Eli Lilly and Company

Ladies and gentlemen, thank you for standing by and welcome to the Lilly Q4 2022 Earnings Conference 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. And as a reminder, today's conference is being recorded. I would now like to turn the conference over to our host, Joe Fletcher, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Lois. Good morning, and thank you all for joining us for Eli Lilly and Company's Q4 2022 earnings call. I'm Joe Fletcher, and joining me on today's call are Dave Ricks, Lilly's Chair and CEO, Anat Ashkenazi, Chief Financial Officer, Dr. Dan Skowronski, Chief Scientific and Medical Officer, Anne White, President of Lilly Neuroscience, Ilya Ufa, President of Lilly International, Jake Van Narden, CEO of Loxo at Lilly, Mike Mason, President of Lilly Diabetes, and Patrick Johnson, President of Lilly Immunology and Lilly USA. We're also joined by Mike Springnether, Kent Ueha, and Lauren Zierke from 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 several factors, including those listed on slide three. Additional information concerning factors that could cause actual results to differ materially is contained in our latest Form 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's not intended to be promotional and is not sufficient for prescribing decisions. As we transition to our prepared remarks, please note that our commentary will focus on non-GAAP financial measures. And now I'll turn the call over to Dave.

Okay, thanks, Joe. 2022 is a year of strong pipeline and commercial performance for Lilly. We delivered top and bottom line growth in 2022 despite the impact of the Olympia LOE in the U.S. and significant FX headwinds and delivered another remarkable year of pipeline progress. We began 2023 with multiple updates to our late-stage pipeline. In our Q2 2022 earnings call last August, we announced the filing of submissions for two assets with the FDA under an accelerated approval pathway. perturbitinib in mantle cell lymphoma, and donenumab in early symptomatic Alzheimer's disease. Last month, we received responses from the FDA on both these assets. On January 19th, we announced that the FDA issued a complete response letter for accelerated approval of donenumab due to the limited number of patients with at least 12 months of drug exposure. There were no other deficiencies cited. We will continue to work with the FDA to evaluate the best pathway to make this potential treatment option available to patients and look forward to results next quarter for the Trailblazer ALTS II Phase III confirmatory trial, which will form the basis of Denonimab's application for traditional approval. We have consistently stated that we would expect very limited uptake before CMS supports coverage. At the time we submitted for accelerated approval, we had hoped that there would be more movement from CMS to provide access to these medicines for people with Alzheimer's disease. Unfortunately, this has not yet materialized. We maintain conviction that given the impact of this devastating disease and significant unmet need, positive confirmatory data and FDA traditional approvals should be sufficient to support global reimbursement. and patient access necessary for broad use of Denonimab over time. Also in the month of January, we received FDA approval for J-PERCA, the first and only non-covalent BTK inhibitor for adults with relapsed or refractory mental cell lymphoma after at least two lines of systemic therapy, including a BTK inhibitor. J-PERCA is a highly selective kinase inhibitor whose novel reversible binding mechanism and pharmacology may allow for extended targeting of the BTK pathway following treatment with a covalent BTK inhibitor. We are pleased with the recent approval of J-PERCA and we remain confident in the long-term opportunity for Denonimab. We also look forward to the potential launch of two of our immunology assets later this year with Mirakizumab and Lebrekizumab and of Terzipatide for obesity. This current wave of new launches, along with the ongoing focus and progress in our next wave of R&D innovation, underpins our long-term outlook to drive top-tier revenue growth and expand our margins over time. On slide four, you can see the progress we've made on our strategic deliverables. Excluding revenue from COVID-19 antibodies, revenue on a constant currency basis grew 10% in Q4 and 5% for the full year. Volume in our core business, again excluding COVID-19 antibodies, grew 13% in Q4 and 12% for the year. This volume-driven performance was attributed to our key growth products, which grew 21% last quarter. For pipeline milestones, in addition to the recent FDA approval of JPIRCA, we have shared several important updates since our Q3 earnings call. positive Phase III readout and FDA and EMA acceptance of the regulatory submission for Jardians for adults with chronic kidney disease, the initiation of a rolling submission in the U.S. for terzipatide in obesity, and FDA granting a fast-track designation for terzipatide in obstructive sleep apnea. We also continue to put our cash flow to work to create long-term value. In late January, we announced plans to invest an additional $450 million for expansion of our Research Triangle Park manufacturing site in North Carolina to further augment our manufacturing capacity for the years ahead. On the business development front, we closed the acquisition of Accuos to expand our gene therapy capability, and we entered into strategic research collaborations with a focus on new modalities and technologies. Finally, we continue to return capital to investors. In Q4, we distributed nearly $900 million to shareholders via the dividend, and we announced a 15% increase to the dividend for the fifth consecutive year. Moving to slide five, you'll see a list of the key events since our Q3 earnings call, including several important regulatory, clinical, business development, and ESG updates we are discussing today or that were discussed during our guidance call on December 13th. One item I'd like to highlight is the collaboration we announced in December with EVA Pharma, to deliver a sustainable supply of affordable, high-quality insulin to at least 1 million people living with diabetes in low- to middle-income countries, most of which are in Africa. This is an important collaboration with a local company to produce low-cost, high-quality medicines. Strengthening capacity and building self-reliance for insulin manufacturing within the African region will provide a more sustainable supply in the long term. With this agreement, Lilly will sell insulin API to Ava Pharma at a significantly reduced price and provide pro bono technology transfer to enable Ava to formulate, fill, and finish insulin vials and cartridges. We're proud to be a part of this novel arrangement, which aligns with our 30 by 30 goal of improving access to quality health care for 30 million people living in limited resource settings annually by 2032. Now I'll turn the call over to Anat to review our Q4 and full year 2022 results.

Thanks, Dave. Slide 6 and 7 summarize financial performance in the fourth quarter and full year 2022. I'll focus my comments on non-GAAP performance. As Dave mentioned, we're pleased to report 10% growth for our core business in Q4 on a constant currency basis driven by strong volume growth. A couple of notable items affected year-over-year comparisons. The first is COVID-19 antibody revenue in Q4 2022, which compared to the prior year declined 96% from approximately $1.1 billion in Q4 2021 to $38 million in Q4 2022. Bevtalovimab is currently not authorized for emergency use in any U.S. region, and we continue to expect no COVID-19 antibody revenue for 2023. Second is the continued foreign exchange headwinds compared to 2021, which resulted in a 415 basis points dampening of revenue growth in Q4. Key growth products grew by 21% and accounted for 70% of our revenue this quarter. For the full year 2022, revenue excluding revenue from COVID-19 antibodies grew 2% or 5% on a constant currency basis. Our non-GAAP gross margin was 80.5% in Q4, an increase of approximately 440 basis points, primarily driven by lower sales of COVID-19 antibodies, partially offset by lower realized price, and increased expenses due to inflation and logistics costs. Total operating expenses declined 1% in Q4. Lowered acquired IPR&D and development milestone charges were largely offset by higher marketing, selling, and administrative expenses and higher R&D expenses. Marketing, sale, and administrative expenses increased 3% in Q4, primarily driven by costs supporting the launch of new products and indications, partially offset by the favorable impact of foreign exchange rates. R&D expense for the quarter increased 5%, driven by higher development expenses for late-stage assets, partially offset by favorable impact of foreign exchange rate. Operating income declined 7% compared to Q4 2021, driven by lower revenue, partially offset by lower operating expenses. Operating margin for Q4 was 27.4%, which includes a negative impact of approximately 330 basis points attributed to acquired IPR&D and development milestone charges. Full-year operating margin was 27.8%, an increase from 26.8% in 2021. Our Q4 effective tax rate was 7.3%, bringing our full-year 2022 effective tax rate to 10.3%. As we shared during our guidance call in December, we had assumed that the 2017 Tax Act provision for requiring capitalization and amortization of research and development expenses for tax purposes would be deferred or repealed by Congress in late 2022. However, no legislative action was taken related to this provision, which resulted in a lower effective tax rate for 2022 versus the guidance range previously shared. In addition, this provision did increase our tax payment in 2022 by approximately $1.2 billion. At the bottom line, earnings per share declined 4% in Q4 and increased 7% for the full year. On slide 8, we quantify the effect of price, rate, and volume on revenue growth across key geographies. This quarter, U.S. revenue declined 10%, Excluding revenue from COVID-19 antibodies, revenue grew 11% in the U.S. The volume-driven growth was led by Verzenio, Manjaro, and Jardian. Net price was flat in the U.S. this quarter. For the full year, the net price decrease of 3% in the U.S. was in line with our expectation. Moving to Europe, revenue in Q4 increased 8% in constant currency, driven primarily by volume growth for Jardian, Trulicity, and Verzenio. We remain encouraged with the momentum of our business in Europe. In Japan, revenue in Q4 decreased 6% in constant currency. Revenue growth in Japan continues to be negatively impacted, albeit less so than in prior quarters, by decreased demand for several products that have lost patent exclusivity, including the Limta and Symbalta. We expect a return to growth this year as we scale key products and launch Manjaro. In China, revenue grew 2% in constant currency as continued volume growth was mostly offset by lower real estate prices for Humalog as a result of the volume-based procurement process and for products listed on the NRDL, as well as by COVID-19 disruption. Revenue in the rest of the world increased 11% in constant currency this quarter, driven by approximately $130 million of one-time revenue associated with the sales of the company's right to a limta in Korea and Taiwan. As shown on slide nine, our key growth products continue to drive robust worldwide volume growth, contributing 15% points of volume growth this quarter. As mentioned previously, the decline in COVID-19 antibody volume was substantial in Q4 2022 and was largely offset and largely offset volume growth from key products. While we will face similar prior period headwinds from COVID-19 antibody revenue through the first three quarters of 2023, Our long-term growth prospects are underpinned by our innovative pipeline and key growth products, including Manjaro. Slide 10 further highlights the contributions of our key growth products. The score of these brands grew 21% or 27% in constant currency, generated $5.1 billion in sales, and made up 70% of our total revenue. While Lilly's Incretin portfolio understandably generates high interest, we continue to see tremendous growth, both in percentage and absolute terms, for other key products, including Verzenio and Jardian. Verzenio sales in the quarter grew 100%, driven mainly by the edge of an indication. Jardian sales grew 42%, and the product retains the leadership position in a competitive market globally. Demand for our Incretin portfolio remains strong, both for Trulicity globally and Monjaro in the U.S., and we remain focused on bringing additional capacity online to meet this robust demand in upcoming launches. In terms of supply, as mentioned, our guidance call in December, given strong demand for our encouraging products, there have been intermittent delays at wholesalers and pharmacies in receiving certain doses levels of Monjera and Trulicity in the U.S. We continue to update the FDA on the situation, and the FDA has been posting to his website details regarding effective doses and expected timing. To meet this rapidly growing demand across our incretin business, we have announced plans to add additional substantial capacity in the years ahead. The most proximal of these efforts is our RTP side, North Carolina, where progress continues as planned, and we look forward to the start of production later this year. Moving to slide 11, Monjaro's strong launch update continues, underpinned by differentiated efficacy profile and positive customer experiences. For Q4, approximately 75% of Monjara's new therapy starts are patients new to the type 2 diabetes injectable incretin class, and fewer than 10% of switches from Trulicity. As we mentioned our Q3 earnings call in early November, we took actions in Q4 to reinforce the intended use of the Monjara savings program by type 2 diabetes patients. We indicated at that time that these actions could negatively impact new prescription volumes but were not expected to impact net revenue. As anticipated, we believe the new prescription volumes beginning in late November were impacted by these actions, with some week-by-week volatility driven by end-of-year seasonality. We continue to build peer access for Monjara for type 2 diabetes. As of January 1st, access stands just over 50% for patients with type 2 diabetes across commercial and Part D. Regarding the percentage of paid Scripps for Q4, we estimate the percentage of paid Scripps for Manjaro to be approximately 40%, with paid Scripps defined as those prescription outside the 25 non-covered copay cards, but inclusive of the 25 covered copay cards. As we expand payer access, the proportion of paid Scripps should continue to increase. On slide 12, we provide an update on capital allocation. In 2022, we invested $9.6 billion to drive future growth through a combination of R&D expenditures, business development outlays, and capital investment. In addition, we returned approximately $3.5 billion to shareholders in dividends and repurchased at $1.5 billion in stock. Our capital allocation priorities remain unchanged and are oriented towards achieving our strategic deliverables of top-tier revenue growth and speeding life-changing medicines to patients. We do this through investments in our current portfolio to drive new launches, investment in our manufacturing capacity, and in our future innovation through R&D and business development. And we return capital to shareholders through dividend payments and share repurchases. Slide 13 provides an updated 2023 financial guidance. The only change we've made from the guidance we provide in December is to update our effective tax rate, which results in an updated EPS range. During December guidance call, we shared that the effective tax rate for 2023 would be approximately 16% based on the assumed deferral or repeal of the tax provision requiring capitalization of R&D. Since this provision was not deferred or repealed in 2022, and given the uncertainty around if and when such action will take place in 2023, we have updated our tax rate from 16% to approximately 13%. This update to our effective tax rate results in new EPS range of $7.90 to $8.10 on a GAAP basis and $8.35 to $8.55 on a non-GAAP basis. Regarding FX rates, there has been a general weakening of the dollar since we set our initial 2023 financial guidance last year. However, we're not adjusting guidance for FX changes at this time as we're only one month into the year and FX markets can be quite volatile. As I shared in December, the most significant headwind in revenue growth in 2023 versus 2022 will be the impact of COVID-19 antibody sales. The year-over-year comparisons will be most pronounced in Q1 2023, given that we had $1.5 billion of COVID-19 antibody sales in Q1 2022. To a lesser extent, the loss of exclusivity of the limta in the U.S. in Q2 2022 will also impact year-over-year growth in the first half of 2023. Still, the midpoint of our 2023 revenue guidance range represents roughly 7% of growth or 50% growth for our core business, excluding COVID-19 antibodies. This year holds tremendous promise for us to help patients as we execute on the current ways potential launches while maintaining our commitment to invest in and progress future innovation. We expect this ongoing focus on disciplined execution and investment will help drive top-tier revenue growth through at least 2030. Now I will turn the call over to Dan to provide an update on our pipeline.

