Lilly (Eli) (LLY) Earnings Report: Q2 2015 Conference Call...

CompanyName:EliLillyandCoCompanyTicker:LLYSector:HealthCareIndustry:Drugs

EventDescription:Q22015EarningsCallMarketCapasofEventDate:94.96BPriceasofEventDate:86.22

©2014TheStreet,Inc.Al l R ightsReserved Page1of28

Lilly(Eli)(LLY)EarningsReport:Q22015ConferenceCallTranscriptThefollowingLilly(Eli)conferencecalltookplaceonJuly23,2015,09:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

JohnLechleiter;EliLillyandCompany;Chairman,President,CEOPhilJohnson;EliLillyandCompany;IRDericaRice;EliLillyandCompany;CFODavidRicks;EliLillyandCompany;President-LillyBio-MedicinesSusanMahony;EliLillyandCompany;President-LillyOncologyEnriqueConterno;EliLillyandCompany;President-LillyDiabetesJanLundberg;EliLillyandCompany;President-LillyResearchLaboratoriesEricSiemers;EliLillyandCompany;DistinguishedMedicalFellowChitoZulueta;EliLillyandCompany;SVP,President-EmergingMarketsJeffreySimmons;EliLillyandCompany;President-ElancoAnimalHealth

OtherPart icipants

SeamusFernandez;LeerinkPartners;AnalystTimAnderson;Bernstein;AnalystJohnBoris;SunTrustRobinsonHumphrey;AnalystJamiRubin;GoldmanSachs;AnalystMarkSchoenebaum;EvercoreISI;AnalystChrisSchott;JPMorgan;AnalystStephenScala;CowenandCompany;AnalystAndrewBaum;Citigroup;AnalystTonyButler;GuggenheimPartners;AnalystTonyButler;GuggenheimPartners;AnalystGreggGilbert;DeutscheBank;AnalystColinBristow;BofAMerrillLynch;AnalystVamilDivan;CreditSuisse;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Ladiesandgentlemen,thankyouforstandingby.WelcometotheQ22015earningscall.

(OperatorInstructions)

Asareminder,today'sconferencecallisbeingrecorded.I'dnowliketoturntheconferenceovertoJohnLechleiter.Pleasegoahead.

JohnLechleiter (Chairman,President,CEO):

Goodmorning.ThankyouforjoiningusforEliLillyandCompany'ssecondquarter2015earningsconferencecall.I'mJohnLechleiter,Lilly'sChairman,PresidentandCEO.Joiningmeontoday'scallare




DericaRice,ourChiefFinancialOfficer,Dr.JanLundberg,PresidentofLillyResearchLaboratories,Dr.SueMahony,PresidentofLillyOncology,EnriqueConterno,PresidentofLillyDiabetes,DaveRicks,PresidentofLillyBio-Medicines,ChitoZulueta,PresidentofEmergingMarkets,JeffSimmonswhoisPresidentofElancoAnimalHealth,andIlissaRassner,BradRoeblingandPhilJohnsonofLilly'sIRteam.We'realsojoinedbyDr.EricSiemers.EricisadistinguishedmedicalfellowforourAlzheimersdiseaseteam.HeisdialinginfromWashingtonwhereheisattendingtheAlzheimersAssociationInternationalConference.

Duringthisconferencecall,weanticipatemakingprojectionsandforward-lookingstatementsbasedonourcurrentexpectations.Ouractualresultscoulddiffermateriallyduetoanumberoffactorsincludingthoselistedonslide3,andthoseoutlinedinourlatestForms10-Kand10-QfiledwiththeSecuritiesandExchangeCommission.Theinformationweprovideaboutourproductsandpipelineisforthebenefitoftheinvestmentcommunity.Itisnotintendedtobepromotional,andisnotsufficientforprescribingdecisions.

Lilly'spositivemomentumcontinuedinthesecondquarter,aswedeliveredsolidunderlyingbusinessperformancewithproductivityimprovementsdrivingbottomlineleverage,withdouble-digitoperatingincomeandEPSgrowth.

Andweagainsawsignificantpipelineprogress,includingmultipleregulatoryapprovalsandsubmissionsalongwithpositivePhase2andPhase3dataread-outs.Asusual,Iwillbegintoday'scallbyhighlightingkeyeventsthathaveoccurredsinceourfirstquarterearningscallinlateApril.

Weseenadvancesonanumberoffronts,startingwithcommercialmilestones.InJapan,webeganpromotionofCyramzaforgastriccancer.Thegastriccancerindicationinthismarketrepresentsasignificantopportunityforthisproduct.HereintheUS,webeganpromotionofCyramzaforsecond-linemetastaticcolorectalcancerfollowingFDAapprovalofthisindication,thedayafterourlastearningscall.

Ontheregulatoryfront,weachievedanumberofmilestones.Indiabetes,wereceivedapprovalinJapanforTrulicity,ouronce-weeklyGLP-1receptoragonistforthetreatmentoftype2Diabetes.WealsoreceivedFDAapprovalforHumalogU-200KwikPenforthetreatmentoftype1andtype2Diabetes.

IncollaborationwithBoehringerIngelheim,wereceivedEuropeanCommissionapprovalforSynjardy.Thisisasingle-pilltherapythatcombinesempagliflozinandmetforminforthetreatmentofadultswithtype2diabetes.

HereintheUS,theFDAissuedaCompleteResponseLetterforSynjardy,andBoehringerIngelheimhasalreadysubmittedtheirresponse.Wearepleasedtheresubmissionwasgrantedatwomonthreview,andwe'rehopefulwewillbeabletobringthisproducttomarketintheUSyetthisyear.

Movingtooncology,asImentionedamomentago,wereceivedFDAapprovalforCyramzainsecond-linemetastaticcolorectalcancer.WealsocompletedoursubmissionforthesameindicationinJapan.

Inaddition,theFDAOncologicDrugsAdvisoryCommittee,ODAC,reviewedthedatasupportingoursubmissionfornecitumumabincombinationwithgemcitabineandcisplatinforuseinfirst-linetreatmentofpatientswithadvancedsquamousnon-smallcelllungcancer.Wewereencouragedbytheconstructivediscussiononthebenefitriskprofileofnecitumumab.Webelievenecitumumabrepresentsameaningfuladvancementintreatment.

AndmovingtoourBio-Medicinesbusiness,wesubmittedixekizumabinEuropeforthetreatmentofmoderatetosevereplaquepsoriasisfollowingourUSsubmissioninthefirstquarter.Clearly,thiscontinuestobeanexcitingandbusytimeforourregulatorycolleaguesacrosstheglobe.

Ontheclinicalfront,wepresenteddetailedPhase3dataonthreedifferentmolecules,andhighlighted




thesedataoninvestorcalls.FirstwasthepresentationofPhase3dataforbasalinsulinpeglisproinpatientswithtype1andtype2diabetesattheADAmeeting.Aswestatedinthepast,we'vedecidedtodelayregulatorysubmissiontogenerateadditionalsafety-relateddata.

Nextwasthepresentationofdatafromthefirsttwoofourfourpivotaltrialsforbaricitinibinrheumatoidarthritisatthe[EULAR]meetinginRome.We'reencouragedbythePhase3datawe'veseentodateandwelookforwardtothedataread-outsfromthefinaltwopivotaltrialslaterthisyear.

LastwasthepresentationofPhase3dataforixekizumabinmoderatetosevereplaquepsoriasisattheWorldCongressofDermatologymeeting.Webelieveixekizumabhasdemonstratedacompellingbenefitriskprofileinclinicalworktodate,andthatixekizumabcouldhelppatientswithmoderatetosevereplaquepsoriasisbettermanagetheirdisease,andimprovetheirqualityoflife.

Further,webelievethatthelevelofefficacyandthesafetyprofiledemonstratedbybiologicagentstargetingIL-17Ainpsoriasisrepresentameaningfulimprovementtocurrentlyavailabletherapeuticoptions,andcouldbeacatalystforgreateruseofbiologicsinthetreatmentofthisdisease.

Justyesterday,attheAlzheimersAssociationInternationalConference,wepresentedtwoyearextensiondatafromtheEXPEDITION-EXTtrial.Webelievethedataareconsistentwithapotentialdiseasemodifyingeffectofsolanezumabonunderlyingdiseaseprogression,andwelookforwardtocompletionoftheEXPEDITION3studyinlate2016.

ApartfromthesePhase3datadisclosures,wealsohadsomeearlierstagedatapresentationsthatgarneredinvestorinterest.Specifically,attheASCOmeeting,wepresentedPhase2dataforolaratumabinsofttissuesarcoma.WhileattheAmericanHeadacheSocietymeeting,wepresentedinitialPhase2bdataonourCGRPmonoclonalantibodyinepisodicmigraine.Weareenthusiasticabouttheopportunityforbothofthesemolecules.Dericawillprovideanimportantupdateonolaratumablaterinthecall.

Onthebusinessdevelopmentfront,weannouncedfiveoncologydealsspanningcollaborationswithAstraZeneca,BioNTech,Dana-FarberCancerinstitute,SarahCannonResearchInstitute,andImmunocore.Thisisconsistentwithcommentsthatwemadeearlierthisyear,thatyoushouldexpecttoseeusincreasethelevelofourbusinessdevelopmentactivitythroughpartnerships,licensingandacquisitionsateverearlierstagesofdevelopment.

Inaddition,westruckadealwithSanford-BurnhamMedicalResearchInstituteintheareaofimmunology,andweannouncedasalescollaborationagreementinJapanwithSumitomoDainipponPharmaforTrulicity.

Inothernews,wereceivedapositiverulingfromtheUKCourtofAppealswhichheldthattheAlimtavitaminregimenpatentwouldbeindirectlyinfringedbyagenericcompetitor.ThisrulingreversedtheinitialUKCourt'sdecisiongrantingdeclarationsofnon-infringementinFrance,ItalyandSpain.WeannouncedplanstoestablishanewdrugdeliveryanddeviceinnovationcenterinCambridge,Massachusetts.TheLillyCambridgeInnovationCenterinKendallSquarewillhelpattracttopscientistsandbioengineers,aswellasenhanceourbusinessdevelopmentpresenceintheBostonarea.Andjustthismorning,weannouncedplanstoeffectivelydoubleourresearchpresenceatourLillyBiotechnologyCenterinSanDiego,California.

Onthefinancialside,wetookadvantageofverylowEuropeaninterestratestoissueEUR2.1billionofdebt,whileretiring$1.65billionofhighercouponUSdebt.Finally,inthesecondquarter,werepurchased$125millionofstock,leaving$3.3billionremainingonour$5billionplan.Inaddition,duringthesecondquarter,wedistributedover$500milliontoshareholdersviaourdividend.

Weremaincommittedtoprovidingarobustdividend,andtoreturningexcesscashtoshareholdersvia




sharerepurchase.Andnow,I'llturnthecallovertoPhilforadiscussionofourfinancialperformanceforthequarter.

PhilJohnson (IR):

Thanks,John.BeforeIdiscussourQ2results,itmaybehelpfultoreviewsomekeyfeaturesofourpresentationofGAAPresultsandnon-GAAPmeasures.WheninterpretingourGAAPresultsandthegrowthratesversus2014,keepinmindthat2014doesnotincludeNovartisAnimalHealth,while2015includestheoperatingresultsofthisbusiness,aswellasallthecostsassociatedwiththeacquisition.

