禮來公司 (LLY) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the fourth-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Dr. John Lechleiter.

Please go ahead.

Good morning, everybody, and thanks for joining us for Eli Lilly and Company's fourth-quarter 2015 earnings call.

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

Joining me here on the call today are Derica Rice, our Chief Financial Officer; Dr. Jan Lundberg, 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 Ilissa Rassner, Brad Robling and Phil Johnson of Lilly's IR 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 SEC.

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

It's not intended to be promotional, and it's not sufficient for prescribing decisions.

So let me begin by recapping key events since our last earnings call in October.

On the commercial front, we received approval for and launched Portrazza in combination with gemcitabine and cisplatin in the United States for first-line squamous non-small cell lung cancer.

On the regulatory front, just last week, along with Incyte, we announced FDA submission of once-daily baricitinib for the treatment of moderately to severely active rheumatoid arthritis.

We also submitted baricitinib to the European medicines agency for the same indication.

Along with Boehringer Ingelheim, we received final US approval for our insulin glargine product Basaglar, with launch set for December 15 this year.

We also submitted an 80-unit Basaglar pen for FDA review.

We announced that FDA accepted the filing of data from EMPA-REG OUTCOME, the Jardiance cardiovascular outcomes trial.

The data were also submitted to European regulators.

As you may recall, Jardiance is the only diabetes medicine to have demonstrated a significant reduction in both cardiovascular risk and cardiovascular death in a dedicated outcomes trial.

And finally, we submitted the fixed dose combination tablet containing empagliflozin and linagliptin to European regulators.

We also received FDA approval for the Humulin Regular U-500 KwikPen.

We received European Commission approval following positive CHMP recommendations for Cyramza for both second-line non-small cell lung cancer and second-line metastatic colorectal cancer.

And Europe CHMP issued a positive recommendation for approval of Portrazza in first-line EGFR-expressing squamous non-small cell lung cancer.

On the clinical front, we had a number of notable developments.

Along with Boehringer Ingelheim, we presented additional data from the EMPA-REG OUTCOME study.

At the American Society of Nephrology, initial renal outcomes data were presented that showed empagliflozin, when used in addition to standard of care, significantly improved renal outcomes compared to standard of care alone.

And we expect more comprehensive renal results to be published in a peer-reviewed scientific journal this year.

And at the American Heart Association, further data related to the reduction of heart failure and cardiovascular death were presented.

And earlier this week, European Heart Journal published comprehensive heart failure results.

At the World Diabetes Congress, we presented data from the AWARD-8 study showing that treatment with Trulicity plus a sulfonylurea produced greater reductions in HbA1c than treatment with a sulfonylurea alone.

Along with Incyte, we presented data at the ACR meeting from the baricitinib Phase III rheumatoid arthritis program, including data from the RA-BEGIN study that showed baricitinib was superior to methotrexate, and improving multiple measures of the signs and symptoms of RA in treatment-naive patients.

And data from the RA-BEAM study that showed baricitinib was superior to adalimumab in improving multiple measures of the signs and symptoms of RA in patients who had an inadequate response to methotrexate.

At the ACR annual meeting, we presented data from the Phase III SPIRIT-P1 ixekizumab study showing that patients with active psoriatric arthritis treated with ixekizumab for 24 weeks achieved significant improvements in signs and symptoms of their disease when compared to placebo.

They also experienced significantly less progression of radiographic structural joint damage, reduced disability when performing certain physical functions, and improved skin clearance of plaque psoriasis.

Finally, we terminated the development of basal insulin peglispro.

On the business development front, we extended our agreement with Merck to evaluate Alimta in combination with Keytruda in a Phase III study in first-line non-squamous non-small cell lung cancer.

We also announced the collaboration with Merck to evaluate our CDK 4 and 6 Inhibitor, abemaciclib, in combination with Keytruda in multiple tumor types.

And we announced an agreement with Roche Diagnostics related to Roche's ongoing development of a commercially scalable cerebrospinal fluid assay for amyloid-beta 1-42.

In other news, we announced an expansion of our R&D facilities here in Indianapolis.

We also announced that we will close our animal health manufacturing facility in Sligo, Ireland.

Manufacturing operations and commercialization activity will conclude this quarter, with full closure targeted by year end.

As a result of this decision, the Company will recognize a charge in the first quarter of approximately $100 million.

In addition, we decided to exit ownership of our animal health manufacturing site in Dundee, Scotland.

In the fourth quarter, we repurchased roughly $250 million of stock, leaving $2.95 billion remaining on our $5 billion plan.

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

And in December, we announced a 2% increase in the dividend for 2016.

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

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

Phil?

Thanks, John.

Before I discuss our Q4 results, it may be helpful to review key features of our presentation of GAAP results and non-GAAP measures.

When interpreting our GAAP results and the growth rates versus 2014, 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.

For our non-GAAP measures, we now exclude amortization of intangibles.

And to provide you a better idea of underlying trends in our business, 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 of 2014.

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

Now, let's look at our results for the quarter.

Slide 9 provides a summary of our GAAP results.

I'll focus my comments on our non-GAAP-adjusted measures to provide insights into the underlying trends in our business.

So please refer to today's earnings release for a detailed description of the year-on-year changes in our fourth-quarter reported results.

Moving to slide 10, you can see that Q4 2015 revenue was relatively flat compared to Q4 of 2014, at just under $5.4 billion.

FX continued to provide a significant top-line headwind.

Excluding FX, our Q4 revenue increased 5% on a non-GAAP basis, driven by higher volume for Trulicity, Cyramza, Humalog and Trajenta; the take-back of North American rights for Erbitux; and US prices.

Gross margin as a percent of revenue increased 1 percentage point to 77.3%.

This increase was driven by productivity improvements from our diabetes manufacturing technical agenda, efficiencies in other manufacturing processes, and increased prices in the US.

This quarter, the gross margin percent was not affected by changes in foreign exchange rates on international inventories sold, as the benefit realized in this year's Q4 was very similar to that realized in Q4 last year.

Excluding this FX effect, our gross margin percent increased by 1 percentage point, going from 74.7% in last year's quarter to 75.7% this quarter.

As on prior calls, 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, increased 5% compared to Q4 of 2014.

Breaking this into its component parts, marketing, selling, administrative expenses declined 3%, while research and development expenses increased 19%.

The reduction in marketing, selling and administrative expenses was due to the favorable impact of foreign exchange rates and continued expense control, partially offset by expenses to support recent product launches.

The increase in R&D expense was driven primarily by charges associated with the termination of evacetrapib and basal insulin peglispro, and by higher late-stage clinical development costs.

Excluding the termination charges, R&D expense increased 8%.

Other income and expense was income of $45 million this quarter.

This represents an improvement of $33 million compared to Q4 2014, primarily due to lower net interest expense.

Our tax rate was 13.5%, a decrease of 2.9 percentage points compared to the same quarter last year.

This decrease is primarily due to a discrete tax benefit recognized this quarter.

Also our tax rate in both periods included the full-year benefit of the extension of certain US tax provisions, including the R&D tax credit.

At the bottom line, net income decreased 6% and earnings per share decreased 5%.

As I'll discuss in a few moments, net income and EPS actually increased when excluding the effect of FX.

And R&D termination charges mentioned earlier were also a headwind.

Slide 11 contains non-GAAP adjusted information for the full year.

At a high level, you'll see the full-year revenue decreased 4%, as did operating expenses.

And the gross margin percent grew substantially, leading to a double-digit EPS growth.

As with the quarter, FX was a big factor on a number of line items.

In a few moments, I'll cover our full-year results on a performance basis, excluding the effect of foreign exchange.

Slide 12 provides a reconciliation between reported and non-GAAP EPS, and you'll find additional details on these adjustments on slides 24 and 25.

