禮來公司 (LLY) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Eli Lilly and Company Q4 earnings call.

(Operator Instructions)

I would now like to turn the conference over to host, Chairman, President and CEO, John Lechleiter.

Please go ahead, Sir.

Thank you.

Good morning, everyone.

Thank you all for joining us to discuss Eli Lilly and Company's fourth quarter 2014 earnings.

I am John Lechleiter, Lilly's Chairman, President and CEO.

Joining me on today's call are Derica Rice, our Chief Financial Officer; Dr. Jan Lundberg, our President of Lilly Research Laboratories; Dr. Sue Mahony, President of Lilly Oncology; Enrique Conterno, President of Lilly Diabetes; Dave Ricks, President of Lilly Bio-Medicines; Chito Zulueta, President of Emerging Markets; Jeff Simmons, President of Elanco Animal Health; and Ilisa Rassner, Brad Robling and Phil Johnson of the Investor Relations team.

During this conference call, we anticipate making projections and forward-looking statements based on our current expectations.

Our actual results could differ materially, due to a number of factors, including those listed on slide 3 and those outlined in our latest forms 10-K and 10-Q, filed with the Securities and Exchange Commission.

The information we provide about our products and pipeline is for the benefit of the investment community.

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

As usual, I will begin by highlighting key events that have occurred since last quarter's call.

Following FDA approval in September, we launched Trulicity in the US during the fourth quarter.

We also received regulatory approval for Trulicity in Europe.

We're in the process of launching in the UK and Germany, and anticipate launches in additional EU countries over the course of this year and next.

In diabetes, we also resubmitted Humalog U200 KwikPen in the US.

And, along with Boehringer Ingelheim, we received approval in Japan for both Jardiance and our insulin glargine product.

In oncology, Cyramza was approved by the European commission for the treatment of advanced gastric cancer, and by the FDA for two new indications: second line non-small cell lung cancer and advanced gastric cancer, in combination with paclitaxel.

Enabled by a fast track designation, we also completed the rolling FDA submission for necitumumab in first line squamous non-small cell lung cancer, and we submitted necitumumab to European regulators for the same indication.

On the clinical front, along with Incyte, we announced that baricitinib met the primary end point of improved ACR20 response, compared to placebo, in the phase III RA-Beacon study in patients with moderately to severely active rheumatoid arthritis, who previously failed one or more TNF inhibitors.

The study included a high percentage of patients who had also received prior treatment with one or several non-anti-TNF biologic agents.

Along with AstraZeneca, we announced the initiation of the phase II/III AMARANTH study of AZD3293, an oral BACE inhibitor being studied for Alzheimer's disease.

Earlier this month, we presented phase III data at ASCO GI from the RAISE trial evaluating Cyramza, in combination with chemotherapy, in patients with metastatic colorectal cancer.

In this trial, ramucirumab prolonged both progression-free and overall survival.

And we began the second phase III trial of abemaciclib in breast cancer, as well as a phase III trial in lung cancer.

On the business development front, we announced a pair of immuno-oncology collaborations.

One with Bristol Myers Squibb to study their PD-1 inhibitor, Opdivo, with Galunisertib, our TGF beta kinase inhibitor, in a phase I/II study in patients with glioblastoma, hepatocellular and non-small cell lung cancers.

The other with MERCK, to study their PD-1 inhibitor, Keytruda, in a phase II study with Alimta in non-squamous, non-small cell lung cancer, and in phase I/II studies with Cyramza in gastric, bladder and non-small cell lung cancer, as well as with necitumumab in non-small cell lung cancer.

We also announced a worldwide licensing collaboration with Adocia, focused on developing an ultra rapid insulin, known as BioChaperone Lispro, for the treatment of type I and type II diabetes.

Lilly and Boehringer Ingelheim announced changes to our diabetes collaboration.

The companies will continue co-promotion work in 17 countries, representing over 90% of the collaboration's anticipated market opportunity.

While in the other countries, the companies will exclusively commercialize the molecules they brought to the collaboration.

And finally, on January 1st, we completed the acquisition of Novartis Animal Health.

In other news of note, we increased our quarterly dividend by 2% to $0.50 per share, and we repurchased $300 million of stock in the fourth quarter of 2014, under our outstanding $5 billion share repurchase program, leaving $3.7 billion remaining.

I'd also highlight that the total cash distribution to shareholders in 2014 was nearly $3 billion.

Now, I'll turn the call over to Phil for a discussion of our financial performance in the quarter.

Thank you, John.

And Tom with AT&T, if you could check.

We should be the only line that is open at this time, and we're getting quite a bit of feedback.

If you could make sure the other lines are closed, we'd appreciate it.

Thank you.

First, I will review our GAAP results, and then I will discuss a few non-GAAP measures, to provide additional insights into the underlying trends in our business.

Keep in mind that our 2014 non-GAAP measures include the expense associated with amortization of intangibles.

As discussed on our January 7 call, our 2015 guidance, however, excludes this expense.

When we report Q1 2015 actual results in April, we'll provide you with 2014 by quarter, restated for removal of amortization of intangibles, and as if we had acquired Novartis Animal Health on January 1, 2014.

As we report our results during 2015, this should provide a meaningful view of the trends in our business.

On slide 8, you can see the revenue in Q4 was $5.1 billion.

This represented a decrease of 12% compared to Q4, 2013, driven by a reduction of over $500 million in US Cymbalta,and of nearly $200 million in US Evista.

Recall that we lost US exclusivity for Cymbalta in December 2013, and for Evista in March 2014.

Excluding Cymbalta and Evista in US, the rest of our worldwide revenue was essentially flat, as underlying performance growth was offset by the stronger US dollar.

Gross margin as a percent of revenue decreased 60 basis points, driven by the loss of US exclusivity for Cymbalta and Evista, partially offset by the impact of foreign exchange rates on international inventories sold.

This quarter, foreign exchange rates on international inventories sold had a positive impact on our gross margin.

However, in Q4 of 2013, there was a negative impact on our gross margin.

Excluding this FX effect from both 2013 and 2014, gross margin as a percent of revenue declined from 77.0% in Q4 2013, to 73.9% in Q4 of 2014.

As in past quarters, we have included a supplementary slide providing our gross margin percent for the last ten quarters, with and without this FX effect.

Non-GAAP measures are shown on slide 9. Total operating expense, defined as the sum of R&D and SG&A, declined by 13%, or nearly $450 million, compared to Q4 of 2013.

Marketing, selling and administrative expenses declined 8%, while R&D declined 20%.

The reduction in marketing, selling and administrative expenses was due primarily to a reduction in sales and marketing activities for Cymbalta, as well as ongoing cost containment efforts and, to a lesser extent, foreign exchange.

