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

Great. Well, good afternoon, everybody, and thanks for joining us for the next session. I'm Matthew Harrison, one of the biopharma analysts here at Morgan Stanley. Very pleased to have Eli Lilly with us for the next session. Before we get started, I need to read a disclosure statement. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures, appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures. So pleased to have Mike Mason with us from Lilly, who runs Diabetes. And we've got a wide range of topics to talk about. So looking forward to it.

Mike, I thought we could start with tirzepatide. Obviously, people are focused on the filing there and sort of next steps. So maybe you could just remind us where you are in terms of the filing and how that's progressing?

Well, thanks. First of all, Matthew, thanks for hosting us. I appreciate everyone's interest in Lilly Diabetes. Yes, our team is working not too far from here feverishly on our submission. We've got all the data on SURPASS Phase III clinical trial program, and 5 core trials have been completed, all wrapped up, and now we're working on the submission. And so we look to submit that by the end of the year and are very excited to get approval hopefully next year and help a lot of patients living with diabetes.

Okay. Great. Good. And I guess the second sort of key question that we get a lot there is, obviously, competitive profiles. You obviously have Trulicity. Then you've also got then in the market, right, there's Ozempic and Rybelsus. So just talk to us how you think about positioning what the key differentiating factors are that you're focused on from a clinical profile.

Okay. I think that's a great question. I won't go too much into positioning because for competitive reasons, obviously. But I think we can talk about the profile. And the profile, if you kind of compare what tirzepatide's profile versus semaglutide and dulaglutide, it will be pretty obvious where the differentiators are. I think first, as you see robust and leading A1C control from tirzepatide, even at 5 milligrams, you saw significantly better A1C control than what you saw with Ozempic or semaglutide 1.0. So you see really good A1C control. I think the thing that really stands out to us is this is really the first study that we started to -- our first product that we did clinical trials in with one of the measurements was are you getting people to normal A1C at 5.7? Really can't do that with insulin because if you do that, you run the risk of hypoglycemia. And no other non-insulin, you could really have hope of bringing someone in the 8s down to below 5.7. But with tirzepatide, we were able to get between 50% and 60% of patients in the SURPASS program at the highest dose down to normal A1C, which is just a terrific milestone. And so I think that's one differentiator. It's just the level of control that you could get. Second one is, obviously, this isn't just a GLP. This is GLP and GIP, and we think the GIP component provides good additional -- it's 1 of the 2 main incretin products, and we think it can provide additional value and benefit for patients. And I think you saw that in kind of the third differentiator, which is the weight profile. You saw the weight profile. And in the head-to-head versus semaglutide 1.0 at the highest dose, had more than double on the weight loss. We saw weight loss up to 14% at the highest dose in our clinical studies. And so I think the way it is, is just a really important differentiator. Within type 2 diabetes, I think it's clear that the importance of the role that losing weight has on diabetes health and in A1C control is demonstrated and really important, and it's important from the start. So I think the good A1C control and the weight loss go hand in hand, and both are important in diabetes. And then obviously, the weight loss and the magnitude of the weight loss really begins to open up the opportunity outside of diabetes as we go into obesity and other obesity-related disorders, which I assume you may have a question or 2 coming up on.

Yes.

But yes, that's kind of where we are and how we're kind of thinking about within diabetes as a differentiator versus the current products in the market.

Okay. Perfect. No. Good. I guess 2 questions. On weight loss, do you get interest both from patients and physicians driving -- I guess what I'm asking is, do you think patients themselves might drive switches just because they see the weight loss profile as well with the agent as opposed to just physicians seeing obviously the clear clinical benefit there?

You'll probably get both. I mean, obviously, within type 2 diabetes, they're together, and we'll promote them together, weight loss as a component of lowering A1C. It's important to health care professionals. I mean that's -- when we look at all the guidelines for diabetes, for type 2 diabetes, the first thing is diet and exercise, the importance of losing weight. So yes, it's high on the priority list for people -- for physicians treating this. And then, as you know, for some, patients are very motivated to lose weight. And obviously, they'll find out about our product, they'll understand why weight loss is associated with our type 2 diabetes program. And if they're interested, we'll make sure that -- suggest in our consumer education that they will talk to the physician about the product and make sure that physician picks the right product for them.

Sure. Sure. And then I guess the other thing is, can you talk about how you think about the CV profile? And because obviously, you can have significant benefits when you have lower weight loss, better control on A1C, et cetera. So how do you think about the CV profile for tirzepatide?