Forournon-GAAPmeasures,wenowexcludeamortizationofintangibles.Andtoprovideyouabetterideaoftheunderlyingtrendsinourbusiness,we'veadjustedournon-GAAPmeasuresfor2014toexcludetheexpenseassociatedwithamortizationofintangibles,andtoincludeNovartisAnimalHealthasifwehadclosedtheacquisitionofJanuary1,2014.Thisplaces2014onthesamebasisuponwhichwearereportingfinancialsthisyear.

Nowlet'slookatourresultsforthequarter.Slide8providesasummaryofourGAAPresults.I'llfocusmycommentsonournon-GAAPadjustedmeasurestoprovideinsightsintotheunderlyingtrendsinourbusiness.Sopleaserefertotoday'searningspressreleaseforadetaileddescriptionoftheyear-on-yearchangesinoursecondquarterGAAPresults.

Movingtoslide9.YoucanseethatQ2revenuewasnearly$5billion.Thedecreaseof4%comparedtoQ22014reflectssignificantforeignexchangeheadwinds.ExcludingFX,ourQ2revenuewas[4]%onanon-GAAPbasis.

Aswediscussedbefore,thisyearwewillstillfeelthenegativeeffectofalossofUSexclusivityforCymbaltaandEvista.ThisquartersalesofthosetwoproductintheUSdeclinedbyover$110million.ExcludingtheunfavorableimpactofforeignexchangeratesandCymbaltaandEvistaintheUS,therestofourworldwiderevenueincreased6%thisquarter.

Grossmarginasapercentofrevenueincreased2.5percentagepoints,goingfrom76.7%to79.2%.Thisincreasewasdrivenbythefavorableimpactofforeignexchangeratesoninternationalinventorysold,whichincreasedcostofsalesinQ2lastyear,butdecreasedcostofsalesinQ2thisyear.

ExcludingthisFXeffect,ourgrossmarginpercentdeclinedby1percentagepoint,goingfrom77.2%inlastyear'squarterto76.2%thisquarter.Asonpriorcalls,youwillseeasupplementaryslideprovidingourgrossmarginpercentforthelast10quarterswithandwithoutthisFXeffect.

Wecontinuetodriveproductivityimprovementsacrossourbusiness.Totaloperatingexpense,definedasthesumofR&DandSG&Adeclinedby7%,orover$200millioncomparedtoQ22014.Marketing,sellingandadministrativeexpensesdeclined8%,whileR&Ddeclined5%.

Thereductioninmarketing,sellingandadministrativeexpenseswasduetothefavorableimpactofforeignexchangerates,costreductionsinthecombinedAnimalHealthorganization,andongoingcostcontainmenteffortsacrossLilly,partiallyoffsetbymarketingexpensestosupportrecentproductlaunches.ThereductioninR&Dexpensewasdrivenprimarilybythefavorableimpactofforeignexchangerates.

Asimpliedbyourfullyearguidance,wedoexpectthelevelofR&Dspendtobehigherfortheremainderoftheyear,aswestartPhase3trialsfortanezumab,ourCGRPmonoclonalantibody,olaratumab,andadditionalindicationsforCyramza.

Otherincomeandexpensewasincomeof$29millionthisquarter,andourtaxratewas20.8%,adecreaseof2.3percentagepointscomparedtothesamequarterlastyear.Thisdecreasewasprimarily




duetoadiscretetaxbenefitrealizedinthisquarter.

AlsoourtaxrateinbothperiodsdidnotincludethebenefitofcertainUStaxprovisions,includingtheR&Dtaxcreditasthoseprovisionshadlapsed.Atthebottomline,netincomeincreased20%,whileearningspershareincreased22%,reflectingthebenefitofoursharerepurchases.

Slide10containsnon-GAAPadjustedinformationforthefirsthalfoftheyear,whileslide11providesareconciliationbetweenreportedandnon-GAAPEPS,andyou'llfindadditionaldetailsontheseadjustmentsonslide21.

Nowlet'stakealookattheeffectofprice,rateandvolumeonrevenue.Onslide12,intheyellowboxatthebottomofthepage,you'llseethetotalrevenuedeclineof4%onanon-GAAPbasisthatImentionedearlier.ThesignificantstrengtheningoftheUSdollaragainstmanyforeigncurrenciesdrovethisdecline,asyouseethe8%negativeeffectfromFXthisquarter,withafavorablevolumeeffectof3%,andfavorablepriceeffectof1%.

Bygeography,you'llnoticethatUSpharmarevenueincreased3%drivenbyprice,partiallyoffsetbyvolume.Andininternationaloperations,Australia,CanadaandEurope,orACE.You'llseethattherewasadeclineinrevenueof19%thatwasalmostentirelydrivenbythenegativeeffectofforeignexchange,whileonaconstantcurrencyorperformancebasis,ACErevenuedecreasedjust1%.ThisdecreasewasdrivenbyasubstantialreductioninEuropeanCymbaltasales,resultingfromalossofdatapackageexclusivity.

InJapan,pharmarevenueincreased14%intotal,whileonaconstantcurrencyorperformancebasis,itincreased37%.Thesizeofthisincreasewasinfluencedbyaweakcomparisonperiod.RecallthatinQ12014,weexperiencedsubstantialwholesalerbuyinginadvanceofanincreaseinthelocalconsumptiontax,whichledtoacorrespondingreductioninwholesalerbuyinginQ22014.Consequently,theperformancegrowthof10%forthefirsthalfofthisyearismorereflectiveoftheunderlyingtrendsinJapan.

Turningtoemergingmarkets,wesawarevenuedeclineof15%,drivenbyanegativeforeignexchangeeffectof12%.Onaperformancebasis,emergingmarketsalesdeclined4%,drivenbylowersalesinChinaandthenegativeeffectoftheBrazilhumulintenderwehadlastyear.Thisquarter,ourpharmarevenueinChinadeclined16%drivenbylowervolume.

Onanon-GAAPbasis,whichadjusts2014asifwehadcompletedtheNovartisAnimalHealthacquisitiononJanuary1ofthatyear,ElancoAnimalHealthrevenuedeclined4%.Excludingthenegativeeffectofforeignexchange,Elancorevenueincreased3%.

Movingtoslide14,you'llseetheeffectofchangesinforeignexchangeratesonourQ22015results.Thisquarter,asmentionedearlier,FXwasatoplineheadwind,reducingrevenueinUSdollarsby8percentagepoints.Intermsofcostofgoodssold,however,FXprovidedasubstantialbenefit,whichledtoFXhavingessentiallynoimpactonoperatingincomeandEPSgrowth.Atthebottomoftheslide,youcanseethatournon-GAAPEPSinthesecondquartergrew22%,withandwithoutFX.

Slide15showsourpipelineasofJuly20,withchangessinceourlastearningscallhighlighted,greenarrowshowingprogression,andredarrowshowingattrition.Intermsofadvancement,you'llseethatourCGRPmonoclonalantibodyhasmovedintoPhase3,withtheinitiationofpivotaltrialsinclusterheadache,andweinitiatedPhase2testingforanoncologymolecule.

WealsoterminateddevelopmentofouroralglucagonreceptorantagonistfordiabetesinPhase2,aswellasforfivePhaseImolecules.Withthatupdate,I'llnowturnthecallovertoDerica.




DericaRice (CFO):

Thanks,Phil.Asonourpriorcalls,I'llrecaptheprogresswe'vemadeonthekeyeventsweprojectedfor2015,andthenreviewour2015financialguidance.

Turningtoslide16,youwillseethatamajorityofeventsanticipatedfor2015havealreadyoccurredinthefirstsixmonthsoftheyear,withthevastmajoritybeingpositive.Sinceourlastearningscall,we'veachievedanumberofadditionalmilestones.

WeinitiatedPhase3trialsforCyramzainbothfirst-line,EGFRmutationpositivenon-smallcelllungcancer,andinsecond-lineurothelialcancer,aswellasforourCGRPmonoclonalantibodyinclusterheadache.

AsJohnmentionedearlier,wehadanumberofdetaileddatadisclosuresatmedicalmeetingsforbasalinsulinpeglispro,baricitinib,ixekizumab,andsolanezumab.

YouwillalsoseethatweupdatedtheregulatorysubmissionscategorytoreflectJapanesesubmissionforramucirumabforsecond-linemetastaticcolorectalcancer,andEuropeansubmissionofixekizumabforpsoriasis.AsweannouncedonourIxekizumabinvestorcall,we'veaddedaneventtoourkeyeventlistforthesimultaneoussubmissionofixekizumabinJapanforbothpsoriasisandpsoriaticarthritis.

EarlierJohnmentionedthepresentationatASCOofthePhase2dataforolaratumabinsofttissuesarcoma.Thesedatawerecompelling,andincludedatenthmonthoverallsurvivalbenefitinpatientsinthetreatmentarmthatreceivedolaratumab.

IampleasedtoannouncethatbasedontheongoingdiscussionswiththeFDA,weintendtosubmitUSandEuropeanregulatoryapplicationsforolaratumabinsofttissuesarcomabasedonthesedata,basedonthesePhase2data.WehopetocompletetheUSsubmissionbeforetheendof2015.

Asaresult,youwillseeanewitemonourlistofkeyeventstoreflectthispositivedevelopment.Inaddition,theFDAhasgrantedolaratumabbreakthroughdesignation.We'repleasedthatolaratumabisthethirdImClonemoleculefollowingCyramzaandnecitumumabthathasgeneratedpromisingclinicaldata,andthatcanhelppatientswithcancerlivelonger.

YouwillalsoseenewcheckmarkstoreflectthreeapprovalsJohndiscussedearlier,Japaneseapprovalforramucirumabinsecond-linegastriccancerandDulaglutidefortype2Diabetes,andintheUSapprovalforHumalogU-200KwikPen.

Finally,intheothersection,you'llseeagreencheckmarkforthepositiveAlimtarulingfromtheUKCourtofAppeal,andwenowhaveadateformidNovemberfortheappealshearingattheEuropeanPatentOffice.

Wenotedinthepastthat2015isanotheryearwherewe'refocusedondemonstratingsuccessfulexecutionofourinnovation-basedstrategy.We'repleasedwiththeprogresswemadeinthepastfewyearsandsofarthisyear,andbelievethisprogresssolidifiesournear-tomedium-termgrowthprospects.

Turningtoour2015financialguidance.We'veraisedthebottomendofourrevenuerangetoreflectthesolidunderlyingperformanceforthefirstsixmonthsoftheyear,andthelaunchtrajectoriesofJardiance,TrulicityandCyramza.

Wehavealsomodestlyincreasedtherangeforournon-GAAPotherincometoreflectnetgainsoninvestmentsrealizedtodate,andaddedanewlinefortheGAAPotherincomethatreflectsthedebtrepurchasecharge.ToreflectthediscretetaxbenefitbookedinQ2,we'vereducedournon-GAAPtaxratebyabout50basispoints.OurGAAPtaxratealsoreflectstheimpactofthedebtrepurchaseandthe




BioNTechcharges.

Atthebottomline,weraisedournon-GAAPEPSrangeby$0.10,andnowforecastfullyearnon-GAAPEPStobeintherangeof$3.20to$3.30pershare.OurnewGAAPEPSrangeof$2.20to$2.30persharehasbeenupdatedforthissame$0.10increase,aswellastheQ2chargeswebookedforthedebtrepurchaseandtheBioNTechdeal.