Thanks, Anat. 2022 was a really productive year for Lilly R&D as we advanced our late-stage assets of Terzepatide, Denenumab, Pertobrutinib, Mirakizumab, and Lebrekizumab to key regulatory submissions, and we obtained the approval for Monjaro. We launched Monjaro for type 2 diabetes in mid-2022. As Dave shared, we received an approval last week for Pertabrutinib, now known as Jperca. By the end of this year, we also have the potential to launch two new immunology assets with Mirakizumab and Leberkizumab. And for Denetimab, we're looking forward to our Phase III readout mid-year, which, if positive, will form the basis of our submission for traditional approval. In 2022, we also gain clarity on the next wave of assets that have entered or will soon enter Phase III registrational trials. Those are our SIRD in breast cancer, our weekly insulin for diabetes, remternitug in Alzheimer's disease, and as shared in our December guidance call, we now have O4-glipron and retitrutide in diabetes and obesity. Given the updates we provided in mid-December, today I'll just briefly highlight progress since our last earnings call. Slide 14 shows select pipeline opportunities as of January 30th, and slides 15 and 16 show a recap of 2022 key events and potential key events for 2023, starting with diabetes and cardiometabolic disease. In November, we shared results from the EMPA Kidney Phase 3 trial in collaboration with Beringer Ingelheim. As the largest and broadest SGLT2 inhibitor trial in CKD to date, The results showed a significant benefit of Jardians in reducing the relative risk of kidney disease progression or cardiovascular death by 28% compared with placebo in people with chronic kidney disease. The overall safety data were consistent with previous findings, confirming the well-established safety profile of Jardians. CKD is a leading cause of death worldwide, affecting over 850 million people globally and 37 million in the U.S. We've submitted to the FDA and EMA for approval. and expect to make submissions to other regulatory agencies in the coming months. In January, we started QUINT-1, a phase three study comparing fixed dose escalation of release weekly insulin to insulin glargine in insulin-naive type 2 diabetes patients. With this initiation, all five studies in the QUINT phase three program are now underway. Moving to earlier stage assets in our diabetes and CV pipeline, in Q4, we advanced two assets into phase two that aim to lower LP little a, a well-known risk factor for atherosclerotic cardiovascular disease. The first is an oral inhibitor, a small molecule that disrupts the interaction between the ApoA protein and the lipoprotein particle. And the second uses siRNA to disrupt the production of ApoA in the liver. We shared proof of concept data on the siRNA asset during our December 2021 R&D investor meeting. This is our second siRNA asset to advance to Phase II, following our AngPTL3 siRNA, which entered Phase II earlier in 2022. We also recently moved an siRNA asset targeting APOC3 in cardiovascular disease into Phase I. Our genetic medicines portfolio is advancing, and we remain optimistic about the prospect of improving cardiovascular outcomes with these molecules. Lastly, we discontinued our Phase I KHK inhibitor. In oncology, we're, of course, pleased with the recent approval of JPRCA, and we look forward to continuing the substantial ongoing development program for the molecule in the years ahead. J-PERCA is the second product approved from our 2019 LOXO Oncology Acquisition, which reshaped our oncology efforts at Lilly. LOXO at Lilly's growing NME portfolio now includes a number of emerging assets shown in our pipeline, including our FGFR3 program, which recently dosed its first patients. Also, in Q4, we dosed the first patient in EMBR4, our second Phase III trial for imlinestrin, our oral CERD. EMBR4 will study imlinestrin in the adjuvant setting as a sequential monotherapy in patients who previously received two to five years of adjuvant endocrine therapy for ER-positive HER2-negative early breast cancer with increased risk of recurrence. Lastly, turning to Versenio, As noted in our guidance call at the San Antonio Breast Cancer Symposium in December, we shared the latest interim analysis for MONARCH-E, our adjuvant high-risk early breast cancer study of abemacyclib in combination with endocrine therapy for the treatment of adult patients with HR-positive HER2-negative node-positive early breast cancer at high risk of recurrence. We've now submitted an SNDA to the US FDA to potentially expand our adjuvant indication beyond the currently indicated cohort 1, KI67 greater than 20% population. In immunology, we're looking forward to potential FDA approvals later this year for mirakizumab and ulcerative colitis, which we expect in the first half of the year, and labrakizumab and atopic dermatitis, which we expect in the second half of the year. Looking earlier in our immunology pipeline, as mentioned in our guidance call, we presented exciting proof-of-concept results for our PD-1 agonist antibody parasolumab, in rheumatoid arthritis at the ACR conference in November, and we have now initiated a global dose-ranging Phase IIb study. Moving to neuroscience, we've advanced into Phase II our P2X7 inhibitor for chronic pain. Lilly acquired rights to this asset from Asahi Kase Pharma in early 2021. With regards to Denenumab, as Dave mentioned, the sole deficiency cited by the FDA to our submission for accelerated approval was a number of patients with at least 12 months of drug exposure. The Phase II Trailblazer ALS trial, on which the accelerated approval application was based, allowed patients to complete their course of treatment with Denenumab when they reached a predefined level of amyloid plaque clearance. Due to the speed of plaque reduction that we saw, many patients were able to stop dosing as early as six months into treatment, resulting in fewer patients receiving 12 months or more of Denenumab dosing. We remain confident in the potential of Denetimab as a new treatment for people with early symptomatic Alzheimer's disease and look forward to sharing results from the Phase III Trailblazer ALS II study in Q2 of this year. In summary, while 2022 was an outstanding year of pipeline progress, we're fully focused on the work we need to do in 2023 to make our next set of potential medicines a reality for patients. We look forward to providing additional updates throughout the year. I turn the call back to Dave.

Thanks, Dan. Before we move to Q&A, let me summarize the progress we made during 2022. We delivered strong revenue growth in our core business, propelled by our key growth products. We launched Monjaro for patients with type 2 diabetes while advancing and expanding our development program Fortress Epitide, including the start of the Surmount MMO outcome study and the initiation of a rolling submission for chronic weight management. In 2022, we submitted regulatory applications for important pipeline products like Mirakizumab, pertabrutinib, and leberkizumab. And in 2023, we've already received approval for JPRCA and are poised to advance dononimab in the regulatory process, assuming positive data from the Trailblazer ALS II Phase III study. In addition, we continue to invest in our pipeline, our capacity, our capabilities, and our people. Finally, we returned $5 billion to shareholders via the dividend and share repurchases. and for the fifth consecutive year, announced a 15% dividend increase for 2023. With continued growth in Monjaro and our key products, including Verzenio, Jardiance, and Tulse, we expect our core business revenue to grow by mid-teens in 2023. We are energized by the launch opportunities before us this year, and know strong launch execution is key to our long-term success. Taken together, we believe that we are well-positioned to deliver top-tier revenue growth through at least 2030 and to deliver on Lilly's mission to make life better for people around the world. So now I'll turn it over to Joe to moderate the Q&A session.

Thanks, Dave. We'd like to take questions from as many callers as possible and conclude our call in a timely manner. So we ask that you limit to one question or one two-part question per caller as we'll end the call at 1115. Lois, please go ahead and provide the instructions for the Q&A session, and we're ready for the first caller.

Thank you. And ladies and gentlemen, if you wish to ask a question, please press 1 and then 0 on your touchtone phone. You will hear a tone indicating that two have been placed in the queue, and you may remove yourself from queue at any time by repeating the 1 and 0 command. If you're on a speakerphone, please pick up your handset before pressing the number. And once again, if you have a question, please press 1 then 0. Our first question is from Colin Bristow from UBS. Please go ahead.

Hey, good morning, and thanks for taking the questions. Just first on Monjaro, so it looks like the net price dropped again from 3Q to 4Q. Can you just walk us through what specifically drove this and just update us on how you expect this to trend over the course of the year? And then just maybe looking sort of out to the future of your obesity portfolio beyond GGG, do you have any interest in mechanisms that target the sort of the mitochondrial uncoupling side of the equation that would be helpful? Thank you.

Thanks, Colin. We'll go to Mike for the first question on gross to net and price for Manjaro, and then hand over to Dan for kind of broader obesity mechanistic commentary. Mike?

Yeah, thanks for the question. I think the best way to answer that is to kind of take a look at what we saw as kind of our Montreal paid scripts in Q4 and then how we think that will progress over 23. In the fourth quarter, we classify about 40% of Montreal scripts as paid, which we define as patients that aren't supported by our $25 non-coverage savings program. Now, our savings program, as we discussed at launch, was designed to bridge people living with type 2 diabetes to access. As we discussed in the Q3 earnings call, we have adjusted a program to better ensure it's being used for people living only with type 2 diabetes. These adjustments included removing our $25 non-covered benefit from our savings card for new patients. We didn't make any adjustments for existing patients whose savings cards are set to expire on June of this year, June 30th. As expected, these changes have reduced new patient start volume while increasing the percent of new patients with a history of diabetes treatments and the percent with formulary coverage. I think the way I would look at our savings program right now for new patients is that we have graduated from the bridging program, and now are kind of, you know, the type of savings programs really focus on covered patients that you would do in kind of a normalized cycle of a product. So thus, you know, we expect that Montero's percent of paid scripts and the net revenue per script to increase through 2023 as we continue to increase access and grow new starts. We remain disciplined in our access discussions so we can maximize long-term value. From the start, our approach was to make sure that we capture value in the long-term versus the short-term, and we've remained very disciplined in that. We have just over 50% access for lives in Part D and commercial segments for people living with type 2 diabetes. We're very pleased where we're at on the access front and the way our contracting has turned out at this point. So hopefully that helps provide some color to our growth in Q4. Thanks.

Thanks, Mike. Thanks, Colin, for your question on future mechanisms for treating obesity. I can assure you we're not done innovating on behalf of people with obesity. There's a lot we can still do. I think keep your eyes open for more to come from Lilly Labs on incretin and related types of mechanisms, but also broadly interested in a variety of new non-incretin-based mechanisms. You specifically asked about, one, mitochondrial uncoupling. But there are several others, I think, that also have promise for patients. I just sort of put a note of caution, though. Treating obesity, we need to have a very high bar for the types of medicines we develop, remembering that this is a chronic, often lifetime disease and a highly prevalent population. We need medicines that, first and foremost, are extremely safe and really highly well-tolerated for patients. So that's what we're looking for in future mechanisms. Thanks, Colin. Lois, next question.

The next question is from the line of Chris Schott from JP Morgan. Please go ahead.

Great. Thanks very much. Just one follow-up on the last set of questions. Is it still reasonable to think about a net Monjaro price that could be above that of Trulicity as we look out to 2024 or whenever you achieve kind of comparable payer access? And then my question was on Denonimab. I know there wasn't a huge revenue opportunity tied to the accelerated approval, but I think you had talked about using that GAAP between accelerated approval and full approval to really ramp physician education and infrastructure, et cetera. How do you kind of manage through that now, I guess, where we're going to have maybe a full approval that could be occurring closer into a CMS decision? So just maybe elaborate a bit of what that means for Denonimab over time. Thank you.

Thanks, Chris. All right, we'll go to Mike for the question about Manjaro price kind of over time and how it might compare to Trulicity, and then to Anne on your Denonimab question. about activity that would occur to ramp up HCP education. Mike?

Yeah, thanks for the question. I can't get into real specifics about our net price for obvious reasons, but maybe I'll address the question this way. I mean, if you look at when we have, when we reach, we think we'll reach broad access for Montero and reach ultimately similar access levels that we have for Trulicity. There's nothing differently about how we'll promote or how we'll support patients on Monjaro versus Trulicity. So at the end of the day, it will come down to our net price negotiations with payers. We believe that Monjaro has a better profile. We invest a lot of innovation in there. And, you know, we do believe that it should have a better net price than Trulicity.

Thanks, Mike. Anthony?

Thanks, Chris, for the question on physician education and readiness. So as you said, the accelerated approval is not going to provide access for the vast majority of patients, so it doesn't impact us in that way. And obviously accelerated approval would have made it maybe a little bit easier to do some of the things that we wanted to do, but there's still a great deal that we can do, actually have been doing, to make sure that the health care system is ready for these medicines. So we begin working on that. Things such as developing the diagnostic ecosystem are incredibly important. making sure that there's better integrated Alzheimer's disease pathways to make sure that physicians can properly identify, refer, infuse these patients. So that's the area of focus right now. Certainly diagnostics are a key area of focus for Lilly. We've continued to expand our PET network to make sure that we're ready for patient diagnosis. And then as well, we continue to be committed to PTAL blood tests and intend to launch that this year. So many things going on that I think can make us very ready for traditional approval and making sure that people can access these medicines.

