Eli Lilly and Company

Ladies and gentlemen, thank you for standing by, and welcome to the Quarter 2 2019 earnings call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given to you at that time. If you need assistance during the call today, press star and then zero, and an operator will assist you offline. And as a reminder, today's conference call is being recorded. I would now like to turn the conference over to Kevin Hearn, Vice President of Investor Relations. Please go ahead.

Good morning. Thank you for joining us for Eli Lilly and Company's Q2 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, Ann White, President of Lilly Oncology, Enrique Quintero, president of Lilly Diabetes and Lilly USA, and Patrick Johnson, who is joining us for the first time as our incoming president of Lilly Biomedicines. 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. 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 Elanco during 2018 and 2019, and present earnings per share as though the full disposition via the exchange offer was complete on January 1, 2018. Now, I'll turn the call over to Dave for a summary of our progress in Q2.

Thanks, Kevin. Well, it's an exciting morning for us here at Eli Lilly and an important day for women around the world living with breast cancer as we have just announced the positive results showing that Verzenio extends life for women with breast cancer in the Monarch 2 trial. More on that in a few minutes, but first, let me make a few comments on the overall performance in the quarter. We continue to execute on our strategic objectives, focusing on launch excellence, progressing our pipelines, and improving productivity and our capabilities. Second quarter revenue grew 1% and 3% in constant currency, despite the loss of U.S. exclusivity for Cialis late last year and the impact of Lartruvo's impending product withdrawal. Q2 marked our 15th consecutive quarter of worldwide revenue growth. Our performance was driven by volume growth of 6%, Excluding the Cialis loss of exclusivity and the impact of Lartruvo, volume grew nearly 15%, led by our key growth products, which accounted for 43% of the company's revenue. Q2 non-GAAP operating margin was 27.9%, representing a 250 basis point decline versus last year. This reflects a decrease in gross margin and increased investment in both our launches and our pipeline. operating margin improved by 170 basis points versus Q1 of this year, reflecting progress toward our margin goals for 2019 and 2020. We achieved milestones on several pipeline assets since our last earning call, including the FDA approval of Engality for treatment of episodic cluster headaches in adults, the FDA approval of Ceramza as a single agent for patients with high AFP and second-line hepatocellular carcinoma, and FDA approval of Baximi, our nasal glucagon for the treatment of severe hypoglycemia in patients with diabetes. We're pleased to note that for all three of these approvals, the Lilly product represents a first-in-class opportunity within their respective indications. Additional milestones to highlight include the positive Phase III data for higher doses of trulicity in patients with type 2 diabetes. and the positive Phase III overall survival data for Verzenio from the Monarch II study, which I mentioned earlier, an exciting milestone for Verzenio, differentiating this medicine from others in the CDK4-6 class. Also, in partnership with Pfizer, we're prioritizing a potential U.S. submission of tenazumab in patients with moderate to severe osteoarthritis pain by Q1 2020, followed by submissions in the EU and Japan. At this time, we are not planning regulatory submissions for moderate to severe chronic low back pain. We continue to leverage our strong operating cash flow to augment our pipeline through external innovation and return capital to shareholders. We announced a worldwide licensing agreement for a novel small molecule from Centrexion Therapeutics that is currently being studied as a potential non-opioid treatment for chronic pain conditions. We completed the $3.5 billion accelerated share repurchase program announced in Q1, and we returned nearly $600 million to shareholders via the dividend. Moving on to slide five, you'll see more detail on the key events since our last earnings call in April. In our continuing efforts to make medicines more affordable for patients, we launched Lilly Insulin Lyspro this quarter at a list price of 50% lower than the current Humalog list price. While an important solution for patients, access so far has been limited. We will continue to work with payers to make this important solution accessible to patients. I would also like to highlight our leadership changes. First, a sincere note of gratitude to Mike Harrington for his tremendous leadership and service to our company. Mike, you've done a great job defending the company and serving as a key advisor to our leadership team and our board. Second, I would like to welcome Patrick Johnson as he assumes leadership for our Biomedicine Business Unit. Patrick is a patient-focused leader with a long track record of delivering results in some of our largest markets. Under Patrick's leadership, Lilly Japan has climbed from the 17th ranked pharma company in Japan in 2014 to the number six ranking at the end of this year. We delivered the highest growth rate in Japan during that period of time. which included the successful launches of our key growth products. It's great to have Patrick join the senior leadership team. Now I'll turn the call over to Josh to review our Q2 results and to provide an update on the financial guidance for the balance of 2019. Thanks, Dave.