禮來公司 (LLY) 2018 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Eli Lilly and Company Q1 2018 Earnings Call. (Operator Instructions) As a reminder, today's conference call is being recorded. (Operator Instructions)

I would now like to turn the conference over to Dave Ricks. Please go ahead.

Good morning. Thank you for joining us for Eli Lilly and Company's First Quarter 2018 Earnings Call. I'm Dave Ricks, Lilly's Chairman and CEO. Joining me on today's call are Josh Smiley, our Chief Financial Officer; Enrique Conterno, the President of Lilly Diabetes and Lilly U.S.A.; Dr. Sue Mahony, President of Lilly Oncology; Christi Shaw, President of Lilly Bio-Medicines; and Jeff Simmons, President of Elanco Animal Health. We're also joined by Kristina Wright, Jim Haney, Kevin Hern and Phil Johnson of the Investor Relations team.

We are also joined, for the first time, by Dan Skovronsky, our incoming President of Lilly Research Laboratories. Dan is succeeding Dr. Jan Lundberg, who retired at the end of May. Jan has been key to our success as we navigated the Years YZ and returned to growth with a series of successful products. We want to thank Jan for all his contributions to our company.

During this conference call, we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to a number of factors, including those listed on Slide 3 and those outlined in our latest forms 10-K and 10-Q filed with the Securities and Exchange Commission.

The information we provide about our products and pipeline is for the benefit of the investment community. It is not intended to be promotional, and it is not sufficient for prescribing decisions.

2018 is off to a good start with first quarter revenue growth of 9%, which we leveraged into a 29% non-GAAP operating income growth, and 37% non-GAAP EPS growth. New pharmaceutical products continue to be the driver of our worldwide revenue growth, led by Trulicity, Basaglar, Jardiance and Taltz with growth in both the U.S. and international markets where our launches continue to scale up.

New product growth more than offset revenue declines, resulting from loss of exclusivity on a number of established products. In addition, we continue to expand our margins this quarter. Excluding the effects of FX on international inventory sold, non-GAAP gross margin as a percent of revenue increased by nearly 70 basis points over Q1 2017. And non-GAAP operating income as a percent of revenue increased by 775 basis points to 30.4%.

Pipeline progress this quarter also included approval and launch of an additional indication in first-line metastatic breast cancer for Verzenio, based on the MONARCH 3 data; positive Phase III studies of Taltz for ankylosing spondylitis, a positive Phase III study for Cyramza in high AFP patients with second-line liver cancer; and the initiation of a Phase III study for Trulicity in 3 and 4.5-milligram doses.

While we are pleased that the FDA's Arthritis Advisory Committee supported the efficacy of both 2 milligrams and 4 milligrams of baricitinib in RA, and 2 milligrams overall, we are disappointed that the committee did not recommend approval of the 4-milligram dose. We are confident in the benefit risk profile of both baricitinib 2 milligrams and 4 milligrams for the treatment of patients with RA, supported by the clinical data generated to date and by the experience in more than 40 countries in which both doses are approved and available. We'll continue to work with the FDA on this important application.

In terms of capital deployment, we announced a strategic collaboration with Sigilon to develop encapsulated cell therapies for the treatment of type 1 diabetes. We purchased $1.1 billion of stock and returned nearly $600 million via the dividends. And we are making expected progress on our Elanco strategic review and still anticipate sharing our conclusions on our Q2 earnings call this July.

Slide 5 contains more detail on key events since our January earnings call.

Now I'd like to turn the call over to Josh to review our Q1 results and provide an update on our financial guidance for 2018.

Thanks, Dave. Slide 6 summarizes our presentation of GAAP results and non-GAAP measures, while Slide 7 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 press release for a detailed description of the year-on-year changes in our first quarter GAAP results.

Looking at the non-GAAP measures on Slide 8, you'll see the revenue increase of 9% that Dave mentioned earlier. Gross margin as a percent of revenue decreased to 75.1%. This decrease was due to the effect of foreign exchange rates on international inventory sold. Excluding this FX effect, gross margin as a percent of revenue actually increased roughly 70 basis points, driven by higher realized prices and manufacturing efficiencies, partially offset by product mix.

Total operating expense decreased 5% with marketing, selling and administrative expense decreasing 4% and R&D expense decreasing 6%. Total operating expense as a percent of revenue declined by 710 basis points compared to Q1 2017. This significant improvement reflects our continued efforts to reduce our cost structure and increase our margins, accelerated by the restructuring actions we took late last year.

Other income and expense was income of $67.5 million this quarter compared to income of $78.3 million in last year's quarter. Our tax rate was 15.9%, a decrease of 530 basis points compared with the same quarter last year, driven primarily by the impact of U.S. tax reform. At the bottom line, net income increased 35%, while earnings per share increased slightly faster at 37% due to a reduction in shares outstanding from shares repurchased.

We achieved this significant earnings growth by delivering high single-digit revenue growth while significantly reducing our operating expenses, creating positive leverage again this quarter.

Slide 9 provides the reconciliation between reported and non-GAAP EPS. You'll find additional details on these adjustments on Slide 20.

So moving to Slide 10, let's take a look at the effect of price, rate and volume on revenue growth. This quarter, the effective foreign exchange provided a 4 percentage point benefit. Excluding this, our worldwide revenue growth on a performance basis was 5%, driven by both price and volume. For a fifth straight quarter, our human pharma business drove volume growth in each major geography. U.S. pharma revenue increased 10%, driven by price and, to a lesser extent, volume. Our diabetes portfolio, led by Trulicity, Basaglar and Jardiance, was the primary driver of volume growth with growth of 30%, offset by the losses of exclusivity for Strattera, Effient and Axiron, and by a decline in volume for Cialis, due to the entry of generic erectile dysfunction products.

For U.S. pharma, it's also worth noting that when excluding LOEs, the rest of our U.S. products grew by approximately 20% in total. U.S. price growth in the quarter was favorably impacted by an adjustment for rebates and discounts, primarily related to lower Medicaid utilization than anticipated across the portfolio.

While Medicaid remains a significant segment of our U.S. business, we estimate that the growth we experienced in this segment in the past several years has plateaued in recent months.

Moving to Europe, we've been pleased with the overall performance of our new product portfolio across the region. Pharma revenue grew 2% excluding net FX, driven entirely by volume despite the loss of exclusivity for Cialis. Excluding the impact of the Cialis LOE, volume grew nearly 17%. This volume growth was led by Trulicity, Olumiant, Taltz, Lartruvo, Jardiance and Basaglar.

In Japan, pharma revenue increased 1% excluding net FX, driven by volume of new products namely Trulicity, Taltz and Jardiance, with a partial offset in price from the impact of the biannual price cuts.

Our pharma revenue in the rest of the world increased 4% on a performance basis this quarter, led by volume growth of Trulicity, Humalog and Forteo.