Thanks, Chris, for the questions. Lois, next question.

The next question is from Seamus Fernandez from Guggenheim. Please go ahead.

Oh, great. Thanks for the question. So, Dan, I wanted to ask you if you could talk a little bit about where you see the oral GLP-1 space developing and how your product is likely to be positioned. You know, a little bit of this I think is also what you think the unmet need is, you know, outside of where the, you know, sort of very robust weight loss that we see from Monjaro is. And then, you know, just an add-on to that, you know, How do you see the oral market developing in terms of other potential agonists? Is that something that Lilly is pursuing and hoping to, you know, further develop combinations there as well? Thanks.

Thanks, Seamus. Okay, we'll go to Dan on those questions.

Thanks, Seamus. I'll get started. Maybe Mike wants to add on some of the marketplace questions. But, you know, clearly obesity is a huge problem in the U.S. and around the world. I think 100 million Americans potentially with obesity and reaching a billion people around the world pretty soon. That's probably not a market that even all of the interested companies could address solely with injectables. So just given the scope of the problem around the world, we're going to need orals. Ultimately, it's our goal to have orals that can match the safety, tolerability, and efficacy of injectables. I think our oral GLP-1 is our first attempt in this space and has really good prospects for meeting that initial goal, but then noting, of course, that the injectables are going to get better over time and the orals will catch up as well. The second part of your question was how do the orals catch up, and I think you're sort of alluding to an obvious issue. which is right now our oral GLP-1 and other orals in the space, are single mechanism, single incretin agonists. I think we've seen with, you know, great drugs like Trulicity and competitor products, what single agonists against GLP-1 can achieve. It's not as good, I think, as what can be achieved with dual agonism for truzepatide or hopefully even triple agonism with triple G. And so you can bet we're working on oral solutions that can bring additional incretin activity to patients in a pill. Nothing ready to disclose today, but we're working hard. Okay.

Thanks, Dan. All right. Lois, next question.

That question is from the line of Jeff Meacham from Bank of America. Please go ahead.

Morning, guys. Thanks for the question. I have two related ones on terzepatide. Dan, I know you have Sermount 4 coming up, which is the maintenance study, but how has your thinking evolved, if at all, on the potential duration of terzepatide use, either based on longer exposure from clinical studies or in the real world, and do you think that could inform payer discussions? And then Mike on Majaro, a moving target, but how does a prescriber base as of today compare with trulicity? I'm trying to get a sense for maybe the endocrinology versus primary care mix and utilization in obesity. Thank you.

Great. Thank you, Jeff. So we'll go to Dan for the question on Surmount 4 and duration of triseptide, and then to Mike on the question of how the prescriber base for Manjaro compares to Trulicity.

Yeah, sure. As I was just saying, I mean, obesity is clearly a chronic, often lifetime disease, and for such diseases, patients often need to take therapy for, you know, chronically, potentially the life of the disease here. A lot of times in medicine that doesn't happen, of course. People come off of therapies because either, you know, the therapy's working and they think they don't need it anymore or there's a benefit they can't see. I'm not sure either of those are the case for a drug like Terzapatide. People clearly can observe the benefits the drug is having on their health and perhaps, unfortunately, but not different really than any other drug that we have for any other disease. when you stop taking the drug, it's likely that it can no longer work. And patients may see that as well. So I think those factors will combine to have a pretty long duration of therapy. We have to wait and see in the marketplace. Maybe Mike has some early signals from patients, but still pretty early on. Thanks, Ben. Mike?

Yeah, no hard data yet, Dan, on that. But qualitatively, what we hear is what patients who've used Monjaro, what they like and what they realize once they start using it is that it really does reduce the appetite and they enjoy the benefits of reducing appetite. It helps them lose weight and stop being as consumed as much during the day about eating. And we do know that when, what we heard from our investigators in our studies is that when people stop taking Monjaro, that their appetite goes back to the levels it was before. So that's something very noticeable, something that a patient values from taking the therapy. And then when they stop the therapy, they then see this reversed. And so we do believe that people are going to stop and see if they can lose weight. If they can, great. But I do think that they're going to see a very powerful signal. very quickly to reinforce, you know, going back on the product. So I do think that will help reinforce the chronic use of Drosepatide for type 2 diabetes and eventually for obesity if we get approved. The question on Trulicity, you know, if you looked at Monjaro's use right now and compare it to, you know, how many customers were using that versus Trulicity at this time, it's a lot broader population than what we saw with Trulicity. it's a lot bigger, a lot more people are writing the treatment. If you compare Monjaro to the number of Trulicity writers today, there are more people writing Trulicity just because it's been on the market longer. They've gone through the adoption curve, and Trulicity has better access, especially in Medicaid, but that drives additional prescribers to use that. So overall, I'd say the Monjaro is within the universe of the doctors who write Trulicity at this point.

Thank you, Jeff, for the question. Lois, next question.

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

Thank you. I have a question on Denanumab. I'm wondering if Lily would agree that there's highly likely going to be higher area E and area H rates with your drug versus with Canumab when Trailblazer all two reports out. The prior data would certainly suggest that. If so, relative to licanumab, doesn't that create a potential risk-benefit conundrum for FDA, assuming efficacy comes in around the same levels? I got the bottom line here. Is there a regulatory concern to contemplate maybe this is why FDA issued the CRL? They want to see the full results from your second study. They don't just want to capture a few more patients to bring that total to 100. Or am I being too bearish here? Thank you.

Thanks, Tim, for the question.

We'll go to Dan for this. Yeah, maybe I answered the second part of the question first, you know, which is around why did the FDA issue the CRL. I think that the FDA regulations actually suggest the FDA should list all deficiencies in the CRL. We were pretty explicit copying some of the FDA's own words here to investors about what was in the CRL. It didn't discuss issues like ARIA. It was focused on the 12-month exposures. So, Nothing further to speculate there. I think, you know, your question on rates of ARIA-E and ARIA-H comparing across drugs is a complicated one. You know, we did this head-to-head study against aducanumab. I think it's important to use studies like that to compare rates of ARIA because we've learned that rates of ARIA are highly dependent on the type of patient you enroll, the stage of disease and underlying pathology based on characteristics of their brain scans. which are different across lacanumab trials and dinanumab trials, as well as exactly how you do the MRIs and read them. So I'm personally not going to get worked up about rates of asymptomatic radiographic-only aria in any drug. I don't think anyone really understands what that means. What we should be focused on, though, is rates of symptomatic aria, so patients who have aria that turns into something they experience, not just a radiographic finding, and particularly rates of serious adverse events resulting from ARIA. We know that in some patients, ARIA can be dangerous, even fatal, as we've seen from the canumab experiences. So that's what we'll be looking out for. I think, you know, we still have all the caveats about cross-trial comparisons here, but it's a bit easier to compare those symptomatic or serious events I think in Trailblazer 1, our numbers are very similar to other members of the class. In Trailblazer 4, the numbers look very, very good for that. And we'll wait and see what we have in Trailblazer 2, but my level of concern over that is not high.

Thank you. Lois, next question.

The next question is from the line of Terrence Flynn from Morgan Stanley. Please go ahead.

Hi. Thanks so much for taking that question. Maybe a two-part one for me. I guess first on Manjaro Manufacturing, I was just wondering if you can tell us if the FDA has completed the inspection of your new North Carolina facility yet. And then the other question relates to Terzeptide for obesity. I was wondering if you've had any initial payer conversations yet and if you're planning to use a priority review voucher for that filing. Thank you.

Thanks Terrance. I think I'll hand over to Nat for commentary on your manufacturing question and then to Mike on the question about whether there's been any payer conversations on obesity.

Terrance, to your question on the RTP side in North Carolina, it's progressing on schedule as we had planned. We can't comment on specifics on the FDA interactions, but we're expecting that site to start producing this year and it's progressing towards that goal. I will mention, important to think about, we talk about RTP, I think because of the proximal nature of when this site's going to come online. Obviously, this is the next large node that's going to come online in terms of capacity for Incartan portfolio. But we are making substantial investments beyond RTP. So we've announced a second site in North Carolina, a very large site in Concord. And we've announced the expansion of the RTP site, additional sites in Indianapolis or north of Indianapolis. and a site in Ireland. And as we look at our capital investments in manufacturing sites this year alone, it's probably the largest we've ever had. Doubling will be had in 2022. We're looking at about $3.3 billion of investment just this year. So we're looking at substantial expansion of capacity really across the globe to support not just Manjaro, obviously, but the rest of the portfolio. And we have visibility into what's coming, as well as the fact that, as we've talked about before, we have several products that are part of the same manufacturing network and the same auto-injector platform. So that helps us kind of build that capacity across the Lumi portfolio.

Thanks a lot. Mike, on the second question?

Yeah, I think a good thing to focus on is access and obesity. I mean, you look at the massive size of the obesity market, 110 million people in the U.S., 650 million people globally, but you really see that historically that the obesity market has really been slow to develop, and it's really because the treatments haven't been adequate. So, you know, the question we had going into this market was, you know, if a safe and efficacious treatment was developed, would consumers and healthcare professionals and payers be interested in using it. Well, based on what we've seen in the marketplace over the past year in our market research, it's clear that consumers and healthcare professionals will adopt an efficacious, safe anti-ABC medication if patients can have access to it. So it does come down to, you know, payer access, and we're highly focused on doing that. You know, Noble recently stated in their call that 40 million Americans have access to our B-City. And the way they talked about it was payer access and employers opting into that. So if that's where we're at today, that would be a great starting point for access. We're deep into conversations with payers to understand the market and all that. You know, access discussions haven't started yet, but will shortly. But our focus long-term is to improve access for anti-ABC medications. We are investing significantly to demonstrate the potential health outcome benefits for people using triseptide who live with obesity. We're also investing in phase three programs for people who live with obesity and sleep apnea or heart failure. And these should unlock large segments of access for people who live with obesity in commercial, and we hope Part D. In addition, you know, in my career, I've seen the power of consumer interest in helping to improve access for medication. And what we've seen over the last year is that people who live with obesity are highly engaged and willing to do much access-affected treatments. They will have an important role in employees with employers and the congressional representatives advocate for access. Well, I think it will take time to establish our ultimate access goal. I'm more encouraged than ever by our potential to unlock the BC market and help a lot of people. So I'm encouraged, but obviously a lot of work still to be done.

Thank you both, and thanks, Terrence, for the question. Lois, next question.

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

Thank you. Question for Anat. I'm not going to get the legislative particulars correct, but just to be clear, Doesn't Lilly typically guide on tax rate assuming an adverse U.S. situation and doesn't typically adjust that until late in the year? And this year it is assuming no adverse situation but much earlier in the year? If so, can you clarify why you are doing something different this year since it is a profound impact on earnings? And if I could just add on LPA, Dave, Lilly is way behind. How can you catch up? Thank you.

Thanks, Steve. I'll go to Anat for the question on the tax rate assumptions, and then I'll go to Dan for your LP little a question.

Thanks, Steve. So here is how we look at this, and I wouldn't read too much into it. Last year, we had assumed, based on very broad support for change in this 2017 tax provision that this will, in fact, be enacted by Congress. We assumed late in the year, but it hasn't happened. So at this point, the only thing we're doing is reflecting reality of the situation we're in. If it does get repealed or deferred, obviously we'll update accordingly. I don't think the likelihood of that is zero, so it still could happen this year, but it does take Congress. Congress will need to act to get this going. So we're simply reflecting the current situation.

Okay, I'll start with the LP little a question. We have two LP little a programs. Maybe the easiest one to comment on first is the oral program. This is the first in class, I think probably the only one in clinic here. And oral medication against this target is really a huge feat of molecular engineering. I'm super excited to see the data from this molecule develop and obviously the market opportunity for an oral drug for such a widespread condition is very important. In terms of the SIRNA, you're right to note that a competitor is ahead of us in really just starting the CVOT study. It's a long road to get these drugs to market with outcome studies needed here to to show the benefit. I probably don't get into our differentiation strategy, but, of course, we have some ideas here, and we'll move as quickly as possible. I don't see this as a winner-take-all space.

Maybe just to add, Steve, I won't add on the LP the link comment. I think we feel good about where we are with that. But just on the tax thing, there is a difference here where you describe it as adverse or beneficial, right? So from a... From a GAAP and non-GAAP accounting, of course, it's a benefit on EPS growth. But actually from a cash perspective, it goes the other way. So we just wanted to be clear up front because it's not a one-way benefit we're taking early in the year. There's an adverse cash impact throughout the year and a positive effect on the P&L. It's a little bit different from maybe past assumptions we've made.

Lois, next question.

The next question is from Louise Chin from Kantor. Please go ahead. Hi. Thanks for taking my question.

So I wanted to ask you, what do you think is the minimum amount of relative risk reduction you'd have to see in an outcome study for obesity for payers to be convinced that there's something here?

Thank you. Thanks, Louise. Mike, do you want to chime in on that around the minimum amount of relative risk reduction we'd expect in an outcome study for obesity?

