Eli Lilly and Company
Q1 2021 Earnings Call Transcript

Published: 27 Apr 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Lilly Q1 2021 Earnings Conference Call. .

[Kevin Hern:]

Good morning. Thank you for joining us for Eli Lilly and Company's Q1 2021 Earnings Call. I'm Kevin Hern, Vice President of Investor Relations. Joining me on today's call are Dave Ricks, Lilly's Chairman and CEO; Anat Ashkenazi, Chief Financial Officer; Dan Skovronsky, Chief Scientific Officer; Anne White, President of Lilly Oncology; Ilya Yuffa, President of Lilly Bio-Medicines; Mike Mason, President of Lilly Diabetes. And we'd also like to welcome Jake Van Naarden, CEO of Loxo Oncology at Lilly, who will be joining us today and moving forward to answer your questions about discovery and early-stage oncology efforts he's leading. Now I'll turn the call over to Dave -- sorry, we're also joined by Sara Smith and Lauren Zierke of the Investor Relations team. During this conference call, we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to a number of factors, including those listed on Slide 3. Additional information concerning factors that could cause actual results to differ materially is contained in our latest Forms 10-K and subsequent Forms 10-Q and 8-K filed with the Securities and Exchange Commission. The information we provide about our products and pipeline is for the benefit of the investment community. It is not intended to be promotional and is not sufficient for prescribing decisions. As we transition to our prepared remarks, a reminder that our commentary will focus on non-GAAP financial measures. Now I'll turn the call over to Dave for a summary of our results from the first quarter of 2021.

[David Ricks:]

Okay. Thanks, Kevin. Lilly entered 2021 focused on expanding our reach to over 45 million patients by scaling our key growth brands around the world, continuing the advancement of our pipeline following a very successful 2020 and increasing productivity in the SG&A line while investing in research for sustainable long-term growth. We are pleased with the progress we've made on these objectives in our first quarter while also delivering hundreds of thousands of doses of our COVID-19 antibodies to patients to help the continued fight against COVID-19. As we unpack this quarter's results, we will attempt to give you a clear picture of the underlying trends in our core business. We recognize this quarter was noisy, catching the increased consumer stock in from the Q1 2020 in our quarterly compare and increased COVID-19 therapy R&D spend in 2021. These items, coupled with the FX rate movement and a number of changes to U.S. government purchase agreements for COVID-19 antibodies throughout the quarter, make for a longer earnings call and press release. And we realize, for those keeping score on sell-side model accuracy, perhaps some disappointment. Nonetheless, underneath all of that is a strong and growing core business for Lilly and a significant number of positive, even compelling pipeline readouts in the quarter to support long-term growth across all of our core therapy areas. And we continue to expect top line growth and margin expansion to accelerate throughout this year.

[Anat Ashkenazi:]

Thanks, Dave. Slide 7 summarizes our non-GAAP financial performance in the first quarter. As Dave mentioned, revenue increased 16% this quarter compared to Q1 of 2020 or 7% when excluding the COVID-19 antibody revenue and the Q1 2020 COVID-related stocking benefit, representing a good momentum for our core business. Last year, with the health and safety of our employees, patients and providers in mind, we shifted from in-person interactions to primarily virtual interactions and began 2021 with few sales reps in the field in the U.S. We feel good about our capabilities to work with providers virtually and are encouraged as we exited Q1 2021 with the majority of U.S. reps back in the field. As we navigate the early stages of the recovery, we're focused on operational excellence in both virtual and in-person environment and are pleased with the volume and share growth in key brands despite continued pandemic-related headwinds for several classes.

[Daniel Skovronsky:]

