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.