-tox or preclinical toxicology will actually be disclosed in a public forum scientifically.

I'm happy to follow up on that.

My expectation would be that that would not be necessarily something we will disclose given the clinical nature of the findings.

Next caller, please.

Next question comes from the line of John Boris with Citi.

Please go ahead.

Thanks for taking the questions.

I just have three.

First one has to do with any kind of destocking in the US.

When I look at your product line just taking Cialis as an example you reported revenue up 11.

But if you look at IMS trends they were actually up 12% in scripts and price was heavy at 16% over the last 12 months that would imply that trend should have been up 28 on a product like Cialis.

But this seemed to be in effect across the entire product line.

So any comments on destocking.

Secondly on Cymbalta, just on your relationship with Quintiles I believe you are paying them 8.25% royalty on Cymbalta.

I believe that there is a change to that agreement occurring in August of '09.

Can you remind us if that's -- if there is a step down and how we should be thinking about that on the SG&A line in the back half of the year?

And then third question just has to do with Zyprexa in Germany.

If you could remind us what the run rate there was?

I think about 25, 26 generic manufacturers had to exit that market.

And how we should be think being modeling Zyprexa based on the benefit that you make in the German market?

Thanks.

Derica will take your first two questions John, and I will handle your third one.

John, in regards to your first two questions, we did see a destocking in the US and so when you look at the comparison of Q4 '08 versus Q4 '07, what you saw is that last year we had in Q4 '07 we had a significant stocking into holiday buy in.

This year we did not see the typical holiday buy-in.

In fact, we saw wholesalers and in particular some of the retailers restocking.

So that does dampen our growth rate.

However, we did see some moderation in our overall demand in the fourth quarter as well.

As we come back to the beginning of the year we have seen some of that come back in terms of order patterns on the part of wholesalers.

Can you quantify --

The second question in our relationship with Quintiles in the US around the promotion of Cymbalta.

You are correct that does come to an end in August of this year.

We still have yet to determine what -- or to disclose what the future plans will be beyond that.

But we do not anticipate reducing our voice share of voice and promotion behind Cymbalta.

And just a quick follow on to that.

So the future plans could be either continuing with the arrangement that we have or deciding to terminate that and go it alone.

John, for Zyprexa in Germany.

Two items here.

So you are correct.

Basically within December federal court ruling that the patent court in validation of the Zyprexa patent was incorrect and the reestablishment of patent protection we were pleased to see that the 20 or so generic manufacturers proactively with drew their products from the market both at the wholesale and the retail level.

This occurred late in the quarter so really did not impact Q4 sales for the product in Germany.

Going forward, we do expect that we would recoup a good portion of the volume over time as well as get back to levels that would be more favorable on price.

To be specific on the erosion that had been achieved, the share that had been achieved by the generics, toward the end of December it was in the 72, 73% range.

They had been selling at prices that would have been probably 30% of the original branded price.

Also late in the year the German government did establish a new reimbursement price for Zyprexa for the Olanzapine molecule.

That will essentially be the price that we will be using and getting back to as some of the contracts we had set in place to work off.

That level is set at 15% below the original branded price.

So you should see in Germany both uptick in price next year or this year I should compared to 2008 and a significant uptick in the volume.

Next caller, please.

Our next question comes from the line of Tony Butler with Barclays Capital.

Please go ahead.

Thanks very much.

Derica, the commentary around Zyprexa to me has become increasingly more confusing.

Of course, maybe it's just me, but the other portion of this is just this continuing drive on settlement.

If I could get you to clarify not only the 1.4 that was paid most recently or at least reserve, but the notion of the 12 states in the class action brought by some of the pension funds I think most recently.

And given the fact that Lilly has been very good to settle claims as opposed to go to court, I'm curious how you think about that in terms of 2009 guidance?

And maybe does it take into account some additional payments and hence why the range is so wide because interest income and or interest expense can be affected fairly materially?

And lastly to the same point because of ImClone, does this inhibit or put a damper on perhaps doing additional licensing deals certainly in the near future?

Thank you.

Tony, regards to Zyprexa, we have the EDPA settlement on the criminal and the civil plea.

In regards to the other claims against Zyprexa, as you know earlier in the year, 2008 , we settled with 33 of the states which has been factored in.

In regards to our guidance for 2009, we have not factored in any additional settlement payments other than what we currently provisioned for.

So hopefully that provides some clarity there.

On the product liability side, we have not seen an uptick there at all.

In fact it's beginning to ratchet down and today we are at 138 cases, I think it is.