Now I'll take a look at the effect of price, rate and volume on Q4 revenue growth.

On slide 13, in the yellow box at the bottom of the page, you'll see the flat non-GAAP revenue I mentioned earlier.

The significant strengthening of the US dollar against many foreign currencies drove this decline, as you see the 6% negative effect from FX this quarter.

On a performance basis, our worldwide revenue grew 5% this quarter, with price growth of 3 percentage points and volume growth of 2 percentage points.

By geography, you'll note that US pharma revenue increased 14%, driven by price, and to a lesser extent, volume.

Humalog, Trulicity, Cialis, Cyramza and Strattera all made substantial contributions to US pharma revenue growth.

Having completed the take-back of North American rights for Erbitux on October 1, we also benefited from booking a full quarter's end sales of Erbitux.

The decline in EUCAN revenue of 17% was primarily driven by the negative effect of foreign exchange, while on a constant currency or performance basis, EUCAN revenue decreased 6%.

This decrease was driven by a substantial reduction in European Cymbalta sales resulting from the loss of data package exclusivity late in 2014.

Excluding European Cymbalta, EUCAN sales increased about 3.5% in constant currency terms.

In Japan, pharma revenue increased 8% in total, driven by mid-teen volume growth, while on a constant currency or performance basis, Japan revenue increased 16%.

This performance growth is attributable to a number of products, chief among them Cyramza and Cymbalta.

Turning to emerging markets, we saw revenue decline 12%, driven entirely by the negative effect of FX.

On a performance basis, emerging markets revenue increased 1%, or 4% when adjusting for the Brazil Humulin tender that we had in 2014, but not in 2015.

Also this quarter, our pharma revenue in China increased 2%, with a volume increase of 5%, partially offset by FX.

On a non-GAAP basis -- again, which adjusts 2014 as if we had completed the Novartis Animal Health acquisition on January 1 of that year -- Elanco Animal Health revenue declined 11%.

Excluding the negative effect of foreign exchange, Elanco revenue decreased 5%.

This performance decrease was primarily driven by OUS products.

Turning to slide 14, you can see that FX trimmed full-year non-GAAP revenue growth by 7 percentage points, or nearly $1.5 billion.

Excluding FX, worldwide revenue grew 4%, primarily driven by volume, with significant contributions from the US and Japan.

Moving to slide 15, you'll see the effect of changes in foreign exchange rates on our Q4 and full-year 2015 results.

As mentioned earlier this quarter, FX was a top-line headwind, reducing revenue in US dollars by over 5 percentage points.

Excluding FX, revenue grew nearly 5.5% on a non-GAAP basis.

In performance terms, we saw slightly slower growth in cost of sales, resulting in somewhat faster growth in gross margin.

Unlike prior quarters this year, operating expenses grew a bit faster than revenue on a performance basis this quarter.

Much of the OpEx increase is due to the R&D charges for the termination of evacetrapib and basal insulin peglispro.

Excluding these charges, on a performance basis, non-GAAP OpEx grew about 4%, or roughly 125 basis points slower than revenue.

Excluding FX, operating income declined 2%, while a slightly higher other income and a slightly lower tax rate led to non-GAAP EPS increasing 5%.

Turning to the full year, we delivered strong leverage on an operating basis.

Excluding the negative effect of foreign exchange, revenue grew 4% on a non-GAAP basis, while operating expenses were flat, and EPS increased 14%.

These are outstanding results.

With that, now let me turn the call over to Derica.

Thanks, Phil.

Moving on to our pipeline update, slide 16 shows our pipeline as of January 25.

Changes since our last earnings call are highlighted, with green arrows showing progression and red arrows showing movement out of the portfolio.

In terms of advancement, you'll see that necitumumab was approved by the US FDA for first-line squamous non-small-cell lung cancer.

Baricitinib was submitted in both the US and Europe for RA.

And we advanced two biologics and one small molecule into Phase II, and three biologics began Phase I testing.

Since our last update, we also terminated development of basal insulin peglispro.

And two Phase II molecules exited our portfolio -- one for termination, and one for out-licensing.

You may also notice that we provided the mechanism of action for a number of our Phase I assets, to give you a better visibility into where we are focusing our early-stage development work.

The positive pipeline progress we've had over the past few years has brought a number of significant opportunities for lifecycle investments, and new indications and line extensions.

Going forward, we'll be including a slide -- like slide 17 in today's presentation -- that details select new indications and line extensions, or NILEX, including movement and attrition, as we do for our NME pipeline.

We hope this provides you and the investment community with greater visibility into the future potential of our pipeline investments.

As on prior calls, I'll recap the progress we've made on the key events we projected for 2015, briefly discuss the key events you should monitor during 2016, and then review our 2016 financial guidance.

Turning to slide 18, we're pleased with the positive progress we've made on the key events we laid out for 2015.

This progress is represented by the large number of green check marks you see.

In yellow boxes, we've highlighted key events that have occurred since our last earnings call.

We've already discussed many of these earlier in this call, so let me draw your attention to olaratumab, for which we've initiated our FDA rolling submission.

We expect to complete this submission during the first half of the year.

Now, reflecting on 2015, it was a landmark year for our innovation efforts.

Among the year's achievements, I highlight the reduction in CV risk, CV death, and all-cause mortality shown by Jardiance in the EMPA-REG outcome study, baricitinib showing superiority to Humira and to methotrexate on many measures of the signs and symptoms of RA, and both olaratumab and abemaciclib receiving breakthrough therapy designation from the FDA.

Slide 19 lists key events to watch for in 2016, 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 5 call, I won't go through each item again today.

However, I do want to draw your attention to those key events that occurred in the past few weeks.

Specifically, we began Phase III testing of our CGRP monoclonal antibody for migraine prevention, and we submitted baricitinib for rheumatoid arthritis in both the US and Europe.

In the coming months, we look forward to submitting baricitinib also to the Japanese regulators.

We are very pleased with the data generated in the baricitinib Phase III RA program.

We believe baricitinib, if approved, could be a best-in-class medicine, and could help improve outcomes for patients living with RA.

Now turning to our 2016 financial guidance, we are re-confirming the non-GAAP guidance we provided just a few weeks ago on January 5. We are, however, updating our GAAP guidance to reflect the decision to close our animal health manufacturing facility in Sligo, Ireland.

Consequently, our GAAP tax rate guidance has been raised by 50 basis points to roughly 21%, and our GAAP EPS guidance range has been lowered to a range of $2.83 to $2.93.

In summary, 2015 was a strong year, both for our underlying financial performance and for continued positive movement of our pipeline.

On a non-GAAP basis, excluding FX, we drove revenue growth of 4%, with growing contributions for recently launched products.

On this same basis, our focus on improving productivity resulted in flat operating expenses compared to 2014, which drove 14% EPS growth.

We have strong momentum behind our innovation-based strategy.

Continued execution of this strategy should position us to drive revenue growth and expand margins throughout the balance of this decade, and make major contributions to medical progress.

In 2015, we made steady progress against our strategic objectives; driving revenue growth, expanding margins, sustaining the flow of innovation, and deploying capital to create value.

As reflected in our 2016 financial guidance and the key events on tap for the year, we expect to make continued progress against each of these goals this year as well.

We entered this post-patent period in a position of strength, with launches underway and important science being done in our labs.

And we are very optimistic about the opportunity before us to improve patient lives and create value for shareholders.

Now this concludes our prepared remarks.

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

Phil?

Thank you, Derica.

Based on feedback we've received on the last couple of calls, those of you who are in the Q&A queue, if you could please limit your questions to two, or a single two-part question.

And we'll rapidly go through, as quickly as we can, the questions, and hopefully exhaust the queue during the Q&A time.