FinallyIwanttopointoutweownsharesofReceptos,andyou'veundoubtedlyseenCelgene'soffertobuyReceptosfor$232pershare.Atthistime,itisnotcleartouswhenadealmaygetdone,andwe'venotmadeadeterminationofwhatwewilldowithourshares.We'llmonitorthissituation,andwewillincorporateanynecessarychangesintoourfutureguidanceupdates.

Insummary,whileoursecondquarterrevenuereflectstheimpactofforeignexchangeheadwindsandthelingeringeffectsofUSpatentexpirationsforCymbaltaandEvista,weremainontracktoreturntogrowthin2015,drivenbyexcellentprogressinourinnovation-basedstrategy.

Wehadsolidunderlyingbusinessperformance,andourcontinuedfocusonproductivityandcostcontrolsdrovestrongleverageatthebottomline,whileprovidingthecapacitytofullyinvestinournewproductlaunchesandtopursueadditionalpromisingpipelineopportunities.Thissolidbusinessperformancewastheprimarydriverforincreasingournon-GAAPEPSguidance.

Withtangibleresultsfromourinnovation-basedstrategy,weaimtodriverevenuegrowth,andexpandmarginsthroughoutthebalanceofthisdecade.

Aswediscussedinthepast,you'llseeussharpenourfocusonareaswherewearebest-positionedtocompeteandwin,andwewillcontinuetofindwaystoincreaseproductivity,anddotheworkofpharmaceuticalR&Dbetter.Thisconcludesourpreparedremarks.NowI'llturnthecallovertoPhiltomoderatetheQ&Asession.Phil?

PhilJohnson (IR):

Great.Thankyou,Derica.Leah,ifyoucouldprovidetheinstructionsfortheQ&Asession,we'llgetstartedwithcaller'squestions?

QUESTIONS&ANSWERS

Operator :

Certainly.


OurfirstquestionisfromthelineofSeamusFernandezwithLeerink.

SeamusFernandez (Analyst-LeerinkPartners):

Thanksforthequestion.Socongratulationsonastrongquarter.Derica,maybeyoucanjust,oroverallifyouguyscangiveusyourthoughtsonhowyouseetheprogressionofAlimtasalesoutsideoftheUSgoingforward?

Sortofex,ifwejustkindofexcludethecompetitivelandscapeandthinkaboutitindependentjustwiththecourtrulings,howyouseethatgoingforward?Andwhatamountofsalesisactuallyreflectedandrepresentedbythat,howdurableyouthinkthatis?

Thesecondquestion,aswethinkabouttheevacetrapibopportunity,ifyouguyscouldgiveusany




additionalcoloryoucouldprovideonthenumberofevents,thepoweringofthestudy?Iknowyousaid15%powerinthepast,buthistoricallywhenwe'veseenstudieslikethis,it'sconservativelypowered.

So15%at95%or98%reductionwouldimplysomewherebetween1,400and1,600events,soitwouldbereallyhelpfultounderstandhowconservativelypoweredyour15%assumptiononevacetrapibis?

Andthenlastly,on--Ithink,olaratumabintermsofthemarketopportunityinsofttissuesarcoma,canyoujustgiveusaquickupdateonyourthoughtsthere,intermsofthepatientsizeintheUSandthenalsoglobally?Thanksalot.

PhilJohnson (IR):

Great,Seamus.Thankyouforthequestions.I'llgoaheadandactuallyprovidesomecontext,onyourfirstquestion.OnAlimtaOUSrevenueandsomeoftheexposuresthere,andthenDave,ifyou'lltalkaboutthesecondquestionforevacetrapibpower?Andthen,Sueifyou'llhandletheolaratumabquestion.

SoSeamusforOUS,ifwegobacktotheguidancecallearlyJanuary,wehadmentionedthatlastyearwehadabout$880millioninAlimtasalesinEurope.Wehadindicatedabout$80millionofthatamountwouldalreadybesubjecttolossofexclusivityinmarketswherewedidnothaveacompoundpatent,orthelongerdatedvitamindoseregimenpatent.Oftheremaining$800million,about$175millionwasrepresentedbyGermany,withtherestbeingtheotherEuropeancountriesofwhichFranceisthelargestbyfar,followedbyGermany.

AndthenItalyandSpain,withUKbeingclearlythesmallestofthem.Sohopefully,justthinkingaboutrulingswe'vehadsofarinGermanyandrulingsoutoftheUKCourt,thatprovidesyousomebasistounderstandthelevelofexposurethat'sthere.

ForJapan,Idon'thavelastyear'snumber,butIdohavethisquartersnumberinfrontofme,sincewealsohavelitigationongoinginJapan.Wehad$67millioninQ2.Wehad$57millionofAlimtarevenueinJapaninQ1.TheemergingmarketsbusinessisasimilarsizetoJapan,wherewehadabout$63millioninrevenuethisquarter,about$63millionlastquarteraswell.

SothemajorexposurereallyisforOUS,theEuropean,bothlitigationinspecificcountriesthatisongoing.Andaswementionedonthecallearlier,theoutcomeoftheEuropeanpatentofficeappealhearingthatwilloccurinNovember.Dave?

DavidRicks (President-LillyBio-Medicines):

Sure.Seamus,thanksforthequestiononevacetrapib.Whatwe'vesaidinthepastiswe'repoweredtoshowaneffectsizeonLDLalone,andsoyourrangethereisaboutright.

Idon'tthinkwe'vegottenintotheexactnumberofevents,andIwouldremindtheinvestorsweextendedthetrialbysixmonths,whichwaspartofourQ1communication,whichactuallyaddstotheeventtotalthatwe'llsee.Soinasensethatmayincreasethepoweringofthestudy,althoughnotmarkedly.

SothestudywasdesignedtoshowaneffectonLDLalone,usingtheOxfordcurvethatwe'veseenplayoutthroughtime.Weestimateabouta30%reductioninLD,sothusthemid-teensMACEoutcome,andthatislookingatthequintupleendpoint.

Wealsohaveaminimumthresholdforthetripleheartendpointsofdeath,MIandstroke,andwebelievewehaveampleeventsnow,aswelookatthedatacominginmidnextyear.

PhilJohnson (IR):

Sue?




SusanMahony(President-LillyOncology):

Yes,withregardstoolaratumab.Sowiththesizeofthemarketit's,there'sabout11,900patientswhoarediagnosedwithsofttissuesarcomaintheUS.Fordrugtreatment,there'sabout5,800intheUS,andthenOUS,about5,000again.

Ithinktheimportantthinghereisthattherereallyhasn'tbeenanythingapprovedorshowninoverallsurvivaladvantageinaboutthreedecadesinthistreatment,inthistreatmenttype.

Soit'sabigunmetneed,andwe'reveryexcitedbythedatathatwehave,andtheopportunitytobringolaratumabhopefullytopatients.SowehaveannouncedthatwewillbefilingbasedondiscussionswiththeFDAintheUS,andwealsoanticipatedoingthatinEuropetoo.WealsoareplanningtoinitiateaPhase3studyoverthenextfewmonthsinQ3,andtodosomepediatricstudies.SoasIsaywe'reexcitedabouttheopportunityforthismolecule.

PhilJohnson (IR):

Justarealquickadd-ontothat,Seamus.Ithinkclearly,andforgoodreasonthere'sbeenalotofinterestintheinvestmentcommunityonimmuno-oncologyagentsthathaveshowndurableresponsesforanumberofpatients.

Whilethisisnotinthatniceshinypennyofimmuno-oncology,thekindofbenefitthatwesawforoverallsurvivalisquitestriking.You'retalkingabout25monthsofoverallsurvival,comparedto15monthsonthecomparatorarm.Sowhilethisisasmallerpatientpopulation,orphandrugessentiallytypeofpatientpopulation,we'reveryenthusiasticaboutthedatawe'veshowntodate.Leah,nextcallerplease?

Operator :

ThenextquestionisfromthelineofTimAndersonfromBernstein.

T imAnderson (Analyst-Bernstein):

Yes,thankyou.Afewquestions.Onsolanezumab,obviouslytheAAICdatapresentedyesterday,I'mwonderingifyoucantalkaboutthatinthecontextofEXPEDITION3?

Andhowyouwillbe--Ishouldsayhoworwhetheryouwillbeincorporatingadelayedstartdesignintothattrial,andreallyisthatsomethingthatyouwouldlikelyneedforapprovaloristhatsomethingthatcouldcomelater?Inotherwords,isitaregulatorynecessitytoshowresultsonadelayedstartdesign,orisitmoreofalabelingmatter?

SecondquestionisonAmyvid,yourADimagingagent,kindofaroundingerrorcommercially,butitseemsthatPETimaginginthefuturecouldhaveissomerealvaluewhenithelps,whenitcomestohelpingruleinAlzheimer'sdisease?

Isthereanunappreciatedcommercialopportunityofsomepointinthefuturewiththeproduct?Andthen,lastquestionjustondiabetes.IfIlookatsaleslevelsofvariousproducts,itseemedtotrackbelowwhatIwouldhaveexpectedindifferentgeographies.AndI'mwonderingifthatspeakstoanincreasedlevelofpriceerosionthatmighthaveimpactedresults?

PhilJohnson (IR):

Great,Timthanksforthequestions.Dave,ifyoucanhandlethesolanezumabEXPEDITION3andAmyvidquestions?Andthen,Enriquethediabetesquestions,andobviously,Chito,ifyouwanttomakeanycommentsingrowthinemergingmarketsfordiabetesproducts,pleasedochimein.Dave?





Great.Thanks,Tim,forthequestions.I'lltryandhandlethese,andifIgetintrouble,myexpertsalsoonlinecanhelp.FirstregardingthedataweshowedyesterdayontheEXPEDITION-EXTorextensionstudy,thisisaverylong-termsetofdatawiththedrugeffectinAlzheimer's.AndIthinkwewerepleasedtoseethatthesafetyoftheproductcontinuestolookverygoodinthispopulation.

We'rehappythatthedelayedstartimpactwehadhopedtoseewasdisplayed,inthatthelaterpatientscomingontosolanezumabafterthe18monthblindedperiod,didinfactnotcatchupastestedstatistically,butalsonumericallyvisible,andthatthetreatmenteffectappearedtopersist.Soonthebackofthatthough,it'simportanttonotethat,that'sonlyimportantifEXPEDITION3ispositive.Thisdoesnotrepresentabasisforsubmissionor--becauseit'snotablindedassessment.ButIthinkthoseareencouragingsignsforus.

Andasyouknow,andwe'vesaidmanytimesoncallslikethis,wethinkincludedanumberoffeaturedinEXPEDITION3,whichgiveusagoodshottoreallythoroughlytestthequestionofsolanezumabinmildpatients.

IncludingyourquestiononPETscreening.SoI'lljumptothat,whichiswebelievethatit'sessentialtoeliminatefromthesestudies,andinclinicalpracticetojustscreenforamyloidinpatientswhohavedementiatoreallydefinetheunderlyingcause.And,ofcourse,that'sconsistentwithAlzheimer'sdiseaseversusothertypesofdementia.Rightnow,AmyvidisavailablecommerciallyintheUSandmanyEuropeanMarkets.Itisnotamajorproductforustoday.Asyouknowit'snotreimbursedbytheCMSintheUS,forinstance.

