Eli Lilly and Company

Ladies and gentlemen, thank you for standing by, and welcome to the Lilly Quarter 3 2021 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, then 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 Q3 2021 Earnings Call. I'm Kevin Hearn, VP of Investor Relations. 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, Anne White, President of Lilly Neuroscience, Jake Van Narden, CEO of Loxo Oncology at Lilly and President of Lilly Oncology, Patrick Janssen, President of Lilly Immunology and Lilly USA, and Mike Mason, President of Lilly Diabetes. We're also joined by Lauren Zerke, Kenta Ueha, 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 third quarter results.

Thanks, Kevin. Once again, Lilly had a very strong quarter, growing our newest medicines around the world and continuing to advance significant potential new medicines in the late-stage development, while also building long-term opportunities through early-stage investments in technology and progress in early-stage programs. Q3 2021 was also a period where the resilience of our company, our people, and collaborators were tested by the pandemic. And again, they rose to the challenge. I want to personally recognize and thank my Lilly teammates for delivering such a strong overall performance, innovating to maintain pipeline velocity, running our plants to meet the rapidly growing demand of medicines, and continuing to serve our customers, whether it be in person or online. Turning to our strategic deliverables on slide four, Q3 revenue grew 18% compared to Q3 2020, or 17% in constant currency. This performance was driven entirely by volume. Volume growth was 17 percentage points. When excluding COVID-19 therapies, which includes revenue from COVID-19 antibodies and sales of Illumiant for the treatment of COVID-19, revenue grew an estimated 11% for the quarter and year-to-date. Revenue attributable to our newer medicines grew over 35%, and now represents nearly 60% of our core business this quarter, an important indicator for our long-term growth potential. Our non-GAAP gross margin was 79% in Q3, or 79.3%, excluding for the impact of foreign exchange on international inventory sold. Excluding this FX impact, our gross margin decreased by approximately 60 basis points compared to last year. Our non-GAAP operating margin was 30.5%, representing an improvement of over 400 basis points compared to Q3 of last year, and over 100 basis points of sequential improvement from Q2 of this year. We had a number of significant pipeline milestones since our last earnings call in August. including the FDA approvals for Rosenio in certain people with high-risk early breast cancer, and for Jardiance, in collaboration with Beringer-Ingelheim, in heart failure with reduced ejection fraction. Regulatory submissions for terzipatide for type 2 diabetes in the U.S., to which we applied a priority review voucher, as well as the EU, and Jardiance in heart failure with preserved ejection fraction. We initiated a rolling submission in the U.S. for Denonimab in early Alzheimer's disease and had positive Phase III readouts for Leprakizumab in atopic dermatitis. We also continue to augment our pipeline with business development opportunities as we continue to leverage external innovation to build our discovery capabilities with a focus on new modalities at Lilly. In Q3, we announced a research collaboration and licensing agreement with Lycea Therapeutics, to utilize their proprietary protein degradation technology. Finally, on financials, we distributed nearly $800 million to shareholders via the dividend this quarter. Moving to slides five and six, you'll see a list of key events since our Q2 earnings call, including issuing the company's first sustainability bond with proceeds allocated toward environmental projects, including pollution prevention, energy efficiency, and renewable energy, as well as social projects to increase access to essential services and socioeconomic advancement and empowerment. We announced a series of leadership and organizational changes this quarter. Recent positive data readouts this year led us to the natural decision to increase our focus on immunology and neuroscience and to unify the Loxone Oncology and Lilly Oncology organizations. We believe these changes enhance our ability to execute on a broad range of exciting commercial and pipeline opportunities. I'd like to welcome Jake Van Arden to Lilly's Executive Committee and look forward to Anne, Patrick, and Jake continuing their leadership in their new roles. They'll be focused on increasing our competitiveness in their therapeutic areas and growing our existing medicines while also launching our late stage pipeline of new medicines which could benefit patients across a diverse set of medical conditions. I'm grateful for Ilya's continued leadership and look forward to him leading our growing international business. Finally, I'd like to thank Chido Zuleta for his impact on our company across more than three decades of his commitment to patients, to development of our industry-leading commercial capabilities, and his relentless focus on execution and mentorship of countless Lilly leaders. Chido, thank you for your service to our company. We have a deep leadership bench here at Lilly. They're smart. They're energetic and experienced, and I know they're as excited as I am to take Lilly to another level in the decade ahead. Now I'll turn the call over to Anat to review our Q3 results and provide an update on our financial guidance for 2021.