With that, Val, if you could please provide the instructions to the callers for the Q&A session, and then we can go to the first caller, please.

(Operator Instructions)

We have a question from the line of Tim Anderson with Bernstein.

Please go ahead.

Thank you.

A couple of pipeline questions.

On abemaciclib, on slide 19, you mention that the Phase II single-arm readout underneath this category of Phase III readouts on the slide -- I think that's the MONARCH 1 trial.

Phase II single-arm, not likely to be a registration trial, but can you tell us how important those findings are, in your opinion, towards informing the future outlook for that product and how we should think about those results?

And then second question, on your BACE inhibitor for Alzheimer's, still on track to make a go decision in Q2?

And would it be safe to assume a go decision is more likely than a no-go decision, or is there really still very much up in the air?

Great.

Tim, thank you for the questions, and thanks for limiting them to two -- appreciate that.

Sue, if you would like to take the question on abemaciclib, and then Dave, on the BACE inhibitor, please.

Sue?

Yes, Tim, thanks for the question.

With regards to the MONARCH I trial, which, as you say, is the single-arm, single-agent abemaciclib study, we should get the data on that mid this year -- final data, with some interim data earlier.

As you know, we've also got the two Phase III studies, the MONARCH 2 and 3 as well, that are in combinations.

And we should get that data next year, with potential interims this year.

We do believe that the single-agent data is an important part.

It's not the whole, of course.

We'll be interested in seeing all of the data in breast, as well as our lung trial, which is ongoing.

But this is specifically looking at abemaciclib as a single agent.

We've seen robust single-agent activity in our early Phase I data; that's been presented previously.

And clearly, if we replicate that, we think that this could differentiate this product, from an efficacy perspective.

So we're excited to see the data, and we would hope that we would be able to present that data at a scientific meeting this year.

Great.

Thanks, Sue.

Dave?

Yes, Tim, on the BACE inhibitor, I think it would be pure speculation to guess on what the outcome of the interim safety readout is.

Again, we're blinded to those events, and safety is a difficult thing to predict.

This class has had some issues, although some molecules go forward, so we're hopeful.

One thing I can assure you is, we will have an announcement in Q2.

I think we have enough patients enrolled in the study, and we're looking for exposures to get to that trigger to expand to a Phase III for the AMARANTH study.

Thank you, Dave.

And then just one thing, Tim, to keep in mind: during 2015, we did get two different of our oncology drugs granted breakthrough designation.

One of those is olaratumab.

The other, in fact, was abemaciclib, and that was based on the Phase Ib study, that was largely a monotherapy study.

Again, the Phase III program should serve as the basis for registration.

And if we do get very strong results in the Phase II study, as we said before, we actually will discuss those with regulators, and believe they would be interested in seeing those data.

Val, could we go to the next caller, please?

Thank you.

We have a question from the line of Jami Rubin with Goldman Sachs.

Please go ahead.

Thank you.

I'm going to make this two questions.

On Jardiance sales, which I believe also included Glyxambi, sales were $15 million this quarter --.

I actually think a step-down from the previous quarter, $60 million for the year.

I'm just surprised that we haven't seen -- certainly I would have expected to see some sequential improvement, just given all the positive publicity.

And while I understand that the label does not yet include the data from EMPA-REG, I'm just wondering what you guys are seeing out there?

Are physicians looking at EMPA-REG as a class effect?

Could it be that the SGLT2 is facing class action lawsuits related to side effects?

If you could just talk about what's going on there, because I'm surprised that we haven't seen a bigger pick-up.

And then just secondly, in terms of the label that you expect to get from the FDA, what are the scenarios that you see?

What is a base-case scenario?

What is a best-case scenario?

And what do you think we need to see to drive numbers to reach consensus numbers by 2020?

Thanks very much.

Great.

Thank you, Jami.

Enrique, those are right up your alley, so --

Very good.

Jamie, you are absolutely right.

Our US Jardiance revenue is not consistent with the sequential TRX growth that we're basically observing for the overall franchise, which was basically 30%.

I had mentioned that before we disclosed the top-line results for EMPA-REG OUTCOME, the franchise was capturing about 15% of the new patients in the SGLT2 class.

Right now, that is the franchise.

As we look at the latest weeks, it's capturing over 26% of the new patients.

The reason of lack of consistency is, we had a one-time adjustment, due to changes of assumptions when it comes to the accrual for the inventory that we have in the channel.

Without that accrual, you would have seen sequential revenue growth consistent with the TRX growth.

Now as it relates to when do we expect the new label, clearly we have now shared that the FDA has designated this to be a standard review -- which basically means that we would be launching the second half of this year.

I'm not in a position to speculate in terms of what the label would read like.

But we clearly are bullish on our data, the consistency and the strength of the data, and we do believe that this is going to have -- once the FDA takes action -- these will have a very significant impact on the overall trend of Jardiance, and the class in general.

And just can I ask a follow-up?

What are you hearing from physicians in terms of interpreting this data as a class effect, or applying just to Jardiance?

And is this class action lawsuit something we need to be paying attention to?

We've seen class action lawsuits having impacts on other categories of drugs, so just curious about that.

Thanks.

We are not promoting the new label, so it's difficult to say what the reaction from the broad physician population would be.

But we do conduct some targeted market research, and it is pretty clear to us, I think, based on the research that we basically have, that about half of the physicians believe that this is going to prove to be a class effect -- let's keep in mind, there is no evidence of that.

And half believe this might be a Jardiance type of effect.

So I think the jury is clearly out for the other products, but we do have the evidence for Jardiance.

And we think that is going to make a huge difference when we basically have the label.

We are seeing actually strength in the overall class.

I would say that probably the biggest event that we saw impacting the overall growth of the class was the -- some of the warnings when it comes to diabetes ketoacidosis.

So we saw a stabilization somewhere in the September, October, when the EMPA-REG OUTCOME data came out.

And now we've basically seen class growth.

So I do not believe in any way that -- my bullishness in the overall growth of the class continues to be very high.

Thank you very much.

Not to [multiple speakers] too much, but one real quick comment.

So in the EMPA-REG OUTCOME study as well, the incidence of diabetic ketoacidosis was very low, and was actually consistent across the arms as well.

So another data point to add to the discussion for that particular potential side effect.

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

Thank you.

We have a question from the line of Chris Schott with JPMorgan.

Please go ahead.

Great, thanks for the questions.

Just two here.

First, maybe a question for John, just updated thoughts on the M&A landscape.

Specifically, do you see this market volatility as creating some opportunities for Lilly to get more aggressive and look at some assets?

And just what's the focus when we think about business development?

My second question was on the BACE inhibitors.

And just elaborate a little bit more about how you think about the trade-off of, I guess, time to market versus the level of BACE inhibition and dosing, when you look at prioritizing the Astra BASE versus the internal low-dose BACE that you have as well?

Thanks very much.

Great, Chris.

Thank you for the questions.

John, you for the M&A.

And Dave, if you want to take BACE question, please?

John?

Chris, I think the current volatility and generally lower valuations in the biotech sector doesn't change our basic strategy.

We continue to look for small- to mid-sized opportunities that complement the therapeutic areas that we're already in, that we know well.

So I don't think that has changed.

We're certainly not interested in any large-scale M&A.

At the same time, there's no question that valuations are more attractive today.

There's some different dynamics going on.

As you know, biotech is not biotech.

There's big biotech, there's medium-size, and there's nascent or smaller.

So we're looking across that whole spectrum.

And you know, if opportunity presents itself based on attractive valuation and what we think would represent good value for the Company, we have the wherewith all to move on that.

Okay.

Dave, on the BACE?

So I think your question is how are we thinking about the two programs and decision-making.