Turning to animal health. As we noted during our Q4 earnings call, we've been expecting to return to top line growth in the second half of this year, and our Q1 results are on track with this expectation. Excluding FX, Elanco revenue declined 4% this quarter. I'd highlight, however, that revenue in Q1 actually increased 1% in performance terms when excluding the impact of products we've made the strategic decision to exit. These strategic exits are the contract manufacturing activity that came with the BI U.S. vaccines acquisition as well as 2 terminated legacy U.S. distribution agreements and Posilac. You'll see that we've provided a backup slide quantifying the drivers of our animal health revenue growth, excluding those strategic exits.

We're encouraged with the revenue trends we're seeing in our ongoing or core business. New products contribute $62 million in Q1, driven primarily by Credelio, INTERCEPTOR PLUS and Galliprant. These new products drove our core companion animal portfolio up 10% in the quarter.

Our core food animal business decreased 4%, primarily due to U.S. buying patterns in Q1 2017 as well as continued ractopamine competition. Importantly though, our poultry business continue to deliver strong growth. In Q1, poultry products grew 11%, well ahead of the market and we expect to see full year growth for our overall core food animal portfolio.

Lastly, I'd point out, this is our second consecutive quarter with overall price growth, which is the sign of solid foundations in the industry. We expect this price growth to continue through 2018.

We are monitoring the trade situation closely and while we do not see immediate impact to our animal health business, we are cautious about the broader economic impact with export activity declines. Hopefully, this provides you with useful insights into our animal health revenue growth, and Jeff can address questions you may have in the Q&A session.

Now let's take a look at the drivers of our worldwide volume growth on Slide 11. In total, our newer products, including Trulicity, Basaglar, Jardiance, Taltz, Verzenio, Olumiant, Lartruvo and Cyramza were the engine of our worldwide volume growth. You can see that these products drove 11.1 percentage points of volume growth this quarter. The loss of exclusivity of Effient, Strattera, Zyprexa, Cymbalta, Evista and Axiron provided a drag of 510 basis points, while Cialis and animal health accounted for 230 and 120 basis points of volume decline, respectively.

Slide 12 provides a view of our new product uptake. In total, these brands generated nearly $1.5 billion in revenue this quarter and represented over a quarter of our total worldwide revenue.

I'd like to highlight the progress in our second quarter of Verzenio launch. We are pleased with the continued new-to-brand share growth, which is now at 15%, and the approval of the new first-line metastatic breast cancer indication, giving us the broadest label in the class.

Lastly, at AACR, we presented the final analysis of the MONARCH 3 data, which showed 28.2 months of progression-free survival, more than 13 months better than placebo as well as an analysis across all patient subgroups in the MONARCH 2 and MONARCH 3 studies, which demonstrated that patients with certain concerning clinical characteristics receive substantial benefits from the addition of Verzenio to endocrine therapy.

Moving to Slide 13. This quarter, FX had a more significant effect on our results largely driven by the euro. Excluding FX, you can see that revenue increased 5%, non-GAAP cost of sales increased just 2% and non-GAAP EPS increased 47%.

Turning to our 2018 financial guidance on Slide 14, you will see that we've updated our guidance to reflect an additional $700 million on the top line, driven by lower expected Medicaid utilization, changes and estimates to rebates and discounts as well as the impact of foreign exchange rate movements.

A slight increase in marketing, selling, admin and R&D expenses to account for FX movements as well as for funding for additional pipeline opportunities. An increase of $25 million to the top end of our range for OID and a decrease in our tax rate from 18% to 17%, which reflects the change in expected geographic mix of income. These updates contribute to an increase in both GAAP and non-GAAP earnings per share. Our non-GAAP earnings per share is now expected to be $5.10 to $5.20, which is an increase of 20% over 2017 at the midpoint of the range.

Now I will turn the call back over to Dave to review the pipeline and key future events.

Thanks, Josh. Slide 15 shows select NMEs and NILEX as of April 20. Movements since our last earnings call include: the approval of Verzenio for the first-line treatment of metastatic breast cancer in the U.S.; a Phase III start for Trulicity in 3 and 4.5-milligram doses; a Phase I start for the IL-23 CGRP biospecific antibody for immunology. While we had attrition of the Phase II BACE inhibitor molecule as monotherapy, the trial, in combination with the N3pG antibody continues and we look forward to seeing results in this novel trial design.

We also discontinued our abemaciclib pancreatic cancer study. You'll see we've combined our NME and NILEX pipeline into 1 view. In terms of NILEX, we have a robust set of lifecycle opportunities for our recently launched products, which we expect will continue to bolster the growth prospects from important brands like Trulicity, Taltz, Verzenio, Olumiant and Jardiance. These products are well positioned in some of the largest and fastest-growing categories and are addressing areas of high unmet medical need.

Key NILEX opportunities include AxSpA for Taltz, atopic dermatitis for Olumiant, adjuvant breast cancer for Verzenio, the 3 and 4.5-milligram dose study for Trulicity and heart failure for Jardiance, which is in collaboration with Boehringer Ingelheim.

On Slide 16, we highlight expected key events for 2018. In addition to noting the U.S. approval of Verzenio for first-line metastatic breast cancer, we've indicated the data disclosure of the KEYNOTE-189 study at AACR, which shows that Alimta, in combination with Keytruda plus platinum chemotherapy reduced the risk of death by half compared with chemotherapy alone as first-line treatment in metastatic non-squamous non-small cell lung cancer patients. The overall survival benefit was robust regardless of PD-L1 expression status.

We also announced last week that the Cyramza Phase III study in bladder cancer did not reach statistical significance in the secondary endpoint of overall survival. There are many events to look forward to in 2018, notably, the expected regulatory action for U.S. baricitinib, galcanezumab, Verzenio and Alimta. We also look forward to the data readout of the second Phase III study of Taltz in ankylosing spondylitis. The readout of the REWIND study for Trulicity and the initiation of several Phase III studies, including our anti-IL-23 mirikizumab for psoriasis and ulcerative colitis.

Before we go to the Q&A session, let me briefly sum up the progress we've made this quarter. In Q1, new products accounted for 25% of total revenue, and nearly 30% of our human pharma revenue. Volume grew in our human pharma business by 4% despite recent patent expirations. And when excluding the strategic exits, our animal health business returned a positive performance growth. We realized significant efficiencies in our cost structure, leading to operating margin expansion of 775 basis points, excluding FX. And we have made pipeline progress this quarter with the launch of Verzenio in the first-line metastatic breast cancer in the U.S., the launch of Taltz for psoriatic arthritis in Germany and positive Phase III data for new indications for both Taltz and Cyramza.

Finally, we returned $1.7 billion to shareholders via the dividend and share repurchase.

This concludes our prepared remarks. Now I'll turn the call over to Phil Johnson to moderate the Q&A session.

