Eli Lilly and Company (LLY) Earnings Call Transcript & Summary

Good morning, and welcome to the Eli Lilly and Company Annual Meeting of Shareholders. The meeting will now begin.

Good morning. I'm Dave Ricks, Lilly's Chairman and CEO. Thank you for joining us today for our first virtual shareholders meeting, designed to help keep everyone safe during the COVID-19 pandemic. We plan to resume our in-person format next year. And in the meantime, you can submit questions and vote from the virtual meeting site, regardless of your location. Participating with me today are Josh Smiley, our CFO; Dr. Dan Skovronsky, our Chief Scientific Officer and the President of Lilly Research Labs; Anat Hakim, our General Counsel; Bronwen Mantlo, our Corporate Secretary; and Kevin Hern, our Vice President of Investor Relations. We are also joined virtually by the rest of the Lilly executive officers, our independent directors and representatives from our principal independent accounting firm, Ernst & Young. If you'd like to follow along, you'll find a link to slides on the bottom right of your screen. Our pictures are on Slide 2, and our full executive team is shown on Slide 3. Some of our comments during today's meeting may include forward-looking statements that are based on our current expectations and are subject to a number of risk factors and uncertainties. For additional information about the factors that affect the business -- the company's business, please see Slide 4 as well as the company's latest filings with the Securities and Exchange Commission. We'll begin the meeting with our formal business. After the items are presented and voted upon, I'll offer some brief remarks, and then we'll follow-up with Q&A. You can submit a question at any time by typing it into the Ask A Question box at the bottom of your screen. If we run out of time for your question, and you provided your contact information when you joined the meeting, you will -- we will follow-up with a response. So let's get started with today's business. Bronwen, would you please report on the mailing of the proxy materials and the presence of a quorum.

I can confirm that we've mailed our proxy materials to shareholders. A list of registered shareholders is available on the meeting website, which shows the number of shares each shareholder is entitled to vote based on their holdings as of the record date, which was March 9, 2020. The Inspector of Election has reported that the majority of common stock entitled to vote is represented. And therefore, a quorum is present for purposes of conducting the business of the meeting.

Thanks, Bronwen. In the materials we previously sent, you each received a proxy, and most shareholders have already cast their votes. If you have not previously voted and you wish to do so or if you want to change your earlier vote, click on the Vote Here button located on the bottom right of your screen. Under our bylaws, November 23, 2019, was the deadline for a shareholder to notify us of an intention to nominate a candidate for Director or to propose other business to be presented at this meeting. Our items of business include 7 shareholder proposals. This year, we also have 5 management proposals. There is information in your proxy statement on each of these. We will begin with the election of directors. The Board is divided into 3 classes, each serving 3-year terms, with approximately 1/3 of the directors standing for election each year. For reference, the directors not standing for election are shown on Slide 6. This morning, we will elect 5 directors whose terms will end in 2023. Let me introduce the directors standing for election, pictured on Slide 7. In addition to myself, they are Mr. Mike Eskew, retired CEO of UPS; Dr. Bill Kaelin, Professor of Medicine at Harvard Medical School, and a 2019 Nobel laureate; Dr. Marschall Runge, Dean and Executive Vice President of Medical Affairs at the University of Michigan Medical School; and Karen -- Ms. Karen Walker, Senior Vice President and Chief Marketing Officer at Intel. The 5 directors are duly nominated, and the nominations are closed. The second item of business is to vote on the compensation paid to our named executive officers. This is known as Say On Pay. We recommend you vote for this proposal. The third item of business is the ratification of the Audit Committee's appointment of Ernst & Young as a principal independent auditor for 2020. Representing E&Y today are Mr. Scott Bruns, global coordinating partner; and Mr. Bill Knerr, engagement partner, who are pictured on Slide 8. The next item of business are 2 proposals to amend our articles of incorporation. The first proposal would eliminate the classified Board structure over the next few years. So that's starting in 2023, the entire Board will be elected each year. The second proposal would eliminate the requirement that 80% of the outstanding shares of the company be voted in favor to take certain important actions, including changing our classified Board structure and approving certain transactions. The Board believes it's important to maintain appropriate defenses to inadequate takeover bids, but also important to retain shareholder confidence by demonstrating accountability and responsiveness to our shareholders. After balancing these interests, the Board recommends approval of both proposals. Next, we will review the shareholder proposals. I'll invite a representative for each proposal to provide a brief statement of 3 minutes or less with the operator to provide a reminder near the end of the allotted time. After that, I will provide our perspective along with the Board's voting recommendation. First, we have a shareholder proposal from the Service Employees International Union Pension Plans Master Trust requesting a report regarding direct and indirect lobbying activities and expenditures. Operator, please open the line of Reverend Dr. William J. Barber.