Thanks, Dave. Slides 7 and 8 summarize financial performance in the third quarter and year to date. I'll focus my comments on non-GAAP performance. Revenue increased 18% this quarter compared to Q3 2020, or 11%, excluding the items Dave mentioned earlier, representing strong momentum for our core business, despite the impact of Olympta's OUS patent expiry. We continue to be pleased with the strong volume growth across key brands like Trulicity, Paltz, Fresenio, and Jardians, as our key growth products made up nearly 60% of our core business during the quarter. Gross margin as a percent of revenue declined 10 basis points to 79% in Q3. Favorable product mix, excluding COVID-19 therapies, and a favorable impact from foreign exchange rate on international inventory sold were more than offset by lower gross margin on COVID-19 therapies. Total operating expenses grew 8% this quarter compared to the same quarter last year. Marketing, selling, and administrative expenses increased 1%, while R&D expenses increased 17%. driven by significant investments in exciting late-stage pipeline opportunities, including Denonimab, Firtubrutinib, and Trizepatide. We also invested approximately $50 million in research and development for COVID-19 therapies in Q3, bringing our total COVID-19 R&D investments to approximately $350 million year-to-date. Operating income increased 37% compared to Q3 2020, and operating income as a percent of revenue was 30.5% for the quarter, an increase of 420 basis points compared to the prior year, with sequential growth for a second straight quarter. This increase was driven by revenue growth, outpace and expense growth, and we expect continued margin expansion in the fourth quarter. Other income and expense was expense of $7 million for this quarter, compared to income of $10 million in Q3 2020. Our effective tax rate was 14.3%, a decrease of 70 basis points compared with the same quarter last year. The lower effective tax rate in the third quarter of 2021 was driven by a mix of earnings and lower tax jurisdiction, partially offset by a decrease in net discrete tax benefits compared to the same period in 2020. At the bottom line, we delivered strong growth as earnings per share increased 38% in Q3 2021. On slide nine, we quantify the effect of price, rate, and volume on revenue growth and were encouraged by the growth seen across the world. This quarter, U.S. revenue grew 26% compared to the third quarter of 2020. Adjusting for revenue from COVID-19 therapies, revenue grew 14% in the U.S. This increase, driven largely by volume, was led by Trulicity, Talt, Jardians, and Verzenio. The higher net realized price in the U.S. this quarter was driven by lower utilization in the 340B segment, unfavorable changes to estimates for rebates and discounts for solicity in the third quarter of 2020, and modest list price increases partially offset by increased rebates to maintain broad patient access for our medicine. Our year-to-date U.S. net price decrease of 1% is in line with the low- to mid-single-digit guidance we gave last December, and our full-year outlook is consistent with those expectations. Our 340B limited distribution program begins September 2020, and so the fourth quarter of 2021 will be the first full quarter where its impact will also be included in the base period when calculating year-over-year price changes in the U.S. Given the increase in variability in payer mix, we continue to expect quarterly variability in reported U.S. net price changes across our business. Moving to Europe, revenue grew 3% in constant currency. Excluding the impact of the first full quarter of loss of exclusivity for Olympta, revenue grew 16% in constant currency, driven primarily by volume growth for Trulicity, Tolts, and Verzenio. We are pleased with the momentum of our business in Europe and expect continued growth, excluding the LIMTA. In Japan, revenue decreased 6% in constant currency, driven primarily by the decline of post-patent products. Revenue in Japan continues to be negatively impacted by decreased demand for several products that have lost market exclusivity, now including the LIMTA, as well as by the COVID-19 pandemic. Importantly, our key growth products grew 12% in Q3 in Japan. We expect improved revenue growth in Japan moving forward based on the uptake of these newer products. In China, revenue grew 30% in constant currency, primarily driven by continued uptake of Tyvet and Trulicity. We're excited by the significant growth we're seeing in China, with sales of new medicine continuing to drive growth there. Revenue in the rest of the world increased 16% in constant currency, driven primarily by our key growth products. At the bottom of the slide is the price, rate, and volume effect on revenue for our September year-to-date results, which shows double-digit growth across all major geographies except Japan. As shown on slide 10, our key growth products continue to drive strong worldwide volume growth. These products drove 15 percentage point of growth this quarter, and continue to drive our overall performance and outlook. Slide 11 highlights the contributions of our key growth products. In total, these brands generated nearly $30.9 billion in revenue this quarter and made up 58% of our core business revenue. We're encouraged by the strength of our key growth products in Q3, collectively up over 35% compared to the same period in prior year. Trulicity, Verzenio, and Jardians all continue to outgrow their respective classes and we're pleased with TALTS growth driven by increased access. On slide 12, we provide an update on capital allocation. In the first nine months of 2021, we invested $7 billion to drive our future growth through a combination of R&D expenditures, business development outlays, and capital investments. In addition, we returned over $2.3 billion to shareholders in dividends, and have repurchased $500 million in stock. We will continue to fund the growth of our key products and recent launches, invest in our pipeline, seek external innovation to augment our future growth prospects, and return capital to shareholders. Turning to our 2021 financial guidance on slide 13, we're updating our GAAP and non-GAAP guidance. We're increasing the full-year revenue outlook by $200 million, at the top end of the range and $400 million at the lower end of the range to reflect additional COVID-19 antibody revenue and the outlook for our core business. COVID-19 antibody revenue expectations are roughly $1.3 billion based on the existing U.S. government purchase agreement for additional doses of edesivimab in Q3 and Q4. The net impact of these changes is an updated revenue range of $27.2 billion to $27.6 billion, up from the previous range of $26.8 to $27.4 billion. Our outlook for GAAP and non-GAAP gross margin percent remains unchanged. For research and development and SG&A, our guidance ranges remain unchanged. As we noted last quarter, investments in promising R&D opportunities and exciting potential launches are expected to push us to the top end of our guidance range for operating expenses. Our reported and non-GAAP operating margin guidance is unchanged. Excluding the impact of COVID-19 antibodies, non-GAAP operating margin remains approximately 31%. Our non-GAAP ranges for other income and expense and our expected tax rate remains unchanged as well. On a reported basis, Other income and expense is now expected to be expense in the range of $250 million to $150 million, reflecting the impact of the charges associated with the repurchase of debt and net mark-to-market losses on investments in equity securities in the third quarter of 2021. The 2021 effective tax rate is now expected to be approximately 11% on a reported basis, reflecting the tax impact of the charges associated with the repurchase of debt and acquired IPR&D, as well as unfavorable mark-to-market adjustments on investments in equity securities in the third quarter of 2021. Finally, the non-GAAP range for earnings per share has been raised to 795 to 805, while the GAAP EPS is expected to be in the range of $6.38 to 648. At our Investors Day in December, we will share our initial 2022 guidance. Today, before I turn the call over to Dan for the R&D update, I'd like to provide a few reminders on the pushes and pulls across the P&L as you begin thinking about next year. In Q3, we saw the initial impact of Olympta's OUS patent expiry in Europe and Japan. Next year, we will see its full-year impact, as well as the U.S. patent expiry. with limited launches from a single generic company in Q1 before the full launch of generic entrants starting in Q2. As for revenue from COVID-19 therapies, we intend to reflect and guidance our expectations related to signed purchase agreements for COVID-19 antibodies. Currently, we expect minimal revenue from COVID-19 therapies in 2022, leading to more difficult year-over-year comparisons. As we do this year, we will provide commentary on our financial, excluding the impact of revenue and certain expenses from COVID-19 therapies to enable a more helpful year-over-year comparison of the performance of our core business. Absent major U.S. drug pricing reform, our 2022 and midterm outlook continues to be mid-single-digit net price erosion in the U.S. and globally as the impact of lower utilization of 340B segments move into the base space period as we enter Q4 2021. We continue to invest in our bright future as we advance promising R&D opportunities and scale up to support exciting potential launches from our late-stage pipeline. While these investments may pressure our operating margin in the near term, they are critical to maximizing pipeline opportunities to help sustain top-tier revenue growth and operating margin expansion over the mid- to long-term. Now I'll turn over the call to Dan to provide an update on our pipeline.

