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spk19: Thank you ladies and gentlemen for standing by. Welcome to the Q1 2019 earnings call. At this time all participants are in the listen only mode. Later we will conduct a question and answer session. Instructions will be given at that time. Should you require assistance during the call, please press star then zero. As a reminder this conference is being recorded. I would now like to turn the conference over to our VP of investor relations, Kevin Hearn. Please go ahead.
spk14: Thank you. Good morning. Thank you for joining us for Eli Lilly and Company's Q1 2019 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, Kristy 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 Macco and Mike Zappar 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 10K and 10Q 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, which exclude the financial contribution from Alanco during the first quarters of both 2018 and 2019, and present earnings per share as though the full disposition via the exchange offer was complete on January 1st, 2018. We believe this view provides insights into the drivers of our underlying business performance as a dedicated pharmaceutical company and provides for cleaner comparisons to future and prior periods. Now I'll turn the call over to Dave for a summary of our progress in Q1. Thanks, Kevin.
spk11: The company's focus in 2019 is to execute on a broad and exciting range of new products and indication launches to build and accelerate our pipeline and continue to improve the focus and competitiveness of our company. We are pleased with the progress on these objectives in Q1 2019. First quarter revenue grew 5% in constant currency. Despite a significant decline in USCLS revenue due to the recent loss of exclusivity, we made significant investments in key commercial and late stage pipeline products and delivered non-GAAP EPS of 2%, putting us on track to meet our full year financial guidance. Our key growth products, which all launched since 2014, contributed meaningfully to our performance and account for 39% of our revenue. While still relatively early in their product life cycles, these products continue to drive growth led by Trulicity, Taltz, Brasenio, and in collaboration with Ferrer-Ingelheim, Jardience, and Bezoglart. Total volume growth across the entire portfolio was 7% and excluding Cialis was nearly 13%. U.S. diabetes contributed strong volume growth of nearly 17%. Oncology growth accelerated in the U.S., Japan, and China. And our international markets grew volume by 9% as global launches of key brands continue across our major geographies. Excluding the impact of FX on international inventory sold, Q1 non-GAAP operating income as a percent of revenue decreased by nearly 600 basis points versus Q1 2018, reflecting a decrease in gross margin and investment in recent launches and multiple late stage pipeline opportunities. On the same basis, operating income as a percent of revenue in Q1 increased by nearly 80 basis points versus Q4 2018, reflecting progress toward our 2019 full year margin goal of 28%. We exit Q1 on track with our plans for the full year. We have invested in our future growth while delivering strong volume growth across the business. Importantly, several pipeline assets achieved milestones this quarter, including the regulatory submission for the Trulicity Rewind Study for a CD outcomes label in the U.S. and in Europe. The FDA granted priority review for mGALITY for cluster headache in the U.S. The submission of ultra rapid Lyspro for type 1 and type 2 diabetes in both Europe and Japan. The U.S. submission of our first connected device, a connected care pre-filled insulin pen. And we had several phase 3 data readouts. We also announced an updated timeline for expected regulatory action timing for nasal glucagon. We received notification the FDA has extended the review timeline by up to three months to analyze information requested late in that review cycle. We remain confident in nasal glucagon submission package and look forward to FDA action in the coming months. In terms of capital deployment, we continue to utilize our strong operating cash flow to access value creating external innovation, which will enhance our future growth prospects. We completed the acquisition of loxo oncology, adding key pipeline assets and expanding our presence into precision medicine. We completed the full separation of Alanco Animal Health, the in exchange offer retiring 65 million Lilly shares with approximately $8.2 billion. We entered into a global licensing and research collaboration with Immunext, focused on new medicines for autoimmune disease. We announced a global licensing and research collaboration with Avidity, focused on potential new medicines in immunology and select other indications. We announced an agreement to sell the rights in China for two legacy Lilly antibiotic medicines, as well as a manufacturing facility to Edding Farm, a Chinese based specialty pharmaceutical company. And we returned an additional $3.5 billion to shareholders via a previously announced accelerated share repurchase program and $600 million in dividends, representing a 15% increase per share versus 2018. Moving on to slides five and six, you'll see more details on key events since our February earnings call, including our announcement to introduce insulin Lyspro, a low price version of Humalog in the US. Now I'll turn the call over to Josh to review our Q1 results and to provide an update on our post-Dalanco financial guidance.