Dr. Barber is currently not on the line.

Okay. Dr. Barber has made his proposal, but the Board recommends against -- voting against this proposal. The next shareholder proposal is from the People for the Ethical Treatment of Animals, requesting a report on the effectiveness of a forced swim test. Operator, please open the line of Dr. Emily Trunnell.

Thank you, and good morning. My name is Dr. Emily Trunnell, and I'm here as a neuroscientist and on behalf of People for the Ethical Treatment of Animals and I have more than 6.5 million supporters. And as is stated, PETA's proposal concerns assessing the effectiveness of an animal experiment called the forced swim test, which our company refuses to ban. Between '93 and 2019, our company published at least 20 manuscripts and submitted at least 11 patent applications that describe the use of the forced swim tests and experiments involving over 3,400 animals. In the forced swim test, which the government does not require, animals are dropped into water. They swim trying to escape and avoid drowning. Eventually, they stop struggling. This amount of time that they've been swimming versus floating is measured in a scientifically controversial attempt to make inferences about the animals' mood. Since November 2018, PETA and more than 325,000 consumers have contacted our company, requesting a policy against the use, funding, or commissioning of this test, which involves subjecting small animals to the very real fear of drowning. Our company has responded by saying that it is not currently using the test and hasn't for some time, but continues to leave the door open to the possibility of conducting the test again in the future, indicating it believes the forced swim test has some utility. This is particularly surprising considering our company has stated that Prozac, our successful antidepressant, does not reduce inability in the forced swim test in rats, meaning it doesn't work in the test. In our company's published papers, PETA's scientists identified 5 other compounds used in forced swim test experiments that have also been tested in humans. The results of our analysis show that for the past 27 years of our company studies, the forced swim test has a 0% chance of predicting a successful marketing of a compound for human depression. How can our company reconcile the use of this test considering this data. Our company has articulated a commitment for the humane treatment of animals, ensuring high animal welfare standards as well as evidence-based responsible research as an integral part of our company's stewardship. The forced swim test is so traumatic to animals that it is sometimes used as an experimental stressor in itself. Since our company has refused to make any commitment against using this test in the future as 13 other companies, including 9 of our largest competitors have done, PETA's proposal requests that our company assess the effectiveness of the forced swim test and report its findings to shareholders. We urge you to vote in support of this proposal. Thank you.

Thank you, Dr. Trunnell. We do not condone in any form the mistreatment of animals, and we recognize our fundamental ethical and scientific obligation to ensure the appropriate treatment of animals used in research. We believe, however, that the requested report would not further this commitment in a meaningful way. We publish information about how we use and care for research animals on our website. The Board recommends that shareholders vote against this proposal. The next shareholder proposal is from The Daughters of Charity, requesting we amend our bylaws to require an independent Board chair. Operator, please open the line of Dr. Donna Meyer.