Thank you, Dave. (Operator Instructions) Leaha, if you could provide the instructions for the Q&A session, and then we're ready for the first caller.

(Operator Instructions) And our first question is from the line of Gregg Gilbert with Deutsche Bank.

First Dan, congrats to you on your new role. Dave, can you talk about the use of bari outside the U.S. in terms of mix of strengths? And any post-marketing safety data that you have to bolster your case with the FDA? And secondly, on the subject of drug pricing in the U.S., what types of changes are you expecting the administration to put forth? You can be as specific as you'd like, but at least conceptually, would love your opinion. And how do you think Lilly is positioned relative to those potential changes?

Great, Gregg. Thank you for the question. We're actually going to have Christi Shaw, President of Lilly Bio-Meds take your question on the use of the 2 different doses outside the U.S. and the OUS data that may be helpful as we present our case to the FDA. And then Dave, you'll have the question on drug pricing. Christi?

So outside the U.S., in over 40 countries, we have both the 2 and the 4-milligram approved and the majority of the use is in the 4-milligram with remarkable efficacy. Really patients getting their lives back and the safety continues to hold up that we see no new signals that are different than what we submitted to the FDA. And we'll continue, I think, yesterday's AdCom showed for sure the unanimous vote on the efficacy of the 4 milligrams is important to patients in the U.S., so we want both the 2 and the 4 milligrams approved in the U.S. for those patients.

Thank you, Christi. Dave?

Yes. Thanks, Gregg. Obviously, big topic, drug pricing. I mean, it's hard to speculate exactly what the administration will say or do, but I think I can comment on what pharma's position is on this and Lilly's as well, which is as it relates to a leading pain at the pharmacy counter and reducing the burden of list prices that consumers pay at the counter, we've been -- long been proponents of rebate passthrough, both in commercial plans and Part D. And I think the most important action that the administration could take would be to create either a set of experiments or a mandate, a rebate passthrough for patients in the Part D program. This would, I think, immediately impact seniors' cash flow and pocketbook as well as, I think, help to normalize the incentives on gross to net spreads. So that I would be -- personally be surprised if that wasn't part of the commentary, and that's something we've long stood for. So that would be I think a positive development from our perspective. The HHS secretary has commented on Part D and the lack of market mechanism there. I would expect that to be a topic of discussion. And then we do see an increased desire under this administration to approve waivers for Medicaid giving states flexibility in variety of forms to manage their own programs. And I would expect to see more of that. Finally, we worked closely with this administration on trade agenda to balance the incentives that foreign markets have to suppress drug pricing which are primarily exports from the U.S. We've had some early signs of success there with the Korea free trade agreement. And we'll keep on that, I think long-term, U.S. needs to use its trading power to help equalize that sharing across, sort of amortizing the R&D expense that it takes to create the new innovations which are coming even more frequently from the industry. So we'll watch that carefully and continue to advocate for pro-innovation, pro-patient choice as well as policies that can make sure that this innovation -- this industry can continue to innovate and prosper for years to come. So all those topics are front of mind and we'll keep working up with them, Gregg.

It's the line of John Boris with SunTrust.

Just back to Olumiant, can you just quantify the number of patient years of therapy that you have on Olumiant, not just in the clinical package, but how many or how much patient years or number of patient years of therapy that you have abroad, especially since it's heavily skewed towards the 4-milligram? And then on Taltz, on the Novartis call, they clearly indicated that they also had a wholesaler destock with Tremfya. In addition to that was giving away a lot of free products. And then obviously, co-pay accumulators are also a topic that are penalizing patients on deductibles. Can you provide some commentary on the miss on Taltz? And the impact across your business of potentially co-pay accumulators going forward?

Great, John. Thank you for the questions. So Christi, if you want to start with Taltz question, and then we'll figure out who's going to be in the best position here to give some of the numbers on the patient years exposures for Olumiant in the clinical trial program.

And can you give me the clarity on the Taltz question? It was with Tremfya?

It seems Novartis indicated they gave away a lot of free product through initial sampling. How much of that impact IL-17 uptake in the quarter, particularly Taltz?

So for Taltz, we did have some inventory changes which was the biggest rationale for our decline from Q4 to Q1 in terms of dollars. But our demand was up in terms of Q4 to Q1. And in fact, our NBRx has grown 30%, sequentially, in the first quarter. So we're seeing actually real demand coming through. I can't really comment on the others and how they count their inventories. The accumulator program, I think, our goal is to make sure that patients get access to every medicine that we provide and that their doctors think they need. So, whether that's a little bit of rebating, whether that's co-pay assistance, et cetera, that passthrough that Dave talked about earlier is also important to ensure the patients get access. But we haven't had issues to date.

And then John, I don't think in the room, we have numbers on the patients that are in some of the overseas registries for follow-up. I think Dan, you do have some information on the clinical trial program and the number of patients and patient years exposures.

Yes. Thanks, John. So, in the safety data we presented to the advisory committee was based on more than 7,800 patient years in our clinical trials, and that establishes the safety database for baricitinib from clinical trial experience. Your question referred also to the commercial experience outside the United States or obviously, there have been many, many more patients exposed the drug. Although we don't have exact numbers for patient-year exposure, as you heard from Christi, despite that extensive exposure, we haven't seen any new safety signals. So while we agreed that VTE is a potential risk of this drug, we haven't seen that manifest in the clinical experience.

That is the line of Tim Anderson with Bernstein.

A couple of questions. Going back to Taltz. So, in the class of the IL-17, in general, J&J is running the Phase 3 ECLIPSE trial comparing their IL-23 to Novartis' IL-17. You have both of these mechanisms either on the market or in development. So I'm hoping you'll have some perspective on what you think is the better, more effective mechanism in psoriasis. And if that J&J trial comes out in favor of Tremfya, doesn't that have a potential and direct impact on Taltz? And second question on your GIP/GLP-1, I know you've said in the past we're supposed to see Phase II data this year. Can you say what the likely venue will be? And maybe preview what you're hoping to see in that data?

Great, Tim, thank you for the questions. So Christi, to you for the question on Taltz IL-23 versus IL-17. And then Enrique, over to you for your first question of the day on the GIP/GLP.

Sure, I mean, first of all, what I would say is thank goodness for patients, we have so many more newer medications that are providing such higher efficacy, so IL-23, IL-17s are going to be great for patients. And it's going to kind of tap into that older market where the older TNFs really lack efficacy, relatively speaking. So the other thing is patients really turn through different modality. Each patient might need something different, they respond to one, and not the other, so we're really confident and glad that we have both in our portfolio and we believe there will be specific patients for each. Specific to Taltz, as we look at the future and the very short-term, not only is the psoriatic arthritis indication starting to takeoff, psoriasis dermatology, really move in the first quarter and we think it's due to the psoriatic arthritis indication really solidifying that efficacy there. But we also have our own head-to-head in psoriatic arthritis, it readouts later this year versus Humira. And then we have our ankylosing spondylitis data too that we have one of 2 studies that have completed, the second one will be at the end of this year. So a lot's happening with Taltz and we feel very good about our chances of winning the marketplace.

