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

Hello, and welcome to day 2 of the UBS Global Healthcare Conference. My name is Navin Jacob. I'm the senior analyst covering large tech pharmaceuticals and smid-cap biotech. Our next presentation or fireside chat is with Eli Lilly. It's my pleasure to have with us Mike Mason, President of Lilly Diabetes, as well as Mike Czapar from the Investor Relations team. Mike and Mike, thank you so much for joining us today. Hope you're both well.

Thank you. Yes, we're both healthy and safe.

Fantastic. That's great to hear. And so why don't we start at a broad level with a topic that can't be escaped, obviously COVID-19. We'll start with a few of those questions before moving on to fundamentals. Diabetes as a therapeutic area has been relatively, on a relative basis, less impacted from COVID-19. But in the recent weeks, we are seeing some signs of slowdown in TRx and NRx growth, particularly for insulin. Could you give us your latest thoughts post Q1 as you've seen more information come in on how the environment is evolving? We know obviously that some parts of the country are opening back up. Are you seeing stabilization across new therapy starts?

Yes, we are. Good question. And first of all, thanks, everyone, for their interest in Lilly and Lilly Diabetes, appreciate you calling in. And again, I do hope that you are healthy and safe and in a comfortable spot. Wish we were doing this live, but I'm glad for the opportunity to talk to you. Yes, you're right. I think overall the COVID situation has impacted diabetes less, but it has had an impact. If we take a look at the physicians who treat those who live with diabetes, primary care and endocrinology, our data suggests that about 30% of -- they're seeing about 30% less patients than they were prior to COVID. And that's about the impact that we've seen on new-to-brand. I think the best measure to look at is really the new-to-brand prescription trends. And what we've seen is a -- was a very rapid decline early on in COVID that has then kind of bottomed out. And it's a little bit different by treatment class. But in general, it kind of follows that same kind of approach where about 30% less patient visits and about 30% less NBRx. When you take a look at GLP-1s and SGLT2s, they've experienced NBRx of about 30% to 35% less prescriptions than prior to COVID. But then on insulins, probably due to the nature of that, we've only seen a decline of NBRx in the 15% to low 20%. And that's I think because, as they should, insulin patients need to be very thoughtful about taking good care of themselves during COVID-19. Now the good thing is that we saw a rapid decline in the first month, but we saw a flattening. And in this week's data, I was looking last night at it, we are starting to see it tick back up a bit. Probably too early to say that it's starting to recover, but there is some encouraging signs there. And so I don't think it's any more complicated than as the impact on COVID was the fact that people weren't going to the office as much as what they were before. And now as states opened up, you'll start to see more -- higher percentage of people visiting the doctor, either live or through telehealth visits. And that will stimulate the growth once again.

What's been the feedback on remote detailing to PCP and endocrinologists? Has it been that -- have you sensed a different willingness to do that with PCPs relative to endos? And longer-term, is there -- does what you -- the practice that you put in place with regards to remote detailing, does that affect the long-term practice of sales reps and how they interact with physicians?

Yes. No, I think it's a good forcing device. Any time you have something that upsets your kind of daily routine and you have to experience new tools or systems, sometimes you like those tools and adopt them, sometimes you don't. And I think what we'll see is that both at the sales representative level as well as the health care professional level that some will try remote detailing and like it and some will prefer the face-to-face. The data suggests that on par, physicians would prefer a face-to-face visit and believe that's higher quality than a virtual visit. But when you look at the data, the virtual visits aren't that much different than a live visit. So we do think we can get into quality discussions. Now for us at Lilly, up until last week, we weren't promoting our products in our interactions with physicians since COVID-19. We were very much focused on providing them kind of service and support. Obviously, unfortunately, the COVID-19 has really impacted the diabetes community as well as the employed, and we wanted to make sure that people knew that they could -- that we had a supply chain that was built for these times and they could get their medications and that we were increasing our support, our financial support through our Lilly Diabetes Solution Center during that time. And so we were very much focused on that. And during, I think, the first 6 to 8 weeks, physicians weren't really ready to receive kind of product education. We have seen that change. And so last week, we did go back to promoting our products. And what we found was we did have quality interactions through the digital media and that these interactions were lasting 20 to 30 minutes and up to 40 minutes, and we're getting multiple product discussions. So we do think that's an opportunity. I think what time will tell is to say what percent of physicians want to engage in this and how often we can engage in dialogues with them. And only time will tell that. I think we're good-suited to be able to do that. And our reps right now are actively engaged in that.