And as we resolve those, it's been at a cost that's in line with the historical trends that we had

Tony, this is John Lechleiter, I will talk about or try to answer your question on ImClone.

I don't think the ImClone acquisition is going to place any kind of a damper in terms of future deals.

I think to put it in perspective $6.5 billion we paid for ImClone Derica just mentioned earlier in the call we generated over $7 billion in 2008 in operating cash flows.

I think we had the wherewithal still to consider small to mid-cap kinds of acquisitions.

And I think you can expect us to be very thoughtful here.

But looking carefully at opportunities that will either enhance our presence in the existing therapeutic area or give us new avenues for growth.

Tony, this is Phil.

Just as a reminder as well, even after the ImClone acquisition and the announcement of the potential settlement with the investigation coordinated by the EDPA, we retained our AA S&P long term credit rating and also an A1 credit rating with Moody's as well as the A1, P1 very strong short term commercial paper rating.

So clearly we have seen strong interest in our paper.

And at very affordable rates as well.

Again, just pointing to the fact that we, at least from a financial perspective, would not seem to be hindered from continuing to look into deals in a small it to mid-cap space that John mentioned.

Next caller, please.

Our next question comes from the line of David Moskowitz with Caris & Company.

Please go ahead.

Thanks very much.

Good morning, everyone.

Couple questions.

One, could you give us an update on the patent litigation hearings for Gemzar.

And also for Derica, on the OID guidance can you be a little bit more granular on, I guess it most importantly is the interest expense side?

It looks like your OID loss has come in lower than what we expect.

So if you could you give us a little color on that and maybe whether you trimmed up the debt and at what rate you guys are at?

And lastly on the nonsmall cell lung cancer application, can you talk about a little bit more -- can you give us a little more clarity on what you need to resubmit and an approximate range on when you submit that application?

Thanks.

David, this is Phil.

I will take a couple of your questions and may have Derica as well.

So patent situation on Gemzar, so this is one where if you were called we had already had the 30 month stay expire.

We have essentially been in a position where the judge has ruled that [TEBA] would need to give us a 90 day notice should they make a determination they want to launch and that 90 day period should be sufficient for the judge to schedule and then hold a preliminary injunction hearing.

To date even though that came down the 30 month day expired and this particular ruling from the judge came down in July of last year, we have not yet received any notice from TEBA of their intent to launch.

We do have a trial date scheduled that would go forward if this situation does not change and that's scheduled to begin on July 13th of this year.

With regard to the nonsmall cell lung cancer application, this is one where we have a study this was conducted with clinical trial material that came out of [Beringer Ingelheim], a facility in Europe.

Obviously for the US commercialization we will need to use product coming out of the FDA approved site which is here in New Jersey that ImClone facility.

So since you have a different clinical site and commercial site we need to be able to show the equivalence of products.

We had presented data in the original application that was insufficient to meet FDA's needs.

We will go ahead and submit additional data it to help prove the comparability of the product to their liking.

At this point we do not have a specific time frame for resubmission.

We continue in discussions with FDA.

Currently to finalize exactly the plan for the information that we would provide to them.

Derica, do you want to comment on the OID?

Sure.

David, on the OID, our guidance does take into effect the incremental cost of debt to finance the ImClone acquisition.

If you recall at our analyst meeting in December, I talked about using this for example sake an assumption of around 6% as the average blended rate for our financing costs.

As we've issued the CP, and given where current credit spreads are, we have not termed out the debt.

In fact the pricing that we are getting on CP has been quite favorable given the quality of the paper we are able to issue versus other options in the markets.

SO we have not set a definitive time line as to when we will term out the debt as long as we continue to get this positive impact.

And so when you look at the guidance range that we provided, it does take into effect that blended rate which I think will be favorable to the 6% example that I provided in December.

One thing really quickly, David you asked also about rates.

Essentially at the time of the acquisition of ImClone we issued around $6.3 billion worth of commercial paper.

We currently sit with around $5.1 billion of CP outstanding.

Average duration of that is around 70 days and average rate is about 1.3%.

Next caller, please.

Our next question comes from the line of Roopesh Patel, with UBS.

Please go ahead.

Yes.

Thank you for taking my questions.

Just a couple of questions.

First on Cymbalta, I was just wondering if you could elaborate why Cymbalta's trends have slowed in recent months?

And what is the impact that you anticipate from the recent competitive approval of Forest's fibromyalgia drug Milnacipran?

And then separately my question is on the [Avista] patent case.

I was wondering if you could kindly give us additional color why the Company is confident in prevailing in that court case?

