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

Okay, good morning. Welcome to the first day of the BofA Virtual Vegas Healthcare Conference. My name is Geoff Meacham. I'm the senior biopharma analyst here. And I have Alec from my team with me on video as well. we're thrilled to have with us Lilly. And speaking on behalf of Lilly, we have Mike Mason, Senior Vice President, Lilly Diabetes. Mike, thanks for coming.

Thanks. It's great to be here. I appreciate everyone's interest in Lilly Diabetes.

Right. So we're going to do some questions here between Alec and I, and let's get right into it. So Mike, when you think about what happened last year with COVID and you guys had a really good first quarter, just help walk us through kind of the first quarter of 2021. Coming out of that, how do you think Diabetes is positioned? You've obviously had some good trends with demand trends with respect to Trulicity, Jardiance and across the portfolio.

Yes. We feel pretty good. I think the Q1 was really an evolution for us. We started out the quarter mainly in virtual engagements. Our reps weren't in the field much in January. And we've been pretty happy with our ability to reach customers virtually and digitally during the pandemic. I think it actually helped us to really grow a skill set that we didn't have before COVID. And now I think we're very competitive, leading U.S. diabetes market in that capacity. I think that's going to help us quite a bit as we get out of COVID and be able to see customers more. As we went to the February, March time frame, we were able to get more than 75% of our reps in the field and live engagements. And we started to see more [Audio Gap] if I look at it right now, you take a look at the growth trends in the markets, we're pretty pleased with the GLP and the SGLT2 market growth rates that are so critical. You're starting to see that 4-week and the 13-week moving averages, growth rates begin to accelerate faster than what we see with 52 week, which is always a good sign that we're starting to see the growth. So we're pretty happy with the market. We had no concerns on the share of market, both for Trulicity and Jardiance. Our share of markets are very strong and growing. So we're really looking at the market growth numbers and making sure that we begin to see those accelerate, and we're seeing that right now. So we feel pretty confident where we're at. We think we've got the leading products in the 2 faster-growing segments in the marketplace, and that [ will seem ] that we have just very strong positions in the marketplace.

Yes. Let's look just for a second on Trulicity. I think if you look back to the past couple [Audio Gap] Rybelsus and the ability to take share. It didn't look like that was ultimately a headwind for you guys at all, in fact, if anything, it may help -- have grown the GLP-1 class. Talk about that and then in the context of how the high-dose Trulicity is performing as well.

Yes. We're pretty happy with Trulicity right now. I mean I've been in the U.S. market driving brands for nearly the last 20 years. And what you see is rare, but when you're able to have a product that produces very good patient experiences, have been reinforced physicians' brand equity, they solidify a very solid place in the marketplace. And it's really hard to challenge that position. And that's what we've seen with Trulicity. It works. People like being on it, people stay on it, and that reinforces the strength of that back to physicians. And so we felt that when Rybelsus came out and which brought on probably earlier use of GLPs, but it wouldn't necessarily impact Trulicity's momentum. And that's exactly what we've seen. And we've seen that high-dose Trulicity has helped. It has helped the efficacy perceptions and helped the people who want to stay on Trulicity longer but need more efficacy, allows them to titrate up the dose. We're pretty proud of that launch. That's a launch that is actually a virtual sales force launch. We didn't get our teams together because it was during COVID. We launched last -- end of last September. And literally, for the first 4, 5 months, the vast majority of our promotion was during -- like we're doing right now on video calls, are through digital marketing. And if you look at our uptake now and compare that to Rybelsus, Rybelsus launched a year before the Trulicity high dose. But this week, Trulicity's high dose TRx is [Audio Gap] the rate of Rybelsus on TRxs. So we feel really good where we're at with Trulicity as a whole as well as the high dose. We think the high dose has helped quite a bit. And so we're growing. We're again [indiscernible] and how does TRx, how does new brand volume, how does new treatment start volume growing in like the 13 and 14 weeks. I think those are good leading indicators. And Trulicity is beating the market in all those indicators right now. So we feel pretty good about not only the increased growth of the GLP market but Trulicity's ability to perform well on a shared market.

That sounds good, yes. The other segment or the other product that people focused on the higher growth side is Jardiance. And so walk us through kind of the -- you had a little bit of a pull-through 1Q last year. And do you see normalization of the market for Jardiance [Audio Gap] Just help us with kind of the expectation for the next impact from the next event with respect to data in heart failure.

