禮來公司 (LLY) 2018 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2018 earnings call.

(Operator Instructions) We do remind today's call is being recorded.

(Operator Instructions)

Your hosting speaker, Dave Ricks.

Please go ahead, sir.

Good morning.

Thank you for joining us for Eli Lilly and Company's Q2 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; Dr. Dan Skovronsky, President of Lilly Research Labs; Enrique Conterno, President of Lilly Diabetes and Lilly USA; Dr. Sue Mahony, President of Lilly Oncology; Jeff Simmons, President of Elanco Animal Health; and unfortunately, Christi Shaw, our President of Lilly Bio-Medicines is ill and won't be joining us today.

We're also joined by Kristina Wright, Jim Haney, Kevin Hern and Phil Johnson of the IR team.

This will be the last earnings call for Sue Mahony, President of Lilly Oncology, who retires at the end of August.

Sue led Lilly Oncology through the integration of ImClone, successfully launched several key brands including, most recently, Verzenio, and has now refocused our oncology R&D strategy.

I want to thank Sue for her leadership over the past 18 years at the company, and for her inspiring passion for helping patients.

Please join me on a round of applause for Sue.

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

Our actual results could differ materially due to a number of factors, including those listed on Slide 3 and those outlined in our latest Forms 10-K and 10-Q filed with the SEC.

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.

We continue the strong start to 2018 with a second quarter revenue growth of 9%, non-GAAP operating income growth of 28% and non-GAAP EPS growth of 35%.

New pharmaceutical products continue to be the driver of our worldwide revenue growth, led by Trulicity, Basaglar, Taltz and Verzenio.

New product growth more than offset revenue declines resulting from the loss of exclusivity on a number of our established products.

We continue to expand margins this quarter, excluding the effect of FX on international inventories sold.

Non-GAAP gross margin as a percent of revenue increased by 130 basis points over Q2 2017, and non-GAAP operating income as a percent of revenue increased by nearly 600 basis points to 30.6%.

We made significant progress with the pipeline, including the approval and launch of Olumiant in the U.S.; FDA and EMA submissions of nasal glucagon; as well as positive Phase III readouts for galcanezumab in episodic cluster headache, Taltz in ankylosing spondylitis, also known as radiographic AxSpA and tanezumab in OA pain in collaboration with Pfizer.

In terms of capital deployment, we completed the acquisition of ARMO BioSciences, which added pegilodecakin to our Phase III portfolio.

We returned nearly $600 million via the dividend, and we repurchased $950 million of stock, which completed our previous $5 billion share repurchase program.

And we authorized the new $8 billion share repurchase program.

And as reflected in the press release we released this morning, we concluded the review of our strategic alternatives for our Elanco Animal Health business, and intend to establish Elanco as an independent, publicly traded company via an IPO and subsequent separation.

Since announcing the strategic review last October, management and the Board of Directors carefully considered a wide range of options, including the retention, the sale or the initial public offering of the Elanco business.

Based on this review, we concluded that after-tax value for Lilly shareholders would be maximized by pursuing an IPO and subsequent separation of Elanco.

We believe independence will allow Elanco to efficiently deploy its resources to those growth opportunities that best serve its customers.

This will also allow Lilly even greater focus on the human pharmaceutical business to pursue our purpose of creating life-changing medicines for patients.

Execution of the IPO is dependent upon, and subject to, a number of factors and uncertainties, including business and market conditions.

From a timing perspective, we anticipate a registration statement will be available to the public in the next few weeks, and we are targeting an IPO of less than 20% of Elanco's shares before the end of this year.

Given the quiet period imposed by securities laws, on today's call, we will not be able to respond to many, if any, questions on the potential IPO.

Moving on to Slides 6 and 7, you'll see more details on key events since our April earnings call.

But now let me turn it over to Josh to review our Q2 results, and to provide an update on our financial guidance for 2018.

Thanks, Dave.

Slide 8 summarizes our presentation of GAAP results and non-GAAP measures, while 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 press release for a detailed description of the year-on-year changes in our second quarter GAAP results.

Looking at the non-GAAP measures on Slide 10, you'll see the revenue increase of 9% that Dave mentioned earlier.

Gross margin as a percent of revenue decreased to 76.1%.

This decrease was due to the effect of foreign exchange rates on international inventories sold.

Excluding this FX effect, gross margin as a percent of revenue actually increased 130 basis points, primarily driven by manufacturing efficiencies, partially offset by the timing of manufacturing production.

Total operating expense decreased 1% with marketing, selling and administrative expense decreasing 4%, offset in part by an increased R&D expense of 5%.

Total operating expense as a percent of revenue declined 450 basis points compared to Q2 2017, driven by our continued efforts to reduce our cost structure and increase our margins, accelerated by the restructuring actions we took late last year.

Total operating income increased 28% compared to Q2 2017, which put our operating margin at 29.1% for the quarter.

And as Dave mentioned earlier, excluding the effect of FX on international inventories sold, our operating income was 30.6% of revenue, an improvement of nearly 600 basis points versus last year's quarter.

Other income and expense was income of $12.2 million this quarter compared to income of $60.4 million in last year's quarter.

Our tax rate was 17%, a decrease of 470 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 31%, while earnings per share increased slightly faster at 35% due to a reduction in shares outstanding from shares repurchased.

We achieved the significant earnings growth by delivering high single-digit revenue growth, while reducing our operating expenses, significantly improving profitability again this quarter.

Slide 11 details these same non-GAAP measures for June year-to-date, while Slide 12 provides a reconciliation between reported and non-GAAP EPS.

You will find additional details on these adjustments on Slides 24 and 25.

Moving to Slide 13.

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

This quarter, the effective foreign exchange provided a 2% benefit.

Excluding this benefit, our worldwide revenue growth on a performance basis was 7%, driven entirely by volume.

For a sixth straight quarter, our human pharma business delivered volume growth in each major geography.

U.S. pharma revenue increased 11%, driven almost entirely by volume.

Notably, our diabetes portfolio delivered over 30% U.S. volume growth again this quarter.

We also benefited from higher U.S. Adcirca revenue, which totaled $96 million.

Moving to Europe.

Pharma revenue grew 5%, excluding FX, driven entirely by volume despite the loss of exclusivity for Cialis.

Excluding the impact of the Cialis LOE, volume grew over 17%.

This volume growth was led by Olumiant, Trulicity, Taltz, Lartruvo and Jardiance.

In Japan, pharma revenue increased 3%, excluding FX, driven entirely by volume.

Volume growth was driven by new products, namely Trulicity, Cyramza, Taltz, Jardiance and Olumiant, with a significant contribution also coming from Cymbalta.

This volume growth was partially offset by price and the impact of the biannual pricing cuts, which took effect in Q1.

Our pharma revenue in the rest of the world increased 8% on a performance basis this quarter, led by volume growth of Trulicity, Cyramza, Jardiance, Basaglar, Lartruvo and Taltz.