Moving into the GLP-1 market, the market Rxs are still growing over 30%. Is that a sustainable growth level for the U.S. market over the next 1 to 2 years? And what's driving that growth? Presumably, a lot of it is folks switching over from insulins to GLP-1s. Any color would be very helpful.

Yes. No, we're very excited and very confident in our -- the GLP market growth. And I think new entrants like Rybelsus will only help stimulate growth. And that's what we've seen when Rybelsus came in that the overall GLP class growth has accelerated. When we came into the marketplace with Trulicity back in 2014, the market was growing -- was much smaller and was growing in single digits to low-teens, so like 11%, 12%. And at that time, we -- our marketing approach was to really kind of win in that first injection space. Because what we saw was like 9 out of 10 patients who were starting our injection were starting on a basal insulin versus a GLP-1. This was actually 10 years after GLP-1's class was established by Amylin. And from our projection, we just felt that the GLP class was a better product for a type 2 diabetic and a better product for primary care, easier to use than a basal insulin. And so our focus has been really winning that first injection space, and we've done that. If you look at right now in that first injection space, about 35% of prescriptions are now used by -- are used by GLPs versus basal insulin and about 45% of new prescriptions. So you've seen that progress, but there's ample opportunity for that to grow. And I think as you -- there's ample opportunity to grow even earlier. And I think 2 recent events that will help there is the Rybelsus launch and then the REWIND indication that we started to promote last week, which really shows both secondary and primary prevention. And in our market research, I think that piques physicians' interest to say, should I be using this earlier as people develop CV risk factors. So we're very confident in the growth rates of the GLP class.

The international market seems less penetrated relative to the U.S. So what are some of the factors that can help increase penetration over there? What do you think are some of the barriers that prevent it from penetrating as much as we've seen here in the U.S.?

We've actually seen really good penetration outside the U.S., similar uptake. We've been proud that -- we take great effort to make sure that we have consistent launches across every market. I think that's what helped us grow not only well in the U.S. but globally. And when we take a look at the market share penetration, the market growth of Trulicity, we see very similar results across the globe. We see market shares anywhere from 40% to even 60% in some markets and market growth in the 30% year-on-year growth. And so we do see pretty consistent performance across the board.

Got it. That's very clear. Speaking of international markets, wondering -- we spoke about the U.S. COVID, but wondering about China. Actually it's been a couple of months now since they reopened their -- or rather started allowing movement over there. Wondering if you could provide some clarity as to the level of activity in China now relative to pre COVID.

Yes. So what they saw on the provider side was that it took probably 6 to 8 weeks in order to kind of get some sense of normalcy when reps went back, that it took a while for every office to kind of open back up. On patient starts, I think what they saw was that the impact of COVID was much more dramatic on new-to-brand than what we saw in the U.S. So where we saw a 35% impact, they saw an 80% impact. And after a couple of months back or 6 weeks back, they have -- they're a little bit under the new-to-brand 15%, 20% under where they were pre COVID. And they believe in the next month or 2, they'll get back to kind of pre-COVID levels of new-to-brand growth and growing the market growth. So that's the impact that we've seen.

And can you remind us -- since we're on the topic of China, can you remind us what is the status of Trulicity with regards to the NRDL or NRD listing? And any plans for doing that this year or next year? Any clarity would help.

