禮來公司 (LLY) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2015 earnings call.

(Operator Instructions)

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

And I would now like to turn the conference over to your host, Chief Financial Officer, Mr. Derica Rice.

Please go ahead, sir.

Thank you.

Good morning.

And thank you for joining us for Eli Lilly and Company's first quarter 2015 Earnings Conference Call.

I'm Derica Rice, Lilly's Chief Financial Officer.

John Lechleiter our Chairman, President and CEO is traveling overseas and is unable to join us today.

However, I do have a number of my colleagues with me here in person or dialing in.

And they are Dr. Jan Lundberg, our President of Lilly Research Laboratories; 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 Elissa Rassner, Brad Robling, and Phil Johnson of Investor Relations team.

During this 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.

Now, 2015 is off to a very good start.

This quarter we had solid underlying business performance offset by the continued strengthening of the US dollar and lingering headwinds from US patent expirations of Cymbalta and Evista.

Our continued focus on cost controls drove strong leverage at the bottom line and we saw positive progress with our pipeline spanning regulatory approvals, submissions, and Phase III data readouts.

Now, I'll begin today's call by highlighting key events that have occurred since our last quarterly earnings call and there have been quite a lot of them.

Starting with commercial milestones, our US colleagues began promotion of CYRAMZA for second-line metastatic non-small cell lung cancer after receiving FDA approval late last year.

While in Europe, our colleagues launched CYRAMZA for the treatment of second-line gastric cancer.

In diabetes, following EU approval in Q4, we launched Humalog 200 units ml KwikPen, the first 200 units per mil mealtime insulin that is targeted for people who take more than 20 units of rapid-acting mealtime insulin per day.

And following FDA approval at the end of January, along with Boehringer Ingelheim, we launched Glyxambi in the US in March.

We're excited about the potential of this product, which is the first approved single-fill combination of a DPP 4 inhibitor and an SGLT2 inhibitor.

Turning to regulatory milestones, in addition to FDA approval of Glyxambi, Boehringer Ingelheim received a positive opinion from Europe's CHOP for the single pill combination of Empagliflozin and Metformin for the treatment of patients with Type 2 diabetes.

If approved, the product will be marketed under the trade name Synjardy.

In oncology we achieved a number of regulatory milestones for Cyramza.

After receiving a priority review, Cyramza was approved in Japan as a treatment for patients with unresectable advanced or recurrent gastric cancer.

Given the regulatory timelines for pricing in Access decisions, launch is expected midyear.

We also submitted Cyramza in both the US and the EU for second-line metastatic colorectal cancer.

I would note that the FDA's review of this SBLA is moving very quickly.

And also in the EU, we submitted Cyramza for second-line non-small cell lung cancer.

We're very pleased with the progress we've made in bringing Cyramza to market, having received regulatory approvals in the US, the EU and Japan within less than 12 months.

As I'll discuss later we're also excited about life cycle opportunities for this brand.

In our bio-medicines business, we submitted ixekizumab to the FDA for review as a treatment for patients with moderate to severe plaque psoriasis.

And along with Pfizer, we announced that the FDA removed the partial clinical hold for tanezumab.

As a result, we will begin Phase III trials in multiple pain indications before the end of the year.

Our decision to proceed with the development of tanezumab triggered a $200 million payment to Pfizer.

On the clinical front, along with Incyte we announced that baricitinib met the primary endpoint of improved ACR20 response compared to placebo in the Phase III RA build study in patients with moderately to severely active rheumatoid arthritis who had an inadequate response to or were intolerant of at least one conventional DMARD.

At the American Academy of Dermatology meeting in March, we presented detailed results from the positive Phase III Uncover One study evaluating ixekizumab in patients with moderate to severe psoriasis.

Also for ixekizumab, we issued a topline press release earlier this week announcing positive results from the Phase III Spirit P-1 study evaluating ixekizumab in patients with active psoriatic arthritis who were naive to biologic treatment.

I'm also pleased to announce that we have completed enrollment of the EXPEDITION 3 trial evaluating solanezumab in amyloid positive patients with mild Alzheimer's disease.

Given that we completed enrollment ahead of schedule, we now expect last patient visit in October of 2016.

For our CTP inhibitor evacetrapib, we announced that the accelerate Phase III study in people with high-risk vascular disease will be extended by approximately six months.

Last patient visit for this study is now expected in July of 2016.

And we announced that regulatory submission of our basal insulin peglispro will be delayed in order to generate additional clinical data to further understand and characterize the potential effects, if any, of changes in liver fat observed with [bell] treatment in the Phase III trial.

We are working with regulators to determine specific next steps but we do anticipate the regulatory submission is likely to occur after 2016.

And we look forward to presenting detailed Phase III data at this year's ADA meeting.

On the business development front, we announced three deals.

The first was an agreement with Hanmi for the development and commercialization of Hanmi's oral BTK inhibitor for the treatment of autoimmune and other diseases.

Lilly will have worldwide rights, excluding China, Hong Kong, Taiwan, and Korea.

The second was a collaboration with Innovent for the development and commercialization in China for three investigational cancer treatments.

In addition, Lilly will be responsible for the development and commercialization outside of China for a preclinical immuno-oncology molecule and for up to three preclinical bi-specific immuno-oncology molecules from Innovent.

And the third deal which we announced last week with Bristol-Myers Squibb was for the transfer back to Lilly of Erbitux' commercial rights in North America.

These rights were scheduled to revert to Lilly in September 2018 but we expect this deal will accelerate that transition to Q4 this year.

In other news, the German Court of Appeals ruled that the vitamin regimen patent for Alimta would not be infringed by a generic competitor that intends to market a dipotassium salt form of pemetrexed in Germany once the compound patent expires in December of 2015.

We will seek permission to appeal this ruling to the German Supreme Court.

And finally, we repurchased just over $300 million of stock in Q1 leaving $3.4 billion remaining on our $5 billion plan.

In addition, during the first quarter we distributed over $500 million to shareholders via our dividend.

We remain committed to providing a robust dividend and to returning excess cash to shareholders via share repurchase.

2014 was a productive year for execution of our innovation-based strategy.

Likewise 2015 is off to a strong start with more to come.

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

Phil?

Thanks, Derica.

Before I review our Q1 results, it may be helpful to comment on the presentation of our GAAP results and non-GAAP measures.

For our GAAP results, remember that we closed the Novartis Animal Health acquisition on January 1. So in interpreting our GAAP results and growth rates versus 2014, please keep in mind that 2014 does not include Novartis Animal Health.

While 2015 includes the operating results of this business as well as all the costs associated with the acquisition, including financing costs, integration costs, inventory step-up costs, amortization of intangibles and other miscellaneous adjustments.

For our non-GAAP measures, recall that like our peers, we are now excluding amortization of intangibles from our non-GAAP measures.

To provide you a better idea of underlying trends in our business, based on our current reporting practices and business configuration, we've adjusted our non-GAAP measures for 2014 to exclude the expense associated with amortization of intangibles and to include Novartis Animal Health as if we had closed the acquisition on January 1, 2014.