Turning to animal health.

In total, our Elanco revenue declined 1% this quarter in performance terms.

Our core Elanco business, which is the foundation of the business going forward, increased 8% in performance terms.

Core Elanco excludes strategic exits, which are listed on Slide 41.

New products contributed $75 million to our animal health sales in Q2, driven primarily by the companion animal portfolio.

This was nearly double the amount in Q2 last year.

The core food animal business increased 10% in Q2, driven by the U.S. -- by U.S. purchasing patterns in 2017 as well as strong growth in poultry and aqua products, partially offset by continued ractopamine competition.

The core companion animal business grew 5%, driven by uptake of Galliprant, Credelio and INTERCEPTOR PLUS, partially offset by continued Trifexis competition.

We continue to take actions to focus Elanco's business in its core areas, and to improve profitability.

Since our last call, we completed the sale of the Sligo, Larchwood and Augusta manufacturing facilities, and we exited a distribution agreement and a product that is not core to Elanco's strategy.

We also made the decision to suspend marketing of Imrestor, while we pursue additional indications that could allow Imrestor to provide more value to our customers.

Slide 14 outlines the same information for our June year-to-date results.

Now let's take a look at the drivers of our worldwide volume growth on Slide 15.

In total, our new products, including Trulicity, Taltz, Basaglar, Verzenio, Olumiant, Jardiance, Lartruvo and Cyramza, were the engine of our worldwide volume growth.

You can see that these products drove 12.4 percentage points of volume growth this quarter.

The loss of exclusivity for Effient, Strattera, Cymbalta, Zyprexa, Evista and Axiron provided a drag of 450 basis points, while Cialis accounted for 170 basis points of volume declines due to the entry of generic erectile dysfunction products.

When excluding LOEs in Cialis, the rest of our products had volume growth of approximately 16%.

Slide 16 provides a view of our new product updates.

In total, these brands generated over $1.7 billion in revenue this quarter, and represented 28% of our total worldwide revenue.

On the performance on Taltz, which grew by 39% in the U.S. and 59% worldwide versus Q2 2017, driven almost entirely by volume.

This growth was due to the continued uptake in psoriasis and, to a lesser extent, the launch of our second indication for Taltz in psoriatic arthritis, both here in the U.S. and in Europe.

We're also pleased to announce this quarter that Taltz had positive Phase III results for our second study in AxSpA, which Dave mentioned earlier, and was granted a label update in both the U.S. and Europe to include data in difficult-to-treat genital psoriasis.

Later this year, we plan to initiate a head-to-head trial with Tremfya, which will be powered to test superiority on key measures in patients with moderate to severe plaque psoriasis.

This investment underscores our confidence in Taltz as well as Lilly's long-term commitment to immunology.

Moving to Slide 17.

Continuing with our non-GAAP explanations, this quarter, the effect of FX on our income statement was minimal, with a small positive impact on revenue and a small negative impact on earnings.

Turning to our 2018 financial guidance on Slide 18.

You will see that we've updated our guidance to reflect an increase of $300 million on the top line, driven by strong performance across our portfolio, particularly in diabetes, and the continued uptake of our new launch brands as well as higher collaboration revenue, partially offset by the impact of weaker foreign currencies; an increase in gross margin percent of 50 basis points on a reported basis, primarily driven by the favorable impact of foreign exchange movements, partially offset by an inventory charge related to the suspension of Imrestor sales; a percentage point increase in the non-GAAP gross margin percent, primarily driven by the favorable impact of foreign exchange movement; and finally, an increase on our tax rate on a reported basis from 17% to 22.5%, which is driven by a nondeductible IPR&D charge of introduction of ARMO BioSciences.

On a reported basis, earnings per share for 2018 is now expected to be in the range of $3.19 to $3.29, while our non-GAAP earnings per share is now expected to be between $5.40 and $5.50.

At the midpoint of the range, this represents an increase of 27% over 2017.

Our updated guidance implies second half non-GAAP EPS of between $2.57 and $2.67, which exceed our consensus, and does not assume U.S. price increases for the remainder of the year.

However, it's lower than our first half EPS due to the expected U.S. generic competition for Cialis in September; higher second half R&D expenses to support additional late-stage investment, including mirikizumab, Olumiant and Taltz NILEX and the IL-10 from the ARMO acquisition, launch investments for galcanezumab and, to a lesser extent, the higher U.S. Adcirca collaboration revenue that we realized in the first half.

In total, we expect strong second-half performance led by volume gains in our new products, which allows for targeted investments in our long-term portfolio, and which positions us well to achieve our 2020 financial objectives.

Now we'll turn the call back over to Dave to review the pipeline and key future events.

Thanks, Josh.

Slide 19 shows select NMEs and NILEX as of July 17.

In my summary of the quarter, at the beginning of the call, I mentioned the positive movements for nasal glucagon and the Phase III edition of pegylated IL-10 from our acquisition of ARMO BioSciences.

The ARMO acquisition also includes Phase II studies for pegilodecakin, which are now reflected in the pipeline.

Additional movements since our last earnings call include: the start of Phase III studies for mirikizumab, our IL-23 antibody in both psoriasis and ulcerative colitis; the start of Phase II for our tau antibody for Alzheimer's; the addition of the Aurora A kinase inhibitor into Phase I, with the completion of the AurKa acquisition; attrition of lanabecestat, the BACE inhibitor for Alzheimer's disease we were studying in collaboration with AstraZeneca; and the attrition of 1 Phase I diabetes asset.

On Slide 20, we provide an update on expected key events for 2018.

In addition to the pipeline movement I've already noted, you'll see that we've added a new line to reflect our expectation that the U.S. Alimta label could be updated before the end of the year for the Phase III KEYNOTE-189 data.

Under regulatory submissions, you'll see the submission of nasal glucagon and the new indication for Cyramza as second-line liver cancer as well as Lilly and Boehringer Ingelheim's revised expectation that the U.S. submission for the combination of empagliflozin, linagliptin and metformin XR will occur in 2019.

In the Phase III data presentations and publications section, we've reflected presentations at ASCO of the REACH-2 study of Cyramza as well as the presentation at the American Headache Society of the Phase III cluster headache trials for galcanezumab.

And in the Phase III top line data disclosures section, you'll see the announcement of positive Phase III data for tanezumab in OA pain and the attrition of lanabecestat.

In terms of Phase III study initiations, you'll see the Phase III starts for mirikizumab that I noted earlier, and now expect to start Phase III before the end of the year for baricitinib in lupus and in adaptive Phase II/III for alopecia.

We've also added a line for initiation of Phase III for our novel GIP/GLP agonist in type 2 diabetes.

We now have data in-house from the Phase II study of this next-generation incretin.

In the past, we've said that we have a high bar for efficacy to move this molecule into Phase III, given the competitive intensity in this category.

