禮來公司 (LLY) 2018 Q3 法說會逐字稿

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

(Operator Instructions)

As a reminder, this conference is being recorded.

I'd now like to turn the conference over to our host, Mr. David Ricks.

Please go ahead.

Thank you, and good morning.

Thank you for joining us for Eli Lilly and Company's Q3 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, the President of Lilly Research Labs and our Chief Scientific Officer; Enrique Conterno, the President of Lilly Diabetes and Lilly USA; Christi Shaw, the President of Lilly Bio-Medicines; and Anne White, who is joining us for the first time as our new President of Lilly Oncology.

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

Please note that Josh Simmons is not on the call today as Elanco is now having their own quarterly earnings calls, including their first call earlier this morning.

Subsequent questions regarding their business performance and outlook should be directed to Elanco's Investor Relations team.

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

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

The information we provide about our products and our 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 continued our strong performance in 2018 with a third quarter revenue growth of 7% non-GAAP -- and non-GAAP operating income of 29% and non-GAAP EPS growth of 32%.

New pharmaceutical products, which now represent 35% of human pharma revenue in the quarter, continue to be the driver of our worldwide growth, led by Trulicity, Taltz and Verzenio.

New products continue to drive strong, volume-based growth, highlighted by the 14% pharma volume growth and the 30% U.S. diabetes volume growth.

We continue to expand our margins this quarter.

Excluding the effect of FX on international inventories sold, non-GAAP gross margin as a percent of revenue increased by nearly 110 basis points over Q3 2017, and non-GAAP operating income as a percent of revenue increased by over 380 basis points to 28.1%.

We made significant progress with the pipeline this quarter, including the approval and launch of Emgality in the U.S., a positive CHMP opinion for Emgality in Europe, the submission of lasmiditan in the U.S., as well as positive Phase III readouts for Ultra Rapid Lispro in type 1 and type 2 diabetes patients and a positive Phase II readout for GIP/GLP, which is now called tirzepatide, in type 2 diabetes.

And we announced yesterday that Trulicity demonstrated superiority in the reduction of major adverse cardiovascular events across a broad range of people with type 2 diabetes in the precedent-setting REWIND trial.

These results are important for the millions of people with type 2 diabetes who face a higher risk for CV disease.

We will submit this data to regulatory authorities and plan to present the detailed data at ADA in 2019.

These extended data, along with Trulicity's proven, powerful efficacy, simply delivered further validate Trulicity as a well-established option for people with diabetes.

In terms of capital deployment, Elanco Animal Health became a publicly traded company via a well-received initial public offering.

Through the IPO and the associated debt offering, Elanco raised over $4 billion in capital, the vast majority of which was provided to Lilly as partial consideration for the animal health business that Lilly transferred to Elanco in connection with the IPO.

We announced several business development transactions, including a licensing agreement with Chugai Pharmaceutical for an oral GLP-1 agonist; a licensing and research collaboration with Dicerna Pharmaceuticals, utilizing their RNAi technology platform; a collaboration with NextCure, Inc.

focused on discovery and development of novel immuno-oncology cancer therapies; and we purchased a Priority Review Voucher; we returned nearly $600 million via the dividend; and we repurchased 100 -- or $1 billion of stock.

Moving on to slides 5 and 6, you'll see more detail on key events since our July earnings call.

Now I'll turn the call over to Josh to review our Q3 results and to provide an update on our financial guidance for 2018.

Thanks, Dave, and good morning.

Slide 7 summarizes our presentation of GAAP results and non-GAAP measures, while Slide 8 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 on our third quarter GAAP results.

Looking at the non-GAAP measures on Slide 9, you'll see the revenue increase of 7% that Dave mentioned earlier.

Gross margin as a percent of revenue increased to 76.7%.

Excluding the effect of foreign exchange rates on international inventories sold, gross margin as a percent of revenue increased nearly 110 basis points, primarily driven by manufacturing efficiencies and, to a lesser extent, the favorable impact of product mix, partially offset by the negative impact of price on our revenue.

Total operating expense increased roughly 1%, with marketing, selling and administrative expense increasing 2% while R&D expense remained relatively flat.

Total operating expense as a percent of revenue compared to Q3 2017 declined 275 basis points to 48.8%, benefiting from previously announced actions taken to reduce the company's cost structure.

Operating income increased 29% compared to Q3 2017, which put our operating margin at 27.9% for the quarter.

And as Dave mentioned earlier, excluding the effect of FX on international inventories sold, our operating income was 28.1% of revenues, an improvement of over 380 basis points versus last year's quarter.

Other income and expense was expense of $15.4 million this quarter compared to income of $49.9 million in last year's quarter.

Our tax rate was 15.1%, a decrease of 380 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 29%, while earnings per share increased slightly faster at 32% due to reduction in shares outstanding from share repurchases.

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

Slide 10 details these same non-GAAP measures for September year-to-date, while Slide 11 provides a reconciliation between reported and non-GAAP EPS.

You'll find additional details on these adjustments on slides 23 and 24.

Moving to Slide 12.

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

This quarter, foreign exchange had a modest effect on revenue.

Our worldwide revenue growth on a performance basis was 8%, driven by a 12% increase in volume, partially offset by price.

Q3 represented the seventh straight quarter our human pharma business delivered volume growth in each major geography.

U.S. pharma revenue increased 11%, driven by impressive volume growth of 17%, led by Trulicity, Basaglar, Taltz and Verzenio, partially offset by price.

And Dave mentioned earlier our U.S. diabetes business delivered 30% volume growth yet again this quarter.