Thank you. Good morning, Mr. Ricks, members of the Board and fellow shareholders. My name is Dr. Donna Meyer. I work for Mercy Investment Services, and I'm here today on behalf of the Daughters of Charity to hereby move Item #8, seeking an independent board chair policy for Eli Lilly and Company. A 2016 Glass Lewis report on independent Board Chairman found that shareholders are better served when the Board is led by an independent chair who we believe is better able to oversee the executives of the company and set a pro shareholder agenda without management conflicts that exists when a CEO or another executive also serves as chair. This, in turn, leads to a more proactive and effective Board of Directors. Consistent with that report, a 2019 Pricewaterhouse survey of over 700 directors found that the majority who sit on a Board with the unified chair CEO say that under those circumstances it is difficult to voice dissent. A counter to this evidence is often the idea of having a lead independent director. But as the E&Y Center for Board Matters puts it, we do not command -- they do not command the same authority as a Board Chair and this weakness is magnified when the lead independent Director sits on many boards. This is why we agree with the position of the CII, Council of Institutional Investors, the authoritative voice on governance matters, which states that a CEO who also serves as chair can exert excessive influence on the Board and its agenda. Separating the Chair and CEO positions can reduce this conflict, and an independent chair provides the most transparent separation of power between the CEO and the rest of the Board. Let's not miss this opportunity to make a simple yet powerful change that could go a long way towards creating a more successful future, not only for Eli Lilly and its employees and shareholders but for individuals, families and communities around the world. Thank you for your time and for your vote to support Item #8, an independent Board chair.

Dr. Meyer, thank you. Lilly has a strong independent board that operates under sound principles of corporate governance. We believe that combining the roles of Board Chair and CEO generally provides the most efficient and effective leadership model for Lilly. We ensure independent oversight of the company through a counterbalancing governance structure, including a lead independent director, currently Juan Luciano. Our Board believes this proposal would unnecessarily restrict its ability to exercise its fiduciary duty to determine the appropriate leadership structure for the company, considering the circumstances at any point of time. The Board recommends that shareholders vote against this proposal. Next is the shareholder proposal from The National Center for Public Policy Research, requesting disclosure of specific minimum qualifications for Board membership and information about Board nominee skills, experience and ideological perspective. Operator, please open the line of Mr. Danhof.

Thank you. I'm Justin Danhof of The National Center for Public Policy Research, and I move Item #9, which seeks to increase diversity on the company's Board of Directors. Across America, company after company are adopting Board diversity policies that are based on race and gender. These policies generally have the stated goal of reducing corporate group think and require companies to interview an underrepresented minority and a woman for each open Board spot. This isn't diversity. This is racism and it's sexism. Not all women think alike based on the fact that they are women. Similarly, not all Asian or Latino or Black Americans think the same based on their respective skin colors. Our proposal simply seeks to extend the candidate pool to ensure it represents a diversity of viewpoints. In order to avoid group think, the company should seek people who actually think differently, not just outwardly appear differently. And in today's hyperpartisan climate in which corporations are constantly involved in the political and policy arenas it's all the more important that the company's Board include candidates with divergent ideological perspectives. Diversity isn't what someone looks like. It's a sum of what they think, feel and believe. When the company takes overtly political positions on legal and policy issues, it would be of benefit to have voices from both sides of the aisle in the room. Many corporations that we approached with this proposal engaged with us and made formal changes to their Board nominating and governance procedures. Firms including Walmart, JPMorgan Chase, Walgreens, Prudential, Wells Fargo and others have all added viewpoint diversity into their Board nominating calculus. We are now calling on Eli Lilly to do the same and expand the true diversity of its Board. We believe that Boards that incorporate diverse perspectives can think more critically and oversee corporate managers more effectively. That's a win for investors and a win for true diversity. Please join me in voting yes on Item #9. Thank you for your time.

Thank you, Mr. Danhof. Although the Board does not establish specific diversity goals or have a stand-alone policy, Board diversity is an important consideration in the director selection and nomination process. The Directors and Corporate Governance Committee also periodically assesses the Board's overall composition and skills to ensure that it reflects the viewpoints, diversity and expertise necessary to support our complex and evolving business. The Board does not believe that the addition -- additional disclosure requested by this proposal would be useful in assessing the diversity of backgrounds, experiences and attributes represented on the Board. The Board recommends that shareholders vote against this proposal. The next item of business is a shareholder proposal from the Mercy Investment Services, Inc., to publish a feasibility report on incorporating public concern over drug pricing into senior executive compensation arrangements. Operator, please open the line of Ms. Lydia Kuykendal.