Thank you, Christi. Enrique?

So we've been excited for quite some time about GIP/GLP. Clearly, the hurdle for this product is pretty high, and we want to see superior outcomes when it comes to hemoglobin A1c, and weight loss, vis-à-vis current GLPs. We expect that we are going to be disclosing some of this data either later, late this year or at ADA next year. We'll have to see.

Next, we have the line of Geoff Meacham from Barclays.

I just have a few more for Enrique in diabetes. So Trulicity growth has been great, but how influential do you feel like REWIND could be, positive or negative, relative to the current trajectory? And then Jardiance SLT 2 class is growing, but we haven't quite seen a tipping point for Jardiance despite guidelines. How do you think that could play out? What do you think that could be? And then I know there's been a lot of bari questions already, but if it's just the 2 mg dose that's approved, maybe help us with the commercial positioning, obviously, weaker, but I would just want to get your context for that.

Great, Geoff. Thank you for the questions. Enrique, we'll go to you for the first two questions for Trulicity and Jardiance. And then Christi, over to you for the question on the 2 mg dose for baricitinib and commercial implication.

Yes. Maybe just to start with framing the Trulicity quarter, because we have another strong quarter, continued solid growth. We basically have seen that the increased promotion by the new launches is basically having some impact in market acceleration, but we see both. We see a very good market growth, and we see, basically, a good share performance with Trulicity in a more competitive environment. So we very much like our position. We have a strong access position as well. And finally, and probably something that, sometimes, is underestimated by it's the patient experience that we basically receive from physicians, from patients themselves. We have an excellent real-world efficacy, which is very simply delivered. So we're very excited about that. Clearly, REWIND doesn't change any of that, but it is extremely important because we believe, the longer term for us to be competitive in this class, we will need cardiovascular outcomes. As it relates to the SGLT2s, clearly, we have been seeing some very good growth of Jardiance, but we had a pretty important event in Q1 related to the exclusion from CVS. Jardiance do has a very good access, and we basically have seen, post the rebating of the prescriptions of patients, many patients have been switched, we basically have seen resumed growth over the last few weeks. Clearly, the SGLT2 class and Jardiance, in particular, is still a very small part of the overall prescriptions. We estimate that about 30% of patients with diabetes have established cardiovascular disease. So the opportunity for us, is of continued growth, and we're working to accelerate Jardiance and bring Jardiance the catalyst for the growth of the class.

Great. Thank you, Enrique. Christi?

Thanks, Geoff for the question. I think you saw yesterday the reinforcement by everyone that the 4-milligram dose is really needed for patients from an efficacy standpoint so our goal is to actually have both doses available. And we'll continue to study both the 2 and the 4 milligrams in other studies that are ongoing.

Next, we'll go to the line of Chris Schott with JPMorgan.

First one was just on the Humalog performance in the quarter and some of the rebates. So just two questions here. First, can you just quantify what the benefit was in the quarter? And second, can you just elaborate on what's happening with mix here? And can we think about that as sustainable? My second question was on Taltz, channel dynamics, just another question, just quantifying what we saw in terms of the work down this quarter. And you've obviously got some very healthy volume trends, but can you talk a little bit more about the underlying price dynamics in the IL-17s? Are there pressures we should be thinking about beyond just channel work down the quarter that could offset some of that volume growth?

Chris, thank you for the questions. Just to understand the second question, when you mentioned mix being sustainable, is that specific to Humalog? Or is that more broadly focused across the portfolio of products in the U.S?

It was actually specifically to Humalog, but if there's a broader trend, would love to hear that as well.

Okay, very good. So Trulicity, Enrique, you'll talk about the Humalog in addition to the mix. And then over to Christi for the Taltz channel dynamics. Josh, if you want to make any overarching comments, Enrique, either one on what we're generally seeing in the U.S. across our portfolio for mix. Enrique?

Very good. So when it comes to Humalog, of course, a strong quarter. We saw about a $50 million benefit in the quarter related to changes in the estimates of rebates and discounts. Part of that was Medicaid and part of that other payer mix changes. We basically see some of those benefits continuing throughout the year. Of course, some of that is also growing as part of Q1, in essence, we are seeing lower Medicaid claims. And basically other dynamics that are slightly favorable when it comes to payer mix, when it comes specifically to Humalog. Now when we look broadly at the portfolio, it is pretty clear that those Medicaid claims is something that we see across the portfolio but not all of our products are as exposed as our insulins are.

Great. Thank you, Enrique. Christi?

Sure. So specifically, the inventory change we saw was about $32 million, quarter 4 and quarter 1. And as we look at the price dynamics and volume growth, ours is volume growth. And as we look to the future, as patients really need the best medications out there, we haven't seen a strong need yet to significantly rebate. I know Novartis' call said that on theirs, but that's not the same case for us.

It's the line of Andrew Baum with Citi.

A couple of questions, please. Could you indicate your assessment of impact that fit in the doughnut hole in 2019 given that your business of Part B patients. Second, could you talk to your expectations for Alimta post-189 data as well as the stalling of the 340B expansion which I assume would be helpful to you. And then finally, on business development, and oncology, generally, I know that might (inaudible) us back you to go to a competitor. I'm also aware that the deal flow we might have expected from the -- in oncology has not as yet transpired, but could you just update us on your commitment, particularly to immunobiology? And expectations and valuations you see for initial acquisition or for partnering candidates externally.

Great, Andrew. Thank you for the question. We'll go to Enrique for the first question on the doughnut hole in 2019. And then Sue, if you'd like to comment on expectations for Alimta moving forward as well as per your perspective as the BU President on oncology business development. And either Dave or Josh, you're going to give a corporate perspective, feel free to augment. Enrique?

So the increased coverage in -- during the doughnut hole for 2019, when we look at our overall portfolio it's about $200 million. Most of it being driven by diabetes.

Thank you, Enrique. Sue?

Yes. With regards to Alimta, clearly, we are very pleased with the KEYNOTE-189 data. And as we've mentioned earlier, we have seen growth this quarter on Alimta in the U.S., 8% growth overall, and 3% of that was price, 5% of that was volume. And we've also continued to see increase in huge brands in combination. I think we don't give forecasts on individual products. And I think it's key to note that about 50% of our sales come from the first line and second line, about 40% is first line. With that, we are, as I said, seeing a stabilization in overall share of market and an increasing huge brand. And we continue to see and expect that to increase as we saw some people waiting for the Phase III trial data outcome before starting the combination of the Alimta, Keytruda and combo, so we are really pleased with that. We think that it concerns the benefit that we're seeing with Alimta. Historically, as a standard of care in the first line non-small cell lung cancer setting and we continue to see that, that will be the case going forward. And with regards to our business development, we are continuing to be very interested in BD across all areas including IO. We have talked previously about our CureVac deal which is a bet that we have or one of the betsst that we will be placing with regards to RNA-based vaccines. We anticipate that we will be doing other deals both in the IO space and in other areas in oncology in the future. We are also bringing in new people into our team. Again, we mentioned we were boarding 2 physicians recently. One from Duke and the other from Memorial Sloan Kettering, and you will see us continuing to bring in more external talent.