This places 2014 on the same basis upon which we are reporting our financials this year.

In addition to aiding your analysis of our non-GAAP measures, you'll see that we posted an Excel file to our Investor Relations website that contains our 2014 non-GAAP measures adjusted to remove intangible amortization and to add Novartis Animal Health.

With that background, let's take a look at our results for the quarter.

Slide 8 provides a summary of our GAAP results.

As I'll focus my comments on our non-GAAP adjusted measures to provide insights into the underlying trends in our business, please refer to today's earnings press release for a detailed description of the year-on-year changes in our first-quarter reported or GAAP results.

Moving to slide 9, you can see that Q1 revenue was just over $4.6 billion.

The decrease of 6% compared to Q1 2014 reflects significant FX headwinds.

Excluding FX, our Q1 revenue on a non-GAAP basis was essentially flat.

As we discussed on our guidance call, this year we will still feel the negative effect of the loss of US exclusivity for Cymbalta and Evista.

This quarter sales of those two products in the US declined by nearly $200 million.

Excluding the unfavorable impact of foreign exchange rates and Cymbalta and Evista in the US, the rest of our worldwide revenue increased 5% this quarter.

Gross margin as a percent of revenue increased 3.6 percentage points, going from 74.6% to 78.2%.

This increase was entirely driven by the favorable impact of foreign exchange rates on International inventories sold which increased cost of sales in Q1 last year but decreased cost of sales in Q1 this year.

Excluding this FX effect, our gross margin percent declined by 1.1 percentage points, going from 76.4% in last year's quarter to 75.3% this quarter.

Please do take note of the level of our gross margin percent excluding the FX effect on International inventories sold.

Again you'll see that this is running at roughly 75%.

As we discussed when updating our guidance on our Q4 earnings call, in 2015 we expect a substantial FX benefit that should push our gross margin percent into the 78% range.

However, if FX rates stay at their current levels, that benefit will essentially go away in 2016.

So as you construct your estimate of our 2016 gross margin percent, you should be making adjustments off of a 2015 base level of roughly 75%.

As in past quarters, you'll find a supplementary slide providing our gross margin percent for the last 10 quarters with and without this FX effect.

Total operating expense, defined as the sum of R&D and SG&A, declined by 7% or nearly $200 million, compared to Q1 of 2014.

Marketing, selling and administrative expenses declined 6% while R&D declined 9%.

The reduction in marketing, selling and administrative expenses was due primarily to the favorable impact of foreign exchange as well as to ongoing cost-containment efforts.

The reduction in R&D expense was driven primarily by the lower late- stage clinical development costs and, to a lesser extent, the favorable impact of foreign exchange rates.

As implied by our full-year guidance, we do expect the level of R&D spend to be higher for the remainder of the year as we start Phase III trials for tanezumab, our CGRP monoclonal antibody, [olimertumab] and additional indications for Cyramza.

Other income and expense was income of $93 million in Q1 2015, compared to income of $36 million in the first quarter of 2014.

This increase versus last year was due to a favorable legal judgment and larger net gains on investments.

Our tax rate was 22.9%, an increase of 3 percentage points compared to the same quarter last year.

This increase is primarily due to a discrete tax benefit realized in Q1 last year.

Also our tax rate in both periods did not include the benefit of certain US tax provisions including the R&D tax credit, as those provisions had lapsed.

At the bottom line, net income increased 16% while earnings-per-share increased 18% reflecting the benefit of our share repurchases.

Slide 10 provides a reconciliation between reported and non-GAAP EPS and you'll find additional details on these adjustments on slide 19.

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

On slide 11, in the yellow box in the middle of the page, you'll see the total revenue decline on a non-GAAP basis that I mentioned earlier of 6%.

The significant strengthening of the US dollar against many foreign currencies drove this decline as you see the 6% negative effect from FX that we booked this quarter with a favorable price effect of 3% offset by a volume decline of a similar amount.

By geography, you'll notice that US Pharma revenue increased 4% driven by price partially offset by volume.

A number of pushes and pulls affected US Pharma revenue growth this quarter.

First, as I mentioned earlier, Cymbalta and Evista declined following their patent expirations.

Excluding Cymbalta and Evista the rest of our US Pharma revenue increased 18% with over 7 percentage points coming from volume.

Also recall that on our Q4 earnings call we mentioned that an extension of shipping days through the end of December 2014 resulted in lower wholesale inventory build in Q4 of 2014 than in Q4 of 2013.

As expected, this led to less wholesale inventory burn in Q1 this year than in Q1 last year, benefiting this year's growth rate.

So when adjusted for wholesale buying, as well as Cymbalta and Evista, our US Pharma revenue grew 14% this quarter with 3 percentage points coming from volume.

Moving to our International operations in Australia, Canada and Europe, or ACE, you'll see a negative 13% rate impact was the primary driver of the overall 16% decline in revenue.

While on a constant currency or performance basis ACE revenue decreased 3%, driven primarily by the initial effects of a loss of exclusivity for Cymbalta.

In Japan, Pharma revenue decreased 23% with half of the decline coming from the weaker yen.

On a performance basis, our Japanese Pharma revenue decreased 11%.

You may recall that we experienced substantial wholesaler buying in Q1 2014 in advance of an increase in the local consumption tax.

Adjusting for the increased buying we saw last year, our Pharma revenue grew about 9% on a performance basis driven by volume.

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 4% versus last year.

Our Pharma revenue in China grew 6% with nearly all of that growth coming from volume.

On a non-GAAP basis, which adjusts 2014 as if we'd completed the Novartis Animal Health acquisition on January 1 last year, Elanco Animal Health revenue declined 4%.

Excluding the negative effect of FX; Elanco revenue increased 2%.

This performance increase was affected by competition in the US for companion animal products.

Moving to slide 12, you'll see the effect of changes in foreign exchange rates on our Q1 2015 results.

Given the significant and swift strengthening of the US dollar, this is one of those quarters where FX has the opposite effect on the topline as it does on the bottom line.

This quarter FX was a top line headwind, reducing revenue in US dollars by 6 percentage points.

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

Excluding FX, you can see that our non-GAAP EPS in the first quarter grew 7%, while including FX non-GAAP EPS grew 18%.

Slide 13 shows our pipeline as of April 17.

Changes since our last earnings call are highlighted with green arrows showing progression, red arrows showing attrition, and stars showing molecules added through business development.

You'll see that ixekizumab has moved into the regulatory review column following regulatory submission in the US.

Following our agreement with Tosano to develop their proprietary formulation of parathyroid hormone [1 to 34] using a microneedle patch system, you'll see that asset showing up in Phase II.

And in Phase I you'll see two assets have been added through business development activities: an ultrarapid acting insulin through our deal with [Adosha] and a BTK inhibitor initially being studied in immunologic diseases through our deal with Hanmi.

In addition we began Phase I testing of a small molecule for diabetes and another for Parkinson's disease.

And we terminated development of a Phase I small molecule for cardiovascular disease.