Iwouldframethis,Iguessinthreeways,it'susefulforpatients,fortreaters,andforourCompany.Oneis,thesaleswouldbeexpectedtoincreaseofAmyvidshoulddisease-modifyingagentsbecomeavailable,includingsolanezumabbecauseIexpectmostofthoselabelsand/orpairrequirementswillforcepatientstohaveconfirmedamyloidosistobeeligible.That'sgoodnewsbutprobablystillwouldn'tbeamassiveundertakingintermsofrevenueimpactfortheCompany.

Butit'salsoimportanttolookatthePETcapabilitieswehaveintwootherframes.Oneisasadrugdevelopmenttool,andreallyoperationally,beingabletomanageaclinicalnetworkofsitesthathasreadyaccesstothe--thePEThasreallyhelpedusenrollstudiesquickly,andmakesurethatwecanscanpatientsinatimelyway,keeptheminthestudy,andsynchronizethatcomplicatedmachinethatallowsustogetEXPEDITION3doneforinstance,andfuturestudieslikethebaseprogramwithAZ.

Andthenfinally,andparticularlyforsomethinglikeour[tau]tracerwhichisinPhase2,theseareveryusefuldrugdiscoveryandscientifictoolstohelpusaccelerateandmakegooddecisionsaboutearlierphaseAlzheimer'sprograms.Andso,thesearereallyessentialpartsofourtotalAlzheimer'svision,andwe'lltalkmoreaboutthatinDecemberatourinvestormeetingfocusedonAlzheimer's.

T imAnderson (Analyst-Bernstein):

Great,thankyou.

PhilJohnson (IR):

Enrique?

EnriqueConterno (President-LillyDiabetes):

Sure.Soaswelookatourdiabetesbusiness,therewereanumberofone-timeeventsthatareimpactingthequartertoquarterresults.AndIthoughtfirstwouldsay,thattheunderlyingbusinessfundamentals




aregood.Notjustwhenitcomestovolume,butwehavenotseenanysignificantchangeswhenitcomestocontractingoradditionalpricepressuresoverandabovewhatwe'reseeingbefore.

LetmespeaktoHumalogforasecond.InQ2oflastyear,wehadsignificantadjustmentrelatedto--apositiveadjustmentsrelatedtomanagedMedicaid,thatwasabout5pointsintermsoftheimpactwhenwelookatthecompareofQ2of2015versusQ2of2014.

WehadalittlebitofdestockingalsointheUSaswelookatQ2,butifwelookatthebusinessfundamentalswecontinuedtofeelgoodaboutourprospects.

WealsohadsomeanomalieswhenitcomestoTradjenta.Andinthisparticularcase,thereweretwoimportantadjustmentsthathavebeenmadeoverthelastyearorso.WemadeanadjustmentinQ3of2014,thatbasicallyanegativeadjustmentinQ3of2014forTradjentasales,becausewehadnotaccruedenoughwhenitcomestoourrebates.WeweregettingmoreofourbusinesscomingfromMedicarethatwehadinitiallyestimated.

Andthen,inQ2of2015,wehadanegativeadjustment.Inessence,wehadoverstatedsomeofoursalesinthefirsthalfof2014,andwehaveinacertainwayunderstatedoursalesinthefirsthalfof2015.Tomakethissimpler,thebottomlineis,ifweweretonormalizeforsomeoftheseone-timeeffects,andweweretoreassigntheaccrualstotherightquarter,ournetsaleswouldbegrowingthecaseofTradjentaintheUS,above15%.Clearly,wehaveaverysignificantvolumegrowth.

PhilJohnson (IR):

Great.Leah,nextcallerplease?

Operator :

ThenextquestionisfromthelineofJohnBoriswithSunTrust.

JohnBoris (Analyst-SunTrustRobinsonHumphrey):

Thanksfortakingthequestions.WiththecommerciallaunchactivityheightenedinJapan,canyoumaybejustwalkusthroughtheopportunitiesforCyramza,Trulicitythere?Andthetypeofpricingifyou'vereceivedanyinnovationtypepricingonCyramzaforgastriccancerthere,inyourrelationshipwithTrulicityandhowyoulaunchthere?

SecondquestionontheCGRPantibody,canyoumaybejustwalkthroughwhatthesignificantpointsofdifferentiationarerelativeto,(inaudible)whoalsohavecompetitiveantibodieshere?Andwiththerolloutofthisearlierthananticipatedinclusterheadaches,justyourthoughtsonwhenyoumightbeinapositiontocompletethoseclinicals?

Andthen,thethirdandfinalquestionforJohnLechleiter,justonthepoliticalfront,canyoumaybeaddresstwoissuesthatseemtobetakingcenterstageinWashington,mostnotablyrepatriation,andyourthoughts--whetherwe'regoingtoseesomethingthathappenstherealongwithtaxreformgoingforward?Thanks.

PhilJohnson (IR):

Great.John,thanksforthequestions.You'vegotagood[smattering]ofthemanagementteaminvolvedhere,solet'ssee.Sue,ifyou'llstartofftalkingaboutJapan,Cyramza,howwe'reperceivingthat,anyupdatewe'vegotonpricingthere?We'llstickwithJapan,andmoveovertoEnriqueforcommentsonTrulicity,includingtherecentlyannouncedpartnershipforthecommercializationoftheproductthere.Dave,fortheCGmonoclonalantibodyquestions,andthenJan,thelasttwoquestionsonrepatriation




andtaxreform.SoSue,pleasestart?


Sure,okay.Yes,sowelaunchedCyramzaonthe22ofJune,andwedoseethisasareallygoodopportunityforCyramza,giventheunmetneedthereisinJapan,andgiventhenumberofpatientswhoaretreatedinJapanwithgastriccancer.

Weestimateabout16,000patienceinJapanaretreatedinthesecond-linegastricversus,about6,000,4,000to6,000intheUS.Sotheopportunitythereisgreat.Thefeedbackthatwe'vegotfromthoughtleadersisgood,andtheinitialfeedbackfromthesalesforceagainisverypositive.Soit'searlyday,22ofJunelaunch.

Wedidgetaslightsalesbuy-in,butclearlywe'llbetrackingthesalesgoingforward.Fromapricingperspective,yes,wehavegottheprice.The[vial]priceforthe500milligramisJPY355,000,andforthe100-milligramit'saboutJPY75,000.Sowe'llgiveyoutheexactdetailsonthat,butwefeelgoodaboutthepricinggoingintoJapan.

PhilJohnson (IR):

Great.Enrique?


Sure.AswehavesaidbeforewhenitcomestoTrulicity,overallexpansionoftheGLP-1classiscriticalforus.JusttoquoteafewnumbersintheUS,whenwelookatnewpatientgrowth,thatnumberisnowcloseto50%,5,0.Whenwelookatfourweeks,onfourweeksyear-on-yearor13weeksyear-on-year,soweareclearlyverypleasedwiththat.

WhenitcomestoJapan,thisisevenmoretrue.JustbecauseinJapantheGLP-1classhasthelowestpenetrationintype2diabetesofanymajormarket.Nowforustoaccomplishthis,wehavedecidedtopartnerwithDainipponSumitomo,inordertohavetheappropriatereachwhenitcomestothesmallclinics,andthisisgoingtobecriticalforus.

PhilJohnson (IR):

Great,thankyou.Dave?


Yes,soonCGRP,we'reexcitedaboutthisprogram.Asitwasannouncedtoday,wedidinitiatetheclusterprogramsinbothchronicandepisodicinQ2.Wedon'thaveanexacttimingatthispointfortheread-out.It'senrollmentdependentJohn,butwewouldhopetobeabletoenrollthosestudiesrapidlygiventheunmetneed,andthenbeabletosubmitthosetoregulatorsasquicklyaspossible.

We'llgiveupdates,aswebegintoseealittlemorerateonthat,andyoucanlookatClintrials.govtoo,whichweupdatereligiouslyonthesepoints.

Thatisoneofthesourcesofdifferentiationwemightseeforourprogramversusotherswhichisindications.Atthispoint,Ijustwanttoemphasizethatthere's--it'sabigmarket.There'sabout14millionmigrainerswhocouldbenefitfromapreventivejustintheUS.AndCGRPneutralizationappearstohaveaveryprofound,andsofarlooksrelativelysafemethodforalleviatingthesufferingfromthiscondition.

Sothereisprobablyroomforanumberofplayers.ReallywearegoingtohavetowaittoseethePhase3programsplayout,andoftenthingslikedoseselectionandfrequency,etceterawillbedifferent,and




we'llseewhocomesupwiththebestdatapackageattheend.Rightnow,we'refocusedonexecutionandgettingintheclinicwiththePhase3programinthecomingmonths,andareexcitedabouttherecentPhase2read-outwesaw.

PhilJohnson (IR):

Jan,doyouhaveanythingtoaddonCGRP?

JanLundberg (President-LillyResearchLaboratories):

Well,Ithinkweareseeingseveralantibodieshavingmoreorlesssimilarresults,whichIthinkisencouragingfortheclassassuch.Thenthestudieshavebeensomewhatdifferentinrelationtothenumberofmigraineheadachedaysthathasbeenthefocus.

Somestudieshavebeentheepisodicclassicaldefinitionof4to14,othershavebeen8to14,andtherecouldpotentiallybeadifferenceoftheeffectsoftheseagents,dependingonhowmanymigrainedaysyouhave.Butthinkoverall,weareveryencouragedaboutthisclassforthislargeindicationinallaspects.

PhilJohnson (IR):

Great,thankyou.John?


John,thanksforyourquestion.IthinkspeakingforLillyintermsofthepotentialfortaxreform,we'reencouragedbymanyoftherecentsoundingsthathavecomefromWashington.We'vebeenforaslongasI'vebeenCEOandI'msurebeforethatadvocatingforcorporatetaxreforms,wehaveanuncompetitivetaxsysteminthiscountry.ItputsAmericancompaniesatadisadvantage.

ItactuallydiscouragesinvestmentintheUnitedStates.Sowewouldbeveryanxioustoseeasystemthattakesaterritorialapproachtotaxation.Andif--aspartofthat,weenableissomerepatriation,obviouslywewouldbebroadlyinfavorofthat.

Thedevilisalwaysinthedetails,butwe'rehopefulthatshortofcomprehensivetaxreformthatcurrentevents,theimpetusfortheHighwayTrustFundetcetera,mightspuractionhere.Andwe'remorethanreadyandwillingtoparticipateintheconstructivediscussion.

PhilJohnson (IR):

Great.Thanks,John.Leah,ifwecangotothenextcaller?

Operator :

Certainly,andthatisJamiRubinwithGoldmanSachs.

JamiRubin (Analyst-GoldmanSachs):

Thankyou.John,justaquickquestionforyou.Youhadmentionedinyourpreparedremarks,yourgrowinginterestindealactivitybutmostlyconfinedtopartnerships,licensingdealsetcetera.Canyouelaboratealittlefurtheraroundthat?

Andinyourmindisthere,doesthismeanthatyouarenotgoingtomakeacquisitions,butratherfocusonpartnershipslicensingdeals?Andifyou--iftheanswerisyou'renot--thatyouareinterestedacquisitionactivity,istherealimitastohowbigyouwouldgoandwouldyouconsiderusingyourequityjustgivenwhereyourmultipleis?Iwouldthinkthatthatwouldbesomethingthatwouldbeadvantageoustoyou




now.