The reduction in R&D expense was driven by lower late stage clinical development costs.

Other income and expense was income of $45 million in Q4 of 2014, compared to income of $9 million in the fourth quarter of 2013.

This increase was due to larger gains on investments.

Our tax rate was 14%, a decrease of 6.5 percentage points, compared to the same quarter last year.

This decrease includes recognition of fourth quarter of 2014, of the full year US R&D tax credit.

At the bottom line, net income was flat, while earnings per share increased 1%, reflecting the benefit of share repurchases.

Turning to full-year results shown on slide 10, revenue decreased 15%.

Now, to place this in perspective, this equates to a year-on-year reduction in revenue of $3.5 billion.

US Cymbalta and Evista declined by a total of $4.1 billion, while FX reduced revenue by over $350 million.

These reductions were partially offset by performance growth in the rest of our business of nearly $1 billion, or over 5%, driven primarily by insulins, our animal health business, Cialis, Alimta, Forteo, OUS Cymbalta, Trajenta and Cyramza.

Full-year revenue totaled just over $19.6 billion, or about $400 million less than the minimum we targeted starting back in 2009.

Gross margin declined nearly 4 percentage points, due to loss of US exclusivity for Cymbalta, and to a lesser extent, Evista.

And through reductions in spend behind Cymbalta and Evista, lower late stage clinical development costs, and significant ongoing productivity efforts, total operating expenses decreased 11%, or over $1.4 billion, as R&D expenses declined nearly $800 million, and SG&A expenses declined more than $600 million.

Finally, looking at the bottom line, despite $400 million less top line revenue than we targeted, we nearly met our $3 billion minimum net income goal, posting non-GAAP net income of $2.988 billion, and EPS of $2.78.

While not shown here, when we issue our 10-K, you will see that we also exceeded our goal of $4 billion in operating cash flow.

Our full-year results reflect successful execution of our strategy for managing one of the industry's most challenging series of patent expirations.

Driving growth in Japan, emerging markets and Elanco, and in brands not losing patent protection.

Replenishing and advancing our pipeline, and reducing our cost structure and increasing productivity across our business, to fund the R&D necessary to fuel our future growth.

Slide 11 provides a reconciliation between reported and non-GAAP EPS.

Additional details about our reported earnings are available in today's earnings press release.

Let's take a look at the effect of price rate and volume on revenue.

On slide 12, in the yellow box on the middle of the page, you can see that the total revenue decline of 12% in Q4 2014 was driven by a negative volume impact of 9%, and a negative foreign exchange impact of 4%, partially offset by a favorable price impact of 1%.

The negative foreign exchange impact is larger than we have seen in recent years, and was driven by the strengthening of US dollar against many developed and emerging markets currencies.

By geography, you will notice that US revenue decreased 22%, driven by volume.

This was due to loss of exclusive for Cymbalta and Evista.

Excluding Cymbalta and Evista, EUS pharma revenue increased 5%.

I would note that this year, we extended our shipping to wholesalers until December 30, resulting in lower wholesale inventory build this year-end.

In Australia, Canada, and Europe, or ACE, you will see a negative 7% rate impact drove the overall 4% decline in revenue.

While on a constant currency or performance basis, ACE revenue increased 3%.

In Japan, pharma revenue decreased 10%, driven by the weaker yen.

On a performance basis, our Japanese pharma revenue increased 2%.

Growth this quarter was negatively affected by the timing of Cymbalta shipments to our marketing partner Shionogi, as well as by volatility we have seen in customer purchases over the course of 2014, due to increases in the consumption tax.

Turning to emerging markets, we saw mid-single-digit performance growth, driven by volume growth of 7%.

As a result of the significant negative effect of FX, our reported emerging markets revenue declined 3% verses last year.

Elanco Animal Health delivered revenue growth of 9%.

Excluding FX, Elanco grew 12%.

This performance growth was driven by OUS food animal products, including the acquisition of Lohmann, as well as OUS companion animal products and US food animal products.

This was partially offset by a continued decline in the US companion animal product sales, principally Comfortis.

Moving to slide 13, you will see the effect of changes in foreign exchange rates on our 2014 results.

For the full year 2014, FX had a modest negative effect at both the top and bottom lines.

For the quarter, however, we saw a larger effect, and one that differed at the top and bottom lines.

As I mentioned earlier, FX was a top line headwind, reducing revenue in US dollars by 4 percentage points.

In terms of cost of goods sold, FX provided a substantial benefit, which led to FX providing a modest tailwind, or benefit, for operating income and EPS.

Excluding FX, you can see that our non-GAAP EPS in the fourth quarter declined 4%, while including FX, EPS grew 1%.

Now, let me turn the call over to Derica.

Thanks, Phil.

Slide 14 shows our pipeline as of January 23.

Changes since our last earnings call are highlighted, with green arrows showing progression and red arrows showing attrition.

You will see that necitumumab has moved into the regulatory review column, following submissions in the US and Europe.

And as John mentioned, phase II testing began for the AZD3293, the base inhibitor for Alzheimer's disease that we are developing with AstraZeneca.

In phase I, we initiated human testing of a small molecule base inhibitor for Alzheimer's disease.

We also began phase I testing of two biologics, one for diabetic complications and one for hypoglycemia.

And we terminated development of a phase I biologic for anemia.

Next, let me provide a recap of how key events played out in 2014, and remind you of our key events for 2015, and quickly review our 2015 financial guidance.

Slide 15 is the slide we provided you, in January of last year, to track our progress against these milestones.

As you can see from the preponderance of green check marks, we made significant advances in our pipeline in 2014.

These advances included major progress on eight new molecular entities.

Approval and launch of three new products, Cyramza, Jardiance and Trulicity, approval of our insulin glargine product, submission of necitumumab, and positive phase III trial readouts for Basal Insulin Peglispro for diabetes, ixekizumab for psoriasis, and baricitinib for rheumatoid arthritis.

2014 was a very productive year for advancement of our pipeline, and we expect 2015 to provide more of the same.

Slide 16 lists key events to watch for in 2015.

And we'll update this list on each of our quarterly calls to help you monitor our progress.

Since I discussed this list in detail on our January 7 call, I will not go through each item again today.

However, it's clear from this list of key events that 2015 will be another important year for execution of our innovation-based strategy, and we are excited for what we believe the year may bring.

We know it's unreasonable to expect all of these potential events to be positive.

However, we believe it is very possible that a significant majority will break our way, and solidify our near- to medium-term growth prospects.

Turning to our 2015 guidance, we have updated the guidance we provided on January 7 to reflect current FX rates.

That is the only item prompting these changes.

Now before I step through the specific line item changes, I would like to provide some high-level thoughts on the impact to us, both this year and moving forward.