Great. Thank you, Sue. Any additional comments on BD?

I would just say we're highly convicted to use our balance sheet to expand our portfolio with BD. We've talked about clinical-stage assets in particular and oncology is the #1 target. So Jeff, I wouldn't read through the relative lack of activity most recently as any sign that would change our conviction. Of course, we need to look at each idea, make sure it makes sense for us to own it, make sure we like the science and valuations are appropriate. But -- so we'd be disciplined on those matters but strategically, we understand we need to be active externally and you can count on us continuing to look at all available choices to add to our pipeline, in particular in oncology.

Great. Thank you, Dave. And then back to question that John Boris had asked that we did not have the data before, thank you to our Olumiant team for providing that we now have 11,500 patient years of exposure in baricitinib when you add in the post-approval exposures.

It will be the line of Tony Butler with Guggenheim Securities.

Two questions, if I may. One is on the pipeline-related, one is galcanezumab. And you do have some data at AAN today, but I'm just curious with respect to the range of somewhat similar products that will come to market as a cluster, I assume, later this year. What makes galca stand out? And can it do so without having a second agent in the bag, be it lasmiditan. And then second, back to the previous question asked on immunobiology, you have had a relationship with an antibody-based company, I assume for bispecifics, and I'm just curious, it seems to be an interesting area with CD 3 engagers and could you speak more to that because it's a way maybe to back in into an area in which you didn't have to go through at least the direct PD-1.

Great. Thank you for the questions, Tony. So Christi, we'll go to you for the galcanezumab and how we intend to succeed in that marketplace. And over to you, Sue, for the question on immunobiology bispecific consumer.

Sure. So Tony, thanks for the question. I think this is an area where migraine patients haven't had an option for a few decades. And here we are, with a couple of agents coming out quickly together. So first of all, I think it's a really good thing to really have a couple of companies activating these patients. So the first piece is we're going to be better at the consumer-driven area, the direct-to-consumer. And I think our chances there are very good, and we have a history of that. On the data, specifically, we have 50%, 75% and 100% measurements endpoints, and we're the only one that is actually showing a 10% to 15% of the patients have the ability to really be free of migraines totally. The other thing we have is that galca is fast and durable. We see results as early as month 1, and we see the results continue through the 12 months that we've looked at. You were right, we do have the cluster data coming up and nothing has ever worked in this type of migraine, and if we do, it will be a huge win for patients. And obviously, it's then good for differentiating galcanezumab. So our second half launch, we're well prepared for -- to be competitive, and we think we have some differentiation there.

Great. Thank you, Christi. Sue?

Yes. Tony, thanks for the question on bispecifics here. As we've looked at our IO portfolio and what we want to do, we want to understand really what the next generation of IO agents are. And we've taken 2 bets, I mentioned one, and we'll be taking others, by the way, but 2 that we're taking at the moment. One is it the RNA-based vaccines that we think really could be potentially disruptively in the future. The other is a bispecific. And as you've mentioned, we have ongoing collaborations and actually a number of bispecifics looking at different targets. That should be coming into the clinic very soon, we're excited by those. Another asset that we've got in the clinic that we've talked about before but not too much is the TIM-3, and we are pretty excited by our TIM-3 and think we've got a best-in-class asset there. We've also got an idea. We know that there's some data on ideas, we'll have to see what happens there. But we -- I believe that we've got one that, again, could be differentiated. So those are 2 assets we've got in clinic now. And as you've mentioned, we're taking bets on the RNA-based vaccines and the bispecifics.

Thank you, Sue.

That's the line of Vamil Divan from Crédit Suisse.

So maybe just following up on a couple that were -- topics that were discussed earlier, again, on baricitinib. Kind of coming out of yesterday's discussions, just I know you have a Phase III program in atopic dermatitis. Can you just talk about how you see the sort of risk/reward and the attractiveness of product legacy in atopic dermatitis, where I would think the acceptance of safety concerns maybe a little bit lower? And then the second question I have just following up on the question on the CGRPs. Just curious if you could give your thoughts, given we have BOTOX in the market and also some oral products that generally were used off-label for preventative use. Would you expect that the CGRP antibody's are going to be used in patients that have gone through those products or do you think that there might be an opportunity to be used ahead of either the off-label and/or BOTOX?

Great. Vamil, thank you for the questions. So Christi, we'll go to you for both the bari atopic derm question as well as where do you see CGRP is potentially being used.

Sure. So baricitinib, each disease state has its own benefit/risk ratio. So if you look at what we're studying in our Phase II data with lupus, we have both the 2- and the 4-milligram. If you look at atopic derm, the data that we read out in Phase II, the 2-milligram did work, it just took a little bit longer. So whether it's 2 or 4, we know the patients will get better there. So each disease state really has its own dosing and for rheumatoid arthritis, we strongly believe that 2- and 4-milligram needs to be available in the U.S. as it is and over 40 countries. On the CGRP side, we expect patients to cycle through the generics. And most of them already have. There's like 4 million to 5 million patients that are on preventatives, and then there -- we believe there is a few million more that aren't on preventatives and should be. So we have every expectation that building requirement for the [MWs], for example, the triptans before they go on to a CGRP, but we do expect that we'll compete well versus BOTOX. I mean, getting 21 to 24 injections in your -- around your head for -- doesn't seem as good as having a monthly injection, if I'm a patient. So I think we have an advantage there, and they have their same hurdles from an access standpoint. So I believe that usage will come, and we're already talking to payers about how we make sure that access is available to the patients that need it.

Great. Thank you, Christi.

And that's the line of Marc Goodman with UBS.

Just to continue on with the CGRP conversation as well as lasmiditan. Can you just talk about the safety profiles that you see? And how you think these things are going to be all used? I mean, presumably if everything makes it to the market, how the orals will be used, your oral versus CGRP orals? Second question is Taltz. Just can you explain the specialty pharmacy buying pattern issue? And what was the impact on Taltz in the quarter? And there was also some inventory patterns with respect to Forteo, can you quantify that as well?

Okay. So Dan, if you wouldn't mind talking about some of the safety profiles for a CGRP monoclonal antibody as well as lasmiditan. Christi, if you could then get the second part of that piece of the question that was how we see lasmiditan being used relative to oral CGRPs potentially. And then if you could go over again the Taltz specialty pharmacy buying patterns that we have seen, that affected this quarter's revenues for Taltz.