Thanks, Anat. 2021 is clearly off to a very positive start for R&D at Lilly with strong pipeline progress already and more potential catalysts on the way. Before I get into the broader portfolio update, I'll spend a few minutes highlighting results from tirzepatide's first 4 top line readouts from the Phase III SURPASS program, including the strong results from SURPASS-2, the head-to-head trial with semaglutide 1 milligram. This program is aptly named as we've seen tirzepatide surpass our expectations through these initial readouts, displaying significantly greater hemoglobin A1C reduction, weight loss and percent of patients reaching normal glucose levels than any GLP-1 on the market. On Slide 13, you can see impressive performance in the efficacy estimate analysis in glycemic control for tirzepatide with each dose demonstrating superiority in each trial across a range of patient populations, comparators and background medications. The clear highlight is the impressive A1C reduction of the 5-milligram dose across each of these 3 -- each of these different patient populations while the higher doses provide additional glucose control up to and surpassing 2.5% A1C reductions. Moving to Slide 14. You can see how tirzepatide performed across all 3 doses in terms of patients achieving HbA1c below 5.7%, the normal glycemic level seen in people without type 2 diabetes. We believe this is an exciting finding that may reset expectations for the impact diabetes medications could have for patients. Using the efficacy estimate analysis across SURPASS-1, 2 and 3, we see about half of the patients on the 15-milligram dose of tirzepatide achieve this remarkable level of Hba1c control. In SURPASS-5, which focused on patients on background insulin glargine, 62% of patients on 15-milligram tirzepatide achieved this level of A1C compared to only 3% of patients in the placebo group. Remember, this is a patient population on background basal insulin with an average duration of diabetes of over 13 years. Achieving this level of glucose control in such a population is something that prior to GIP/GLP-1 agonists like tirzepatide, we did not even contemplate as possible. On Slide 15, we show the efficacy estimate analysis for weight reduction across the 4 studies. Here again, we see levels of efficacy that previously were thought unobtainable with incretin therapy in type 2 diabetes patients. As we and others have discussed, studies like AWARD-11 and SUSTAIN FORTE have begun to show the limit of what fully hitting the GLP-1 mechanism can accomplish for weight loss and A1C. There appear to be diminishing returns as doses of GLP-1 alone fully saturate the GLP-1 receptor-mediated mechanism and a flattening of the dose response curve occurs. And then you look at this slide, including importantly, SURPASS-2. And you can see quite clearly that there's something different going on here as the dual GIP/GLP-1 receptor agonist is beyond the flattening of the dose response curve of GLP-1 performance, which we believe evidences the power of adding in the GIP mechanisms. Highlights from these studies include the 15-milligram dose delivering 14% weight reduction in SURPASS-3, noting here weight gain of 3% on insulin degludec comparator, the 15-milligram dose nearly doubling the weight reduction of semaglutide 1-milligram in SURPASS-2 and strong performance from the 5 and 10-milligram doses with statistically superior weight loss, even as high as 11% on the 10-milligram dose versus placebo or active comparators. We're encouraged that in these 40 and 52-week studies, we haven't yet seen the weight loss curves plateau on the higher doses. It's really exciting to think about how tirzepatide could potentially perform with the longer duration of treatment that we'll see in future studies. We had a lot of confidence in the efficacy data coming out of Phase II. But there was a lot we didn't yet know about safety and tolerability. Recall, for example, that the primary Phase II trial had only about 200 patients on therapy and patients were only on therapy for 26 weeks. As we look at Slide 16, we've been pleased to see through these 4 SURPASS readouts that the overall safety profile was similar to the well-established GLP-1 receptor agonist class and the most commonly reported adverse events were GI-related and mild to moderate in severity. We're particularly encouraged by the potential impact of the optimized dose escalation scheme, and accordingly, by the tolerability profile observed in the Phase III program, which improved greatly in comparison to Phase II, including the lower rates of nausea, diarrhea and vomiting that we've seen, consistent with what we saw in Phase III studies for other well-tolerated and highly used incretin therapies, including our own Trulicity. In addition, we're pleased with the discontinuation rates due to adverse events, which have ranged from 3% to 11% across doses in these studies. Stepping back from the data a bit, we're excited about the safety and efficacy results across all doses, but perhaps especially so for the efficacy of the 5-milligram dose, which has performed well in each study, including showing superiority to semaglutide 1 milligram in SURPASS-2 on both A1C reduction and weight loss. I think these data show that the 5-milligram dose could be a great first incretin that can potentially deliver best-in-class efficacy with tolerability that is as good or better than other leading incretins. So we have the low maintenance dose of 5 milligrams that, if approved, could potentially be appropriate for many patients with physicians knowing they could have higher doses available as they continue management of disease. Tirzepatide could provide patients with the opportunity to set treatment goals that might surpass what was previously thought possible in type 2 diabetes, both in terms of getting patients to normal glucose control, which has never been contemplated as a potential treatment goal, as well as for impressive weight loss with the highest dose of tirzepatide having roughly double the weight loss of semaglutide 1 milligram in SURPASS-2. Today, type 2 diabetes is largely a treat-to-fail disease. With these results, tirzepatide, if approved, could potentially provide doctors options to enable early control of glucose and weight. This has the potential to translate to improved levels of end organ protection and a more meaningful reduction in disease complications that has yet been seen. We'll be testing this potential for tirzepatide in ongoing and planned studies in diabetes, obesity, heart failure and NASH. Accordingly, we've now initiated SURMOUNTs-2, 3 and 4 for tirzepatide in obesity and top line results from SURMOUNT-1 are expected next year. Moving back to diabetes. The top line readout for SURPASS-4, which is in a high cardiovascular risk population and we believe will provide an important contribution to our CV safety assessment, is the gating trial for global submissions in type 2 diabetes. Completion of this trial has always been contingent on accruing a prespecified number of CV events. We've achieved the necessary events, which triggers bringing patients in for final treatment and safety visits before moving the trial to completion. Based on this update, we anticipate a top line readout by the middle of this year. We look forward to disclosing the results of SURPASS-1, 2, 3 and 5 at the ADA 2021 Virtual Meeting, which will include a 90-minute ADA symposium featuring these results the morning of June 29. While we're excited with the progress of tirzepatide, we think innovation in the incretin space is not over. At ADA, we'll also be discussing preclinical and Phase I data for our glucagon/GLP/GIP triagonist, also known as GGG, which we're pleased to announce we'll be moving into Phase II later this quarter. We've previously commented that in this space, we have a high bar for progressing molecules in development, one that has been raised recently by tirzepatide. While it's still early, we're advancing GGG to Phase II based on our belief that it could exceed the benefits seen with tirzepatide. With our GGG molecule, we expect to see even more weight loss than what can be achieved with tirzepatide while preserving glucose-lowering efficacy. In addition, due to glucagon's direct action on the liver, we'd also hope to see benefits in NASH. Consequently, our ambitious Phase II program is designed to evaluate GGG for obesity, type 2 diabetes and NASH. In addition to our next-generation incretins, we're also very excited by our novel weekly insulin, basal insulin-Fc. Thanks to Lilly's work on Trulicity, weekly incretin therapy is now the standard of care in the GLP-1 space. And together with tirzepatide, we hope incretin-based therapies will become the standard of care in