Yes, we feel really good about where we're at with Jardiance right now. Like Trulicity, it's really solidified a really strong CV profile. I mean, obviously, the majority of people who have type 2 diabetes dies of CV events. And Trulicity has the really strong perception, around a 38% reduction, in CV death. And so that perception has -- we established it quite a bit a few years ago. And it's still very strong, which explains the very solid 60% share of market and growing in the type 2 diabetes market. The type 2 diabetes market, the thing that we've been looking at over the last probably 4 years is when is the market going to accelerate like the solid GLP market? It was growing, but it was only growing high single digits, low teens or number of [Audio Gap] 15 months ago, we started to see the acceleration right before COVID. It had actually held up pretty well during COVID, and we're starting to see that class begin to accelerate again. So you're starting to see the 13-week and the 4-week growth rates begin to outpace the 52 weeks. So we feel pretty good about where that market is going right now. Largely for us, it's a primary care endocrinologist market with about 95% of prescriptions written by those and about -- only about 5% by cardiologists. We think we have a good chance of growing our business in cardiologists with the launch of our HFrEF indication in the second half of this year. Heart failure is just a horrific disease that really challenges the day-to-day function of someone who lives with heart failure. It's the largest cause of hospitalization in the U.S., about 3 million people [Audio Gap] basis. And so we think it's a good opportunity to -- we already are strong in the CV space, continue to grow that interest by cardiologists, which are the primary writers for HFrEF. And so we think there's an opportunity really in particular to grow in that cardiology space.

Great. And then maybe switching focus over to insulins. Obviously, you guys are a leader here, and you've been taking some proactive steps in terms of access and affordability. But I guess looking at the pricing aspect and some of the discussions going on in Washington, do you expect further significant changes to this business moving forward in terms of price? Or do you feel pretty comfortable where you're at currently?

Yes, if you focus purely on kind of patients out of pocket, we have taken a lot of efforts in order to really make sure that any additional [Audio Gap] directly to patients versus additional ones to payers. And that's where our focus is right now. Right now, we're very, very proud to say that anyone can get a Lilly insulin just for no more than $35 a month. Whether you're uninsured, whether you're commercial or through the senior savings model, these Part D demo products that we work with CMS on anyone, no matter where you're at, you can get $35 per month insulin. Majority of people actually pay less than that. The average out-of-pocket cost for someone that pays [indiscernible] around $25 a month. And for Humalog, it's $28 a month. So right now despite what you make here on the news, the actual out-of-pocket cost for people on insulin is rather low. That said, I think all of -- there's a lot of discussions in Washington around drug spending and potential programs. Some of those are -- if you go to indexed pricing versus other [Audio Gap] product negotiation on Part D., some of those could have an impact, not just on insulin, but broader across the industry. We think with the balance in Washington right now, it's going to be hard for any of those really disruptive potential changes to happen. Now the area that we're concerned about is anything that can lower patient out-of-pocket, we're all for. Those things that are kind of pharma pay-fors that go to infrastructure or other reasons that are not health care, we think really aren't going to improve the health of Americans. We have a complex system in health care. We do need to have reform to make sure that people do have affordable out-of-pocket, especially for products that treat chronic disease. People who have chronic disease need medications that prevent the bad impacts. And right now, for chronic diseases, the cost of pharmaceuticals is about 10% or 15% of the total cost. So we now really need to focus on writing good out-of-pocket [Audio Gap] medications so you can reduce the 90% of health care costs and have people live healthier lives. So that's where our focus on. We know there needs to be a change. But hopefully, there will be change that will actually focus on improving the health of Americans.

Right. Right. That makes sense, and obviously very important in terms of just optics for the sector as well. And I guess just a follow-up on that, how much of the maybe pricing concessions is just driven by increasing competition? And I guess along those lines, how are you thinking about biosimilars in the insulin market and your efforts in connected care and incorporating more technology sort of in the patient experience? How do you see that forming sort of a moat around your business there?

Okay. Good question. I appreciate the interest on connected care. There's a huge unmet need in the marketplace right now. Only about half of the people live with type 2 diabetes around insulin are in good control. Surprisingly, only one in [Audio Gap] Use insulin are in good control. And it's not necessarily that people don't respond to insulin. It's the fact that it's really hard to be adherent to that and to take the right dose every time when you're taking a product 1 to 4 times a day. And so because of that complexity, that's where it's just a perfect use case for digital health solutions like a connected insulin pen with a connected glucose monitor or continuous glucose monitor so we can get those readings together and be able to provide both consumers, physicians and health systems or payers the ability to kind of achieve better outcomes with less effort. And so we're excited about our connected care offerings. We're coming out with both real-time and basal solutions. We look to submit those next -- this year and get on the market next year with those and then next year with our Ypsomed partnership [Audio Gap] bringing out to the U.S. and submit those -- submit that next year. So we think at the end of the day, there's value in the insulin market. Wherever there's unmet needs, there's value. And when you look at the opportunity of biosimilars versus connected care, we don't really see biosimilars in particular really creating a lot of additional value. When you take a look at the out-of-pocket cost that went over -- previously where people were paying between $25 to $28 on average per month, there's not a lot of the masses, 85%, 90%, 95% of people, have affordable insulin. And so they're not necessarily a great deal of value that biosimilars will offer. We do think there's a great deal of value of improving outcomes, and that's where our focus is with our connected care efforts [indiscernible].