Great. Thanks. So with respect to the safety profile of galcanezumab, I think, we've really been encouraged by what we've seen in our Phase III trials on safety. I think that's critically important for a preventative for migraine patients could be on for very long time to be well tolerated by the patients and have a very clean safety profile. So that's an important differentiator for galcanezumab and for the class probably of anti-CGRP antibodies. When you get to the orals, which are abortives, the safety profile could be a bit different, and we've seen some evidence of some of that for the oral CGRPs. And I think, Christi, you're going to comment on commercial differentiation.

Sure. I think that's one of the big advantages. What we're bringing to marketplace is a platform that we're building for pain. So we have the prevention in galcanezumab, the treatment in lasmiditan, and then we have tanezumab coming. The mechanism of action with lasmiditan is different than the oral CGRPs, and as we look at patients, not everyone responds to the same agent. So we believe that they'll be used similarly for acute phase and that not all patients will respond to one or the other. So obviously our goal would be to win in that marketplace and position ourselves well for that. But we're working on the package to submit later this year.

And then on the Forteo question -- oh, I'm sorry, the Taltz specialty pharmacy, I think, I answered that. That was like a $33 million that was the inventory impact for Taltz, but demand was positive quarter-to-quarter. And then on Forteo, the last question on Forteo was basically what we saw was inventory came but in at a different way. We saw the wholesaler buying patterns actually increased volume in Q4 of last year. Some of that has been destocking in Q1 but not all of it. We did have some formulary loss with TYMLOS, the new competitive entries, but that was a really small impact to the overall performance of Forteo.

Yes, I was just going to add, I guess, there was a question about using of the CGRP antibodies in refractory patients and just to point out that all of our Phase III pivotal studies had patients who failed on at least 2 other modalities. So that's likely the indication, and I'm not sure that is a big commercial bearing because most patients who've had -- our chronic migrainers or episodic migrainers have tried many other things. So I think the pool of available patients for prevention will be there. The data in our program, I mean, I believe all the competitors is on 2 failures. And despite that, and the data we'll present today, is incredibly strong. A large percent of patients have at least 50% reduction in headache days per month so...

Thanks, Dave.

And that is Dave Risinger with Morgan Stanley.

So I have 2 questions. First, just a follow-up on the CGRPs. There was a Reuters article today that described how Express Scripts is asking for lower list prices on CGRPs. Could you just provide a comment on that? And whether a manufacturer could trust PBMs to not extract significant rebates in the event that a manufacturer does list the list price lower than expected? And then second, with respect to Trulicity REWIND, the slide that you published this morning indicates an internal readout in 2018 but not an external readout. And I just wanted to understand that a little bit better because clinicaltrials.gov indicates July completion of that trial.

Great. Thank you, Dave. While the article that you were referencing was specific to CGRPs, your question's really more of a policy question. So Dave, if you would mind taking the first part of Dave Risinger's question. Then Enrique, over to you for the Trulicity REWIND, timing of internal readout and top line press release relative to presentation of the medical meeting.

Yes. Thanks, Dave. Yes, I did glance at that interview with Steve Miller this morning. I was really happy to see that Express Scripts is now for value-based pricing. Of course, we've been for this kind of construct for years because we believe in the performance of our products, and I think in the case of migraine drugs and many other drugs, diabetes, other autoimmune drugs, even in oncology, I think, if you're willing to enter into these discussions. The point about lower list price is a little bit moot. I think the idea that the price varies in a value-based scheme based on actual product performance, I think that's the key piece. So the value determination we will need to do, it's difficult to comment specifically on launch products. Would we trust the PBMs? Well, I think we work closely with all the major payers in the U.S. I'm happy to see that ESI is now changing their view and support of this kind of construct. We'll be happy to work with them on it.

Thanks, Dave. Enrique?

So when it comes to REWIND, we do expect internal readout in the second half with the top line press release likely in early Q4. And we will be targeting the full disclosure of the results at the next year's ADA meeting.

And Dave, just to be clear, the ct.gov date on the site is the expectation for the last event. Obviously, with it being event-driven, there is uncertainty around that. We will -- once we have the last event occur, that would trigger then the analysis to be done. It does take a number of months to go ahead and get all that final visits and data into the system, clean and validate the database and then run our tables, figures and listings and report out.

It's the line of Jami Rubin with Goldman Sachs.

Maybe for you, David and Christi. I don't want to put words in your mouth, but it sure sounds like you're not going to launch baricitinib unless you can get both 2- and 4-milligrams approved, is that correct? And can you cite specific examples where the FDA goes against the panel recommendation? I know recently, there was a Pasara drug that was approved even though the panel went against it, but that was a non-opioid drug, and in this case, there is another drug from the market. So I'm just wondering if you can comment on your level of confidence that you could convince the FDA to vote against the FDA panel on the 4-milligram tablet? And if you can't, would it be your decision not to launch baricitinib for RA? And to what extent would that affect your 5% top line growth objective?

Great. Christi, do you want to go ahead and answer the question related to the launch, 2 and 4, et cetera. And then maybe Josh, if you want to comment on expectations versus 2020.

Sure. As I said before, I think the promising thing we saw is that there was unanimity in terms of the 4-milligram efficacy. And so the thing that you saw on the voting was based on a specific indication. And as we continue to work with the FDA on our labeling and our path to the market, that's where we can say, we're at the highest unmet need so that the patients who are suffering so much in the United States have access as they do in 40 other countries to improve their pain and improve their lives. So we will continue to talk to them about what is the path for both 2- and 4-milligrams, and what is the indication that we can best serve the highest unmet need population. So I think one of the things you saw on the vote was the wording was very specific to the indication that was presented, which was after methotrexate. And then the AdCom, so I can't comment or recall of the any AdComs in terms of overruling, but I think, as I said, it wouldn't be overruling the AdCom if we look at a different and carve-out indication for 4-milligrams that benefits patients the most and make 2-milligram available as well to lower risk patients.

Thank you, Christi. Josh?

Thank you, Jamie. I think we've been clear about our growth expectations through 2020, which is a 5% compound annual growth rate, and the 5% is the minimum and not dependent on any single product. We're confident in our growth prospect. I think if you look at where we are in Q1, we're ahead of our targets to get to a 5% growth in 2020. The strength of the new products that we have on the market today and the potential new launches in team and other things that we've talked about already, I think, give us good confidence that we'll be there in 2020. We're still excited about the prospects of Olumiant, particularly outside the U.S. where we have already launched. But I think just looking at analyst models, the dollars associated with the U.S. sales of Olumiant in 2020, I think, in most of your models, are pretty small anyway. But we're confident in the strength of the portfolio, and the new products will continue to drive our growth at more -- that 5% minimum is still valid.

Great. Thanks, Josh.

It's the line of Steve Scala with Cowen.