My understanding is that as such Avista's composition of [madopatent] has already expired and the disputed patents that are actually protecting its exclusivity are a method of use and formulation patent which generally are comparatively easier to circumvent.

I'm curious on your thoughts there.

Thanks

I will go ahead and take your questions, this is Phil.

So Cymbalta we have seen the growth rate year-over-year slow somewhat during 2008.

There are some things we're obviously monitoring but one trend we saw over the course of the year was a continued increase penetration of the generics in this space.

We think we've defended ourselves quite well and done a good job of gaining share during the year with Cymbalta but clearly payors have been taking actions that have shifted quite a bit of the antidepressant market share over to generic.

We will continue to monitor this and emphasize access.

If you remember in December I believe we had shared with you breaking news that was quite positive for 2009.

That we had access win with Well-Point getting tier-2 under struct in status, adding about 20 million covered lives to Cymbalta.

For the Avista -- I'm sorry Milnacipran, Ronica do you want to go ahead and make a comment on that one?

On the Milnacipran side it will be the third entrant into the fibromyalgia market.

The risk there and we see is the benefit to Cymbalta compared to Milnacipran is that Cymbalta has shown in studies to actually impact those with both co-morbidity with depression and with fibromyalgia which typically ranks in 20 to 30% of the population.

And similar study done by Milnacipran, they had a study that had depressed patients and those with fibromyalgia which didn't meet its primary end point.

So at the end of the day that's where we see we play in that space that's benefit around depression.

One other comment I would make Roopesh, keep in mind we will refile our FDA filing for Cymbalta for use in chronic pain in the first half of the year.

So that -- if that were to be approved I think it will provide us with an additional avenue for potential growth for the brand.

I believe even today in fact that there will be a presentation of study of chronic osteoarthritis pain of the knee.

This is one we mentioned at the time we had the announcement of the withdrawal of the application that would be the subsequent study we would submit to FDA that his statistical significance on it's primary end point, both under that statistical criteria we used as well as the one that FDA favors the base line observation carry forward method.

For Avista patent question, you are correct.

We did have the base compound patent expire back in April of 2003.

I think you're correct in assuming those are typically the most iron clad of the patents.

When you into the use space it's important to know if you are talking about a narrowly defined use to treat a specific kind of condition in a certain way or if you are talking about a very broad method of use patent, for example, covering a pathway.

But not necessarily the linked to any particular treatment.

So you are correct it's method of use that's primarily being relied upon to take us through that March of 2014 time frame.

But again given the narrowness and specificness of the patents we feel very good with our position.

Next caller please.

Our next question comes from the line of Dave Risinger with Banc of America -- Merrill Lynch.

Yes.

Thanks very much.

I appreciate it.

I have two questions.

First, assuming Prasugrel is approved in US based on the indications you are seeking, can you please provide the percentage of the current Plavix market that you plan to take share from and can you provide the current dollar value of that market?

Second, with respect to aVista, the 30 month stay was supposed to end in November, but it was extended to a new date and I'm sorry if I -- if you've covered this.

What is the new 30 month stay expiration date and when can TEBA potentially launch at risk?

Thank you.

Thanks for the questions, Dave, this if Phil.

In terms of the percent of the current Plavix sales represented by the ACS-PCI indication that we are seeking with the current submission, you will see varying estimates and it will appear that those will vary have ay depending upon the number of months treatment post PCI that are included.

The estimates that we seen range on the low end probably from 15% of current Plavix prescriptions being for this population to numbers that we would estimate to be more in the 20 to 25% range.

And I don't have a dollar value for you handy.

But those are the percentages that we have studied.

On Avista, you are correct.

We did have the 30 month stay expirate earlier.

The judge in this case did grant our motion to extend the stay.

The motion that she filed extended the stay to the beginning of the trial date which is March 9th.

So coming here pretty quickly.

The other thing to look for on this TEBA has appealed the judge's extension of the stay.

That hearing was held on January 14th at the CAFC.

We do not know timing for response back.

That could come at any time or it may not come before the trial starts.

And I can't comment in terms of TEBA's possibilities for launching.

I ask them what they might view as their possibility of being able to do so.

Next caller, please.

Our next question comes from the line of Chris Schott, JPMorgan.

Please go ahead.

Great.

Thanks for the questions.

Maybe first can you discuss your Prasugrel launch plans in the EU and how the progress is going as you are preparing for that launch, how that's been progressing?

And then maybe along the same lines update us on how the final label discussions are going in Europe?

Then the second question given the Pfizer-Wyatt proposed transaction, do you see opportunities for potential divestitures of animal health assets that could be an opportunity for you guys?