This performance affirms our volume-based growth strategy is critical as we grow through an evolving U.S. pricing environment.

You will see U.S. price declined 6% this quarter.

Nearly 3 points of the U.S. price decline was driven by new access and corresponding volume for Basaglar in Medicare Part D, which we didn't have in last year's quarter.

We also have approximately 2 points of the decline associated with increases to our patient affordability and access programs for Taltz and Humalog, which also drove increased volumes.

The remaining point of decline is the net effect of changes to estimates and rebates and discounts across segments, partially offset by the impact of price increases we took late last year and early this year.

Moving to Europe.

Pharma revenue grew 1% driven by volume, largely offset by price.

This volume growth was achieved despite the loss of exclusivity for Cialis.

Excluding the impact of the Cialis LOE, volume grew over 15%.

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

In Japan, pharma revenue decreased 2% with volume growth more than offset by price and the impact of the biannual price cuts which took effect in Q1.

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

Our pharma revenue in the rest of world increased 15% on a performance basis this quarter, led by volume growth from new products, namely Trulicity, Cyramza, Jardiance, Lartruvo, Taltz and Basaglar, as well as strong volume growth from Humalog.

Turning to animal health.

Total worldwide revenue grew 6% on a performance basis this quarter, driven by higher prices and higher volume.

Higher sales of companion animal disease prevention, ruminants and swine, and companion animal therapeutics products were partially offset by lower sales of products that are being exited, including the products which Lilly has retained control of after the Elanco IPO.

Slide 13 outlines the same information for our September and year-to-date results.

Now let's take a look at the drivers of our 12% worldwide volume growth on Slide 14.

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

You can see that these products drove 13.8 percentage points of volume growth this quarter.

This robust pharma volume growth represented our strongest quarterly volume performance this decade.

The loss of exclusivity for Strattera, Effient, Zyprexa, Axiron, Evista and Cymbalta provided a drag of 110 basis points while Cialis accounted for 190 basis points of volume decline.

At the end of September, generic versions of Cialis entered the U.S. market, which is expected to result in rapid erosion of sales.

When excluding LOEs and Cialis, the rest of our products had volume growth of approximately 19%.

Slide 15 provides a view of our new product update.

In total, these brands generated nearly $1.9 billion in revenue this quarter, representing 31% of our total worldwide revenue and 35% of our human pharmaceutical revenue.

With the launch of Emgality and the submission of lasmiditan, we look forward to adding a fourth leg to our new product growth story, joining recent launches in diabetes, oncology and immunology and demonstrating that Lilly is also building an innovative pain franchise.

Moving to Slide 16.

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

Turning to our 2018 financial guidance on Slide 17, you will see that we've updated our non-GAAP guidance to reflect our continued strong operational performance.

We're narrowing the range for revenue to $24.3 billion to $24.5 billion, narrowing the range for SG&A expense to $6.3 billion to $6.5 billion, decreasing our tax rate from 17% to 16% due primarily to recently issued guidance on elements of U.S. tax reform, and we're raising and narrowing our non-GAAP earnings per share range to $5.55 to $5.60.

At the midpoint of the ranges represents an increase of 30% over 2017.

I would note that this revised EPS range assumes a $0.02 to $0.03 negative impact from backing out the noncontrolling interest portion of Elanco profits in the fourth quarter, which had not been included in the prior guidance.

Our updated guidance implies fourth quarter non-GAAP EPS of between $1.33 and $1.38, which exceeds current consensus.

However, it is lower than our third quarter EPS due to the entry of generic competition for Cialis in the U.S. in late September; higher fourth quarter R&D expenses to support additional late-stage investment, including mirikizumab, Olumiant and Taltz NILEX as well as pegilodecakin and GIP/GLP and launch investments for Emgality; and finally, the minority interests attributed to Elanco that I mentioned earlier.

On a reported basis, earnings per share for 2018 is now expected to be in the range of $3.04 to $3.09 (corrected by company after the call).

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

This robust performance, along with the capital raised from the Elanco transaction, provide strong cash flow, which we're deploying thoughtfully across our capital allocation priorities.

As we move forward in line with our strategy, we will continue to prioritize funding our existing market products, new launches, life cycle opportunities and in replenishing our pipeline.

In addition, we continue to leverage business development to upgrade our pipeline and future growth prospects, as you saw with several recent announcements of business development deals.

Finally, we'll return excess cash to shareholders via increases to the dividend and share buybacks.

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

Thanks, Josh.

So Slide 18 shows select pipeline opportunities as of October 30.

In my summary of the quarter at the beginning of the call, I mentioned the positive movements for Emgality and lasmiditan.

Additional movements since our last earnings call includes: the start of a Phase III study for Olumiant in lupus and the start of a Phase II/III adaptive study for Olumiant in alopecia areata, the attrition of Cyramza's second-line bladder/cancer indication from Phase III and the attrition of the N3pG plus BACE combo arm from the ongoing phase II.

Please note we're still studying N3pG as a monotherapy in Phase II.

On Slide 19, we provide an update on expected key events for 2018.

In addition to the pipeline movement and regulatory actions I've already noted, you'll see that we've added a new line to reflect our expectation to submit Taltz for axial spondyloarthritis to regulatory authorities by the end of the year.

In addition, the FDA has granted breakthrough designation to Emgality for the cluster headache indication.

And you'll see that we've added a new line to reflect our plans to submit this indication by year-end.

Under Regulatory Actions, you'll see the approval of Verzenio in Europe and Verzenio in Japan and the approval of fruquintinib in China under the tradename Elunate.