Yes. I mean, obviously, we don't have absolute clarity on when they're going to make the decisions. We don't have pricing approval or reimbursement approval at this time, and trying to get it as soon as we can, hopefully this year, if not, the year later. We've seen it perform quite well. Go ahead...

Sorry, go ahead.

No, I think we've seen -- we -- you're able to kind of see how products launch before they get pricing reimbursement. And we're pleased with -- although it's muted, it does seem to be performing better than other analogs prior to them getting reimbursement. So we're excited about the opportunity in China but really need pricing reimbursement in order to unlock it.

You mentioned the REWIND study. You also have -- for Trulicity, you also have high-dose data from AWARD-11. Wondering how you're thinking about utilizing those datasets. Do you -- are you using it? Or do you view that dataset as an offensive tool? Or is it more defensive to help maintain share relative to Ozempic and Rybelsus? Wondering if it's a needle-mover for Trulicity commercially. Or is it more as you -- are you thinking of it as just optionality and defensive measure?

Yes. I mean I think there are couple of different ways approaching marketing. One is kind of competitive focus, us versus a competitor product. The other is really kind of focus on a -- very customer and provider-centric. My bent will always be kind of more on the provider and customer-centric. And I think that's why we've gotten really good results for Trulicity in our entire portfolio over the last 7 years. And we'll take that same approach as we look at Trulicity higher doses. You've seen we've submitted the data. We recently announced the results. At 36 weeks, we saw a 1.9% A1c reduction and an over 10-pound weight loss. So we're excited about that. And we think that Trulicity's strength is the fact that people want to stay on Trulicity. And this will give people, who have migrated from 0.75 to 1.5, who need more efficacy, the opportunity to go to 3.0 and a 4.5-milligram dose. So really hopefully it extends. We already have the best adherence compliance of any diabetes drug, whether it be a GLP-1, whether it will be an injectable, whether it will be a branded or generic, whether it will be an oral or injectable. And so we already have that. We think that will just more play to our strengths and help us retain patients for even longer, which will have a share of market benefit. So I think we're excited about the opportunity that both REWIND and the higher dose provides.

Any update on discussions? I know it's challenging to share discussions. But I think most payers provide an update to plans in the September-August time frame. Presumably, you're going through those discussions now. How are you viewing those discussions relative to Rybelsus and Novo, trying to ensure that they have good formulary access there? Do you anticipate any pressure from Novo? Any kind of clarity would be helpful.

Yes. I mean when you look at Trulicity and Ozempic, we both have over 90% access in commercial and Part D. And I expect that to maintain in 2021. I think Rybelsus will continue to grow access to similar levels.

Right. You talked about unemployment being a potential factor to impact the gross-to-net and rebate rates as you may see some switching from commercial over to Medicare Part D and therefore affecting your overall rebate rate because of that mix switch. Are you seeing any of that happening right now? Or is that more just cautionary language of what may be to come over the next 1 to 2 years? Or are you seeing something happening immediately right now?

We don't see anything significant happening at this time. But it all depends on what happens, how long the COVID crisis happens, how -- where employment level gets up to and where it -- and does it maintain at that level or does it quickly [ recede ]. I think the other thing to take a look at is what the government does from a stimulus perspective. You've seen the House last week come forward with a proposal that would provide COBRA premium support for those that lost their job for up to 9 months. So that would obviously have an impact. So it's something obviously we're taking a look at. But it's not something that we're significantly concerned about.

Great. That's helpful. And maybe switching over to tirzepatide. You have some very important Phase III studies that are reading out later this year. How are you feeling about the ability to replicate efficacy seen in Phase II given that you've moved over to a different dosing titration schedule from what was used in Phase II? What's your level of confidence of replicating the efficacy that you've seen?

We're very confident. We know quite a bit about and are able to model the titration schemes. That's why you do a Phase II trial is to learn about dosing and get your dosing optimized for the Phase III clinical studies, which we've done. So the goal behind our titration approach for Phase III is just to minimize tolerability while producing good efficacy results. And we're confident we'll be able to do that.