Andthenaquestionforyou,Derica.You'vepreviouslyguidedtotheFXbenefitongrossmarginsthisyeartounwindnextyear,assumingexchangeratesremainconstant.Canyouupdateusonwhattoexpectintermsofthemagnitudeofthatimpact?Thanksverymuch.


Okay,Jamie.I'llstartoff.Thanksforthequestions.Ithinkwhatwecalledoutatthebeginningoftheyearwas,oursentimentfavoringdealsdoneateverearlierstages.Ithinkthisisnotinconsistentwiththetrendyouseeearlierintheindustry.

Ithinkintermsoflaterstagedealsormaybeevenlargersizedeals,we'regoingtobeguidedfirstandforemostbythetherapeuticcategorieswherewe'vechosentocompete.Andagain,Ithinkwesortofoutlinedthatquitedistinctlyatthebeginningoftheyear.

Thatwouldbediabetes,oncologyandneurodegenerationwithemerginginterestandpresenceinpain,andinautoimmunediseaseagaindependingontheoutcomesofclinicalstudies.Obviously,wefiledixekizumab.Wefullyintendtomoveintothat--thepsoriasisanglefromanautoimmuneperspective,oncewegainapprovalforthatmolecule.

Soifyougoback,andyoulookatthedealswe'vedonesinceIbecameCEOin2008,theonesthatstandoutobviouslyareImClone.WethinkwecouldhaveasmanyasthreemoleculesfromthatthenexistingImCloneportfolio,thatwilleventuallybeonthepharmacyshelfthataugmentedandsupplementedapresencewealreadyhadinoncology.

ThesecondbiggestdealinthatperiodoftimewastheNovartisAnimalHealth.WehavebeenbuyersobviouslyontheAnimalHealthside,goingbackatleasttothedealwithMonsantotoacquireBSTinthemiddleofthelastdecade.Weveryclearlyaimtocontinuetobuildthatbusiness,boththroughorganicandinorganicmeans.

Inbetweenyouhaveavarietyofsmallerdeals.Avidisagoodexampleofauniqueopportunitywesawtoacquiretechnology,thatasDavesaidearliergivesusarealboost,andIthinkacompetitiveadvantageintheAlzheimer'sspace.

Ithinkintermsofthinkingaboutwhatwould--themagnitudeofsomethingLillymightconsider.IthinkthattheNovartisandImClonedealskindofdefinethat.Butatthesametime,wearen'tanxioustogooutandpayinflatedpricesforthehotpropertyofthemoment.

There'sIthinkabitofabubblerightnow,withrespecttovaluationsonsomeofthesmallercompaniesorthesmallerentitiesandbiotech.AndIthinkit'sbetteruseofour--betterforourshareholdersandbetteruseofourshareholdersequitytofocusfirstandforemostonourinternalefforts,whicharequitestrong,andIthinkquiterobustinallthesetherapeuticareas.Inwhich,wewillcontinuetoaugmentandsupplementaggressivelybytheseearlierstagepartnerships.

PhilJohnson (IR):

Thanks,John.Derica?

DericaRice (CFO):

Jami,inregardstogrossmarginwesaidthat,eachquarterwetrytoneutralizetheimpactofFXingrossmargin,bytheadditionalslidethatweprovidethatkindofshowsyouthenormalrunrate.Andobviously,thisyearwe'rerunningslightlyabovethemid70%s.Whatwesaidwhenwe--whenIthinktowards2016,




tofocusyouall,youshouldbethinkingaboutthat75%rangeofgrossmarginbeingnetofFX.

PhilJohnson (IR):

Great.Thanks,Derica.Nextcallerplease?

Operator :

NextquestionisfromthelineofMarkSchoenebaumwithEvercoreISI.

MarkSchoenebaum(Analyst-EvercoreISI):

Hey.John.Hey,guys.Congratulationsonthestockthisyearbytheway.IwasintriguedbyJohn'scommentsthatthere'sabitofabiotechbubble,sinceIcoveredbiotechaswell.Thatscaredme.Youruinedmyday.Butanyway,actuallyIdohaveaquestionforJohn,kindofbuildingonJohnBoris'questions.JustasIknowyou'reverytunedintoWashington.

Justthisgeneralquestion.Thiscomesupallthetime,butIfeellikethevolumeshaveturnedupalittlebit,onthepricepointforcancerdrugs,giventhepaceofinnovationthere.I'djustlovetohearyoutalkaboutyourlong-termviewonthat,notyouroneortwoyearkindofview.

Butmaybeputonyour10yearcap,andjustkindofaskthequestion,arethecurrentpricepointsforcancerdrugssustainable,ifthecurrentpaceofinnovationcontinues,andhowyouthinktheindustryisgoingtoreacttoanypricingpressureyoumightsee?

Andthenjustonixekizumab,theIL-17antibody.Clearly,theAstraZenecaAmgenannouncementonthe--[Amgen]announcedthattheywerewaitingforAstraZeneca,butontheirdecisiontopulloutofthepartnershipbecauseofthesideeffectprofileisabigpositiveforyouguys.

Iwasjustwonderingifyoucouldspeakin,ifyou'dbewillingtospeakinmorequantitativetermsaboutwhatthatmightmean?Howmanypatientsyouthinkcouldultimatelybeonthedrugetcetera.Thislookstomelikeitcouldbeamulti-billiondollaradditiontoyourout-yearnumbers,andIjustwanttoknowifI'mtotallyonthewrongtrackornot?Thankyouverymuch.

PhilJohnson (IR):

Mark,thanksforthequestions.SoJohn,ifyou'llstartoff,andwe'llgotoDavefortheixekizumabquestion.


Hi,Mark.I'msorryifIruinedyourday.I'lltrytomakeitupinsomeway.

MarkSchoenebaum(Analyst-EvercoreISI):

Noproblem.


Okay.Withrespectto--alotofmediaattentionandpoliticalkindofattentiontothepricepointforcancerdrugs.Look,Ithinkfirstandforemostuptothepointwherewehavedata,whichdoesnotincludethisyear,wedidastudythatdatesbacktolastyearlookingattheproportionofdrugspend,aspartofthetotalcostoftotalcancercare.It'sremainedremarkablyconsistentoveralongperiodoftime.

Soputanotherway,whiletodaywehearalotaboutthecostofcancermedicines,IamnotsureI'veeverheardanybodycomplainaboutthecostofthatlongstayinthehospitalthatmanyofourdrugs,these




cancerdrugshelptominimize,ortoeliminate.Andthat'sbecausehospitalstaysarecoveredbyinsurance.

Ithinkthequestionis,what'sthecosttothepatient,andhowcanweinsurethatmorepatientshaveaccessthat--affordableaccesstocancermedicine,justlikethey'vegotthroughtheirinsurancepolicies,affordableaccesstodaytootherformsofcarethatarerequiredforpeoplewithcancer.

Intermsofhowwelookatthisinthelonghaul,Ithinkwe'regoingtohavetowaitandseehowthisplaysout.Wearealreadyseeinginmanyoftheseclassestwoormorecompetitorsemerging.

Weknowwhenotherclassesofmedicines,thediabeteswillbeoneexamplewe'refamiliarwith,weseeintensecompetitionthathasresultedinlowerneteffectivepricesbasedonnegotiationsthatwemustundertakewithpayersandinsurersinthatspace.Obviously,wehaven'tsortofseenthatplayoutinquitethesamewayinoncology.ButIthinkweshouldbeencouraginginnovation,becauseinnovationbegetscompetition,ratherthandiscouraginginnovationbythreateningthingslikepricecaps,etcetera.

Foracancerpatient,cancermedicinesparticularlysomeofthesenewwhatyoumightcallbreakthroughtherapiesthatweallknowabout,representthehighestqualityandmostmedicallyeffectiveapproachwehaveinour[armamentaria]withanyotherintervention.

Sothecallingtheseoutfor--beingsimplybasedonprice,failstolookattheincrediblevaluethatthesedrugsbring.Notjustintermsofavoidingorminimizingothersystemcosts,butintermsofgettingpatientsthatpreciousadditionaltimeandqualityoflifethatissoimportant.

PhilJohnson (IR):

Great.Thanks,John.Dave?


Yes,soMarkthanksforthequestiononixekizumab.Asitwasmentionedinthecalltext,wehavesubmittedintheUSandEurope,andshortlyinJapanandothermajormarkets.

We'reexcitedabouttheprogram.Intermsofourassets,that'swhatwe'refocusedon,whichisweseeadrugherethatisprovidingawholenewthresholdofefficacyforpatiencesufferingfrommoderatetosevereplaquepsoriasis.We'vereportedPASI100sashighas40%,andPASI90sinsortofunprecedentedrangeaswell.

Sowethinkwe'vegotagreatasset,andwehadaspecialcallinJuneaboutthisandansweredanumberofquestionsaboutthepsychiatricsafety.Andaswesaidthen,wedon'tseeanimbalancenumericallyorstatisticallyacrossarms,whetheritbeactive,comparators,orthetwodosesofIxekizumab.Sowe'reproceedingthroughtheregulatoryprocess.Ofcourse,weneedtogetthroughthatwithallofthecaveats.

Intermsofthemarketopportunityinpsoriasis,dependingonhowyoucountitwithPSAornot,Ithinkyouwouldsaythere'sa$4billionto$6billionopportunityrightnowglobally.

AndIwouldjustpointout,thatinourestimates,lessthanthetreatmentratewithbiologicsinmoderatetosevereplaquepsoriasisisprobablylessthanhalfofRA.Sothere'sjustahugeamountofpossibilityforgrowthofbiologicsasaclassinthisspace.Ourvisionforthatisthatthenewer,moreeffectivetherapieswillbeagreatwaytodriveinterestingreatertreatmentinthedermatologycommunity.

Wethinkpatientswilldemanditthroughtime.Andthecaveatthereis,ofcourse,thenormalaccessandregulatoryprocessesarewhatstandsbetweenusandthatopportunity.Wedon'tknowwhatwillhappen




withthe--IguessformerAmgenasset.We'refocusedonourprogram,andwethinkthere'samplegrowthforanumberofassetsinpsoriasis,andwelikeourproduct.

PhilJohnson (IR):

Thanks,Dave.Leah,ifwecangotothenextcaller?

Operator :

Certainly,it'sthelineofChrisSchottwithJPMorgan.

ChrisSchott (Analyst-JPMorgan):

Great.Thanksverymuchforthequestions.Maybethefirstoneonsolanezumab,andmorebroadlyonAlzheimer's.Iguess,comingbackfromAAIC,someofthefeedbackfromthemeetingisthatthe[Ras]signalseem--seeingsomecompetitiveproductsislargelyasymptomatic,andmaybeabletobetreatedthrough.Iguess,Iwouldjustbeinterestedinyourthoughtson[Ras],andwhatthatcouldmeanforthecompetitivelandscape?

Andmaybepartofthatanswer,ifyoucouldtalkalittlebitmoreaboutyouguystargeting[AB]monomerAbetaversusplaque,giventhatdoyouhaveproductsgoingafterbothinthepipeline?