Thank you, and good morning, Mr. Chairman, members of the Board and fellow shareholders. My name is Lydia Kuykendal, and on behalf of Mercy Investment Services and 11 other co-filers, I hereby move Proposal #10, requesting Eli Lilly and Company to report on the feasibility of incorporating public concern over high drug price into the senior executive compensation arrangements. Shareholders are concerned that senior executive incentive compensation arrangements may encourage executives to increase prices in order to drive growth. While this may boost short-term performance, it could come at the expense of long-term value creation for the company, its shareholders and the primary beneficiaries of your products. It has been reported that this year Eli Lilly increased prices over a dozen times, including prices for the top-selling diabetes drug, Trulicity. We are asking for assurances that the company is making every effort to responsibly manage the risks related to the public concern over drug pricing. Eli Lilly's existing disclosures assert that its current compensation arrangements do consider drug pricing risk, but the company does not explain how they do so. Eli Lilly uses revenue and earnings per share as metrics for the annual bonus and earnings per share growth as the metric for performance awards. Income and earnings per share and especially revenue is sensitive to price increases. Thus, we believe it is advisable for Eli Lilly to explore incorporating measures that relate to the financial and strategic risks created by high drug prices into senior executive compensation arrangements. We, therefore, urge shareholders to vote for Item #10. Thank you so much.

Thank you, Ms. Kuykendal. We, too, are concerned about the ability of patients to afford their medicines. And our management and Board regularly review the company's pricing strategy. As a result, we've taken several measures to address pricing concerns, including multiple cost savings options to enhance insulin affordability, for instance. In addition, our compensation program is designed to encourage strategies that create long-term value. The compensation committee composed entirely of independent directors, regularly evaluates our compensation policies and practices, including the likelihood of inappropriate risk taking. In light of strong independent Board oversight and our compensation program design, the feasibility report requested by this proposal is not a productive use of resources nor would it create or increase shareholder value. The Board recommends that shareholders vote against this proposal. Next is a shareholder proposal from The United Auto Workers Retiree Medical Benefits Trust, requesting the implementation of a bonus deferral policy. Dr. Donna Meyer will be presenting this proposal as well. Operator, please open the line of Dr. Meyer.

Hello. Again, my name is Dr. Donna Meyer with Mercy Investment Services. I hereby move proposal Item #11, the shareholder proposal regarding adoption of a bonus deferral policy which was filed by the UAW Retiree Medical Benefits Trust. The proposal asks the Board to adopt a policy that defers a portion of the annual short-term incentive. The resolution provides broad discretion to the Board's compensation committee to determine the length of the deferral period to make any appropriate adjustments in the deferred amount and to avoid violating any existing obligations or planned term. Specifically, proponents call for the adoption of the bonus deferral policy out of concern for the potential legal, reputational and financial risks that the company faces, stemming from legal allegations related to its insulin business. The company is currently facing numerous allegations related to alleged anti-competitive behavior, claims of federal RICO violations and other various state claims. We believe that a bonus deferral policy can help mitigate these risks. For example, a bonus deferral policy would facilitate the use of the company's clawback policy and would allow for flexibility in reducing annual payout. Other pharma companies have adopted bonus deferral policies, companies including Indivior, Novartis and GlaxoSmithKline. We believe a bonus deferral policy is critical to preserve long-term shareholder value and would play an important role in discouraging misconduct. In closing, I encourage the Board to continue speaking with shareholders on this important policy, and I urge investors to vote for proposal Item #11. Thank you.

Thank you, Dr. Meyer. The Board appreciates shareholder and customer concerns regarding drug pricing. That said, deferring annual bonus payments to our executive officers would not materially impact our ability to recoup compensation for clawback purposes. While deferring bonus payments might make it mechanically easier to recoup compensation if it were to become necessary, our existing executive compensation recovery policy already provides an avenue for the company to recoup payments while also maintaining a competitive executive compensation program that enables the company to recruit and retain talent. The Board recommends that shareholders vote against this proposal. The last shareholder proposal is from Trinity Health, requesting that the Board adopt a policy to disclose clawbacks on executive incentive compensation due to misconduct. Dr. Meyer will present. Operator, please open the line of Dr. Meyer.