I think you were there on December 8, Chris, when we spoke about the theoretical differences in the projects.

We do know that the AZ BACE and the Lilly BACE that's in the clinic have different chemistry.

We really like this target, because it's rare to find a genetic validation like this in any disease, let alone Alzheimer's, which has so much unmet need.

And so we're investing in two different ways to get there.

At the end of the day, the decision-making, though, is going to have to be based on empirical data, because the theoretical differences need to play out in man.

We're collecting those data.

Part of that is the AMARANTH Phase II program we're running now, and the Phase I effort on our own BACE.

And we'll have to see the data before we make a final determination.

Great.

Thank you, Dave.

Val, next caller, please?

Okay, we have a question from the line of Tony Butler with Guggenheim Securities.

Please go ahead.

Yes, thanks very much.

Two questions again on Jardiance.

J&J made comments about changes in the ADA guidelines to include the class.

I know you've spoken in the past about changes in guidelines as, I guess, it relates to medical treatment guidelines overall.

So I wondered if you could separate the two, and how meaningful one may be over the other?

Then separately, on the nephrology data that we will get more readouts later, is that package included in the CV outcomes data set?

Or would it be potentially something that is added after regulatory action on the CV outcomes data set for EMPA-REG?

Thanks very much.

Great, Tony.

Thanks for the questions.

Enrique, so the two questions will be on the ADA guidelines, under guidelines for Jardiance.

And the second one is if the nephrology data that we alluded to that was presented in 2015 was part of the submission for the EMPA-REG OUTCOME data.

So let me start with your second question first.

Clearly as part of our submission, we really focused on the CV outcomes.

We will be disclosing the outcomes that we saw when it comes to renal outcomes, in the very near future.

There is a publication that we are targeting.

We think that the results are also very impressive, so we look forward for the possibilities that, that may give us when it comes to the future.

As far as guidelines -- and I really cannot comment on other companies' statements.

But what I can basically say is that we today do not see any significant changes in the treatment guidelines for type 2 diabetes coming from any of the major societies or associations, whether it's ADA or EASD.

Clearly the AACE issued new guidelines, but they really did not fully incorporate the EMPA-REG OUTCOME data.

They were looking at those guidelines in -- and they probably looked at some of those guidelines in early January.

I am pretty confident that different societies will have a thorough review of the different treatment guidelines.

And I expect, as I mentioned before, that, that will happen once we basically have a label change in the US market or Europe.

Thanks, Enrique.

Val, next caller, please?

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

Please go ahead.

Thank you.

I have two questions.

First, Novartis said yesterday that when comparing Cosentyx to ixekizumab, ixekizumab has higher rates of immunogenicity, more injection site reactions, and only one or two indications upon approval versus their three.

Just wondering what Lilly's rebuttal to Novartis would be.

And then secondly, Novartis also said yesterday that its Phase III study of ribociclib is quite likely to stop early, based on modeling the company has done versus palbociclib.

I imagine Lilly has done similar modeling.

So I'm wondering, is Lilly willing to say that there's a good chance that MONARCH 1 stops in the first half of this year, when you take the interim look?

Thank you.

Steve, thanks for the questions.

Dave, if you'll take the first one, please, on some of the Novartis comments around Cosentyx and ixekizumab?

And then Sue, on the ribociclib question.

Sure.

As you know, we're in the final stages of regulatory review on ixekizumab, and preparing for launch later this year.

I'm not surprised to hear what they said on their call, Steve.

But I think we can only say for certain that the third one might be true.

Clearly we will launch with psoriasis first, and we're pursuing psoriatic arthritis, as was mentioned on this call, as well as ankylosing-spondylitis.

Those indications will come later.

That said, I think there's really no direct comparisons between the molecules on immunogenicity.

And if you studied this issue, you'd learn that the assay cut points, which are proprietary to each molecule, there's really no standard for setting those.

So there's no basis to compare products within a class, or even outside of classes, on immunogenicity.

I think the most important thing is, at the end of the long-term studies, how many patients develop neutralizing antibodies to the medicine?

In the case of ixekizumab, that number is around 1% after one year, which is very low relative to other immuno therapies for conditions like psoriasis.

As it relates to injection site reactions, you have a similar comparison problem.

There were reported injection site reactions.

It was one of the most frequent issues in our studies.

But they were mostly mild, they were transient.

And we have good data that shows that after the second and third injection, those rates dropped significantly.

It's important to note that ixekizumab also has far fewer injections than Cosentyx in an annual dosing regimen, so fewer opportunities to get that kind of reaction.

So we're confident about our posture as we go to market.

We feel good about our data.

And the primary basis for that statement is the efficacy we see with ixekizumab, which we see as breakthrough and best-in-class.

Thanks, Dave.

Sue?

With regard to abemaciclib, we will see the data on MONARCH 1 by mid this year -- the final data, with interim data earlier.

Again, that is the single-agent data.

That, as we mentioned earlier, is the data that we got breakthrough therapy on, and depending on what that data looks like, we will go to regulatory authorities.

The other two studies are the combination studies, and I think they are more comparable.

We will have -- we plan to have final data on those studies at the -- next year.

But we do have interims; they are high-bar interims.

And clearly, depending on what we see there, we'll take action accordingly.

I think it's key to note that, as we see things, the single-agent activity is important.

We have not seen that kind of robust single-agent activity with other CDK 4 and 6 Inhibitors.

We believe that is due to the relative contribution between the activity against CDK 4 and CDK 6. The other thing is the continuous dosing.

I mean, these are cell cycle inhibitors, so you would hope that you would be able to continuously dose these, and we have seen that we are able to continuously dose this agent.

So again, that's where we will see, we believe -- could potentially differentiate this from the other two CDK 4 and 6 inhibitors going forward.

Okay, thank you, Sue.

Val, next caller, please?

Okay, we have a question from the line of Mark Schoenebaum with Evercore ISI.

Please go ahead.

Hey, guys, thanks for taking the question.

I was just wondering, if Donald Trump is elected, would that impact your long-term margin guidance, Derica?

That's not a serious question.

(laughter) But I've enjoyed John's comments about biotech valuations, and Chris -- you've already got your thoughts on that, John.

But I've also enjoyed following your comments over time on the drug pricing debate.

I think on the last call, you said that the industry was preparing to begin to defend itself.

I would just be curious to know if that effort has happened yet, and how you see this playing out?

Like, what do you think will actually happen over the next, call it, two to four years, if anything?

And then more of a housekeeping question.

On Forteo, I would love to know what your longer-term outlook on Forteo is, given the dynamics in that market, assuming Amgen's sclerostin antibody launches in a year or so, and the Radius PTH basic analog launches.

Should we be thinking about this as a declining asset, or are you confident you can hang onto it?

And is this still an area of strategic interest for Lilly, or is this something that's more secondary?

Thank you.

Great, Mark, thanks for your questions.

So John, on to you about the industry's actions on the pricing front and how you see this playing out in the next few years.

And then, Dave, if you would like to take the question on Forteo, please.

John?

Okay, Mark, thanks for your question.

I think, yes, emanating from within our major trade organizations -- so this would be PhRMA and BIO -- there had been, certainly since the last time we discussed this, I think a number of initiatives aimed at putting prices in perspective.

And also providing the kind of information that policymakers and key advocacy groups need to have, we believe, to make sure that this debate remains balanced.

And that this industry -- which, you know, we all hope in the future can provide cures for things like Alzheimer's, cancer and other diseases -- remains strong and viable in this country.

I think that when you look at it from that aspect, the old saying goes: facts are stubborn things.

I think when you look at the comparison year that in many cases is being used as ammunition in this debate -- 2014, as all of you know, was a breakout year in terms of pricing, driven by the launch of the Hep C drugs, which in some cases cure up to 90% of the people that take those medicines.