spk13: Thanks, Dave. Slide seven summarizes our presentation of gap results and non-gap measures. And slide eight provides a summary of our gap results. Looking at the non-gap measures on slide nine, you'll see revenue increase 3%. Excluding the impact of vet backs on international inventory sold, gross margin as a percent of revenue was 80.2%, in line with our long-term goals for manufacturing efficiency and profitability. On the same basis, gross margin declined 130 basis points compared to Q1 2018, driven by production timing and lower volumes from post patent products. Total operating expense increased 12%, with marketing, selling and administrative expense increasing 13%, driven primarily by increased investment to support our recent launches, including DTC campaigns to drive awareness for Mgality, Resenio and TALS. R&D expense increased 11%, reflecting the ramp up of multiple late stage pipeline assets, the addition of the LOXO oncology portfolio and insight communicating to us that they would no longer co-fund the development of bare sit-nip, which reduces the royalty we will pay them moving forward. As a result of the investments described above, operating income decreased 8% compared to Q1 2018, which put our operating income as a percent of sales at .2% for the quarter. As our recent launches continue to drive revenue and operating leverage, we expect income growth and improvements in operating margin during the remainder of 2019. Other income and expense was income of $86 million this quarter, compared to income of $70 million in Q1 2018, driven by over $100 million in gains of -to-market of public equities held through venture capital investments and strategic partnerships, partially offset by higher net interest expense. Our tax rate for the quarter was 12.9%, a decrease of 260 basis points compared with the same quarter last year, driven primarily by timing associated with the impact of U.S. tax reform. At the bottom line, net income declined 4%, while earnings per share increased 2% due to a reduction in shares outstanding from share repurchases. Recall that our non-GAAP comparisons removed the 65 million shares retired through the Elanco exchange from both 2018 and 2019. While income declined this quarter versus Q1 2018, we made important progress on several fronts that will drive future growth, as demonstrated by growing revenue despite significant headwinds from the loss of exclusivity of Cialis in the U.S., investing behind key growth brands such as Megalody, Verzenio, Taltz, Jardience, and Trulicity, and advancing several pipeline assets to the next phase of development, including multiple regulatory submissions. Slide 10 provides a reconciliation between reported and non-GAAP EPS, and you'll find additional details on these adjustments on slide 23. Moving to slide 11, let's take a look at the effect of price, rate, and volume on revenue growth. This quarter, foreign exchange reduced revenue growth by 2 percentage points. As Dave mentioned earlier, worldwide revenue grew 5 percent on a performance basis, driven by a 7 percent increase in volume, partially offset by price. Q1 is the ninth straight quarter our business grew volume in each major geography. U.S. revenue increased 3 percent. Like last quarter, Trulicity, Taltz, Verzenio, and Bezaglar were the key drivers of 6 percent volume growth, partially offset by price. Excluding Cialis, volume grew nearly 15 percent in the U.S., highlighted by diabetes products delivering nearly 17 percent volume growth. Consistent with our 2019 financial guidance, U.S. price declined 3 percent, driven by increased utilization of patient affordability programs, mainly for Influence and Taltz, adjustments to estimates for rebates and discounts, and higher contracted rates, primarily related to Trulicity, which were partially offset by favorable segment mix across the portfolio. Moving to Europe, strong volume growth of 9 percent was largely offset by the negative effect of foreign exchange and to a lesser extent price. Volume growth was led by Trulicity, Illumiant, and Taltz. In Japan, strong volume growth of 7 percent, driven by Symbolta, Verzenio, and Trulicity, was largely offset by a drag of 6 percent from price as a result of the government mandated price decreases that went into effect in 2018. Revenue in the rest of the world increased 9 percent on a performance basis this quarter, led by volume growth from Humalog, Trulicity, Cialis, Jardience, and the recently launched Tyvet, a China-only -PD-1 immunotherapy agent in collaboration with InnoVent Biologics. As shown on slide 12, our key growth drivers were once again the engine of our worldwide volume growth. These products drove 14.8 percentage points of volume growth this quarter, an increase of over 100 basis points versus their contribution to growth in Q4 2018. Brands that have experienced loss of exclusivity provided a drag of 530 basis points driven primarily by Cialis. You may recall the generic versions of Cialis entered the U.S. market at the end of September last year, and as expected, we've seen a rapid erosion of sales. When excluding LOEs, the rest of our products posted robust Q1 volume growth of nearly 16 percent. Slide 13 provides a view of our key growth products. In total, these brands generated nearly two billion dollars in revenue this quarter, representing 39 percent of revenue. Trulicity continues to post robust growth, having achieved over 45 percent total share of the U.S. market in a rapidly expanding class that grew nearly 30 percent this quarter. Similarly, Jardience posted impressive U.S. share gains in volume growth, now capturing 50 percent and 64 percent share of market in total and new prescriptions respectively. Both products continue to be the market leaders in their classes. MGALITY's launch trajectory continues to be strong, with nearly 33 percent share of market for new prescriptions in the U.S., an increase of almost 13 share points from where we finished 2018. We expect increasingly strong performance in the U.S., combined with -in-class access to drive meaningful sales contribution in the second half of 2019. Continuing with our non-GAAP explanations on slide 14, foreign exchange rates had a modest impact on our revenue, but a more meaningful impact on cost of sales due to the effect in last year's quarter, resulting in a -single-digit impact on operating income in APS. Turning to our 2019 financial guidance on slide 15, you'll see that we've maintained the non-GAAP pharma-only expectations we shared in February, and with the Elanco Exchange offer complete, are now providing EPS on the same basis. Our non-GAAP earnings per share range is $5.60 to $5.70, an increase of five cents versus our previously issued guidance range, which included Elanco. While the line items remain unchanged from the previously communicated pharma-only expectations, I'd highlight two items that impact our outlook for the remainder of 2019. First, we will manage expenses to deliver within our SG&A range while investing thoughtfully to drive continued revenue growth. And second, in Q1, OID benefited from -to-market equity gains, and our tax rates benefited from a net discrete item. We are maintaining our full-year outlook for these items, however, as these items are highly variable and it is early in the year. Touching briefly on our updated GAAP guidance, we expect earnings per share to be in the range of $8.57 to $8.67, which includes a $3.7 billion gain on the disposition of Elanco recorded in discontinued operations. On slide 16, we provide an update on our recent activity regarding capital allocation. Consistent with our strategic priorities, we spent over $8 billion on initiatives to drive future growth. In addition to investing in internal R&D, we closed the LOXO oncology acquisition, which augmented our pipeline, and returned over $4 billion of cash to shareholders. As Dave mentioned earlier, we completed the successful divestiture of Elanco this quarter via an exchange offer. We exited Elanco at an attractive price and recognized a $3.7 billion gain on the disposition. In addition, the exchange offer was substantially oversubscribed and resulted in an earnings accretion in 2019 from retiring Lilly shares. As we have returned to growth, our confidence in our business outlook has been reflected in meaningful dividend increases in 2018 and 2019. As we move ahead, our ability to continue to generate strong operating cash flow supports our pursuit of external innovation to enhance our long-term growth and create shareholder value. Now I will turn the call over to Dan to highlight our progress on R&D.