the first injectable space for people with type 2 diabetes. For those people who need basal insulin therapy in addition to their incretin therapy, we'd like to make weekly insulin therapy possible, ultimately avoiding daily injections completely. We'll give an update at ADA on our novel weekly basal insulin. We plan to have an investor call in the morning of July 1 to discuss the data releases at ADA for tirzepatide, GGG and weekly basal insulin. While the progress in our diabetes portfolio is compelling, Lilly has continued to advance the rest of our pipeline this quarter. Slide 17 shows select pipeline opportunities as of April 23 and Slide 18 shows potential key events for the year. In addition to the progress on tirzepatide I just discussed, major developments since our last earnings call include progress with donanemab on multiple fronts. In terms of data, we presented detailed results at AD/PD showing donanemab met its primary endpoint, significantly slowing cognitive decline compared to placebo on the integrated Alzheimer's disease rating scale, a composite measure of cognition and daily function in patients with early symptomatic Alzheimer's disease. And data from secondary analyses showed donanemab consistently slowed cognitive and functional decline with ranges between 20% and 40% in all secondary endpoints with nominal statistical significance at multiple time points compared to placebo. On the clinical front, as we discussed in detail on our call last month, we expanded TRAILBLAZER-ALZ 2 to be a Phase III study, and it's now enrolling quickly. And today, we're announcing that we will start a new Phase III study, TRAILBLAZER-ALZ 3, in asymptomatic Alzheimer's disease. This trial is anticipated to begin enrollment later this year. Our goal here is to enroll patients who already have Alzheimer's brain pathology but don't yet have any clinical symptoms. The study will have development and progression of Alzheimer's disease symptoms as the primary endpoint. And we anticipate it will take approximately 3 years from completion of enrollment to reach a sufficient number of events. We'll be testing if a short course of donanemab treatment at the start of the trial can prevent progression in a substantial fraction of patients over the subsequent several years. These types of trials are extremely challenging to enroll and conduct. But here, we're buoyed by our expertise in biomarkers, including both PET scans and importantly, our plasma P-tau217 assay. On the regulatory front, based on feedback from the FDA, we currently do not see a path forward for near-term submission and approval based on the first TRAILBLAZER-ALZ study alone. As you know, the unmet need in Alzheimer's disease is significant. So while we remain focused on speeding up enrollment and completion of our second pivotal study, TRAILBLAZER-ALZ 2, we are continuing to actively engage with the FDA and are fully exploring any opportunities for early submission. Another highlight this quarter was the initiation of pirtobrutinib’s Phase III program with study start in chronic lymphocytic leukemia as monotherapy. We're also proud of the continuation of our work against COVID-19, including a planned transition from bamlanivimab alone to the administration of bamlanivimab and etesevimab together for the treatment of COVID-19 in the U.S., accomplished by first gaining Emergency Use Authorization for bamlanivimab and etesevimab administered together in February and then our request for revocation of the EUA for bamlanivimab alone, which FDA subsequently granted. We also submitted bamlanivimab and etesevimab administered together for regulatory review in Europe. And we initiated the evaluation of bamlanivimab with VIR-7831 in collaboration with Vir and GSK as well as started trials with a new, potentially broadly neutralizing antibody, LY-1404, in collaboration with AbCellera in case new combinations are needed to fight variants. We announced top line Phase III results evaluating baricitinib on top of standard of care, which did not meet statistical significance on the primary endpoint for treatment of COVID-19 but did result in a significant reduction of death from any cause by 38% by day 28. And baricitinib received regulatory approval in conjunction with remdesivir as a treatment for COVID-19 in Japan. Our work on tirzepatide, donanemab and pirtobrutinib brings great potential for patients in the long term and is highly prioritized at Lilly. Our work on COVID-19 is another clear highlight, where we moved quickly to help address an unmet medical need in the midst of a pandemic. We're optimistic though that this need will wane in the coming years. Beyond these significant efforts, there's been progress across many other commercial stage and clinical stage assets. Starting in oncology, we're pleased with the approval of selpercatinib for non-small cell lung cancer and thyroid cancer in Europe. We're also pleased that the results of monarchE, our adjuvant breast cancer study, are now submitted in Japan, along with Europe, China and the U.S. As you know, the primary endpoint for the study was invasive disease-free survival, which we hit at the interim analysis. As anticipated, this hazard ratio continues to strengthen over time as more events have accrued. Important secondary endpoints for the study include distant relapse-free survival and overall survival. For the U.S. submission, the FDA has noted, and we agree, that the OS data are immature and thus unreliable as we shared in the JCO publication last year. FDA has, therefore, asked us to see an updated OS analysis during the review cycle to determine that OS is trending in favor of Verzenio. Given the robust distant relapse-free survival data, we're highly confident that the overall survival data will eventually reflect and reinforce the survival benefit. But it takes time for these events to accrue, especially in the adjuvant setting. In immunology, we have positive Phase III readouts for baricitinib in alopecia areata, a disease with significant unmet medical need, and we look forward to regulatory submissions starting in the second half of this year. We also announced that the FDA extended the review period for baricitinib for atopic dermatitis by 3 months, another disease where we think JAK inhibition could potentially alleviate important unmet medical needs. With mirikizumab, we reported positive Phase III results in ulcerative colitis in the 12-week induction study, hitting the primary endpoint and all key secondary endpoints, and we look forward to seeing the maintenance data early next year. We also have updates to mirikizumab psoriasis program. While the OASIS program generated positive results with safety and efficacy similar to other IL-23p19s, we believe the psoriasis market is well served with highly effective treatment options, including Taltz. Lilly's immunology strategy is to focus our new molecules and indications on areas where patients have significant unmet needs, not merely adding new options or leveraging commercial presence to create a space, where effective solutions like Taltz already exist for patients. Therefore, we will not pursue submission of mirikizumab in psoriasis, but instead, we'll focus our efforts on the ulcerative colitis and Crohn's disease indications, where unmet medical need is higher and where we believe the potential of the IL-23p19 mechanism to create a new standard of care is greater. In addition to late-stage progress, our early-stage portfolio continues to advance with the introduction of 5 new Phase I assets and the attrition of 2. In addition to the progress we've made in just the first few months of the year, we anticipate important developments for the remainder of 2021, including the final readout for tirzepatide's Phase III type 2 diabetes program, SURPASS-4, noted earlier; Phase III results for Jardiance in HFpEF and for lebrikizumab in atopic dermatitis; regulatory actions for Jardiance for HFrEF, Verzenio in the adjuvant setting for ER-positive breast cancer, baricitinib for atopic dermatitis and tanezumab for osteoarthritis pain, where we previously noted our disappointment in the outcome of the Tanezumab Advisory Committee; the presentation of Phase I data for our oral SERD; the initiation of Phase I for a BCL-2 inhibitor and for KRAS G12C inhibitor; along with the filing of an IND for our next-generation RET inhibitor later this year as we announced at AACR; and the Phase II readout for zagotenemab, our anti-tau antibody for early Alzheimer's disease. We believe our continued pipeline success drives increasing visibility to meaningful long-term growth, and we look forward to continued progress across our portfolio in the coming quarters. Now I turn the call back over to Dave for some closing remarks.