Like 2020 before, 2021 continues to be a very productive year for R&D at Lilly. Before I get into the broader portfolio update, I'll highlight several updates from our late-stage pipeline, starting with Terzapatide. We share detailed results from Terzapatide's SURPASS-4 study at EASD this quarter. SURPASS-4 is the largest and longest SURPASS trial completed to date. And we were encouraged by the continued hemoglobin A1C and weight control, which participants experienced even past the initial 52-week treatment period and continuing up to two years. Looking at slide 14, this shows the change from baseline in hemoglobin A1C over time during the study. A1C reduction plateaued by roughly 24 weeks and was maintained at 52 weeks and thereafter to 104 weeks across all three terzapatide doses. While in the insulin-Glargine comparator arm, A1C began to increase after 52 weeks. Durability of A1C control is a challenge for type 2 diabetes treatments. While the 104-week data isn't a definitive answer as to whether trizepatide could potentially offer even longer-term durable blood glucose control, these data certainly are encouraging. Moving to slide 15, As you can see, weight loss plateaued at approximately 52 weeks and was maintained thereafter, such that at two years, weight difference at the highest dose was approximately 15% compared to insulin-clargine. We've seen in previous incretin therapy trials conducted with GLP-1s a further increased impact on weight reduction in participants with obesity without type 2 diabetes compared to studies in participants who do have type 2 diabetes, such as this one. It will be interesting to see if this trend also extends to the dual agonism of terzapatide, which has demonstrated weight reductions in type 2 diabetes trials beyond what has been shown by GLP-1s to date. We clearly are excited about the weight loss potential here. and we believe the data to date bode well for upcoming readouts in obesity, starting with Surmount 1, which reads out next year. Terzapatide represents a new class of medicines, and we're focused on continuing our significant investment for patients with type 2 diabetes, obesity, and related metabolic disorders who may benefit from Terzapatide. Moving to slide 16, today we announced the U.S. submission for Terzapatide in type 2 diabetes and that we used a priority review voucher with the intention of bringing this investigational treatment to patients as quickly as possible. We are delighted at the continued progress for this novel dual agonist incretin and hope to obtain approval in the U.S. by the middle of next year. Moving to Denenumab, we have several important updates for this program. First, in the U.S., we initiated a rolling BLA submission to the FDA for accelerated approval in early Alzheimer's disease. We intend to complete the submission in the next few months and expect regulatory action in the second half of 2022. We've also completed the original planned enrollment of 1,500 participants for Trailblazer ALS 2 and, based on the pre-specified 18-month primary endpoint, expect to have top-line results by the middle of 2023. We've added a separate single-arm addendum for safety exposures to Trailblazer ALS 2. which has already enrolled more than 300 patients and is continuing to enroll rapidly. This addendum will provide us with additional safety data to support the rolling submission. Moving to Trailblazer ALS III, this is a prevention study for cognitively unimpaired individuals who already have Alzheimer's brain pathology but don't yet have clinical symptoms. We're excited to report that we have already initiated screenings. This pioneering trial has multiple novel elements to reduce research subject burden, including the use of our PhosphoTau 217 blood assay currently in development to help detect Alzheimer's disease pathology in the patient screening process, video call technology for assessing cognitive function in the subject's home, and a large network of infusion centers that allow subjects to select the site most convenient to them in a decentralized clinical trial paradigm. We also announced today our plans to conduct a head-to-head Phase III study comparing Denenumab to Aducanumab to assess superiority of brain amyloid plaque clearance in early symptomatic Alzheimer's disease. The co-primary endpoints will evaluate complete amyloid plaque clearance as measured by Florbetapir F18 PET scan and will assess superiority on brain amyloid plaque clearance in the total population and also the intermediate tau subpopulation. This study, Trailblazer ALS4, is expected to begin enrollment this year, and we expect to share primary endpoint data in the second half of 2022. We're encouraged with the progress we've made with the Nenimab and with its potential to positively impact patients with high unmet medical need. We have, of course, followed progress in the Alzheimer's disease landscape since our last call and are watching closely as CMS's national coverage determination process plays out. We're committed to facing the challenges of effectively communicating Denetimab's clinical data and value proposition and to ensuring that the diagnostic and patient management ecosystems are adequately well prepared. Given the current environment, we think it's reasonable to have modest expectations for the scale of patient impact for anti-amyloid therapies available under accelerated approval prior to the readout of their definitive Phase III data. Assuming potential accelerated approval for Denetimab in the second half of 2022, we're Our expected Trailblazer ALS2 Phase III readout by mid-2023 would follow quickly, meaning the window of accelerated approval without definitive Phase III data is likely to be brief. Assuming positive Phase III results, we should be confident in the mid- and long-term opportunity for Genetimab if approved. Moving on to Versenio. In line with the expectations I outlined last quarter, we were pleased with Versenio's recent FDA approval. as the first and only CDK4-6 inhibitor in combination with endocrine therapy for adult patients with HR-positive, HER2-negative, node-positive early breast cancer who are at high risk of recurrence with a KI67 index of greater than or equal to 20% as detected by an FDA-approved test. This approval in the adjuvant setting represents the first new addition to endocrine therapy and adjuvant treatment of HR-positive, HER2-negative breast cancer in nearly two decades. we're delighted to bring this important new treatment option to patients. Also, we recently shared updated data from the entire MONARCH-E study at the ESMO virtual plenary meeting and co-published these data in Annals of Oncology. These data, which reflect additional follow-ups since our last public presentation, highlight the robustness of the effect size we're seeing for Visenio in the adjuvant setting. Notably, with a median follow-up of 27 months, We were pleased to see both IDFS and DRFS benefit extend beyond the two-year study treatment period. These data are not only important for patients, but also to help dispel concerns that the curves would come back together over time. We've clearly observed continued separation of the curves, if not expanding separation. Since the adjuvant approval two weeks ago, there have been questions regarding why the FDA approval applied only to a subset of the study population. As previously communicated, overall survival was a secondary outcome measure for the MONARCH-E study and an important component of the FDA's review. While we do not typically publish immature overall survival data, we feel it's valuable to address these important questions about the difference between the enrolled study population and the approved indication. As a result, while the overall survival data remain immature, we do plan to publish the OS data from the additional follow-up analysis with cutoff of April 1, 2021, in a medical journal in the coming days. These data will show what we have observed thus far for overall survival trends in the ITT population compared to the approved population. We'll continue to follow patients in the ITT population for more mature overall survival data. If a positive OS trend emerges in the ITT population, we plan to work with regulators to expand our adjuvant indications. Importantly, the collective results from Versenio's clinical development program have demonstrated a differentiated CDK4-6 inhibitor profile, and we look forward to continued investment in Versenio for breast and prostate cancer and are excited about the opportunity to serve more patients. Slide 17 shows select pipeline opportunities as of October 22nd, and slide 18 shows potential key events for the year. There have been several important developments since our last earnings call, and I'll cover these by therapeutic area. In oncology, in addition to the exciting news for Verzenio, we continue our investment in pertobrutinib's Phase III program with an additional study starting chronic lymphocytic leukemia, including fixed-duration pertobrutinib plus venetoclax and rituximab in relapsed or refractory patients. We plan to start a study in first-line treatment compared to bendamustine plus rituximab before year-end. We prioritized this first-line study rather than the head-to-head study evaluating superiority compared to ibrutinib, as we think this first-line study could provide a faster pathway to bring pertabrutinib to patients in the first-line setting. We expect the head-to-head ibrutinib CLL study to start in the first half of 2022. We look forward to sharing an updated data set from the Phase I-II Bruin study at a medical meeting later this year. We plan to provide a regulatory update for pertabrutinib at our Investor Day in December. Illuminestrant, our oral SIRD, also moved into Phase III with the start of its monotherapy study compared to Examestane or Fulvestrant. Finally, we also publicly identified and presented preclinical characterization for two new agents at the Molecular Targets Meeting this month. LOXO783, which is a highly mutant-selective allosteric PI3K alpha inhibitor, and LOXO435, which is a highly isoform-selective FGFR3 inhibitor. We look forward to filing INDs for both programs in 2022 and subsequently moving them into the clinic. In diabetes, in addition to the terzapatide update, we obtained U.S. approval for Jardiance and Hef-Ref, presented detailed results from the Emperor Preserved Study at the European Society of Cardiology, and submitted for Hef-Pef in the U.S. and Europe. We're excited about the opportunity Jardians has to improve outcomes for patients across type 2 diabetes, heart failure, and chronic kidney disease. We also started phase 2 studies for our GLP-1 non-peptide agonist in collaboration with Chugai in type 2 diabetes and in obesity, and look forward to sharing some phase 1 data from this molecule in December. In immunology, we were delighted to have multiple positive phase 3 readouts for leberkizumab and atopic dermatitis, and look forward to the readout of the maintenance data from the Advocate 1 and 2 studies in the first half of next year, ahead of global submissions expected by the end of 2022. We're pleased with our progress in immunology this year, with positive Phase III readouts for mirakizumab and lebrekizumab, and look forward to sharing more about our next generation of early-phase immunology assets in December. In neurodegeneration, our anti-Tau antibody zagotenumab recently concluded its Phase II study in early symptomatic Alzheimer's. Zagatenimab failed to meet the primary endpoint and was unable to modulate tau spread in the brain. The placebo population progressed as expected. While this negative outcome was disappointing and we're discontinuing development for Zagatenimab, we remain committed to tau as a high conviction target in Alzheimer's disease and plan to continue studying tau biology including inhibition of tau aggregation with a small molecule OGA inhibitor currently in the clinic. In the pain therapeutic area, in collaboration with Pfizer, we discontinued the global clinical development program for Tenezumab following receipt of a complete response letter from the FDA for Tenezumab in osteoarthritis pain and a negative opinion adopted by the CHMP. And finally, the FDA expanded the emergency use authorization for bamlanivimab and etesevimab administered together to include post-exposure prophylaxis in certain individuals for the prevention of SARS-CoV-2 infection. To recap, Q3 was another positive quarter for R&D at Lilly, continuing the positive momentum we've seen with a steady stream of significant pipeline advancements over the last couple years as we move closer towards our goal of delivering more first or best-in-class treatment options to patients in areas of unmet need. Now I'll turn the call back to Dave for some closing remarks.