We're excited about the possibilities. The SURPASS program, we really looked at a -- in SURPASS-4, a more -- a higher-risk CV population, and we did a MACE-4 analysis. And within that, more of a safety than an efficacy study. But within there, the hazard ratio before for tirzepatide for MACE-4 was 0.74. In a meta-analysis across SURPASS program of all 5 trials within MACE, we had a hazard ratio of 0.81. So we're confident in the safety of this agent. Now we're bullish on this. We're doing a CBO team within diabetes, actually a head-to-head versus Trulicity, which had -- which showed and had dedication within diabetes for cardiovascular. So it's a bold program. And I would say that definitely states our confidence in the potential to help cardiovascular patients for people living with diabetes. And then we've announced a program within heart failure, another CV indication for patients who have obesity and heart failure, in particular, HFpEF, to preserve ejection fraction. So we look at totality. We're confident in the safety and we're bullish in testing tirzepatide on as -- on the efficacy side to see if they can reduce the risk of cardiovascular or reduce the outcomes associated with heart failure.

Okay. Okay. Great. Good. Maybe we could flip to obesity.

Okay.

I mean let's just first talk about clinically, what's going on in obesity, and then we can obviously talk about the commercial landscape because I think people were very focused there. But -- so clinically, I mean, how do you feel about the profile, especially versus the competitive agent out there?

Yes. We're looking forward to seeing the SURMOUNT-1, which is our first 4 obesity studies that will read out next year. So that will give us kind of that definitive first view of the obesity patient, what we can expect from weight loss. If you look at semaglutide's studies, what they showed was they showed higher weight loss in the obese population than in the diabetes population. There's good rationale for why that may happen. And so we're encouraged by the weight loss in the diabetes population. And if we do see additional benefit in the SURMOUNT-1 program or SURMOUNT program in obesity population, that would be very exciting. So more to come on that. But I think that if we're looking at a differentiation, that would be, can we get higher weight loss than what semaglutide had seen. That's what we think we have the potential of demonstrating and that's why that GIP component can help deliver, we think, additional weight loss than what a higher dose GLP can provide.

Yes. Yes. And I guess just maybe remind people, I mean any changes or changes that you would want to call out in terms of the kinds of patients that you're enrolling in your program versus the kinds that they enrolled in their program? Or anything else that potentially could lead in terms of baseline characteristics or else that could lead to a different result?

No. In our base chronic weight management indication, we have spoken to the FDA. The FDA has kind of set requirements, what it takes to get a chronic weight management indication, that's led to us producing 4 studies in our Phase III clinical study. Those 4 kind of core registration studies are very similar to what Novo did with Wegovy to get their approval. So I would tell you that kind of the base chronic weight indication of a similar patient population, similar results that we'll see from there.

Okay. So then let's turn to sort of commercial because I think that's maybe more interesting in the sense that obesity has been an indication a lot of people have tried, and they haven't had a ton of success despite the large market opportunity. One could argue that potentially, the magnitude of weight loss that you have is -- it could be a meaningful driver of a difference in terms of uptake. But let's just -- I don't know, maybe you could go through the issues that you think others have struggled in that category. And then why you think the outcome could be different for you?

Yes, I think it's pretty easy and pretty clear that the agents up to this point, they only had 5%, 6%, 7% weight loss, and it really didn't materialize into better health outcomes, medical outcomes. And they had tolerability issues, so they didn't have great adherence. And if I was a payer, quite frankly, I don't think I would be reimbursing those agents either. And so I think the real differentiator, as it should be, is what's the weight loss with the new agents. And I think once you start getting into that mid to high teens at 20%, 25%, and you start seeing -- you're going to start seeing more medical outcomes, you look at bariatric surgeries, I think it's in kind of the 25% to 30% weight loss, you see very clear improvements in medical comorbidities associated with weight. And so that gives us the confidence that as you start approaching bariatric surgery level of weight loss, you're going to see medical outcomes. And so I think what you'll see is that there's more kind of medicalizing obesity versus being thought as a cosmetic approach. And so I think over time, what we have to do, what Novo and others have to do is be able to demonstrate the value proposition in helping kind of hard medical outcomes for the subpopulations within the obesity market and really show how losing weight can lead to lower cost and better health outcomes. And I think with this level of weight loss, that should be much easier to accomplish than what the other agents had in the past.

Yes. Yes. So then as you think about access outlook, maybe just talk broadly about how you think about that process. What sort of conversations with payers are going to look like? And how broad access you think you can achieve out of the gate if you're successful with the clinical program?