And the warehousing -- in other words, the sort of inventory of patients waiting to receive those medicines.

If you go back and look at 2009, 2013 -- these are not Lilly's numbers.

This data is from CMS, that the overall price of drugs, retail and non-retail, the price increases, and that period lags significantly over all healthcare inflation.

We felt the pain obviously by the fact that we lost patents on four of our biggest products during that period.

CMS projections out to 2024 show that, based on everything we know and everything they can see, that the rate of increase in drug prices is going to fall roughly within the same line as the rate of increases in overall healthcare.

So I think that's one side of the equation.

The second side of the equation is the consumer aspect.

It's great to talk facts and figures with policymakers, but if they are hearing from consumers that they got walloped with a huge co-pay or that they are not able to access medicines they need.

Obviously we're sympathetic and empathetic to that and tuned into that, with various patient assistance programs, co-pay assistance, et cetera.

But also, I think, a continuing push to ensure that everybody in this country has access to quality insurance.

Medicines, after all, help prevent disease in many cases, or treat disease and avoid higher downstream costs.

This is well-documented.

I think we've got to keep that in perspective as well.

In terms of what we can expect after the election, anybody that thinks they can predict the nominations, much less the election right now, I would love to talk to them.

But I think this is going to continue to be an issue, or it's going to continue to be on the radar screen because of demographics.

And to some extent, as people get older, they are going to be more and more reliant on our medicines.

I think we've got to continue to demonstrate that there's value in the medicines we bring.

Yes, they can be expensive, but disease is a lot more expensive.

And emphasize the fact that low-cost generics, which account for over four out of five prescriptions today, represent ultimately the legacy of these investment efforts on our part, and provide the American consumer with tremendous value.

So I think you can assume the industry is going to continue to maintain an active dialogue with each of the candidates, and to work across party lines to make sure that the views that ultimately translate into policy -- and that's what we've really got to be focused on -- remain balanced and factual over time.

So I don't think there's -- while I think we are and should be concerned about the rhetoric, I think the facts of the underlying story remain very strong.

And I think in surveys of consumers that we've done, I think the interest is just as key in what we can do to prevent or slow down the progression of diseases like Alzheimer's.

How we gain more -- incrementally, take more steps in treating and curing cancer.

And even with diabetes, you know, what can we do there to go from, in essence, slowing down the progression of the disease today, to perhaps someday abating the complications all together.

I mean, clearly we're working on all of those things, and I think that's what people expect us, the research-based industry, to do.

And we've got to distinguish the research-based industry from other aspects of this price debate.

Thanks, John.

Dave?

Sure.

Mark asked me a question on Forteo -- not one we always get here.

But Forteo has been a great product for the Company.

We launched it more than 13 years ago.

We're still growing this product really in every geography in the world, notably in Asia.

Now we're in double-digit growth in both emerging markets and Japan.

In performance terms, 5% last quarter.

As we look ahead, I would say three things.

First, this is a disease that has tremendous under-treatment.

So today in the US, if you have a fracture, an osteoporotic fracture, less than one in 10 women receive an anabolic therapy -- which is really a problem.

So there's a lot of room for new voices and new mechanisms to improve treatment for severe osteoporosis.

I think sclerostins as a target, is a great target.

We have our own asset in the space, although moved back to Phase I, as we look for acceptable commercial formulation.

Risk benefit has to be borne out in the larger trials, and we'll look forward to seeing that from the competitive program.

But I think there's room for more than one mechanism to build bone in people who suffer from severe osteoporosis.

And frankly, the patients probably need choices.

That all said, as we think about our mid-term, Mark, it's important to note that, as I'm sure you've already researched, the IP on Forteo in the US and in other major markets really begins to expire at the end of this decade.

So although we would expect continued good performance through the end of the decade, around 2019, 2020, we would expect to see some form of bio-similar or generic competition, depending on the geography we're talking about.

Thank you.

You're welcome.

Val, could we have the next caller, please?

Thank you.

We have a question from Andrew Baum with Citi.

Please go ahead.

Thank you.

Couple of questions, please.

First, Sue, you indicated that you would like to discuss this positive Phase II abemaciclib data.

What confuses me is how the FDA could grant an approval, given this trial excludes patients who have had prior exposure to palbo.

So perhaps you could help me understand that?

And then second, perhaps for Enrique, a trial of Jardiance in non-diabetic heart failure patients -- should we expect Lilly to initiate such a trial this year?

And when is the earliest you could expect that data with (inaudible) patients?

Thank you.

Good, Andrew.

Thanks for the questions.

First Sue, if you would?

And then we'll go over to Enrique for the Jardiance question.

Yes, clearly we first need to get to the data, and then we decide whether we go to the FDA with regards to that data.

As usual, the trial was agreed with the FDA previously, and although we have seen an uptake on palbo -- not all patients are getting palbo.

So I think for the -- and a lot of these patients are actually pre-treated with several different agents, and it gets five to seven or five-plus.

So I think it's important that it's a specific group of patients where there really is a high unmet need.

And if we see good data in that patient group, we thought: good, that not only would it show single-agent activity, and we confirmed the Phase I data where we saw robust single-agent activity, but also would meet a very important need for these patients.

Thanks, Sue.

Enrique?

Clearly the data for empagliflozin, when it comes to heart failure from the EMPA-REG OUTCOME study, was very impressive.

There's not much that I can share now, other than just to say that you can imagine that we are actively exploring and thinking about this very important opportunity for the brand.

Great, thank you, Enrique.

Val, could we have the next caller, please?

We have a question from the line of Gregg Gilbert with Deutsche Bank.

Please go ahead.

Thank you.

First, on CGRP, can you give us more color on the trial design and the patient population and timeline?

And then can you also provide some more detail on what you will explore with the Keytruda and abema program?

And if you can't give us specifics, can you at least talk about where the scientific rationale is most compelling, and when we might get some tangible evidence that you're barking up the right tree or not with that combination?

Thanks.

Great, Gregg, thanks for the questions.

Dave, if you would like to talk about the CGRP, Jan, feel free to chime in if you would like, as well.

Then we'll have maybe Sue take a shot at the second question on the Keytruda abemaciclib trial.

Thanks, Gregg.

We've initiated now the Phase III program for the acute and the chronic migraine episodic and chronic migraine patients.

This is really not two diseases; it's one disease.

There's a cut point in the way these get classified in terms of frequency of headache.

I think that's similar to what other people are doing.

It's important you note we actually are carrying two doses into the Phase III program, because we think optimizing efficacy and dosing convenience in a preventive setting like this will be critical.

We like our chances in doing that, but want to make sure we have the optimal dose frequency and concentration, to get the maximal efficacy.

Those studies are enrolling now, and we expect data before the end of 2017.

These are not long studies, to study this condition.

The only other reminder I would throw out there -- we do have a cluster headache program, which is both episodic and chronic cluster, and that is also enrolling.

We do expect data in the chronic cluster setting this year, as was indicated by Derica on the key events slide, and that would be the first Phase III information we have on CGRP.

Great, thanks, Dave.

Anything you wanted to add, Jan?

No.

Okay.

Sue?

Yes, as you know, we are doing a number of studies, looking at combinations across our internal pipeline and marketed products, with immuno oncology agents.

We believe that combination therapies are going to be important, specifically in three areas -- in cell signaling, in the micro environment, and also in IO.

If we're looking at the abema study, that's a Phase I data.

Clearly we're looking at early safety data, and potentially efficacy, but mainly early safety data, with looking at the IO agent for immune clearing of cells.

And abema induces senescence, and whether the combination of those would have a beneficial effect.