Under Regulatory Submissions, you'll see the submission of a new indication for Cyramza in Europe and Japan for second-line liver cancer.

In the Phase III Data Presentations and Publications section, we reflect the presentations at EASD of the EASE 2 and 3 studies in type 1 diabetes for empagliflozin, as well as the CARMELINA CV outcomes study for Trajenta in collaboration with Boehringer Ingelheim, in addition to the presentations at ACR of the COAST-V and COAST-W axial spondyloarthritis studies for ixekizumab.

And in Phase III Top Line Data Disclosures section, in addition to the Phase III readouts for Trulicity and Ultra Rapid Lispro, which I mentioned earlier, we also had a positive Phase III read-out for flortaucipir, our tau imaging agent.

This was another productive quarter, contributing to continued pipeline advancement in 2018.

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

In Q3, we continued our strong operating performance in 2018, delivering 7% revenue growth and 12% volume growth, driven by our newest products.

As Josh stated earlier, our pharma volume growth was the strongest this decade.

We continue to realize significant efficiencies in our cost structure, leading to operating margin expansion of over 380 basis points, excluding the impact of foreign exchange on international inventories sold.

We have made excellent progress in our pipeline this quarter as well: the approval and launch of Emgality for migraine patients in the U.S., this is our 10th new product launch since 2014; the FDA submission of lasmiditan for acute migraine; positive Phase III data for Ultra Rapid Lispro; the presentation of exciting Phase II data for tirzepatide in type 2 diabetes; and just yesterday's news that Trulicity demonstrated superiority in the reduction of major adverse cardiovascular events across a broad range of people with type 2 diabetes in the precedent-setting REWIND trial.

We also returned $1.6 billion to shareholders via dividend and share repurchases.

We completed the Elanco IPO and bolstered our early-phase pipeline with the additional of an oral GLP-1 while completing several other business development deals.

This concludes our prepared remarks.

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

Great.

Thank you, Dave.

As in prior calls, we would like to take as many questions as possible during the Q&A session (Operator Instructions) Also, given some scheduling issues on our side and the fact that in recent calls, we have not exhausted the full 90 minutes we had scheduled, we do intend to conclude today's call at 10:15.

So with that, Lola, if you could provide the instructions for the Q&A session, and then we're ready for the first caller.

(Operator Instructions) And first, we'll go to the line of Chris Schott with JPMorgan.

My first one was on REWIND results.

I think you referred to them as precedent setting.

I know you're showing the full data next summer, but any additional color you can provide as we try to think about those results in context of prior GLP-1 CV outcome studies as we've had kind of this balance of healthier patients versus longer follow-up in that study?

My second question, you touched a little bit on it in the prepared remarks, but the diabetes portfolio in 3Q, I think we had a few products coming in a bit below expectations after some very strong first half results.

Can you just talk about any color in terms of was there any kind of onetime issues maybe about Humalog or Basaglar that affected this quarter's results?

Thank you for the questions, Chris.

Enrique, those are both for you.

Very good.

REWIND is indeed a precedent-setting trial.

It included the majority of patients without -- with type 2 diabetes but without cardiovascular disease.

It also had the longest median follow-up, over 5 years, and a low A1c baseline of 7.3.

I think what we can share at this stage is really what's in the press release.

We will not be sharing more information on REWIND until our intended detailed presentation at ADA next year.

We do intend to submit in 2019 for a new indication.

Related to Humalog and Basaglar and the overall diabetes portfolio first, I think we're very pleased with the overall volume growth when it comes to the diabetes portfolio.

Clearly, when it comes to Humalog, we did see a 14% price decline vis-à-vis Q3 of 2017.

And just to provide maybe a little more color on this, we are seeing an unfavorable segment mix, about 8 points of that 14.

Patient affordability is impacting the insulin portfolio.

That's another 4 points.

And then we had an unfavorable prior period adjustment as a comparator to last year's quarter.

And maybe to provide and try to be a little more detailed, we do see a lot of volatility with Humalog.

It is better to look at this product than a year-to-date basis.

And when we look at it on a year-to-date basis, I think the trend that we basically see is mid-single-digit erosion on price.

The dynamics on Basaglar are slightly different in that Basaglar did not have any access in Part D and the fact that we first gained this year.

So when we look at our compare, we are comparing on a segment that is highly rebated, and that basically has an impact on price.

Now when we look at Q2 of '18 versus Q3 of '18 for Basaglar, there's some price erosion but not the same money that you see year-on-year.

Great.

Enrique, thank you for the answers.

And next, we'll go to the line of Tim Anderson with Wolfe Research.

A couple of questions.

2019, can you talk about tailwinds and headwinds?

I know you won't be giving official guidance until December, but hoping there are early -- some trends both on the revenue and spending side that you can maybe call out ahead of that official guidance.

So for example, obviously, Cialis is -- will be LOE.

If I think about R&D spend, you're going to be starting Phase III trials on your GIP/GLP-1 program.

So any color on '19 will be appreciated.

And then a second question insulin category.

So at some point, FDA may deem biosimilar insulins as interchangeable and substitutable with brand.

Do you think this is more likely than not to occur?

And could that be something that happens as soon as 2019?

And if not 2019, then when?

Great, Tim, good to hear your voice again.

Welcome back.

Josh, if you'd answer the first question on the '19 tailwinds and headwinds.

And then, Enrique, the question Tim had on interchangeability for insulin.

So Josh?

Yes.

Thanks, Tim, and you had started to answer the question.

I think the main tailwinds -- or the headwinds that we'll see is the Cialis overhang in 2019 as we will experience the main erosion here in the fourth quarter in the U.S. So that certainly will be a headwind as we head into '19.