You'll also see that we've moved Blosozumab from Phase II to Phase I. Our efforts to identify a commercially attractive formulation have been unsuccessful and we've decided not to move Blosozumab into Phase III development for osteoporosis at this time.

We'll evaluate our strategy for the Blosozumab development program to determine next steps.

Now let me turn the call back over to Derica.

Thanks, Phil.

I'll recap progress we've made in our key events for 2015 and then review our 2015 financial guidance.

Turning to slide 14, you may recall that when we showed this slide on our Q4 earnings call in late January, we had already achieved two events: Presentation of data for ramucirumab in second-line metastatic colorectal cancer and completion of the acquisition of Novartis Animal Health.

Since that time, we've achieved a number of additional milestones.

We begin our second wave of Phase III trials for Cyramza, initiating a pivotal trial in first line gastric cancer.

In terms of the additional lifecycle investments in Cyramza, you'll also see that we've specified that the Phase III lung cancer trial will be in the first-line setting in patients with the EGFR mutation positive.

And we've added two new Phase III trial starts to our list of 2015 events.

One is second-line bladder cancer and the other in second-line liver cancer in patients with elevated baseline alpha-beta protein levels.

This is the population where we saw a pronounced overall survival benefit in the Phase III reach trial.

You'll also see that we've added a key event for our CGRP monoclonal antibody.

In the coming weeks we expect to start a Phase III trial in patients with episodic cluster headaches.

Moving to the next Section, as mentioned earlier, we issued a second positive Phase III topline press release for baricitinib in rheumatoid arthritis.

And earlier this week we issued a topline press release outlining positive results from a Phase III trial of ixekizumab in psoriatic arthritis.

Also for ixekizumab, but in moderate to severe plaque psoriasis, we presented detailed results of the Phase III Uncover One trial at the AAD meeting in March.

In the regulatory submissions category, you'll see the green check marks for the ramucirumab and ixekizumab submissions I mentioned earlier, as well as the red checkmark for the delay in submission for basal insulin peglispro.

While in the regulatory actions section, you'll see the green checkmarks for the approvals received in Japan for Cyramza in gastric cancer and Glyxambi here in the US.

Finally, we've reflected the progress made with tanezumab, lifting of the partial clinical hold paving the way to resume Phase III trials, as well as the negative Appeals Court ruling on Alimta in Germany.

2015 represents another year for execution of our innovation-based strategy and we are pleased with our progress so far and are excited for what lies ahead.

While we know not all of the remaining events are likely to be positive, we are increasingly confident that a significant majority will break our way and solidify our near- to medium-term growth prospects.

Now turning to our 2015 financial guidance, I first point out that our substantial EPS beat in the quarter relative to consensus came from two line items.

Lower R&D expenses and higher other income.

In both cases, we believe these represent differences in timing between our expectations and consensus, not differences in expectations for the full year.

In terms of our non-GAAP guidance for 2015, at a high level, we are reconfirming our full-year guidance, both the individual line items and the EPS range.

To provide some more color, we have seen further strengthening of the US dollar since our call in late January and this is causing further FX headwinds at the top and bottom lines.

However, the underlying performance of our business is offsetting this additional downside.

Specifically on FX, when compared to our late January outlook, we expect the continued strengthening of the US dollar to trim an additional $150 million to $175 million from revenue and another $0.05 to $0.06 from EPS.

For the full year, we now expect FX to reduce revenue growth by about 7.5% or about 1.4 billion to $1.5 billion.

In terms of EPS, we now forecast a negative FX effect of about $0.13.

Comprised of an operational FX hit of about $0.60 offset by benefit to cost of sales of nearly $0.50.

As we discussed, should FX rates remain at current levels, this cost of sales benefit in 2015 would essentially go away in 2016.

You'll want to consider this as you model our gross margin percent and EPS for 2016.

For our GAAP guidance, you will see that we've incorporated changes related to our decision to proceed with the development of tanezumab and the deals we signed with Hanmi, Innovent and Bristol-Myers Squibb.

Finally, keep in mind that our 2015 GAAP guidance is based on our current estimate for how we'll account for the Novartis Animal Health acquisition and the Erbitux deal and could change based upon revised estimates and final accounting treatment.

In summary, while our first-quarter revenue reflects the impact of foreign exchange headwinds, and the lingering effect of US patent expirations for Cymbalta and Evista, Lilly remains on track to return to growth in 2015, driven by excellent progress in our innovation-based strategy.

We had solid underlying business performance and our continued focus on cost controls drove strong leverage at the bottom line.

Recent new product launches, along with the growing success of our late stage pipeline, reinforce our confidence in our future.

Since our last earnings announcement, we've seen one FDA approval and two FDA submissions, in addition to approvals and submissions in Europe and Japan.

We've also seen a continuing series of positive data readouts for our late stage assets.

We are pleased with the performance of recently launched products as well as growth at several established products.

Excluding the hit from unfavorable exchange rates and lower US sales of Cymbalta and Evista, the rest of our worldwide revenue increased 5% this quarter.

We've started 2015 in a position of strength and our continued cost containment efforts allow us to build on our innovation-based strategy through both internal and external investments.

As we transition from a period of unprecedented patent expirations to an era of growth, we are seeing tangible results from our innovation-based strategy and we are increasingly optimistic about the opportunity we have to bring innovative new medicines to patients and create value for shareholders.

As we discussed in January, throughout the balance of this decade, we aim to drive revenue growth and expand margins.

You'll see us sharpen our focus on areas where we are best positioned to compete and win and find ways to increase productivity and do the work of pharmaceutical R&D better.

This concludes our prepared remarks.

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

Thanks, Derica.

Keeley, if you could prompt the folks on the line for the procedure for getting into the queue and asking questions and then move to the first caller, please?

Thank you.

(Operator Instructions)

Mark Schoenebaum, Evercore ISI.

This is Salim in for Mark.

Thanks so much for all the color on the call.

It's really helpful.

Two questions.

One on Glyxambi.

Can you give us your thoughts, where are the patients going to come from?

Do you expect cannibalization of your new products or are these going to be new patients to the Lilly franchise?

And then Cyramza, if you could provide, please, a breakout on gastric versus lung sales?

Thanks.

Obviously, Enrique, first question for you on Glyxambi, and then over to you, Sue, for the Cyramza question.

Enrique?

Very good.

On Glyxambi, clearly we are looking at the benefit that this product could provide for patients that are not achieving good control on metformin.

So we see this as a very attractive options for many of those patients.

And that's basically what our clinical results also say.

So we are excited.

We are the very early stages of our launch.

We launched in late March, so we are, at this time basically introducing this product to healthcare providers.

Sure.

And with Cyramza, the vast majority of the sales that we are seeing is in gastric cancer impacting the US where we launched last year.

We are seeing use with the majority of the sales coming from use in combination with [taxitaxil] as we expected.

We did see in Q1, though, a proportion of sales coming from the lung launch.

It's early days yet on lung.

But what we are seeing uptake there and the feedback so far is positive from physicians in the use of Cyramza in lung cancer indications.

And clearly in Europe, we just launched, beginning of this year, in Europe and where we are seeing access, for example, in countries like Germany, again early days, but the uptake in the gastric indication there is positive.