A couple of questions. First on REWIND, there's some concern about the less sick population being studied versus some of your competitors' study. Can you talk about how you design REWIND to still achieve its endpoint despite a population possibly generating fewer events? So maybe you can comment on how you arrived at the trial size, duration and also the statistical power. And then secondly, a couple of questions on Elanco. Yesterday, it was announced that you hired a CFO for Elanco. Is this a newly created position? And why was it done now? And can you comment on poultry trends. I think you commented -- no, can you comment on swine and cattle? You've already commented on poultry.

Great. Steve, thank you for the question. So we're going around the horn here. Enrique, if you'll take the first question on the design of REWIND. Josh, the Elanco CFO hiring that was announced yesterday. And then Jeff, if you can give some more details on other parts of portfolio, including swine that we didn't comment on in the prepared remarks. Enrique?

Well, REWIND is an event-driven trial. So we will basically have the close-out of this trial when we hit the certain number of events. And the trial is appropriately powered for us to show basically a statistical difference, if the product were to show it, that is meaningful. So we are pretty confident. I do know that we've gotten a lot of questions about the population that we have enrolled and whether that population is maybe less sick. We, at this point in time, I think, we basically want to see the outcomes of the trial. We do have a lot of expertise when it comes to designing cardiovascular trials, and we're confident that we've designed this trial in the appropriate way. Dan, I don't know if you want to make any other comments.

No, that was correct. I would just add that we'll have one of the longer-duration trials here in terms of the follow-up time on these patients, which gives us sort of more area under the curb, time for the drug to work and have its effect on cardiovascular outcomes. So although the lower-end band rate mandate a larger and longer trial, the increased duration actually we see as a benefit to showing an effect.

Thank you, Dan. Josh?

Steve, our -- first, our strategic evaluation of Elanco is continuing as planned, and we'll be in a position in our Q2 earnings call to announce our strategic direction. Our hiring of Chris Jensen as the CFO for Elanco adds to that analysis he brings with external experience and I think will position us well for any future direction that we announce and look to execute after our Q2 earnings call.

Great. Thanks, Josh. Over to you, Jeff.

Yes. Steve, so first it's from the industry perspective, at a high-level, beef continues to be stable and continue to grow. Dairy is a slower recovery, expected probably as an industry later in '19. And swine, I think the eyes are a little bit on trade but again, pretty stable overall. So we feel pretty good about the overall industry economics. No material impact on us. I think everyone's -- as Josh said in his comments, we're going to continue to watch trade. I don't think it's relative to a feed additive issue or anything like that. It would be much more just about the impact that trade barriers could have on the overall economics, especially of the U.S. industry. At this time, we don't see anything and definitely no impact on us. As you look at Elanco's business, food animal will return to growth in the second half as we've stated. We see that led heavily by poultry and swine, less so by ruminants.

Great. Thanks, Josh.

Next is the of line Umer Raffat from Evercore.

On Trulicity, I noticed into the Phase III investigating a really high dose, 4.5 milligrams in diabetes, and I was just curious, a, what your thought process is but also your expectations in weight loss in that trial? And I would've thought that at such a high dose, you might have included a semaglutide comparator as well. So just curious how you thought about that trial. And then -- and a quick follow-up on animal health. Is Posilac and Optaflexx still the driver that's been weighing in? I just wanted to understand the market access pressures in (inaudible).

Umer, thank you for the question. So Enrique, on the recently initiated study for Trulicity using some higher doses. And then Jeff, back to you for some of the animal health dynamics with Posilac and Optaflexx.

So we are studying both 3- and 4.5-milligrams. We believe those doses can be well-tolerated if appropriately titrated. And we basically have designed this trial in a way that it can show actually a difference, from a regulatory perspective, vis-à-vis dula 1.5 when it comes to hemoglobin A1c. We are also expecting to see important difference when it comes to weight loss, but recently that we made the A1c endpoint from a risk/benefit perspective in order to get this product approved.

Thank you, Enrique. Jeff?

Yes. So market access issues continue to be definitely an area that we're focused on, and again, we have taken proactive actions, as Josh mentioned, with the strategic exiting as we're assessing our decisions here with Posilac and then exiting the business. But headwinds do continue for Posilac. I would note on our food animal business, first of all, international grew, as you'll note in the backup slides that we saw, close to 2% growth in OUS food animal. The net 10%, though, I would highlight, came from, one, the majority of that being Posilac and the declining use, and again, that's driven by our exits and then some U.S. buying patterns relative to Q1 of 2017. On ractopamine, competition continues, although, we're continuing to see our business hold and remain stable in this area.

Great. Thank you, Jeff.

It's the line of Jason Gerberry with Bank of America.

First question is just on Verzenio. Feedback from Pfizer is that, at least in the U.S., the metastatic market for the CDK4/6 agents is getting increasingly well-penetrated, and that maybe more of the near- to medium-term growth that is shifting to x U.S. expansion, at least until label expansion occurs with more early use in breast cancer setting. So I'm just kind of curious if you agree with that assessment. And as we look at Verzenio, the real growth opportunity in the U.S. is going to be contingent upon getting new patients start share versus your competitors. And then just the second question on CGRP front, how important do you think early mover advantage is in this category? One of the 3 kind of more advanced players in the market faces some uncertainty into its June PDUFA date. So just kind of curious how important you think early mover advantage would be in the category.

Jason, thank you for the question. So Sue, we'll go to you for the Verzenio question. And then Christi, over to you for the question on the CGRP first mover advantage.

Yes, thanks for the question on Verzenio. With regards to -- well, firstly, we're very pleased with the uptake. I think Josh mentioned, we've got our 15% new to branch share. And when we launched it, we launched with the single agent activity and the combination with fulvestrant, which is about 1/3 of the market. Literally just the end of the February, we launched with the larger indication which is the aromatase inhibitor, it's 2/3 of the market, and we are now at 15% in new to brand. We feel good about that. With regards to the actual market, we see plenty of opportunity actually for both growth in the market and also taking share. With regards to growth, about 50% of patients are treated with the CDK 4 and 6 inhibitors. So again, we see an opportunity there. One of the things that we're trying to do is to ensure that physicians really understand patients that can benefit the most, and we presented data on patients with concerning clinical characteristics where with Verzenio, we were able to see that even in those patients, we could see robust efficacy similar to the overall patient population. Obviously, with the data that we've got in with the aromatase inhibitor as well, the 28.2 month PFS is seen as robust as well. We see that as beneficial. We also see that we've got a differentiated molecule with single agent activity in continuous dosing. So our belief is that we can both compete within the market and that there still continues to be opportunity for growth in the -- for the overall CDK market in the U.S., and of course, OUS. We have submitted to Europe and Japan, and we'd hope to get approval later this year in both those geographies.

Great. Thank you, Sue. Christi?