With that being said, we're seeing great growth in our -- the 10 new medicines we've launched since 2014.

So we'd expect that those -- the volume from those products to more than compensate from any of the tailwinds we've said we will see.

So we will see the -- a difficult compare.

The other thing that we've talked about in terms of the headwind on the top line will be the change in the doughnut hole provision in Medicare Part D, the move from 50% to 70%.

And as Enrique mentioned, we've got Basaglar one of our diabetes products is in that segment strongly.

So we'll see a little bit of a headwind there.

But I think we're really pleased with the volume growth that we saw this quarter and expect that the main components of that will continue into 2019.

On the R&D side, we do have a very robust set of Phase III opportunities ahead of us.

You mentioned tirzepatide, which we'll be starting in 2019.

In a broad sense we've got mirikizumab that we've moved into Phase III.

And those trials are expensive, so we'll have costs there.

And we'll see data on our ARMO asset, the IL-10, in 2019 and would expect yes, given positive data there, to continue to push that program.

So we'll make targeted investments in R&D and should expect to see some growth there.

I think we've been pretty clear on the SG&A line that a big component of our operating margin expansion will be to redirect the investments and resources that we have in products like Cialis and Forteo and others.

Two are new launch opportunities.

We'll have the -- certainly, we'll spend competitively to launch products like Emgality next year, but we'd look to manage that total base at a pretty flat level.

All in all, we are excited about the prospects for midterm 2019 and 2020.

We're well on track, we think, to meet our 2020 midterm objectives, which are 5% compound annual -- minimum 5% compound annual sales growth between 2015 and 2020; and operating margin, a minimum of 30%.

So we feel good about where we are there.

Great.

Thank you, Josh.

Enrique?

When it comes to insulin interchangeability at the pharmacy level, we do not believe this is imminent.

At best, it's likely 50 years away, and it will require the appropriate studies for the FDA to provide such a designation.

Great.

Thank you, Enrique.

Next, we'll go to the line of Jason Gerberry with Bank of America.

Mr. Gerberry?

Shall we move on?

Yes, if you could.

And next, we'll go to the line of Andrew Baum with Citi.

A couple of questions to Enrique, please.

Could you talk to the barriers prohibiting broader Jardiance usage, whether it's education, the investment co-pay?

And then related to that, could you outline the Tier 2 formulary stages within Medicare for Jardiance especially?

And in particular, whether a second brand at a list -- at a net price rather than the current list price maybe helpful in increasing penetration by reducing the burden on the patients and preparing the ground for world for wells of net pricing, which seem to be potentially upon us.

Andrew, thank you for the questions, if I got them.

First, Enrique, would be barriers that you see to Jardiance usage and ways maybe to change that to formulary status in Medicare and the opportunity for a second brand to potentially address some of the issues that patients face in that book of business.

Yes, I'm going to try to answer that question, Andrew, just a bit of color on how we see Jardiance because I do see -- there are some barriers, but I see a number of dynamics that are very positive when I look at the overall class and Jardiance in particular.

First, clearly, one of the things that we look at is how is the overall class evolving and developing.

And the class right now is growing in single digits, high single digits.

But more importantly, we're seeing new patient starts --- the growth in new patient starts accelerate.

We now see that in the 14%, 15% range.

It reminds me a bit of the reacceleration of the GLP-1 class back when Trulicity was launched.

Importantly, there are new guidelines that have been published by both ADA and EASD.

We think those guidelines are significant improvements, and that's going to be very helpful.

That's an important tailwind.

And finally, we have improved access for Jardiance.

As you know, we were excluded from one of the major accounts.

We are back as of January 1, and that's going to be very important.

Access for Jardiance, when it comes to coverage now starting in January of '19, is in the 90s.

So that's an excellent foundation for us to capitalize on.

And an additional point which I emphasize in the GLP-1 class, but it's relevant for now, SGLT2s, is that we have basically additional data from competitors that are confirming the benefits when it comes to CV of the class and, importantly, investments from those competitors.

Jardiance is in the best opportunity to capitalize on that.

So I see an evolution.

And there are a lot of signs and dynamics to be hopeful about the acceleration of the overall growth and the ability for Jardiance to capitalize on that.

You asked about Medicare and whether we would be launching a second brand.

We -- honestly, that's not where I see the issue for Jardiance when it comes to the use of it.

Clearly, we always assess all opportunities for our brands, but we are much more focused about, I think as you implied on your question, continuing to educate doctor professionals to ensure that they understand the full benefit that Jardiance can offer patients, and these new guidelines are going to be extremely helpful to do that.

Thank you, Enrique.

Next we'll go to the line of Jason Gerberry with Bank of America.

First question is just on Taltz.

Can you talk about the outlook going into the next few years with a new competitor launching?

And do you believe that AbbVie's market position with Humira, which has been the leading product in some of these markets, do you think that confers any advantage as it pertains to access relative to the already on market interleukin agents?

And then my second question, with oral GLP-1, can you talk a little about what you hope to accomplish here, especially with great data on GIP/GLP?

And as we think about Novo's oral sema, there are obviously some challenges with that product in terms of those things, so can you talk about sort of what you're looking for in terms of go, no go profile?

Great Jason, thank you for the question.

So Christi, if you'll take the question on the Taltz outlook going forward.

And then over to you Dan, for our goals for the oral GLP-1 program.

Sure.

So we're very excited with Taltz.

I mean, you probably saw that our year-over-year volume growth was significant, specifically our TRx grew 80% year-over-year, and over the quarter continuing to grow the same.

And we're just starting with Taltz.