On our call in early January, we provided a full P&L impact of FX to our 2015 results.

This included a top line revenue headwind of about 2.5%, or $500 million, and a bottom line EPS headwind of about $0.03.

At the current FX rates, the revenue headwind for 2015 would be more like 6% to 7%, and the EPS headwind would be about $0.07 per share, not the $0.03 we shared earlier this month.

Now, as we've discussed before, the FX effect on international inventory sold that flows through cost of sales provides a short-term offset to the underlying operational impact of FX.

The $0.07 EPS headwind I mentioned is, in fact, comprised of an unfavorable operational FX effect of about $0.57, largely offset by favorable FX effect on international inventory sold of about $0.50.

Should FX rate remain stable, this cost of sales benefit would go away as we sell existing inventory, and will likely be nil in 2016.

So, we do experience the exact same operational FX effect, throughout our P&L, as some of our peers and other US multi-nationals.

Different than some, however, the FX effect on cost of sales means that the full effect of FX does not show up immediately in our P&L.

We will see part of it this year, and the remainder next year.

Now, turning to the individual line items, you can see on slide 17 that FX has caused us to reduce revenue by $800 million, increase our gross margin percent by 1.5 percentage points, reduce marketing, selling, and administrative expenses by about $200 million, and reduce research and development expenses by $100 million.

As I mentioned earlier, if current FX rates hold for the full year, EPS would be reduced by about $0.04 per share from our prior assumptions, and we have adjusted our outlook accordingly.

However, as our outlook still falls within our existing GAAP and non-GAAP EPS ranges, these ranges and guidance remain unchanged.

Hopefully, this additional color is helpful, as you think about how FX may affect our results.

Also keep in mind that our 2015 GAAP guidance does not include the $200 million payment that we will make to Pfizer if the FDA removes tanezumab from partial clinical hold, and we move forward with the phase III development.

And it is based on our current estimate for how we'll account for the Novartis Animal Health acquisition, which could change, based upon revised estimates and final accounting treatment.

And as I mentioned earlier, 2015 guidance for non-GAAP measures excludes amortization of intangibles, as well as the other items listed on slide 24.

In summary, we entered 2015 having successfully navigated through the most significant period of patent expiration in our history.

Over the past five years, we delivered on our financial commitments, we advanced our pipeline, and we built what we believe is a sustainable R&D engine.

Again in 2014, we made excellent progress implementing our innovation-based strategy.

Not only did we advance our pipeline, but we also significantly reduced cost and increased productivity.

Throughout the balance of this decade, we aim to drive revenue growth and expand margins.

Bolstered by the recent acquisition of Novartis Animal Health, we have a solid base business, and we intend to build on that base with a first wave of new product launches in diabetes, oncology and immunology, followed by a second wave of potential launches in cardiovascular disease, Alzheimer's disease, pain and oncology.

And as John mentioned on our 2015 guidance call, going forward, you will see us sharpen our focus on areas where we are best positioned to compete and win, and continue to look for ways to increase productivity and do the work of pharmaceutical R&D better.

We enter this post-patent period in a position of strength, and we are very optimistic about the opportunity before us to improve patients' lives and create value for shareholders.

Now this concludes our prepared remarks.

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

Thanks, Derica.

Given the 90 minutes we allot for the overall call, and the relatively brief prepared remarks, we do have quite a bit of time for Q&A.

But it would be great and appreciated if you could limit your questions to two or three.

If you have additional ones, feel free to rejoin the queue later.

Tom, if you could provide instructions for the Q&A session?

And then go to the first caller, please.

(Operator Instructions)

Our first question is from the line of David Risinger with Morgan Stanley.

Please go ahead.

Yes.

Thanks very much.

So, I have three questions.

First, with respect to the sola extension study data readout ahead, could you just please characterize that?

And discuss your level of enthusiasm for that data?

Second, with respect to tanezumab, you were expecting to restart phase III this year.

Should we expect a readout in 2016 or 2017 from that?

And then finally, Derica, it would be great if you could just explain once again -- and I know you have before -- but why your FX tends to lag peers'?

And just in terms of the accounting, whether there is an international cost of goods accounting difference?

That would be helpful in just putting it in perspective.

Thank you.

Great, Dave.

Thank you for the questions.

We'll have Dave Ricks, President of Lilly Bio-Medicines, handle the first two on sola and tanezumab.

And then Derica, obviously, the FX question.

Dave?

Thanks for the questions.

On the sola open label extension, just a reminder, we have a 24 month period where we're measuring patients who all rolled off of EXPEDITION 1 and 2 into drug treatment, at their choice, of course.

And that data, we do expect to come out in the near future.

Because it's not published or announced, I can't really elaborate on what's inside that.

But again, we are looking for evidence of a disease-modifying effect, in that the patients who were started on sola coming off placebo don't catch up to those that had sola all along.

And so with that sort of guidance of what we are looking for, we'll wait for the data to be published in the future.

On tanezumab, we are hoping to have the class, and tanezumab removed from clinical trial hold this year, and initiate phase III studies, as Derica mentioned.

We have not posted those studies or their design yet, so it would be premature to comment on when they would be completing a readout.

But I would guide you to say it's probably beyond 2016, Dave.

David, as regards to the FX effect on the international inventory sold, recall that our inventory turns, and Lilly is about 12 months.

And so if you think back, as we built the inventory during the period, where the dollar was at a weaker level, or euro and the yen was at a strength -- a higher level, those inventories then went on our balance sheet.

As we sell those inventories into the marketplace, those inventories get revalued at current exchange rates.

And that benefit, or that differential, flows through P&L at that point in time.

So in the case scenario we are looking at today, where the dollar has been strengthening, it comes through as a benefit.

You have seen, in prior periods, when the rate was going the other way, when foreign currencies was strengthening against the US dollar, and you were seeing a negative effect, an unfavorable effect, flowing through our P&L through cost of goods sold.

Thanks, Derica.

Tom, next caller, please.

Next question is from the line of Gregg Gilbert with Deutsche Bank.

Please go ahead.

Thanks.

Good morning.

First, on Trulicity, you have been very bullish on the opportunity in the past, given the ideal mix of attributes.

So I was hoping you could give us some early metrics on launch success, beyond the simple IMS-type of data we all see.

And then secondly, for John, what are senior management team's and your most important corporate objectives in 2015?

Aside from the typical meeting or exceeding of the financial metrics you have provided?

Thanks.

Thanks, Gregg.

Enrique, for the first question, please.

Very good.

On Trulicity, I think we have to keep in mind that in mid-November, we launched this product in the US to specialists.

Specialists roughly represent about 30% of the market opportunity.

We are in the process of launching, as we speak, in primary care right now.