Okay, thanks, Dan. Before we go to Q&A, let me sum up the progress we've made during the quarter. We have seen continued strength in our core business through the first nine months of the year, with double-digit volume-driven revenue growth, net of COVID-19 therapies, and strong performance across key brands. We're pleased to see sequential and year-over-year operating margin expansion, as well as strong non-GAAP earnings growth. We have made significant progress developing new medicines. And Q3 was another important quarter for our pipeline, as we announced the submission of Terzipatide in type 2 diabetes, the initiation of a rolling submission for Denonimab in the U.S. for early Alzheimer's disease, key life cycle approvals, and submissions for Resenio and Jardiance, and positive phase 3 readouts for Leprakizumab. We returned nearly $800 million to shareholders through dividends in Q3, reflecting confidence in the ongoing strength of our business. As you move toward the close of 2021, we are confident in our long-term growth prospects. While the past year has seen tremendous advances in our late-stage pipeline, at our investor day in December, we look forward to sharing information with you regarding the next generation of assets that we believe will enable us to sustain the flow of innovative medicines to patients and augment our future growth prospects. Now I'll turn the call over to Kevin to moderate the Q&A session.

Thanks, Dave. We'd like to take questions from as many callers as possible, so we ask that you limit your questions to two per caller. Lois, please provide the instructions for the Q&A session, and then we're ready for the first caller.

Thank you, and ladies and gentlemen, if you wish to ask a question, please press 1, then 0 on your touchtone phone. You will hear an acknowledgment tone that you've been placed in the queue. You may remove yourself from queue at any time by repeating the 10 command. If you're on a speakerphone, please pick up your handset before pressing the number. Once again, if you have a question, please press 1, then 0. And our first question is from the line of Chris Schott. Please go ahead.

Great. Thanks so much for the questions. I guess the first one for me is just on some of the 2022 comments. I know you're not giving formal guidance yet, But should we be thinking about margin expansion next year from the, I guess, roughly 30% or so margins that are implied in this year's guidance? I'm just trying to get my hands around how meaningful of a step up in OPEX we should be thinking about supporting these major new launches coming next year. And the second one was just one related to Bibb's rollout of Aduhelm. It's obviously been a challenging launch. Are there learnings here or just changes about how you're thinking about your go-to-market strategy for Denonimab and I know, Dan, you made some of those comments in the remarks, but should we be thinking about much in the way of revenue at all for Denonimab, and I guess in that window between when it's approved and prior to Trailblazer 2? I'm sure I've got a sense of, again, just as you look at what's happened there, has there been surprises or changes in your thinking on the market? Thanks so much.

Thanks, Chris. We'll go to Anat for the first question on 2022 margin expansion, and then to Ann on thoughts about the uptake and outlook for Denonimab.

Great, thanks. So for 2022, we will provide further details and guidance in December, so not too far from now. And we'll provide additional clarity on how we view the year and what investments and pushes and pulls we have going into next year. As you think about our margin expansion and the goals we've set out and we've communicated in terms of getting to mid to high 30s in terms of margin expansion, we still have a clear line of sight to get there, and that's still our goal. There will be, but it's not a linear growth. So there will be years that are going to be stronger, years that we're going to be making specific targeted investments. And as you've seen us do this year with the non-MEB, when we have strong convictions in a pipeline asset or when we're preparing to launch very promising opportunities and products, we will invest behind them. So think about this as still growing to mid to high 30s, but not necessarily in a linear fashion. but in line with investments we would need to make.

Thanks a lot. Anne?

Well, as Dan stated and as our competitor has shared, they've experienced there clearly is work to do to ensure that the diagnostic and the patient ecosystems are prepared for these medicines. And until there is definitive Phase III data, we do believe that we should really expect modest use of these medicines. Now, fortunately, as Dan said for Denanamab, this confirmatory data comes quickly in mid-23 for Trailblazer ALS II. And so this will be the opportunity to really help patients on a more significant scale. Now, some of the opportunities here, certainly pursuing accelerated approval is really important, both to provide early access, but also to let us begin addressing some of these infrastructure challenges ahead of the phase three data. We need to build out the diagnostic ecosystem, particularly PET scans and blood tests. We need to make sure that there's adequate infusion capacity. And then very importantly, we need to ensure that there's reimbursement so that the appropriate patients can have access to dinanamab. So these are going to be our areas of focus now through our phase three window. We're confident in our ability to address these infrastructure challenges over time. And I would say by clearing plaque faster and deeper, we believe that as well as identifying the right patients, we've optimized the chances for showing compelling benefits in the phase three, which, as we said, is what was going to show significant uptake in the class We continue to see the same opportunity for Denanamab in the mid- to long-term once these challenges are addressed and the confirmatory data is available. Thanks, Dan.

Chris, thanks for your questions. Next caller, please.

The next caller is Jeff Meacham from Bank of America. Please go ahead.

Hey, guys. Good morning, and thanks for the question. I had two on Alzheimer's, probably for Dan. For Donanumab, would you expect completion of the Rolex submission by the end of this year? And is there a regulatory threshold you need to hit in terms of the safety exposure? I'm just trying to think of the number of patients that you have to get exposed to. And then for Zagatinumab, you know, what are the next steps here? Is it moving to another anti-Tau asset altogether? Do you want to optimize, you know, monotherapy, Zagotinamab, or maybe even Mood Forward in combination with Donatumab? Thank you.

Thanks, Jeff. Dan?

Great. Thanks, Jeff, for two good questions. The first is just on the timing of the completion of the Donatumab rolling submission. I think you can assume we chose our words carefully here in the call prepared remarks. on the timing, you're sort of driving at, like, what's the regulatory hurdle with respect to safety exposures. You're right, that's the key gating factor on timing. You've heard we've enrolled a lot of patients in the clinical trials, including patients in a safety addendum. So we're extremely confident we'll reach that safety exposure hurdle. I guess, you know, looking forward, there's probably two risks or question marks. One is just around the timing of, you know, exactly when do databases get locked and data get cleaned and submitted to the FDA. So that's why we're a little vague on timing here. I think that the second one, of course, that we don't know and won't know until all that data is in is what do the safety data actually show? And so the assumption here, of course, is that they continue to be consistent with what we've seen in Phase 2. So if those things work out, then I think that'll be the opportunity to talk a little more specifically about the data. With respect to Zagotenimab, look, I think we have here a very potent anti-Tau antibody designed against what we believe is an important species of aggregated Tau. delivered at relatively high doses for any monoclonal antibody, and we were unable to slow the spread of tau progression in the brain. So at present, I don't see a path forward for this antibody, and I would be reluctant to invest in really any anti-tau antibody, given what we've seen here. Tau is still a great target. It's just hard to hit it with a monoclonal antibody, I think, given that most of the tau that we care about is inside of cells. Thank you.

Thanks, Dan. Jeff, thanks for your questions. Next caller, please.

And the next caller is Louise Chin from Kantor. Please go ahead.

Hi. Thanks for taking my questions here. So my first question is, how are you preparing for the launch of Zinenimab and Terzepatide next year, and how should we think about the costs associated with that launch? And then the second question I had for you is, do you think it's the national coverage determination or the price of Aduhelm that is keeping doctors on the sidelines? Thanks.

Thanks. We'll go to Anat for the question on just launch prep and the overall costs for both Terzepatide and Denanamab, how we think about that going into next year. And then we'll go to Ann for the question around the NCD and Adjahelm.