Yeah, that's a good question. I mean, first of all, I don't think it's a binary point where all payers are looking for that outcome in order to provide access. I think you're going to see a lot of payers, you already see a lot of payers who provide access for that. We have, you know, an extensive phase three program only in CB outcomes, but also with sleep apnea and heart failure to begin to really talk about heart outcomes for many patients who live with obesity. With the CB outcomes that we have today, I mean, we're quite confident in our program and, you know, based on what we see with, you know, surrogate risk reduction in patients in blood pressure and lipids, we're fairly confident in our CV profile, as well as what we saw with the SURPASS data and our meta-analysis in the SURPASS program. So, I won't give you the exact number, but I think we're pleased with where we're at, and I think we'll be able to demonstrate outcomes that payers will be excited about.

Thanks, Luis, for the question. Lois, next question.

And that comes from David Risinger from SVB Securities. Please go ahead.

David, are you there? OK.

Looks like we don't have Dave or he's on mute. Lois, next question.

The next question is from Chris Shibutani from Goldman Sachs. Please go ahead.

Thank you. If I can ask a question on Monjoro and the interplay with Trulicity. You've commented in the past that in terms of patients on Monjoro, it's been about less than 10%. That seems to be a little bit higher now. Can you share any thoughts and observations about how you see this progressing on the forward through this year?

Thanks, Chris, for the question. Mike, we'll go to you for that question on the, I guess, cannibalization from trulicity figure and how that'll progress.

Okay, yeah, I mean, on that, nothing has changed over what we had talked about earlier, that less than 10% of our scripts we get for Manjaro come from trulicity. That hasn't changed over time. It's still a little bit less than 10%.

Okay, thank you. Lois, next question.

And that comes from Umar Rifat from Evercore. Please go ahead.

Umar Rifat, Hi, guys. Thanks for taking my question. There's been a heightened investor focus, I feel, on the Phase III primary endpoint for Danimab now. And I wonder if there's been any incremental interactions and or agreement with FDA on the primary endpoint for Phase III. The question I get a lot from investors And also, how are you thinking about this upcoming phase three if there were to be a scenario where the MMRM on CDR doesn't agree with eye address on a patient analysis? Thank you.

Thanks, Umar. We'll go to Dan for the question on endpoints.

Yeah, thanks. Clearly, I think there's a lot we can learn from competitor readouts here. And so looking at the Lecanumab data, in our eyes, I think it actually further validates an endpoint like ADRAS if you just look at the Forest Plot, for example, there's a lot more homogeneity and effect on an endpoint like ADS versus CDR sum of boxes. So we feel more confident, I would say, than ever before that an endpoint like that is the right way to go. On the other hand, I think you could take the position that since the Kanemap hit CDR sum of boxes, people might say, well, then it's achievable and you guys should do it too. So there's some pushes and some takes there, but on the whole, still feeling good about ADRESS as a primary outcome. When you ask, though, what happens if you hit one outcome and not the other, that's surely a difficult situation to be in. We want to understand why that happened. If that were to happen, were there irregularities in CDR sum of boxes that could explain it? What did the rest of the secondaries look like? Always best to hit all of your outcomes in a clinical trial. failing that, you want to hit your primary and as many secondaries as possible. So let's wait and see.

Thanks, Umar.

Lois, next question.

That question's from Mohit Banzal from Wells Fargo. Please go ahead.

Great. Thank you very much for taking my question. Maybe a question regarding your next generation Alzheimer's drug. I cannot pronounce the name, but I mean, I learned it. But how does it differ or is similar versus Denonimab? Asking, because you're running a phase three trial with sub-Q here, so what would be the read-through for this particular asset based on the outcome of Denonimab phase three trial?

Dan, you want to talk a little bit about remternitug?

Yeah, I think you've got it basically right. Remternitug is a new medicine, a new molecule, but it's an antibody against the same type of epitope that Denenumab has, which is this N3PG form of A-beta. So a very equivalent mechanism of action, maybe a little better potency and certainly better drug properties, including no ADAs and formulation things. So the rationale here is to give improved dosing options to patients. Could we get even faster plaque clearance? Could it be with fewer doses? Could it be subcutaneous? Those are the types of things that we're currently exploring. The phase three is designed with a bit of a run-in. We're in that portion right now to finalize our dosing strategy and then expand it. Obviously, if Denenumab is disappointing. There would be read-through through remtarantog. On the other hand, if denatumab exceeds expectations, I would expect that to read-to as well. Thank you, Mohit. Lois, next question.

The next question is Evan Siegerman from BMO. Please go ahead.

Hi, guys. Thank you so much for taking the question. You know, while much of the discussion on Medicare coverage is in Alzheimer's, We know that Medicare really doesn't pay for obesity drugs. Can you just talk about your efforts to help Medicare patients get coverage for obesity drugs, including potentially Manjaro, if one approved? Maybe add some parameters around what that additional population could look like from a revenue opportunity perspective. Thank you.

Thanks, Evan, for the question. I'll hand over to Mike. Mike, do you want to talk about the potential for Medicare to cover obesity? Sure.

Okay, sure. Yeah, good question. I mean, it's going to take legislative action in order to allow anti-B.C. medications to be covered on Medicare Part B. So there is the Treat and Reduce Obesity Act. The acronym for that is TROA. And there's a large, growing bipartisan support for TROA, a little over 100 people. congressmen and senators, congresspeople and senators are behind the program. And it's growing more and more support across Washington. You know, we're eager to see an advanced legislative process. It would be great for the company country. America needs to take action and drastically reduce the number of people living with obesity, and this legislation would be an important step toward this legislation and continue to work to advocate for it.

Thanks, Mike. Lois, next question.

The next question is from Truong Nguyen from Credit Suisse. Please go ahead.

Oh, thanks for squeezing me in. Truong Nguyen from Credit Suisse. Last month, the American Academy of Pediatrics released their guidelines to treat childhood obesity. In those guidelines, they recommended a lifestyle intervention, obviously, as the core component. But also, they said they would consider treatment with anti-obesity medications. So I thought, what's your thoughts on anti-obesity medications in children? Is this an area that you are moving into or considering moving into? Do you have any trials with children or adolescents? Thank you.

Thanks, Trang, for the question. Mike, over to you again. Comment on these recent guidelines that were put out.

Yeah, thanks. I mean, this is a significant unmet need. It's back to the question that we asked earlier about, you know, the Treat and Reduce Obesity Act. We need to prove the health of America. We have too many people who live with obesity in the U.S., and that includes, unfortunately, adolescents and teens. So, you know, I think they took the right action in order to really identify this as an issue that healthcare professionals do need to pay close attention to. We obviously always advocate for diet and exercise as the first approach of this, but if that's not successful, then your really only option at that point is, you know, medication treatment. We do think it's important and responsible for us to test. There's appetite. in bees and adolescents, and we have activity ongoing to do that.

Thanks, Mike, and thanks, Strong, for the question. Lois, next question.

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

Great. Thank you for taking the question. I guess one for a nod. Back in December, you highlighted austerity measures in Europe as a potential risk. At that time, that was a bit of a unique position. We hadn't heard that from many companies since that time. We've heard kind of similar messaging from some, but not all. And apologies if I missed it. I don't think I heard anything today on this front. So I know it's only been sort of 45 days or so since you made those comments, but any advances in sort of how you're thinking about this and any specific products or countries, we should think about that impact. Thank you.

Thanks, Carter, for the question. We're actually going to hand this over to Ilya Yufa, who is our president of Lilly International, to comment on the European austerity measures.

Ilya Yufa Yeah, I appreciate the question. There have been a number of markets in Europe that have taken some austerity measures. Partially due to Ukraine crisis and energy crisis and inflation in Europe. We have seen Germany, France, obviously the UK voluntary system we think is broken and so we exited that. And so there are some austerity measures in there. We've contemplated that into our guidance for 23. And the overall impact is modest relative to historical declines in price in prior years. We expect that to continue to be in that single-digit decline in price in Europe.

Thanks, Ilya, and thanks, Carter, for the question. Lois, next question.

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

Thank you. A question on U.S. commercial access for GLP-1 agonists. First, could you share with us how you're thinking about modeling the impact of the IRA in terms of GLP-1 uptake increasing as a result of the copay cap and additionally benefiting from the presumed reduction in free drug program? How significant is it, given the patient's still got to find $2,000 per annum? And then second, in relation to the oral DPP-4 market, which is still a very, very substantial $14 billion market. You have a category of drugs, ostensibly, which may offer considerable advantages in efficacy for glycemia and weight, but I'm reminded of the stickiness of the sulfonylureas in the prior period. To what extent do you think managed market is going to preclude your ability to penetrate that segment with oral GLIT-1s just on the basis of generic DPP-4s? Thank you.

Thanks, Andrew, for the wide-ranging question on diabetes. I'll hand over to Mike first to talk about your question regarding potential impact of the IRA on access for GLP-1s and then the second question around how oral GLP might fit in given the stickiness of some of the older diabetes medications. Mike?

Yeah, good questions. You know, on the IRA side of it, It will benefit patients who live with diabetes who use GLPs, NRN, Medicare Part D. Their out-of-pocket costs will go down. It may have, I would say, a small to moderate impact on GLP sales or just probably lower rates of abandonment than what we'd see at higher out-of-pocket costs. As it comes to the oral DPP-4, You know, the perceptions of oral DPP-4s have really declined over the last five years and really being replaced by F-52s and DLP. So I don't see much of an impact of DPP-4s going off patent in the U.S. or other markets.

Thanks, Mike. And, Lois, I think we have one final question in the queue, so let's go to the last question.

Thank you. And that's from Robin Kanaskis from Truist. I'm sorry, Truist Securities. Please go ahead.

Great. Thanks for my question. I was just thinking more about some of the launches that are coming up. And I know these may be a little blur out. But for Merck, is it Mab? And I always get these things wrong. Sorry. But for UC, can you just talk a little bit about given, you know, how much promotion there's been for Skyrazi and Renvoke as you move into also Crohn's with data reading out soon. Like, how do you see, like, competing in that market? When you start launching, do you have to be DTC heavy? Because it seems like they're very very prominent. Like, what about the launch dynamics? And then second, for lebrecizumab, same question here. I mean, topic dermatitis is getting pretty crowded. What kind of pushes and pulls might you need to use to get a quicker uptake in a topic derm? Thanks.

Thanks, Robin, for the questions. I'll go to Patrick Johnson for both of these, first on mirakizumab and competition in the UC market, and then on lebrecizumab. Patrick?

Thank you very much. Well, overall, we feel very good with the data we have seen on Mirakesumab. If we look at the 52 weeks, we have more than 50% clinical remission, and we see statistical and clinically meaningful improvements across both clinical, symptomatic, endoscopic, and histologic endpoints. But I think it's important that if you look at the patient populations with ulcerative colitis, we saw the same results across the bio-naive and the bio-failure patients. So I think we're extremely well positioned for a launch here. We also demonstrated on a factor that is extremely important for patients, bowel urgency. More than 40% of patients were either completely or almost bowel urgency-free at week 52. So therefore we believe we have a first-in-class asset here that probably initially will be used mainly second-line for those that haven't responded appropriately to TNFs and similar. But we believe that long-term we are positioned for a first-line placement in treatment of ulcerative colitis. Yeah, so the outlook for Merikeasemap, it's exciting. From a competitive landscape perspective, you know, we don't have head-to-head data, but if we compare the data we have seen so far, we believe that Meri compares very favorable both versus what's currently in the marketplace, as well as what's in the pipeline with other companies across Jack inhibitors, S1Ps, and other IL23s as well. So exciting to launch Meri the first of this year. When it comes to Lebri, I think actually we are uniquely positioned to really upgrade the expected outcomes of patients with atopic dermatitis. We have here an asset that is actually targeting the most relevant cytokine when it comes to treating atopic dermatitis IL-13. And it does that with a high binding affinity, high potency, and a slow off rate. And I think that probably explains the data that we have seen so far. We're extremely pleased with the phase 3 data, and we saw more than 80% of patients achieving skin clearance at week 16, maintaining that at week 52. But also very importantly, statistical and clinically meaningful improvements across both each, which is probably the most disturbing factor for patients with atopic dermatitis, sleep and quality of life. And we saw similar results across both the Q2W and Q4W formulation. We actually believe that the Liberty Case Map has the potential to become a first-line biologic. It's important to have in mind that we announced this submission at the Q3 earnings call, and we expect a traditional regulatory pathway, yes, we will not launch until most likely Q4 of 2023. But a lot of excitement from both healthcare providers, the Fort Lee community, as well as the payers to get Liberty to the market.

Thank you, Patrick. Dave, to wrap up. Great. I think that's the last question. I appreciate the questions across the portfolio. And we appreciate your participation in today's earnings call and your interest in our company. 2022 is another productive year for the company, and we generated strong financial results and delivered important pipeline progress in each of our core therapeutic areas on behalf of the patients we serve. We aim to continue our momentum in 2023 and execute on the meaningful launch and pipeline opportunities that we have ahead of us. So thanks for dialing in, and please follow up with IR if you have questions that we didn't get to today. Have a great day.

Thank you, and ladies and gentlemen, this does conclude our conference for today. And this conference will be made available for replay beginning at 1 o'clock today, running through February 9th at midnight. And you may access the AT&T replay system at any time by dialing 866-207-1041 today. and entering the access code 428-3950. International dialers can call 402-970-0847. Again, those numbers are 1-866-207-1041 and 402-970-0847 with the access code 428-3950. And that does conclude our conference for today. Thank you for your participation. And if you use an AT&T event conferencing, you may now disconnect. Thank you. Thank you.