And as I have shared in the past, for us, it is critical that we basically expand the GOP 1 market.

We believe that Trulicity can be an important catalyst for the overall growth of the GOP 1 class.

So we basically have to wait for that.

In terms of metric that we actually look at, specific to our near-, medium- and long-term objectives, are looking at the breadth of prescribing, when we look at Trulicity.

So we want to make sure that there is a strength breadth of prescribing, in particular among primary care customers.

Gregg, hi.

This is John.

Thanks for your question.

I think I would say three things, in terms of what we've talked -- this senior management team has talked about around the table.

Number one is to launch well.

We launched three products last year: Cyramza, Jardiance and Trulicity.

We have, within the 12 month window, an opportunity to launch others, potentially our insulin glargine product, necitumumab.

We have other filings in the works.

So, this is -- we're exercising that launch muscle now, and I think that's something we're acutely focused on.

Secondly, to renew our pipeline, we have paid particular attention to putting the Company in a position where we do not have go through the boom and bust cycle that's characterized the last ten years.

We're very focused on our phase I molecule entries, on progression from phase II to phase III, and ensuring that those molecules are high quality and substantially de-risked by the time we get to phase III.

And finally, I would say improving productivity.

We work and operate in a very competitive world.

We're in growing, but very competitive, classes.

And I think learning to operate across our business in ways that respond to the increased demands of our customers, and the competitive pressures, is something that's on our desk everyday, and we're driving with a new conviction.

Great.

Thank you.

Tom, next caller, please.

Our next question is from the line of Tim Anderson with Bernstein.

Please go ahead.

Thank you.

A few questions, please.

You have several drugs for diabetes, either in the pipeline or that have recently been approved.

This includes your new GLP 1, your insulin glargine, your novel basal, and empagliflozin, and then various iterations of those products.

Of the four that I have just listed, which one product excites you the most, in terms of the future commercial potential, let's say, five years out?

And then a second question.

I would love to hear how you think the commercial rollout of your version of insulin glargine will play out, both in Europe and the US?

Ignoring any of the legal challenges that are being mounted against you.

I know you can't really comment on price specifically, but can you confirm that, generally speaking, price is really the only selling point with a product like this?

And therefore, you will likely price it at whatever it takes to compel payers and prescribers to get on board?

And then last, third question, is just on Alimta.

You mentioned price erosion in the US.

It's not clear to me what the driver of that erosion would be?

Great.

Tim, thank you for the questions.

Enrique Conterno, President of Lilly Diabetes, we will have you handle the first two on the diabetes pipeline assets and insulin glargine.

And either Sue or Alyssa, if you want to look at the US performance, and see what explanation you have for his question on the Alimta US price piece?

Enrique?

Tim, I really believe that I can make a strong case for each one of these products that you have mentioned.

We just discussed Trulicity, when Gregg asked the question.

But let's look at Jardiance for a second.

We have the EMPA/LINA fixed dose combination coming up.

We have a cardiovascular study that we expect is going to read out in the middle of the year.

Those, to us, are very significant events, when we look at that brand.

I will comment on insulin glargine in just a second.

And then, of course, we do believe that, with our innovative basal insulin peglispro, we have been able to show reductions in hemoglobin A1C versus the standard of care in basal insulin therapy, which is something that has not been shown before.

So I can make a very good case for each one of these products.

We have to basically launch these products, and see how they're accepted by our customers.

When it comes to insulin glargine, I will say that, is price the only way to compete?

I would say no.

And I won't share how we intend to compete, when it comes to our commercial rollout.

But clearly, we do have a portfolio of diabetes solutions.

We know that in diabetes, price does play a role.

We have delivery devices.

And we think that we will be able to offer our customers an important alternative, when it comes to glargine, with our own insulin glargine products.

And then Tim, on your Alimta US question, we had a very similar, very low-single-digit list price benefit in the quarter, like we have in prior quarters.

On various quarters, there will be adjustments made for the accruals for rebates and discounts.

There is variability and noise in those kinds of adjustments.

This particular quarter, those happened to be negative adjustments relative to Q4 of 2013.

But there is nothing unusual in the underlying trends that we are seeing, compared to what we have had in past quarters.

Tom, next caller, please.

Our next question is from the line of Mark Schoenebaum with Evercore ISI.

Please go ahead.

Hey, guys.

This is Salim in for Mark.

Thanks for all color.

Three questions.

One on your CETP.

Can you just tell us exactly how we should expect disclosure this year?

And if you can just confirm for us that it's just a futility analysis?

So the trial cannot be stopped for efficacy?

And then just on diabetes, and with all the pricing pressure talks, can you remind us of the net price increases you have been taking?

Maybe for 2014 and recently?

And if you think that's sustainable going forward?

And then on your GLP 1, Dulaglutide, is there -- is -- Novo obviously made theirs -- at least are trying to develop their in phase III for an oral.

Their semaglutide is an oral semaglutide.

Is there a reason why you would or should not do the same thing for Dulaglutide?

Thanks.

Thank you for the questions.

We'll have Dave Ricks handle the first question on the CETP inhibitor, and then Enrique has your diabetes question.

Dave?

Thanks for the question.

On evacetrapib, I think we have communicated in the past, we do have an event-driven futility test, which is in the near future, either being Q1 or early Q2.

I want to play down expectations of any great news coming out of that, because the futility hurdle is pretty low in that test.

But we will be conducting this in a blinded fashion, along with a normal periodic safety review.

And this is really the last major set of reviews prior to the conclusion of the study, we hope, in early 2016.

So when we have something to say about that, we can elaborate further.

Yes, Salim, we have said in the past, that's not the kind of analysis, being a futility analysis, that would cause us -- if it is not met, in other words, the study continues -- to issue any kind of a press release.

So we provide regular updates.

For example, on next quarter's call, if it's appropriate, on the status of that particular analysis.

Enrique?

Sure.

So I assume your question is on list price increases, and net prices refers to our insulin franchise.

We do -- we have taken list price increases, but we also have increased our rebates that we basically -- how we contract with the payers.

As we look at the results for Humalog in the US, where we basically saw a minus 2, comparing Q4 of 2014 verses Q4 of 2013.

A couple of things that I will have you keep in mind.

Yes, of course we did have pressure from managed care contracts, but we had two special events impacting those results.

We had a wholesaler buy in patterns, 9 points, when it comes to Humalog, so 9%.

And then adjustments through prior periods, primarily driven by greater utilization in Medicaid and Medicare, about 7 points.

So you can think of those as anomalies for the quarter.

But clearly we do see a highly competitive market, when it comes to diabetes.

On your question on the GLP 1's, and whether we are thinking about oral Dulaglutide, I cannot comment on our specific plans when it comes to oral GLP-1's.