Yes.

Just I did not answer the question on what impact would Glyxambi have on both Trajenta and Jardiance.

We are not really thinking about the cannibalization aspects when introducing this product.

We think this product is a very unique product.

And, if anything, we believe that this product is actually going to strengthen both Trajenta and Jardiance as it becomes -- as it basically gains acceptance in the marketplace.

Okay, great.

Thanks.

Tim Anderson, Bernstein.

Love to get your updated perspective on solanezumab and the Alzheimer's opportunities in light of the [Vagin] data.

Mechanistically, of course, both products target A-beta.

They do it in reasonably different ways.

Yesterday Roche, who had two monoclonals, suggested that they may push forward with a plaque-targeting version of their drug versus the other product that hits multiple forms of A-beta.

Your product targets soluble A-beta, yet you also have in development a plaque-specific monoclonal.

So given the totality of their data, what's your latest thinking here?

What has the best chance of success, a drug that targets soluble or deposited plaque?

And then another question, if last patient visit is October 2016, does it mean that we would only learn of results downstream of that or would we possibly learn of a topline ahead of that last patient visit?

Dave, if you'd like to take a shot at the two questions?

Jan, do feel free to chime in as well, particularly on the first portion of Tim's question if you'd like.

Dave?

Obviously, excitement and interest in Alzheimer's disease.

And as you know, for a long time we've believed in solanezumab's mechanism clearing the soluable A-beta . We're starting to have a -- conclude enrollments in Expedition 3, and now we are on the clock for last patients achieve 18 months of therapy.

In the past we've communicated there was a chance we may -- we had allowed for an interim risk but, as I've said before, that feature of the program was only valuable in the case of a slow enrollment rate.

Again at this point we haven't made a definitive decision.

I would continue to guide people to focus on the end of the study as when we'll be learning about the effects of solanezumab.

So to your question, that would be after the October 16 last patient visit.

As you rightly point out we also have specific interest in a Phase I program in that area.

We are also excited about that mechanism.

Recognizing that the mechanisms may, in fact, be complementary in some sense, either sequentially or combined together, that specific antibodies to date, the ones that we had published data on, also have a safety side effect profile that's, to our eye, quite different from solanezumab from the patient adherence perspective, et cetera, that may have an impact.

So we'll have to let both of these mechanisms play out.

And we're excited about both of them and I think with Alzheimer's, it is truly unique moment here as we've seen these modifying effects from multiple different programs.

Jan, any additional comments?

Let me just add that I think it's very likely that these mechanisms are complementary.

And clearly solanezumab has also shown preferable safety profile, particularly in relation to ARIA, either on the brain edema dilemma that you see with this plaque-specific antibodies, at least then from competitors.

So I think we now need to wait and see what happens with it in these bigger trials.

Tim, just a little more color on your question about hearing results downstream from that October 2016 date.

As we've been through this a number of times, as you may recall, that after last patient visit, there is time that needs to transpire for the database to actually be locked, cleaned and validated and then for us to run tables and figures and so typically, topline press releases have been after last patient visit by multiple months.

So you should expect to see a topline press release downstream certainly of that October 2016 last patient visit date.

Gregg Gilbert, Deutsche Bank.

I was hoping you could provide a little more color on some of the softness in the quarter for Alimta and Animal Health.

You mentioned some competitive pressures there.

Could you expand a bit?

And then on the pipeline, Jan, on the CGRP product, are you still pursuing chronic and episodic headache as well?

And when might we see data on those products?

And then lastly on the glucagon receptor antagonist, can you frame for us what you're trying to accomplish there and where it might fit in to the broader spectrum of treatments?

Thanks.

Sue, if you can comment on the Alimta performance in the quarter.

Jeff, obviously, for Animal Health.

With CGRP actually having transitioned to Dave's organization, I think from a planning perspective, Dave, why don't you take a first crack at talking about our development plans for CGRP.

And then Enrique and Jan, if you want to fill in for the glucagon receptor antagonist, that would be great.

Sue, we'll start with you?

Sure.

Alimta performance was mainly impacted by FX worldwide.

We had a 1% volume decline with a 7% rate and a 1% price.

If we look at it by geography, we actually increased in the US by 3%, and that was mainly driven by price.

In Europe, we had a 2% volume increase and that was offset mainly by FX with also some price impact in EMBU.

We also had a volume increase, again offset half by price and half by rate.

In Japan we had the same impact that was mentioned earlier with regards to the buy-in that we saw last year on the consumption tax increase.

So we did have a volume decrease versus last year's quarter.

But also a rate impact in Japan.

On companion animal, real quick like, we've seen and really expected these headwinds with increased competition really coming in a couple areas: Two new competitive entries as well as a reentry in the marketplace.

Were two drivers, I would add an additional one, which has really been some distraction from the integration.

We've really used a rapid pace with the integration of both companies and from this being the first and second quarter, critical to the companimal business, this also had an impact.

I will note, though, on the integration, it's going better than expected.

We are three months in and I do believe that both Novartis and Lohmann will be enablers to our medium- and long-term growth in the companimal segment, as well as globally.

We've relaunched, as well, Interceptor.

Three weeks after the closing the Management teams have both been combined.

We've got a Management team that includes some Novartis executives and I believe we've now got the majority of the global sales force in place.

So again we're finding far more positives than negatives at this stage with the Novartis integration.

It will be an enabler for growth, and as we've previously communicated, the savings level of $200 million will be our minimum expectation.

Great.

Dave, on CGRP development plans?

Yes.

So I think your question was whether our clients were chronic or episodic headache?

Remembering there's actually two types of headaches we're looking at here.

What we've been talking about today is the addition to the pipeline advancement chart of moving CGRP into Phase III here in the coming months for a condition called cluster headache and we'll be studying that in both the chronic and the episodic forms.

This is an orphan-type indication that we're moving into.

We're also continuing the development in episodic Migraine.

Lilly is not planning to study chronic migraine at this time and we've had impressive results from our Phase II program in episodic migraine.

We'll be seeking to replicate these results in Phase III and right now we have a Phase IIb program going on to further define the dose for that larger migraine program.

Great.

And then Enrique or Jan on the GRA?

Maybe I'll start and then Jan can help here.

But clearly our glucagon receptor antagonist is right now in Phase II.

What we basically have seen is rapid reductions in Humalog A1c.

We saw it increase hypo's or weight gain.

The way we're thinking about this product is this product has to offer a benefit vis-a-vis a number of oral options that are available today and that in the future will be available in generic form.

So we are thinking that this product could be an attractive option in the early segment for patients that have impaired renal function where beta cell health might not be great.

We don't see lots of options for these types of patients, and GRA could be an attractive option there.

Jan?

Just complement there, the metabolism of this agent is independent of renal function.

So therefore, it's suitable with patients then that have some compromise in their renal function.

Great.

Thank you.

Tony Butler, Guggenheim Partners.

Number one, Jan, if you could comment on restarts for tanezumab.

Would the focus again be NOA or osteoarthritis?