[David Ricks:]

Thanks, Dan. Before we go to Q&A, let me briefly sum up the progress we've made to start the year. Amid several moving pieces in a challenging health care environment, we are excited by the momentum we are seeing. Our business grew 16% in the first quarter with the core business growing 7%, adjusted for COVID-19 antibody revenue and last year's COVID-19-related inventory stocking benefit. Our top line growth continues to be strong, driven strongly by volume across our key growth products, which account for more than half of our core business. Net of the significant impact from foreign exchange on international inventories sold, our operating margin was in line with our expectations as we continue to expect operating margin expansion throughout the year and further expansion in years to come. We made significant progress developing new medicines with many more data readouts expected this year. Advances for tirzepatide, donanemab, pirtobrutinib, Verzenio, mirikizumab, Retevmo and Olumiant, serve as a reminder of the breadth and depth of opportunities we have to sustain robust long-term growth. We returned nearly $800 million to shareholders, being increased dividend, reflecting confidence in the ongoing strength of our business. I want to say thank you to my Lilly teammates, whose commitment to excellence and dedication to our purpose of bringing innovative new medicines to patients is inspiring and drove these accomplishments amidst ongoing pandemic headwinds. While our people, health care providers and patients continue to face near-term challenges associated with COVID-19, our long-term outlook is as bright as ever. This concludes our prepared remarks. And now I'll turn the call over to Kevin to moderate the Q&A session.

[Kevin Hern:]

Thanks, Dave. . Toni, can you please provide the instructions for the Q&A session? And then we're ready for the first caller.

[Operator:]

. Our first question comes from the line of Chris Schott with JPMorgan.

[Christopher Schott:]

I've just got two on the pipeline. I guess, first, on Verzenio, did I hear that you mentioned FDA is looking for updated OS data as part of the review? So I was just wondering when you'll have that data. And does that push out approval timelines in any meaningful way that we need to think about? And then the second one I had was on tirzepatide. I guess, in light of the data you've seen from the SURPASS studies, does that -- has that changed how you think about what patient populations you'll focus on from a commercial standpoint or your go-to-market strategy? And I guess, as part of that, as we think about tirzepatide coming to market, do you expect substantial switches from Trulicity? Or is tirzepatide growth more about new patient starts and kind of expanding the market?

[Kevin Hern:]

Thanks, Chris. We'll go to Anne for the Verzenio question and then Mike on tirzepatide.

[Anne White:]

Well, thanks, Chris, for the question on Verzenio. And so we will be delivering this data set to the FDA without delaying our standard review timing. We can't really comment on what the FDA will do with the data or the application, but these discussions are progressing as planned. Important to note, as the data matures, I think, as Dan said, given the strength of the DRFS hazard ratio, remember, it was a 0.687 haz ratio with a very strong p-value, we are highly confident that the OS will trend in favor of Verzenio. So really, what we believe we're discussing is when that will occur. So obviously, as I said, we can't comment on the discussion with FDA, but we do look forward to working with them on bringing this medicine to patients. And maybe just a comment to reference how immature this data is. At the time of the interim analysis that we published in JCO late last year, there were 39 deaths in the abema arm and 37 in the control arm. So that makes it really challenging to interpret this data when there's over 5,000 patients in the study. Thanks for the question.

[Kevin Hern:]

Thanks, Anne. Mike?

[Michael Mason:]

Chris, thanks for your question. No, the tirzepatide results have not changed the way we want to position tirzepatide in the marketplace. Obviously very pleased with those results. We're also just really blessed to have both Trulicity and tirzepatide. Our goal will be to maximize our entire incretin portfolio. Trulicity has established a strong market position. And I think the best data to support that is just how we've been able to grow share of market in the face of Ozempic and Rybelsus. So it has a strong position in the marketplace and that will remain. But now as we think about tirzepatide, the dual incretin mechanism, that GIP component is really a game changer. Dan went through the results, but we just haven't seen the ability to return to someone living with type 2 diabetes, whether they're late or early, someone with type 2 diabetes progression, back to normal A1C. In fact, we were able to get 50% to 60% people back, it’s really incredible. Also weight loss at the highest dose, up to 14%. So when you just take a look at that and you take a look at the fact that 90% of people who live with type 2 diabetes are overweight or obese, they can really benefit from early treatment with type 2 diabetes. So the real question is why would you want to put them on something else early on? And why would you want to wait for them to have those benefits? So we see tirzepatide has the potential to really transform the market, driving earlier use of incretin, in particular tirzepatide's dual mechanism, and really expand the incretin market. So I think tirzepatide will clearly win some new patients that would have went on to Trulicity. You have some people who were maybe not performing well or not -- or needed more efficacy that will go on to tirzepatide. But clearly, our focus will be to profoundly change and disrupt the type 2 diabetes marketplace by driving earlier use of incretins with tirzepatide.

[Operator:]

Our next question comes from the line of Geoff Meacham with Bank of America.

[Geoff Meacham:]

Also have two pipeline ones. Just want to get your perspective on mirikizumab, the decision to focus on just IBD. You have good head-to-head data in psoriasis. So is it more of a commercial focus? Or is it that you want to focus more on Taltz and psoriasis? And then in Alzheimer's, you'll have zagotenemab data in the second half of this year. How are you thinking about the opportunity to combine potentially with donanemab? I wasn't sure what steps need to happen prior to thinking about that type of trial? And maybe from a regulatory perspective, what do you think would be a gating factor?

[Kevin Hern:]

Thanks, Geoff. We'll go to Ilya for the first question and then Dan for the question on Alzheimer's.

[Ilya Yuffa:]

Great. Geoff, thank you for the question. On mirikizumab, really as we see the greatest opportunity for unmet need for patients and we've said all along, we believe that mirikizumab has the greatest opportunity in GI, in IBD, in ulcerative colitis and Crohn's disease. We were pleased with the LUCENT-1 results. And so we're looking forward to seeing the maintenance data at the early part of next year. In terms of psoriasis, as we take a look at the market and unmet need, we do continue to believe that Taltz is the gold standard and best in disease and believe that really is a market well served. And so the decision from a portfolio standpoint is to focus our efforts in places where we believe we can have the greatest unmet need. And GI is where we're focused for mirikizumab.