Mike, just to tie it all together, when you look at the growth here, assets in the market like Trulicity or Jardiance and then looking forward with tirzepatide, are you [Audio Gap] standpoint in the marketplace? Obviously, you guys have talked previously about making some price concession and having the insulin market -- the insulin end of the market be more of a formulary kind of conversation. But do you think that going forward, you'll continue to get good pricing power for some of the earlier patent cycle product?

Yes. I mean we don't -- outside of any like step changes due to like drug reform, we don't see anything in the diabetes market that's going to provide like a step change in pricing dynamics. I think you'll see -- we've experienced single-digits decline, and I think that's what we'll see, save for anything big that happens in Washington that changes that. Again, we don't see anything that's catastrophic that's going to pass in Washington due to the balance in Congress [ or anything ].

Okay. That makes sense. Well, just speaking of innovation, let's talk a little on tirzepatide. So this is -- you guys have had fantastic data with 4 readouts. You guys have talked a little bit about the SURPASS 4 being kind of the gating study for the BLA. Maybe just give us at a high level kind of your overall kind of impressions of the totality of tirzepatide thus far. And what type of updates could we get at ADA? Maybe longer follow-up or more patients or deeper detail in the secondary, things of that nature.

Yes. No, good question. I think if you look holistically at tirzepatide's data, we've tested it early, mid and late against insulins, with insulins, after metformin, versus semaglutide and we tested 3 doses. And what we were trying to see is how [Audio Gap] people living with type 2 diabetes. These -- we do these trials because this is the questions that our physicians ask us and payers ask us, where best to use this and where can we get value. And what's been amazing is it's just performed well no matter if early, mid or late, the impact of not only the GLP but the GIP component. We had a hypothesis that as we went into this [indiscernible] kind of approach that the GIP mechanism would actually decrease food intake, increase energy expenditure while helping insulin sensitivity and beta cell function. And that's really what we've seen. I think that's what's led to the profound impact on A1C, bringing people back to normal A1C, as well as the dramatic weight loss that people see across the board. And so we're very proud and excited to see the SURPASS 4 data. As you said, that's going to give us the most MACE events for our CV meta-analysis. So we're excited to see that meta-analysis. Also in particular, I'm excited to see -- we're going to have some patients out 104 weeks of therapy. Up to now, the longest we've seen is 52 weeks. And what we saw at 52 weeks was the weight profile was continuing to trend down. So potentially, in a subset of patients who continue to 104 weeks, it's going to be interesting to see how they perform on efficacy measures. The other thing that we wanted to see is how was the tolerability profile. And we think with our titration scheme that we came up with on Phase III, that we were very happy that this performed in line with what you see with other GLPs in their Phase III trials. The other thing that I was particularly impressed with was the 5-milligram dose. What we see with Trulicity is early efficacy is really important. People don't like [Audio Gap] results. They like to have kind of immediate gratification. And so that early efficacy is really important. If someone would have had to wait 26 weeks to see the 15 milligram kick in, that could hurt commercially. We didn't see that. We saw that 5 milligram, even the 2.5, in the first 4 weeks that people are starting to see benefit on efficacy and weight. And so we'd be happy with where we're at right now on tirzepatide. Excited to see the SURPASS-4 data. As you can -- the SURPASS programs have some great primary, but it has a lot of secondary end points. A lot of that secondary is looking at, okay, you see the weight loss, but what does that weight loss really give you in a number of secondary? And I think that's the data that you'll see coming up at the ADA, where we have a 90-minute symposium where we'll go through the SURPASS program. So we're excited to show that data. And I think it will highlight for us where tirzepatide can truly change the course of type 2 diabetes and really improve that. We're excited about it.

Yes. It's a ton of data that you guys have released so far. And you have, as you said, different populations. You have different doses. From a commercial perspective, there's a ton to work with. At this point, I know you'll have to see as the data evolve. But how do you see tirzepatide commercially kind of playing out? Is it a switch from Trulicity? Obviously, you'll go after new-to-brand patients. Or is it -- what's the kind of the lowest-hanging fruit? Is it patients that are not well maintained on A1C and then still have a weight problem? There's a lot of different angles that you could sort of target this from a commercial perspective.