I mean, we have great position in the dermatology office.

We just launched this year in the rheumatology office with psoriatic arthritis, which that launch is going well, and it's coming off of the American College of Rheumatology.

We also demonstrated our data in ankylosing spondylitis, which we will submit before the end of the year, as Dave said.

So as we're looking and winning in dermatology, we are beefing up in rheumatology as well.

And to your point about access, right now, our access is about the same as Cosentyx, a little bit less due to the Optum change at the beginning of the year.

But with that, as you could see the growth of Taltz, it hasn't prevented us from getting patients who need help on Taltz.

And we see that continuing in the future because in this marketplace, unfortunately, patients cycle through many different therapies.

And what we are seeing from customers is that they would like a variety of therapies with different mechanisms to choose from.

So you look at the entire portfolio that we have of newer agents coming out in IL-17 and IL-23, our JAK inhibitor, we're looking at being able to provide a broad portfolio to those customers, those patients and broaden our access to payers with the advent of the newer agents.

Great.

Thanks, Christi.

Dan?

Thank you for the question on our partnership with Chugai on this oral GLP-1 receptor agonist.

This is still a pre Phase 1 molecule, but moving quickly towards human trials.

The important comment there is that this is a non-peptic agonist.

So this is -- you should think of this very differently from an oral peptide.

This is a small molecule approach.

As such, we expect it to have in humans -- and we'll be testing a much higher bioavailability than you would see for any kind of oral peptide approach.

What does that mean for patients?

We hope that will translate into a better experience, certainly, in terms of how and when this molecule will be dosed for the people on the trials, and ultimately in practice, but also that you translate into improved outcomes.

So still very early, but we're excited about the potential here and look forward to getting you updated.

Great.

Thank you, Dan.

Next we'll go to the line of Geoff Meacham from Barclays.

Hey guys, it's Olivia Brayer on for Geoff.

Thanks for taking the question.

Just two for me.

First question is on your dual receptor agonist.

Can you provide us with any updates on the - that Phase 3 trial?

We noticed yesterday that the SURPASS trial was posted on ct.gov, so can you point to what steps you've taken to improve that overall tolerability in that Phase 3. Just curious how the design was influenced by the recently completed titration study that you previously talked about, and of course, the Phase II that we saw last month, and any expectations there on enrollment time lines?

And then second question is just another on REWIND.

Just curious on what your view is on the incremental opportunity here.

Any thoughts on how it might change the treatment paradigm?

And what the impact on overall GLP-1 class might be?

Great.

Thank you for the question.

So Enrique, we will have you attack those.

So the first one on GIP/GLP or tirzepatide, things are being done for Phase III with titration, things we learned in our Phase II program and any comments on enrollment timing, and then how you see REWIND playing out going forward to GLP-1 market.

So as we've shared as part of tirzepatide's Phase III program, we are planning to study 3 maintenance doses: 5, 10 and 15 milligrams.

I think what we've learned is that we should titrate in smaller increments and over time.

As we've shared, we have a titration study that we intend to share the details next year, but clearly we have learned a lot from that study in terms of what are the optimum titration schedules.

We are planning aggressively when it comes to start of this trial and starting enrollment.

So you'll be hearing more when it comes to our trial for type 2 diabetes soon.

As far as REWIND, I don't want to speculate on the particular indication that we will get, but clearly, this is important for the class in that it confirms what other GLP-1s have shown when it comes to seeing benefit.

And I'm sorry, I cannot resist but I heard the Novo Nordisk call, and they also mentioned that GLP-1s were not all the same.

And I think we agree with them.

Thank you, Enrique.

And next, we'll go to the line of Steve Scala with Cowen.

I have a couple of questions.

You mentioned the U.S. price hit from gaining access for Basaglar, Taltz and Humalog, but was there one-time volume gain from this reflected in the 17% U.S. volume increase?

So that's the first question.

The second question is to go back to the questions on REWIND.

Is REWIND precedent-setting because of the population studied?

Or is it precedent-setting because you have avoided the less-than-optimal outcomes of Novo's LEADER and SUSTAIN 6?

Or perhaps both?

And the precedent-setting is a big statement.

So in the absence of any color, I guess, we have to assume you hit all 3 components of the primary endpoint, which is something Novo was not able to accomplish?

Great, Steve.

Thank you for the questions.

So Josh, if you'll take the comment on the U.S. price, so there's also seeing some offsets there in the volumes that we're gaining.

And then Enrique, on what we mean by precedent-setting for REWIND?

Thanks, Steve.

Yes, if you look at volume for the third quarter in the U.S., it grew at 17%, which Dave and I both mentioned was the most significant volume growth we've seen this decade.

And that Basaglar absolutely contributed to that growth.

So the access that we got in Medicare Part D is contributing to the 17% growth, as are the other elements that we mentioned around patient access and all of the new launches.

So it is a positive offset there.

You can see in total, even with that negative 6% growth, U.S. business grew 11% overall.

Okay.

Thanks, Josh.

Enrique?

As I mentioned, when I first discussed REWIND as part of the first question, it is precedent-setting because it includes some enrollment of patients without cardiovascular disease.

It has the longest median follow-up and a low A1c baseline.

We'll be sharing the detailed results at the ADA next year.

Thank you, Enrique.

Next, we'll go to the line of Umer Raffat with Evercore.

First, maybe on the oncology side.

I noticed for your IL-10, you have decent monotherapy activity in the renal cell setting, but the randomized trials you're running are long and pancreatic, but just wanted to get the thought process there.

Is that a consideration?

And also your confidence on those open labeled lung trials that are coming off on first half '19.