The Phase II results met this high bar.

We look forward to presenting this data at EASD this fall.

And following the data presentation, we will host a call to discuss the data.

In addition, we plan to start Phase III in late 2018 or early 2019.

Finally, we had positive Alimta rulings in both the U.S. and Japan, while the German Federal Patent Court held our Alimta vitamin regimen patent invalid.

We strongly disagree with this ruling, and we plan to appeal the decision.

This was clearly a busy and productive quarter for the company, and there's still many events to look forward to in 2018.

Notably, I'd highlight the expected regulatory actions for galcanezumab in the U.S., Verzenio in Europe and Japan as well as the data readout of the REWIND study for Trulicity.

Before we go to the Q&A section, let me briefly sum up the progress we've made this quarter.

In Q2, new products accounted for nearly 28% of our total revenue, and over 13% of our human pharma revenue.

Volume grew 9% in our human pharma business despite recent patent expirations.

And when excluding strategic exits and FX, our animal health business grew by 8%.

We realized significant efficiencies in our cost structure, leading to operating margin expansion of nearly 600 basis points, excluding FX.

We've made excellent progress this quarter in the pipeline with the launch of Olumiant for RA patients in the U.S., the submission of nasal glucagon to the FDA and EMA and positive Phase III data for tanezumab as well as new indication data for Taltz and galcanezumab.

We also returned over $1.5 billion to shareholders via the dividend and share repurchase.

We authorized a new $8 billion share repurchase program, and made a significant strategic decision on the future of our Elanco Animal Health business.

Before we move to the Q&A, I would like to share that we will hold a live investor meeting this December to provide our initial 2019 guidance and highlight pipeline progress, including life cycle opportunities for select marketed products.

Given the limited space available, our Investor Relations team will be in contact in the coming days to issue invitations and provide more logistical details.

This concludes our prepared remarks, and now I'll turn the call over to Phil to moderate the Q&A session

Great.

Thank you, Dave.

We would like to take questions from as many callers as possible.

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

(Operator Instructions) First question is from the line of John Boris, SunTrust.

Dave, first question just has to do with the Blueprint, obviously, proposed by HHS secretary and the White House administration.

What do you view as the base case scenario potentially coming out for the industry and to our best case scenario that could come out of that blueprint?

And then just any thoughts on this issue that's rising on copay accumulators that are certainly blunting a manufacturer's ability to use copay assistance against copay accumulators.

It seems to be very detrimental to patients getting access to medicines.

So any thoughts that you have around that?

Second question just has to do with the emerging pain franchise.

Just your optimisms over that franchise, especially galcanezumab, which seemed to have hit some pretty decent data in cluster headache, which is an area where nothing seems to have worked in that area.

So just your thoughts on that.

And lasmiditan, the timing for filing of lasmiditan here in the back half.

Great.

John, thank you for the questions.

Dave, if you want to go ahead and comment.

And then, Dan, if you want to add anything on the pain franchise, that would be great.

Dave?

Okay, great.

Thanks, John, and thanks for the questions.

Just on the policy side.

Of course, the blueprint was rolled out in May.

And recently, and all actors in the industry seemed to have responded to their request for information.

So I think you're asking me to guess where this will land.

That's a really difficult thing to do at this point because there's dozens of ideas in there.

I think we can comment on actions that have been initiated, though, because I think that indicates where the administration might be going first.

And of course, many of you may have noted last week that the administration sent OMB a proposed rule change for the Anti-Kickback safe harbor, which relates to rebates.

We don't know the substance of that rule change, but this is heavily commented on through the RFI via questions.

And I think you're right to assume that there would be some changes to the Anti-Kickback Statute as it relates to rebate treatment.

We don't know what those are, and I think we're preparing for all scenarios there.

But this is consistent with the broad theme of looking at ways to reduce the growth in that spread in the industry, and to allow patients to have a more -- a price point in a high deductible without insurance that's closer to net pricing.

Overall, we support that.

I don't think that's a bad thing for innovators.

And we'll have to watch how that rule develops, so we don't have any specifics as of today.

You also saw the administration move on putting a task force together related to addressing off-patents, brands, who take super inflationary price increases.

In the absence of IT, this is really a regulatory failure.

From our perspective, the administration's talking about importation.

We think that's the wrong road to go down, but rather to fix the regulatory system to begin with.

Nonetheless, clearly, that is a hot-button issue, and we agree it should be solved, the method that we disagree with.

But we'll have more to say about that in the future.

I think for innovators, over the -- I think I said in the Q4 call in January, we could expect a busy year in regulatory reform.

And I think, thinking back, that's what we're seeing.

For innovators, at the end of the day, as long as we can embrace a pro-innovation, market-driven set of changes that embraces choice, I think we're going to be fine.

Getting from A to B, we'll have to see how these changes unfold.

And as of today, it's difficult to say more than I did already.

But, of course, we watch it very carefully at various investor updates.

We'll be happy to provide additional commentary as additional actions come forward.

On the coping accumulators, this is going in the opposite direction of everything I just said.

This is shifting costs back to consumers by extending the time they spend in the high deductible phase.

We don't think, by itself, that's a good policy.

Now coupled with many other things, it could blunt the impact of that.

But frankly, I think this -- although I would say, for Lilly, it's had very limited impact on our performance, it's a concerning thing to watch as we watch the back and forth in commercial markets.

Of course, payers and, ultimately employers, are doing this because they want to control drug spending costs.

We understand that.

There may be other ways to do that though.

Finally, on pain, we're excited about the pain portfolio.

You're seeing data emerge now from tanezumab.

We have the data, as you mentioned, on galcanezumab, sort of all the Phase IIIs in-house.

And lasmiditan, we do plan to submit before the end of the year as well.

Clearly, pain is a huge unmet need in this country.

I think you're seeing good interest in the first CGRP antibody launch.

We expect that to continue.

Migraine's an enormous problem in this country, and there are many chronic and episodic sufferers there that we hope to reach with the CGRP antibody as well as products like lasmiditan, which can relieve acute suffering.

So we're bullish on that category.

Of course, we need all the data.

And the question on tanezumab remains the safety study that there's a large safety study that we'll read out in '19.

And that's really the pivotal question to answer on this part.

And we know the drug can reduce pain based on prior Phase III studies.

Dan, you have any additional comments to make or...

I'll just reiterate that we're pleased with the data that we're seeing with galcanezumab, of course.

And I think, probably, I'll highlight 3 opportunities here for Lilly, specifically in the migraine space.

First, we're really quite pleased with the quality of our data.

Galcanezumab works fast, and has a prolonged maintenance of efficacy in our clinical trials.

I think we'll be, right now, as far as we've seen, the only CGRP antibody that has 100% clearance data.

So 100% reduction in migraines.

That's statistically significant in our clinical trials.

The second opportunity here is with lasmiditan.