Thank you. you you you Thank you.

Ladies and gentlemen, thank you for standing by, and welcome to the Lilly Q4 2022 Earnings Conference 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. And as a reminder, today's conference is being recorded. I would now like to turn the conference over to our host, Joe Fletcher, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Lois. Good morning, and thank you all for joining us for Eli Lilly and Company's Q4 2022 earnings call. I'm Joe Fletcher, and joining me on today's call are Dave Ricks, Lilly's Chair and CEO, Anat Ashkenazi, Chief Financial Officer, Dr. Dan Skowronski, Chief Scientific and Medical Officer, Anne White, President of Lilly Neuroscience, Ilya Ufa, President of Lilly International, Jake Van Narden, CEO of Loxo at Lilly, Mike Mason, President of Lilly Diabetes, and Patrick Johnson, President of Lilly Immunology and Lilly USA. We're also joined by Mike Springnether, Kent Ueha, and Lauren Zierke from 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 several factors, including those listed on slide three. Additional information concerning factors that could cause actual results to differ materially is contained in our latest Form 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's not intended to be promotional and is not sufficient for prescribing decisions. As we transition to our prepared remarks, please note that our commentary will focus on non-GAAP financial measures. And now I'll turn the call over to Dave.

Okay, thanks, Joe. 2022 is a year of strong pipeline and commercial performance for Lilly. We delivered top and bottom line growth in 2022 despite the impact of the Olympia LOE in the U.S. and significant FX headwinds and delivered another remarkable year of pipeline progress. We began 2023 with multiple updates to our late-stage pipeline. In our Q2 2022 earnings call last August, we announced the filing of submissions for two assets with the FDA under an accelerated approval pathway. perturbitinib in mantle cell lymphoma, and dononimab in early symptomatic Alzheimer's disease. Last month, we received responses from the FDA on both these assets. On January 19th, we announced that the FDA issued a complete response letter for accelerated approval of dononimab due to the limited number of patients with at least 12 months of drug exposure. There were no other deficiencies cited. We will continue to work with the FDA to evaluate the best pathway to make this potential treatment option available to patients and look forward to results next quarter for the Trailblazer ALTS II Phase III confirmatory trial, which will form the basis of Denonimab's application for traditional approval. We have consistently stated that we would expect very limited uptake before CMS supports coverage. At the time we submitted for accelerated approval, we had hoped that there would be more movement from CMS to provide access to these medicines for people with Alzheimer's disease. Unfortunately, this has not yet materialized. We maintain conviction that given the impact of this devastating disease and significant unmet need, positive confirmatory data and FDA traditional approvals should be sufficient to support global reimbursement and patient access necessary for broad use of Denonimab over time. Also in the month of January, we received FDA approval for JPRCA, the first and only non-covalent BTK inhibitor for adults with relapsed or refractory mental cell lymphoma after at least two lines of systemic therapy, including a BTK inhibitor. J-PIRCA is a highly selective kinase inhibitor whose novel reversible binding mechanism and pharmacology may allow for extended targeting of the BTK pathway following treatment with a covalent BTK inhibitor. We are pleased with the recent approval of JPRCA, and we remain confident in the long-term opportunity for Denonimab. We also look forward to the potential launch of two of our immunology assets later this year with Mirakizumab and Lebrekizumab, and of Terzipatide for obesity. This current wave of new launches, along with the ongoing focus and progress in our next wave of R&D innovation, underpins our long-term outlook to drive top-tier revenue growth and expand our margins over time. On slide four, you can see the progress we've made on our strategic deliverables. Excluding revenue from COVID-19 antibodies, revenue on a constant currency basis grew 10% in Q4 and 5% for the full year. Volume in our core business, again, excluding COVID-19 antibodies, grew 13% in Q4 and 12% for the year. This volume-driven performance was attributed to our key growth products, which grew 21% last quarter. For pipeline milestones, in addition to the recent FDA approval of JPRCA, we have shared several important updates since our Q3 earnings call. Positive Phase III readout and FDA and EMA acceptance of the regulatory submission for Jardians for adults with chronic kidney disease, the initiation of a rolling submission in the U.S. for terzipatide in obesity, and FDA granting a fast-track designation for terzipatide in obstructive sleep apnea. We also continue to put our cash flow to work to create long-term value. In late January, we announced plans to invest an additional $450 million for expansion of our Research Triangle Park manufacturing site in North Carolina to further augment our manufacturing capacity for the years ahead. On the business development front, we closed the acquisition of Accuos to expand our gene therapy capability, and we entered into a strategic research collaborations with a focus on new modalities and technologies. Finally, we continue to return capital to investors. In Q4, we distributed nearly $900 million to shareholders via the dividend, and we announced a 15% increase to the dividend for the fifth consecutive year. Moving to slide five, you'll see a list of the key events since our Q3 earnings call, including several important regulatory, clinical, business development, and ESG updates we are discussing today or that were discussed during our guidance call on December 13. One item I'd like to highlight is the collaboration we announced in December with EVA Pharma to deliver a sustainable supply of affordable, high-quality insulin to at least one million people living with diabetes in low- to middle-income countries, most of which are in Africa. This is an important collaboration with a local company to produce low-cost, high-quality medicines. Strengthening capacity and building self-reliance for insulin manufacturing within the African region will provide a more sustainable supply in the long term. With this agreement, Lilly will sell insulin API to Ava Pharma at a significantly reduced price and provide pro bono technology transfer to enable to formulate, fill, and finish insulin vials and cartridges. We're proud to be a part of this novel arrangement, which aligns with our 30 by 30 goal of improving access to quality healthcare for 30 million people living in limited resource settings annually by 2030. Now I'll turn the call over to Anat to review our Q4 and full year 2022 results.

Thanks, Dave. Slide six and seven summarize financial performance in the fourth quarter and full year 2022. I'll focus my comments on non-GAAP performance. As Dave mentioned, we're pleased to report 10% growth for our core business in Q4 on a constant currency basis driven by strong volume growth. A couple of notable items affected year-over-year comparison. The first is COVID-19 antibody revenue in Q4 2022, which compared to the prior year declined 96% from approximately $1.1 billion in Q4 2021, to 38 million in Q4 2022. Bevtalovimab is currently not authorized for emergency use in any U.S. region, and we continue to expect no COVID-19 antibody revenue for 2023. Second is the continued foreign exchange headwinds compared to 2021, which resulted in a 415 basis points dampening of revenue growth in Q4. Key growth products grew by 21% and accounted for 70% of our revenue this quarter. For the full year 2022, revenue excluding revenue from COVID-19 antibodies grew 2% or 5% on a constant currency basis. Our non-GAAP gross margin was 80.5% in Q4, an increase of approximately 440 basis points, primarily driven by lower sales of COVID-19 antibodies, partially offset by lower realized price, and increased expenses due to inflation and logistics costs. Total operating expenses declined 1% in Q4. Lowered acquired IP R&D and development milestone charges were largely offset by higher marketing, selling, and administrative expenses and higher R&D expenses. Marketing, selling, and administrative expenses increased 3% in Q4, primarily driven by costs supporting the launch of new products and indications, partially offset by the favorable impact of foreign exchange rates. R&D expense for the quarter increased 5%, driven by higher development expenses for late-stage assets, partially offset by favorable impact of foreign exchange rate. Operating income declined 7% compared to Q4 2021, driven by lower revenue, partially offset by lower operating expenses. Operating margin for Q4 was 27.4%, which includes a negative impact of approximately 330 basis points, attributed to acquired IPR&D and development milestone charges. Full year operating margin was 27.8% and increased from 26.8% in 2021. Our Q4 effective tax rate was 7.3%, bringing our full year 2022 effective tax rate to 10.3%. As we shared during our guidance call in December, we had assumed that the 2017 Tax Act provision requiring capitalization and amortization of research and development expenses for tax purposes would be deferred or repealed by Congress in late 2022. However, no legislative action was taken related to this provision, which resulted in a lower effective tax rate for 2022 versus the guidance range previously shared. In addition, this provision did increase our tax payment in 2022 by approximately $1.2 billion. At the bottom line, earnings per share declined 4% in Q4 and increased 7% for the full year. On slide 8, we quantify the effect of price, rate, and volume on revenue growth across key geographies. This quarter, U.S. revenue declined 10%. Excluding revenue from COVID-19 antibodies, revenue grew 11% in the U.S. This volume-driven growth was led by Virginia, Manjaro, and Jardine. Net price was flat in the U.S. this quarter. For the full year, the net price decrease of 3% in the U.S. was in line with our expectation. Moving to Europe, revenue in Q4 increased 8% in constant currency, driven primarily by volume growth for Jordans, Trulicity, and Verzenio. We remain encouraged with the momentum of our business in Europe. In Japan, revenue in Q4 decreased 6% in constant currency. Revenue growth in Japan continues to be negatively impacted, albeit less so than in prior quarters, by decreased demand for several products that have lost patent exclusivity, including the Limta and Cymbalta. We expect a return to growth this year as we scale key products and launch Manjaro. In China, revenue grew 2% in constant currency as continued volume growth was mostly offset by lower real estate prices for Humalog as a result of the volume-based procurement process, and for products listed on the NRDL, as well as by COVID-19 disruption. Revenue in the rest of the world increased 11% in constant currency this quarter, driven by approximately $130 million of one-time revenue associated with the sales of the company's right to a limta in Korea and Taiwan. As shown on slide nine, our key growth products continue to drive robust worldwide volume growth, contributing 15% points of volume growth this quarter, As mentioned previously, the decline in COVID-19 antibody volume was substantial in Q4 2022 and largely offset volume growth from key products. While we will face similar prior period headwinds from COVID-19 antibody revenue through the first three quarters of 2023, our long-term growth prospects are underpinned by our innovative pipeline and key growth products, including Monjara. Slide 10 further highlights the contributions of our key growth products. The score of these brands grew 21% or 27% in constant currency, generated $5.1 billion in sales, and made up 70% of our total revenue. While Lilly's Incretin portfolio understandably generates high interest, we continue to see tremendous growth, both in percentage and absolute terms, for other key products, including Versenio and Jardiance. Fresenio sales in the quarter grew 100%, driven mainly by the edge of an indication. Jardine sales grew 42%, and the product retains the leadership position in a competitive market globally. Demand for our incretin portfolio remains strong, both for Trulicity globally and Monjaro in the U.S., and we remain focused on bringing additional capacity online to meet this robust demand in upcoming launches. In terms of supply, as mentioned in our guidance call in December, Given strong demand for our incretin products, there have been intermittent delays at wholesalers and pharmacies in receiving certain doses levels of Monjera and Trulicity in the U.S. We continue to update the FDA on the situation, and the FDA has been posting to his website details regarding effective doses and expected timing. To meet this rapidly growing demand across our incretin business, we have announced plans to add additional substantial capacity in the years ahead. The most proximal of these efforts is our RTP side, North Carolina, where progress continues as planned, and we look forward to the start of production later this year. Moving to slide 11, Monjara's strong launch uptake continues, underpinned by differentiated efficacy profile and positive customer experiences. For Q4, approximately 75% of Monjara's new therapy starts are patients new to the type 2 diabetes injectable incretin class. and fewer than 10% of switches from Trulicity. As we mentioned our Q3 earnings call in early November, we took actions in Q4 to reinforce the intended use of the Manjaro Savings Program by Type 2 diabetes patients. We indicated at that time that these actions could negatively impact new prescription volumes, but were not expected to impact net revenue. As anticipated, we believe the new prescription volumes beginning in late November were impacted by these actions with some week-by-week volatility driven by end-of-year seasonality. We continue to build payer access for Monjara for type 2 diabetes. As of January 1st, access stands just over 50% for patients with type 2 diabetes across commercial and Part D. Regarding the percentage of paid scripts, for Q4, we estimate the percentage of paid scripts for Monjara to be approximately 40%, with paid script defined as those prescription outside the 25 non-covered copay card, but inclusive of the 25 covered copay card. As we expand payer access, the proportion of paid scripts should continue to increase. On slide 12, we provide an update on capital allocation. In 2022, we invested $9.6 billion to drive future growth through a combination of R&D expenditures, business development outlays, and capital investments. In addition, we return approximately $3.5 billion to shareholders in dividends and repurchase at $1.5 billion in stock. Our capital allocation priorities remain unchanged and are oriented towards achieving our strategic deliverables of top-tier revenue growth and speeding life-changing medicines to patients. We do this through investments in our current portfolio to drive new launches, investment in our manufacturing capacity, and in our future innovation through R&D and business development. and we return capital to shareholders through dividend payments and share repurchases. Slide 13 provides an updated 2023 financial guidance. The only change we've made from the guidance we provide in December is to update our effective tax rate, which result in an updated EPS range. During December guidance call, we shared that the effective tax rate for 2023 would be approximately 16% based on the assumed deferral or repeal of the tax provision requiring capitalization of R&D. Since this provision was not deferred or repealed in 2022, and given the uncertainty around if and when such action will take place in 2023, we have updated our tax rate from 16% to approximately 13%. This update to our effective tax rate results in new EPS range of $7.90 to $8.10 on a GAAP basis, and $8.35 to $8.55 on a non-GAAP basis. Regarding FX rates, there has been a general weakening of the dollar since we set our initial 2023 financial guidance last year. However, we're not adjusting guidance for FX changes at this time, as we're only one month into the year, and FX markets can be quite volatile. As I shared in December, the most significant headwind in revenue growth in 2023 versus 2022 will be the impact of COVID-19 antibody sales. The year-over-year comparisons will be most pronounced in Q1 2023, given that we had a billion and a half dollars of COVID-19 antibody sales in Q1 2022. To a lesser extent, the loss of exclusivity of the limta in the U.S. in Q2 2022 will also impact year-over-year growth in the first half of 2023. Still, the midpoint of our 2023 revenue guidance range represents roughly 7% of growth or 50% growth for our core business, excluding COVID-19 antibodies. This year holds tremendous promise for us to help patients as we execute on the current wave of potential launches while maintaining our commitment to invest in and progress future innovation. We expect this ongoing focus on disciplined execution and investment will help drive top two revenue growth through at least 2030. Now I will turn the call over to Dan to provide an update on our pipeline.