But what we have expressed is that this is an area of interest to us.

Great.

Thanks, Enrique.

Tom, next caller, please.

Tony Butler with Guggenheim Securities.

Please go ahead.

Good morning.

Thank you very much for taking the questions.

There are two.

First is on Cyramza.

I am curious if you might be able to provide some color of what you are hearing back in the field in gastric cancer.

And second to that question is, have you launched in non-small cell lung, given the recent approval?

And if you have, any comments back from the field on that launch would be helpful.

And then second, back to solanezumab and EXPEDITION 3, [clinic trials] states enrollment continues, and I am just curious on the rate of enrollment?

Given, I think, the total number is 2,100 or so.

So the question is, is that rate going -- or occurring in a timely fashion to what you would have expected, given that you are looking for individuals who have a positive plaque in the brain?

Thanks very much.

Thank you Tony.

So Sue Mahony, President of Lilly Oncology, for the first question on Cyramza.

And then Dave, again, on solanezumab.

Yes, regarding Cyramza in the US, we are hearing, actually, very good feedback on Cyramza in gastric cancer.

Our Q4 sales with Cyramza were $34 million.

That really is on gastric cancer sales.

And given that we only had the combination approval towards the end of the year, that really is mainly monotherapy.

Since we've launched a combination study, we're seeing additional use of Cyramza in second line gastric cancer with paclitaxel.

We have NCCN category one status now, both for the monotherapy and for combination therapy in gastric cancer.

And with regards to the lung indication, we had the approval, as you know, at the end of last year.

We have literally just launched that, so it's way too early to give you the impact on that.

But as I mentioned, we are feeling very good about the gastric uptake, so far.

Dave?

Yes.

Thanks, Tony.

Good to hear your voice.

And on sola, we remain very encouraged by the enrollment in EXPEDITION 3. I really think Lilly has a best-in-the-industry capability on conducting late phase Alzheimer's studies.

And as you point out, we threw in significant complexity, which is a requirement to prove positive amyloid to enter the study in 100% of the patients.

But I am pleased to say, I think your last update was we were two-thirds enrolled.

We continue to progress to complete enrollment soon.

And I can say we will most likely beat the enrollment window we saw in EXPEDITION 1 and 2, which was a similar number of patients.

As a reminder, that was 22 months.

So we would expect to complete enrollment soon.

And then, of course, look for a readout in 2016, as we have discussed previously.

Great.

Thanks, Dave.

Tom, next caller, please.

Next question is from the line of John Boris with SunTrust.

Please go ahead.

Thanks for taking the questions.

First question just has to do with your operating margins.

Obviously exiting the period of YZ, your operating margins are in the high teens.

If you look across the businesses where you are having greatest amount of launches -- oncology, diabetes -- and you benchmark those businesses against your industry peers, the operating margins of some of those companies are in the high 30s.

So when you think about operating margin expansion going forward, can you maybe help us understand or characterize how those businesses are potentially going to be contributing to that?

And any color on the magnitude of expansion would be helpful.

Second question, on Alimta, Germany/UK.

Any update on the patent challenge that's going on there?

And then lastly, just on the BioChaperone insulin lispro, if you can possibly characterize the profile of that product?

What phase of development, and when you anticipate it might go into clinical?

And how it might contrast with the insulin oligo that is being worked on by one of your peers?

Thanks.

Thank you, John.

We'll go to Derica, obviously, for your first question on the operating margins.

And then Sue, if you could comment on the European patent litigation?

And then Enrique, if you will take a first shot at the BioChaperone lispro?

And Jan, feel free to contribute, if you would like, as well.

Derica?

Hi, John.

Good morning.

As you know, we've stated that we expect to get our OpEx, as a combination of SG&A and R&D, as a percent of sales, back to that 50% of sales or less by 2018, on a full-year basis.

While I can't -- while I am not in a position, here on the call, to break out the operating margin by business unit, let me just share with you some color as to how we see ourselves improving our margins over time, and provide some examples.

One of the things we have talked about is, we are launching in the area of oncology.

Obviously, highly specialized.

We believe we have the commercial footprint in place.

So, even as Sue is launching new product and new indications, we believe we can accommodate that within our existing footprint.

Likewise, the same is true in diabetes, as well, where, while we may be tweaking around the edges, there are not any wholesale changes in our commercial footprint, from a sales force standpoint.

Clearly, there is the variable marketing spin behind these brands.

And then if you look on the manufacturing side, we see ourselves the opportunity, as we continue to execute and complete the technical agenda in our insulin business.

And from a manufacturing standpoint, which enabled us to be able to produce the basal insulins that we're launching in the same facilities, today, where we produce our existing insulins, in terms of Humulin and Humalog.

So therefore, we are getting more throughput through the same existing manufacturing footprint, which should bring down our per unit cost flowing through those facilities.

So these are some examples of how we believe we will be able to get increased leverage out of our existing infrastructure, which will enable us to grow our at OpEx at a slower rate at our cost base than our top line, and giving us that positive leverage to return to the historical levels of profitability.

Sue?

Yes, sure.

I actually don't have any update on the European patent situation.

The two cases, the German and the US case, as you know, are both being appealed.

The hearing for both of those is set for March.

So we look forward to being able to provide data on that, following those hearings.

Just to be clear, that's the German and the UK case, not US case, for March.

Sorry, yes, thank you.

Enrique?

On the BioChaperone, this product is already in the clinic.

We do have some phase I data.

And the reason we did the partnership is, as we looked at both our internal programs, as well as what was out there, we felt this was the most compelling asset, when we looked at the profile.

We are looking for something that is faster on and faster off, with a benefit that that could basically bring, including lower rates of hypoglycemia and lower variability, when it comes to overall blood glucose.

Great.

Thank you, Enrique.

Tom, if we can go to the next, caller, please?

Next question is from the line of Steve Scala with Cowen.

Please go ahead.

Thank you.

I have three questions.

First, on the evacetrapib interim look, on the Q3 call, I believe the Company said that there are efficacy features to the interim look.

Can you give us examples of efficacy features?

Are you just looking at HDL and LDL levels?

Or are you also looking at trends and efficacy, or events?

Secondly, in the PD-1 arena, I am curious as to why Lilly selected the Bristol PD1 for one study, and the Merck PD-1 for three others?

Do you see clinical differences in the PD-1's you seek to accentuate?

Or was it for financial or competitive reasons?

And then lastly, a question for Jeff.

There are many emerging modalities in Animal Health.

We recently saw approval of the first monoclonal antibody for cancer.

As a leader in Animal Health, what emerging modalities does Lilly Animal Health find most interesting?

Thank you.

Great, Steve.

Thank you for the questions.