Secondquestionwasalongertermquestionondiabetes.Therehasbeensomemarketconcernthatthiscategoryonlybecomesmorecompetitiveovertime,andyou'regoingtoseeevenmorepricepressuregoingforward.Youguysobviouslyhaveadifferentiatedportfolio.Buthowdoyouthinkabouttheriskofanevenmoreconservativepayerenvironmentinthiscategorygoingforward?Thanksverymuch.

PhilJohnson (IR):

Great.Chris.Thanksforthequestion.Sofirst,fortheAlzheimer'sdisease,theRassignalandisthistreatable?MaybeI'llaskJanifyouwanttostartoffwithafewcomments,andthenEricwemayseeifyouhaveadditionalcommentsyou'dliketoaddtothat.Jan,certainlyifyouwanttotalkabouttheplaquespecificapproachthatwe'vegotintheclinic,andthenEnriqueforthepricepressureinthediabetessegments.


Yes.Well,inrelationtoRassignalthatwasreported,Ithinkfirstit'sclearthatBiogenhasmuchmoreofthatthansolanezumab,whichyouknowIthinkisakeydifferencerightnow.Secondly,itwasclaimedthatyoucantreatthroughit.

Ontheotherhand,Biogenalsohaddrop-outsIthinktoalargeextentintheirtrials.SoitstillneedstobeseeninalargersituationthaninPhase3,whetherthisreallyholdstrue.Andmyviewisthatifyouhaveanagentthatdoesn'thaveverymuchofthis,that'sacompetitiveadvantageforsolanezumab.

IfyoulookatthetypesthenofmonomerABtoantibodiesversusplaqueantibodies,wehavebothtwoselectiveagenttheninLilly.SolanezumabtargetsthenthemonomerAbeta,whichisthenaprecursorinawaythentotheplaque.WehaveanagentinPhase1calledN3pGwhichisapyroglutamateplaque-specificantibody.

Andinpre-clinicalexperimentswehaveseen,asamonotherapyforN3pG,verygood,clearand[stand-offof]amyloiddepositsintransgenicmodelsthanofAlzheimer'sdiseaseinmice.Andit'sevenmoreefficaciousifyoucombineitwithanoral[BACE]inhibitor,whereyoumoreorlesshaveatotalclearanceofamyloidfromthesemicebrains.




WhatwealsohaveseeninthepreclinicalexperimentsforN3pG,theplaquespecificantibodythatdidnotgivemicro-hemorrhagewhichiskindofrelatedtotheRassignalofthebrainedemathattheAlzheimerpatientshave.Andso,wehopethatwecouldhaveaplaquespecificantibodywithlessimpactthanonbrainedema,thanwhatwecurrentlyseewiththeBiogenmolecule.

PhilJohnson (IR):

Great.AndEric,doyouhaveanythingyou'dliketoaddforthediscussionaroundtheasymptomaticnatureof[RIA]abilitytotreatetcetera,ordoyoufeelithasbeenadequatelycovered?

EricSiemers (DistinguishedMedicalFellow):

Yes,I'llbrieflymentionIthinkthesearerelativelyearlydaysintermsofthefieldsortofunderstandinghowthatmaybemanaged.

Fortunatelywithsolanezumab,wehaven'treallyhadtodealwiththeissuetoomuchbecauseofit'sjusta0.5%inplacebo-treatedand1%insolanezumab-treated,withoutreallyanyassociatedsymptoms.Butforothermolecules,whereyoudohaveRIAthatmaybeasymptomaticintwo-thirdsofpeople,butit'sstillsymptomaticthatinone-thirdofthepeople.Sothat'ssomethingthatIthinkbroadlyinthefieldwe'lljustneedtogetmoreexperiencewith.Thanks,Eric.Enrique?


Sure.It'sdifficulttospeculatewhenitcomestothepayerenvironmentanddiabetes.ButIthinkit'shelpfulforustobeabletolookback,[meal-timeinsulin]becausethatwasthefirstclassindiabetesthatwasunderpressure,whenitcomestothenarrowingofformularies,andthatstartedsometimein2009.

Throughthisperiodfrom2009totoday,whatwehavebeenabletoseeisthatHumalog,we'vebeenabletohavefairlystablenetpricesforHumalogoverthisperiod.Ifanything,theyareslightlyup,butclearlynotmuch.

SoIwouldsaythatyesitislikelythatthere'sgoingtobenarrowingofformulariesinothersegments,inthediabetesspace.ButIdonotexpectasignificantlydifferentbehaviorwhenitcomestosomeofthenetpricesandhowmeal-timeinsulinactuallybehaved.Sothat'sbasicallywhatIwouldofferthere.

PhilJohnson (IR):

Great,thankyou.Leah,ifwecangotothenextcallerplease?

Operator :

Certainly,it'sthelineofSteveScalawithCowenandCompany.

StephenScala(Analyst-CowenandCompany):

Thankyou,Ihavethreequestions.EvenatthehighendofyournewEPSisguidancerange,itimpliesaslightlydownsecondhalfafteraverystrongfirsthalf.OtherthanatoughercompareinQ4,whatisdrivingthesecondhalfweakness?ItseemslikeLillyissettingupforabetterthanexpectedsecondhalfaswell.

Secondly,onJardiance,theCVoutcomesdatainQ3--sinceitisQ3,isthedatainhouse,howwillitbereleased?AndEnrique,areyouanythingbutveryconfidentinthedata?Andthenlastly,whatdoestheloweringoftheADAS-cogdeltaattheEXPEDITION1and2,fromthe2.01inMarchtothe1.83inJuly,tellusaboutthepatientsenrolledand/orhowtheychangedovertime?Thankyou.




PhilJohnson (IR):

Great.Steve,thankyouforthequestion.Soclearly,Dericatoyouonthefirstquestionrelatedtotheguidanceandthesecondhalfperformance.Enrique,fortheJardianceCVoutcomes,andthenDave,ifyouwanttokick-offtheresponsefortheADAS-cogquestionwereceived.Derica?

DericaRice (CFO):

Goodmorning,Steve.We'vehadreallysolidunderlyingperformanceinthefirstsixmonthsofthisyear,andweexpectthatsolidperformancetocontinueforthesecondhalfofthisyearaswell.

Whatyoushouldseealsointhesecondhalfoftheyear,andI'mgoingtokindofreflectonsomeofthecommentsthatPhilmadeinhisremarks,whereinthesecondhalf,wedoexpecttomakeincrementalinvestmentsinourR&Dpipeline,giventhepositivedataread-outsthatwe'veseen.

SowetalkedaboutthestartofPhase3trialsfortanezumab,ourCGRPmonoclonalantibody,olaratumabaswehighlightedearlier,aswellastheintenttoinvestinadditionalindications[Cyramza].Andaswecontinuetoseemorepositivedataread-outs,you'llseeusfullyinvestinginourpipelineopportunities.

AtthesametimeasyouheardSuesaywe'reinthemidstoflaunchinginJapanforCyramza,aswellastheongoinglaunchersinothergeographies.Sowewillfullyinvestbehindthataswell.Sowereallyareexpectingourtoplinemomentumtocontinue.You'llseeuscontinuetodriveproductivitygains,butwhatthatdoesisitgivesusthecapacitytomakethesekindsofinvestments,whilestillreturningtogrowththisyearandmarginexpansion.

PhilJohnson (IR):

Great.Thanks,Derica.Enrique?


Soweexpecttoseethedatathisquarter,toseethedatasoon.Aswehavesaid,oncewehavetheopportunitytoseethedatawewillissueatoplinepressreleasewiththeresults.WeareplanningtoshowcasethoseresultsinSeptemberatEA,butthat'sasmuchasIcansharerightnow.

PhilJohnson (IR):

Great.Thankyou.Dave?


Yes,asitrelatestothequestionofthe,Iguess,finalendpointdisplayedinthepooledmildEXPEDITION1and2,2.5yearsago,versuswhatwasdisplayedyesterday,you'rerightthereisasmalldifference.Ithinkyoumentioneditthere,intermsofwhatthoseabsolutenumbersare,andthedifference.

Thereasonforthis--andI'lltrytoputthisinverylayterms--isthestatisticaltechniquethatisbothpreferredbytheFDAsortofbyconsensus,andweuseinAlzheimer'sstudies,it'scalledMMRM.It'sdifferentthanothertechniquesyoumayhaveseenlikeLOCF.

Whatitdoesis,itreliesonallofthedataavailabletoestimatethemissingdata,andthistechniqueisthoughttoreducetype-1error,it'swhattheFDAprefers.

It'satechniqueweuseinbothassessmentsthatyou'rereferringto,becausethesecondassessmentincludesmoredata,thatisthecontinuingpatients,thenumberdoesmovearoundslightly.Thecoredataunderneath,itisidentical.Thatdatawaslockedin2012,andit'sthesamedata.




Whatwe'redoingisestimatingmissingdatausingthestatisticaltechnique.SoI'mnotsurethere'smuchnewsorread-throughwiththat.Butifyou'dliketolearnmore,Steve,wecansetupabackgroundonwhythatoccurs.Thebottomlinetake-awayisIthinkthesame,thatthereisameaningfuldifferenceattheendofthe18months,andthatdifferencepersistedthroughtheopenlabelextension.

PhilJohnson (IR):

Great.Thanks,Dave.Leah,nextcallerplease?

Operator :

ThenextquestionisfromthelineofAndrewBaumfromCitigroup.

AndrewBaum(Analyst-Citigroup):

Thanks.Justreturningtothequestionofthebuildingoutyourimmuno-oncologyfranchise,wouldyoumentionsomeofthedealsyou'vedone?Iknowyou'vehaveatleasttwoveryexperiences,givenyou'reoncologists.Someofyourcompetitorsengagedinrathermorefreneticactivityinthisarea.

Soalongthoselines,threequestions.Numberone,intermsofpreclinical,onewouldnormallyaskaboutcompound,[anyperhapsveryfirst],fastinthiscategory?

Isthereanythingclosetotheclinicfromyourpreclinicalportfoliowithinthenext6to12months?Andsecond,whatisLilly'sinterestinadoptivecelltherapy,givenyourheartindividualwascloselyliesthatarea?Andthenfinally,shouldweassumethatyou'relargelyinthebuild-outinbio?OrasIsuspectyou'rejustgettinggoingintermsofbuildingoutfranchise?Manythanks.

PhilJohnson (IR):

Okay,great.Thankyouverymuchforthequestions.Ithink,Sueifyouwanttohandlethose?Janfeelfreetochimeinifyou'dliketocompleteanyoftheanswers.Sue?


Yes,sure.Soasyouseen,wehavehadalotofactivity.Iwouldn'tsayisfrenetic,Ithinkthat'sthewordyouused,frantic.ButwehavegotfocusedactivityinthreeareasinourR&Dportfolioandstrategy.

We'refocusedoncellsignaling,themicroenvironmentandimmuno-oncology.Andwewillcontinuetofocusonthoseareasbecausewebelieveit'sgoingtoberationalcombinationsofmoleculeswithinthosethreeareas,soit'sgoingtobeimportantinthefuture.

Withregardstoimmuno-oncology,asyou'vesaidwehaveanumberofannouncementswemadeoncollaborationsoverthepast12monthsorso,andit'sreallyintwoareas.Oneisinpartnershipstocombineourpipelineandmarketedproductswith[IO]agents.Infact,wehaveseventrialseitherplannedorongoingincombinationwithIOagentswithfourdifferentcompanies.