Tumor type?

It's across tumors.

Yes, and we had the press release that went out last year in December that basically talked about, it would be likely if it progressed to Phase II -- that, that would be in patients with metastatic breast cancer or non-small-cell lung cancer.

In terms of timing, enrollment begins early 2016, so certainly I don't think you would be expecting to see data this year.

That would be into the future.

And we'll have a better feel for that as we see how enrollment accrues in the trial.

Thanks.

Sure.

Val, next caller, please?

We have a question from the line of Marc Goodman with UBS.

Please go ahead.

Good morning.

First, can you give us any more color on the three products that achieved the Phase II milestone?

And then second -- just two products.

One, Alimta's weakness and Humalog's strength in the quarter -- can you give us some color on that?

Thanks.

Great, Marc, thanks for the questions.

Jan, if you could talk through the Phase II entrants.

And then Sue to talk about Alimta in the US.

And Enrique, Humalog, please.

Jan?

Okay, so let us start with the IL-23 monoclonal antibody for ulcerative colitis.

The whole area of IL-17, IL-23 pathways, clearly it has strong interest for Lilly, with our ixekizumab data in psoriasis and psoriatic arthritis.

And we believe that IL-23 specifically then could be very useful in inflammatory bowel disease, based on human genetic data, and also some competitive molecule data, that are emerging.

So we see these as very complimentary to our IL-17 activities.

The BMP-6 antibody in anemia is a new target.

Actually, the name is bone morphogenetic protein 6. And it's really an evolving area in our strategy to look at how can we influence and treat diabetic complications, and in this particular case, the anemia in patients with diabetic kidney disease in the advanced stage.

This anemia is iron-restricted and hepcidin-related, and it's very common in dialysis patients.

And the goal here is to essentially replace or reduce the need then for erythropoiesis-stimulating agents, which, you know, have some concerns with CV side effects.

We have seen some promising data in Phase I on the iron sequestration, and are now looking then for effects on hemoglobin.

But the third one is an oral agent, and that is p70S6/AKT, which is tested in some cancer indications, a cell-signaling inhibitor.

Great, thank you.

Sue, on Alimta in the US?

Yes, we did see some competitive pressure on Alimta in Q4.

As we mentioned before, Alimta is standard-of-care in the non-squamous setting.

And with the new agents that are launching, particularly in the second-line setting, clearly we've got two immuno oncology agents now.

We've got Cyramza.

We've also got the EGFR third-generation TKIs.

We are seeing significant competitive activity in the second-line setting.

And we do have -- we are seeing there for an impact on Alimta in that setting.

Also in some of the later lines where we're not promoting.

Our focus continues to be to secure Alimta's first-line use and continuation maintenance use.

That's where we'll continue to focus our efforts.

We also believe that we've got actually a very nice offering to thoracic physicians across the thoracic portfolio now in the first-line setting.

In the non-squamous, we've got Alimta.

In the squamous, we've now got Portrazza, with our launch just now, just recently.

And of course, with Cyramza across the second line in both histologies.

So our focus with our dedicated sales force now in the US focus on thoracic, will be to ensure that we continue to establish and secure Alimta's use in first-line and continuation maintenance.

Great, thanks, Sue.

Enrique, on Humalog in the US?

Yes, we are very pleased with the performance of Humalog on a global base.

The product grew 15% in local currency in Q4.

And I think this is remarkable, given all of the new launches that we basically have ongoing.

So we are very pleased.

We are gaining share in most key geographies.

The key driver for that is the launch of our Humalog U-200 KwikPen, which is basically adding growth to this important brand for us.

When we look specifically at the US, which grew 20% for the quarter, we have to keep in mind that we had a negative adjustment in Q4 of last year, so this is an easier comparison.

That adjustment was about 10 points.

So if we were to take that out, I think -- or maybe a better way of saying it, it's probably better to look at the entire year and have better reflection of the overall growth for the product in the US market.

And that would have been about 9% growth for the full year.

Val, if we can go to the next caller, please.

Thank you.

We have a question from the line of Seamus Fernandez with Leerink.

Please go ahead.

Thanks very much.

Just a couple of quick questions for Sue.

Sue, can you just give us a reference point for what would be a potential comparator to the abemaciclib MONARCH 1 study data?

So as I look at it, maybe eribulin might fit into that mix, but I think it would be helpful to know what the baseline performance of other agents is in this patient population.

And then separately, can you just update us on timing for your TGF antibody, and when perhaps we might see data for that combination?

We're starting to hear a little bit of interest building for that program.

Thanks.

Yes, sure.

With regards to -- let me take the second one first.

With regards to the TGF-beta, we have a number of studies ongoing in Phase II, as well as combination studies with IO agents.

We should be seeing data on those probably this year and next year.

With regards to abemaciclib, again, from a single-agent activity, if you want to look at a comparator, you probably should be looking around eribulin.

I think the key thing around that as well, is to look at the other single-agent activity across the other CDKs.

Thank you, Sue.

Val, if we can go to the next caller, please.

We have a question from Colin Bristow with Bank of America.

Please go ahead.

Thanks for taking the questions.

So a couple of quick ones.

On baricitinib, when do you expect to make and communicate the Phase III progression decision for the diabetic nephropathy indication, and what's your current thinking on the potential there?

And a follow-up on ixekizumab.

With the upcoming potential approval, can you comment on where you are in terms of launch preparations, and give us some color on your expectations for launch performance in 2016?

Thanks.

Thanks for the questions.

Dave?

Sure.

Yes, as you know, we have a number of interesting Phase II initiatives to explore future indications for baricitinib.

I would say there is a high priority for the Company to work through those and make lifecycle decisions this year on baricitinib.

Diabetic nepthropathy is one of them.

The data looks strong, as presented last year at the American Diabetes Association.

But I would point out two things that I think are things weighing on our minds.

One is, the way in which these studies are conducted under the current regulatory guidance is not the simplest path to market.

The studies can be long, patient selection can be difficult, and recruitment rates historically in the industry are very low for these studies -- or slow, I should say.

And we need to then balance what looks like strong clinical data against other opportunities we have right now with the molecule in psoriasis.

We have data in -- we're studying atopic dermatitis.

We're looking at several other more immunology indications.

So to be determined.

I would expect, Colin, through the year, we'll exit the year with a lot of clarity on the path to Phase III for baricitinib NILEX or line extensions.

Ixekizumab -- I think we're in great shape.

We're anticipating approval around in the world's major markets -- Japan, US and Europe -- in this calendar year.

We are prepared to rapidly or immediately after approval, commercialize the product.

We think we've got a great value proposition for payers.

We've got compelling efficacy for patients.

And the KOLs I talk to are highly interested in the class and in ixekizumab.

And we see actually the class leader doing extremely well, I think, relative to our expectations.

I think it bodes very well for ixekizumab.

Great, thank you, Dave.

Thank you.

Thanks, Colin.

Val, for the next caller, please?

We have a question from the line of David Risinger with Morgan Stanley.

Please go ahead.

Yes, thanks very much.

I have two questions.

First, with respect to bio-similar Lantus, could you just discuss the pricing and the adoption ramp that you expect ex-US?

Basically, how aggressively are you competing with that to enhance your diabetes franchise commercially?

And then second, with respect to the sclerostin, could you please discuss the bone-building risks in the skull that some experts have highlighted as risks to watch, and your views on them?

Thank you.

Great, Dave.

Thank you for the questions.

Enrique, if you could handle the question for ex-US bio-similar Lantus.

And then Jan, if you would like to talk about the sclerostin risk that was mentioned.

Enrique?

Sure.

So we don't share our future expectations for our products and forecasts, but we do know what some of the pricing is in the different markets.

They are public, at least the listed prices.