So Dave, evacetrapib again, please.

And then Sue for the PD-1 question on the Bristol and Merck collaborations.

And then Jeff for the Animal Health question.

Dave?

Yes, thanks, Steve.

And again, on evacetrapib, we do expect an event-driven interim look soon.

This is for futility.

As I said before, the bar on -- from an efficacy perspective is very low, really ruling out absolute futility and we will look at major cardiovascular events in that look.

But, as I think we have said before, don't expect a major press release on both sides of that.

Of course, if we stopped the study for futility, we would announce that.

Great.

Sue?

Yes, Steve, with regards to the trials, I wouldn't read anything into the number of trials that we've got within each company.

Basically, the decision was made based on the interest of each company at that point in time.

We foresee that we will continue to have ongoing collaborations in the future, with other companies.

And again, it will depend on our interest and their interest.

Great.

Jeff?

Yes, great question.

I think in Elanco, we see a few very key spaces going forward, in the medium- and long-term future.

Continued animal disease continues to be a problem, both at the respiratory and enteric levels.

So that covers a couple key classes that we're worried about.

So bovine respiratory disease continues to be a big challenge.

So that's one space.

Second is, mastitis continues to be one of the most unmet needs in dairy at this stage.

And we are expecting to make a nice innovation launch in that space in the US next year -- or excuse me, this year.

And then I think the whole area of immune modulation, turning the animals' immune system, and activating it against the disease.

Versus today, when you look at current medications, antibiotics, et cetera, it's trying to introduce immune modulation.

And I think that the last one in the pet space is renal failure.

It's continuing to be a major issue in, especially, the feline area.

So those are some of the big spaces.

Pain would be another one, as well.

Great.

Thanks, Jeff.

Tom, next caller, please.

Next question is from the line of Seamus Fernandez with Leerink Partners.

Please go ahead.

Thanks very much for the questions.

So a few here.

First off, can you talk a little bit about the BioChaperone, and really what needs to be proven to advance this program into phase III?

The second question, can you also update us on what you are seeing globally in the premix market?

How market share is evolving here?

And what you see from a demand perspective, for a once-daily premix product?

And then lastly, on the CETP inhibitor, have you evaluated the LDLC reduction using Merck's -- or what Merck has published, which is this beta quantitation method.

And if so, what did you see, in terms of the LDL reduction capabilities?

And if you haven't done that, could you just give us what your estimate is of LDL reduction on top of statins, with the 130 milligram dose that's used in the phase III outcome study?

Thanks a lot.

Thanks, Seamus.

Enrique again on BioChaperone, and as well as the premix question, with regard to what you are seeing for share market, as well as just demand for once-daily premix outside of the US, it sounds like.

And then back to Dave on the CETP inhibitor.

Enrique?

I won't be able to, Seamus, unfortunately, discuss the program that we have for our BioChaperone.

What you should expect is that we need to make sure that this product is going to be effective in both type 1 and type 2 diabetes.

And we intend to conduct the right clinical studies to ensure that we can have a thoughtful phase III commercial decision.

As I mentioned, clearly, we already have mealtime insulins in the market, so we need to show some benefits, when it comes to differentiation, vis-a-vis what's already marketed.

But won't be able to comment on that, because we believe that's important competitive information.

On the premix market, clearly, the premix market has been, in many areas of the world, declining, with the exception of emerging markets, where we see continued growth of this category.

When we look at the share performance, Lilly has done fairly well.

So we are gaining say in this market, whether it's in US, whether it's Europe, Japan, or emerging markets.

I am not sure how to comment on whether a once-daily premix would be a strong benefit.

We will have to see what that -- what the clinical data for that is.

If I am speculating about what you are talking about, right, a pre-mix needs to provide at least non-inferior control to whatever the standard treatment is, when it comes to diabetes.

And this particular pre-mix that I think you are talking about may -- did not meet the primary end point, when it comes to hemoglobin A1C control, vis-a-vis basal bolus therapy.

So clearly, it all is going to depend on the actual clinical data.

Was there a CETP question?

Okay, yes, sure.

Sorry.

The gap there, I thought there was another question in between it.

Seamus, thanks for the question on CETP.

I think that -- a couple points of clarification.

All along, we have been quoting LDL reduction numbers for our program using these so-called direct measurement methods.

I'm not actually familiar with the statement you made about Merck's method.

But we use this direct method, which is the more accurate way, and our numbers have been consistent throughout.

Perhaps with our program, the confusion has been, we reformulated, as we went to phase III.

We had tested 100 and 500 in phase II, and the formulation of 130 that you mentioned is more bio-available than the 130 equivalent in the phase II study, if that makes sense.

So, we would expect the LDL reductions between the 1 and the 500 that were previously published.

And that puts you somewhere in the 30s, in terms of percentage reduction, using the direct LDL measurement.

Great.

Thanks, Dave.

Tom, next caller, please.

Next question is from Jami Rubin with Golden Sachs.

Please go ahead.

Hi.

It's Jay Olson in for Jami Rubin.

Thank you for taking the question.

Actually, just a couple questions on animal health.

Can you please tell us what Elanco's EBIT margins were in 2014?

And then, when the Novartis Animal Health deal was announced, you guided to a dilutive impact on 2015 earnings, followed by accretion in 2016, with some cost synergies and mid 20% EBIT margins.

Can you just update us on whether all of your targets are still on track?

And then finally, are you, now that the Novartis Animal Health deal is closed, are you comfortable with the size of Elanco?

Or do you anticipate additional business development?

And if so, would it be in the companion animal arena, or in livestock?

Thank you.

Great, Jay.

Thank you for the questions.

Those are all for Jeff.

Feel free -- and then if you want to comment at all, Derica, on the accretion/dilution, as well.

Sure.

I will take the first one.

For 2014, it was around 24% was the EBIT margin.

And then in regards to, just to clarify, when we announced the deal, we did say it would be dilutive in 2015.

And we said that we expect, by 2017, to return the combined entity to the historical levels of profitability, which was in the mid 20%s, in terms of margins.

Jeff?

Yes, and just to build on that, I think when you look at the Novartis, we feel good.

It's better than expected in a couple areas.

Again, we are just a few days in, but close timing was better than expected.

And also, the required divestitures really only needing to sell one brand in the US, and all the other areas, we're clear on.

So, at this stage, though, we've got limited detail on moving forward, being that we're just a month in.

And we'll definitely give a better view, and more clear detail, in Q2, Q3.

Great.

Thanks, Jeff.

What about business development?

Oh, the business development priorities.

Yes, we're going to continue, from a business development perspective.

We feel very good about scale, and share of voice, being able to compete.

Again, Lohmann and Novartis, we see as vehicles for the next era of growth.