Sure. So as we're preparing to launch both these medicines, obviously one is in an area where we have significant commercial footprint, manufacturing scale-up capabilities, and the other one is an area we're currently building. So we're investing in advancing both of these efforts for preparing for a potential launch of tricepacide mid-next year and then a regulatory decision on Denonimab at the second half of next year. Those will be factored into the guidance that we will provide on December 15th as we go into next year. But rest assured, we're building the commercial footprint that we needed to launch these effectively and leveraging the existing footprint we have as well. Thanks a lot. Ann?

Well, it's a good question that you've asked, and I do think there's a number of things that are a challenge here. I think as you look at Denanamab, what's incredibly important is that we had a positive Phase II study that cleanly met its primary endpoint, showing cognitive benefits for Denanamab. As well, we were able to share that we had limited duration dosing to plaque clearance, and so we believe that this is going to be important for the decisions that physicians and payers make. So I believe that the Nanomab data is incredibly strong. And then, as I said, following quickly the Phase III confirmatory data, which I think is important. And all of this, you know, published in the New England Journal of Medicine. So as we're talking to thought leaders and physicians, I do believe that they see the strength of the data that we brought forward into Nanomab. And I think that's been a challenge that they've had with some of the competitive space. So I do think that data is one thing on their minds. I think, as well, the NCD is playing a role. Obviously, that will be resolved before we launch, and we'll be ready for any of the potential outcomes there and have been working closely with them along the way to make sure that they understand the Denetimab data, particularly the rapid clearing of plaques, as well as the limited-duration dosing that offers, we think, benefit to them as well. So it's been a good conversation with them so far. We really look forward to seeing what they have to say, CMS has to say in January, and then launching with this strong data set, as Dan said, in the second half of next year.

Thanks, Dan. Louise, thanks for your questions. Next caller, please.

The next caller is Tim Anderson from Wolf Research. Please go ahead.

Hi. Thank you. I have a couple of questions on the pending NCD by CMS. So two questions. First, it's commonly said that this upcoming decision will pertain to the whole A-Beta class. I struggle to see how that can realistically be the case, because that decision will be made on only one company's mixed Phase III data. And there's still other really important, informative Phase III data sets that are on the come. So wouldn't the NCD, whatever it is initially, potentially be revised later as CMS has more information from these additional trials? And then second, if this is indeed a decision that pertains to the whole class, then presumably Lilly has a view on what will happen in January. So do you expect CMS will say that at home and the class more broadly should be covered in a way that will be commercially meaningful? One can envision that there could be lots of restrictions that might, in fact, limit the commercial market opportunity.

Thanks, Tim. We'll go to Ann for those questions on the NCD process.

Well, thanks. Good questions on the process with the NCD. So CMS has been clear that the NCD, as they're running the process, is to cover the class. Now, as I said, we are actively participating in the process, including we provided oral comments in July and additional written comments in August. And we, and I'm sure others as well, have been meeting with CMS throughout the process to share our specific data and ensure that the differences in these medicines are understood. And so we've asked them really to evaluate each drug based on their own data. And this is, I think, as I said, particularly important considering that there are some differences between these. We share the data later in the year subsequent to the original readout that the degree of denatomat plaque clearance relates to clinical benefit, which I know is very important to CMS in this decision, as well as the limited duration dosing. So we really look forward to seeing what they have to say in January and what that readout will look like. We do acknowledge there's a lot of skepticism in the national discussion, and so we do really hope and will continue to influence that we think each drug should be evaluated by CMS, by payers and prescribers on their own data. It is possible that the NCD will narrow for the patients most likely to benefit. That's a possibility out of this. But that's really aligned with the goals that we've had in our clinical trial designs, which has long been to use the diagnostic tools to make sure that the right patients are getting treatment. So we'll look forward to the readout in January. We'll continue to stay very engaged in this. And yes, I believe as additional data comes out, our data and others in the class, that this will continue to influence the process.

Thanks, Anne. Tim, thanks for your question. Next caller, please.

The next question comes from Andrew Baum from Citi. Please go ahead.

The noise coming out of Washington suggests that the Peter's bill, some of the components of that are gaining traction and some of the more worrying components of price negotiations seem to be more and more limited. I just wonder if you could share any thoughts on what you think just take the Peters proposal on out-of-pocket caps could mean to Lilly and the farmer in terms of increased volume without catastrophic coverage changes. And then second, could you comment on whether you're seeing neutralization of Denanamab by the antibody drug antibodies that you see with prolonged usage, and is this one of the factors which is contributing to the finite treatment duration, or is neutralization simply not a concern here?

Thanks, Andrew. We'll go to Dave for the first question and Dan for the second.

Yeah, thanks, Andrew, for the question. Obviously, there's a lot of talking and discussing going on in Washington about how to make medicines more affordable. I think we've been pretty consistent in our view that both as Lilly and I think I can speak for the industry here, we are for progress. We are not for the status quo. And the centerpiece of almost every part of legislation being discussed, which is I think good news for seniors, is some reform to the Part D benefit. That is certainly highlighted in Representative Peters' bill. It's in H.R. It was in the Grassley-Wyden effort. It's, I'm sure, in the Senate finance effort now, and I think that's good news. The contours of that are all kind of different, but the general idea is that industry would pay additional costs into the system, that that would reduce monthly out-of-pocket costs both below and above the catastrophic phase, cap catastrophic costs, as well as eliminate the donut hole. I think we're basically for all those things, and we think that's a a good set of initiatives. Where the debate sort of kicks in is around how to pay for that or whether pay force from the industry should go to other health care priorities. And of course, we have clear positions on that. One piece of Peter's bill we don't like is the retroactive CPI cap. I think that's punitive and unfair. It also is disproportionate on some types of medicines versus others. So I think the industry is aligned that we don't care for that. Although in general, the idea of a CPI regulator on forward price increases is something people have gotten used to talking about. And then the thing we do put our foot down and firmly oppose and why we're so against HR3 and other efforts is taking money out of the pharmaceutical industry for other priorities. Isn't drug pricing a big enough problem? Why don't we take the money out of the pharmaceutical industry and give it to patients who want to buy our medicines? And that's a position we've had for a long time. I think it's going to be a busy week and into next week probably negotiating out this package, but we're hopeful that some of these messages are resonating and we could land with a Part D reform and modest impact on the industry so we can keep innovating for the future.

Thanks, Dave.

Dan? Thanks, Andrew, for the question on anti-drug antibodies or ADAs. We do see ADAs with Denetimab. They arise pretty early in treatment. There's no connection, though, with ADAs and our decision on fixed-duration dosing. The reason for that is because the doses that we're using are so much higher than the level of anti-drug antibodies that we don't see an effect in our clinical trials at these doses. of the ADAs on PK or, importantly, on PD, which is the plaque clearance effect of Denetimab. So, no connection there.

Thanks, Dan. Andrew, thanks for your questions. Next caller, please.

The next caller is Seamus Fernandez from Guggenheim Securities. Please go ahead.

Thanks for the question. So, maybe first on... the performance of Resenio in the quarter, and then your conviction that this market can accelerate moving forward now with the Key67 approval. We're hearing good things from physicians, but it just doesn't seem to be reflected in the opportunity that I think we all see ahead for Resenio. And then as a separate question, I'm sure Mike Mason is tracking the opportunity in obesity very closely. Just wondering what feedback is on the types of patients that are going on to Wegovy at this point and, you know, how Lily is thinking about the opportunity in obesity given the attempted acceleration of the launch of terzepatide with the PRB. And obviously that's in diabetes, but Just wondering when we might see a full launch in obesity, given all the trials. Thanks.

Thanks, Seamus. We'll go to Jake for the question on Versenio, and then Mike for the question on TIRS appetite.