spk10: Thanks, Josh. Slide 17 shows select pipeline opportunities as of April 24. Movement since our last earnings call includes the regulatory submission of trulicity rewind data for CV outcomes label in the U.S. and Europe, submission of our connected care pre-filled insulin pen for type 1 and type 2 diabetes in the U.S., submission of a fixed dose combination of empagliflozin, linoglyptin, and metformin XR for type 2 diabetes in the U.S., and submission of ultra rapid Lysbro for type 1 and type 2 diabetes in Europe and Japan. We also highlight the initiation of phase 2 testing for IL-33 monoclonal antibody in immunology, the initiation of phase 1 testing for three new molecular entities, including our GIP, GLIP, glucagon, and the attrition of two phase 2 molecules. With the submission of ultra rapid Lysbro, we are now on track to deliver 12 NME approvals since 2014. Therefore, a common question I get is what's next? As we replenish our late stage pipeline, in the past 12 months, we've made four big innovation bets with Mirkizomab, Pegilodecacan, our recently acquired RET inhibitor, and Terzapatide. Moving to slide 18, Mirkizomab is our IL-23 in phase 3 for psoriasis and ulcerative colitis with expected data readouts in 2020 and 2021 respectively. We see first in class potential for ulcerative colitis, a disease with high unmet need and growing incidence, where we saw strong phase 2 efficacy in clinical response and endoscopic healing. Based on positive phase 2 data in Crohn's disease, which we'll be presenting in a few weeks at DDW, we're now moving quickly into phase 3 for Crohn's disease yet this year. Pegilodecacan is our first in class pegulated IL-10 from ArmoBioSciences. We see a strong biologic rationale and single agent activity in renal cancer. There's also an intriguing signal in combination with both chemotherapy and checkpoint inhibitors in several tumor types. We're looking forward to data readouts from the Cypress 1 and 2 non-small cell lung cancer studies by the end of this year, as well as the phase 3 pancreatic cancer trial in 2020. We'll also be starting a clinical program in renal cell carcinoma this year. Our most recent late stage entry is our potential first in class and best in class RET inhibitor from Loxo-Oncology. Currently in the phase 2 portion of the Libretto 001 study, we look forward to having both additional data readout and a regulatory submission by the end of this year. This molecule has received breakthrough designation from the FDA for three indications, RET-Fusion positive non-small cell lung cancer, RET-mutant medullary thyroid cancer, and RET-Fusion positive thyroid cancer. We're excited about the data we've seen to date, which has shown robust response rates and encouraging response durations. We look forward to presenting new data at a medical meeting in the second half of this year. Finally, Terzapatide, our novel first in class and best in class GIP-GLIP dual agonist incretin, which started its phase 3 surpass program in late 2018 on the heels of presenting impressive phase 2 results in October at EASD. We believe Terzapatide could provide levels of efficacy not seen with existing products. All surpassed studies for the global submission should start the end of the year with data expected in 2021. We also expect to initiate phase 3 studies in obesity and a phase 2 study in NASH later this year. We look forward to presenting new data at ADA in June on Terzapatide, including the additional dose escalation data from a phase 2 trial in diabetes, data from a Japan clinical trial, and new biomarker data from our phase 2 trial supporting potential efficacy for NASH. We're excited about this cohort of innovative first in class late stage assets, each with the potential to improve the standard of care across immunology, oncology, and diabetes. We look forward to what's next from these assets as they achieve important milestones and readouts over the next 12 months. Slide 19 shows a tally of the significant progress we've made since our last earnings call on key events for monitoring for 2019, including submissions across four key line extensions or NMEs that I described earlier, the regulatory submission of Mgality for episodic cluster headache in Europe, positive results from Carolina's CV outcome study of Trajenta, positive results for a phase 3 study of TALTS for non-radiographic axial spondyloarthritis, results from two phase 3 studies of Tenezumab, the first in patients with chronic lower back pain, and the second a long-term safety study in patients with osteoarthritis pain, positive results from a phase 3 study of SIRAMSA for first line EGFR non-small cell lung cancer. We also note that we received notification that for technical reasons the FDA has refused to file the supplemental NDA for empagliflocin and type 1 diabetes, and that we have made a decision to not pursue the development of a lumiant for psoriatic arthritis. In addition to the highlights I shared with you today, we're growing our early stage pipeline through both enhanced internal productivity and external innovation. We'll highlight several examples in upcoming earnings calls. Now I'll turn the call back over to Dave for some closing remarks.
spk11: Thanks, Dan. In the first quarter, we delivered strong volume-based revenue growth of 5% on a constant currency basis, driven entirely by our key growth products. We made strategic investments in commercial and late-stage products, which will enhance our future growth prospects. We've seen good pipeline progress this quarter, including a number of regulatory submissions. In addition, we bolstered our early phase pipeline by advancing multiple assets into the clinic and signing research agreements. We also completed two significant transactions that will allow us to simultaneously focus the business and accelerate our pipeline of medicines. The disposition of Elanco and the acquisition of loxon oncology. Finally, we returned over $4 billion to shareholders via the dividend and share repurchases. Speaking for the entire team at Lilly, we remain incredibly excited about the prospects in front of us to reach millions of people who need better medicines for difficult diseases. And we are eager to continue to execute on the growth opportunity in front of the company. This concludes our prepared remarks. And now I'll turn the call over to Kevin to moderate our Q&A.
spk14: Thanks, Dave. We'd like to take questions from as many callers as possible. So we ask that you limit your questions to two or to a single question with two parts. Karen, please provide the instructions for the Q&A session, and then we're ready for the first caller.
spk19: Thank you. Ladies and gentlemen, if you have a question, please press star then one on your touchtone phone. You will hear a tone indicating he's been placed in Q. You may remove yourself from Q anytime by pressing the pound key. If you are using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, star one at this time. We'll go to the line of Chris Schott from JPMorgan. Please go ahead.