In general, we see bio-similar Basaglar -- our bio-similar for Lantus is Basaglar -- is 10% to 20% below Lantus.

It's difficult to say, because there are sometimes rebates that are given that are not public, what the exact price difference might be.

But what I can is that we are pleased with our performance.

We are -- each country has its own dynamics.

And we basically need to see how this all is going to unfold.

We expect this is going to be an important product for us, and clearly complements our overall diabetes portfolio.

Okay, thank you, Enrique.

Jan?

Well, as you know, sclerostin is actually a target that has some human validation.

And yes, there is a very large and heavy skull that people have, then, if they have a sclerostin mutation from start of life.

In the treatment setting, clearly the ambitions are to treat the patients that haven't really had these genetic defects, so that the likelihood of similar issues, I think, are clearly much smaller.

And you have to watch, though, for potential changes in [pheromina] carrying the important nerves and arteries and so on, to the head.

And also potentially middle ear bones, which could potentially change hearing.

What we have seen in our studies with our sclerostin antibody has not involved changes, then, in skull bones and so on, that has had any clinical impact.

Clearly we need more long-term data to see is there a risk or not.

Great, thank you, Jan.

Val, next caller, please?

Thank you.

You're very welcome, David.

Thank you.

We have a question from the line of Vamil Divan with Credit Suisse.

Please go ahead.

Great, thanks so much.

Maybe if I could just touch on two areas that haven't really come up in the Q&A yet.

One is emerging markets, and the other one, animal health.

Emerging markets, just curious for your updated thoughts there, you have 1% constant currency growth, I believe, this quarter.

How do you see the potential for the markets just kind of overall?

And has your desire or your intention to invest in these markets changed in any way, given some of the volatility we've seen over the last several months?

And on animal health, I think it was a 5% decline in constant currency this quarter?

Just maybe a little more color?

You mentioned -- I think it was more on the ex-US products.

But maybe a little more color on what exactly drove that?

And are you still comfortable with the guidance you provided back in December of seeing greater organic growth as we move through this year, and getting above the industry growth levels starting next year?

Thanks.

Great, Vamil, thank you for the questions.

Chito, to you for the emerging markets question.

And then Jeff, you can obviously talk about the animal health dynamics.

Chito?

Sure.

First, on the economies for the emerging markets, there aren't many, as everybody knows, bright spots starting last year, except perhaps for Mexico, given its proximity to the US.

And as the economies go, so does the healthcare sector in many of the markets.

So we've had a very tough year, even on a constant exchange rate, for many of our markets.

And I think we see that for the next 18 months.

Clearly the one that has had significant decline over the previous years, has been China.

The prognosis is, we will continue to see about a 4% to 5% market growth in China, which is what we had in 2015.

And that will continue perhaps in 2016.

Now that growth could be worse, depending on how the Chinese government really implements their whole pricing policies, that have been pretty strong and pretty robust in terms of trying to drive prices, primarily for off-patent products.

So for us, it's critical that we focus on brands that have significant growth opportunities.

I think there was a question earlier on Forteo.

We see Forteo -- we're very bullish about Forteo in emerging markets.

We grew mid-teens in 2015.

We expect to accelerate that growth further.

China grew 60% on Forteo.

So we're very bullish, and I think there's tremendous opportunities for growth in Forteo for our business.

So we continue to invest heavily in that brand.

Humalog grew 15% last year for us in the emerging markets.

We expect to accelerate that growth really across the emerging markets.

And then of course, you've got the rest of the diabetes portfolio -- Trajenta, Jardiance, we do very well, as well.

Now, we are pressured clearly with the products that have lost exclusivity.

And we've had a number of those patent losses in our key markets, primarily Alimta, and recently the rest of our neuroscience portfolio.

So for us, the key is to focus on our growth brands.

We need to make sure we are efficient with the resources that we have, and drive our growth agenda in using digital channels and other channels to drive better efficiencies and be more effective in the use of our resources.

Great, thanks, Chito.

Jeff?

Yes, relative to the animal health business, yes, the majority of the decline came from international markets.

It also was isolated to companion animals, very consistent with our last few quarters.

We've seen this from increased competition, with new entries in the companion animal parasiticide market, as well as some distraction, as we're still integrating in a couple key European markets.

So those are the key drivers.

I would note, though, that our US companion animal business grew in the quarter.

This was due to the launch of a couple key new innovations -- Osurnia for otitis in dogs, as well as Interceptor Plus for heartworm.

So as we look at returning to growth, we said clearly in Boston at our investor conference in December, we do anticipate to return to growth in 2016 before the impact of FX.

We do see some of the continuation of these trends from 2015 in the first half of 2016, and we'll return to growth at industry levels in the second half.

I would note that when including the impact of FX, which will be more significant to Elanco, we anticipate 2016 revenues will be roughly flat versus 2015.

I think key drivers that I want to note that will return us to growth and give us a lot of confidence in our long-term future is the successful launch of new innovations.

As we noted, we have seven significant innovations that will launch this year and into 2017.

We're starting to see the impact of those already, with three approvals, and launches already.

And then I think the other is our key growth engines, areas such as key emerging geographies, companion animal therapeutics, vaccines, enzymes, et cetera.

Those will be the drivers to our launch.

And then I think lastly, I'll just say that our excitement on the Novartis deal continues.

We do see at a minimum the $300 million, not $200 million.

But we changed our guidance there to $300 million of savings.

And we saw this with our margins in Q4, go up to 19% from starting the year at 15%.

And we see that moving to low- to mid-20s EBIT by the end of 2016.

So this gives us a lot of confidence about the strategic elements of Novartis are really playing out in the market.

Great, thanks, Jeff.

Thanks, Vamil.

Val, if we can go to the next question, please?

Thank you.

We have a question from Alex Arfaei with BMO Capital Markets.

Please go ahead.

Good morning, folks.

Thank you for taking the questions.

First, on the recent arrangement with Roche Diagnostics for the commercial beta amyloid, as in Alzheimer's Disease, I'm curious about the timing -- what led you to form this partnership now?

And the second question is on Cyramza -- it was below expectations, particularly in the US.

I'm wondering if that's a function of PD-1 competition in lung cancer, or is something going on in gastric cancer?

Thank you.

Alex, thanks for the questions.

Maybe Jan, Dave, if you would like to respond to the Roche deal that was announced, and timing for that and our interest in that.

And then Sue, Cyramza question, please?

Sure, I'll start on the Roche and jump in.

Yesterday we announced a collaboration with Roche Diagnostics, which allows the two of us to see a way for that technology to get to the marketplace.

This is a methodology that runs on the Roche standard diagnostic kit, which is pretty well established around the world, to measure a beta in the CSF of patients in the standardized way.

As we outlined at our Alzheimer's Day on December 8, if we move to the mode of saying sola was successful, we do see a number of challenges in early adoption and in treatment of patients.

One of them will be the detection of amyloid positivity.

And although PET scanning is available in some countries, it's not widely available in others.

And so in order to enable patients to have easy and the most convenient access to detect whether they have amyloid positivity, this is one step of many we are taking or have taken to expand access to detection of amyloid positivity which is key to sola uptake, assuming success.

There's nothing new we know about sola; this is just part of our market prep, which we need to do to get a running start, should that be successful.

Great, thanks, Dave.

Sue?

So with regards to Cyramza, we had a really good uptake in lung when we launched last year.

We have seen some flattening over the last few months, and that is based on the competitive set that we talked about previously.

Our focus in lung is to continue to identify the patients that we see can benefit from the Cyramza docetaxel combination.

The feedback we get from physicians is still very positive when they use Cyramza, and clearly we need to make sure that we break through the noise in the second-line market, with all the competition that's there.