Good morning. Again, this is Dr. Meyer with Mercy Investment Services. I hereby move proposal Item #12, the shareholder proposal regarding clawback disclosure. The proposal asks the Board to report annually if it used the clawback policy, and if so, to provide the general circumstances associated with the clawback without naming individuals or violating individual's privacy rights. We are aware that Eli Lilly has a compensation clawback policy that applies to equity and cash incentive payments and is triggered by specific types of misconduct. In our view, the effectiveness of this clawback policy is strengthened if shareholders can monitor its implementation. Disclosure not only enhances existing executive pay disclosure but reinforces a culture of accountability, which is critical for companies facing Eli Lilly's challenges. Specifically, proponents call for this clawback disclosure policy out of concern for the potential legal, reputational and financial risks that the company faces stemming from allegations related to the insulin business. We believe a clawback disclosure policy is critical to preserve long-term shareholder value to increase transparency around compliance actions and to discourage misconduct. Many companies have agreed to this policy. They include AbbVie, Allergan, AmerisourceBergen, Assertio, CVS Health, Insys, Pfizer, Teva. In fact, of the companies we have engaged, Eli Lilly is the only company that has not adopted a clawback disclosure policy. Therefore, we encourage the Board to continue speaking with us on this important policy, and we urge investors to vote for proposal Item #12. Thank you.