spk04: Great. Thanks very much for the questions. The first one for me was just elaborating a little more on trulicity dynamics this quarter, particularly as we think about price. I just want to make sure I heard the comments and prepared remarks properly, but how should we be thinking about net pricing and the overall pricing environment for trulicity in 2019? And were there any one-time impacts or true ups of rebates for trulicity this quarter? My second question is just a really quick one on umgality and just how we should be thinking about where net pricing is going to shake out for this one. And should we think about second quarter results reflecting maybe a more normalized gross to net than we saw with the Q1 results? Thanks very much.
spk14: Thanks, Chris. We'll go to Enrique for trulicity and then Christy from umgality.
spk21: Chris, thank you for your question. Allow me to provide some color on trulicity's overall performance. We continue to be very excited about the underlying business fundamentals of the product. When we look at volume growth, we are basically the beneficiary of very strong share growth. We're now sitting at 46%, which is an all-time high for trulicity, and with the tailwind of very significant class growth, now sitting at 30%. Something to note is when we look at sequentially at volume, while scripts basically increase for trulicity from Q4 of 18 to Q1 of 19 by about 5-6%, our actual shipments decline by 7%. So I want to make sure that we are looking at underlying business fundamentals and not necessarily just some shift in retail or wholesaler inventory dynamics. When it comes to pricing, there hasn't been a step change when it comes to pricing. I think of course we see pricing pressures across all diabetes categories, but it's important to note that our price this quarter was comparable to our price in Q4 of 18. Now what we basically see in terms of pricing relative to Q1 of 18 is high rates when it comes to managed care and rebates, growth in highly rebated segments, whether it's the Department of Defense, VA, and so forth. And then we also had a negative impact due to changes in the estimates for rebates and discounts.
spk18: And Chris on MGALITY, your question on net pricing and will it be more normalized on gross net in Q2. What we saw in Q1, first of all, in demand, very excited about the fact that we are now the number two CGRP passing a JOVI in both new prescriptions and total prescriptions, and we're on track in Q2 pass AMOVIG in new prescriptions. As we look at the net, we saw a higher than typical free goods as reimbursement was coming on. To give you a little bit of flavor, the first quarter had a 57 percent of commercial claims were reimbursed. We exited Q1 at 67 or two out of every three prescriptions or claims, commercial claims being reimbursed. So as the reimbursement comes on in Q2, we should see an improvement in that.
spk14: Thanks Chris. Next caller,
spk19: please. Next we'll go to the line of Jason Gerberi, Bank of America. Please go ahead.
spk09: Great. Thanks for taking my questions. Christy, just a follow up on the MGALITY comment. I know that a lot of companies in this space have kind of framed second half payer environment as a little bit fluid. So is your comment that, you know, where you exited 1Q, should we be thinking about that as a linear trend? Are there any puts and takes going on, changes in the reimbursement of the CGRP biologics? Just wanted to get a better sense there. And I guess my follow up, probably staying with you, ABVI's Sky Rizzi got pretty good early access. And so I'm just sort of curious your thoughts, winners and losers there, either be it the established novel Interleukins or do you see this as more cannibalization of ABVI's own key mirror franchise?
spk18: Thanks. Sure. So continuing on MGALITY in terms of access, first of all, we saw very good receptivity by the payers for this class, really giving doctors and patients choice and also not having many, if any, real restrictions for primary care prescribing. On the reimbursement side, we see the payers coming on board and more and more coming on board. Right now, our access ending Q1 is 82%. So we do expect that to get better and better over the course of the year. So I hope that answers your question there. On Sky Rizzi, you know, the data on Sky Rizzi is as expected. And as we look at TELTS ability to compete, the competitive landscape that we, environment that we're in really doesn't change. Access is very similar, you know, Sky Rizzi and Trimphia, TELTS, all of the newer agents really coming to market have helped increase the expectations that patients and doctors should have on really skin clearance. And so it's a competitive marketplace, but we like our chances because with TELTS in the dermatology office, we know clear skin very fast and it lasts up to five years. We've seen data that it's sustained and no new safety signals. And we also have the -to-head versus NIL-23 that will be coming out this year, which will demonstrate that speed and clearance at 12 weeks and 24 weeks where the IL-23s really show their peak efficacy. So we're looking forward to that. And in rheumatology, we'll continue to compete there as we just released our -to-head data versus Humira, showing superiority. And then later this year, being able to look at the regulatory approval of AXPA. So the competition is fierce, but our chances and our odds with TELTS are extremely good and we don't see a huge difference in the landscape because of Rizzi coming on.
spk14: Thank you. Any other questions? Jason, next caller, please.
spk19: Samus Fernandez from Guggenheim. Please go ahead. Oh, I'm sorry. One moment.
spk07: Hello?
spk19: Yes, go ahead, please.
spk07: Okay, thanks. So just a couple of quick questions. As we think about the evolving competitive landscape in the insulin space, you know, we've seen ADME log take up quite a bit of share in a short period of time. And then there's also the threat of potential biosimilars reaching the market in the next couple of years. So how does that affect the evolving landscape and how that potentially impacts your portfolio as it relates to Humalog or also for the long-acting insulins going forward? And then just a second quick question for Dan. You guys have some data on your ERC inhibitor at ASCO. Just hoping that you could give us your thoughts on data coming at ASCO for that product and perhaps any other data sets that you think we should be watching for.
spk14: Thanks. Thank you. Enrique, if you want to answer the insulin question, we'll go to Dan.
spk21: Sure. Clearly there are new competitors in the insulin space. I think in the case of ADME log, it's important to reflect that most of their share gains really have been driven in managed Medicaid. Outside, when we look at Humalog, our overall scripts are basically flat. Clearly there's an evolving landscape when it comes to insulin with the potential entry of other insulin follow-ons. As you know, the insulin categories are going to be transitioning to BLAs in the 2020 timeframe. Clearly there's questions about interchangeability and when is that going to play out. As we said in the past, we don't view interchangeability as something imminent. We eventually think this is going to happen, but there needs to be more clarity. This is likely something that won't happen before 2021. Now, it's difficult for us to predict when insulin follow-ons will come into the market, in particular in the U.S. Given that some of these products have expressed certain expectations when it comes to launch timelines but have been delayed. Importantly to note as well is that we continue to evolve our overall insulin strategy. We like to say that we are reimagining insulin systems and insulin delivery by basically bringing connected care platforms to be able to improve patient outcomes in a much more meaningful way. We're excited about our overall innovations with systems, connected care, but also bringing new insulin like our ultra rapid insulin that we're developing.