Andthenwehaveourownclinicaldevelopment,wherewehavethreeagentsinclinicaldevelopmentonaTGFbeta,asmallmoleculeinhibitor,[RCXCL4]inhibitorandCSFR1antibody.Andthenwedohaveanumberofagentsindiscovery.Idon'tif[Jan]wantstocommentmore,butwehaveanumberofagentsindiscovery,andwedoseewecanbebringingsomeoftheIOagentsoutoverthecomingmonthsandyears.

SoIthinkonthecelltherapy,yes,it'sanareawelookat.ItnotanareathatwearedrivingatthispointintimebutIthinkweneedtolookatallareasinIOandweseethisasthe--theIO,there'ssomanyunknownsatthemomentinIO,andourviewisthisisalongtermplan.




We'regoingtobesmartinwherewefocused.We'vereallylookedattoseecellredirectionasanarea,andyoucanseethenumberofdealsthatwehavedoneareinthatarea.AndIthinkthatcoversthequestion.Anythingyouwanttoansweroradd,Jan?


Wellit'sevidentinimmuno-oncologythatwehaveseenthefirstgenerationofsingleagentslikethePD-1andPDL-1.Andwearepartofthesecondgenerationcoming,whenwearecombiningforinstancedifferentcheckpointsinhibitorsthaninto[bio]specificantibodies.

AndwealsoareverykeentoactivateTcellsinamorespecificwayusingtheImmunocoretechnology.SoIthinkwehavejustseenthefirstdooropenintheimmuno-oncologyfield,andthere'sverymuchmoretodo.

PhilJohnson (IR):

Great.Leah,nextcallerplease?

Operator :

NextquestionisthelineofTonyButlerfromGuggenheimPartners.

T onyButler (Analyst-GuggenheimPartners):

Yes,thanksverymuch.Threebriefquestions.Numberone,IamgoingtogobacktoTim'squestionon[solanezumab].ThediseasemodificationfromEXPEDITION3,isthatstillpotentiallya[claim]thattheFDAcouldgetyouorsomeotherstatisticsorclinicalinformationthatyoumayneedtoshowthem?

PhilJohnson (IR):

Tony,Iamnotsureifyouaregoingtohearme.We'rehavingarealhardtimemakingoutthequestion.Couldyourepeatit?Startagain?AreyouthereTony?

Operator :

Hislineisstillconnected.


Yes,hi.Isthisbetter?

PhilJohnson (IR):

Yes,itis.Thankyou.


Myapologies.SobacktoTim'squestiononsolanezumab.I'dliketojustunderstand,isEXPEDITION3itselfsufficientforadiseasemodificationclaimorwillotherclinicalinformationberequired?

Second,isthereany,orcouldyouelaborateonthebiologicalrationaleforaJAK1,JAK2,whichcouldbemorebeneficialinRA,orindroppingACRsourceversusananti-TNF?Andthird,Iguessto,Sue,asyouthinkaboutCyramzaatleastintheUS,andwe'llleaveoutCRCforthemoment,whereareyougettingthebesttractionwithrespecttonon-smallcelllungorgastric?Thankyou.

PhilJohnson (IR):




Great,Tony.Thanksforthequestions.SoDaveifyou'lltalkaboutmaybethefirsttwo?Jan,feelfreetocomplementtheansweraswell?Andthen,SueforthequestiononCyramzaparticularlyhereintheUS,whatwe'reseeing.Dave?


Yes.GoodquestiononEXPEDITION3.We'vedesignedthistobeastandalonepivotalstudytosupportregistrationofsolanezumabinAlzheimer'spatients.Intermsoftheexactclaimsunderneaththat,theFDAthemselveshaveadmittedthey'vebeenvague,andit'samovinglandscape.

BecausethescienceismovingsofastinAlzheimer's,I'mawareoftwoclearstatementsthey'vemade,andIthinkyesterday'sdatasupportsoneofthem.Whichwouldbe,inadditiontoamarkedchange,aclinicallyrelevantchangeinADAS-cog,andintheADLmeasures,theywould--orsomecompositethereof,tosupportdiseasemodification,theysaidtheywouldlookatsupporteddatainadelayedstartformat.AndIthinkthespeakeryesterdayspokeaboutthat.

Theyhaveaveryeleganttrialdesignthey'veproposed.Noonehasactuallyeverconductedsuchathing.Ourdatawhichisasortofdelayedstartishelpfulinthatregard.Tony,that'showIwoulddescribeit.

Andthenthey'vealsospentalotoftimetalkingaboutbiomarkers.Andofcourse,unlikeotherfieldswedon'tyethaveavalidatedbiomarkerfordiseaseprogressioninAlzheimer's,andweareconductingasubstudyinEXPEDITION3usingourtautracer.

Weseethisasaveryimportantpartof,notonlyEXPEDITION3programpotentiallytosupportdiseasemodificationandotherclaimsforsolanezumab,butalsotoadvancethefield'sunderstandingofhowtauprogressionmapstocognitivedeclineinpeoplewithconfirmedAmyloid,whichwedon'thavethatdatatoday.Sowe'llhavetowaitandseeonthespecificclaims.Ofcourse,we'vegotalotofironsinthefiretosupportsolanezumabinthatregard.Buttheregulatorandthewholefieldismovingratherrapidlyhere,soit'sdifficulttopredict.

OnbaricitinibandtheJAK1/2,andwhatisthe--Iguess,you'resaying,theoreticalbasis,whyitcouldbebetterthanananti-TNF?Bottomlineiswe'rerunningthatexperiment,andwewillseethatexperimentread-outinthefall.

Andwe'rereallygoingtohavetowaittoseewhetherbaricitinibcouldbebetterthanaTNF,orequalto,whichisthefirsttestwe'llrun.Therearelotsofplausibleexplanationswhyitcouldhappen,JAK1and2signaling.

Andwecontinuetopointthisout,thatJAK2signalingisimportanttohaveanIL-6likeeffect,aswellasGMCSF,bothofwhichwehavehumandatavalidatingthoseastargetsinRA.WhetherthatyieldsbetterthanTNF,whichisaquitedifferenttarget,isthetestwe'rerunning.

PhilJohnson (IR):

Thanks,Dave.Sue?


AndwithCyramzaintheUSwe'reactuallyseeingagooduptakeinbothgastricandinlung.Aswelookatgastric,Imeanwelaunchedthesingleagentindicationearlierlastyear.Sothemajorityoftheuselastyearwassingleagent.

Thentowardstheendoflastyearwelaunchedacombo,andweseenowmoreuptakeincombination.




Withgastric,therewasn'tanythingapprovedintheUSinthesecond-linetreatmentofgastriccancer.Soclearly,weareseeingthis,asallpeopleareseeingthis,asaadvanceandwe'reseeingagooduptake,goodfeedbacksofarabouttheexperiencepeoplearehavingaswell.

Inlung,welaunchedearlierthisyear,andweagainareseeinggooduptakeinthesecond-linepostplatinumpatients.Weseetheseasverytwodifferentopportunities,withthelungindicationbeingmuchlarger,butclearlyit'sgoingtobemorecompetitive.Thefeedbackwe'regettingispositive.About40%ofoursalesinQ2camefromlungindication,andwecontinuetoseeagoodopportunitytocontinuetogrowinlung,aswellastoexpandinggastricgoingforward.

PhilJohnson (IR):

Great.Thankyou,Sue.Leah,nextcaller,please?

Operator :

ThenextquestionisfromGreggGilbertfromDeutscheBank.

GreggGilbert (Analyst-DeutscheBank):

Thankyou.Threequickoneshere,firstperhapsforDr.SiemersorSue,orperhapsDave.HowwouldyousummarizehowactualAlzheimer'streaterstookthedatathatwaspresenteddowninDC?Ifthatwasatallonyouragendatokindoffeeloutfolksthatarenotjustclinicaltrialgurus?Perhapssecondly,Chito,cancommentonwhat'shappening?InChina,therehasaprettysuddenslowdownforpharmasalesfortheindustry.

Curiousifyoucouldcommentonthat,andhowlongthoseconditionsmightpersist?AndforDerica,werethereanymeaningfulwholesalerinventorylevelchangesinthequarterversuslastquarter?ItlookslikeARwasupabit.Thanks.

PhilJohnson (IR):

Yes,Gregg,thanksforthequestions.Sowe'llstartoffwithDaveonthefirstquestion,whomayseeifErichassomethingshewouldliketoaddasheisaboutatAAIC?AndthentoChito,ontheChinaquestion,andDericaforwholesalerinventoryimpactinthequarter.


Yes.Gregg,thanksforyourquestion.

Ithinkthefield--aswetalkedtopractitioners,they'reobviouslyanxiouslywaitingforadiseasemodifyingagentintheabsenceofanywaytoslowdownthishorriblecondition,thequestionofclinicalmeaningfulnessalwayscomesup.Andtheresearchwe'vedone,wouldsaymostpractitionerswouldsayaone-thirdreductionoveran18monthperiodoftimeisquitemeaningful.

ButwehaveDr.SiemerswhoisonthelineherewhoÕsaneurologistandI'msurespoketomanyofyourcolleagues.

Eric,whatareyourviewsonhowthelayfieldisinterpretingthedata?

EricSiemers (DistinguishedMedicalFellow):

Yes.It'sagreatquestion.Ithinkgoingintothemeeting,wewonderedourselveswhetherthiswouldbeinterestingtoclinicaltrialofgurusorgeeksorwhateveryouwantedtosay.Orwhetheritwouldhavemoreofabroadinterest,andIthinktheanswerwasfairlybroad.AndIthinkthere'smaybetwomajor




reasonsforthat.

Oneisthat,justbyshowingthesedelayedstartresults,Ithinkitwas--inasensesupportingwhatweinitiallyshowedintheplacebo-controlledperiod.

Nowofcourse,thatwasasecondaryoutcome.Wealwaysworryaboutthosealittlebit.Butthesedelayedstartresultswouldactuallyaddtothewaveofevidence,thatthoseresultsinfact,wehopewillbereplicatedinEXPEDITION3.

Theotherpieceisthatthiswholeconceptofdiseasemodificationhasbeen,ashasbeendiscussedissomethingwherethescienceisevolving.Therehasbeenfairlygoodagreementincludingbyregulators,thatthisdelayedstartdesigncanprovideevidenceofadiseasemodification.AndIthinkthedatawerereallyacceptedasevidenceofthat.

Again,it'sasecondaryanalysisfromEXPEDITIONandEXPEDITION2,butIthinkitgivesussomerealconfidencethatwe'llseeverysimilarresultsinEXPEDITION3.Andthat'sonestrongpieceofevidenceofadiseasemodification.

PhilJohnson (IR):

Great.Thanks,Eric.Chito?

ChitoZulueta(SVP,President-EmergingMarkets):

I'msureyou'veheardfromothercompanies,therehasbeenaprettysignificantdropinthemarketgrowthinChina.Ithinkasweallrecallfromthemid-teengrowthinthelastfewyears,year-to-dategrowthissomewherearoundsingle-digit.