As you heard from Dave, having both of these products, we think, could be important for patients.

And then, of course, the third is what you mentioned, which is cluster headache, which is another important indication.

And we're pleased with the data we have there.

So differentiated opportunity here for Lilly.

Thanks, Dan.

And next question is from the line of Chris Schott, JPMorgan.

Just 2 here.

Maybe first on tanezumab.

Can you just put this initial Phase III data we saw into context that you think about your enthusiasm for the program?

And specifically, on safety, is there a threshold on rapidly progressing osteoarthritis that the FDA is focused on here?

Or how do we -- how should we think about that safety profile going forward?

My second question was on price increases.

It seemed like the tone across the industry is a bit more restrained than the past on willingness to take increases.

Is this a 2018 dynamic?

Or do you see this trend continuing out into 2019 and beyond?

And I guess, given the disconnect we're seeing between gross and net pricing, if there is a slowdown in list price increases going forward, should we think about that impacting that price increases?

Or is that less correlated than it's been in the past?

Great.

Chris, thank you for the questions.

So Dan, anything you want to comment on tanezumab?

And then, Dave, feel free to compliment that answer, and then we'd take the price increase question.

Dan?

Yes.

Thanks.

On tanezumab, of course, we've previously said we have a lot of confidence in this mechanism of action based on the wealth of data that's been generated in the past.

And of course, the challenge here is to discharge the safety risk.

Having said that, we also changed some aspects of how we administer the drug in the new Phase III program, on which we're collaborating with Pfizer.

So this first study was primarily focused on that aspect.

And so this is a titration study.

We're investing a subcutaneous at 2.5 and 2.5 going up to 5-milligram doses.

And we're pleased that we hit our efficacy outcomes here.

With respect to RPOA, rapidly progressive osteoarthritis, your question with thresholds, of course, we and others here have thresholds in our clinical trials that we're watching for.

We haven't spoken specifically about what those might be.

And our trials continue to proceed.

So we're excited about that.

This study wasn't designed to discharge the safety risk.

That study will come with data probably next year or late this year.

And that's a next-year, 3,000-patient, 56-week clinical trial.

Great.

Thanks, Dan.

Dave?

Yes, I'd definitely add to that.

I think we -- where the key gating thing is this large safety discharge study.

We now have, I guess, more than a dozen Phase III trials on tanezumab on efficacy.

Really, the question is, is it safe for long-term use?

On price increases, it's difficult to comment on others' actions or even what happens long term.

We've -- as this blueprint's been rolled out, I think our point of view is it's a potentially sweeping set of changes.

Let's see what develops here in 2018 as those changes get implemented or not.

And then on the back end of this important public conversation about how do we reduce out-of-pocket costs for patients, while preserving innovation and allowing market forces to prevail, how can we reshape a system around those principles?

On the back end of that, of course, we'll reevaluate our strategies.

Net pricing is subject not just to list price changes.

And as you know, Chris, the yield of those is quite different across different categories, but also subject to prior period adjustments on assumptions made in gross to net, on current channel mix and many, many other things.

So you'll see.

I think in the U.S., we're reflecting a 1% positive, which reflects prior increases as well as all those other dimensions.

As Josh said, we don't have list price changes in our outlook, and it's still very robust.

And that's kind of where we're focused, just driving volume with new products here in the U.S. and abroad.

Thanks, Dave.

And the next question is from the line of Greg Gilbert, Deutsche Bank.

First for Dave.

I was hoping you could share with us, not a question about the IPO here, but how will the Elanco transaction or transactions in the coming quarters shape your thinking about capital allocation priorities for Lilly?

And then shifting gears to diabetes.

You touched on this a bit, but given the strong profile for the current injectable GLP-1s and the emerging oral GLP-1, can you give -- put a little more meat on the bones in terms of that bar you talked about?

Is that the primary endpoint or a multitude of endpoints that shape your thinking there?

And perhaps you can fill in any updates on your own oral GLP-1 work.

Great.

Greg, thank you for the questions.

So Dave, if you comment on Lilly capital allocation moving forward.

And then Dan and Enrique, if you'd like to take the question on what we saw with our GIP/GLP in Phase II.

Dave?

Yes.

Thanks, Greg.

Well, as I said, this move is really a result of a deep and thorough analysis of the value maximizing decision for Lilly's shareholders.

We think an IPO produces that after-tax value.

And also that it will allow more focus, focus for Elanco on its priorities, allocating its capital to the produce to grow that business, and serve its customers and focus for Lilly, which, for us, assuming this all goes forward as planned, will be a human pharmaceutical business with, I think, many opportunities to invest in creating breakthrough products for patients.

Our strategy on capital allocation doesn't change as a result of this decision, which is really, first, to invest in our own business, our own organic R&D and the launches and capital needed to manufacture those products, et cetera.

Secondly, to look at business development, to build our pipeline, as the commentary there isn't different than before, which is really we're mostly interested in clinical stage assets that can build in our core 5 therapeutic areas.

If you saw a number of moves in Q2 in that regard, most notably the ARMO acquisition as an example, it's the kind of thing we're interested in.

And then finally, if we run out of those ideas, we'll return capital to shareholders.

And this quarter, we're announcing a share repurchase program which will allow us to continue to do that.

And as we said, there was $900 million-or-so in share repurchase activity in Q2, consistent with those priorities.

So I think we've taken a balanced approach on capital allocation.

You can expect us to continue.

And if we have more capital to balance, we'll do just that.

Thanks, Dave.

Dan?

Yes, sure.

We've previously said that we see incretin biology as an important platform for Lilly to continue to build on, that there's a lot more opportunities here for patients.

And so over the years, we've invested here and developed and tested now a number of different molecules that could offer differentiated efficacy in this platform.

So for example, the oxyntomodulin molecules, we're now testing a second one of these in clinical trials, the GIP/GLP and other molecules that are in earlier development.

In each of these cases, we're really looking for what we consider to be breakthrough efficacy.

In the case of GIP/GLP, here, we were encouraged that dual-agonism of both of these receptors, which we think is very important in our preclinical studies, showed highly differentiated weight loss and glucose controls.

So we're encouraged by that.

We took it check into Phase I clinical trials.

We commented that we're encouraged by what we saw there and, therefore, moved it into Phase II clinical trials.

And I'll hand it to Enrique for the future of this molecule.

Yes.

No, I think you've framed it well.

But we do have a high bar for any type of next-generation incretin.

And this product clearly met that bar, but we won't be able to comment on the specifics of the efficacy just to say that we do plan to have a full presentation at EASD, and then an investor call following that.

That'll be early October.

That's correct.

Great.

Greg, thank you.

And that will be Andrew Baum, Citi.

A couple of topics, please.

Just to zoom in on the first question around the Blueprint, the big leap, the proposal on rebates.

Our understanding is this totally relates to federal forms of the plan.

I just want to make sure that's consistent with your understanding.