With gastric, we continue to have an opportunity.

Clearly gastric is a smaller market in the US than lung.

We continue to have an opportunity to bring usage from later lines of therapy into the second-line setting, and to ensure that the combination data with pacitaxel is well known by the physicians who treat gastric cancer.

And what we are finding is that because gastric cancer is not as prevalent as lung cancer, often doctors don't see as many patients.

And we need to make sure that we see we continue to go back.

We see that we have an opportunity to continue to grow there.

And with the colorectal, although that's not a key focus for us in the US, that is actually exceeding our expectations with regards to the uptake.

We are also launching across the globe.

With Europe, we're in the second wave of launch using gastric cancer, now that we've got access and reimbursement.

We've also just got approval for lung and colorectal cancer in Europe, so we'll be launching those this year.

And we launched mid-last year, the end of June, in Japan, the gastric cancer indication.

And that launch is going exceedingly well, and we are very pleased with both the feedback and the uptake that we're seeing in Japan.

Great, thank you, Sue.

Thanks, Alex, for the questions.

Val, if we can go to the next caller, please.

Thank you.

We have a question from Richard Purkiss with Piper Jaffray.

Please go ahead.

Thanks.

I had a question for Enrique.

If you could just speak to the overall level of discounting in the US diabetes space going into 2016?

And then a strategic question for John.

Would you change your view on separating Elanco from Lilly if the Expedition 3 study reads out positively?

I guess I'm just thinking that there might be different investment return opportunities at that point between Elanco and Lilly's pharma business.

Thanks.

Richard, thank you for the questions.

Enrique, for you, the question on the diabetes discounting as we're heading into 2016.

And John for the Elanco question.

Enrique?

Well, first, I think the best way to frame this is, we really try to ensure that we have appropriate access for our products in the different formularies.

The strengths in the portfolio, the strength of our brands, is really helping us.

Because our payers do want to include products that are basically becoming more relevant for a customer to have good outcomes, and we do have a portfolio of brands that I think is very strong, and in fact, is gaining share across every class, across every region.

So very strong performance.

That allows us to basically have maybe a bit more leverage than in the past, when it comes to thinking about the type of discount that we basically provide.

I cannot talk about the specific discount.

What I can basically say is that we see our pricing basically stable to slightly up in most product categories.

Great, thanks, Enrique.

John?

Richard, I can't speculate on a hypothetical situation like the one you raise.

I think that, you know, you can assume that we're working hard across our entire Alzheimer's portfolio, with sola in the lead.

We're eagerly anticipating that data in the fourth quarter, and think this year we'll really complete the lion's share of the integration of the Novartis Animal Health within Elanco.

Getting Elanco back to growth, getting us positioned to take full advantage of our number three global player's size, is going to be our top priority.

Great, thanks, John.

Thanks, Richard.

Val, next caller, please?

Thank you.

We have a question from Geoff Meacham with Barclays.

Please go ahead.

Good morning, guys, thanks for taking the question.

Got one on sola.

So Biogen mentioned yesterday some Phase III enrollment challenges with the number of centers with PET scans, and identifying prodromal patients.

Obviously you know that the first step is to have a positive Phase III for expedition.

But what commercial investments do you think really need to be made to accelerate patient identification, to help build the market for more active therapies in Alzheimer's?

Then the second question, on baricitinib.

Clearly you guys are -- the BEAM study is part of the NDA, but down the road, how do you guys look at the value of writing another head-to-head study to make a stronger claim?

Thank you.

Great, Geoff, thank you for the questions.

Dave, those are both yours.

Okay, great.

Well, on solanezumab, as we were speaking about earlier with the diagnostic tests, there's no doubt that Alzheimer's is a prevalent condition with horrible outcomes, and we need disease-modifying agents.

But again, as we pointed out in our December talk, the market isn't set up to really treat en masse people with disease-modifying therapies.

One barrier you're pointing out here, which is available PET scanning.

I think Lilly is in a bit of a unique position here, and I think we've demonstrated that pretty clearly in the Phase III enrollment world.

We feel we're best-in-class in the ability to identify patients, put them through PET scanning centers, and get them in our studies.

Expedition 3 is the most recent example; we enrolled it in 2,000 people in 20 months.

But enrollment in a study is small by comparison to getting market acceptance of a drug.

So we're working hard on that issue.

A reminder, we -- Amyvid, which is the leading mode of detection for amyloid, is a Lilly asset approved in Europe and the US.

We have the only Tau PET detecting technique in the clinic.

That could also have some utility, and we need to look at the Tau sub-study in the sola program.

So we have those assets and I think could invest in a way that could look at the whole instead of the parts.

That puts Lilly in a unique strategic position.

But I do want to continue to emphasize, I think there are structural barriers to rapid adoption of the technology -- payer systems, even the ability to infuse and have patients treated consistently.

We're working all of those things prudently, because we don't have the Expedition 3 outcomes yet.

But working to put ourselves in a position to maximize the opportunity, should it present itself at the end of this year.

And then on bari, I think your question is, would we or are we planning to replicate the BEAM study head-to-head against adalimumab.

At this point, we have not announced such plans.

Of course, we're always looking at our options.

But I think the first step now is to get some regulatory feedback on likely label claims from the program we just submitted.

And we don't know how strong or weak that is right now.

And I think any decision like the one you're suggesting, we would want to be informed by the regulatory process.

So we can tackle that one maybe later this year or early next year.

Got you, okay, thank you.

I also believe, Geoff, that some of the criticism -- and we had taken this into account as we designed this program for baricitinib on some other trials, particularly when they were comparing to Humira -- is that they were not run on background methotrexate.

We did run this study with Humira on background methotrexate to give it its best shot of performing well.

We think it performed as expected, and we're very pleased with the robust results.

We saw baricitinib routinely providing better relief of the signs and symptoms of RA.

So we believe this was a very robust finding.

Val, let's go to the next caller, please.

Our last question will come from the line of Damian Conover with Morningstar.

Please go ahead.

Thanks for taking the question.

I know we're coming up at the end of the call here, so I'll make it pretty quick.

Just wanted to ask a question regarding one of the more likely US pricing reform debates coming up with dual-eligibles.

I know in the past, you talked about the impact being similar to potentially the Affordable Care Act reform.

But I was wondering if you could characterize Lilly's maybe extra exposure, given the insulin franchise for pricing is particularly different in the Medicaid versus Medicare patient populations?

And then I guess a bigger question regarding the pharma's defense against what might be a more likely potential reform coming up over the next couple of years.

Thank you.

Damian, thanks for the questions.

John, would you like to take those?

Yes, I think what I can say, I think, in terms of exposure, we're significantly less exposed than we were when we had the big neuroscience psychiatric medical business here -- I'm talking about Cymbalta and Zyprexa.

Clearly, we have some exposure.

Not nearly what it was.

But I think the number you're talking about in terms of the aggregate impact, to my knowledge, is still correct in terms of approximating the impact to the industry of the fee and the other measures that were part of the Affordable Care Act in 2010.

So I think you can assume that on our policy agenda, this is at the top of the list.

And we believe that it's bad policy, and ultimately for the people affected, it would be bad medicine.

And we continue to build arguments and to, you know, maintain -- attempt to maintain support for this not to happen.

Great, thanks, John.

That does take us to the end of the call.

We do appreciate all of you listening in or listening to the replay.

Your interest in Eli Lilly and Company is very much appreciated.

2015 was an outstanding year for the Company, both in terms of the strong financial performance, as well as substantial pipeline movement and progress that we registered during the year.

We believe 2016 is shaping up to be an exciting year, and an important one for implementation of our innovation-based strategy.

We look forward to keeping you apprised of our progress over the course of the year, and hope you have a great day.

Thank you.

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