And they've increased our portfolio, our pipeline and our share voice.

We are seeing that already in the early planning of both of these integrations, which are working very well.

I think that we are going to look, now, very much as we have in the past with other acquisitions is, where the strategic areas of need are.

So vaccinations, in that space, emerging markets and companion animals will continue to be targets.

They will probably be more regional than global in nature.

Great.

Thanks, Jeff.

Tom, next caller, please.

Next question is from the line of Chris Schott with JPMorgan.

Please go ahead.

Thank you.

This is actually Wendy Lin on for Chris Schott today.

I have two questions on Alzheimer's.

It's on the N3PG path-specific antibody.

Can you talk about the time lines and the next steps in here?

And then on the base inhibitor, can you talk about your study design?

How do you see that molecule comparing with Merck's?

And when could you move it into phase III?

Thank you.

Thanks for the questions.

Jan, if you would like to lead off with commentary on the N3PG monoclonal antibody?

And then Jan and Dave, if you would like to provide the thoughts on the base study design?

Jan?

Okay.

So the N3PG antibody is a plaque specific antibody, and it's in phase I studies.

Although it is actually done in patients with mild cognitive impairment, or mild or moderate Alzheimer's.

The purpose of that study is actually to look at safety PK, and have some pharmacodynamic markers of effects.

And primarily looking at amyloid imaging before and after treatment.

And the planned completion of the trials are then second half this year.

Great.

Thank you.

Dave?

Yes, as it relates to the base program, in alliance with AstraZeneca, we've announced we've begun the phase II/III program.

So one feature of this is, it's a phase II program to confirm dose and safety, which will then convert into a phase III, perhaps for the end of this year, early next year, depending on enrollment.

I think that two key things -- we don't have any comparative data with Merck's base inhibitor.

The two key things I mentioned, in terms of the study itself, and then one operationally.

We will be positively screening for amyloid, as with the sola EXPEDITION 3 study, in this program, as well, so that 100% of the patients in the study have confirmed Alzheimer's.

And we know that's an issue from other experiences in this field.

And then our study is a mild Alzheimer's disease study.

And I believe Merck has a mild/moderate, plus a prodromal.

So different population mixes.

We also have different end points we are looking at.

We favor the activities of daily living and the cognitive -- I guess cog measurement points.

And Merck is looking at different points, as well.

So there are differences.

We'll have to see how it plays out.

I would say operationally, for the previous comment on sola, we feel good about our team's ability to enroll patients in these types of studies.

And of course, there is a race to get a drug to patients suffering from the illness.

So we are very focused on time lines, and feel confident in our ability to execute.

Great.

Thanks, Dave.

Tom, if we can go to the next caller, please?

(Operator Instructions)

Our next question is from the line of Vamil Divan with Credit Suisse.

Please go ahead.

Good morning.

This is Ari Jahja in for Vamil Divan.

Thanks for taking my questions.

I have three questions here.

First, on gross margin guidance, can you please clarify to what extent the upward revision is impacted by inventory step-up and amortization related to the Novartis Animal Health deal?

Second on pharma net pricing.

Can you share your thoughts on key headwinds and tailwinds in different regions?

It is interesting that emerging markets is the only part delivering positive net effect last year.

And then lastly, for Enrique, pertaining to the new insulin glargine product, can you talk about Lilly's preparedness ahead of the launch this year?

Thank you.

Thanks, Ari.

And was your second question on Animal Health pricing or just pharma pricing?

I am sorry.

Pharma?

Okay.

So Derica, do you want to comment on the gross margin piece, to start with?

Sure.

In regards to the gross margin change in our guidance, it only relates to FX.

So this is not driven by the step-up in inventory for the Novartis Animal Health acquisition.

In fact, that was included in our original guidance that we shared on our January 7 call.

So the 78% gross margin projection today is solely due to the change in outlook, in terms of the FX effect on inventories expected to be sold through the period.

Dave, do you want to comment on the --

Yes, let me just jump in on the -- you are commenting on 2014 effective price rate volume chart we show here, and the US being down one on the year.

Perhaps that's a surprise.

Remembering Japan had -- 2014 was biannual price year, so we expected and planned for a price pressure there.

ACE, I think we have macroeconomic pressure in our business, along with the plan for generic event of Cymbalta, which led into this year.

The US is down primarily driven to the AG, authorized generic, business transactions we conducted on both Evista and Cymbalta, which had an effect on our price per unit in a significant way during the year.

So I think that's more or less a one-time event for the US market.

Great.

And Ari, I apologize.

I missed your last question.

Insulin glargine --

Okay, Enrique, great.

Thank you.

I am not sure what I can say, other than we are ready.

Clearly, we expect to launch in Europe this year, post the expiration of the Lantus patent.

Thank you, Enrique.

Tom, next caller, please.

We have a follow-up question from Seamus Fernandez with Leerink Partners.

Please go ahead.

Thanks a lot for the questions.

So just two things.

One -- I don't know if I missed the answer to this question -- but pricing on the animal health side of the business?

What was the driver there?

And is that something that -- where we could see that kind of pricing power going forward?

And then separately, as you look at the choice to enroll Amyvid-only patients, do you have internal data suggesting that the Amyvid staining, or the Amyvid biomarker-positive patient population in the EXPEDITION studies actually did have a wider magnitude of benefit?

And suggesting that there could be greater power in EXPEDITION 3?

Thanks.

Great.

Thanks, Seamus.

So Jeff for the animal health pricing question.

And then back to Dave on solanezumab.

Jeff?

Yes, so on pricing in animal health, Seamus, a couple comments.

First of all, we have a very market-based pricing, especially on the food animal side.

So as you have seen, economics get better in the meat and milk business, and our return and our value proposition changes.

We base a lot of our pricing model off from that.

Second is, we have taken a very global assessment of these markets, and the value aspects of this, and have taken a global pricing approach that I think has also benefited.

Then, I think lastly, on pricing, it's linking to our value-based strategy.

As you know, we bought an analytics company, and we are offering a broader set of solutions.

So those are the key things.

I think we've got to continue to look, as you go forward, at the cyclical nature, especially in the food animal business, and competitive nature of the companion animal business.

So I think the intention is, can you get a 1% to 3% price, is a question that's out there in the industry that still isn't validated yet.

But I think those are the factors to watch, going forward.

Thanks, Jeff.

Dave?

Yes, as it relates to amyloid positivity -- and I should be clear, we test -- the primary number of subjects select for a PET scan.

Some do receive a CSF, as well.

But confirming positive amyloid, we think, is key to development in Alzheimer's.

And we believe that because we do have data in-house that shows that patients who don't have amyloid do not respond to an anti-amyloid treatment.

And we also know, from larger-scale population studies, they also don't progress at the same rate.