Second, on NGF, it seems like the placebo adjusted efficacy definitely faded into the latest readout?

And my question is, do you look at this current placebo adjusted efficacy from this latest trial as being clinically meaningful?

And also just your thoughts on the joint replacements on that trial.

Great, Umer.

Thank you for the questions.

So Dan, we'll go to you for those on the development strategy for the IL-10, and then also what we think about the efficacy results and any safety findings from the initial trials read out for our NGF.

Thanks, Umer, for those good questions.

So starting with the pegilodecakin candidate, IL-10.

As you point out, the randomized trial that's ongoing in Phase III is in pancreas.

We're excited about that and look forward to seeing data there in combination with FOLFOX.

The 2 Phase II studies that you mentioned are randomized trials in non-small cell lung cancer.

The first one is in the first line setting in PD-L1 high patients and the second one is in the second line setting in the PD-L1 low setting, both in combination with IO.

We are absolutely excited to see data from those trials starting next year, which will inform our progress in that opportunity.

As for RCC, you're right that we had the monotherapy activity there in that early Phase I study, which was exciting and part of the basis of the bet here is that this molecule is active in the monotherapy setting.

I think in terms of that indication, other indications, we're still working through what our plan is.

Some of that will depend on data that we get in these next couple of trials as well as the data that we already have.

We hope to be able to share more with you about our plans for that molecule at our December R&D Day.

With respect to tanezumab, I think you had a question there on both the efficacy and the safety with respect to total joint replacements.

On the efficacy, it's hard to make cross-trial comparisons.

Of course, this is a different population, so they're more treatment resistant, more severe population than in those prior studies.

Still, on balance, the efficacy looks quite comparable to what we would expect, maybe some small differences in placebo group from trial to trial.

This is a small trial and we look forward to the full results coming.

But all in all, I would say the efficacy data are where we expect them to be.

And we're really, I think, excited, as we said before, about the potential of this molecule from an efficacy perspective.

The question, of course, is can we adequately discharge the safety risk?

So the total joint replacement, there was an imbalance in this small study, we don't fully understand what drove that imbalance.

I think there were a number of factors that we noticed about the imbalance in total joint replacements.

One was that most of these events occurred in the follow-up period rather than the on treatment period.

Another observation is that these events were generally in the patients who are most severe at enrollment.

It was in their index joints and it was not, in general -- in most cases, it was not associated with any adverse event or any finding in the joint adjudication.

So we'll keep our eye on that.

And of course, the big readout for us with our partners, Pfizer, will be next year when we get that large 56-week study.

Thank you, Dan.

Certainly.

Next is Alex Arfaei with BMO capital.

First, on REWIND.

Enrique, 2019 seems like a long time to wait for the result.

You mentioned you plan to file indication for 2019, so when should we expect to see it in the Trulicity label?

And then I have a couple of questions on Verzenio, please.

The market seems to have slowed down more than we expected.

Just wondering if you could give us your thoughts there.

You are gaining share, which is great, but what's going on with the overall market?

And we noticed you moved up the time line for the adjuvant study by 1 year on clinical trial.

Just wondering if you changed anything about the trial?

Or is it just your expectations about based on the powering of the study or expected benefit?

Great.

Thank you for the questions, Alex.

So timing for a potential label update on REWIND, Enrique, for you?

And then Anne, if you'd like to handle what we're seeing for market growth with CDK4/6 class and change in timing on clinicaltrials.gov for the adjuvant study.

Enrique?

Well, clearly, we're planning to pursue an indication under a submission in 2019 and standard review.

We will be looking at a label update in 2020.

Of course, we are working as fast as we can to try to expedite that as much as possible.

I will be working with the regulatory authorities.

Unfortunately, we won't be able to share the REWIND data prior to ADA.

Thank you, Enrique.

Anne?

Thanks for the question on Verzenio.

We have seen some slowing on the growth of CDK4/6 market as others in the class have commented.

However, we do still see potential growth as more physicians trial this class, particularly as they trial Verzenio.

So as you mentioned, our NBRx rate is in the high teens, and we continue to be pleased with this growth.

And we are encouraged by a couple of specific factors.

So first, as we continue to drive trials with Verzenio in the U.S., what we're seeing is a win position, trial Verzenio, they have a really good experience and they're likely to prescribe again, so becoming adopters.

What seems to particularly resonate with physicians is the fact that patients with certain concerning clinical characteristics that indicate a poor prognosis, do well on Verzenio.

So these are patients with liver metastases, the high tumor grade visceral disease or cancer that's not confined to the bone.

And so we'll be publishing that additional data shortly.

We're also very enthusiastic about the fact that we received approval in Japan and in Europe, so we see those markets as significant growth drivers.

And then third, related to your question around adjuvant, we do see potential future opportunity in the broader breast cancer market following read-outs in the HER2-positive population, our OS readout from the MONARCH 2 study.

And then very importantly, the work, as you said, in Adjuvant breast cancer.

On Adjuvant specifically, what we're seeing is that study is enrolling very well.

It's more than 60% enrolled, so we're quite encouraged by that time line.

So we do expect results in 2021 and we look forward to that market because as you know, Adjuvant is really twice the size of the metastatic breast cancer market, so a significant growth opportunity for Lilly in the future.

Thank you, Anne.

Next will be David Risinger with Morgan Stanley.

So Lilly's volume growth has been and is set to continue to be very strong.

But could you please comment on 3 quick questions on pricing.

First, the list price outlook for 2019 that you have in your planning assumptions.

Second, your exposure to a step up in the donut hole fill in 2019.