spk10: Thanks for the question on our ERK inhibitor. This is a phase one program, but it's still very early, but we're pretty excited about it. The reason that we're excited about this pathway is because the MAP kinase pathway is implicated in driving about 30 percent of solid tumors. It's a great opportunity to drug that pathway. At ASCO, we have a couple of presentations on the ERK inhibitor, including some of the early phase one data in a variety of patients and some data in lung cancer patients as well. We look forward to being able to share that, but again, it's an early program. I think we have a few other disclosures at ASCO that we're excited about. Turn it over to Anne to comment on a late phase disclosure.
spk03: Yes, so one of the disclosures that we're very excited about at ASCO is the results of our EGFR mutation positive first line lung cancer study in SIRAMSA. This is the relay study. We shared top line data in March that the study was positive and met the primary endpoint of progression free survival. We will be submitting to regulators globally mid-year, and approval on this would make the sixth indication that we've achieved for SIRAMSA. Importantly, we're excited about the data and we look forward to this oral presentation at ASCO. OSAMERTNIB is currently the standard of care in this setting, and we know that our magnitude of benefits must be competitive with that. We look forward to providing more answers for patients in this setting and also providing more options for physicians as they look to sequence therapy for the best outcomes for their patients. So we look forward to sharing more with you at ASCO. Thank you. Thanks, Seamus. Next
spk06: caller, please.
spk19: Next we'll go to Tim Anderson with WULF. Please go ahead.
spk06: Thank you. On the rewind data for atrolicity coming up at ADA, without front running the data, can you just talk about your level of excitement? And if this is data where once it's presented, do you think the prescriber community is going to say, you know, wow, that's really a game changer? And then second question on Tinesimab. I think a lot of investors feel this program is probably dead based on the latest data disclosure from you and Pfizer. Can you just share your perspective?
spk14: So we'll go to Enrique on rewind, and then Dan, if you want to talk about the Tinesimab results.
spk21: Yeah, we continue to be excited about the rewind results for atrolicity. I'm going to have a plug here for my investor relations colleagues that we have an investor, we're planning on an investor call at the ADA post-disclosure of the rewind results. So we hope to either see you there or hope that you can either connect or be there in person.
spk14: Thank you. Dan? Great.
spk10: Thanks for the question on Tinesimab. Before I address your question on the future Tinesimab, I think it's important to comment on why we entered into this partnership with Pfizer and why we have pursued this program. It's obviously because of the dramatic unmet medical need here. There are nearly 60 million Americans suffering with chronic pain from osteoarthritis and back pain, many of whom have moderate to severe disease and aren't getting relief from currently available therapies. When you put that in the context of the drawbacks of the therapies that are currently available, including in many cases opioids, you can just understand how important it is to have new non-opioid mechanisms to address pain. So that's why we entered into this program. As we said before, we entered in with a high level of confidence on the efficacy of this mechanism, but what we sought to discharge was the safety risk through this program. That brings us to the final study, which of course was designed to fully understand the safety risk of this mechanism. For that reason, the study enrolled a different population of patients and we enrolled in the others. We wanted to compare to NSAIDs and therefore we had to enroll patients who were getting some measure of relief and tolerating chronic NSAIDs. We're continuing to analyze the results from that study from 1058. We're looking at that though in the context of all of the available data on Tenezumab. Our plan then is to discuss the totality of the data with regulators in the coming months. That will help us decide on what the next steps are and then we'll be able to share an update with you when that's complete. Next caller please.
spk19: Next we'll go to the line of Jeff Meacham from Barclays. Please go ahead.
spk05: Hey guys, good morning and thanks for the question. For Dan on Illumia and Atopic Derm, what do you guys see as differentiation in the data so far among the JACs? I know you still have some data coming up. In this indication is your view from the field how attractive oral options are versus injectables. Then just a real quick one for Enrique and Trulicity. I just want to ask your view of the class growth differences in the US versus OUS and how durable this is. I know this has been a big driver and independent of the share gains that Trulicity has gotten over the years. Thank you.
spk14: Thanks Jeff. Dan and then we'll go to Enrique.
spk10: Okay well maybe I'll start with a comment on differentiation and toss it to Christy for the commercial insights on patient interest in an oral here. Although I should just say it's premature to speculate on differentiation versus other molecules where we haven't seen the full data from theirs or even ours. But we're excited about the opportunity to be first here in Atopic Derm. Christy?
spk18: Yes exactly. You know right now Dupixent is available but it's an injectable for the more severe type of Atopic Derm and there's so many more patients out there suffering, millions of patients. In fact our dermatologists tell us that Atopic Derm space reminds them of the psoriasis space about 15-20 years ago. So we do think it's a large opportunity and we do plan to be the first JAK to market. We've released the fact that our first two studies were positive. You probably saw that. We have three more studies to read out this year and then based on the totality of that data if they continue to be positive we'll be submitting next year.
spk21: So when it comes to trolicity class or GOP1 class growth I think we see the same dynamics in most markets. The drivers are similar which is the updated guidelines that have been recently released. So when we look outside of the U.S. we are, GP1 class growth is in the mid-20s. Given the maturity of the class in the U.S. it is impressive that the growth in the U.S. is even higher than that. But it's very exciting to see and as a corollary to that I think trolicity's performance is very consistent across many markets.
spk14: Jeff thanks
spk21: for the questions. Next caller please.
spk19: Next we'll go to the line of Andrew Baum from Citi. Please go ahead.