So on how important CGRP and early mover is. If you look at different classes, it depends on the differentiation strategy piece. In general, though, 3 to 4 months is not a big deal. I mean, by the time you get your label and get approved, and you're talking about access, really, it's not a big difference. If you're looking at a bigger delay, and you have 2 agents in the marketplace, and you're 12 to 18 months later, that is a detriment for sure.

Thank you, Christi.

Next is from the line of Alex Arfaei with BMO Capital Markets.

This is (inaudible) for Alex Arfaei. I just had one question. Could you provide additional thoughts behind your decision to discontinue the BACE inhibitor on its own? And yet advance the combination with the N3pG antibody? And what was the milestone achieved to drive this decision?

Great. Thank you for the question. Dan, if you'd like to comment.

Yes, thanks for that question. So you're correct that we terminated the monotherapy for our Phase II BACE inhibitor. That was based on a combination of external data readouts, which, of course, you're familiar with as well as our internal look at the data. Our theory behind this compound initially was that given its higher brain penetration, this would have a favorable -- more favorable safety profile. However, we also sought to demonstrate efficacy in Phase II. And that was -- futility for efficacy was what drove us towards stopping it. Now the rationale to continue it in -- and of course, in monotherapy, our bet continues to be on amino-based statin Phase III for monotherapy. As you commented, we continue with the combination. Here, I think we have a growing understanding that we need to clear the Abeta out of the brain with the plot clearing antibody, in this case, N3pG and also inhibit its production. So hitting it from both ends is the rationale there for the combo.

Thank you, Dan.

It's the line of David Maris with Wells Fargo.

I have a couple of questions. First, going back on the administration's potential moves. When you mentioned the passthrough pricing net of rebates, can you address, that assumes that -- or does it assume that PBMs will willingly just make less money? Or how do you think mechanistically that will work without having an impact to PBMs? And then separately, if you could just provide us with -- if you are going to think of your top 10 or 20 products relative pricing average in the U.S. versus, say, developed Europe, what would you say the differential in net pricing would be? Is it as large as some people think? Or is it because of all the discounts that it's much smaller?

Great. David, thank you for the questions. Dave Ricks, we'll have you take both those.

Sure. Thanks, David. So just on the rebate passthrough, as it relates to the Part D program, we have done modeling ourselves as well as pharma and I know that TMAS has as well. The idea isn't free as you point out, but as Scott Gottlieb has been saying on his podium speeches lately, we've somehow devised a system where the sick subsidize the well. And I think there's something ethically wrong with that. I think there's a growing consensus about that even amongst PBMs, apparently. So the idea would be that premiums would modestly grow across the Part D program. We're talking $1 or $2 per member per month was -- is probably all that's necessary, in exchange for passing some through portion, not 100%, but some portion of rebates to consumers in the Part D program, in particular, when they're exposed to the doughnut hole and beyond that, their share of the catastrophic side. So that's the basic idea. In that model, I think Part D plan providers would just be making a trade-off, which are despite the higher premiums, in exchange for a rebate passthrough. And of course, that math requires some assumptions about how much rebates pass through. Our position is that it needs to be well more than half both through reducing competitive middleman and manufacturers to raise list prices, which I think is a positive objective here as well as to meaningful out-of-pocket savings at the point of sale. In commercial plans, the dynamics are a little bit different. But here, I think the ultimate decider will be the ultimate payers, which are commercial payers like our company and other Fortune 500 companies. I think that they are the market makers, not the PBMs. I think if they decide that employees would like to have rebate passthrough in their plans as a matter of competition for labor, that's what will happen. And Lilly's made that choice, for instance, already and the PBM we use is implementing it.

As -- the second question was the European pricing. And I think if you look at big markets like China, Japan and Germany and then compare that to government pricing in the U.S., a blend of Medicaid, DOD, BBA and Part D, I think most policymakers would be surprised to find that the U.S. government pricing is really not that different across commonly used medications from those major markets. If you change the market basket to include share single-payer models at particularly market hits where they have a lot of layers of approval which have the effect of beating down manufacture pricing or use long delay periods, which erode IP, et cetera. It's less of a fair competition, but I mentioned China, Japan, Germany did, the next 3 biggest markets but also, a relatively rapid market introduction post the regulatory approval. And I think those are important apples-to-apples comparisons. That kind of analysis, I think, you should expect the pharma group to do more of as we continue through this regulatory phase of price reform. I think it will shed a favorable light on the kind of deals "that the U.S. government gets today".

Thanks, Dave.

And that is the line of Steve Scala with Cowen.

A couple of questions. It was mentioned that you have seen lower Medicaid utilization, but I'm not clear on why you have seen that. So maybe you can amplify. And then secondly, the abemaciclib pancreatic Phase II study that was stopped, that trial was not to have read out till late 2018 or early 2019. So was it stopped for futility at an interim look, for instance? And does this failure in pancreatic decrease your interest in other new tumor types?

Thank you for the question. Enrique, if you'd like to comment on the first question on the lower-than-expected Medicaid utilization. And then over to you, Sue, on the pancreatic cancer trial.

So we make our accruals for rebates and discounts before we actually receive the claims. In the case of Medicaid, it tends to lack significantly more, some of those -- the receipts of those claims significantly more than in commercial plans and other plans. So what -- we basically have our estimates, and what we basically have seen is that the claims that we have received have been lower than we had expected. So that's -- now there could be a number of reasons for that, but at this point in time, we are basically thinking as well, okay, as we are not only looking at the past, but what does this mean for us is we are looking at our accruals for Q1 and for the rest of the year and the reason why we have a benefit coming from Medicaid when we look at the entire year.

Great. Thank you, Enrique. Sue?

Yes. Steve, no, the pancreatic study was actually went to the final endpoint, and we stopped study. So I think you might be looking atct.gov where we might have had a later time line just as we're looking at future follow-up with patients. It does not, by any means, reduce our confidence in moving forward in other indications for the abema. This is pretty high bar, pancreatic, we know is a tough tumor type. And we are looking at clearly targeting tumors where the CDK pathway is important, and also, we do believe the combinations is probably the way to go. We have a number of non-breast indications that we are looking at, and you should see some trials starting later this year as well as, of course, our life cycle planning in breast cancer.

Great. Thank you. I think we've gotten through 17 different sets of questions. And it sounds like there's no more folks in the queue. So I'll turn it over to Dave Ricks to close our session. And Leaha, after that, you can provide the replay instruction.

Thanks, Phil. We appreciate all of your participation in today's earnings call and your interest in Eli Lilly and Company. Our strong first quarter results represent continued progress on top line and bottom line growth prospects, and we have raised our guidance as a result. We have a broad portfolio of new products with many life cycle opportunities driving top line growth, hopefully for years to come. And we are executing on our significant margin expansion opportunities. Together with a strong pipeline, Lilly continues to be a compelling investment. Please follow up with our Investor Relations team with your questions we have not addressed on today's call. That concludes the call. Have a great day, everyone.

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