Number two, what actually led to the decision to delay the evacetrapib look?

Was it just simply the DSMB making some judgments about event rates?

And then finally, again, back to Alzheimer's, I think there's data supporting combination, maybe it's totally in animals, but combinations of A-beta antibody in the base inhibitor.

And just trying to understand how you think about, really from a cost standpoint and also from a mechanistic standpoint, think about combinations versus solanezumab versus one or the other antibodies alone as we progress over time?

So something beyond 2016.

Thanks very much.

Dave, actually, I think I'll ask you to take a crack at these since these assets are currently sitting with your business unit.

Jan, obviously feel free to supplement his response if you think it's appropriate.

Dave?

Okay.

Sure.

Phil, can you hear me well?

Yes.

We can.

Good.

As it relates to tanezumab, yes, we are pleased to be able to now move off of clinical hold and do plan to proceed into Phase III as soon as later this year with Pfizer.

There will actually be three indications that will be pursued.

Osteoarthritis, as you mentioned, Tony, we'll also be looking at chronic low back pain and then chronic pain associated with cancer.

And that program is similar to what had been previously studied and then stopped at Phase III.

On evacetrapib, as we mentioned earlier in the quarter, the extension of time is really not related to the evacetrapib study accelerate.

It was a set of recommendations made by our academic advisors and accepted by the Company based on information coming from other major long-term cardiovascular event studies where it has been noted that in mediate or recent ACS patients that the impact of lipid managements is a bit delayed in these patients.

And we wanted to make sure we fully accounted for this new information in sizing the trial, thus the six-month extension into middle of 2016.

Maybe just briefly on Alzheimer's and Jan perhaps can elaborate on the Lilly-generated combination data, but we have no doubt that this disease when we find and have approved these modifiers will be requiring multiple mechanisms to fully arrest its impacts.

And we do think mechanisms such as plaque-targeted antibodies, such as base inhibitors and soluble A-beta antibodies and maybe even TAU-based therapies could be combined in all kinds of forms to achieve optimal results.

Of course the science in this space is evolving rapidly and, frankly, pretty new.

We don't have human data in combinations that I'm aware of.

So that's a whole field that would need to be explored, hopefully after a positive solanezumab study in late 2016.

Let me just add a comment about tanezumab, the anti nerve growth factor, which I feel is highly exciting based on that the chronic-pain area is really needing a new agent.

And if you consider the current dilemmas and problems that are with opioids in relation to addiction tolerance or even death due to abuse and so on, and NSAIDS has a number of gastrointestinal side effects and there is an increased cardiovascular risk.

So I think the opportunity for a new chronic-pain agent is a major one.

In relation to the Alzheimer's combos, it's quite intriguing to think about different mechanisms again.

Then if you have existing plaque, they need to be cleared and most likely by some microglial activation.

And we have our N3pG plaque-specific antibody that can do that.

And then you need to prevent further buildup of plaques with A-beta and that can be achieved either by a base inhibitor, or potentially by solanezumab binding them, the free A-Beta.

We are looking forward to making not only the preclinical experiments in a further solid way but also to test this in the clinic.

But first we need to have good data with these different agents before we can combine them.

Thank you, Jan.

Jami Rubin, Goldman Sachs.

Jay Olson in for Jami Rubin.

On Alimta, can you help us understand, when should we expect to get news on the appeal of the German and UK court decisions regarding the Alimta method-of-use patent?

And then do you expect the approval of PD1 antibodies for use in lung cancer to impact the sales of Alimta?

And then just on Trulicity, any details, if you could provide, on how the launch is progressing?

Thank you.

Sue, the first two for you and then we'll go over to Enrique for the last question on Trulicity.

Jay, with regards to the Alimta patent, in the German court, as you know, ruled in our favor last year on the infringement case.

In March, that was appealed and the appeal ruled against Alimta.

And so basically has ruled that the vitamin regimen patent would not be infringed by generic competitor if they intend to market post the loss of the compound patent the end of December of this year and we will seek permission to appeal this decision to the German Supreme Court.

We anticipate that the appeal hearing will happen, though, after the compound patent has expired in Germany.

In the UK, the High Court ruled against Lilly in the first instance in May of last year.

We have appealed this ruling.

The appeal was heard in March of this year.

We have yet to hear the outcome of that appeal.

And as a reminder, that case covered the UK but also France, Italy and Spain.

So we're waiting to hear what the outcome of that appeal would be.

Regarding your question on the PD1 inhibitors, on Alimta, the main use of Alimta and where we promote Alimta because we believe that's where we see the best benefit for patients is in the first-line setting and in the maintenance setting.

As you are aware, the Optivo launch and the data that we are seeing in some later lines of therapy, so we do not see an impact in the near future on Alimta.

Clearly there are other studies ongoing in the first-line setting.

We'll need to see what those readouts are over the coming years.

Additionally we do believe that combinations are going to be important going forward.

And so we have a collaboration with Merck to look at combining Keytruda and Alimta in the first-line non-squamous setting, so clearly we need to see the data from all those trials over the coming months and years.

So far, I think the launch of Trulicity is going well.

Let me comment first on the GLP-1 market, because we had shared that we felt that Trulicity could be an important catalyst for the overall growth in that class.

And long-term for us, this is critical as we think about the prospects for this product.

A year ago when we looked at Q1 of 2014, this class was growing 6% when we look at TRX growth.

This year, this class is growing 10 percentage points higher, so the growth is at 16%.

And importantly, the growth is still accelerating as we look at new prescriptions.

So it is an important start, because we do believe that Trulicity will be a major player in this class, but we want to make sure that this class is as relevant as it basically could be.

To give some details on our penetration within the class itself, Trulicity today has an 11% new to patient, new to brand share.

This is comparable to BYDUREON at 23 and Victoza at 51.

We are pleased with what we see, importantly because we have to put into context that in Q1 what we've shared is that access discussions are going well.

And just to provide some color in Q1, we had a 65% availability in commercial and no availability in part D.

Commercial is about 75% of the overall market, so clearly, what this basically means for Trulicity, that we had access to about 50% of the market, so we need to look at 11% new to brand of course, in that context.

What we have shared is that we feel good about our access in commercial.

We continue to advance those numbers so we are closer to 70% now.

And in part D, we had shared in the past that we were expecting access most likely starting 2016.

We are pleased to report that we have already some limited access in part D and we believe that access will continue to increase through Q2 and Q3.

So we're getting access faster than we had expected.

And this, I think, response to the value that the payers see in this particular product.

Thank you.

John Boris, SunTrust Robinson Humphrey.

Just back to a question for Enrique on Trulicity while you're still on it.

With that kind of growth, 16% growth, can you talk about how the launch of the Primary Care is going?

What percent of the business or prescriptions that are generated are being generated by endos versus Primary Care?

And then you'll approach about six months post-launch, about midyear, with that kind of growth in the market, one would think a good dose of direct-to-consumer advertising might be useful in driving uptake of a product?

So just commentary around that?

Second question has to do with the Alimta ruling in the UK on the appellate decision.