Thank you, Dr. Meyer. Under our current policies, all executives may be subject to the forfeiture of clawback of cash or equity in the event of misconduct that results in disciplinary action, a material violation of law or company policy or financial restatements. The company already is subject to legal disclosure requirements when compensation has been recouped from the Chief Executive Officer, the Chief Financial Officer and other named Executive Officers who served during the last fiscal year. The Board does not believe that expanding disclosure requirements to include all current and former senior executives is warranted. Further, the proposal -- the proposed disclosure would exclude other available actions such as termination or change in job responsibility, additional training, disciplinary action or material alterations to future compensation. As a result, the Board believes the report contemplated by the proposal is unnecessary and could present an inaccurate picture of how misconduct is addressed by the company. Therefore, the Board recommends that shareholders vote against this proposal. That concludes our formal business, and the polls are now closed. While the Inspector of Elections completes his work, I'll provide a brief overview of our company's performance and outlook. The past several months have been extraordinary times, and they have certainly called for extraordinary contributions from many. So to all of our Lilly employees, our suppliers and our partners, you have our sincere gratitude and admiration. You've shown remarkable strength and ingenuity in rising to the challenge of COVID-19, delivering testing capacity, developing potential therapies, keeping people safe and all while ensuring a continuous supply of medicines to patients around the world. It is both humbling and gratifying to fulfill our company's purpose in the context of these events. And we will continue to bring the full force of our scientific and medical expertise to battle against this global pandemic. Now let's turn to a review of our progress from last year. I'm pleased to report that 2019 was a strong year for Eli Lilly and Company. We delivered solid financial results, made progress on our productivity agenda and developed and launched important new medicines. As you can see on Slide 11, revenue grew 4% to $22.3 billion in 2019, generated by worldwide volume growth of key products. Together, our newer medicines represented 46% of total revenue in 2019, and we expect they'll comprise more than 50% of revenue this year. Volume grew 8% in 2019 while net selling prices in the U.S. and worldwide declined 3%. We improved manufacturing productivity, and we're on track to meet our non-GAAP operating margin goal of 31% by the end of the year, even as we increase investment in research and development. Innovation from both internal and external sources remains central to our growth strategy. Our pipeline continues to be cited as one of the strongest in the industry across each of our therapeutic areas of Diabetes, Oncology, Immunology, Pain and Neurodegeneration. Importantly, we continue our unprecedented pace of launching new medicines in 2019, with details provided on Slide 12. In all, in 2019, Lilly invested more than $13 billion to drive future growth through a combination of business development, capital expenditures and after-tax investment in R&D. We returned approximately $7 billion to shareholders via dividends and share repurchases, and we announced a 15% dividend increase for the second consecutive year. As you can see on Slide 13, over the past 5 years, our annualized total shareholder return has averaged 16.7% compared to 11.7% for the S&P benchmark. Another very meaningful metric for Lilly is the number of people our medicines are helping, which last year totaled more than 40 million. While this figure is remarkable, the ease with which people can access innovative medicines varies widely around the world. In the U.S., broad access to the latest treatments can be constrained by complicated or narrow insurance benefit design that reduce affordability. In other advanced economies, countries sometimes rush on new treatments to fund the obligations of government-run health programs. And in developing countries, nascent health systems struggle to allocate limited resources between care for acute and chronic disease. The issues are complex. We have solved difficult challenges before, and as a company that has been in business for 144 years and currently invest more than $5 billion annually in R&D, we can say we are in this for the long haul. We understand the importance of adapting, evolving and improving while remaining firmly grounded in our core values of integrity, excellence and respect for people. With these standards as our guide, we will continue to find effective ways to partner within and across health systems with the aim of facilitating patient access to the latest treatments, regardless of income or geography. In the U.S., our success in working with payers and government entities to expand access to insulin and other therapies has been tempered by the realization that the widening difference between list and net price, as shown on Slide 14, is not sustainable. Of particular concern are high deductible insurance plans, which can financially burden patients with chronic disease. As we have pursued solutions, such as those introduced to improve insulin affordability listed on Slide 15, it has become clear that system-wide changes are needed to shift costs away from patients. The rebates and discounts we pay to pharmacy benefit managers, insurers and government and other supply chain entities have continued to grow over the years, not just for insulin, but the entire U.S. portfolio. We need to restructure the financial incentives of the entire pharmaceutical supply chain to ensure that patients directly benefit from those rebates and discounts at the pharmacy counter. That said, we'll continue to offer programs that improve affordability until broader solutions can be found. Of course, progress in all areas of our business depend on our people whom we consider our greatest asset. We are committed to engaging and developing a diverse, agile workforce of top talent from around the world. Diversity and inclusion are part, are built into the fabric of how we work because having people with different backgrounds and different voices makes our company stronger. In measuring progress from the end of 2015 to the end of 2019, we've increased the number of women in management globally from 41% to 45%. For racial and ethnic minorities in the U.S., we've increased representation from 18% to 24% of total management. In addition, 6 of the 14 Executive Committee members are women, including 1 woman of color, and our 13 member Board of Directors includes 4 women and 5 members of underrepresented groups. Others are recognizing our work to create a strong and an inclusive culture, with highlights listed on Slide 16. Our inclusive approach extends well beyond the walls of Lilly as we work each day with thousands of partners in health systems all over the world. Our approach to social impact starts with increasing access to our medicines and extends to improving health for people who otherwise might not be reached by our traditional business model. In developing countries, we're actively enhancing existing health systems while supplying our most essential products in ways that ensure affordable access. Beyond the global impact of our medicines, Lilly has a long history of strengthening communities where we live and work. We collaborate with organizations that have a proven track record of social impact, and we create meaningful opportunities for our employees to give and to volunteer. So as our company's vital work continues to advance the health of patients in our core therapeutic areas, 2020 will also be remembered for our efforts to arrest the COVID-19 pandemic. Lilly's purpose to create medicines that make life better for people around the world has never been more important. We're focused on ensuring a reliable supply of medicines, keeping our employees safe and pushing at top speed to stop the virus. We're also committed to supporting our communities and keeping our business moving during these challenging times. As we leverage our scientific and medical expertise to defeat the pandemic, we're confident that our industry and the scientific might that it brings will ultimately rid the world of this disease, and we will continue to do all we can to advance that noble cause. Now we'll move to the Q&A portion of the meeting, which will be moderated by Kevin Hern, our Vice President of Investor Relations.

Thanks, Dave. We'll start with the questions we've received throughout the meeting. You may continue to send your questions through the Ask A Question section on the bottom left of your screen. Okay. We had several questions around the public perception of the pharma industry and what Lilly and the Board of Directors is doing to restore Lilly's public perception related to high list prices and specifically how that might apply to potential affordability of COVID-19 treatments.

