Eli Lilly and Company

Ladies and gentlemen, thank you for standing by and welcome to Lilly's Q2 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. Should you require assistance during the call, please press star and zero and an operator will assist you offline. As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Vice President of Investor Relations, Kevin Hearn. Please go ahead.

Good morning. Thank you for joining us for Eli Lilly and Company's Q2 2021 Earnings Call. I'm Kevin Hearn, Vice President of Investor Relations. And joining me on today's call are Dave Ricks, Lilly's Chairman and CEO, Anat Ashkenazi, Chief Financial Officer, Dr. Dan Skowronski, Chief Scientific and Medical Officer, Ann White, President of Lilly Oncology, Ilya Yufa, President of Lilly Biomedicines, Mike Mason, President of Lilly Diabetes, and Jake Van Narden, CEO of Loxo Oncology at Lilly. We're also joined by Lauren Zierke, Kenta Weha, and Sarah Smith 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. Now, I'll turn the call over to Dave for a summary of our second quarter results. Thank you, Kevin.

Q2 of last year was the peak of the pandemic's negative impact to our business, and one year later, I'm proud of the innovation and resilience displayed by my Lilly colleagues to deliver against our objectives in new ways while also mobilizing to develop treatments to help combat COVID-19. Looking at Q2 2021, we were encouraged by the increasing worldwide vaccination rates, as well as the underlying environment in most of our major markets. COVID-19-related stocking in Q1, followed by destocking in Q2 of last year, complicates quarterly performance comparisons. Therefore, looking at revenue growth in the first half of 2021 better reflects the underlying trends in our business. On today's call, we will provide year-over-year comparisons for both Q2 and the first half of the year. In the first half of 2021, we delivered 11% growth in our core business. This excludes COVID-19 antibody revenue. Boy, this was buoyed by strong volume-driven growth across key brands and major geographies, including the U.S., Europe, and China. Turning specifically to Q2, revenue grew 23% compared to Q2 2020, or 20% in constant currency. This performance was driven entirely by volume growth of 22 percentage points. As previously highlighted in Q2 2020, we saw a reversal of the $250 million pandemic-related product stocking, which occurred in Q1 2020. When excluding COVID-19 antibody revenue, the Q2 2020 COVID-19-related destocking and the sale of Cialis in China, our core business grew 12% for the quarter, up from 7% in Q1 on the same basis. We were pleased to see sequential top line growth in the core business this quarter signaling that healthcare systems continued recovery from the pandemic and the strength of our underlying business. Key growth products continue to drive our revenue growth and represent 54% of our core business this quarter. Our non-GAAP gross margin was 79.3% in Q2 or 79.7% excluding impact of foreign exchange on international inventories sold. Excluding the FX impact, our gross margin increased by approximately 60 basis points compared to last year. Our non-GAAP operating margin was 29.4%, representing an improvement of nearly 140 basis points. We are pleased to see operating margin expand year-over-year, and we expect continued expansion in the second half of this year. On the pipeline front, we achieved multiple milestones since our earnings call in April, receiving breakthrough therapy designation for dononimab and announcing our plan to submit to the FDA under the accelerated approval pathway. Announcing positive phase three results for terzipatide's SURPASS-IV trial with planned global submissions of the SURPASS program for terzipatide in type 2 diabetes by the end of 2021. Obtaining approval for Jardiance in partnership with Beringer Ingelheim for HEF-REF in Europe and announcing positive phase three results from the Emperor Preserve Trial for Jardients in Hef-Pef, the first and only successful trial for this patient population. And initiating Phase III trial results for Pertabrutinib in Mantle Cell Lymphoma, Terzipatide in Hef-Pef, and Resenio in HR-positive, HER2-positive early breast cancer, and now prostate cancer. We also continue to augment our pipeline with business development deals and announce the acquisition of Protomer Technologies. We welcome the Protomer team to Lilly and are excited to bring this technology to our diabetes pipeline, as we believe glucose-sensing insulin may become the next generation for insulin treatment to improve the quality of life for people living with diabetes. Lastly, on financials, we returned approximately $1.3 billion to shareholders via the dividend and share repurchases in the quarter and authorized the repurchase of up to $5 billion in stock in addition to the $500 million authorization remaining under our 2018 share repurchase program. Moving on to slides five and six, you'll see a list of key events since our Q1 earnings call, including a May webcast, which highlighted our updated environmental, social, and governance strategy and our sustainability efforts, as well as the launch of a new ESG website to serve as a comprehensive resource to provide increased transparency regarding the company's ESG goals and progress. Further, as part of our goal to become carbon neutral in our own operations at our manufacturing plant in Kinsale, we recently inaugurated a new solar field, which is now the largest in Ireland. We also announced donations of COVID-19 therapies at no cost to low-income and lower middle-income countries heavily impacted by the pandemic and are proud of the impact we are having around the world as we work to combat COVID-19. Now I'll turn the call over to Anat to review our Q2 results and to provide an update on our financial guidance for 2021.