Thanks, Anat. 2022 was a really productive year for Lilly R&D as we advanced our late-stage assets of Terzepatide, Denenumab, Pertubrutinib, Mirakizumab, and Lebrekizumab to key regulatory submissions, and we obtained the approval for Monjaro. We launched Monjaro for type 2 diabetes in mid-2022. As Dave shared, we received an approval last week for Pertabrutinib, now known as J-PERCA. By the end of this year, we also have the potential to launch two new immunology assets with Mirakizumab and Lebrekizumab. And for Denetimab, we're looking forward to our Phase III readout mid-year, which, if positive, will form the basis of our submission for traditional approval. In 2022, we also gain clarity on the next wave of assets that have entered or will soon enter Phase III registrational trials Those are our CERD in breast cancer, our weekly insulin for diabetes, remternitug in Alzheimer's disease, and as shared in our December guidance call, we now have O4-glipron and retitrutide in diabetes and obesity. Given the updates we provided in mid-December, today I'll just briefly highlight progress since our last earnings call. Slide 14 shows select pipeline opportunities as of January 30th. And slides 15 and 16 show a recap of 2022 key events and potential key events for 2023, starting with diabetes and cardiometabolic disease. In November, we shared results from the EMPA Kidney Phase 3 trial in collaboration with Beringer Ingelheim. As the largest and broadest SGLT2 inhibitor trial in CKD to date, the results showed a significant benefit of Jardians in reducing the relative risk of kidney disease progression or cardiovascular death by 28%. compared with placebo in people with chronic kidney disease. The overall safety data were consistent with previous findings, confirming the well-established safety profile of Jardians. CKD is a leading cause of death worldwide, affecting over 850 million people globally and 37 million in the U.S. We've submitted to the FDA and EMA for approval and expect to make submissions to other regulatory agencies in the coming months. In January, we started QUINT-1, a Phase III study comparing fixed-dose escalation of release weekly insulin to insulin glargine in insulin-naive type 2 diabetes patients. With this initiation, all five studies in the QUINT Phase III program are now underway. Moving to earlier stage assets in our diabetes and CV pipeline, in Q4, we advanced two assets into Phase II that aim to lower LP little a, a well-known risk factor for atherosclerotic cardiovascular disease. The first is an oral inhibitor, a small molecule that disrupts the interaction between the ApoA protein and the lipoprotein particle. And the second uses siRNA to disrupt the production of ApoA in the liver. We shared proof-of-concept data on the siRNA asset during our December 2021 R&D investor meeting. This is our second siRNA asset to advance to Phase II, following our AngPTL3 siRNA, which entered Phase II earlier in 2022. We also recently moved an siRNA asset targeting APOC3 in cardiovascular disease into phase one. Our genetic medicines portfolio is advancing, and we remain optimistic about the prospect of improving cardiovascular outcomes with these molecules. Lastly, we discontinued our phase one KHK inhibitor. In oncology, we're of course pleased with the recent approval of JPRCA, and we look forward to continuing the substantial ongoing development program for the molecule in the years ahead. J-PERCA is the second product approved from our 2019 LOXO Oncology Acquisition, which reshaped our oncology efforts at Lilly. LOXO at Lilly's growing NME portfolio now includes a number of emerging assets shown in our pipeline, including our FGFR3 program, which recently dosed its first patient. Also, in Q4, we dosed the first patient in EMBR4, our second Phase III trial for imlinestrant, our oral SIRD. Ember 4 will study imlinestrin in the adjuvant setting as a sequential monotherapy in patients who previously received two to five years of adjuvant endocrine therapy for ER-positive HER2-negative early breast cancer with increased risk of recurrence. Lastly, turning to Versenio, as noted in our guidance call at the San Antonio Breast Cancer Symposium in December, we shared the latest interim analysis for MONARCH-E, our adjuvant high-risk early breast cancer study of abemacyclib, in combination with endocrine therapy, for the treatment of adult patients with HR-positive HER2-negative node-positive early breast cancer at high risk of recurrence. We've now submitted an SNDA to the U.S. FDA to potentially expand our adjuvant indication beyond the currently indicated cohort 1, KI67 greater than 20% population. In immunology, we're looking forward to potential FDA approvals later this year for mirakizumab and ulcerative colitis. which we expect in the first half of the year, and labrakizumab in atopic dermatitis, which we expect in the second half of the year. Looking earlier in our immunology pipeline, as mentioned in our guidance call, we presented exciting proof-of-concept results for our PD-1 agonist antibody parasolumab in rheumatoid arthritis at the ACR conference in November, and we have now initiated a global dose-ranging Phase IIb study. Moving to neuroscience, we've advanced our first into Phase II, our P2X7 inhibitor for chronic pain. Lilly acquired rights to this asset from Asahi Kase Pharma in early 2021. With regards to Denenumab, as Dave mentioned, the sole deficiency cited by the FDA to our submission for accelerated approval was a number of patients with at least 12 months of drug exposure. The Phase II Trailblazer ALS trial, on which the accelerated approval application was based, allowed patients to complete their course of treatment with Denenumab when they reached a predefined level of amyloid plaque clearance. Due to the speed of plaque reduction that we saw, many patients were able to stop dosing as early as six months into treatment, resulting in fewer patients receiving 12 months or more of Denenumab dosing. We remain confident in the potential of Denenumab as a new treatment for people with early symptomatic Alzheimer's disease and look forward to sharing results from the Phase III Trailblazer ALS II study in Q2 of this year. In summary, while 2022 was an outstanding year of pipeline progress, we're fully focused on the work we need to do in 2023 to make our next set of potential medicines a reality for patients. We look forward to providing additional updates throughout the year. Now I turn the call back to Dave.

Thanks, Dan. Before we move to Q&A, let me summarize the progress we made during 2022. We delivered strong revenue growth in our core business, propelled by our key growth products. We launched Monjaro for patients with type 2 diabetes while advancing and expanding our development program for terzepatide, including the start of the Surmount MMO outcome study and the initiation of a rolling submission for chronic weight management. In 2022, we submitted regulatory applications for important pipeline products like mirakizumab, pertabrudinib, and leberkizumab. And in 2023, we've already received approval for J-PERCA, and are poised to advance Dononimab in the regulatory process, assuming positive data from the Trailblazer ALS II Phase III study. In addition, we continue to invest in our pipeline, our capacity, our capabilities, and our people. Finally, we returned $5 billion to shareholders via the dividend and share repurchases, and for the fifth consecutive year, announced a 15% dividend increase for 2023. With continued growth in Monjaro and our key products, including Verzenio, Jardiance, and Tulse, we expect our core business revenue to grow by mid-teens in 2023. We are energized by the launch opportunities before us this year, and know strong launch execution is key to our long-term success. Taken together, we believe that we are well-positioned to deliver top-tier revenue growth through at least 2030, and to deliver on Lilly's mission to make life better for people around the world. So now I'll turn it over to Joe to moderate the Q&A session.

Thanks, Dave. We'd like to take questions from as many callers as possible and conclude our call in a timely manner. So we ask that you limit to one question or one two-part question per caller, as we'll end the call at 1115. Lois, please go ahead and provide the instructions for the Q&A session, and we're ready for the first caller.

Thank you. And ladies and gentlemen, if you wish to ask a question, please press 1 and then 0 on your touchtone phone. You will hear a tone indicating that 2 have been placed in the queue, and you may remove yourself from queue at any time by repeating the 1 and 0 command. If you're on a speakerphone, please pick up your handset before pressing the number. And once again, if you have a question, please press 1 then 0. Our first question is from Colin Bristow from UBS. Please go ahead.

Hey, good morning and thanks for taking the questions. Just first on Manjaro, so it looks like the net price dropped again from 3Q to 4Q. Can you just walk us through what specifically drove this and just update us on how you expect this to trend over the course of the year? And then just maybe looking sort of out to the future of your obesity portfolio beyond GGG, do you have any interest in mechanisms that target the sort of the the mitochondrial coupling side of the equation, that would be helpful. Thank you.

Thanks, Colin. We'll go to Mike for the first question on gross to net and price for Manjaro, and then hand over to Dan for kind of broader obesity mechanistic commentary. Mike?

Yeah, thanks for the question. I think the best way to answer that is to kind of take a look at what we saw as kind of our mongrel paid scripts in Q4 and then how we think that'll progress over 23. In the fourth quarter, we classify about 40% of mongrel scripts as paid, which we define as patients that aren't supported by our $25 non-coverage savings program. Now, our savings program, as we discussed at launch, was designed to bridge people living with type 2 diabetes to access As we discussed in the Q3 earnings call, we have adjusted a program to better ensure it's being used for people living only with type 2 diabetes. These adjustments included removing our $25 non-covered benefit from our savings card for new patients. We didn't make any adjustments for existing patients whose savings cards are set to expire on June of this year, June 30th. As expected, these changes have reduced new patient start volume while increasing the percent of new patients with a history of diabetes treatments and the percent with formulary coverage. I think the way I would look at our savings program right now for new patients is that we have graduated from the bridging program And now we're kind of, you know, the type of savings programs really focus on covered patients that you would do in kind of a normal life cycle of a product. So thus, you know, we expect that Montero's percent of paid scripts and the net revenue per script to increase through 2023 as we continue to increase access and grow new starts. We remain disciplined in our access discussions so we can maximize long-term value. From the start, our approach was to make sure that we capture value in the long-term versus the short-term, and we've remained very disciplined in that. We have just over 50% access for lives in Part D and commercial segments for people living with type 2 diabetes. We're very pleased where we're at on the access front and the way our contracting has turned out at this point. So hopefully that helps provide some color to our growth in Q4. Thanks.

Thanks, Mike. Thanks, Colin, for your question on future mechanisms for treating obesity. I can assure you we're not done innovating on behalf of people with obesity. There's a lot we can still do. I think keep your eyes open for more to come from Lilly Labs on incretin and related types of mechanisms, but also broadly interested in a variety of new non-incretin-based mechanisms. You specifically asked about, one, mitochondrial uncoupling. But there are several others, I think, that also have promise for patients. I just sort of put a note of caution, though. Treating obesity, we need to have a very high bar for the types of medicines we develop, remembering that this is a chronic, often lifetime disease and a highly prevalent population. We need medicines that, first and foremost, are extremely safe and really highly well-tolerated for patients. So that's what we're looking for in future mechanisms.

Thanks, Colin. Lois, next question.

The next question is from the line of Chris Schott from JP Morgan. Please go ahead.

Great. Thanks very much. Just one follow-up on the last set of questions. Is it still reasonable to think about a net Monjaro price that could be above that of Trulicity as we look out to 2024 or whenever you achieve kind of comparable payer access? And then my question was on Denonimab. I know there wasn't a huge revenue opportunity tied to the accelerated approval, but I think you had talked about using that GAAP between accelerated approval and full approval to really ramp physician education and infrastructure, et cetera. How do you kind of manage through that now, I guess, where we're going to have maybe a full approval that could be occurring closer into a CMS decision? So just maybe elaborate a bit of what that means for Denonimab over time. Thank you.

Thanks, Chris. All right, we'll go to Mike for the question about Manjaro price kind of over time and how it might compare to Trulicity, and then to Anne on your Denonimab question. about activity that would occur to ramp up HCP education. Mike?

Yeah, thanks for the question. I can't get into real specifics about our net price for obvious reasons, but maybe I'll address the question this way. I mean, if you look at when we have, when we reach, we think we'll reach broad access for Montero and reach ultimately similar access levels that we have for Trulicity. There's nothing differently about how we'll promote or how we'll support patients on Monjaro versus Trulicity. So at the end of the day, it will come down to our net price negotiations with payers. We believe that Monjaro has a better profile. We invest a lot of innovation in there. And, you know, we do believe that it should have a better net price than Trulicity.

Thanks, Mike. Anthony?