And third, your exposure to growth in copay accumulators in 2019.

Great, Dave.

Thank you for the questions.

Josh, if you'd like to answer those questions on expectations moving forward on price.

So Dave, we'll do our guidance for 2019 in December and we'll provide our pricing assumption.

Then I can tell you for 2018, for the guidance that we gave, we're not assuming any additional price increases this year.

In terms of exposure to the change in the donut hole provision, we've said before that we look across our portfolio.

It's about $200 million of incremental impact in 2019.

And then on the copay accumulators piece, of course, these impact specialty drugs, particularly Taltz and Forteo for now, and at least for where we are right now, we're comfortable that there is not a significant exposure here.

Just maybe a follow-on comment on that.

I have seen notes from analysts, as well as other industry commentators, that roughly, and especially segments, these are single-digit impacts in terms of patients actually exposed to the out-of-pocket cost of copay accumulators, net of industry actions and payer actions, and that's not really different for us with Taltz, which is the major product affected.

So it's an issue, but it's not a huge driver of the overall picture.

Great.

Thanks, Dave.

And it will be Vamil Divan with Crédit Suisse.

So one, just on Olumiant.

Looks like still pretty good European uptake, but sort of limited uptake in the first few months on the market in the U.S. So maybe you can just talk about sort of access and sort of initial physician interest in that product.

And then the other one is maybe a little bit of a different product we don't talk much about is Lartruvo.

It's still one of your newer medications, but I think it's asked about a little less.

I'm just trying to get a better sense of that market.

I mean, the growth is still there in the U.S. but slowing a little bit, and I'm just trying to get a better sense of how penetrated you think that product is into that market and maybe a little bit more on the longer-term potential for that one?

Great, Vamil.

Thank you for the question.

So Christi, if you'd like to talk about what we're seeing in terms of uptake access and clinician, physician experience here in the U.S. And then Anne, over to you for what we're seeing with Lartruvo and the market opportunity there.

Sure.

So thank you for the questions, Vamil.

In terms of Olumiant, I will start with the EU, as you suggested, outside of the U.S. The growth of Olumiant in volume in Europe in the last 2 quarters has actually been the fastest growing in volume for Lilly as a whole.

And in Japan, we just -- we're lifted in September on the 2-week restriction, so we seeing significant uptake now that, that restriction is off.

And in the U.S., we are getting a lot of usage in terms of the uptake.

We are giving samples in the office to physician so you won't see that in the uptake.

But more importantly, what we're hearing from physicians is that their patients are having really positive feedback on our speed of onset just like we saw in Europe and the other 50 countries where we've launched, the efficacy continues to deliver and really helping patients with that early onset of symptom relief so they can get back to the productive days of life which is significant.

And as the physicians see those patients come back, it truly is changing and then helps them, obviously, feel more comfortable in prescribing as well.

And Olumiant is really key for us.

It's not just in the U.S. RA, but we continue to evolve the indications for Olumiant.

We have 3 Phase III studies, obviously, that we're recruiting for in atopic dermatitis, in lupus and a Phase II/III adaptive study in alopecia areata.

So as those readouts come out as well, we'll be looking for significant uptake of Olumiant in helping a lot of patients with high unmet need.

Thank you, Christi.

Anne?

So we are pleased with the uptake on Lartruvo, and it has been steadily increasing since launch.

So as you saw the year-to-date, so we've had a 54% increase over last year and just a 41% increase in this quarter.

And Lartruvo is the market leader now in the U.S. in first-line metastatic soft tissue sarcoma, it has about a 20% market share.

And then we were excited to see that it is now the market leader in the dox-eligible patients, passing dox optimized this year at a 36% share of market.

And as you know well, it remains the only medicine in 4 decades that actually helps patients live longer when compared to dox alone.

So we're also encouraged by the fact that we are seeing thought leaders fairly routinely refer to it as the standard of care and growth in our topic particularly is very strong.

In fact, 97% of the top 100 institutions have now posted sales since launch of Lartruvo.

We are still seeing launch in Europe and still gaining access, so we still think there's potential for growth obviously in that market.

Our major focus really is on driving awareness in the community and in the centers of excellence where a lot of these key treatment decisions are made.

So we do feel -- still see quite a bit of potential for growth for Lartruvo, but I will acknowledge it's an orphan disease population.

And so at one point we will see penetration, but we don't see that yet.

We still see a good potential growth and are pleased on how we're doing.

Great.

Thank you, Anne.

It will be Louise Chen with Cantor Fitzgerald.

So my first question is on REWIND.

Has this met your internal expectation for relative risk reduction?

And have you historically talked about what kind of incremental sales opportunity it can mean for you?

And then secondly, on the injectable CGRPs, how do you see this market landscape playing out with 3 approved products and more to come on the injectable and oral side?

Do you think it will grow the entire market?

Or take share from existing products?

Great, Louise, thank you for the questions.

So Enrique, another question on REWIND for you.

And then Christi, on the CGRP question, please.

Well, on the expectations, of course, this is a positive trial.

Trulicity showing superiority in a broad range of patients with type 2 diabetes.

Thank you.

Christi?

Yes, so we are actually extremely excited about the migraine marketplace.

I mean, you're seeing, as we've been discussing over the last year, the high unmet need with now tens of thousands of patients already being prescribed a preventive now.

And we're -- I don't think I have talked to you since we actually received our label, so we're really happy with the label received in terms of our differentiation.

We have the 50%, 75% and 100% migraine-free data that we are able to promote.

Also our positive outcomes for functional measures, which is unique for Emgality, is in the label.