Second, assuming that is the case, how do you envisage the world working if PBMs could meaningfully amend their structure of their rebate or move rebate altogether for federal plan.

Is it conceivable that the commercial side of this business will remain as is?

Or would you anticipate that may change?

And finally, the timing.

We're assuming that nothing is going to happen, just given plans are set until 2020 if the earliest again is that system.

And then a second topic, just one question on tanezumab.

What are you anticipating in terms of the labeling requirements for radiographic scans, given in the real world of patients maybe premedicating with NSAIDs, which may increase some of the stakes that you saw in the earlier trials?

Okay.

So we've got a series of questions essentially on the blueprint, specifically on the rebate program.

And is that only applying in our understanding of the federally -- federal programs?

What will be the impact of PBMs during the commercial business if that change -- kind of change would go into effect.

Earliest timing that we're thinking is 2020 appropriate.

And we also had the question on tanezumab in terms of labeling required for radiographic scan.

So maybe, Dave, if you want to take the first question.

I don't know if there's much we can say, but whatever we can say on the blueprint speculation.

And then maybe, Dan, if you want to comment on tanezumab.

Yes.

I would just kind of reiterate.

Andrew, it's difficult to speculate on a proposed rule change when all we have is the title of the rule.

I think if you read it like we can, which basically says the change to the rebate rules and the Anti-Kickback Statute and replacing it with a new set of safe harbors.

Mike Harrington's with us, who's our General Counsel.

I think if you ask him about what Anti-Kickback Statute refers to, but I believe it is just federal programs.

Mike, do you want to comment on it?

Well, I think we'll have to see.

The Anti-Kickback Statute addresses payments made to induce prescribing.

So it's -- we'll have to monitor it closely, but there's a potential yet that it could expand more broadly beyond just the federal programs.

Okay, thank you.

And then tanezumab and the radiographic quick labeling?

Yes, sure.

So it's certainly premature to speculate on the labeling on tanezumab, given that we don't have the primary safety data yet.

But as you know, we made some changes to the Phase III program to try and decrease the risk of RPOA.

I think most significant among those is lowering the dose of tanezumab.

And so that's, again, why this titration study was the first step in demonstrating that.

We still have the efficacy that we need.

Another change was reducing or eliminating the concomitant use of NSAIDs in OA patients as well as changing our screening methods, as you mentioned.

Let's see what the data show.

And based on that, we'll be able to talk more about where we're headed in the labeling.

Thank you, Dan.

And next we have David Risinger, Morgan Stanley.

Yes.

I have a few questions.

First, with respect to the strategic exits that you mentioned for Elanco, obviously, you can't talk about the IPO, but I just wanted to better understand when those strategic exits were completed that had a negative impact on revenue in the second quarter and, thus, when they will annualize.

So that's the first question.

Second, with respect to Jardiance and Trajenta, both of those products were flattish sequentially.

So they were outliers.

Obviously, the rest of the portfolio is extremely strong.

Could you help us better understand why they were flattish sequentially despite the prescription growth that we saw?

And then my final question is with respect to your Alzheimer's candidates.

You have 2 candidates in Phase II with readouts in coming years.

Can you just provide a framework for those 2 Phase II programs, including the timing?

Great.

Dave, thank you for the questions.

So maybe, Josh, if you want to take the first questions on when we've completed some of the strategic exits and sort of what the time course is for those eventually to annualize.

And then, Enrique, on the sequential growth patterns for Jardiance and Trajenta, and then over to Dan for the question for our Alzheimer's programs in Phase II.

Josh?

Okay, great.

Thanks, David.

The most significant and the strategic exits would be our Posilac business in the Augusta manufacturing plant in Georgia.

We really just completed that exit over the course of this month.

So now, as you know, Posilac has been declining over the course of 2017 and 2018.

So I think you'll start to see the -- this annualizing total revenue beginning in the second half of this year just as we start to work through some of the significant headwinds we saw last year.

I think it will totally out of the numbers by the time we get into sort of late 2019.

But the majority of the effect that we see for Posilac, that's going down every quarter because the product -- before the strategic exit, the product was declining pretty significantly.

We also announced that we were, on a smaller basis, exiting a few contracts, including a manufacturing contract that we had around on BI when we acquired the vaccine portfolio.

It was a little margin opportunity.

But on the top line, that will start to come out in the numbers in the second half of this year as well.

And if you'll remember, when we gave guidance for Elanco at the beginning of the year, we said you would see a pickup in growth in the second half of this year, as some of these items began to normalize in the numbers.

I think what's -- that's why we have focused on the core Elanco business, which really looks at that portfolio which is not -- we're not exiting from, and is the basis of our growth going forward.

Great.

Thanks, Josh.

Enrique?

Very good.

So let's start with the easier one.

Trajenta net sales in the U.S. reflect the trend that we see when it comes to total prescriptions.

Basically, it's a steady number of prescriptions quarter-on-quarter, and that's basically what we see when it comes to net sales.

When it comes to Jardiance, just maybe to provide a bit more color.

We show, in the case of Jardiance, a 58% TRx growth versus the previous year quarter-on-quarter.

On a sequential basis, that growth is 13%.

So very solid growth when it comes to Jardiance.

But the net sales, there's a disconnect there because the net sales for the quarter versus the previous year only increased 28%.

We did have an adjustment to -- due to changes in estimates for rebates and discounts.

Normalizing for that, the gross versus the previous year would have been 46%.

Now when we look on a sequential basis, in the case of Jardiance, some of those changes in the estimates for rebates and discounts really belonged in Q1.

So you basically have a double whammy effect when you look at the sequential quarter-on-quarter comparison.

Thank you, Enrique.

Dan?

Yes.

Thanks for the question on the neurodegeneration portfolio.

We actually have 3 neurodegeneration-targeted molecules in Phase II trials, starting with D1 PAM.

This is designed to be a symptomatic molecule for patients suffering with dementia.

Initially, we're testing it in Parkinson's disease dementia.

We have reason to believe that there's a higher probability of success in that population.

But if we get a positive signal there, we would very quickly move that also in parallel to Alzheimer's disease.

So that's the first.

The other 2 that you've mentioned, the next one behind it is N3pG.

That's an anti-plaque A-beta antibody.

Based on what we saw in some pretty extended Phase I trials, this molecule can clear plaques really to a very dramatic depth.

So a great degree of clearance.

And also with a great amount of speed, so faster clearance, I think, than we've seen with other mechanisms.

So we're excited about that.

We're testing that as monotherapy.

We're also testing it in conjunction in combination therapy.

I believe it's the first combo trial of 2 disease-modifying drugs in Alzheimer's disease with a BACE inhibitor, with a thought there that although BACE monotherapy has been disappointing, if you turn off A-beta production, also clear out the plaque, that could have added benefits.

So that trial's enrolling.

And then we also have the tau monoclonal antibody.