[Kevin Hern:]

Thanks, Ilya. Dan?

[Daniel Skovronsky:]

Yes. Thanks, Geoff, for the question on zagotenemab, our anti-tau antibody. Before I come to combinations, maybe I'd just handicap this Phase II trial quickly. The pro here in favor of tau is clearly genetic validation and pathologic validation of the target. It's a great target for Alzheimer's disease. The cons here that we have to acknowledge is data from other companies' tau antibodies, which hasn't been particularly promising, and the difficulty in hitting the tau target in the brain. Now we have a differentiated antibody here that binds just aggregated tau, so perhaps there's reason to think we could get different results. We're certainly eagerly awaiting those data in the second half of the year. And you're exactly right, if we see efficacy, combination would be an important consideration here. For sure, the general theme of combining an anti-amyloid drug with an anti-tau drug is a good one, particularly when you have a drug like donanemab, where you can completely clear amyloid plaques with a limited duration of therapy and then perhaps at that moment, intervene with an anti-tau drug. I do think that's the future. It's something we're actively considering, pending, of course, data on the tau antibody.

[Operator:]

Our next question comes from Vamil Divan with Mizuho Securities.

[Vamil Divan:]

Maybe one on Taltz. Maybe just a little more clarity or color on the pricing dynamics there. You mentioned you're kind of expecting a return to net sales growth in the second quarter and then accelerating. I'm just trying to think about it as we think about the full year dynamics. I don't know if you'll give product-level guidance. But how do you think about sort of the kind of full year comparison for 2021 to 2020? I assume you're still expecting growth for the year as a whole, but if you could just sort of clarify. And is that contract with ESI, I'm not sure, is that a full year contract? Or does that go beyond 1 year? I'm just trying to get a sense of sort of pricing dynamics in 2022 and 2023 and if we should expect another step-down. And then one quick follow-up just on the comments around TRAILBLAZER-3. I don't know if you can maybe just share a little more in terms of the number of patients you're looking to enroll in that trial, just so we can kind of get a sense of how long the enrollment might actually take.

[Kevin Hern:]

Thanks, Vamil. We'll go to Ilya for the question on Taltz and kind of the full year picture and then Dan on TRAILBLAZER-3.

[Ilya Yuffa:]

Sure. So on Taltz, first, let me just say we're really pleased about the progress we're making on Taltz and the growth that we're seeing with the step-up in access upgrades, ESI and beyond. And so as we take a look, even though that we've had some price impact in Q1, there are some elements there where we have a number of patients that were on medical exception that are now in the rebated contract that we have with ESI. Of course, we're also seeing an increase in overall volumes with ESI. What's encouraging is that we're not only seeing improvements in overall volume based off of switches, we're also seeing significant improvement in our new therapy starts. And so we're, in dermatology, now the leading share in dermatology with over 19% share. And then in rheumatology, we're almost doubling our share from previous year. And so as we think about the year in terms of growth, we do believe we'll get to net sales growth in Q2, and we'll continue to accelerate that volume growth throughout the year. The contracting that we have for Taltz is -- goes beyond 1 year. And so we're encouraged about the volume growth of over 20% now, and we continue to see encouraging signs in the market.

[Kevin Hern:]

Thanks, Ilya. Dan?

[Daniel Skovronsky:]

Yes. Thanks, Vamil, for the question on TRAILBLAZER-3 and our enrollment goals here. We probably don't get into too many details here, but we are, of course, expecting to -- this to be a large trial involving thousands of individuals, but yet we also set very ambitious enrollment goals. And while we don't have all the details planned out on how to achieve this, our goal is that we should be able to enroll this trial in about a year. That's pretty exciting to contemplate. And Alzheimer's prevention trial is something that makes great sense, given the science and the biology here and what we know about the onset of Alzheimer's disease and its relation to years of having amyloid plaque in the brain. But there have been 2 major drawbacks that have not made these trials really very practical. First is finding the patients. That has gone from impossible before our introduction of amyloid PET scan to possible but really hard with amyloid PET scans as we experienced firsthand in the A4 trial to now something that's eminently feasible with our advent of the plasma tau -- phospho-tau217 assay. That's a huge advance that just unlocks this trial. The second is if you think about this population, which is not experiencing symptoms, is a bit younger than an Alzheimer's population and introducing a therapy that is likely an infusion that they take for the rest of their lives, that's also a pretty significant hurdle. Again, we've, I think, abrogated that risk with donanemab in a limited treatment duration to give lasting plaque clearance, so excited about the TRAILBLAZER-3 trial.

[Operator:]

Our next question comes from Seamus Fernandez with Guggenheim.

[Seamus Fernandez:]

So just, first off, a question for Dave. Dave, as you think about some of the various proposals that are in Congress currently, could you just give us your thoughts on the tax proposal? And maybe Anat could give a little bit of the potential implications for Lilly. And then separately, there's obviously a lot of controversy swelling on drug pricing. Just wanted to get your sense of the proposals that are out there currently and if the industry is poised to or ready to step up with a more reasonable proposal. And then just the second question is on the JAK inhibitor space and Lilly's opportunity with lebrikizumab, particularly in atopic dermatitis. There's a bit of a compare and contrast. Only Lilly, I think, has both potential opportunities in this space. I think there's a lot of speculation that there is going to be a safety update from the FDA, if not a full safety panel. Hoping, Dan, that you could give us a little bit of your thoughts in that regard.

[Kevin Hern:]

Thanks, Seamus, lots to unpack there. We'll start with Dave on some of the policy, maybe Anat on the tax piece of that. And then we'll go to Ilya on kind of what he sees from a JAK and lebrikizumab standpoint.

