Eli Lilly and Company

Ladies and gentlemen, thank you for standing by. Welcome to the Eli Lilly Q3 2019 Earnings Call. At this time, all participant lines are in a listen-only mode. Later, there will be an opportunity for your questions. Instructions will be given at that time. If you should require assistance, please press star, then zero. As a reminder, this conference call is being recorded. I'd now like to turn the conference over to the Vice President of Investor Relations, Kevin Hearn. Please go ahead.

Thank you. Good morning. Thanks for joining us for Eli Lilly and Company's Q3 2019 earnings call. I'm Kevin Herrin, 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, Patrick Janssen, President of Lilly Biomedicines, and Mike Mason, incoming President of Lilly Diabetes. We're also joined by Kim Macco 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, 10-Q, and any 8-Ks 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 Q3 results.

Thanks, Kevin. Q3 was another strong quarter for Lilly as we continue to deliver robust results and execute on our strategy, which is launching new medicines, advancing our pipeline, and driving productivity. Revenue grew 3% this quarter, or 4% in constant currency. driven entirely by robust volume growth from our new products and international operations. Volume contributed 8 percentage points of growth, despite sizable headwinds from the loss of exclusivity for Cialis in the U.S. and the withdrawal of Lartruvo. Excluding Cialis and Lartruvo, volume growth was an impressive 16%. Our newest medicines continue to be the engine of revenue growth and account for 44% of revenue this quarter. We made good progress in productivity in Q3 as our non-GAAP operating margin was 28.6%, keeping us on track to meet our 2019 and 2020 operating margin goals. Compared to last year's quarter, operating margin was essentially flat. reflecting lower gross margin offset by prudent management of our operating expenses. We achieved milestones on several pipeline assets since our last earnings call, including the FDA approval of Ravow for the acute treatment of migraine with or without aura in adults, the European Commission approval to expand Trulicity's label to include results from the Rewind Cardiovascular Outcomes Study, The presentation of registration phase two data for selprocatinib in non-small cell lung cancer and thyroid cancers. And the presentation of overall survival data of verzenio in metastatic breast cancer. TULPS also made impressive progress with its development program this quarter. with the FDA approval of radiographic axial spondyloarthritis, or AXPA, along with its submission in Europe. Submission of our non-radiographic axial spondyloarthritis in the U.S. and Europe, which represents a first-in-class opportunity in this indication. And positive results from a head-to-head study in psoriasis versus gazelkumab, an IL-23 antibody. We remain focused on creating long-term value for shareholders as we allocate capital, seeking external innovation that will enhance future growth prospects while at the same time we return nearly $1.2 billion to shareholders this quarter via share repurchase and the dividend. Moving on to slide five, you'll see more detail on key events since our last earnings call in July. I would like to highlight today's announcements regarding leadership changes. and I want to congratulate and thank my longtime colleague Enrique Quintero for his significant contributions to Lilly. Enrique has done an outstanding job leading Lilly Diabetes over the past decade, really reestablishing our company as a leader in diabetes care with the broadest and fastest growing portfolio of medicines in the industry. Enrique, Lilly would not be in the strong position it is today without your leadership. Your energy, optimism, and thirst for excellence will be missed. I would also like to welcome Mike Mason as he assumes leadership for our diabetes business unit. Mike is a 30-year veteran with deep expertise and significant experience in our diabetes business. Mike is a patient-focused leader with a track record of delivering results for Lilly and for patients in the US and Canada. Under Mike's leadership, Lilly successfully launched both Jardiance and Trulicity in the US. becoming the diabetes market volume leader during his tenure. Since July 2018, Mike has led our connected care and insulin commercial and development organizations working to leverage technology to enhance insulin delivery and improve the user experience. Importantly, he has also led Lilly's efforts in building the most comprehensive suite of insulin affordability solutions in the U.S., including the Lilly Diabetes Solutions Center, to support people in need of less expensive alternatives for their medicines. Mike, it's great to have you join our senior leadership team. And now I'll turn the call over to Josh to review our Q3 results and provide an update on financial guidance for 2019.