Yes. Thank you for that important question. Of course, the Board and all of senior management is deeply concerned and spends a great deal of time thinking about both the perception and the practices of our company and therefore, our industry. In recent years, as I noted in my remarks, we've made significant strides to improving affordability gaps for our medicines, particularly here in the United States. Although that work is not finished, nor is it in many ways permanent because these programs rely on other structures in the health care system to function as normal, we are happy with a lot of that progress. Most recently, I would highlight the $35 per prescription cap we've put on insulin for citizens in the U.S. who rely on commercial insurance or don't have any insurance in response to the COVID-19 pandemic, as just one example. Of course, other actions affect the reputation of the industry, how we comport ourselves in communicating with other stakeholders, how we collaborate across both biopharmaceutical industry, but also with other parts of the health care system matter in forming that impression. And I think we can look to the last 10 weeks of the global pandemic response by our industry and other actors as I think a quite positive example of what our industry is capable of and I would say as well our company is capable of, never we moved with more speed or collaboration to solve what is a clear and pressing need for our technology and our capabilities. In the end, as I mentioned in my remarks, I'm hopeful we'll, as an industry, have a response, whether it be multiple therapeutics that can reduce the mortality and morbidity of COVID-19 or an effective vaccine which could ultimately, for most people, make the presence of the virus irrelevant. Should we be successful with those things, of course, that's a great opportunity to reset the reputation of the industry and our actions associated with COVID-19 response. We have informed, clearly pricing strategies or how we would present these hypothetical new medicines to the market, but we are thinking deeply about both the affordability to the system, but also the reputation of the industry in doing so. And we'll be happy to update shareholders as we continue to make progress with those scientific advancements as it relates to our pricing policies and communication strategies.

Thanks, Dave. Josh, we had several questions around pricing for the rest of the portfolio. Whether or not Lilly will commit to exercise price restraint or not raise prices across our portfolio throughout the duration of the pandemic as well as with the Lilly insulin value program if we'll extend that globally and continue that pricing after the pandemic subsides.

Thanks, Kevin. First, on pricing, I think Dave has outlined well in the prepared remarks and in the last question, our approach to pricing focused on patient affordability, competitive dynamics and the value our products bring to patients. But in the U.S., the net effect of that in 2019 was a decline of – a pricing decline of 3% across our portfolio. In Q1 of 2020 in the U.S., that was a 4% decline. So you can see that our sales are dependent on volume, not price. We do expect to continue that balance. We've indicated that for the remainder of the year we expect to have net price declines in the U.S. and really for the foreseeable future. So our emphasis is on driving patient benefits and patient volumes. As it relates specifically to insulins, again, we've outlined in the talk that the programs that we have in place to ensure that no patients in the U.S. are forced to compromise on their insulin regimen due to out-of-pocket costs. We'll continue to look at those programs and adapt them, as Dave mentioned, to the various structures and dynamics that we see. But we certainly have started, over the course of the last 2 years, to continue to implement programs on insulin affordability, most recently being the $35 copay program, and we'll continue to -- that's not pandemic-specific. We'll continue to look at focusing on ensuring patients in the U.S. have access to insulins at low out-of-pocket cost. Outside the U.S., again, we will work on. Each market outside the U.S. has different dynamics, and we will also look at patient affordability there. But I think the programs that you see in the U.S. that have been publicized don't make sense in many of the markets outside the U.S., just given the structures of the health care systems.

Thanks, Josh. Dan, we had a question about the agreement we announced today with Junshi to develop antibodies against COVID-19. The question was about whether Lilly will have the rights of new products outside of China and if that agreement is structured to protect Lilly's intellectual property.

Yes. Thank you for that question. Of course, we are trying to do everything we can to create effective therapies to fight COVID-19. We think neutralizing antibodies against the virus SARS-CoV-2 are one important potential therapeutic avenue. The collaboration that we announced with Junshi today allows us to develop one of more of the Junshi antibodies outside of China to test it as a potential therapy for COVID-19 or even as a pre exposure prophylaxis for COVID-19. So we're excited about that possibility. We also have a very exciting collaboration with AbCellera to develop antibodies for COVID-19. We think that it's quite likely that multiple approaches could improve the chances of success and even combination of antibodies could be necessary.

Thanks, Dan. Dave, we had a question around the company's response to COVID-19 pandemic in terms of business and supply chain continuity and also employee benefits, protection and safety.