Thanks, Chris, for the question on physician education and readiness. So as you said, the accelerated approval is not going to provide access for the vast majority of patients, so it doesn't impact us in that way. And obviously accelerated approval would have made it maybe a little bit easier to do some of the things that we wanted to do, but there's still a great deal that we can do, actually have been doing, to make sure that the health care system is ready for these medicines. So we begin working on that. Things such as developing the diagnostic ecosystem are incredibly important. making sure that there's better integrated Alzheimer's disease pathways to make sure that physicians can properly identify, refer, infuse these patients. So that's the area of focus right now. Certainly diagnostics are a key area of focus for Lilly. We've continued to expand our PET network to make sure that we're ready for patient diagnosis. And then as well, we continue to be committed to PTAL blood tests and intend to launch that this year. So many things going on that I think can make us very ready for traditional approval and making sure that people can access these medicines.

Thanks, Chris, for the questions. Lois, next question.

The next question is from Seamus Fernandez from Guggenheim. Please go ahead.

Oh, great. Thanks for the question. So, Dan, I wanted to ask you if you could talk a little bit about where you see the oral GLP-1 space developing and how your product is likely to be positioned. You know, a little bit of this I think is also what you think the unmet need is, you know, outside of where the, you know, sort of very robust weight loss that we see from Monjaro is. And then, you know, just an add-on to that, you know, How do you see the oral market developing in terms of other potential agonists? Is that something that Lilly is pursuing and hoping to, you know, further develop combinations there as well? Thanks.

Thanks, Seamus. Okay, we'll go to Dan on those questions.

Thanks, Seamus. I'll get started. Maybe Mike wants to add on some of the marketplace questions. But, you know, clearly obesity is a huge problem in the U.S. and around the world. I think 100 million Americans potentially with obesity and reaching a billion people around the world pretty soon. That's probably not a market that even all of the interested companies could address solely with injectables. So just given the scope of the problem around the world, we're going to need orals. Ultimately, it's our goal to have orals that can match the safety, tolerability, and efficacy of injectables. I think our oral GLP-1 is our first attempt in this space and has really good prospects for meeting that initial goal, but then noting, of course, that the injectables are going to get better over time and the orals will catch up as well. The second part of your question was how do the orals catch up, and I think you're sort of alluding to an obvious issue. which is right now our oral GLP-1 and other orals in the space, are single mechanism, single incretin agonists. I think we've seen with, you know, great drugs like Trulicity and competitor products, what single agonists against GLP-1 can achieve. It's not as good, I think, as what can be achieved with dual agonism or trisepatide or hopefully even triple agonism with triple G. And so you can bet we're working on oral solutions that can bring additional incretin activity to patients in a pill. Nothing ready to disclose today, but we're working hard. Okay.

Thanks, Dan.

All right. Lois, next question.

That question is from the line of Jeff Meacham from Bank of America. Please go ahead.

Morning, guys. Thanks for the question. I have two related ones on terzepatide. Dan, I know you have Sermount 4 coming up, which is the maintenance study, but how has your thinking evolved, if at all, on the potential duration of terzepatide use, either based on longer exposure from clinical studies or in the real world, and do you think that could inform payer discussions? And then Mike on Majaro, a moving target, but how does a prescriber base as of today compare with trulicity? I'm trying to get a sense for maybe the endocrinology versus primary care mix and utilization in obesity. Thank you.

Great. Thank you, Jeff. So we'll go to Dan for the question on Surmount 4 and duration of triseptide, and then to Mike on the question of how the prescriber base for Manjaro compares to Trulicity.

Yeah, sure. As I was just saying, I mean, obesity is clearly a chronic, often lifetime disease, and for such diseases, patients often need to take therapy for, you know, chronically, potentially the life of the disease here. A lot of times in medicine that doesn't happen, of course. People come off of therapies because either, you know, the therapy's working and they think they don't need it anymore or there's a benefit they can't see. I'm not sure either of those are the case for a drug like Terzapatide. People clearly can observe the benefits the drug is having on their health. And perhaps, unfortunately, but not different really than any other drug that we have for any other disease, when you stop taking the drug, it's likely that it can no longer work. And patients may see that as well. So I think those factors will combine to have a pretty long duration of therapy. We have to wait and see in the marketplace. Maybe Mike has some early signals from patients, but still pretty early on. Thanks, Ben. Mike?

Yeah, no hard data yet, Dan, on that. But qualitatively, what we hear is what patients who've used Monjaro, what they like and what they realize once they start using it is that it really does reduce the appetite and they enjoy the benefits of reducing appetite. It helps them lose weight and stop being as consumed as much during the day about eating. And we do know that when, what we heard from our investigators in our studies is that when people stop taking Monjaro, that their appetite goes back to the levels it was before. So that's something very noticeable, something that a patient values from taking the therapy. And then when they stop the therapy, they then see this reversed. And so we do believe that people are going to stop and see if they can lose weight. If they can, great. But I do think that they're going to see a very powerful signal very quickly to reinforce going back on the product. So I do think that will help reinforce the chronic use of drosepatide for type 2 diabetes and eventually for obesity if we get approved. The question on trulicity, you know, if you looked at Monjaro's use right now and compare it to, you know, how many customers were using that versus trulicity at this time, it's a lot broader population than what we saw with trulicity just because the market's a lot bigger and a lot more people are writing the treatments. If you compare Monjaro to the number of Trulicity writers today, there are more people writing Trulicity just because it's been on the market longer. They've gone through the adoption curve, and Trulicity has better access, especially in Medicaid, but that drives additional prescribers to use that. So overall, I'd say the Monjaro is within the universe of the doctors who write Trulicity at this point.

Thank you, Jeff, for the question. Lois, next question.

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

Thank you. I have a question on Denanumab. I'm wondering if Lily would agree that there's highly likely going to be higher area E and area H rates with your drug versus with Canumab when Trailblazer all two reports out. The prior data would certainly suggest that. If so, relative to licanumab, doesn't that create a potential risk-benefit conundrum for FDA, assuming efficacy comes in around the same levels? I got the bottom line here. Is there a regulatory concern to contemplate maybe this is why FDA issued the CRL? They want to see the full results from your second study. They don't just want to capture a few more patients to bring that total to 100. Or am I being too bearish here? Thank you.

Thanks, Tim, for the question. We'll go to Dan for this.

Yeah, maybe I answered the second part of the question first, which is around why did the FDA issue the CRL. I think that the FDA regulations actually suggest the FDA should list all deficiencies in the CRL. We were pretty explicit copying some of the FDA's own words here to investors about what was in the CRL. It didn't discuss issues like ARIA. It was focused on the 12-month exposures. So Nothing further to speculate there. I think, you know, your question on rates of ARIA-E and ARIA-H comparing across drugs is a complicated one. You know, we did this head-to-head study against aducanumab. I think it's important to use studies like that to compare rates of ARIA because we've learned that rates of ARIA are highly dependent on the type of patient you enroll, the stage of disease, and underlying pathology based on characteristics of their brain scans. which are different across lacanumab trials and dinanumab trials, as well as exactly how you do the MRIs and read them. So I'm personally not going to get worked up about rates of asymptomatic radiographic-only aria in any drug. I don't think anyone really understands what that means. What we should be focused on, though, is rates of symptomatic aria, so patients who have aria that turns into something they experience, not just a radiographic finding, and particularly rates of serious adverse events resulting from ARIA. We know that in some patients, ARIA can be dangerous, even fatal, as we've seen from the canumab experiences. So that's what we'll be looking out for. I think, you know, we still have all the caveats about cross-trial comparisons here, but it's a bit easier to compare those symptomatic or serious events I think in Trailblazer 1, our numbers were very similar to other members of the class. In Trailblazer 4, the numbers look very, very good for that. And we'll wait and see what we have in Trailblazer 2, but my level of concern over that is not high.

Thank you. Lois, next question.

The next question is from the line of Terrence Flynn from Morgan Stanley. Please go ahead.

Hi. Thanks so much for taking that question. Maybe a two-part one for me. I guess first on Manjaro Manufacturing, I was just wondering if you can tell us if the FDA has completed the inspection of your new North Carolina facility yet. And then the other question relates to Terzeptide for obesity. I was wondering if you've had any initial payer conversations yet and if you're planning to use a priority review voucher for that filing. Thank you.

Thanks Terrance. I think I'll hand over to Nat for commentary on your manufacturing question and then to Mike on the question about whether there's been any payer conversations on obesity.

Terrance, to your question on the RTP side in North Carolina, it's progressing on schedule as we had planned. We can't comment on specifics on the FDA interactions, but we're expecting that site to start producing this year and it's progressing towards that goal. I will mention, important to think about, we talk about RTP, I think, because of the proximal nature of when this site's going to come online. Obviously, this is the next large node that's going to come online in terms of capacity for Incartan portfolio. But we are making substantial investments beyond RTP. So we've announced a second site in North Carolina, a very large site in Concord. And we've announced the expansion of the RTP site, additional sites in Indianapolis or north of Indianapolis. and a site in Ireland. And as we look at our capital investments in manufacturing sites this year alone, it's probably the largest we've ever had. Doubling will be had in 2022. We're looking at about $3.3 billion of investment just this year. So we're looking at substantial expansion of capacity really across the globe to support not just Manjaro, obviously, but the rest of the portfolio. And we have visibility into what's coming, as well as the fact that, as we've talked about before, we have several products that are part of the same manufacturing network and the same auto-injector platform. So that helps us kind of build that capacity across the Lumi portfolio.

Thanks a lot. Mike, on the second question?

Yeah, I think a good thing to focus on is access and obesity. I mean, you look at the massive size of the obesity market, 110 million people in the U.S., 150 million people globally, but you really see that historically that the obesity market has really been slow to develop, and it's really because the treatments haven't been adequate. So, you know, the question we had going into this market was, you know, if a safe and efficacious treatment was developed, would consumers and healthcare professionals and payers be interested in using it. Well, based on what we've seen in the marketplace over the past year in our market research, it's clear that consumers and healthcare professionals will adopt an efficacy-safe anti-ABC medication if patients can have access to it. So it does come down to, you know, payer access, and we're highly focused on doing that. You know, Noble recently stated in their call that 40 million Americans have access to our B-City. And the way they talked about it was payer access and employers opting into that. So if that's where we're at today, that would be a great starting point for access. We're deep into conversations with payers to understand the market and all that. You know, access discussions haven't started yet, but will shortly. But our focus long-term is to improve access for anti-ABC medications. We are investing significantly to demonstrate the potential health outcome benefits for people using triseptide who live with obesity. We're also investing in phase three programs for people who live with obesity and sleep apnea or heart failure. And these should unlock large segments of access for people who live with obesity in commercial, and we hope Part D. In addition, you know, in my career, I've seen the power of consumer interest in helping to improve access for medication. And what we've seen over the last year is that people who live with obesity are highly engaged and willing to do much access-affected treatments. They will have an important role in employees with employers and the congressional representatives advocate for access. Well, I think it'll take time to establish our ultimate access goal. I'm more encouraged than ever by our potential to unlock the BC market and help a lot of people. So I'm encouraged, but obviously a lot of work still to be done.

Thank you both, and thanks, Terrence, for the question. Lois, next question.

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

Thank you. Question for Anat. I'm not going to get the legislative particulars correct, but just to be clear, Doesn't Lilly typically guide on tax rate assuming an adverse U.S. situation and doesn't typically adjust that until late in the year? And this year it is assuming no adverse situation but much earlier in the year? If so, can you clarify why you are doing something different this year since it is a profound impact on earnings? And if I could just add on LPA, Dave, Lilly is way behind. How can you catch up? Thank you.

Thanks, Steve. I'll go to Anat for the question on the tax rate assumptions, and then I'll go to Dan for your LP little a question.

Thanks, Steve. So here is how we look at this, and I wouldn't read too much into it. Last year, we had assumed, based on very broad support for change in in this 2017 tax provision that this will, in fact, be enacted by Congress. We assumed late in the year, but it hasn't happened. So at this point, the only thing we're doing is reflecting reality of the situation we're in. If it does get repealed or deferred, obviously we'll update accordingly. I don't think the likelihood of that is zero, so it still could happen this year, but it does take Congress. Congress will need to act to get this going. So we're simply reflecting the current situation.

Okay, I'll start with the LP little a question. We have two LP little a programs. Maybe the easiest one to comment on first is the oral program. This is the first in class, I think probably the only one in clinic here. And oral medication against this target is really a huge feat of molecular engineering. I'm super excited to see the data from this molecule develop and obviously the market opportunity for an oral drug for such a widespread condition is very important. In terms of the SIRNA, you're right to note that a competitor is ahead of us in really just starting the CVOT study. It's a long road to get these drugs to market with outcome studies needed here to to show the benefit. I probably don't get into our differentiation strategy, but, of course, we have some ideas here, and we'll move as quickly as possible. I don't see this as a winner-take-all space.

Maybe just to add, Steve, I won't add on the Elpida Lake comment. I think we feel good about where we are with that. But just on the tax thing, there is a difference here where you describe it as adverse or beneficial, right? So from a From a GAAP and non-GAAP accounting, of course, it's a benefit on EPS growth. But actually from a cash perspective, it goes the other way. So we just wanted to be clear up front because it's not a one-way benefit we're taking early in the year. There's an adverse cash impact throughout the year and a positive effect on the P&L. It's a little bit different from maybe past assumptions we've made.

Lois, next question.

The next question is from Louise Chin from Kantor. Please go ahead. Hi. Thanks for taking my question.

So I wanted to ask you, what do you think is the minimum amount of relative risk reduction you'd have to see in an outcome study for obesity for payers to be convinced that there's something here?