[David Ricks:]

Yes, Seamus. Look, on tax, this is a live discussion, of course, because the president has introduced a number of ideas on corporate tax changes. I guess we join a growing chorus of large companies who oppose, that means to raise revenue, especially when the stated policy goal of the infrastructure plan is to build back the economy. Of course, private money and corporate actions make up the vast majority of the investment that could or would occur. And taxing that seems like a bad idea, maybe the opposite idea from the bill itself. Within the bill, maybe just a couple of general comments, and we can follow up if we need to. There's the nominal rate discussion, which, of course, when we say moving from 21% to 28% is moving toward the middle of the pack, is not true because, of course, in the U.S., we have state-level income tax. It would really put the U.S. at the highest developed economy in terms of corporate tax rate. Additionally, we're the only major economy that taxes overseas earnings of its domiciled companies and changing the so-called GILTI tax, foreign minimum tax, really is punitive to our home companies in multiple ways and is something that would have a disproportionate effect on pharmaceutical companies. And so both these actions don't make a lot of sense to us and we oppose. We would favor things like looking at funding the IRS, so they can collect taxes from all the people that don't pay, including businesses and other items that could be pay-fors, we certainly support infrastructure in many ways. On drug pricing, this has been pushed out a little bit. I wouldn't be surprised if we see HR 3 being debated soon, but as you may have read, apparently it won't be part of the second package from the White House. That's good because HR 3 and those concepts are really set to take a huge piece out of the industry, do nothing for patient out-of-pocket affordability and really derail the innovation machine that is the only reason we're escaping from the COVID-19 pandemic. So we will oppose that with every ounce of our being as pharma. That said, we are all for changes to the system that make out-of-pocket costs go down for patients. There are a lot of ways to do this within the system that the industry is willing to put pay-fors on the table. This is much more around the contours of maybe what we saw with Senate Finance or the reported proposals made in the 11th hour of the last administration. We will table those ideas. We are tabling those ideas. And I think probably in the second half, you'll hear more about that. We think there's a great opportunity to improve affordability and strengthen the health care system and really address health care inequities as well that occur because people who are of lower economic means, people of color, women are disproportionately affected by bad insurance design and bad benefit design. We can shore those up and make the health care system work better for everyone.

[Kevin Hern:]

Thanks, Dave. Ilya?

[Ilya Yuffa:]

Yes. Seamus, so thank you for the question. As you noted and what we said on the call is that we're quite excited about our progress in immunology as a whole. And if we think about the growth opportunities within immunology, atopic dermatitis is one catalyst for the company, both in what we believe in Olumiant's success but also lebrikizumab. In terms of the question around JAKs and FDA decision, I won't speculate on any decision the FDA may make. But it's safe to say that the delay across all JAKs in atopic dermatitis and other indications suggests that there's a broader review on JAK safety. We feel that Olumiant has a robust safety profile. And with dermatology being more safety conscious, we do believe that Olumiant has a very good prospect to compete in this space, especially after topical failure. And then lebrikizumab is one to watch out for, for the second half of the year. As we get more data, well, we feel like we can compete and differentiate versus Dupixent. And so long-term prospect and catalysts for growth are very good for having both mechanisms. And we also see catalyst for growth in alopecia areata, a very -- to be first in disease with Olumiant. And so we feel very good about our chances to not only compete but also to have significant growth and have meaningful outcomes for patients.

[Operator:]

Our next question comes from the line of Louise Chen with Cantor.

[Louise Chen:]

So first question I had for you was on lebrikizumab. What do you think will differentiate your products from others that are already approved and those in development? And do you plan to pursue lebrikizumab for any other indications? And then second question is on LOXO-305 plus LOXO-338. What do you think your competitive advantages are here versus others that are trying to do the same thing?

[Kevin Hern:]

Great. Thanks, Louise. We'll go to Ilya for the first question and Jake for the second.

[Ilya Yuffa:]

Yes. Louise, thank you for the question about lebrikizumab. In terms of area differentiation, the focus for lebrikizumab is not only to look at the efficacy on skin but also one of the more impactful symptoms related to atopic dermatitis is itch. And so we believe we may have the opportunity to differentiate an itch, which also has impact on sleep. And we believe that lebrikizumab may have a better safety profile. So that's where we believe we can differentiate. And so we're excited to get the results for lebrikizumab at the back half of the year. In terms of new indications, I think it's early to take a look at any new indications. We're obviously evaluating opportunities to grow lebrikizumab. But our full focus right now is making sure we have success in atopic dermatitis.

[David Ricks:]

Ilya, just to jump in on top of that, of course, there will be a dosing convenience and dosing certainty benefit with lebri as well.

[Kevin Hern:]

Thanks. Jake?

[Jacob Van Naarden:]

Thanks for the question, Louise, about pirtobrutinib, LOXO-305 and LOXO-338, the BCL-2 inhibitor. I think as it relates to differentiation, I'd point out a few things. First off, obviously, as I think you and others know, pirtobrutinib itself is a differentiated BTK inhibitor that we believe affords certain advantages in combination. Obviously, we need to prove that clinically, but that's our hypothesis right now. So that sort of stands on its own. The LOXO-338 program, the BCL-2 inhibitor, we'll be putting into the clinic this year. And obviously, important that, that drug meets its human pharmacology goals so that we know that it itself is on track as a drug. Should that prove to be the case, which we expect it to, we will then look to combine these 2 agents. I think when you look out at others that are combining BTK and BCL-2, the latter largely being venetoclax, I think what you see is a very fragmented landscape of asset ownership across companies, and as a result of that, some -- oftentimes perverse incentives about how to combine those drugs and where. We think it's important that if you have a new and differentiated BTK inhibitor like we believe we do with pirtobrutinib, we thought it was strategically important to own our own BCL-2 inhibitor. And so we think we'll be really the only player in the field who owns both agents outright. So that, to us, is a key differentiating feature downstream. But it's still a bunch of hoops we have to jump through to enable that combination.

[Operator:]

Next, we go to the line of Carter Gould with Barclays.

[Carter Gould:]

All right. I guess, first, for Dan or Mike, you guys posted details of the SUMMIT study of tirzepatide and HFpEF recently. And I think the design, size and time line were all surprising relative to expectations, so I guess getting to a readout much faster than some have had expected. Can you maybe just walk through some of those key design choices and the extent regulators have bought in, and also confirm that that single study would be sufficient for approval in that setting? And then also historically, Lilly has done a -- I think, done a better job of sort of franchise building in certain areas than some of its peers. Now with sort of mirikizumab derisking data, can you talk around how you're thinking about building around the GI portfolio?