Yes. I mean, with success, I think it's going to be an evolution and evolving access position. I think what you'll see is you'll see some payers and employers, like they do today, have a broad indication and allow broadly have an indication for chronic weight management. That will grow over time. I think you'll have probably a larger opportunity to patients -- or payers that will sit here and say, "Hey, within this defined subpopulation within obesity, there's a real good value proposition there. Let's allow this agent to be used in that subpopulation." For example, of the 110 million people who live with obesity, 6 -- about 3 million of those live with heart failure, HFpEF. And so we can demonstrate those that have obesity and HFpEF with good clinical outcomes, that will begin to unlock that smaller segment for access. So I think what's critical is be able to identify those populations where there's a really good value proposition at AG. If you have -- wait, this patient can really benefit, and you can demonstrate good, solid, healthy kind of data from that. I think that's what it's going to take. And so I think what you'll see is an evolution of that, and you'll begin to unlock more and more segments of the obesity market, massive opportunity for the health of America.

Okay. And the -- in terms of what you've seen with Wegovy, just -- I mean how does that influence your perception about market, market opportunity, et cetera?

It surely doesn't hurt, I'll tell you that. So it's great to see that uptake and that interest. I don't think that's just a small bolus that will go away. I think that just tells you how interested people are of -- to lose weight and the value that some payers and health professionals see in that. So I think it's very exciting to see their uptake.

Okay. Okay. Great. Good. So look, so you've talked a decent amount, I would say, about heart failure, right? And so you obviously have Jardiance that you're pursuing there. So I guess, I want to sort of ask 2 questions, which is talk to us about the opportunity for Jardiance in heart failure now. And in particular, I think when I look -- when I think about heart failure, HFrEF, there's at least some treatments for people, but HFpEF, there really isn't anything. So can you talk about both segments and Jardiance's opportunity? And then let's come back and talk about what you're doing with tirzepatide and some of the potential additional opportunity that can follow on. But why don't we start with Jardiance?

Okay. Let's take the U.S., for example, we can kind of compare diabetes to heart failure, say about 30 million people live with type 2 diabetes in America, about 6 million people live with heart failure. There's some overlap between that. But that's kind of -- it gives you some sense of the size of those opportunities. Write -- cardiologists write for heart failure. They didn't really treat heart failure. And currently, before our heart failure indications are launched, about 5% of Jardiance prescriptions are written by cardiologists. So when you look at Jardiance, we really think Jardiance can become a fundamental agent of a foundational treatment for heart failure across HFrEF and HFpEF. With Jardiance, you don't have to kind of look very carefully and say, "What subpopulation it does well in?" The only product that has shown efficacy across heart failure, core heart failure outcomes, independent of ejection fraction, that's a very simple value proposition for cardiologists who treat heart failure. And we think that, that can only solidify and grow Jardiance use by cardiologists in heart failure, but also help reinforce the value of the CV data that we produce that really landmark data in EMPA-REG within patients who live with diabetes and are at risk for cardiovascular disease. And so I think the -- that can only help support the perception of this is a really good CV option for cardiologists. So we look for that 5% to grow much higher in the future. And also, we look for good growth opportunities within the base Jardiance business as it is becoming more and more of the oral choice that kind of second-line treatment after generic metformin fails. It's overtaken Januvia, the gold standard for the last decade in that space. And so I think there's good -- really good opportunities, both in type 2 diabetes and in heart failure for Jardiance. And with tirzepatide, where HFpEF is a really big unmet need out there, we know that weight plays an important role in heart failure, in HFpEF. 80% of patients who live with HFpEF have obesity. So we think look at a population have obesity and heart failure and HFpEF can be an opportunity to provide meaningful benefit for those patients. The real -- the mechanistic, I think, advantage of GIP is it can help on ectopic fat, and so it can help reduce fat in the organs, including the heart, and I think that's the opportunity that we see with -- in heart failure, and more patients will benefit from that. So it's good to have 2 options that could work within heart failure.

Okay. Okay. Great. Good. Good. Maybe we could just spend a moment on payers and I guess, just broadly talk about are you seeing anything new from payers? Any new kinds of step edits or pushbacks or new techniques that they're looking at in terms of how they think about controlling the market broadly? And then maybe in more detail, just talk about when -- how you see pricing and insulin pricing broadly, especially with biosimilars?