This is specific for aggregated forms of tau, and we think this is an important therapeutic modality in Alzheimer's.

Both of those Phase II, all really -- all 3 of the Phase II trials are designed to give us efficacy signals, both on biomarkers and on cognitive endpoints.

I think on clinicaltrials.gov, we showed the disease modifying trials ending in 2020 to 18-month treatment period.

But depending on enrollment rates and depending on a potential per interim analysis, there's also a potential to have data readouts earlier, even next year.

But we'll have to wait and see how those trials go.

Great.

Thank you, Dan.

And the next question is from the line of -- one moment please.

It's going to be Jami Rubin, Goldman Sachs.

Dave, I just want to go back to some of the questions around rebate structures.

And I recognize that it's early, and it's hard to predict how this is going to play out.

But just when you look at your own numbers and think about different scenarios, looking at filing Lilly's gross to net of 48% is the widest in the industry, largely because of your diabetes franchise.

If there is a change to those deep rebates, what would you expect to happen to volumes?

You just said that volumes are -- that rebates are used to induce volumes.

So would you expect volumes to go down for that business?

Conversely, if rebates go away, Lilly has about $10 billion in rebates.

How can this not be a net positive even if you take into consideration lower volumes and potentially lower list price?

How are you thinking about the different scenarios that can play out here?

Great.

Jami, thank you for the questions.

Dave?

Yes.

Thanks, Jami.

I mean, the huge opening caveat here is we don't know, right?

We need -- we don't know what this rule is.

We know where the system will go.

We paused on the list price changes in the U.S. waiting to see what's happening here.

But just to get the numbers right, so we reported last year a 51% gross to net spread.

You're right in that the diabetes segment in particular drives that, primarily because you have a very large Medicaid population, and your very large gross to net spreads in Medicaid are approaching the federal cap at 100%.

So we've been pretty open about all of that.

It depends on how this rule would be enacted, whether it would change the Medicaid system, whether it would treat that commercial, et cetera, to really guess at what would be on the other side of it.

As I said in my first response though.

We make innovative products, hopefully, products people want and need.

I think the current system has resulted in basically a structure of the industry where the hospital systems, insurance carriers, distributors and manufacturers seem to be fine with the current system.

The problem is we're shifting too much costs via list pricing directly to consumers.

I have to believe that if consumer pricing came down, it would improve volume, improve medication adherence, improve outcomes for patients.

So we think -- that's why, in general, we think this direction it travels is a good way.

Now we have to see all of the specifics because, clearly, there's a lot of room for disruption in a negative way here.

And it'd be very difficult for Lilly to predict what would happen to their gross to net line you're talking about or, more specifically, without seeing the totality of the regulatory reforms.

Is there a scenario there where this is a net positive for the industry even if volumes do go down, but your rebates go away as well?

I think there's a lot of scenarios, Jami.

It's hard to speculate.

Yes, great.

Thanks, Jami.

And next we have Geoff Meacham, Barclays.

On Olumiant, I would just want to ask you guys a little bit more detail about the strategy going forward for the 4 mg dose in RA.

What are the options you're looking at?

And maybe just put this in the context of the priorities compared to your label expanding studies in atopic dermatitis, psoriatic arthritis, et cetera?

And then, Dave or Josh, with the Elanco spin-out, you've -- pipeline progress and obviously a few smaller scale deals already done on oncology.

Maybe just help us with, is it fair to say BD is now a lower priority?

Is there a category that you feel like you'll still need to add assets like, for example, in oncology, to be more competitive?

Great.

Geoff, thank you for the questions.

So Dan, maybe if you can comment on strategies going forward for the 4 mg in RA, and how that may compare with other NILEX opportunities that we're evaluating.

And then, Dave, obviously, to comment on business development priorities that we have moving forward.

Dan?

Yes.

Thanks.

We're excited about the potential of baricitinib for patients that potentials being realized, of course, to a greater extent, outside of the U.S., in places where both doses are approved.

At the Advisory Committee, I think we were clear in our position about the benefits that each dose could have for patients, and we were clear, to copy the Ad Com, in our disappointment.

And I think in terms of next steps for the 4-milligram dose, we're still considering what different possibilities might be internally at this time.

I think that in terms of the prioritization here, there's great opportunities for baricitinib in RA, but also in some of the other indications.

So the lupus data, which was recently published in Lancet, I think, represents a really great opportunity for patients, and an opportunity here for us to be first-in-class here in lupus.

We're also excited about atopic derm where we now have a phase II trial ongoing.

So lots of opportunity for patients with bari remaining.

Yes.

I would just add, we've launched just now, started promoting in July in the U.S. with the 2-milligram.

Anecdotal feedback's very positive.

And we know from the German launch, French launch, which are ongoing, that patients have rapid pain relief.

They -- this is a different modality than they're used in disease modifiers for RA.

And we're far from disappointed with the performance of the molecule at a global basis.

More to do in the U.S. We'll update investors if probably -- in more detail at the Q3 call on that performance.

And the life cycle, as Dan pointed out, is potentially quite broad.

On the second question of BD priorities, I hate to say this, Geoff, but I think you have it exactly wrong.

I wouldn't attribute it all that we're satisfied with BD.

We are in a position now with where we're growing the top line, we're growing income, we're growing cash flows.

We are very interested in acquiring assets that add all of our therapeutic areas of interest.

We're not plugging a hole here.

It's really about building value for the long term.

And because we are optimistic about the short and midterm in terms of growth prospects, we're in a position to do just that.

So I would expect to see a continuous flow of pipeline ads from Lilly, hopefully, from our own labs, but if not, from outside labs as well.

And we have more than enough resources to execute that strategy.

Great.

Thanks, Dave.

The next question is from the line of Jason Gerberry, Bank of America.

I guess, just first question on Humalog.

You've now gotten first half of the year the benefit in terms of the changes and estimates.

But just on the, I guess, rebates.

But can you talk about second half, where you are in terms of comps?

And then kind of moving forward into 2019, how comfortable are you at this stage that the biosimilar competitor won't really represent a meaningful source of competitive pressure to the business?

And then my second question, just on galcanezumab.

The feedback from the Amgen launch in the CGRP space seems to be pretty favorable.

I'd just be curious to get your evolving thoughts on, do you think payers are going to cover multiple CGRP agents on par or parity?

Or do you think that they'll opt for exclusive contracts out of the gates?

Great.

Jason, thank you for the questions.

So Enrique, we'll go to you for Humalog.

I'm not sure, David, if you may want to handle or what the...

Let me take it, 2 each for galcanezumab.

Yes, absolutely.

Enrique?

Sure.

So Humalog had an excellent quarter.

We did have a benefit in Q2 due to changes in the estimates for rebates and discounts.

That benefit was -- relative to the previous year was about 9 points.

So an important benefit.

Now as we -- it's difficult to -- for us to be able to project forward.