One of the questions we often get from investors is how do you think through the dosing titration schedule? It takes up to -- it takes numerous weeks for you to get up to the peak dose that's required on the maintenance phase. Is that viable in a real-world setting? What does your market research suggests with regards to patient convenience and/or physician acceptance of such a prolonged dose titration schedule?

Yes. I think the key there is what do you see in those initial doses. So first of all, when you take a look at the titration schedule in a clinical setting, your focus is, okay, I've got a test, 5 milligrams versus 10 milligrams versus 15 milligrams. And so I want the trial to be as short as possible, so I'm going to try to -- I need to rapidly go up to 15 milligrams as much as possible in order to make -- shorten my timeline and the cost of my Phase III clinical trials. And so kind of speed of titration is very important as you get into a Phase III clinical trial design. Now in the real world, it all depends upon the efficacy of your starting dose. Some people's starting dose, like Ozempic, isn't an efficacious dose. And so you may not begin to see efficacy in the first month with the product. And so if you have to titrate up for 30, 60, 90 days before you start seeing an impact of a treatment, then that titration schedule is of real concern because people want fast relief, fast results. We're all impatient. And if you're going to take the time to spend your money on a treatment and go to the pharmacy and pick it up and remember to take it every week, you're going to want to see quick results. And if you don't see quick results, then you're going to have concerns. Now with tirzepatide, our starting dose is very efficacious. And so what we expect to see in the clinical trials or in the real world is similar to what we see with Trulicity. Trulicity is just a phenomenal product in the real world and has the best adherence and compliance because it's easy to use, because it's weekly, because it's in a great device. And tirzepatide will be weekly in that same device as Trulicity and will have efficacy in that -- with the first dose. And so what we see and what our market research would suggest is that the higher doses of tirzepatide just provides people with added results who need that. And so we don't think the focus in the real world is going to be how quickly do I get to 15, but let's start on 5-milligram. We suspect that some people will do well there and will stay there for a long time. Others will need more and then they'll titrate up to 10. They'll stay at 10 for a while. And then if they need more, they have the opportunity to go to 15. I think that's how it's going to be used in the real world. But the most important thing is, is that first dose an efficacious dose? Because when you do have to take a long time to try to titrate up to an efficacious dose, people just aren't patient enough to do that. It's not something I'm concerned about with tirzepatide.

Fair enough. Tirzepatide is also being studied in other indications besides diabetes. NASH is a very large market in our eyes. But there's actually a fair amount of skepticism on Wall Street as to whether NASH is a "real market." Besides the fundamental work that we've done to suggest that it is, I'm curious from your perspective, when I see large companies such as Eli Lilly, Novo, Pfizer, Novartis developing drugs for NASH, I know that you're doing so after doing your homework. What's the market research work that you've done to suggest that this is a truly large addressable market?

Yes. I mean what we've seen is payers are interested in it and will provide accesses, and providers are interested in writing it. And I think we see probably the same as what every other company does. It is incredible when you see the level of investment in pharma in the NASH space and so many different mechanisms. So we are excited about the opportunity. Unfortunately, 6.5 -- 16.5 million people in the U.S. alone live with NASH. And so I think we have the opportunity to treat a large segment of the population. And we have been betting -- there's a lot of different indications for NASH -- or approaches, potential mechanisms. And unfortunately, many of those haven't been successful. We've been kind of betting on this metabolic approach, where if you can produce weight loss, so that should impact the NASH progression. And you saw that with Novo's semaglutide results. They produced good resolution of NASH with their high-dose semaglutide. And with tirzepatide, we believe that we should have even greater impact on weight and should have the -- the GIP component will provide additional relief of insulin sensitivity and some additional benefits that will help deliver health. And so we -- I think we're quite confident that the market will be there and we've got a good approach.

And while semaglutide did show a resolution -- a NASH resolution of -- in over 40% of patients, they didn't show -- or they showed a small improvement in fibrosis relative to placebo. What are your thoughts on fibrosis improvement relative to NASH resolution? Do you anticipate tirzepatide to show fibrosis improvement?