Thanks, Seamus. So, just starting with Versenio's performance in the quarter, as you probably remember, we had some stocking that happened in the channel in the second quarter. And so, part of what happened this quarter is just a modest work down. that inventory. I think the fundamentals of where we stand in the metastatic setting continue to look really strong. I like where we are in terms of NBRX share hovering around 30%, and hopefully we can continue to grow that. I think that we still haven't seen the entire class of CDK4-6 inhibitors return to pre-COVID levels of prescriptions, and so that's obviously an important lever for growth going forward if you know, probably levered to things like mammogram volumes and other types of preventative care measures that get patients diagnosed and into doctor's offices. But, you know, we continue to grow our share of NBRX within the market. Turning to adjuvant, obviously we're very excited about launching this medicine for men and women with early breast cancer, specifically key 67 high patients. It's a real opportunity. As I think you've probably heard us say before, it's about 8,000 to 10,000 patients. It's obviously a smaller opportunity than the entire study population that we enrolled in Monarchy. And as you know, we'll be looking again, next year will be the next analysis of survival to potentially expand to that broader population. should OS trend in the direction that we in FDA want to see to do that. But we have a great opportunity ahead of us. I think certainly it's growth from where we stand today. It's a brand new indication of real size in terms of both patient numbers and duration. You know, in many ways, realizing that is also linked to the prior comments I made about, you know, patients returning to the doctor for preventative care to get diagnosed at levels hopefully that return to pre-COVID. We don't need that, obviously, to make headway going into next year, but I think for the long term, it's important for patients to make sure they get into the physician's office to get diagnosed.

Thanks, Jake. Mike?

Hi, Seamus. First of all, you're 100% right. We're looking very closely at the obesity opportunity for triseptide. We're very excited about just The weight loss that we saw in type 2 diabetes patients, up to 14% weight loss, and the potential of that being even higher in the obesity population. Obviously, just a massive unmet need, 110 million Americans live with obesity. Only about 3% of them are treated with some type of anti-obesity medication. So we think the opportunity is huge to really help people who live with chronic weight management issues. Now, with our program, we have four trials in our Summout Obesity Registration Program. Our first obesity trial will read out next year, or Summout 1. We're very excited to see that. That should happen in mid-next year. And then, Summout 2, 3, and 4, we'll get the data. Those trials are on track to wrap up in 23. And then, so when you look at our obesity submission, And approval, it looks like our approval in 2024 is most likely outcome if everything goes well as we expect in our SMOUT program. So very excited about WeGoV's launch. I think they've done a nice job. I think not a surprise to us. We thought that what was holding back the current market was just the current products in the marketplace just didn't have clinically meaningful enough weight loss. We thought if we had products on the marketplace that had clinically meaningful weight loss, and those products were able to show, you know, good clinical outcomes, overall medical outcomes for those living with obesity, that physicians would write it and payers would provide access for it. So it's not going to develop overnight, but we're very encouraged by the early launch of Wegovy. And just very excited about Trish Appetite's opportunity.

Thanks, Mike. Seamus, thanks for your questions. Next caller, please.

The next caller is Umar Rafat from Evercore. Please go ahead.

Hi. Thanks so much for taking my question. Dan, I was very intrigued by the Denanumab versus Aducanumab head-to-head trial. And my question really was, I understand the primary endpoints on amyloid plaque, but will the trial be able to gauge clinical efficacy on endpoints like CDR, some of the boxes? I ask because my understanding is it's an open-label trial. And then secondly, I feel like there's been a fair amount of investor debate and perhaps confusion on what exactly is Lilly messaging on the in-event PD-1 launch in U.S. And the sort of debate rages anywhere from Lilly will be a dominant player or not so much. So just so we're all on the same page, I guess what are you guys expecting? Do you expect it to be a meaningful PD-1 in the U.S. market? And if you could speak to your thoughts on whether data generated in Chinese patients would be a relevant commercial consideration for U.S. oncologists or not.

Thanks, Umar. We'll go to Dan for the first question and Jake for the second.

Thanks, Umar. Your question is whether the Denenumab versus Atacanumab trial, head-to-head trial, will be powered to measure clinical efficacy outcomes. It will not be. It is a small and shorter trial, so we won't be able to draw conclusions about that. But I point out that if we believe that plaque lowering is the appropriate surrogate, and that question will certainly be answered in the next... a year to 18 months as we get data from a number of Phase III plaque lowering drugs. So if it turns out that plaque lowering is an appropriate surrogate for predicting clinical efficacy, then I think that the degree and speed of plaque lowering could be the basis of comparison across different Alzheimer's drugs in the same way that surrogates in oncology are used to compare different drugs in a class. knowing that the long-term outcome trials would have to be extremely large and long-duration powered for clinical outcomes. I also sort of point out that, you know, we're expecting here to have, in the scenario where we're, you know, really excited about this, we're expecting to have a positive Phase III trial for Denetimab, which in itself is a differentiator, I think, from current competitors. So head-to-head on efficacy against that may not actually be relevant.

Thanks, Dan.

Jake? Hey, Umar. Thanks for the question. So, you know, CentillaMav, the PD-1 inhibitor from InnoVent, we brought in to the company, you know, in terms of ex-China rights, explicitly with the intent to use pricing as a lever to disrupt the U.S. market, starting with the United States and potentially moving to Europe as well. And as we've said publicly, over the past couple of months, the intent there is really through price predominantly versus other mechanisms such as rebating, etc. There are certain customers out there, certain practices and care models for which this is going to be an attractive tool for lowering costs to their system. And unfortunately, for the way the system is designed today, there are going to be many channels for which a lower-priced option actually isn't appealing. And so, as your question is about whether or not we intend to be a dominant player, it's hard for me to say that with any degree of assertion today. We will be focusing initially on the segments for which this is an attractive option, given the way that their payer dynamics work. And today, that's not a majority by any stretch. But that will be our focus out of the gate, should Tintillimab be approved. On to your second question about whether or not the data package that's been generated for the agent will have issues with prescribers in the United States. Our market research to date suggests this won't be an issue, but obviously we haven't launched the product yet. We haven't gotten it approved yet, so I can't say that with certainty, but our market research suggests it won't be an issue. But really, in front of us initially is just getting the drug approved and I think, as you know, that's something we hope for in the early part of next year, but the drug will be subject to an advisory committee, and we await the details of what that will cover.

Super helpful. Thank you so much.

Thanks, Jake. Umar, thanks for your questions. Next caller, please.

The next caller is Ronnie Gale from Bernstein. Please go ahead.

Good morning, and thank you for taking my question. Two of those. First, staying with Umar's points around centilumab in the U.S. It's essentially two-part on this one. First, any comments about FDA change in policy and using China-only patient population as basis of permission in the United States? We've heard some things in conferences that suggest there might be some change there. And second, on the same point, you kind of talked about price as the dominant note here. I guess the question is more on your thinking process. You know, pharma has struggled for a long time in commercializing low-cost products and innovative products to the same company. If PD-1 should have a low-cost option, you know, why not TALS? Why not labrakizomide? Why should those not follow a deep discounting strategy, giving the clinical profile versus other products in the same class? And second question, given the recent impact of interchangeable Lantus, can you discuss a little bit how the insulin, the fast-acting insulin market is different? Assuming we will see interchangeable products there, how are the features of the market different? differ, and would that also be a market which is more amenable to adopting an interchangeable insulin?

Thanks, Ronnie. We'll go to Dave for this first couple questions around low-cost insurance and FDA policy, and then we'll go to Mike for the question on the interchangeability of Atlantis and how that can potentially read through to fast-acting insulin.