And we just presented data at the American Headache Society that Emgality works fast.

Our induction dose is so that patients can actually get the medication quickly and get it in the doctor's office where they teach them how to do the autoinjector, they should do it themselves and then they go and take it once-a-month then on.

Lastly, the other differentiation is we got the breakthrough therapy designation in cluster, and we're very excited about that for patients who have had no treatment, no approved treatment in that suicide headache population.

So as we look at the marketplace, we see it continuing to grow.

We like our chances in terms of being able to compete, and with the competitive agents and oral agents coming out next year, those right now, are in a different class that will compete with lasmiditan and not be preventative therapies initially.

So with the entire franchise we have in migraine in both preventative and acute, we think we are a leader and we know we're a leader in pain and migraine, and we'll continue to prove it out over time.

Great.

Thank you, Christi.

And next, we'll go to the line of Seamus Fernandez with Guggenheim Securities.

So just a couple.

Can you help us understand a little bit the opportunity for Emgality in cluster headache specifically?

Is this a new large new patient population that we should be thinking about?

Or is it more an indication that will firm up your and differentiate your market position?

And then second, Enrique, can you talk more about the international growth opportunity for the GLP-1 class overall?

When I look at the class, we're looking at about 1/3 of sales relative to the U.S., and frankly, when we look at other large classes, the opportunities seems to be like it would be quite a bit greater and I just would love to know what you see as the opportunity internationally or perhaps what the holdbacks are?

Great, Seamus, thank you for the questions.

Welcome back to you as well.

Good to hear your voice on the line.

Christi, if you'll take the question on the opportunity for cluster for Emgality.

And then Enrique, for the international growth opportunity for GLP1 class.

Thank you, Seamus, for the question.

As I said, earlier, we are so excited to help these patients with cluster.

And although the number of patients who have clusters obviously significantly less than the general moderate to severe migraine population, it is such a high unmet need that we are privileged to provide that for patients.

And the second part of your question, I think it is good for that but it's also obviously confirming, again, the efficacy of Emgality.

As I stated before, Emgality is the only one who actually demonstrated efficacy in 100% of being able to relieve 100% of migraines in any given month.

And that efficacy, now coupled with cluster, which is significant, no one has ever showed efficacy, that halo effect across Emgality and migraine we expect will be a benefit.

Thank you, Christi.

Enrique?

So there is a significant opportunity just like in the U.S., outside of the U.S. for the GLP-1 class.

The GLP-1 class is growing in the mid-20s outside of the U.S. in most markets.

So very healthy growth.

Something unique when we look at the addressable market is the size of the basic insulin market, which as we know represents a significant opportunity as we see GLP-1 being the injectables of choice first injectables prior to basal insulin.

So very significant opportunity, but we see that playing out over time.

Thank you, Enrique.

I appreciate it.

It will be Steve Scala with Cowen.

A couple of questions.

Regarding dropping the N3pG plus BACE in Alzheimer's disease.

The early data was great, so what was the reason for dropping the product?

And it was mentioned that monotherapy continues, but I thought the monotherapy was discontinued earlier this year?

Or has the monotherapy restarted?

So that's the first question.

Second question is on Jardiance.

Why are you not filing for type 1 diabetes as an insulin adjunct in 2018 given the positive data?

I think that had been the expectation that you would file this year.

Steve, thank you for the questions.

Dan, if you'd like to answer where we are with the N3pG and BACE combo and N3pG more broadly.

And then Enrique, if you would like to take the type 1 filing question.

Dan?

Thanks, Steve.

Sorry for the confusion there.

So on the N3pG BACE, we've dropped the BACE arm of this trial, so N3pG does continue.

The decision to drop BACE is based on a couple of factors.

One was what we have seen across the field with various BACE inhibitors where these drugged don't have a benefit, they actually cause some increased rate of cognitive worsening.

With our particular BACE inhibitor, we could see some increases in psychiatric adverse events that gave us some pause as well as some changes on imaging, increased rate of brain shrinkage.

So that was the basis of the decision to discontinue BACE.

Despite, as you said, great preclinical data showing combination of BACE inhibition and N3pG to be beneficial in mice.

N3pG, however, which is our plaque-clearing antibody, which really shows I think deep and rapid clearance of amyloid plaque in the brain, continues on in this Phase II study.

This is designed to demonstrate evidence of efficacy, and we are really excited about that.

Great.

Thank you, Dan.

Enrique?

Yes, on Jardiance and type 1, clearly, as part of the studies, we have showed that Jardiance as an adjunct to insulin in patients with type 1 can have additional level of glycemic control.

And we saw this across all doses that we basically studied.

At this point in time, we are working with VI on the regulatory next steps and we hope to be able to share more shortly.

Thank you, Enrique.

And at this time, there's no one in queue.

Fantastic.

Dave, if you would like to go ahead and end the call with some final remarks.

Great.

Thanks, Phil.

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

Our strong execution through the first 9 months of 2018 highlights the continued progress towards, and the increasing confidence in the delivery of our revenue and profitability goals for 2020.

We have seen continued pipeline progression, including our 10th new product launch since 2014; compelling late-stage opportunities for tirzepatide, mirikizumab and pegilodecakin, and superiority of Trulicity in the ambitious REWIND CV outcomes study.

This progress underscores the opportunities for growth beyond 2020.

We look forward to providing a more detailed update on our pipeline during our December 19 investor meeting.

Thanks, again, for dialing in.

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

I hope everyone has a great day.

And ladies and gentlemen, that does conclude your conference for today.

Thank you for your participation and using AT&T executive teleconference.

You may now disconnect.