Eli Lilly and Company

Ladies and gentlemen, thank you for standing by and welcome to the Lilly Q4 2020 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you wish to put yourself in line for a question, please press 1 then 0 on your telephone keypad. If you should require assistance during the call, please press star then 0. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Vice President of Investor Relations, Mr. Kevin Hearn. Please go ahead, sir.

Good morning. Thank you for joining us for Eli Lilly and Company's Q4 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, Ilya Yufa, President of Lilly Biomedicine, and Mike Mason, President of Lilly Diabetes. We're also joined by Sarah Smith and Lauren Zierke 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. Additional information concerning factors that could cause actual results to differ materially is contained in our latest Forms 10-K and subsequent Forms 10-Q and 8-K 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 a summary of our 2020 results.

Thanks, Kevin. On our guidance call in December 2019, we provided a framework for how we are thinking about the 2020 to 2025 period, noting our expectations to continue to deliver top-tier revenue growth and operating margin growing into the mid to high 30s while continuing to increase R&D productivity. As we met with investors throughout 2020, it was evident that while there was good insight into management's expectations for the next few years, investors were increasingly focused on our ability to grow in the second half of this coming decade. In the past two months, we have begun to deliver answers to that question with positive data for LOXO305, terzipatide, and dononimab, each with a chance to significantly improve patient outcomes in areas of high unmet medical need. We believe these are three of the most important and exciting pipeline assets in our industry and provide meaningful support for Lilly's growth potential beyond 2025. Together with Fresenio data in early breast cancer last summer, we have significantly reinforced our growth prospects for the midterm and upgraded them for the long term. While these readouts drive incredible momentum for our future, I am also pleased with the way that we delivered in a complex and challenging 2020. Our 2020 revenue enable us to exceed our mid-term revenue goal of 7% CAGR from the years 2015 to 2020. Turning to the quarter, revenue grew an impressive 22% versus Q4 2019, or 20% in constant currency. This strong performance was driven entirely by volume growth of 24 percentage points, despite continued pricing headwinds and demand pressure from the effects of COVID-19. Excluding Bamlanivimab, revenue grew over 7% for the quarter. Key growth products continue to drive this volume and our revenue, now representing 55% of our base business. We continue to advance our productivity agenda in Q4, as the combination of strong revenue growth and modest operating expense growth drove significant margin expansion. Our non-GAAP operating margin was approximately 33%, with and without COVID-19 therapies. and improvement of roughly 650 basis points versus Q4 2019. With continued margin expansion for the quarter and full year, excluding the impacts of COVID-19 on our business in 2020, we would have achieved our midterm operating margin as a percent of revenue goal of 31%. We're proud to have delivered nearly 1,000 basis points of operating margin expansion since 2016. In addition to the strong business performance, we achieved multiple pipeline milestones since our Q3 earnings call. These include the positive results I noted for Loxo-305, Terzepatide, and Dononimab. The FDA granting emergency use authorizations for Bamlanivimab and Baracidinib to help patients with COVID-19. The submission of Ampagliflozin for heart failure in people with reduced injection fraction in the US, Europe, and Japan. This is done in collaboration with Berger Ingelheim. And the submission of Verzenio in early breast cancer in the U.S. During Q4, we put our growing operating cash flow to work, announcing a 5% increase in the dividend for the third consecutive year, as well as continuing to pursue external innovation to augment future growth prospects with the acquisition of Prevail Therapeutics. This acquisition adds a promising new modality for Lilly by creating a gene therapy program that will be anchored by Prevail's portfolio of clinical stage and late preclinical stage gene therapies across Alzheimer's, Parkinson's, dementia, ALS, and other neurodegenerative disorders. Moving to slides five and six, you'll see a list of key events since our last earnings call. We announced that Artie Shaw, our Senior Vice President and Chief Information and Digital Officer, will retire in the first half of this year after 27 years of service to Lilly. She's been an invaluable member of our executive committee and a leader who really models our values. In addition to leading the development of our digital information strategy, she has developed and mentored talent throughout the organization and demonstrated a deep care for the patients we aim to serve. I want to thank Artie for her many contributions to Lilly. And now I'll turn the call over to Josh to review our Q4 and full year results.