[Kevin Hern:]

Thanks, Carter. We'll go to Mike for the question on tirzepatide and Ilya for the question on miri.

[Michael Mason:]

Yes. Thanks for the question on the SUMMIT trial. We're bullish on the opportunity for tirzepatide in HFpEF. When you look at that, it's really a large unmet need with nearly 4 million people living with HFpEF heart failure, a leading cause of hospitalization in the U.S. When you look at it scientifically, you do see that there is a BC-related HFpEF phenotype that we believe that tirzepatide can play a large role in helping out. And so that's what really drove our investment in SUMMIT. And I think the team has done a nice job of coming up with a creative approach that will provide, I think, robust data for payers and clinicians to make that decision. So I think we're very confident in this -- in both our clinical trial design as well as the commercial opportunity.

[Kevin Hern:]

Thanks, Mike. We'll go to Ilya for the next answer.

[Ilya Yuffa:]

Sure. Yes, Carter, listen, as you noted, in terms of building franchises across immunology, we've built up our scale in dermatology and excited about increasing number of treatments there, the same with rheumatology in the hope for finding lupus as well. And then in GI, mirikizumab will be our first entrant into GI with ulcerative colitis and Crohn's disease. And then we do have a pretty robust pipeline in both Phase I and proof-of-concept studies, in particular, IL-2 conjugate that we're studying for ulcerative colitis as well. And we look forward to bringing out new treatments across all three of those areas in the coming years.

[Operator:]

Our next question comes from Tim Anderson with Wolfe Research.

[Tim Anderson:]

A couple of questions. On Verzenio and the CDK class more broadly. Can you talk about what you're seeing in the U.S. in terms of rebating for this oral oncology category? My understanding is that the level of rebates may be stepping up. And I'm not sure which company or companies are driving that. Maybe it's Pfizer driving that as they try to hang on to market share. But what's the outlook for gross-to-net price trends in this category? And then on Tyvyt, your PD-1 from Innovent, a Chinese company, you note that you'll file for approval in non-small cell lung in the U.S. this year. It's really hard for me to see how you gain any share with this product, given what would be a limited label and given payer and prescriber dynamics, where in things like Part B, you can't really compete on price. So what's realistic to expect with this product from a commercial perspective, not only U.S. but another Western markets like Europe?

[Kevin Hern:]

Thanks, Tim. We'll go to Anne White for both of those.

[Anne White:]

Well, thanks, Tim, for the question on Verzenio. So I think, as you're mentioning, it's an incredibly competitive market with the CDK4/6s. And so we and others continue to do what we need to do to make sure that patients get access to the right medicines. So we have obviously a strong strategy there. I can't comment on the specifics, but we do see competition. And really, what we're seeing -- I think you're seeing in Verzenio, what we're seeing is an incredibly nice trend growing in Q1. As you saw, we had positive momentum with the U.S. strong share growth in March and we saw TRx of over 17% and NBRx of over 28%, so -- and this is despite, as you've noticed, a modest year-on-year TRx market decline. So I think what we're seeing is both from a payer strategy but also very much from a data strategy, we're seeing that Verzenio is growing its share nicely. And so I like how all of our different programs are coming together. And obviously, the data in AZURE breast cancer reinforce the growing awareness that these medicines are different. But what really has been the focus for our execution has been capitalizing on positive OS data and making sure that people are aware of that and we're seeing more trial, more adoption as we go through that. So very pleased how all of our strategies with Verzenio are coming together. On Tyvyt, yes, I mean, as you mentioned, it's a competitive space, obviously. And while I can't really comment on our commercial strategy prior to approval, you can be reassured that we're looking at ways to differentiate and really add value to this innovative class of medicines. So obviously, we know that there's certain commercial approaches we'll have to take to capture share as really a late entrant in the field, but we see opportunity here. And obviously, this deal made sense with the partnership that we've had with Innovent and we're committed to the U.S. submission this year. And so more to come as we look to launch the product and share that strategy and how we intend to make an opportunity here. But as you said, I wouldn't assess this as a large opportunity for Lilly, but an opportunistic one that we think makes sense, it makes sense for patients globally and driving value for them.

[Kevin Hern:]

We'll move to the lightning round, so we can try to get everyone in. .

[Operator:]

Next, we have Andrew Baum with Citi.

[Andrew Baum:]

Yes, a question for Dan on Verzenio and the monarchE filing. As you outlined, the survival data is thankfully going to take a long time to mature. Is the answer that the FDA is looking for more about further maturation of progression-free survival or -- sorry, disease-free survival? Just given the historic precedence of the PENELOPE-B data with palbociclib, where you have separation that then coming together, isn't that really what the FDA wants, given if you're waiting for survival, you could be waiting for a very long time indeed?

[Kevin Hern:]

Thanks, Andrew. Dan?

[Daniel Skovronsky:]

I'll just take it quickly. No, Andrew, it's -- the focus here is on the overall survival. On the distant relapse-free survival, as we commented, the curves are not coming together, they're actually separating more. It's improving as we get more events. So I'm not aware of any concerns around that.

[Operator:]

Next, we go to the line of Steve Scala with Cowen.

[Stephen Scala:]

I think it was stated that the number of CV events in SURPASS-4 has been reached, if I heard that correctly. If that's correct, then it looks like the study is going to achieve its endpoint earlier than expected. So my question is, is that either confidence-building or concerning? Are you worried COVID-19 cardiovascular effects may have impacted the accrual of events? And if tirzepatide trends worse than insulin glargine, can you still file?

[Kevin Hern:]

Thanks, Steve. We'll go to Mike on that.

[Michael Mason:]

Yes. Thanks for the question. No, we have no concerns. We will -- we have reached the number we needed to complete the trial. We're getting patients back in. We'll have that data, should start to see top line in May, and we'll release that information in -- before the end of the quarter. We're very, very excited about tirzepatide and very confident in its CV profile. I'm looking forward to seeing the SURPASS-4 data.

[Operator:]

Next, we go to the line of Terence Flynn with Goldman Sachs.