But we are seeing a bit of a benefit also when it comes to mix.

So when we look at the different segments, which is a positive for Humalog and for the insulin franchise.

Now as it relates to Admelog, it's very difficult to -- for us to forecast and predict how the competitor would basically play in the market.

Clearly, at this point in time, we basically see them as gaining share in particular in the area of managed Medicaid, but it's difficult for us to predict what type of access and uptake will they be able to have in 2019.

Okay, great.

As it relates to access in the migraine category, it's pretty early days here.

I understand mostly payers haven't listed the new therapy.

We're, of course -- heard the guidance from the FDA and early conversations with payers about our data, and seeking that kind of feedback from them.

I could tell you, what our strategy is, which is really broad access to these medications, is appropriate, and particularly given the population.

So these are mostly commercially insured working women, who are having anywhere between 4 and 20 headaches a month.

That's our study population, which causes absenteeism, debilitation, lack of ability to predict and schedule and plan, not to mention just the human suffering cost.

So we think employers will be very interested in covering this class.

We need to get that message through.

It could be a great category for some value and outcomes-based pricing approaches, and we're optimistic long term that the class will have good coverage.

Enrique, is there anything from your conversations with payers to add?

No.

I think we're very excited about the opportunity that this new product would represent for us, and we're working actively to try to ensure broad access.

Great.

Thank you.

Next we have Steve Scala, Cowen.

Several questions.

First, on Taltz.

In Q1, inventory was down 33%.

How much of the stellar second quarter performance was restocking the trade versus underlying demand?

Second, a filing of galcanezumab in episodic cluster headache is not in the events table.

So why is it 2018 filing's not likely?

Is this is a result of the miss in the chronic cluster headache setting?

And then lastly, do you have any early reading on 2019 formulary discussions?

Are they resulting in similar positions as 2018?

Or is there a step-change in any way?

Okay, Steve.

I'm not sure with Christi being -- look, we've got a strong answer for you on the Q1, but we'll give at least a short answer for you.

We can follow up later, if needed, on the Taltz question for Q1.

And then maybe, Enrique, if you'd like to also comment on the 2019 formulary question, and I'll be happy to go ahead and provide a comment on the galcanezumab filing for cluster.

Yes.

I think the short answer is that Taltz' performance, when we look at Q2, is really demand-driven.

We've seen improvements on -- across our prescription trends in both derm and rheumatology.

So we are very encouraged with the Taltz performance.

We typically do not comment on specific formulary forecast for 2019.

Yes.

And Steve, on your question for galcanezumab and cluster, very, very pleased with the results that we saw in the Phase III studies.

And certainly we'll discuss those with regulators, but are not making any kind of a comment at this point in time on potential financial filing or timing for such filing.

And that will be Umer Raffat at Evercore.

I have 3, if I may.

Dave, first, someone brought it up earlier as well, and I wanted to make it a bit more specific on the product level as it relates to the rebates.

And I guess, my question was, when I look at mealtime influence, Lilly and Novo basically split the market, and Sanofi has minimal share.

So do you see -- do you foresee any scenario on rebates where Sanofi becomes a more meaningful player in mealtime insulins?

So that's first.

Then second and third are maybe more on R&D.

First, on IL-10, my question is, in your ongoing Phase II trials of PD-1 plus IL-10, they're both open label and long.

And any observations from that trial to date?

And then also on R&D on tanezumab, have you -- do we know what the rate of conversion was from type 1 to type 2 RPOAs in your prior trials?

All right.

Umer, thank you for the questions.

Enrique, maybe he'd like to comment on the first question about any possibilities we see for Sanofi to become a meaningful player in mealtime insulins?

Maybe Sue or Dan, if you'd like to comment on data from the IL-10.

And then Umer, I'm sorry, I actually can't read my own chicken scratch for what you asked on tanezumab.

Oh, it's conversion from RPOA 1 to RPOA 2. And maybe, Dan or Dave, if you want to comment.

So Enrique, I'll start with you.

Yes.

The premise of the question was under a -- some sort of a different structure when it comes to rebates and so forth, it's -- and I think Dave already mentioned this, but it's very difficult to speculate what the changes would be and what the competitive dynamic would be as a result of that change.

Clearly, we do track Sanofi's products in the mealtime insulin space.

But so far, I think uptake is very minimal.

Great.

Thank you, Enrique.

Sue, you want to start on the IL-10 question?

Yes, sure.

We have 2 phase II studies with IL-10, as you mentioned, one in the front line, and the one in second line.

Those -- both those dose are currently enrolling.

The endpoint is response rate data, and we're anticipating seeing that next year.

Great.

Thank you, Sue.

Dan, do you want to add anything?

Or are you...

It's fine.

Okay.

And then on the tanezumab question?

Yes.

So I understand your question about rates of conversion into RPOA 2 from RPOA 1 in previous trials.

I know there's a lot of interest in comparing what we'll be seeing in this current trial and in future trials of tanezumab with past experiences.

But there's some really important differences, I think, that should lead us to avoid those kinds of comparisons, primarily around the way that we screened and for events and adjudicated events, which is quite different in this trial and, understandably, since we knew what we're looking for, much more thorough.

So we don't have relevant data from the past to compare it to.

With regards to this current trial, we're not disclosing any more details at this point in time.

But that should happen in a future meeting.

Great.

Thank you, Dan.

Next is Vamil Divan, Crédit Suisse.

Great.

So maybe just 2 on the oncology side.

One, on Verzenio, the performance is pretty good this quarter.

Just if you can give a little more color on which patients are getting Verzenio relative to IBRANCE or to Kisqali?

And then second one, on Alimta, you mentioned you're open to have label update to include the KEYNOTE-189 data later this year.

Just if you can comment on what you're seeing in terms of adoption of that regimen in practice to date, which Alimta uses now in combination with Keytruda in the frontline setting.

Great.

Vamil, thank you go for the questions.

So Sue, for you on both Verzenio and Alimta updates.

So yes, thanks for the question.

Yes, we're really pleased with the update on Verzenio today.

The sales this quarter was $57.7 million.

So that's a $28 million increase boost last quarter.

What we're seeing is, as you know, we're the third-to-market CDK, but we are second now in terms of both NRx, so new to brand, and also in TRx.

This quarter, our NBRx share was 18.7%, and we continue to see that increase.

So we are pleased with the uptake.

What we're seeing is when physicians are using the brand, they like it.

So our focus is in ensuring that we continue to get trial of Verzenio.

And so far, we have about 1,500 physicians who have trialed Verzenio.

The patients that they're using in is across the spectrum in the frontline and mainly in fulvestrant.

And we do have some single-agent activity.

But really, we're starting to see much more now uptake in the frontline.

So with aromatase inhibitors as well as with the second line in fulvestrant.

And the things that are resonating is the continuous dozing.

The single-agent activity is clearly a differentiator.