spk17: Thank you. Just going back to Sky Rizzi for the first question. What's your first line market share for Taupes in psoriasis and do you expect to be able to grow it now that Sky Rizzi has been introduced into the market? I'm obviously referencing AVI's enormous rebasing influence as well as the profile of that drug and what it may mean for the contraction of the more refractory lines of therapy. And then second perhaps Dave could comment on the timing and the impact of the proposed rebate reform on your diabetes business expressly on the near-term impact for realized pricing because of the Medicare math assuming it does get implemented at the beginning of next year. Many thanks.
spk14: Thanks Andrew. So we'll go to Christy for the comment on Sky Rizzi and then Rike if you want to talk about the impact on diabetes for the proposed rebate safe harbor rule.
spk18: Yeah so in dermatology specifically our total prescriptions are a little over 15 percent and we do see growth continuing absolutely. We see actually with the new therapies that have come to market it actually has increased the market growth. So right now the market's growing at 13 percent and the more the newer agents come to market I think the more you'll see the older TNFs be used for shorter periods of time or potentially not used first line in the future. And so we do see our growth coming from the fact also our ability to compete in dermatology. So the Trimphia versus Tulp's -to-head will be another place for us to go. Five-year data, sustained efficacy and we really are the only one that's been able to show not only clear POSI 100 but the ability to do it fast in one to two weeks and that sustainability. So our growth continues and we continue to have very high confidence that that growth will continue.
spk21: Rike? You know the biggest impact from the proposed rebate rule is really at the patient level because patients will have access to medicines at more affordable prices. And if you take that thread forward I think what you will basically see is better adherence and I think that's something that we all want when it comes to healthcare which is better adherence to medicine. So the impact that is not often talked about is really when it comes to maybe an impact on volume. When it comes to some of the mechanics and so forth, honestly I view it pretty neutral overall. Let me just jump in
spk11: Andrew on maybe both those points. I think it's important to note in psoriasis two things. One that there's four stepping through TNFs for almost every patient. If that were to change I think that's a big positive for the newer innovation so that doctors could select appropriate therapy for patients with psoriasis noting that TNFs don't work nearly as well as the new classes and amongst those we think TALS is the best profile. Also within Durham there's a lot of switching anyway so the front line market versus the total is much smaller than other immunology indications. That's an important thing to keep in mind. On the rebate rule we are planning for implementation January 1st. I think Enrique rightly notes the volume upside. The thing one would worry about is rate compression because presumably you'd have more facial and transparent pricing but I think across our portfolios because of the high consolidation on the payer side the rates are pretty compressed already. There aren't big differences between what the payers are paying. That's why we lean into this one. We think it's the right policy answer to help seniors with medication costs and to shift the debate from list pricing to net pricing which we see as our long-term interest.
spk14: Thanks for your questions Andrew. Next caller please.
spk19: I will go to Vamil Devan from Credit Suisse. Please go ahead.
spk01: Hi great thanks for taking the questions. So just first on the Lumia. I think I asked this question before but just the U.S. opportunity there against our limited sales this quarter. I think you said in your prepared remarks you're not going to be filing for psoriatic arthritis. Just correct me if I misheard that. I'm just trying to get a sense of how you think about getting the 4mg to the market and sort of the opportunity in the U.S. for that product and also the implications from the data Pfizer recently released from their long-term trial showing some additional questions on thrombosis. And then the second one just following up on the psoriasis questions. You mentioned Merikizumab and the data there in psoriasis. I know you said you'll be first in GI. I'm just curious what the differentiation of any would be in psoriasis that product or is it really more just a GI focus we should think about.
spk14: Thanks. Thanks Vamil. We'll go to Christy for the Lumia and Merikizumab questions.
spk18: Okay so for the Lumia. Yeah I think what we see in the U.S. is it'll be slow and steady and the Lumia 2mg RA. Your question about psoriatic arthritis you did hear correctly. You know as we look at the opportunities for us to be best in class, first in class and really enter a market with unmet need. In psoriatic arthritis and the ankylosing spondylitis non-radiographic AXPA as well, we already have TULTS and TULTS has shown very remarkable results. And so we feel very good with that play as we look to study a Lumia in other indications like atopic dermatitis. Remember lupus got fast-track designation in December. We are studying both 2 and 4mg in that indication as well as atopic dermatitis. And we have our alopecia areata study where phase 2 will read out later this year and if positive we'll move to phase 3. So we're still very big on the opportunity of baricitinib as a whole. The RA 2mg will be slow and steady growth and 4mg is being studied and we look to see the efficacy results there and bring it to market if they're positive. In regards to the Pfizer question about what read out in 55 countries that have approved a Lumia, we haven't seen unusual safety signals in VTEs and we continue to study obviously post-marketing research that we're doing in collaboration with agreement with FDA both on real-world evidence and in randomized clinical trial. Those will continue as well. So no news on no unusual news on our side on a Lumia like the Pfizer announcement. And then lastly on marichizumab. So yes we're in phase 3 studies with both psoriasis and ulcerative colitis. We are very excited about the GI space because marichizumab should be the first IL-23 to ulcerative colitis. We also finished our phase 2 data on Crohn's disease. That data will be released at DDW in just a few weeks here in May. So look for that. And then yes in psoriasis you know we are doing a phase 3 clinical trial with some competitive endpoints and -to-head data. So when that study reads out we'll be looking to see if we can have stronger and more sustained results than current IL-23s on the market.
spk14: Well thanks for your questions. Next caller please.
spk19: Next we'll go to Umar Raphet from Evercore. Please go ahead.
spk12: Hi thanks so much for taking my questions. First can you quantify for us what percentage of TRX are paid versus free on TALS as well as mGALITY? And secondly I noticed one of the trials reading out for you this fall the IL-10 plus our DIVO trial in second line lung has been shrunk from 100 down to 50 patients. Is that simply a function of increasing Ketuda use in first line or is there another dynamic here as well? Thank you very much.