Yes. Thanks for that question. Like all enterprises, we've moved very quickly to ensure business continuity, and that's overseen through the full Board process. We've had multiple interactions with the Board over the past few months related to this. I'm pleased to say our early priorities were protecting our employees' health and well-being and then maintaining supply of medicine so that the health and well-being of the patients who rely on those medicines, mostly for chronic illness, many of which are at higher risk for COVID-19 could be preserved. And on both those priorities, I think we feel good about the progress through this first phase of the pandemic. We have had, of course, some employees infected with the virus. However, to date, that's a low number. And business continuity has been maintained, in some ways, better than we could have hoped in a remote working fashion. First in Asia, then in Europe and now across the U.S., Lilly employees are working almost exclusively from home, except for those that work in our plants, supplying essential medicines for patients. So, so far, so good on that side. As it relates to supply chain, we are working hard to maintain a flow of medicines. We've issued several statements to reassure patients that we have a continuous supply of medicines, including insulin around the world and that, although moving product and sourcing inputs and so forth has been challenging at times, the team has worked well to overcome those challenges, and we continue to feel very good about our forward ability to supply all of our medicines. So, so far, so good. And of course, that's -- those priorities remain amongst our top ones along with assisting our community, which we've done through our local testing efforts, philanthropic efforts and volunteer efforts and, of course, the therapeutic efforts that Dan just described.

Thanks, Dave. Josh, had a question around just the financial implications of the COVID-19 pandemic, Lilly's ability to navigate this with our balance sheet and how we're financially positioned to weather this.

Thanks. First, on balance sheet, we feel good about our liquidity. We closed Q1 with about $4 billion in cash. We've got strong credit ratings from S&P and Moody's. So have good access to capital markets. We actually did $1 billion debt issue about a week ago. So have good access there. So from that standpoint, we feel good about our ability to continue to fund innovation and fund our business priorities. If we look at our financial results for Q1, they were strong. There was some influence of advanced buying related to the COVID-19 pandemic. As we look at how we think that will play out over the remainder of the year, we've looked at a range of scenarios, and even when we look at moderate downsides in terms of how long patients and physicians sort of delay health care procedures and health care visits, we still see good opportunity for the year to generate strong cash flow and good sales, and we reaffirmed our sales guidance that we'd issued prior to the COVID pandemic and maintained our EPS bottom end of our range and increased a little bit just to reflect the strong performance that we saw in Q1. I think as we look farther out beyond 2020, things that will influence our outlook will be mostly related to health care structures and insurance in the U.S. and what impacts unemployment may have on our business. But overall, we're confident in our ability to continue to fund the business during the pandemic and come out of this period strong and continuing to focus on investing in new medications.

Josh, Dave and Dan, thank you for your answers. That concludes the Q&A portion of the meeting. I will now turn the meeting back over to Dave.

Thanks, Kevin. I'd like to share with you the voting results. Each of the 5 Director nominees named in the proxy statement received a majority of the votes cast and has been elected. A majority of the votes cast in favor -- were cast in favor of Say On Pay. A majority of the votes cast were in favor of the ratification of Ernst & Young as our principal independent auditor for 2020. Neither of the management proposals to amend the articles of incorporation to eliminate the classified board structure or the supermajority voting provisions received the required 80% of outstanding shares. So neither proposal has been adopted. And none of the shareholder proposals received a majority of the votes cast, so none will be adopted. In closing, I would like to thank you for joining our annual meeting. Amidst the current global health crisis, our purpose as a company has never been more clear, to create new medicines that heal the sick. Lilly was made for moments like this. Shareholders can be assured we will do everything in our power to aid in the crisis while delivering our medicines to sustain the health of those 40 million patients who rely on us, now more than ever. And even now, as we look further down the road to recovery, we see an exceptional opportunity to create new standards of care and accessibility in some of the world's most serious diseases, to advance the boundaries of possibility in biopharmaceuticals and to deliver extraordinary value to all of our stakeholders. We will continue to do all we can to realize that potential. Again, thank you for attending today's meeting and for your continued support of Eli Lilly and Company. Our meeting is now adjourned, and you may now disconnect.