Yes. I think you'll see -- fibrosis is the last outcome in the cascade. And I think just with more time and a longer trial, you'll see it.

And is GLP-1 suited -- is a suited mechanism to address fibrosis? Or do you think that it's better suited via a different mechanism?

I think the semaglutide results show that kind of the metabolic weight loss approach is well suited for NASH. And we believe that not just a GLP but the tirzepatide, which is a dual agonist around GLP-1 and GIP, will provide even better benefit than GLP alone.

We talked about efficacy with the dose titration schedule -- the new titration schedule that you're going to be producing and releasing results on at the end of the year for Phase III in diabetes. We didn't actually talk about the GI rates and the tolerability. When the Phase III results read out, do you -- what does your modeling suggest that the new schedule will show in terms of GI rates? Do you anticipate that you could lower the GI and AE rates down to closer to what's seen with Trulicity? Is that achievable?

Yes. I mean that's our goal in designing it. We definitely think they'll be better in our Phase IIIs than what you saw with our early Phase II trial. So what's nice about this is these are things that you can model well. And we were able to kind of model both efficacy and the GI side effects and get to a titration schedule that we think will provide better tolerability than what we saw with our initial Phase II, which is -- that's why you do Phase II dosing studies is to really nail down your doses and your titration.

You're also pursuing obesity as an indication for tirzepatide. That market has been pursued for over a decade now. Novo has made Saxenda into an over $1 billion drug. But relative to expectations for that market to be a multibillion-dollar drug market, it hasn't quite gotten there. Is Ozempic and is tirzepatide what's going to sort of hit that threshold of making this into a multibillion-dollar market? And what does your survey work, market research suggests for what physicians are looking for in terms of weight loss in order to start prescribing this in a high-volume manner?

Yes. And it's a good question. And it's -- these are some of the more difficult things to research with payers and health care professionals because they have -- like you're saying they haven't been prescribing or providing access, or not providing access, to obesity agents for the last decade. And it's hard in a market research setting to put a new profile and have them really get out of that mindset that they've lived in every day for 10 years. So I would say one of the hardest things to do is really to forecast how behaviors will change with treatments that are just dramatically different, which could unlock access. And I think when access unlocks, then willingness to write will increase. And those two go hand-in-hand. So I think what we've seen at times, there's kind of a mental block with physician, say, you put in a new obesity agent, they're putting -- their answers are through the lens of, well, if I don't get access, it doesn't matter how good the agent is. And so I think real life will really determine kind of what the impact will be. I think when we start talking to payers, especially those that are more advanced, who are putting their prescription as well as their medical data into the same data lake and are doing analysis, they're more open-minded to obesity agents that have higher weight loss. And so as you start getting into the 15%-plus weight loss, the hope is and the expectation is that those would have greater medical outcomes than an obesity agent that's in the 5% to 7% weight loss. So it's hard to look backwards at obesity and look forwards. But I think we're confident that access and prescription writing will be at a higher level with an agent that is at 15% or greater weight loss than it will be with today's agents.

That's clear. So perhaps with -- moving into Jardiance, SGLT2 market has seen strong growth at over 20% pre COVID. How sustainable is that trajectory for you, knowing well that you have some opportunities for indication expansion coming down the road? Just any kind of color about the overall market growth for SGLT2s would be helpful.