Just your thoughts around timing of that?

Is that something you're expecting to happen in the second quarter?

And then I noticed in your slide deck you do have outcomes coming on US and Japan.

Can you remind us what's going on there?

And then lastly on Alzheimer's disease and TAU, you made some acquisitions of some diagnostics in 2013 on TAU . Neurofibrillary tangles are a little bit different.

When might we potentially see some assets targeting the TAU area coming of your pipeline?

Thanks.

Enrique, we'll start with you for the Trulicity questions.

And, Sue, if you want to comment on Alimta and Jan for the TAL?

Sure.

So providing a little more detail when we look at both endos and Primary Care, endos, which represent slightly under 30% of the overall GLP-1 market, our new to patient share, is 18%.

So clearly this reflects the fact that we launched in that to endos earlier.

In Primary Care, our share is still in the high single digits when it comes to new to patient share, but it's increasing fast.

So we feel good in terms of where we are today.

I think it's important to note that in Primary Care, we basically really have about two and a half months, basically, since we launched, so it's still very early but we're seeing week-to-week progression when it comes to our new to patient share.

And clearly, the continued improved access, I think, is going to play very well for us.

In terms of our plans, as we seek to build this brand, one comment, but clearly we're not ruling out direct to consumer or any of those investment.

Clearly there's a lot of direct-to-consumer investments in the US right now.

And that's something that we look very closely for all of our brands.

Great.

Sue?

With regard to the Alimta hearing or the Alimta patent, the UK decision will clearly depend on the timing from the court, but we do anticipate we'll hear sometime later this year on that.

In Japan, the JPO hearing was heard in February.

And again, we're expecting to get a determinant on that case again sometime later this year.

In the US, as you're aware, the District Court has ruled in Lilly's favor on validity.

The case has gone back to the court regarding infringement.

That case is now being heard on May 28 of this year.

Great.

Jan on TAU?

First, the TAU imaging agent is making intriguing progress and seems to differ in relation to what you can achieve compared to the amyloid imaging.

The TAU imaging seems to correlate quite well to symptom decline in and progression then of Alzheimer's disease.

It also has a regional distribution in the brain that also seems to correlate with symptoms and there is a great interest in the overall academic and pharmaceutical community for this particular agent.

We are also testing whether the TAU imaging could potentially be a surrogate marker then for Alzheimer's disease progression and how you can influence that with pharmaceuticals.

And there will be a subgroup in EXPEDITION 3 then for solanezumab that will have the TAL tracer before and after treatment.

In relation to TAU therapeutics, we are very interested to see if we can inhibit the spread of TAU mis-folded protein in the brain which seems to happen in the prion-like fashion.

And we have a monoclonal antibody in preclinical development that, if everything goes well, we should have that in Phase I next year.

Great.

Thank you, Jan.

Chris Schott, JPMorgan.

This is Wendy Lin on for Chris.

Just a couple.

How are you thinking about what insights you've learned from the recent DPP4 adcom panel and any impact it might have on the DPP 4 class?

And can you talk about your relative confidence in Jardiance with regard to the CV outcome study and the possibility that the study could show a net benefit to patients?

And then in oncology, in light of the Pfizer Ibrance approval and the early stoppage of their second-line study, can you update us on your program?

Thanks.

Sure.

Thanks for the questions, Wendy.

Enrique, obviously to you for the DPP4 adcom question and our CV outcomes trial for Jardiance.

And then Sue, for the abemaciclib update?

Well, on DPP4, as I think we all have seen or heard the discussion at the advisory committee.

Clearly there was a lot to focus on both CV safety but also all-cause mortality endpoints.

It is difficult for me to speculate any action that the FDA may take.

I think what I can basically say as far as Trajenta is concerned, even though -- and we have to keep in mind that these numbers are very low, so we cannot have any type of conclusive interpretation from this data, but when we look at our randomized placebo-controlled clinical trials, and when we look at the data for Trajenta, in both cases when it comes to CV mortality and when it comes to all-cause mortality, our hazard of ratios were below 1.

So we have no signals that would indicate that linagliptin would cause -- would have an issue when it comes to either all-cause mortality or CV death.

When it comes to the data for dose-specific DPP4, as I think you have to ask the respective companies.

As far as Jardiance is concerned, we are very excited to be able to get to see the results from our outcome trial.

At this stage, I've characterized our chances as decent, but we have to wait and see.

So we will be basically having a chance to look at these results over the summer and we expect to basically publish topline results when we have this data available.

Great.

Sue?

Regarding abemaciclib, we are very excited by this molecule and we believe that the latest news Inbrance validates the CDK46 class.

And we believe that we could have a best-in-class molecule here with single -gent activity, continuous dosing and also our molecule crosses the blood-brain barrier.

We're moving quickly on our trials.

We have our two Phase III trials ongoing and enrolling, one which is our Phase II trial ongoing, as well as our KRAS lung study, so we're moving quickly.

Our plan is to enroll these trials as quickly as possible so we can get data out hopefully over the next year or so on these trials.

Also we have started a breast cancer study for women with brain mets.

That will be -- because we know that abemaciclib crosses the blood- brain barrier, we believe that that could be a good opportunity for this molecule.

So we are excited and we look forward to sharing more data with you.

Great.

Seamus Fernandez, Leerink.

So maybe you could update us on some key data sets through the balance of this year and maybe if you could focus a little bit more on the data sets for Phase II that could actually have products entering into Phase III, that would be very helpful.

As a second question, this may be for the CV team, but maybe you could talk to us a little bit about the target event rate in that study?

And just update us on what your expectations are for the baseline LDL?

And when you talk about that, could you confirm that the baseline LDL is on a maximized statin background?

And then lastly, can you just help us better understand, in the evolving pricing environment, what do you think are the thresholds of benefit that are going to be necessary for you to show to really achieve an appropriate payment scheme for the anti-NGF therapy?

Thanks a lot.

Dave, I think probably the second question, the third, are up your alley.

I would say, Seamus -- this is Phil -- we have not yet published the design paper for the accelerate trial of evacetrapib.

I think we were close to doing that last year, but when the improvement data came out, as Dave mentioned earlier, we wanted to make sure that we could fully analyze that and take into consideration how that might impact, if at all, the trial design for accelerate.

As you've now seen, that has impacted, resulted in an additional six-month extension of the study to accrue additional events and additional late events.

So, Dave, if you could maybe start off talking about the stuff that you can, target event rates, baseline LDL, and if it was on a max statin background, and then talk a bit about the pricing environment as you see it for the anti-NGF.

And then we'll come back to your first question, Seamus, on, in particular, Phase II data could read out this and more broadly data readouts that you should have on your radar screen for the balance of 2015.

Dave?

Sure.

Thanks, Seamus.

As it relates to the target event rates and specifics about the population in the accelerate program, I know we've said this before, but we are anticipating publishing a design paper for accelerate which will include those details.

So until that is published, it's probably not appropriate to comment further.

I will only generally say that accelerate is a study designed to study secondary prevention in high-risk vascular disease.

And as a result, we are expecting a decent event rate in this population.