spk14: Okay thank you. We'll go to Christy for the questions around TALS and mGALITY and then Anne we'll talk about agilodefic.
spk18: Sure you know first of all Lilly believes in really open access and giving choice to patients and physicians. So we continue to work with payers on access with TALS. In spite of that we the barriers that we've had we've had very good uptake with TALS and as we look at our programs patient specific copay cards etc. being able to allow patients on drug and then transition to insurance coverage we see that two-thirds of patients in the market on TALS are paid for. On mGALITY as I said before the commercial claims that have been submitted we see in Q1 that 57 percent of those have been reimbursed and as we did in Q1 we saw that in the mid-60s two out of every three patients that submitted a claim we had reimbursed coverage for.
spk03: Thanks Christy. Yes on the question on Pagilodecakin this is the Cypress II study you're referring to. This is a second line lung study a phase two study in IO naive patients. So following first line treatment but not in immunotherapy and then it's in combination with a vivo in low expressors and what we're finding as you know well is that IO naive patients in the second line are becoming increasingly rare so what we decided to do was analyze that data and have that inform the next steps for the for the program but not continue to further rural patients in this somewhat diminishing population. We remain confident that the greatest opportunities for Pagilodecakin remain in lung cancer both in the first line setting and in later lines and also in renal cell cancer so as Dan mentioned we'll be starting a renal cell study later this year but we'll look forward to readouts in lung at the end of this year and then also in pancreatic cancer early next year and remain confident in the opportunities for Pagilodecakin across those tumor types so I look forward to hearing more towards the end of the year both on Cypress II and on the Cypress I study which is in the first line setting.
spk14: Thanks for the questions newer next caller please.
spk19: I will go to David Rezinger Morgan Stanley please go ahead.
spk02: Yes thanks very much I have two questions the first is for Dave I'm hoping that you can help us understand a little bit better how you're thinking about the forthcoming HHS action on the elimination of rebates and how that will negatively impact companies that use volume based discounts such that a product like TALTS will be able to step up on the formulary and maybe move into a formulary position that another larger player held in psoriasis and then second Enrique with respect to trulicity just hoping that you can help us with a little bit of a bridge so you said that Rx increased sequentially by five to six percent actual shipments declined by seven percent so does that mean there was an inventory work down of 12 to 13 percent and could you also quantify the negative dollar change in reserves thank you.
spk14: Thank you Dave and then Enrique.
spk11: Yeah thanks Dave so on the rebate rule again we are planning for this January 1 of course it's part D there are some legislative efforts to look at regulating commercial markets I guess at this point my speculation would be that looks more challenging either for political or practical reasons but I do think once part D changes and I think we're as I said planning toward that you will start to see increased interest from payers that are not in the government system so commercial payers to have similar benefits provided to their beneficiaries particularly in chronic disease where list price effects have created a lot of distortion and increased -of-pocket costs and we've all heard the the outcry around that really centered on insulin frankly so I think your logic is the right one in the sense that today with rebates which are not shared with patients and confidential payers have a strong incentive to keep those confidential and use those to compete on premiums that's the way it works I think in a future world where that can't be the way they use those rebates they'll need to compete for premiums in other ways efficiency presumably and patients will have a choice at the counter based on net pricing I would assume that doctors are informed about those net prices and that that also becomes an influencer on prescribing so for new innovative therapies hypothetically one in especially market or in a in a general practitioner market like in Galati you know I think that'll be an important part of any company strategy to understand the net price that will facially be there for the consumer the final comment is of course part D is a senior program so the demographics will affect us mostly in our diabetes franchise initially and that's where a lot of our planning is is focused right now thanks Dave Enrique
spk21: you know whenever we look at sequential growth you there's a what I what I call the colloquially a double whammy effect so we we we could be double counting here it's not the simply add up one one good way to think about it is just if we to shift five percent of the units from q4 to q1 that that that explains 10 percentage points of difference but in reality you're only shipping five percent of units from one quarter to the to to another that's a long way of saying that I will have I will have your estimate likely the the we don't have full visibility into the retail inventories but my assessment is about six points
spk14: thank you Dave thanks for the questions next caller please
spk19: next we'll go to Steve Scalia from Cowan please go ahead
spk08: thank you I have a couple questions we were expecting verzenio data in 2019 from monarch her and monarch plus I'm wondering if they're still on track and then secondly Enrique one of the concerns with the upcoming rewind readout is that the benefit might be driven by 30 percent or so of patients in the trial with pre-existing cardiovascular disease and that the remaining patients add little to the overall outcome so overall the benefit might be a solid but unspectacular 20 percent or so reduction in risk which won't offer opportunity for differentiation I'm just wondering can you tell us not to be concerned about this point thank you
spk14: all right we'll go to Ann for the question on verzenio and then Enrique on rewind
spk03: yes so you're you are correct so we're looking to deliver on new data to drive additional growth and one of them is the HER-2 positive study which we will report results on towards the end of the year at a medical meeting the monarch 2 overall survival data will read out as we had to communicate in the past in 2020 and then we also have importantly the adjuvant study reading out in 2021 and I appreciate asking verzenio because it has been an encouraging start to the year the revenue grew 30 percent over q4 and we also are seeing nice uptake across Japan and European markets so we look forward to these additional data readouts helping contribute to that message but look forward to those readouts coming as we had communicated in the past thanks Enrique
spk14: you
spk21: know we are unable to provide additional comments on rewind but we look forward to seeing you at the conference call
spk14: thanks Steve next caller please
spk19: thank you next we'll go to the line of Alex Arfa BMO please go ahead
spk20: okay thank you and good morning on teresepatide your gift clip on good to see the program formally I guess extended an obesity and NASH regarding your phase three obesity trial could you give us a little bit more color in terms of outcomes you're looking for the competitor you are you using and the potential readout and you mentioned you'll have those titration data at ADA can you comment on the extent to which that data shapes your dosing for the phase three trials particularly the high dose thank you Enrique yeah