Thanks.

I will try both of those, Chris.

First of all, we are prepared and have been prepared to launch the product in Europe.

Obviously that's going to be sequenced by country depending on whether there are any other country specific hurdles that have to do with access or pricing after we get our what we hope will be the license from Europe later this quarter.

There is really no label negotiation ongoing.

CHMP when it made the scientific positive opinion in December would have put forward a proposed label and really what we are waiting on is the usual formality associated with translating that positive opinion into the license itself.

And your second question, I'm sorry, on Pfizer.

Yes, we are looking -- any time there is any large combination like this we are looking at opportunities as there might be in divested assets.

So you can bet with our interest in growing our animal health business we have our eye on that.

One thing quickly as well on the label.

In the CHMP recommendation for approval, they did mention a couple of things that could indicate where the label is headed.

First, they did recommend use of the 5-milligram dose in those patients that are over 75 years of age or less than 60 kilos.

They also did mention that they were recommending approval both in the unstable [angina] and the nonST segment elevation MI population.

As well as in the more severely ill ST segment elevation MI population.

Beyond that at this point we can't share additional details other than to say that generally are quite pleased with the way things are headed there had.

We were at the top of the hour.

We will take one more question before John closes the meeting.

Operator, next caller, please.

Thank you.

And your final question will come from Bert Hazelet with BMO Capital Markets.

Please go ahead.

Thank you for taking the question.

Just one quickly on Erbitux.

If there are some dislocations due to the absorption of the KRAS data that is widely discussed can you talk about why you are trying to minimize any disruption there or maximize the opportunity?

And then just a pipeline question.

The A12 compound.

The IGF-1R antibody, could you discuss any further contemplation of the Phase III program that might have occurred?

Again, the list of tumor types the potential Phase III targets is quite broad.

Have you narrowed that down at all to any specific tumor types?

Thanks.

On the KRAS, Bert, we see it as an important opportunity for Erbitux and a real advance for patients if in fact we are able subject to the FDA's view after the advisory committee to use retrospective data to in essence enhance the Erbitux label to be specified for patients that present with colon cancer with the KRAS wild type gene.

We think this is in line with our strategy of tailoring and we see it as an opportunity for Erbitux.

Obviously for that to happen there has to be the appropriate diagnostic tests in place used routinely by physicians, et cetera.

But this is clearly where we see cancer treatment going.

With respect to A-12, I don't have any specific.

Phil, do you want to talk about that?

I know the team is having more discussions on this.

I believe they are titrating it down, Bert.

At this point in time, we aren't prepared to make a definitive statement on which would be the first indication to go into the Phase III.

I also will say in terms of with a we are doing with the KRAS and you may have followed this at the advisory panel meeting on how to use KRAS going forward.

This is an interesting situation.

There is enough data right now that many would say and I think have said in certain instances specifically that it would would not be ethical to run trials with these agents in both KRAS wild type and KRAS mutant type populations.

Since you strong a pretty indication that there might not be much benefit for the KRAS mutant type.

So clearly the discussions with FDA on how we best figure out appropriate labeling or correct use so that the optimal patient can be identified that would potentially benefit from the drug will be important going forward.

As you know as well in some of the academic institutions, the use of the KRAS test has been more widespread.

It was not particularly widespread outside of that.

So as John was mentioning earlier, it will be very important as move forward those tests become reimbursed and available to help in identification of appropriate patient population.

With that we will go ahead and close the Q&A and turn it to John to wrap up the meeting.

Thanks, Phil, and thank you for taking your time this morning for this update on Eli Lily and Company.

We appreciate your interest in our Company.

Let me close with a few points.

Lilly had a solid year in 2008 and made clear progress on our priorities.

For the year, we delivered strong operating and non-GAAP financial results with volume driven sales growth, leverage between the top and bottom line, and strong operating cash flow.

We continued to improve productivity.

Reduce head count and build a more flexible expense base.

We took decisive moves to transform our business.

For example, we expanded our collaborations with organizations such as Covance, Quintiles, I-3 and Jubilant to leverage their expertise and speed the flow of new medicines.

And through the acquisition of ImClone, we accelerated the shift of our pipeline of future products toward biotechnology and toward oncology.

We have clearly staked our future on innovation having doubled our clinical pipeline in the last 24 months.

Our pipeline molecules are focused squarely on meeting significant unmet medical needs.

Looking forward, we at Lilly are excited about 2009.

It should be an eventful year with a number of significant milestones and decisions.

We look forward to keeping you informed of our progress.

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