And, in fact, that's what we are observing having enrolled it.

The details of that, again, we'll be publishing in the forthcoming Journal.

As relates to NGF and tanezumab in the pricing scheme, we're not going to be able to go into the detail on that here, but I think Jan touched on this earlier, that we see chronic-pain management different from acute-pain management.

Chronic-pain management, is a very significant unmet need, particularly in the United States.

The patients that will be targeted with tanezumab will be patients who have exhausted other pain- management options and other more significant interventions is the likely next step in their disease course.

We think in this space, there's value creation both for pharmaceutical but in the health system itself, not to mention the side effect and addiction issues for the current therapies.

Tanezumab has demonstrated already in large phase 3 programs, a pretty substantial effect size.

We think there's clearly a place, a place where this drug can be reimbursed in chronic pain management.

Great.

Thanks, Dave.

Go ahead.

No, I wrote down the questions here, but question on baseline LDL, the baseline LDL is, just to confirm, in accelerate we did not publish that number, but patients enroll on the maximum tolerated dose of the stat.

Thanks, Dave.

Seamus, let me start with some of the trial readouts that you should be expecting and/or detailed data presentations that we think you'd have on your radar screen.

And then Jan, Sue, Enrique, or Dave if there are other Phase II readouts that you want to highlight, please do so.

So as Derica mentioned at the ADA meeting this year, we would expect to have detailed data from a large number of the Phase III trials for our basal insulin peglispro.

We also hope in the middle part of this year in the summer to have the first detailed Phase III data disclosures for both ixekizumab and for baricitinib, respectively in psoriasis and rheumatoid arthritis.

Recall, as well, Enrique mentioned the CD outcomes trial for Jardiance that we expect around the middle part of the year and then the solanezumab extension data from the two-year data we would expect to be presented at the medical meeting this year as well.

If you think about some of the additional top lines or yet to read out probably the main one or ones that I would highlight for you would be the latter part of the when we expect to have data from the remaining two of the four main pivotal trials for baricitinib in rheumatoid arthritis.

We've also talked about moving over a 2 Mab or 3G-3 into Phase III trials in soft tissue sarcoma and would hope, at an upcoming medical meeting, to have some of the detailed data presented to allow you to see our reason for optimism with that drug.

Clearly ASCO would be a great venue for us to do that.

With that let me turn it over to Jan or the other business unit presidents if there is additional readouts that you'd like to highlight.

I think I've hit them all, but..

I think you have.

Great.

David Risinger, Morgan Stanley.

If you have your mute button on, please take it off.

Mr. Risinger?

We'll move on the line of Emil Devan, Credit Suisse.

This is [Ari Jaja] on behalf of Emil Devan.

Thanks for taking the questions.

I have a few here first on the Animal Health business.

Can you talk about the pricing environment for food and companion Animal Health products and outlook longer term?

And then secondly on baricitinib, we've now seen some initial Phase IIb data from other competing [Oral Jack].

How do you see baricitinib's profile stacking up now against competitors?

And when should we expect to see additional detailed data from the program?

Thank you.

Jeff, if you'd like to handle the first question on Animal Health pricing and then, Dave, back across the pond to you for baricitinib?

The pricing environment overall remains stable in Animal Health.

We saw last year, as you know 4%, increase in our business.

Industry averages have been between 2% and 3% and I believe that we've got different economic conditions across geographies and species, but a pretty stable market, so I would see it in the range of this industry average of between 2% and 3%.

Great.

Thank you.

Dave?

So baricitinib, we're right in the middle of Phase III readouts.

As Phil mentioned previously, the first two studies we have toplined already.

And you should expect to see some of that data presented at EULAR coming up in the middle of the year.

This would be the beacon and build studies.

Additionally we have an early RA study and then a first line biologic comparative study which is fully powered noninferiority against adalimumab.

Both of those studies, what we've said is in the second half of this year, will be topline in those.

So exciting year for baricitinib and then sort shortly following all that we'll be submitting to FDA and other and other global regulators.

In terms of how we compare our results to others, of course it's not appropriate to make direct -- there are no direct comparison studies between tophacitinib and baricitinib or the recent Galapagos data, but I think we've said all along, we'd like the Jack 1-2 signaling pathway, particularly in RA, and we feel like baricitinib has the chance to be the best in class product, if you think of this as one whole class.

And so far we're pleased with the results from the studies we have read out.

Thanks, Dave.

Kathy Miner, Cowen and Company.

Just two topics.

First on ixekizumab, can you comment -- I think on clinical trials.

gov, it shows that the trials for ankylosing spondylitis was withdrawn.

Can you comment whether you're still pursuing that indication?

And also recently, we've seen some topline data from one of your competitors which had some very strong PASI 100 scores.

Is that something mechanistically there's differences between these products?

Or how can we look at that?

And second question is just on guidance for 2015.

I appreciate you've had a very strong first quarter and there were some timing issues and also you've highlighted very clearly the currency impacts going forward.

But can you tell us whether Lilly has ever changed annual guidance in the first quarter historically?

Thank you.

Great.

Thanks, Kathy.

Dave, if you could comment on the ixekizumab questions.

And, Derica, Derica we've got one finally for you on financials.

If you want to talk about the guidance?

Dave?

Sure.

Thank you for the question on ixekizumab.

To clarify, the ankylosing spondylitis study that was withdrawn was originally designed to be a supportive study for exposure through the PSA program, as we were several years ago, and as we are midstream on the additional indication work for ixekizumab, we changed the strategy and that supportive evidence wasn't required anymore under the approach.

So what we have with ixekizumab now is a complete set of studies in moderate to severe plaque psoriasis and cover 1-2-3 studies.

I'm not sure which competitor you're referring to on the PASI 100 scores, but we're pretty impressed with our PASI 100 scores, which, as you know, at the high end have achieved up to 41%.

And I think that's as good as I've seen, but interested in -- of course, if you have other insights on that.

And [IL] 17 as a class, we do have differences.

Ixekizumab, which is now launched from Novartis in IL 17 A, antibody to the protein, so are we, whereas others have taken different approaches, notably the antigen approach which is a receptor antibody.

So it would be not unexpected to have slightly different types of clinical results and safety profiles as a result of those differences.

In terms of other things around ixekizumab, we recently toplined our first psoriatic arthritis study and we have another psoriatic arthritis study ongoing.

And as it relates to [A aspect], your original question, we remain interested in this indication and we think turning to IL 17 is a logical step and could advance care for this very debilitating condition.

Derica?

As for our guidance this year, historically, yes, we have; it has happened.

I would say it's not common.

But we do look at it each and every quarter to see if there's anything meaningful enough to cause us to move our estimates.

As I stated earlier in my opening remarks, we are off to a very good start to the year.

Despite the FX headwinds, we are driving volume growth in those areas we had anticipated, at least versus our internal expectations.

And that coupled with the good cost-containment efforts really is driving our strong bottom-line performance.

And as importantly, we do expect to return to growth for the year this year in 2015.

So we are very encouraged by our start to the year and we'll keep you updated as we progress through the remaining months.