spk21: so we are very excited about the teresepatide and being able to start a phase three type two phase three and national phase two we are not providing additional color on the specific obesity trials that we're conducting that we plan to conduct clearly we need to have the appropriate discussions with the FDA as we engage in this phase three trial but we plan to do some time sometime in the future and as far as the titration question yes we do plan to have presentation at ADA looking at some of the additional titration data for teresepatide
spk14: thanks for the questions Alex next caller please
spk19: thank you next we'll go to Louise Chen Cantor please go ahead
spk16: hi thanks for taking my questions so my first question is on Mira Kizumab you had mentioned that you'll likely be the first IL-23 to market in UC and Crohn's and just curious in addition to that what are the competitive advantages do you see as it relates to other ILs in the Valet-Lent and also JAKS and then the second question I had was on LOXO-292 you showed very good ORR median duration percentage of patients on therapy how do you think that will hold up into the phase two readout and how do you think you compare with other RET inhibitors in development thank you
spk14: thanks we'll go to Christy from Mira Kizumab and then Anne on my RET inhibitor
spk18: thanks Louise for the question on Mary so to be clear we expect to be first in to the market on ulcerative colitis and first of a couple to market on Crohn's disease so you never know we've been speeding up the phase two trial and look forward to the to the next but that's where we are on GI we're very excited because our studies are set up to be best in class and so if they read out positively we expect to not only be first in class but best in class and ulcerative colitis and Crohn's disease
spk03: thank you Christy Anne yes when we sought on the LOXO question when we sought to move into precision medicine and to obtain a RET inhibitor we really thoroughly surveyed the landscape and selected the molecule in the portfolio that we believe to be first and best in class and we continue to believe that today we intend to submit in the U.S. by the end of the year and in Europe shortly thereafter so to answer your question we remain very confident in the efficacy safety profile and the duration of our RET inhibitor and we will continue to expect that we'll deliver first in both lung and thyroid cancer so we'll actually be having we're presenting an update on the registrational data in the second half of 2019 at a major a couple of major medical meetings in advance of that potential regulatory filing and importantly as you look at this data set we now have over 400 patients enrolled across tumor types with RET fusion or mutations and so we will expect the data to continue to bear out what we saw last year which is in response rates as you said from 60 to 80 percent with well over 90 percent of patients remaining on study so this is the data reported last year and then we'll provide an update later this year.
spk14: Thanks. Luis thanks for your call questions next caller please.
spk19: Certainly and if you do have a question please press star one next we'll go to Navin Jacob from UBS please go ahead.
spk15: Hi thanks for taking my questions so number one I just want to I'm sorry to beat a dead horse on on GLP-1 pricing but Enrique if you could just dig in a little bit further just want to understand in Q1 of this year how much of the lower price was related to Medicare Parts down the whole changes versus other rebate related changes because you mentioned that there was rebate estimate adjustments I want to understand is that a one-time impact for a cruel accounting related issues or is it is it something that we should we should be thinking about as continuing on going forward and so overall just want to understand where is the GLP class going in terms of pricing is there going to be continued pricing pressure over the next couple of years and then secondly just on op margins if you could help us understand longer term where the op margin profile for the human health business will look like can we expect margins to reach mid to high 30s in line with some of your other peers appreciate the help.
spk14: Thanks Navin we'll go to Enrique for Trilisi then Josh on the op margin question.
spk21: Yeah so I just first to address the question about the donut hole the donut the donut hole becomes a little more important in Q2 I don't have the numbers in me but in the case of diabetes medicines maybe Q1 is maybe only about 10 percent of the overall donut hole from an accounting perspective what we're going to see throughout the year so when we think about Trilicity while there was some impact of the donut hole it was not material to price the results. As I mentioned when we look at Trilicity we do have high rebates in managed care and so forth relative to Q1 of last year the changes due to estimates changing estimates for rebates and discounts that yes that is basically changing because of how we had accrued and based on a full review of the claims that we received later basically changes the information that we have on hand and we need to account for that as soon as we know that information so yes that is a other quarters that basically is impacting this particular quarter so that's probably as much detail as I can provide.
spk13: Thanks Enrique, Josh? Let me know on operating margins for the quarter we were slightly above 26 percent our guidance for the year is to be at 28 percent we're confident we'll get there I think you'll see through the remainder of the year that we'll see you know our guidance top line growth netting out currency effects you know similar to what we're seeing this quarter and we'll see sort of operating expenses at a more constant absolute level than what we're seeing in Q1 so we're confident in our 28 percent for the year and then for 2020 our goal is 31 percent and we are confident as well in achieving that that's for pharma only so that's on our new basis excluding the lanko we see good opportunity to get to the 31 percent so we're no change there I think if you look past 2020 we'd expect margin expansion to continue we have limited patent expirations in the first half of the the next decade and we still have the new products that we're launching now will still be in their growth phase so we definitely see margin expansion opportunities post 2020 but we haven't given a specific goal thanks next caller please
spk19: there are no further questions in queue at this time Dave ricks please go ahead
spk11: all right thank you thank you all for joining us we appreciate your participation in today's earnings call and your interest in the Lillian company we began 2019 with a lot of momentum and we made meaningful progress in our first quarter although q1 was a period of investment we remained committed to our revenue and profitability goals for 2019 and 2020 we continue to advance our innovation-based strategy through progressing internally discovered medicines augmented with external innovation we completed two transformative transactions this quarter as well with the full separation of alanco and the addition of loxonecology with a robust pipeline and volume driven revenue growth lily continues to be a compelling investment thanks again for dialing in please follow up with our IR team if you have additional questions that were not addressed on today's call have a great day
spk19: ladies and gentlemen let us conclude our conference for today thank you for your participation and for using at&t executive teleconference you may now disconnect
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