Yes. No, I think SGLT2s have, I think, really good opportunity for growth. They were growing, but they were growing much slower than what we thought they should. So for years they were in this kind of 9% to 11%, 12% annual growth rates. And we always expected them to accelerate. We just started to see that in the back half of last year and really saw the growth in the first quarter, prior to the COVID impact. We actually saw it -- the 4-week moving annual growth rate go up as high as 32%. And so I think that's really encouraging for the class. We saw TRx 52-week go up as high as 19%. So we're pretty bullish on the growth in the class just within the type 2 market. And then as you start adding in potentially heart failure or chronic kidney disease, those are just greater opportunities to grow. We'll have our HFrEF study results in the second half of this year. And then first half of next year, we'll have HFpEF and then chronic kidney in 2022. So the results of those clinical trials will really talk about future growth potential. But I think even within the type 2 market, you'll have opportunity to grow. We haven't seen -- I mean you look at that growth rate that I just talked about, that was in the face of an oral Rybelsus launch, which many people thought would impact the SGLT2 market. And for that to actually accelerate in the face of Rybelsus' launch, I think, bodes very well for Jardiance class. The nice thing about Jardiance is that because it has that 38% [ lower ] CV death, some products are very much -- I'm going to -- I've got this type 2 progression and each product kind of has their short window of life within this diabetes continuum of care. And SGLT2 is just a really good add-on agent to be used in combination with most products because it does provide that -- it provides a different mechanism than beta cell and insulin secretion. It's a unique mechanism and that mechanism has other benefits, including 38% lower risk of cardiovascular death. And so I think a product like that has ample room to grow into future.

On some of the pipeline assets that you're working on for diabetes, can you remind us where you are with your development of an oral GLP-1? When can we expect data from this asset? And what are you looking to achieve in terms of differentiation versus Rybelsus?

Yes. So we have a number of activities into kind of incretins -- oral incretins. The one that's furthest along, which is in Phase I, is -- comes from an agreement with Chugai, which is a small molecule approach that we expect to have better bioavailability. And what's really important is we want to have an administration that's better than Rybelsus. When you look at Rybelsus' administration, someone has to fast overnight, they then have to wake up, take the Rybelsus with 4 ounces of water, wait 30 minutes before they brush their teeth or drink or eat anything, and then go on to live their day. We know from market research that, that is somewhat limiting of a profile. And we think that our -- as you take a look at second-generation oral, they need to have a more flexible dosing administration.

And the -- you also have a weekly insulin, I believe, in development. That market is relatively -- it is very competitive, particularly as you've been switching folks over into weekly GLP-1s. What's the goal with something like a weekly insulin? What's the bar for moving that product over into Phase III?

Well, we're excited about it. It's in Phase II. You'll see some Phase I data at the ADA this year. I think it has the opportunity to make insulin treatment easier, much like Trulicity did within the GLP market. So we really think for someone who lives with type 2 diabetes, who needs to augment, whose beta cell health has progressed to a point where they need insulin, this could be a very good option for them to use in combination with the GLP-1. And you'll see about 45% of, like, Trulicity's use is in combination with the basal insulin.

Speaking of ADA, that's coming up as well in June. So you mentioned the Phase I will be there. Any other datasets we should be focused on at ADA?

We don't have any huge -- we'll produce, I think, the 52-week data for high doses for Trulicity, but it's more of a safety analysis. So nothing massive from us.

And maybe with the last minute here, so we've spoken about oral GLP-1. We've spoken about the weekly insulin. Anything else early-stage that we should be aware of in the pipeline, or mid-stage that you're most excited about that we haven't touched upon?

Yes. The one that we're really excited about is the tri-agonist, the -- we call GGG, which means it has a GLP, a GIP and glucagon. And we think that could have even more weight loss than tirzepatide, which would make it a great option for obesity and NASH. And so we're excited about that product. That's the one that -- of the ones that I haven't mentioned, the one that I think is one that is quite exciting.

And what's the timing on that, Mike? When could we hear an update on that?

We're in Phase I right now. So we'll get those results. And then based on those, start hopefully a Phase II study next year. So you'll see progression into Phase II next year if Phase I results are as good as what we expect.

Well, with that, I think we're coming right up against our time. I want to thank sincerely Mike Mason, President of Lilly Diabetes, and Mike Czapar from Investor Relations. Thank you both for joining us today, and we look forward to catching up soon.

Thanks. Have a good rest of the day.

Take care, everyone. Bye-bye.