Eli Lilly and Company

Ladies and gentlemen, thank you for standing by, and welcome to the Lilly Q2 2020 earnings call. Now, at this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you wish to place yourself in queue for questions, please press 1, then 0. To remove yourself from queue, please repeat the 1, then 0 command. As a reminder, today's call is being recorded. I will now turn the call over to your host, VP, Investor Relations, Kevin Hearn. Please go ahead, sir.

Thank you. Good morning, and thank you for joining us for Eli Lilly and Company's Q2 2020 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, Chief Financial Officer, Dr. Dan Skowronski, Chief Scientific Officer, Ann White, President of Lilly Oncology, Patrick Johnson, President of Lilly Biomedicines, and Mike Mason, President of Lilly Diabetes. We're also joined by Sarah Smith, 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 the extent and duration of the effects of the COVID-19 pandemic, as well as other factors 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 2019 and present earnings per share as though the full disposition via the exchange offer was complete on January 1, 2019. Now I'll turn the call over to Dave for some opening comments.

Thanks, Kevin. A lot has changed in the world since our last earnings call. Science has continued to advance our understanding of COVID-19, and efforts across the industry to develop treatments and vaccines are progressing rapidly. While some regions and countries have begun to reopen, COVID-19 cases and deaths are climbing in other places. Despite these challenges, Lilly continues to demonstrate resilience and resourcefulness to progress our mission of making medicines for the millions of patients we serve. I've never been more proud of the company and my 35,000 teammates. This past quarter was unlike any other during my tenure as CEO, concurrently combating social, economic, and public health crises. Economic uncertainty remains as high unemployment persists in many countries. As expected, our business experienced headwinds this quarter. with patients unable to see doctors or access healthcare during periods when the economies were shut down to prevent the spread of COVID-19, and by the unwinding of forward buying into Q1 that occurred. Overall, our year-to-date results are strong and indicative of the underlying trends. I'm proud of Lilly's efforts to ensure patients have access to their medicines. to find creative ways to ensure we advance critical research and to advance our ongoing efforts to develop treatments for COVID-19. We continue to staff our manufacturing facilities around the globe with essential personnel to ensure there are no disruptions in the supply of medicine. And in recent weeks, we resumed activity in the majority of our clinical trials where enrollment had been paused. We're resuming in-person promotional activities when it's safe on a country-by-country and on a state-by-state basis in the U.S. And we will continue to use these virtual engagement tools we've built to augment in-person promotional activities. Throughout Q2, we saw a steady increase in customer contacts and medical education touchpoints as we leveraged new platforms to reach physicians. We continue to see increased interest and volume of virtual interactions from physicians and expect a hybrid model of in-person and remote engagement for some time in the U.S., as well as internationally. We also made good progress this quarter executing our R&D strategy, launching two new medicines in the U.S., including Retevmo, the first therapy ever approved for patients with RET-driven lung and thyroid cancers, and Lumgev, a fast-acting mealtime insulin for patients with type 1 and type 2 diabetes. Tulse and non-radiographic Axba, Ceramza in combination with Erlotinib for EGFR-mutated non-small-cell lung cancer, and Talvid, our new diagnostic for patients with Alzheimer's disease, were also approved in the U.S. Several positive Phase III readouts this quarter include Verzenio in adjuvant breast cancer. Now the first, and the only CDK4-6 inhibitor to succeed in this population. Mirakizumab and psoriasis compared to both placebo and head-to-head versus cosentix. And just today, in collaboration with Bering-Ingelheim, Jardiance in heart failure patients with reduced injection fraction, both with and without diabetes. We also continue to make progress on our potential COVID-19 therapies, Notably, the initiation of multiple clinical trials developing neutralizing antibodies, both as monotherapy and in combination. Dan will provide you with more detail during the R&D update. The unprecedented pace at which we're executing this project across our development and manufacturing organizations is evidence of what we are capable as an innovative company. As I mentioned earlier, our Q2 business results were negatively impacted by COVID-19. However, we remain confident in the underlying fundamentals of our business. COVID-19 had a meaningful impact on economic activity, and we observed the following trends in the U.S. A sharp decline in the number of patient visits to physicians dropping to roughly 50% of pre-COVID-19 levels. Reduced visits translated into fewer new prescriptions with the peak impact in late April and early May in most therapeutic classes. A slow return to healthcare activity through a combination of telehealth and in-person visits. As IQVIA data showed, patient visits were back to 85% of pre-COVID-19 levels in June. And new prescriptions slowly beginning to recover, although some variation across therapeutic areas. While the outlook for economic activity is uncertain, we remain optimistic that patients, physicians, and hospital systems will continue to find ways to ensure patients can access the medicines they need. Turning to our Q2 results, as expected, reduced patient visits and inventory dynamics were both a drag on otherwise solid total prescription trends. Revenue declined 2% compared to Q2 2019, and we estimated revenue was negatively impacted by the reversal of largely all of the $250 million of stocking related to COVID-19 that we experienced in Q1. While most existing prescriptions were maintained, new patient prescriptions declined in Q2 relative to pre-COVID-19 baselines. We estimate this impact to have been about $250 million across the portfolio. Taking into account current trends, we are on track to deliver the financial goals we established for 2020. The strength of our new products, our ability to scale them worldwide, and our productivity agenda position us well to continue to deliver robust business performance and to create shareholder value. Moving to slide five, you'll see the full list of key events since our last earnings call. Before Josh discusses our financial results, just a few comments about the executive orders that were announced last Friday. We all share the goal of making medicines more affordable and accessible to patients and believe concepts such as rebate reform and the sharing of savings within the eligible 340B patient population offer real opportunities to lower the out-of-pocket costs for patients quickly. However, as I've noted before, the concept of international price indexing is a bad policy. This policy will have almost no benefit to patient out-of-pocket costs, but together with reimportation, will most assuredly have serious negative consequences for patients, for the safety of our supply chain, and for the future of innovation. So now is the wrong time to introduce sweeping government actions that will at best distract and at worst cripple the same industry that's racing to discover vaccines and treatments to defeat COVID-19. Now I'll turn the call over to Josh to review our Q2 results in more detail and provide an update on our financial guidance for 2020.