Yes. Good question. I don't see -- the market evolves. I don't see anything that is dramatic on -- that payers are doing different within the diabetes space than what they were doing in years past. There's so many costs associated with diabetes. Diabetes agents are only about 10% of the overall cost to treat diabetes. And so I think the real problem out there is just really poor insurance design, where whether you're in Part D or whether you're in a commercial plan as a high deductible plan that subject patients to high out-of-pocket costs during the deductible phase, that really works against good care for patients living with a chronic disease like diabetes. You want to -- if you're designing something from the start, you would design an insurance program where you would provide easy, affordable access to chronic medications and make sure patients are taking those in order to provide better patient outcomes and better overall costs. And so that's what we work with, with the PBMs, who I think are increasingly understanding that, that, hey, we've got to provide better programs and we need to make sure we educate the employers who choose those plans to make sure they're choosing plans, are providing a full access for chronic medications, whether that be a diabetes treatment or, in particular, insulin. And so we do a lot to make sure that patients can afford our insulin. Anyone can get access to insulin, a Lilly insulin for $35 per month, whether they be uninsured or insured in a high deductible plan or now with the Senior Savings Model that was launched this year. And so I think that's really important to really fix that out-of-pocket cost. Do I see anything with biosimilars? Not in the short term. I think the semaglutide got interchangeability with Lantus, not Basaglar. And so I think in the short term, we haven't seen -- in fact, they have not launched yet. So I would anticipate any short-term impacts on our insulin on the interchangeability with biosimilars.

Okay. Great. Good. Maybe we could, in the last few minutes here, tick off some pipeline assets and just give people your sort of view on those. So maybe we can start with the once-weekly insulin.

Okay. Well, I think if anyone wants to have fun, go back and look at the -- what happened to the GLP market once weekly, once -- a true powerful weekly GLP and Trulicity launch, you need -- you saw the market grow. And I think that really showed that weekly injectable agents in an easy-to-use device is preferred by patients. And so I think we have an opportunity with a weekly insulin to provide a therapy that is preferred, that will be preferred by patients and physicians and hopefully will lead to better compliance and better outcomes. That's, I think, the value proposition. I think what we're excited about is, if you want a basal insulin to be a -- if you're going to design a basal insulin, ideal basal insulin will be a daily or weekly, you would want as flat as a peak as possible for how that insulin is going to pay out. Because if you take 1 and you get a spike or a trough, then that's what leads to either poor control or hypoglycemia that would drive -- the insulin drive that glycemic too low and you have a hypo event. What's nice about our weekly basal insulin is that the ratio of the highest point to the lowest point, that peak-to-trough ratio is only 1.14, which kind of -- that's just an amazing, a flat insulin for the entire week. And so we're excited about that. And we're in Phase II right now, and we're excited to see those results and then make a decision whether to move into Phase III. But I think the concept could be important. And you can imagine that for someone who is on Amprigen who needs a little bit more efficacy, mating a -- pairing up a weekly Amprigen with a weekly insulin could be a -- just a real good treatment option.

Okay. Good. And I guess one -- just one follow-up there in terms of with a weekly product, I mean, any additional sort of safety hurdles or as you think about size of the safety database or things like that, that you would think a regulator would want, just because they're obviously worried about too high and too low events for clear reasons. So...

Yes. The good thing about that is with insulin, you can see the profile of highs to lows in a short trial. So you don't -- it's not a really massive -- patients are -- or a really long time to show that in our kind of -- in a kind of normal Phase III trial, you could demonstrate and produce all the data you need to really understand the high quality of proof. It's pretty easy to demonstrate.

Yes. Great. Good. Oral GLP-1s, obviously, where everybody is sort of waiting around, and we expect Pfizer data pretty soon. I'm just wondering how you think about competition from orals and maybe how you're thinking about orals in general?

Yes. We're going to be in incretins for decades. And so we're looking at it from that perspective. Obviously, we have Trulicity. We're adding tirzepatide. We're looking at other incretins that can inject glucagons like GGG that can provide additional weight loss or additional benefits outside of even tirzepatide. And naturally, we're looking at potential combinations that we could add with to an incretin that will produce even better weight loss. And we're looking at oral products, both small molecules, like our Chugai product that you're asking about are large molecules that kind of like Rybelsus Novo's approach there. So we're excited about our partnership with Chugai and our asset that's in Phase I right now. We do think it binds the GLP receptors differently than what Pfizer's program is. And so we're anxious to see if that leads to better or differentiated clinical efficacy. We'll see when they have their data, we have our data. One thing that I think is evident at this point is their product up to this point, or the data I've seen suggest that it could be a twice-a-day oral product, where our product looks like it's going toward a once-a-day product. So that would be one differentiator that historically has been pretty important for an oral use to get to that once-a-day versus twice-a-day profile.

Okay. Great. Well, Mike, thanks for spending 30 minutes with us. We very much appreciate it, and we appreciate your time and your thoughts. So thanks again.

No problem. Appreciate everyone's interest in Lilly Diabetes. Thank you.