Yes. We have great -- I think magic happens when you see an unmet need in the marketplace and the -- and you're disciplined to stay focused on that unmet need. For us, when we launched Trulicity, we saw an unmet need where people were transitioning from orals to basal insulin. But once they got on basal insulin, they really weren't titrating up. We got a lot of people who are on basal insulin, seeing they were experiencing weight gain, but they really weren't experiencing the efficacy because people were afraid to titrate up. So we saw a huge need that a product like Trulicity could really meet that need and you have better first injectable experience and outcomes. And we were very disciplined just to kind of focus on that patient, that target patient and really grew the market and really resonated not only with the technologists but with primary care. And we'll take that same focus for tirzepatide. And if you look at the unmet need, 90% of people who live with type 2 diabetes are obese or overweight. And it's the long-term effects of [Audio Gap] overweight that causes a lot of the impact that people with type 2 diabetes see, whether it's CV disease, liver failure, chronic kidney disease. And so when you really look at the sweet spot there, we believe that using tirzepatide early in the course of treatment to really disrupt type 2 diabetes, where you get potentially people back to their normal A1C while helping them experience double-digit weight gain and really profoundly impact the course of the disease. And so that's where we're looking at. It's kind of the core way for unmet need that we can meet with tirzepatide, which is different than what we could be with Trulicity. And so we're looking at it more of a maximization of the entire portfolio versus just a direct switch and say we're better than Trulicity, which is in the first injectable space. We think we have a -- we can think bigger than that. We will see some [Audio Gap] Trulicity in the past that would go on Trulicity or tirzepatide [indiscernible] Trulicity who will -- who need more efficacy, that are more weight loss and they'll move to tirzepatide. But I think our focus is really going to be providing better outcomes, and we can provide better outcomes by really encouraging people to intervene earlier with a product that's going to have double-digit weight loss.

Great. Makes sense. Obviously, diabetes is the immediate focus, but there's the potential to expand it to obesity and NASH as well. And we've seen Novo trying to push Ozempic into obesity registration there, and you guys have obviously added a few clinical studies recently as well. So we'd be interested to hear sort of your plans to expand and sort of your competitive positioning there?

No, I think it's exciting. I mean it's a huge untapped marketplace. 110 (sic) [ 110 million ] Americans live with obesity [Audio Gap] pharmacological intervention. And so I think there's a huge opportunity to help out. The current treatments only provide 5% to 8% weight loss, and you're going to see double, triple that with tirzepatide. So we're confident in our ability to provide efficacy in that space. I think it's good to have 2 companies like Novo and Lilly beginning to really establish that marketplace because it's a huge unmet need in the U.S. It -- obesity really lends itself to people becoming diabetic, CV disease, NASH, chronic kidney disease. And we think by earlier intervention on weight that you can really prevent some horrific outcomes and really improve -- healthier. So we're proud of that now. We're going to open up the market to all 110 million Americans on day 1. Well, that's not going to be the case. But we think we're going to have the data to be able to identify [Audio Gap] patients that are starting to see metabolic dysfunction that could benefit from tirzepatide. And so we -- as -- in our discussions with payers, I think they're seeing the value. They just haven't had a product before that they felt could really produce those medical outcomes. And so our focus is going to be providing the data on those subpopulations within obesity that we think can really unlock this untapped marketplace at this time. We're very excited about obesity. And I think the same thing with NASH. NASH is heavily comorbid illness with obesity and people being overweight. And we think the GLP and particularly GIP component really helped with removing liver fat through its mechanism. And we think it can resolve a disorder right now that's a huge unmet need with no product syndicated for NASH at this point. So we both are [Audio Gap] and health overall, health outcomes as well as medical cost.

Mike, I want to go back to -- you talked about on the dose. It's been the topic of a bit of investor anxiety. I mean when you look at other large market drugs, some -- FDA usually will go after the least effective or the most effective dose at the least effective level. Is it important for you guys to have multiple doses approved? I know you have a titration scheme obviously, so that helps out in the tolerability. But is there any concern or any sort of uncertainty on the highest dose and what that could present from a regulatory perspective?

No, I don't have any concerns. I mean you want to continue to see improved A1C in late [indiscernible] and that's what we've seen. We've seen increased A1C. We've seen increased weight loss. In particular, low weight loss is significantly greater in the higher doses. I think there's also a precedent when you just look at the higher doses of Trulicity as well as semaglutide 2.0. There's precedent there to approve higher doses. And when you take a look at the -- I think the impact of higher doses on tirzepatide, you're seeing that as more profound than what we even saw in Trulicity's higher dose. So I think we have a strong argument of why not only the 5 but the 10 and 15 milligram should be approved and would be really good [indiscernible] to have in the market for those patients who need it.

And data depending, I guess, that may steadily vary between obesity or cardio indications or NASH even, right?

Yes. It's too early to speculate what that could be. I think we're confident going in those trials [Audio Gap] trials and look at the data and make those good decisions.

Fantastic. All right, Michael, with that, we're out of time. So really appreciate the dialogue today. Thanks a lot for participating.

Appreciate the interest. Have a good day.

All right. Take care. Yes.

Thank you.