Sure, happy to. Maybe before we go to me on the FDA, Jake, do you have any comments on the FDA comments on China data?

Yeah, I think it's a good observation. We've observed the same thing. The tone from D.C. does seem to have changed a bit over the past 18 months on this topic, so I think we're hearing and reading in some ways probably the same things that you guys are. We don't have a lot more information than that, and so we await, again, the regulatory decision from FDA as to the acceptability of the package.

As it relates, Ronnie, to the broader question about why not more sort of like everyday low-price kind of strategies in the main in pharmaceuticals, I mean, I think a couple things come to mind here. First, I think in oncology in particular, it is infeasible quite often to run comparative studies. And so once an incumbent is established, you know, it's very difficult to displace that incumbent. Maybe the one narrow exception might be what Jake highlighted with centilimab, where you could have a more price-sensitive segment, and here we have analogous data from a different country that was conducted in a time gap that was prior to other PD-1s being approved in that setting. And so that presents an opportunistic play. We have, of course, also pursued this in insulin, and Mike can comment on that in a second. But, you know, Basaglar launched at a 30% discount to the other insulin, Glargine. We've pursued our own low-cost authorized generic of Humalog, now reducing the price to effectively 70% off the original brand. But here, again, it illustrates the point Jake was making, is that even in the retail side, It's not universally adopted. Today, you know, the half price form of Humalog and the third off price of insulin glargine that we provide have minority market shares. And that's a little bit counterintuitive. But, of course, we all know the incentives of the supply chain, which do tend to favor higher list price products. And that's, I think, where that shows up. Finally, you asked, why don't we pursue this for our whole portfolio? Well, I think the overriding thought for our portfolio is often to create differentiated data sets. And one thing different from Centilabab, different from Basiglar and authorized generic Humalog is that those aren't differentiated data sets. So they're more or less interchangeable. So, you know, when we create a new medicine, we're seeking to create something better. And in the main, that's how the system's set up, and that favors Typically, an introductory price that's similar to other innovative competitors and then rebating and discounting to the channel to get formulary access and use. And that remains our main strategy. Of course, if there were some big policy shift that flattened gross to net or reduced somehow the incentives of the intermediaries, we'd take a look at that. I think our goal would be to deliver, you know, lower cost points to consumers if we could. Right now, mostly the system rewards something else, and that's how we are forward planning for the portfolio that Dan was talking about. Maybe Mike has any final comments on insulin and interchangeability.

Yeah, thanks, Dave. First of all, when we look at Simgly, it's only interchangeable with the reference product, which is Lantus, not Basaglar. So we do think it's going to have more of an impact on Lantus versus Basaglar. And when you look at the mealtime segments, That first reference product will be insulin aspart, not Lyspro. Now, I think you also have to take a look at kind of the Simgly's interchangeable biosimilar. I think many stakeholders in Washington believe that Simgly's interchangeable insulin would launch at a significant discounted price. Now, that hasn't been the case. The net impact of Simgly's interchangeable launch is actually the introduction of a higher price presentation, not a lower price presentation. The new presentation is priced at $269 a vial versus $99 a vial of the original Simgly, which is a 273% increase. So I think what you're not going to see, at least what we haven't seen in the insulin biosimilar space, is that the Simgly interchangeable will really disrupt the basal insulin market. Rather, what it will do is allow it to compete in kind of the traditional healthcare system that we know have gaps, which we talked about earlier, which we've been trying to fill with our insulin value program and the senior savings model. When you look at and kind of pivot to the mealtime insulin market, mealtime insulins are a bit more complicated. They require more presentations than what you see with a basal insulin. So premixes or human insulins are also included on the contracting. So I think the mealtime insulin is a little bit different than what you see on the basal insulin But what we've seen to date is that given our price point on interchangeability, we don't think it's going to be really disruptive to the system, but more work within the current system, which we feel that we can strongly defend. At the end of the day, I think to reiterate Dave's point, I think it's better when we're focused on improvements and with our connected care. launch with BIF with our weekly basal insulin. I think we're focused on really driving innovation and better patient outcomes.

Thanks, Mike. Ronnie, thanks for your questions. Next caller, please.

The next caller is Carrie Holford from Berenberg. Please go ahead.

Hi. Thank you. Two questions for me on Bithynia, please. Firstly, on price, the increase in demand this quarter, was said to be partially offset by lower realized prices. And that contrasts with the comments in Q2 where you detailed a higher realized price. So I'm wondering if you could just talk a bit more about those dynamics and whether that's influenced in any way by the upcoming adjuvant launch. And then secondly, on the adjuvant situation, I know Barty has commented on that call earlier today. that the FDA has stated to them that submission based on IDFS alone will be sufficient as long as there's no detrimental effect on OS. And that, I think, appears to be in contrast to your experience. But perhaps there'd be a more relaxed approach than the FDA route that has been set out so far. So I'm just curious as to why you think that might be. Any feedback you can give there?

Great. Carrie, you were kind of breaking it in and out, but I think these are for Jake. And the first question, Jake, if you didn't catch it, was about quarter-on-quarter revenue and whether it was affected by pricing in the CDK4-6 market or, you know, rather the stocking point you made earlier. And then I think the second point was about IDFS versus OS in the FDA's sort of policy, if you call it that.

Yeah, thanks. On the first point, yeah, I mean, the sequential quarters is really mostly related to the inventory stocking and destocking point that I made earlier. We haven't seen a ton of fluctuation in price. On your comment about adjuvant, I can't comment on the back and forth that Novartis had with FDA. I'm obviously not privy to that. Though, from the framing of your question, that actually doesn't sound particularly different than the conversation that we've had with the agency. You know, as Dan mentioned in his prepared remarks, you know, we've, of course, as you can imagine, gotten a fair number of questions from folks around the nature of the approval in the subgroup versus the enrolled population of monarchy. And we'll be publishing in the coming days the actual OS, you know, overall survival data that were part of the regulatory submission and You know, you'll see what those trends look like in both the intent to treat population as well as the approved subset. And again, you know, trends in one direction or another, you know, that you'll be able to interpret for yourself. But from what I can hear, I don't think the Novartis feedback from the agency is all that different from what we've received.

Thanks, Jake. Kerry, thanks for your questions. Next caller, please.

The next question is from Vimal Devan from Azuho Securities. Please go ahead.

Thanks for taking my question. Maybe just a couple other topics that haven't been discussed as much. So one, on emgality, it feels like the CGRP sort of market has been impacted by COVID more than some others. Maybe you could just sort of give us a sense of the dynamics you're seeing there. And have you seen any impact from the orals, not an oral CGRP that have entered for prevention? Has that had any role on emgality? or on the class in the last few months. And then the second one, just on the JAK side, obviously a lot of focus on the FDA sort of updates on that space. I'm curious if you have any sort of update timing around when you expect a new kind of final update label for Illumiant in RA and or a decision on the atopic dermatitis application. Thank you.

Thanks, Fama. We'll go to Ann for the question on Gallaudet and Patrick for the question on Illumiant.

Great. Well, thanks for the question. I'm Galdi. So at present, what we've seen is the total migraine prescription market has seen growth, but it's driven primarily by the total acute new patient starts and additional concomitant use. With the injectable class, I do think that we're still experiencing headwinds from the pandemic and increased competition in the prevention space overall. We do see some variability of this across the markets. Some OUS markets are returning really to pre-COVID growth levels. And while we've seen improvement in the volume of new patient starts, the CGRP MAB class in the U.S. is still about 13% below where we were with the start of the pandemic. So with the new competition and then appropriate treatment for acute and prevention, we're seeing that the market should continue to grow as patients reengage in the system. Now on your question on oral impact, I think it's still a bit early to early days in the launches to see how this has impacted the space in this way. So we'll watch that carefully. I think our belief is that with so many patients and so much unmet need, the opportunity for these medicines, particularly the MABS, remains significant. And obviously, in the end, it comes down to what's best for that patient and how we get them to their migraine-free days. And that's one place that we think we believe Mgality has an advantage. So we'll continue to watch this space. We continue to believe in the efficacy that Engali brings to the market. And so you'll see us continue to push forward in supporting the product.