[Terence Flynn:]

I was just wondering on monarchE, if there's any possibility of an NCCN listing before the FDA action? And then can you give us an update on the Retevmo launch dynamics this quarter?

[Kevin Hern:]

Thanks, Terence. We'll go to Anne for the question on Verzenio and Retevmo.

[Anne White:]

Thanks for the question. So on monarchE and NCCN, I really can't comment for them. So obviously, we feel that this data is incredibly impactful. I think one of our thought leaders call it the most notable development in HER2-positive breast cancer in the last 2 decades, but we'll just have to wait and see what NCCN decides to do. And then on Retevmo, the launch is going well. So we had a virtual launch in May, we finished 2020 with $37 million in sales, and we see positive momentum in Q1. So we've had a great engagement with customers. Unaided brand awareness is strong. So we're quite pleased. And this is an incredibly important medicine, as you know, in some patients, over an 80% response rate, so great response from the customers. I'm very enthusiastic about what we're seeing so far.

[Operator:]

Our next question comes from Ronny Gal with Bernstein.

[Aaron Gal:]

So we are seeing you adopting cost-conscious strategies on both Taltz and on mirikizumab. And I was kind of wondering, if you're going to look forward 5 years, where do you see immunology pricing then goes in terms of dollars for you? It's right now in the low to mid-30s, the way we can see it. 5 years here from now, are we going be in the mid-20s, under 20, 30-plus? Where do you see the band of pricing looking like?

[Kevin Hern:]

Thanks, Ronny. We'll go to Ilya for questions on immunology pricing trends.

[Ilya Yuffa:]

Yes. Ronny, thanks for the question on immunology. In terms of our focus, it's -- let's not -- conscious is more related to looking at opportunities for growth. We have a long runway for Taltz. And so we do believe that Taltz is kind of at the foundation of our immunology strategy. We have numerous head-to-head studies in real world evidence to suggest that Taltz is a best-in-disease treatment. And as part of our growth strategy looking at mirikizumab in GI, we do believe that within the next 5 to 10 years, we can, across multiple mechanisms in those 3 specialized groups, dermatology, rheumatology and GI, have significant growth and become a top-tier immunology company. In terms of pricing, I think it's -- they're all very competitive fields. And so our goal is to have great evidence and create access opportunities for patients that need these treatments.

[Operator:]

Next, we go to the line of Kerry Holford with Berenberg.

[Kerry Holford:]

Just on the COVID antibodies, I wonder if you can just discuss the disconnect between your lower 2021 term guidance and the higher associated R&D spend. And with that context, do you have a budget cap in mind for your ongoing COVID investments?

[Kevin Hern:]

Thanks, Kerry. We'll go to Anat for that.

[Anat Ashkenazi:]

Sure. Thanks, Kerry. Let me start with the budget. So we did increase our guidance for the COVID antibody investment from $300 million to $400 million to $400 million to $500 million. And the investments that we've announced this morning is really to address the growth in variants that we see globally and looking at additional antibodies that could address that. The lowering on the high end of the range, really it relates to the changes you've seen here in the U.S. government as well as what we see globally in terms of progression of the disease, but -- and this is one I know that is more challenging to forecast, given that there's not a lot of TRx data or data for you to look at, and we'll continue to update obviously with every quarter.

[David Ricks:]

And maybe just to add as a mindset thing, we didn't get into this because we were thinking about margins or business profile, it was to be useful during the pandemic, which is still going on, obviously, raging in other parts of the world. One other driver for the top line is that increasingly, we'll be selling our products into lower-priced markets or giving it away because that's where the disease is. And when the pandemic period ends, I think we can then take a different look at this enduring business, but we're not there yet. So we're making the investments we need to, to be useful and selling the product where it's needed at the price structure we had previously announced, which is heavily discounted in low GDP markets.

[Operator:]

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

[Umer Raffat:]

Dan, last we spoke in mid-March, it seems like you hadn't had a lot of regulatory discussions on donanemab, but it does feel like you've had them now. So I'm curious, the FDA feedback on the new endpoint, iADRS, as well as the Bayesian analysis. And also very briefly, on CD73, there's an interesting emerging signal in some of the other CD73s in pancreatic setting. I noticed you guys discontinued, would love to find out any additional color.

[Kevin Hern:]

Thanks, Umer. Dan?

[Daniel Skovronsky:]

Yes, sure. So FDA feedback is -- has been continuing, I should say. We had some and it continues to come. I think our view here is unchanged. We previously said that the FDA has concerns around iADRS because it combines cognition and function. And there's always a risk that you could have a positive signal on iADRS driven by cognition with no benefit on function or function going the other way or vice versa. And that wouldn't be acceptable for approval of a new drug. So that's the risk there. On the CD73 Phase I termination, I don't have additional comments.

[Operator:]

And last question comes from Gilbert with Truist Securities.

[Gregory Gilbert:]

Dan, on tanezumab, is the outlook any more hopeful than the optics of the AdCom vote? And can you comment on where pain fits into your overall R&D priority list at this point?

[Daniel Skovronsky:]

Sure. Gregg, thanks for the question. Pain is still a really important unmet medical need. Clearly, the regulatory bar is high here in terms of safety. And we saw that from the Tanezumab Advisory Committee meeting, which was a pretty decisive outcome there and one that we were disappointed in.

[Kevin Hern:]

Thanks, Dan. Gregg, thanks for your question. Back to Dave for the close.

[David Ricks:]

Okay. Thanks, Kevin. We appreciate your participation in today's call and your interest in Eli Lilly and Company. 2021 has been -- has begun with good momentum in our underlying business. We remain focused on executing our innovation-based strategy to bring new medicines to patients and create value for all our stakeholders. As we continue to scale our diverse commercial portfolio, complemented by a pipeline of industry-leading opportunities, we believe Lilly continues to be a compelling investment. Thanks again for dialing in today. Please follow up with our IR team if you have any questions we have not addressed on today's call. Hope everyone has a great day.

[Operator:]

Thank you. Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation and for using AT&T Event Conferencing Service. You may now disconnect.