Eli Lilly and Company

Ladies and gentlemen, thank you for standing by and welcome to the Eli Lilly fourth quarter 2018 earnings call. At this time, all the participant lines are in a listen-only mode. There will be an opportunity for your questions and instructions will be given at that time. If you need any assistance during the call, please press star zero and operator will assist you offline. As a reminder, today's call is being recorded. I'll turn the conference over to Mr. Kevin Hearn, Vice President of Investor Relations. Please go ahead, sir.

Good morning. Thank you for joining us for Eli Lilly and Company's Q4 2018 earnings call. I'm Kevin Hearn, Vice President of Investor Relations. Joining me on today's call are Dave Ricks, Lilly's Chairman and CEO, Josh Smiley, our Chief Financial Officer, Dr. Dan Skowronski, President of Lilly Research Laboratories, Christy Shaw, President of Lilly Biomedicines, Ann White, President of Lilly Oncology, and Enrique Quintero, President of Lilly Diabetes and Lilly USA. We're also joined by Kim Macko and Mike Sapar 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 three and those outlined in our latest forms 10-K and 10-Q filed with the Securities and Exchange Commission. The information we provide about our products and pipeline is for the benefit of the investment community. It is not intended to be promotional and is not sufficient for prescribing decisions. I will now turn the call over to Dave for a summary of our progress in Q4. Thanks, Kevin.

We continued our strong performance in 2018 with a fourth quarter revenue growth of 5%, non-GAAP operating income growth of 15%, and non-GAAP EPS growth of 17%. Newer pharmaceutical products, which represented 38% of human pharma revenue in the quarter, continue to be the driver of our worldwide revenue growth, led by TruLicity, Tulse, Basiglar, Fresenio, and Jardiance. Highlights of our strong volume-based growth include 31% U.S. diabetes volume growth and 11% total pharma volume growth. This was achieved despite the significant headwind from the loss of exclusivity of Cialis in the U.S. We continue to see our year-over-year expansion in operating margins. Excluding the effect of FX on international inventory sold, Q4 non-GAAP operating income as a percent of revenue increased by over 165 basis points while investing in new product launches. We made significant progress with the pipeline, including the approval of EMGALITY for the prophylaxis of migraine in Europe, the submission of EMGALITY for the prevention and treatment of cluster headache in the U.S., results from a Phase III study of tenazumab in patients with moderate to severe osteoarthritis pain, and the results of two Phase III studies of baricitinib in atopic dermatitis. We also provided an update on ANALS, the confirmatory Phase III study of Lortruvo in combination with doxorubicin for advanced or metastatic soft tissue sarcoma. This study did not meet the primary endpoint of overall survival, and there was no difference in survival between the study arms. We are now working with global regulators to determine the next steps for Lertruvo and will present the announced data at an upcoming medical conference. In terms of capital deployment, we continue to utilize our strong operating cash flow to access value-creating external innovation that will enhance our future growth prospects. We announced a definitive agreement to acquire Loxo Oncology, a biopharmaceutical company focused on the development and commercialization of highly selective medicines for patients with genomically defined cancers, which would add multiple first-in-class medicines to the Lilly portfolio and expand our oncology presence into precision medicines. We also announced several other business development transactions, including an agreement with AC Immune to develop small molecule tau inhibitors for Alzheimer's and other neurodegenerative diseases. We announced an agreement with Hydra Biosciences to acquire all assets related to their preclinical TRIP A1 antagonist program, currently being studied for the treatment of chronic pain, and an agreement with Aduro Biotech to develop novel immunotherapies for autoimmune and other inflammatory diseases. In addition, we returned over $600 million via the dividend and announced a 15% dividend increase for 2019. We also repurchased $1.1 billion of stock. I'd also like to provide an update on our plans for completing the full separation of Elanco. As we stated during our December investment community meeting, operationally we are ready to effect the full separation. Today, we are providing a timeline for the separation as well as the method we'll use to dispose of our remaining 293 million Elanco shares. Specifically, we plan to launch an exchange offer to Lilly shareholders in the first half of this year to exchange our remaining Elanco shares for Lilly shares. The exact timing of our decision to launch this exchange offer will depend on market conditions, but the launch of the tender could occur as early as the coming days. We're pleased with the market reception of the Elanco IPO and with Elanco's performance as a publicly traded company. Jeff and his team are well prepared to take the next step, and Elanco employees are excited about their future. We're proud of what we've accomplished together, and we share their enthusiasm for Elanco's future. Moving to slides five and six, you'll see more detail on the key events since our November earnings call. Now I'll turn the call over to Josh to review the Q4 results and to provide an update on our financial guidance for 2019.