Andifyoulookatthemulti-nationalcohortofcompanies,IthinkMaywasaround2%growthoverthesameperiodlastyear.NowIthinktheprimaryfactorthat'sdrivingtheslowdownisreallysomegovernmentinitiativesandpolicies,thatarecurtailingvolumegrowth.Andwe'reseeingmorehospitalsandinstitutionsshiftingtolowerpricegenerics.Soweseethiscontinuingatleastintheshort-term,astheriskpressurewithinthenationalgovernmenttocurtailexpenses.

There'sdiscussionalsoincurtailingpricing,andlinkingtogetheralltypesofproductsfromtheoriginalbrandstothegenerics.Sothere'spressureonthevolumeside,andmovingforwardIthinkyou'llseemorepressureonpricing,particularlyforoffpatentbrands.Nowweneedtobalancethatwithamedium-termopportunitiesandlong-termpositiveopportunitiesinChina.

Wehaveobviously,verypositivedemographics,andthereisasincerecommitmentIbelievebythenationalgovernmenttoexpandhealthcarecoveragetoabroadersetoftheChinesepopulation.ButIthinkweshouldexpectthattheshort-termwillbechallenging,againbecauseofpoliciesrelatedtovolumecontrolinthehospitals,andpressurefororiginal[programs].

AsfarasLillyisconcernedIthinkthebettermeasuretolookatourperformance,wouldbetheyear-to-dateperformance,giventhequartertoquartervariabilityofwholesalerbuyingpatterns.

Andyear-to-date,wearebelowour5%butreallydrivenbyvery--adeclineinourgrowthinsomeofouroffpatentproducts,primarilyourneuroscience,oncology,andanti-infectiveproducts,againbecauseofvolumecontrol,butalsobecauseofthegenerics.

However,ifyoulookatourpatentedproducts,we'reverypleasedtoseestrongperformancefromCialisgrowingat23%,Forteogrowingatover50.Andouranalogbusiness--IknowtherewasaquestionearliertoEnrique--theanaloginsulinbusinessinChinaisgrowing12%year-to-date.




Nowwe'regettingsignificantpricingpressureonthehumaninsulinside,wherelocalcompaniesarebeginningtowintheprovincialbids.Butonceagain,weanticipatepressureintheshort-term,butwe'reveryconfidentthatthemedium-tolong-termprospectsremainvery,verypositive.

PhilJohnson (IR):

Chito,thanksforthatcolor,andDerica,onthewholesalerchangesinthequarter?

DericaRice (CFO):

Sure,hi,Gregg.Asitpertainstowholesalers,therewasreallynothingunusualoruniqueasitpertainstowholesaleractivityinthequarter.

PhilJohnson (IR):

Great.Leah,ifwecangotothenextcallerplease?

Operator :

Certainly.ItisthelineofColinBristowwithBankofAmerica.

ColinBristow(Analyst-BofAMerrillLynch):

Thanksfortakingthequestions,andcongratsonthequarter.Acoupleofquickones.OnTrulicity,couldyoutalkabouttheprogressyou'vemadeintermsofaccess,andanyadditionalcoloryoucouldgiveonlaunchofTrulicityandJardiancethatwouldbehelpful?Andthennumbertwo,whatdoyouseeasapotentialimpactonthetrajectoryoftheSGLT2costs,andthenJardiancewithinthat,iftherewasapositiveCVbenefit?

WouldyouexpectaheavyasymmetricalbenefitforJardiance,ordoyouthinkthiswouldjustberead-throughasabenefitforeveryone?Andperhapsjustathirdquickoneonsolar.AnyadditionalupdatesweshouldexpectpriortotheEXPEDITION3read-out?Thankyou.

PhilJohnson (IR):

Great,Colin.Thankyouforthequestions.Obviously,we'llgotoEnriqueforthefirsttwoonsomeoftheaccessanduptakewe'reseeingforTrulicityandJardiance,aswellasthenwhattheimpactmightbepositiveofCVoutcomestrialforJardiance?Andthen,overtoyouDaveforthesolanezumabquestion,andany[RFPs]wehaveonthatprogramgoingforward.


Sure.Sowearepleasedwiththeprogressthatwe'vemadewithbothTrulicityandJardiance.Wenowhaveabout70%accesswhenwelookatcommercialaccessintheUS,andabout30%inPartDwithTrulicity.AsIsharedearlierasIthinkforus,akeytobeabletogetlong-termvalueforthisproductistoensuretheGLP-1classisgrowing,andweclearlyseeasignificantaccelerationoftheGLP1-2class.

InthecaseofJardiance,thequestionissimilar,whenitcomestocontinuingtobasicallygetaccess.Iwouldsaythatwehave,differentlyfromtheGLP-1classwehaveseenaslowdown,asignificantslowdownwhenitcomestotheSGLT2class,whenitcomestonewpatientstartsthisyear.

Sothat'ssomethingthatwe'rewatching,ofcourse,veryclosely.Itisdifficulttospeculateonwhatrelativeshareofthebenefits,thisproportionofbenefitwouldwegeton,ifweweretohaveapositiveCVoutcomesresult.Clearly,thisisgoingtoprovidealifttotheentireclass,andwedoexpectthatwe'regoingtogetadisproportionateshareofthebenefit.Howmuch,Ithinkit'sdifficulttosay.




PhilJohnson (IR):

Thankyou,Enrique.Dave?


Yes,onsolan,whatwewillexpect--startingwithyesterday,anduntiltheendoftheEXPEDITION3studyis,therewillbesomescholarlyarticlesandotherdatacomingoutontheoriginalEXPEDITION1and2,includingthepoledmildpaper,wedoexpecttocomeout.

Alsohighlighttherewasaninterestingpresentationyesterday,lookingattheamyloidchangesusingamoremodernandacceptedmethod,whichdidshowadifferencebetweenactiveandplacebo.Sothesetypesofreanalysisandadditionaldatafillingoutthepicturefrom1and2willcontinue.

Butthebigdataread-outEXPEDITION3,whichwe'dguidepeopletoreallyfocus,onwon'thappenuntilafterlastpatientvisitanddataanalysis.Lastpatientvisit,weprojectQ4of2016.


AndwehavemadethedecisionjusttocommunicateformallythatwewillnotconductaninterimanalysisforExpedition3.Sowewillrunthetrialtocompletion.Andenrollmentwentsoquicklyinthattrial,thatthere'sjustverylittletimeandbenefitforustogoahead,andgarnerfromdoingtheearlyread.We'llletthetrialplayout,andpreserveallthepoweringforthefinalread-outattheend.

ColinBristow(Analyst-BofAMerrillLynch):

Thanks,John.


Iknowwe'regettingclosetothebottomofthehour,butLeah,we'vegotonemorecaller.We'rehappytotakethatquestion,beforewrappingupthecall.

Operator :

Certainly,andthatisfromVamilDivanfromCreditSuisse.

VamilDivan (Analyst-CreditSuisse):

Great.Thanksforsneakingmeinhere.Sojustacouplequickthings,Icould,maybesomedifferenttopicsthanwefocusedonsofar.OnejustontheAnimalHealthside,IthinkjustkindofposttheNovartisdeal.

JustifwecangetasensefromJeffashowheisviewingthatbusinessgoingforward,andkindofthegrowthweshouldexpectgoingforward?Ithinkitwas2%constantcurrencygrowththisquarteroryear-to-date.Sojustwanttoseehow--whathethinksthere?Second,justonthePCSK9,obviouslyalotofinterestandexcitementaroundtheindustryonthat,becausethefirstone'sclosetothemarket,andyouguysstillhaveyoursinPhase2.

AndifyoucanjustgiveanupdateonhowyouviewthatopportunityforLilly?Andthenthird,maybeit'sjustlittlebitearlyforthis,butjustaroundthedividend,withallofthepositivenewsyou'vebeenhavingoutofthepipeline,andinthekindofreturntogrowthyou'reseeing,howshouldwethinkaboutyourviewonthedividendgoingforward?Thankyou.

PhilJohnson (IR):

Great.Fantastic.Thanks,Vamil.Thanks.Andso,Jeffifyou'llstartusoff,andwe'llshiftovertoDaveforthe




PCSK9question,andfinishupwithDerica.

Jef f reySimmons (President-ElancoAnimalHealth):

Yes,theoverallAnimalHealthbusinessElancoistrackingtoourplansandexpectations.Thisyearhasbeenfocusedonintegrationaftercomingoutofferaneraofalotofgrowth,we'replanningtoreturntothat.

Butthisyear'sbigfocushasbeenontheintegration.Ourpreviouslycommittedsavingslevelontheintegrationof$200millionby2017,2018.WhatIwouldsayis,weseethatasaminimumexpectation.

We'llhaveanAnimalHealthinvestorconferenceinDecemberinBoston,wherewewillgetintomoredetail.Butwhatwewouldsayistoday,we'reseeingourselvesmeetingandexceedingallofthekeymilestonesinNovartis.Andthatwillbeakeydriverinreturningtogrowth.

Soyes,wesaw3%growththisquarter,butwhatwewouldsay,isweseethecombinationoftheintegration,aswellasourpipelineandinnovationreturningusbacktotoptierindustrygrowth,oncewecomethroughtheintegration.We'llarticulatemoreofthesedetailsagaininBostonattheendoftheyear.

PhilJohnson (IR):

Thanks.Dave?


Yes,ourPCSK9there'sreallynoupdatefromlastcall,wherewehadthequestion.WehaveourPhase2datacomplete.Wearelookingatourstrategicoptionsforthisprogram,recognizingthere'sthreecompetitorsaheadofus,andwewouldwanttoseedifferentiation,orperhapslookforotheroptionstohavethemoleculemoveforward.

PhilJohnson (IR):

Great.Thanks,Dave.Derica?

DericaRice (CFO):

Inregardstothedividend,we'reveryencouragedandexcitedaboutthecurrentperformanceofthebusiness.Andaswe'veseenusturningthetideandreturningtothisperiodofgrowthandmarginexpansion,itreallyisgivingusthecapacityasyou'veseenthisyear,toreturntomoreregularcadenceofdividendincreases,andweseethatgoingforwardovertime.

Andthenlikewise,youwillseeuscontinuealsotolooktosupplementthat,withreturningadditionalexcesscashtoshareholdersviaoursharerepurchaseprogram.

PhilJohnson (IR):

Great.Thanks,Derica.John,wouldyouliketogoaheadandconcludethecallforus?


Sure,Phil.Weappreciateyourparticipationintoday'searningscall,andyourinterestinourCompany.Wehavereceivedpositivefeedbackontherecentcallswehostedtodiscussourdiabetesbusiness,andlatestagedatafromtwokeymoleculesinourBio-Medicinesbusiness,baricitinibandixekizumab.

Sobuildingonthatexperience,weplantohostaninvestoreventinBostonasJeffmentionedon




Tuesday,December8tohighlighttwootherareasofourbusiness,thatobviouslyaregeneratingsignificantinvestorinterest.Andthat'sAlzheimer'sandAnimalHealth.

Sowehopetheinformationweshareatthisupcomingeventwillbelikewisehelpfultoyou.Finallyifyouhavequestionswedidn'taddressintoday'scall,pleasecontactourIRteam.Icantellyouthattheyarestandingby,andwouldbehappytohelp.

So,haveagreatday.Thanksagainforjoiningus.

Operator :


Andthatdoesconcludeyourconferencefortoday.

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Lilly (Eli) (LLY) Earnings Report: Q2 2015 Conference Call...

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