Thanks, Dan. Patrick?

Well, thank you very much. In terms of the question related to rheumatoid arthritis, the FDA has requested changes to the box warning for all JAK inhibitors to include serious heart-related events, cancer, blood clots, and deaths. And we believe in light of that, it's most likely that the JAKs will be placed after the biologic source of the treatment of rheumatoid arthritis. And that's pretty much where Illumiant is currently placed in the U.S. So we don't see any major impact on Illumiant driven by this change. When we move to our topic dermatitis, we know that the FDA missed the PDUFA due to the ongoing assessment of the JAK inhibitors. And we believe also here it's most likely that the JAK inhibitors will be will end up being placed after the biologics. Despite that, we also recognize that atopic dermatitis is a very heterogeneous disease, and our clinicians have a use for more tools in that toolbox, but that's what we believe is most likely moving forward, and we would expect some regulatory actions prior to the end of this year.

Thanks, Patrick. Vamil, thanks for your questions. Next caller, please.

The next caller is Carter Gold from Barclays. Please go ahead.

Good morning. Thanks for taking the questions. Maybe first for Dan, just coming back to the head-to-head study. I don't think I've heard you say yet kind of the time period in which you're going to be measuring these reductions in amyloid. I believe you did give up the sort of second half to kind of timeline for reading out that result, but should we be thinking about that at like a three-month or six-month time point, or just sort of the number of patients that get to below the lower limits of detection over some period? And then maybe for Jake, on the third class, I know you guys have expressed some cautiousness on kind of the role of thirds in the treatment paradigm in the past. We started to see some of the later stage data sort of roll out from some of your competitors. Wanted to get your latest thoughts there, and if we might start to see some of the your CERD combination data from the original EMBER study before your end. Thank you.

Thanks, Carter. We'll go to Dan for the first question on the Denanumab head-to-head, and then Jake for CERD.

Yeah, thanks for your question, Carter. I think you're appropriately pointing out that actually both things matter in terms of plaque clearance, how fast you clear the plaques and also how deep you clear the plaques. You know, I think in the fullness of time when we have Phase III readouts for multiple drugs that look at efficacy, I predict those will be two important predictive factors in how well a drug helps patients is how quickly and how deeply it clears plaques. I think we have significant advantages there in both aspects with Denonimab, so you can be sure we'll be looking at both of those things and reporting that out, as I said, in the back half of next year.

Thanks, Dan.

Yeah, thanks for the questions about the oral SIRT program. You know, we're looking forward to seeing the radius Menorini data at San Antonio, as I'm sure you are. That study is a little interesting in that, you know, it was very heavily enriched for ESR1 mutated tumors. And so we're interested in seeing the degree to which the effect size observed in the study was really driven by that enriched subgroup where you would expect an outsized effect size versus a drug-like fulvestrant. versus in the non-ESR1 mutant patients. I think that question has meaningful read-through as to the overall value of the class. If it's really just limited or driven by the ESR1 mutants, I think that's a very different proposition than a true all-comer effect size. As it relates to the combination data of ours, those are data we'll probably present next year.

Thanks, Jake. Carter, thanks for your questions. Next caller, please.

The next question is from Steve Scala from Cohen. Please go ahead.

Thank you. I have a couple questions. First, is it not possible for Lilly to file Terzapatide for obesity in 2022 on just the SIRM-MT1 trial with supporting weight loss data from the diabetes trials? Other follow-on indications for other drugs have been approved on one study. and SIRMOUT1 is a trial of 2,400 patients, so it's a big trial. Second question, are you planning to use blood-based biomarkers such as PTAU217 as companion diagnostics with the, or within the Denonimab filing? I think you have used the Quinterix diagnostic in the Trailblazer trial, so wondering if that's part of the filing. Thank you.

Thanks, Steve. We'll go to Mike for the question on terzepatide, and then Dan for the question on the PTAL assay and the submission of the Nanobab. Mike?

Yeah, Steve, good question. We, in our discussions with the FDA, we've agreed upon four trials for the surmount program that make up our submission for the obesity indication for triseptide. As I said earlier, those will read out, surmount one will read out next year, surmount two, three, and four read out in 23. and we'll submit and expect approval in 24. You know, based on conversations with the FDA when we set our development program, that's the current plan.

Thanks, Mike. Dan?

Thanks, Steve. Good question on sort of companion diagnostics and their role in FDA approval of Alzheimer's drugs. I think based on what we've seen with ADU, our sort of base case expectation here is that the FDA is operating under an assumption that standard of care now for Alzheimer's disease, if you are diagnosing a patient for Alzheimer's, should include biomarker confirmation of disease. So for that reason, my guess is that biomarkers won't be included in prescribing information as companion diagnostics. I would take the opposite position probably with payers, where I think they are likely to be required for reimbursement for these medicines, but that has to be worked out. So those assumptions I just laid out sort of underlie our thinking about how P-tau or amivet or any other biomarker, CSF, A-beta, will be incorporated into labels, probably not, and into practice, probably yes. And so we're proceeding accordingly to make sure that PTAU217, as well as other biomarkers, can be widely available around the same time as we launched Denenumab so that it can be incorporated into standards of clinical practice as a biomarker for detecting Alzheimer's pathology and triaging patients to therapy.

Thank you. Thanks, Dan. Steve, thanks for your questions. Next caller, please.

The next caller is from Matthew Harrison from Morgan Stanley. Please go ahead. Mr. Harrison, can you please press 1-0? Can you hear me? And his line is open?

Yes. There you go. OK. Great. Thanks. I was just wondering if you could comment on leberkizumab and your sort of views on the AD market, and in particular, now that you've seen the OX40 data from Amgen KK, if that has any impact on how you think about the longer-term potential of that market. Thanks.

Thanks. Matthew, we'll go to Patrick for the question on leberkizumab.

Well, thank you very much for the question. We are very encouraged by the induction data of leprechaun, where we saw more than 50% of patients treated with leprechaun achieving an EASI 75. And we also met all the key secondary endpoints. And we actually believe that we have an opportunity here to launch a best-in-class IELTS 13. And currently we are looking forward to 52 weeks data during the first half of 2022 and a potential submission the second half of next year. When it comes to the Amgen data, it doesn't change our outlook for Lebre. As I said, we believe we have a best-in-class IL-13, and we also believe that we have a very competitive asset with the market leader. And this in a market that we know there is a big unmet need, and the biologic penetration is still very low, and we know that there is a need for many more medications, and particularly with the heterogeneous need in the marketplace.

Thanks, Patrick. Matthew, thanks for your question. We'll wrap up our Q&A and go to Dave for a close. Great. Thanks, Kevin.

We appreciate your participation in today's earnings call and your interest in our company. We continue to grow our broad commercial portfolio with strong momentum in our core business, supported by many key brands and accelerating classes. This is complemented by a compelling pipeline with industry-leading opportunities, and we remain focused on bringing new medicines to patients and creating value for all of our stakeholders. Thanks again for dialing in, and please follow up with Investor Relations if you have any questions we did not address on the call, and hope you have a great day.

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