Thank you. Thanks, Louise. Mike, do you want to chime in on that around the minimum amount of relative risk reduction we'd expect in an outcome study for obesity?

Yeah, that's a good question. I mean, first of all, I don't think it's a binary point where all payers are looking for that outcome in order to provide access. I think you're going to see a lot of payers, you already see a lot of payers who provide access for that. We have, you know, an extensive A-Street program only in CB outcomes, but also with sleep apnea and heart failure to begin to really talk about heart outcomes for many patients who live with obesity. With the CB outcomes that we have today, I mean, we're quite confident in our program and, you know, based on what we see with, you know, surrogate risk reduction in patients in blood pressure and lipids. We're fairly confident in our CV profile, as well as what we saw with the SURPASS data and our meta-analysis in the SURPASS program. So I won't give you the exact number, but I think we're pleased with where we're at, and I think we'll be able to demonstrate outcomes that payers will be excited about.

Thanks, Luis, for the question. Lois, next question.

And that comes from David Risinger from SVB Securities. Please go ahead.

David, are you there? OK.

Looks like we don't have Dave or he's on mute. Lois, next question.

The next question is from Chris Shibutani from Goldman Sachs. Please go ahead.

Thank you. If I can ask a question on Monjoro and the interplay with Trulicity. You've commented in the past that in terms of patients on Monjoro, it's been about less than 10%. That seems to be a little bit higher now. Can you share any thoughts and observations about how you see this progressing on the forward through this year?

Thanks, Chris, for the question. Mike, we'll go to you for that question on the, I guess, cannibalization from trulicity figure and how that'll progress.

Okay, yeah, I mean, on that, nothing has changed over what we had talked about earlier, that less than 10% of our scripts we get for Manjaro come from trulicity. That hasn't changed over time. It's still a little bit less than 10%.

Okay, thank you. Lois, next question.

And that comes from Umar Rifat from Evercore. Please go ahead.

Umar Rifat, Hi, guys. Thanks for taking my question. There's been a heightened investor focus, I feel, on the Phase III primary endpoint for Danimab now. And I wonder if there's been any incremental interactions and or agreement with FDA on the primary endpoint for Phase III. The question I get a lot from investors And also, how are you thinking about this upcoming phase three if there were to be a scenario where the MMRM on CDR doesn't agree with IADRAS on a patient analysis? Thank you.

Thanks, Umar. We'll go to Dan for the question on endpoints.

Yeah, thanks. Clearly, I think there's a lot we can learn from competitor readouts here. And so looking at the Lecanumab data, in our eyes, I think it actually further validates an endpoint like ADRAS if you just look at the Forest Plot, for example, there's a lot more homogeneity and effect on an endpoint like ADAS versus CDR sum of boxes. So we feel more confident, I would say, than ever before that an endpoint like that is the right way to go. On the other hand, I think you could take the position that since the Kanemab hit CDR sum of boxes, people might say, well, then it's achievable and you guys should do it too. So there's some pushes and some takes there, but on the whole, still feeling good about ADRESS as a primary outcome. When you ask, though, what happens if you hit one outcome and not the other, that's surely a difficult situation to be in. We want to understand why that happened. If that were to happen, were there irregularities in CDR sum of boxes that could explain it? What did the rest of the secondaries look like? Always best to hit all of your outcomes in a clinical trial. failing that, you want to hit your primary and as many secondaries as possible. So let's wait and see.

Thanks, Umar.

Lois, next question.

I have questions from Mohit Banzal from Wells Fargo. Please go ahead.

Great. Thank you very much for taking my question. Maybe a question regarding your next generation Alzheimer's drug. I cannot pronounce the name, but I mean, I learned it. But how does it differ or is similar versus Denonimab? Asking, because you're running a phase three trial with sub-Q here, so what would be the read-through for this particular asset based on the outcome of Denonimab phase three trial?

Dan, you want to talk a little bit about remternitug?

Yeah, I think you've got it basically right. Remternitug is a new medicine, a new molecule, but it's an antibody against the same type of epitope that Denenumab has, which is this N3PG form of A-beta. So a very equivalent mechanism of action, maybe a little better potency and certainly better drug properties, including no ADAs and formulation things. So the rationale here is to give improved dosing options to patients. Could we get even faster plaque clearance? Could it be with fewer doses? Could it be subcutaneous? Those are the types of things that we're currently exploring. The Phase III is designed with a bit of a run-in. We're in that portion right now to finalize our dosing strategy and then expand it. Obviously, if Denenumab is disappointing, there would be read-through through Remtarantog. On the other hand, if Denenumab exceeds expectations, I would expect that to read-through as well. Thank you, Mohit. Lois, next question.

The next question is Evan Siegerman from BMO. Please go ahead.

Hi, guys. Thank you so much for taking the question. You know, while much of the discussion on Medicare coverage is in Alzheimer's, we know that Medicare really doesn't pay for obesity drugs. Can you just talk about your efforts to help Medicare patients get coverage for obesity drugs, including potentially Manjaro if one approved? Maybe add some parameters around what that additional population could look like from a revenue opportunity perspective. Thank you.

Thanks, Evan, for the question. I'll hand it over to Mike. Mike, do you want to talk about the potential for Medicare to cover obesity?

Okay, sure. Yeah, good question. I mean, it's going to take legislative action in order to allow anti-obesity medications to be covered on Medicare Part B. So, there is the Treat and Reduce Obesity Act. The acronym for that is TROA, and there's a large, growing bipartisan support for TROA. A little over 100 congressmen and senators, congresspeople and senators are behind the program, and it's growing more and more support across Congress. across Washington. You know, we're eager to see an advanced legislation process. It would be great for the company, country. America needs to take action and drastically reduce the number of people living with obesity, and this legislation would be an important step toward this goal. We always support the legislation and continue to work to advocate for it.

Thanks, Mike. Lois, next question.

The next question is from Truong Nguyen from Credit Suisse. Please go ahead.

Oh, thanks for squeezing me in. Truong Nguyen from Credit Suisse. Last month, the American Academy of Pediatrics released their guidelines to treat childhood obesity. In those guidelines, they recommended a lifestyle intervention, obviously, as the core component. But also, they said they would consider treatment with anti-obesity medications, so I thought What's your thoughts on anti-obesity medications in children? Is this an area that you are moving into or considering moving into? Do you have any trials with children or adolescents? Thank you.

Thanks, Trang, for the question. Mike, over to you again. Comment on these recent guidelines that were put out.

Yeah, thanks. I mean, this is a significant unmet need. back to the question that we asked earlier about, you know, the Treat and Reduce Obesity Act. We need to prove the health of America. We have too many people who live with obesity in the U.S., and that includes, unfortunately, adolescents and teens. So, you know, I think they took the right action in order to really identify this as an issue that healthcare professionals do need to pay close attention to. We obviously always advocate for diet and exercise as the first approach of this, but if that's not successful, then your really only option at that point is, you know, medication treatment. We do think it's important and responsible for us to test. There's appetite in bees and adolescents, and we have activity ongoing to do that. Thanks, Mike, and thanks, Strong, for the question.

Lois, next question.

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

Great. Thank you for taking the question. I guess one for a nod. Back in December, you highlighted austerity measures in Europe as a potential risk. At that time, that was a bit of a unique position. We hadn't heard that from many companies. Since that time, we've heard kind of similar messaging from some but not all. And apologies if I missed it. I don't think I heard anything today on this front. So I know it's only been sort of 45 days or so since you made those comments, but any advances in sort of how you're thinking about this in any specific products or countries, we should think about that impact. Thank you.

Thanks, Carter, for the question. We're actually going to hand this over to Ilya Yufa, who's our president of Lilly International, to comment on the European austerity measures.

Yeah, I appreciate the question. There have been a number of markets in Europe that have taken some austerity measures. Partially due to Ukraine crisis and energy crisis and inflation in Europe. We have seen Germany, France, obviously the UK voluntary system we think is broken and so we exited that. And so there are some austerity measures in there. We've contemplated that into our guidance for 23. And the overall impact is modest relative to historical declines in price in prior years. We expect that to continue to be in that single-digit decline in price in Europe.

Thanks, Ilya, and thanks, Carter, for the question. Lois, next question.

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

Thank you. A question on U.S. commercial access for GLP-1 agonists. First, could you share with us how you're thinking about modeling the impact of the IRA in terms of GLP-1 uptake increasing as a result of the copay cap and additionally benefiting from the presumed reduction in free drug program? How significant is it given the patient's still got to find $2,000 per annum? And then second, in relation to the oral DPP-4 market, which is still a very, very substantial $14 billion market. You have a category of drugs, ostensibly, which may offer considerable advantages in efficacy for glycemia and weight, but I'm reminded of the stickiness of the sulfonylureas in the prior period. To what extent do you think managed market is going to preclude your ability to penetrate that segment with oral GLIP-1s just on the basis of generic DPP-4s? Thank you.

Thanks, Andrew, for the wide-ranging question on diabetes. I'll hand over to Mike first to talk about your question regarding potential impact of the IRA on access for GLP-1s and then the second question around how oral GLP might fit in given the stickiness of some of the older diabetes medications. Mike?

Yeah, good question. You know, on the IRA side of it, It will benefit patients who live with diabetes who use GLPs, NRN, Medicare Part D. Their out-of-pocket costs will go down. It may have, I would say, a small to moderate impact on GLP sales or just probably lower rates of abandonment than what we'd see at higher out-of-pocket costs. As it comes to the oral DPP-4, You know, the perceptions of oral DPV4s have really declined over the last five years and really being replaced by S52s and DLP. So I don't see much of an impact of DPV4s going off patent in the U.S. or other markets.

Thanks, Mike. And, Lois, I think we have one final question in the queue, so let's go to the last question.

Thank you. And that's from Robin Kanaskis from Truist. I'm sorry, Truist Securities. Please go ahead.

Great. Thanks for my question. I was just thinking more about some of the launches that are coming up, and I know these may be a little blur out, but for Merck and ZipMap, and I always get these things wrong. Sorry. But for UC, can you just talk a little bit about, given, you know, how much promotion there's been for Skyrazi and Renvoke as you move into also Crohn's with data reading out soon, like how do you see, like, competing in that market? When you start launching, do you have to be DTC heavy? Because it seems like they're very, very prominent. Like, what about the launch dynamics? And then second, for lebrecizumab, same question here. I mean, topic dermatitis is getting pretty crowded. What kind of pushes and pulls might you need to use to get a quicker uptake in a topic derm? Thanks.

Thanks, Robin, for the questions. I'll go to Patrick Johnson for both of these, first on mirakizumab and competition in the UC market, and then on lebrecizumab. Patrick?

Thank you very much. Well, overall, we feel very good with the data we have seen on mirakeasomab. If we look at the 52 weeks, we have more than 50% clinical remission, and we see statistical and clinically meaningful improvements across both clinical, symptomatic, endoscopic, and histologic endpoints. But I think it's important that if you look at the patient populations with ulcerative colitis, we saw the same results across the bio-naive and the bio-failure patients. So I think we're extremely well positioned for a launch here. We also demonstrated on a factor that is extremely important for patients, bowel urgency. More than 40% of patients were either completely or almost bowel urgency-free at week 52. So therefore, we believe we have a first-in-class asset here that probably initially will be used mainly second-line for those that haven't responded appropriately to TNFs and similar. But we believe that long-term, we are positioned for a first-line placement in treatment of ulcerative colitis. Yeah, so the outlook for Merikeasimab, it's exciting. From a competitive landscape perspective, you know, we don't have head-to-head data, but if we compare the data we have seen so far, we believe that MIRI compares very favorable both versus what's currently in the marketplace, as well as what's in the pipeline with other companies across JAK inhibitors, S1Ps, and other IL-23s as well. So exciting to launch MIRI the first half of this year. When it comes to Lebri, I think actually we are uniquely positioned to really upgrade the expected outcomes of patients with atopic dermatitis. We have here an asset that is actually targeting the most relevant cytokine when it comes to treating atopic dermatitis, IL-13. And it does that with a high binding affinity, high potency, and a slow off rate. And I think that probably explains the data that we have seen so far. We're extremely pleased with the phase 3 data, and we saw more than 80% of patients achieving skin clearance at week 16, maintaining that at week 52. But also very importantly, statistical and clinically meaningful improvements across both each, which is probably the most disturbing factor for patients with atopic dermatitis, sleep and quality of life. And we saw similar results across both the Q2W and Q4W formulation. We actually believe that the Liberty Case Map has the potential to become a first-line biologic. It's important to have in mind that we announced this submission at the Q3 earnings call, and we expect a traditional regulatory pathway. Yes, we will not launch until most likely Q4 of 2023, but a lot of excitement from both healthcare providers, the Fort Lee community, as well as the payers to get Liberty to the market.

Thank you, Patrick. Dave, to wrap up. Great. I think that's the last question. I appreciate the questions across the portfolio. And we appreciate your participation in today's earnings call and your interest in our company. 2022 is another productive year for the company, and we generated strong financial results and delivered important pipeline progress in each of our core therapeutic areas on behalf of the patients we serve. We aim to continue our momentum in 2023 and execute on the meaningful launch and pipeline opportunities that we have ahead of us. So thanks for dialing in, and please follow up with IR if you have questions that we didn't get to today. Have a great day.

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