People are also interested, and I think the data is resonating in the fact that we see positive data in patients who got concerning clinical characteristics.

So we feel pretty good so far about the uptake in Verzenio.

We see opportunity to continue to grow that brand.

The market is growing about 22%, and we -- and only about 50% of patients are still getting a CDK4/6 inhibitor.

With regards to Alimta, we've got the data uptake now in -- for the KEYNOTE-021G data is now in the label.

We have also submitted to the FDA to include the KEYNOTE-189 data.

What we are seeing is, as you heard, we are growing Alimta in the U.S. We have a 2% growth based on volume, 1% price, so 3% overall.

And although the data was only presented at ASCO fairly recently, since that time, we are seeing an increase in new patient prescriptions.

So as a reminder, about 50% of Alimta use is in the -- sort of in promoted areas.

We do have Alimta -- some of the use for the KEYNOTE-189 regime is sort of in addition to Alimta use that we've got now.

But we're clearly also seeing an increase in the typical use, and we continue to believe that we'll see that going forward.

Great.

Thank you, Sue.

Next is from the line of Louise Chen, Cantor.

So first question I had was, what gives you confidence that you will hit stat sig versus just non-inferiority in the REWIND trial for Trulicity?

And even if it's not stat sig, can Trulicity still continue with robust growth trajectory that you see currently?

And second question was just back on tanezumab.

How do you think the FDA will balance the side effect profile of your drug versus the need for alternatives to opioids?

Great.

Louise, welcome to the call.

So Enrique, if you'd like to handle the question for REWIND.

And then, Dan, over to you for the question on tanezumab.

Enrique?

So Trulicity today is having fantastic growth.

Clearly, the GLP-1 market is growing very fast at 26%, but Trulicity is also having continued share growth over the last few months.

We have an excellent access position and, quite frankly, an unmatched patient experience when we look at the real-world efficacy that Trulicity delivers.

So we'll look at patient adherence and very simply delivered.

So very excited about the core performance of the product.

Clearly, REWIND, as we said before, is an important trial for us, and we believe that we've designed this trial in the appropriate way.

We expect that we're going to have a top line sometime by the end of the year.

But we -- one of the differences for REWIND versus other trials is the time the patients are going to be on the product.

This is not a short product.

It's fairly long, and we expect that the patients would be on average over 5 years on Trulicity.

So we look forward to the results of the trial.

But at this point in time, we're not going to speculate.

Great.

Thank you, Enrique.

Dan?

They're strict with tanezumab.

But of course, with Pfizer, our priority here in the current slated trials is to demonstrate the benefit, risks of this drug for patients in a variety of settings.

Having said that, your question was sort of broader about the societal impact here of the opioid crisis and the need for non-opioid alternatives for chronic pain.

Of course, we also see that.

That's one of the reasons we're excited by the potential of the pain portfolio, one of the reasons that several years ago we decided to invest in the future for tanezumab.

I think how regulators will see the interplay between new molecules for pain versus the opioid crisis is important, and we think that we have an important role to play there in helping solve that problem.

Thanks, Dan.

And we do have a question from Steve Scala, Cowen.

Back on REWIND.

On the Q1 call, it was stated that the top line press release could be anticipated in early Q4.

Enrique, you just said year-end.

So I'm wondering if there has been a change in timing.

Secondly, on Alimta, does the ruling in Germany change anything in the market, such as allowing a generic launch?

And then lastly, on Verzenio, a Phase II study in MCL had completed in March, but there's been no update when might we see the data.

Great.

Steve, thank you for the questions.

So Enrique, back to you for the REWIND follow-up.

And then, Sue, to you for the Germany ruling for Alimta, and the Verzenio Phase II in MCL.

There has been no change in timing.

We expect that the top line would be released in Q4.

Okay, great.

Thank you, Enrique.

And Sue?

Yes.

With regards to the Alimta Germany, we're having junctions in place, so it's really hard to say what the situation is with regards to generics.

I mean, some may go at risk, but it's really hard to say with regards to that.

And then for Verzenio, we had MCL Phase II wrap-up.

Any thoughts on plans for MCL going forward?

Yes.

I'm going to have to get back to you on that one.

I am not sure the plans with regards to the publication on that, but we'll certainly get back to you on that one.

Great.

And then also just to place in context for our Q2 results.

European sales of Alimta were about $145 million.

Less than $30 million of that came from Germany.

That will be Hima Inguva, BofA.

Great.

On Slide 5, you're indicating a potential debt offering prior to the IPO.

And not asking terms of the transaction details, but do you expect this Elanco to be a levering up event for Lilly?

So Josh, if you want to respond to the question in terms of will this cause Lilly to actually lever up?

So the debt offering will -- the intent at this point is to do that before we launch the IPO of less than 20%.

Obviously, over time, that sits on Elanco's books.

I think if you look at Lilly's capital allocation priorities and cash flow, we do expect to be more levered over time as a function basically of tax reform.

You'll recall that prior to tax reform, we were in a position that we had cash that was restricted in how we could use it.

It was, in effect, trapped overseas.

As that has freed up, we don't need to keep as much cash.

So you should expect to see Lilly on a net basis be more levered.

And in fact, in Q2, we moved into a net debt position.

So it's less an issue of what will happen with Elanco because that will normalize over time, and more a function of our capital structure, which is now -- gives us much more flexibility as we're able to manage and use cash around the world.

And this is Phil.

I guess, as my new role as Treasurer, when we would separate Elanco, should that occur, which is our plan, we would lose a certain amount of EBITDA.

There would not be a significant reduction to our debt.

So there would be a modest, maybe 20 basis point increase in the debt-to-EBITDA kind of numbers that we have, a very minimal change in terms of Lilly's leverage moving forward.

No further questions in queue at this time.

Excellent.

Thank you very much.

Dave, if you'd like to go ahead and conclude the call with some comments.

Thanks, Phil.

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

Our strong first half growth makes us increasingly confident in our ability to deliver 5% compound revenue growth from 2015 to 2020, and to achieve a 30% operating margin in 2020, while our first half pipeline accomplishments continue to highlight the depth and breadth of our prospects for growth beyond 2020.

As demonstrated most recently by our decision on Elanco, we continue to take concrete actions to focus our resources and allocate capital to best serve our customers and create value for our stakeholders.

With a diverse set of new product opportunities to drive growth, a strong R&D capability and a clear path to margin expansion, we believe Lilly continues to be a compelling investment.

Thanks, again, for dialing in.

Please follow up with our IR team if you have questions we have not addressed on the call.

Everyone, have a great day.

Thank you.

Ladies and gentlemen, this conference will be available over replay, and that's starting today at 11:30 a.m.

Eastern time, and will run through July 24, 2019.

You may dial the AT&T Executive playback service by dialing 1 (800) 475-6701 with the access code 450818.

International callers may dial area code (320) 365-3844 with access code 450818.

Now that does conclude your conference.