So if they're in the placebo arm, they're going to over-perform.

So for all these reasons, and just logic, we believe that's a critical element in Alzheimer's drug development.

Great.

Thanks, Dave.

Tom, next caller, please.

You have a follow-up question from the line of Tim Anderson with Bernstein.

Please go ahead.

Thank you.

A couple questions.

On your novel basal insulin, you continue to talk bullishly about it on your early January guidance call.

And you said this remains a very important product for the Company.

And that's just not congruent at all with how consensus views the drug.

Consensus is very skeptical, recognizing that there might be some positive efficacy attributes.

But there is also some unique and potentially worrisome toxicities, like fatty liver.

And in a competitive category like insulin, it seems that unique side effects could basically take down the commercial prospects for the product.

So I am hoping you can tell us what you think analysts are missing with this program.

And then the second question on -- a general question on base inhibitors.

Are -- what are the theoretical safety issues to monitor with these compounds, given the magnitude to which they lower A-beta production?

It seems like that's confounded by the fact that nobody really knows what the physiological role of A-beta is.

So how do you know what to watch for?

And has there been any signals, in any human studies, that you are aware of?

Or animal studies?

Great.

Thanks, Tim.

Enrique, if you will handle the first question on the novel basal insulin peglispro.

And then Jan, if you would like to handle the base question, in terms of safety things you're looking out for?

And what we have seen so far with molecules in humans?

Enrique?

Sure.

So on the efficacy side, I think what we basically have is five positive phase III trials against Lantus.

Now, let's keep in mind that we have not disclosed what the level of improvement is.

But statistically significant improvement in hemoglobin A1C in five trials is unprecedented.

And a hemoglobin A1C reduction, it is a -- has a tangible benefit, when it comes to outcomes.

In particular, as -- in terms of the development of microvascular complications.

So we see these as extremely important.

You spoke of some of the signals that we basically saw in our phase III programs.

At this stage, though, I think that we have to wait for us to be able to disclose the data at the ADA, for you to be able to see exactly what is the benefit/risk profile of this product.

Thanks, Enrique.

Jan?

Yes, if we look at Beta-secretase or base inhibitors, the current base inhibitors in the clinic affect both the base 1 and the base 2 enzyme.

And clearly, for the Alzheimer indication, the thinking is, it is the base 1 enzyme that is then cleaving the APP precursor.

If we look at potential side effects, we experienced, and probably other companies as well, off-target effects with some initial base inhibitors, which we believe then underlies some of the liver toxicity, which is not unheard of with small molecules.

The more specific toxicology observations that we see is actually a de-pigmentation in some animals.

And the potential explanation for that is probably a base 2 effect.

So this is something that also needs to be monitored in the clinic.

Thank you, Jan.

Tom, do we have any more callers in queue?

We have a follow-up question from the line of Steve Scala with Cowen.

Please go ahead.

Thank you.

I have two questions.

First, on your CGRP monoclonal antibody for migraine, looks spectacularly effective, but with significant safety concerns, including maybe cardiovascular, wound healing, intraocular pressure, maybe [teratogenicity].

What are next steps for this compound?

And there are a number of similar compounds in development.

Why is Lilly's best in class?

And then second question, on ixekizumab.

Lilly has provided solid top line data in psoriasis.

I know there are no head-to-head studies verses Novartis' secukinumab.

But based on the full data, which you have and we don't, would you say ixekizumab is comparable to secukinumab?

Does it have a chance to be better?

Or is ixekizumab less robust than secukinumab?

Thank you.

Thank you, Steve.

Jan, would you like to comment, maybe, on CGRP, please?

And then Dave --

Yes.

Calcitonin Gene-Related Peptide, or CGRP, has been around for quite some time, and has been.

And the mechanism has been studied, both with small-molecule oral agents, as well, and as more recently, monoclonal antibodies.

And the studies with oral agents, I think, showed quite positive data in acute migraine treatment relief of symptoms.

But due to the probably off-target liver talks, these agents could not be used for more chronic treatment.

On the other hand, they were also tested in a variety of patients with other diseases, and there were no real other side effects seen.

And this has been confirmed even more with the monoclonal antibodies, which have -- are very specific.

We have not seen any side effects, with these type of agents, so far in our studies.

Currently, we are, then, in migraine, in phase II, preparing for phase III, with more safety, and dose ranging studies.

And we are also studying these agents for osteoarthritis.

But we are very bullish on this mechanism, and realizing it is a competitive area, with several other players.

But we are doing our utmost to execute the trials in the very rapid fashion.

Great.

Thank you, Jan.

Dave?

Yes, as it relates to the IO-17's, we are quite excited about this class.

We think both psoriasis has a lot of room for growth, and IO-17's present a compelling difference as a group, versus available therapies.

I think they have strongly exhibited in the top line results we put out in September, which demonstrated a very significant effect size improvement over etanercept, in patients with moderate to severe psoriasis, with ixekizumab.

We don't have class comparisons, as you mention -- and Steve, you will see our data come out pretty soon, with a more full look at what we're looking at.

But I will just say qualitatively, we think we have the potential to have the best drug in the class.

Because the -- at the maximum doses, we see extraordinary rates of PASI 100 clearance, and I think our numbers are high.

So we'll -- all the data is not out.

We need to see Amgen's full data set, et cetera.

But I think we feel good that we could have the most effective medicine in the class.

And as we reported, safety of ixekizumab in the moderate to severe patients with psoriasis was similar to that we saw with etanercept.

Great.

Thanks, Dave.

Tom, one last poll to see if we have any additional callers?

There are no questions in queue at this time, sir.

Please continue.

Okay.

Thank you very much.

I will go ahead and turn it over to John, then, to wrap up the call.

John?

Thank you, Phil.

And a brief wrap up, here.

To all those on the call, we thank you for continued interest in our Company, and for your support.

As we emerge from this journey that we've taken through years YZ, I am extremely proud that we have executed on the strategy that we laid out for you, and delivered on the commitments we shared five years ago.

On January 7, we outlined our objectives for the balance of this decade.

We intend to drive year-on-year revenue growth through the balance of this decade, spurred by new product launches from our pipeline.

Next, we aim to turn that revenue growth into even greater earnings growth, by controlling costs and leveraging existing infrastructure.

At the same time, we aim to maintain a sustainable flow of innovative medicines from our pipeline.

And finally, we will deploy capital to create value, which includes returning excess cash to shareholders, via both the dividend and share repurchases.

We remain convinced that our strategy is the right one for Lilly, in order to create value for patients, physicians, payers, and our shareholders.

And our ability to execute so far gives us increasing confidence in our future prospects.

As always, we will keep you apprized of our progress.

Thank you once again.

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