Thanks, Derica.

David Risinger, Morgan Stanley.

Sorry about that earlier.

So I have three questions.

First, with respect to the two-year extension Sola data that's forthcoming, could you just please provide a framework for us for what data set we should be expecting?

How you might carve out the mild patients?

Any caveats that you would highlight before we see the data?

Second, with respect to glargine, could you remind us your timing for launch in Europe and in the US?

And then on the Erbitux deal, Derica, maybe you could just explain some of the income statement mechanics we should be thinking about for late this year?

And then the accretion from that deal in 2016?

Thanks very much.

Dave Ricks, if you could talk about the two-year extension, how people should be thinking about that?

Both the general framework of what they might be expecting to see in the data or what we'd like to be seeing in the data?

We'll be carving out mild patients and any caveats to be provided.

Enrique, over to you for the timing for launch for glargine, both US and EU.

And then, Derica, if you want to comment on the Erbitux mechanics.

If not, I can chime in as well.

So Dave, over to you first.

Sure.

Thanks, Dave, for the question.

We said previously we'd be hoping to disclose that data middle of this year.

The two-year extension from EXPEDITION 1 and 2. We have disclosed at CTAV November 14 some of the earlier data.

And just on limitations just a few comments.

Of course this is open label data.

It's a progressive and significant disease burden on the patients.

So you never get 100% completing all the way through and probably most importantly, patients in EXPEDITION 1 and 2 were not deselected for lack of amyloidosis.

And so we still have a mixed-cause dementia in the study which, of course, we've corrected in EXPEDITION 3.

That said, I think there's two primary effects; one we'd hope to see, to answer the question did you see disease modification in the controlled phase of EXPEDITION 1 and 2?

And we will be focused on the mild patients.

You'll see that broken out.

One is that there's no catch-up, meaning that if you start later, you can get to the same point.

I think one definition of disease modification is that it's a daily progression, and therefore starting earlier is better.

But I think then you'd also hope to see that the later-started patients would also follow a parallel curve of decay to those who are on the drug the whole time, so there is a drug effect.

And, in a sense, one could say we didn't just get lucky with randomization in the first set of studies.

So those are two comments and color to frame what we'll see in July.

Enrique?

Sure.

So when it comes to glargine, we are anticipating launching in Europe late in the summer of this year.

And in the US, as you are aware, we are subject to a 30-month stay.

We do have a trial happening later this year in the month of September.

Assuming, of course, that we have a favorable resolution of that trial prior to the 30-month stay, we would be launching earlier.

But the 30-month stay basically takes us into Q3 of 2016.

Great.

Thanks, Enrique.

Dave, on Erbitux, it might be helpful to review really quickly the current accounting.

So essentially when you look at things like our investor workbook we post on the website and look at the detailed product revenue tab, you'll see that there are two different lines.

One is for the net revenue that we book, which is essentially 39% of the revenue that actually is sold, for example, by Bristol, offset by some of the third-party royalty obligations that exist.

Then you'll see a second line, which is the sale of bulk product to Bristol for which we've booked the cost of sales in our cost of sales as well.

That sales number for the API that we produced and the cost of sales are not largely different numbers.

As you think about going forward, once we transition the product back to Lilly from Bristol, we will sell to end customers and book the full sales.

We will have no longer any kind of bulk sales out to them, so the full cost of bulk will hit our cost of sales and we'll also have the finished cost of sales through third parties that Bristol currently would show on their income statement.

We'll also have additional selling, marketing and R&D expenses related to ongoing supportive brand.

And then on a GAAP basis, we would also have amortization of intangible.

And I'm not sure exactly which line that hits.

I think it's likely going to be hitting our cost of sales line for our reported or GAAP results.

There are likely to be some other accounting-related effects that could happen essentially as we are monitoring over time and truing up the asset that has been created as well as the liability that has been created as part of the, essentially, business combination type accounting that was applied for this particular business development deal.

But the major effects, I believe, are the ones I just outlined for you.

Thank you.

We would expect it to be accretive starting in 2016.

I'm not in a position at this point in time to quantify how much.

I would underscore that the basis for the deal really is value as the long-term owners for the asset that originally scheduled to come back to us in late 2018.

We believe we are best-positioned to be the stewards of it up until that time and overall this should allow us to drive better value for the Company for the life of the assets.

Got it.

Follow-up question?

Yes.

Thank you.

So the benefits of it coming back to you -- I think you said late 2018, basically, are shifting forward to 2016?

That's correct, but there is a different set of economics that will govern those two periods.

Since Bristol had a larger economic right through the end or near the end of 2018, we'll have different economics between now and September of 2018.

After September of 2018, both currently under the existing agreement as well as under the revised agreement once it's implemented, we have full North American rights with no trailing obligations to Bristol.

Great.

Thanks very much for all the answers.

Sure.

You're very welcome.

John Boris, SunTrust Robinson Humphrey.

Just on evacetrapib, just has to do mechanistically and also in your clinical plan, you're capturing IVUS data.

Can you maybe address the HDL elevation component and whether you're going for a slowing of the progression or reversal of the regression or reversal of the accumulation of plaque in the arteries?

And then any animal model data that potentially substantiates what you're doing on the IVUS side?

[Crestor] is one of the few molecules that have been able to get -- slow up the progression in their label from using IVUS , but just your commentary on that would be helpful.

Great.

Thanks, John, for the question.

Dave, if you want to answer?

And obviously, Jan, you're probably well-positioned to provide some comments as well.

Dave?

Sure.

And, Jan, please jump in.

Of course, all along we've been saying with this program we've powered it based on the LDL impacts and what you're expecting around 30%.

However, we also believe that at very high levels of HDL, reduction can impact cardiovascular risk.

And of note, at the recent cardiovascular meeting in San Diego in March, Dan Raider's lab presented some interesting data regarding cholesterol eflux with evacetrapib, which demonstrated a very substantial degree of eflux out of the plaque to the macrophage back to the liver of cholesterol.

And this is the mechanistic underpinning for believing in the type of HDL [raising] we're providing being additive to that cardiovascular event reduction.

Off-line we can refer you to that paper, John.

Jan, do you have anything else to add?

No.

Great.

And then one follow-up then for Dave's question.

My counterpart over at Bristol-Myers Squibb, John Elicher, would probably want me to point out that there will be, during this period on Erbitux, from Q4 this year through late 2018, a payment that we will be making to Bristol-Myers Squibb.

I believe subsequently they'll be disclosing the amount of that payment with their SEC filing and that payment for us would show up in cost of sales.

We have no further questions in queue.

Excellent.

Thank you.

Derica, if you'd like to close the call?

Thanks, Phil.

We appreciate your participation in today's earnings call and your interest in Eli Lilly and Company.

Please note that we'll host a call from ADA on Sunday evening, June 7, to provide an update on our diabetes business.

And do keep an eye out for conference calls later this summer to discuss Phase III data for both ixekizumab and baricitinib.

Finally, if you have questions we did not address during today's call, please contact our IR team and they'll be happy to help.

Have a great day.

Thank you.

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