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

Good afternoon. I am Louise Chen, the large-cap and biopharma analyst here at Cantor. Thank you for joining us today for our virtual fireside chat with Eli Lilly. Lilly is a leading global pharmaceutical company with robust portfolio of fast-growing products and pipeline of first-in-class and/or best-in-class drugs. We think the company's earnings profile continues to look favorable when compared with those of its peers. Its margin profile represents one of the strongest expansion stories in pharma, with the potential for mid-teens EPS growth. Lilly is entering a period of earnings and growth unencumbered by large loss of exclusivities and bolstered by multiple pipeline readouts of its first-in-class and best-in-class compounds. Therefore, we're thrilled to have with us today Patrik Jonsson, Senior Vice President of Eli Lilly & Company, President of Lilly Immunology, President of Lilly USA; and Chief Customer Officer, with us here today. So Patrik, would you like to make any opening remarks before we start the question and answer?

Well, thank you very much, Louise, and I'm grateful to spend the afternoon together with you. And it's, as you said, truly an exciting time at Lilly. We are doing well across our different business units, and we are facing what we will believe an unprecedented 2022. And today, I'm here, as you said, as -- in my capacity of being President of Lilly USA, and we are currently responsible for more than 60% of the global revenues. And we are going through a major transformation in terms of how we are connecting with customers and deploying what we call next best action and next best engagement across our sales forces, enabling our sales force to connect with our customers in many different ways. I'm also here as the Chief Customer Officer of the company. And in that role, I'm responsible to make sure that we replicate globally the best practices to connect with our customers. And lastly, as a President of Lilly Immunology, very exciting as we are currently really accelerating the performance of Taltz after the ESI gain in the beginning of the year, but also preparing for successful launches of mirikizumab and lebrikizumab after the induction readout earlier this year. So it's a lot of exciting work, and I'm looking forward to spend the coming 30 minutes together with you and the others online.

So it's hard to believe that we're heading into the fourth quarter of the year very soon. Although there's still a lot of uncertainty in light of the COVID-19 pandemic and its variance, what's your current outlook on 2022, and how it could play out? There's a lot of headlines and scenarios in place. There's health care reform, drug pricing. You have pipeline advancements, new launches, so how do you think about all of that?

Well, thank you. It's a big question and maybe I will start with some general comments about Lilly, then we'll go on to some of the macro dynamics in the environment. And we continue the pandemic recovery as an enterprise this year, and we've seen sequential growth Q2 over Q1. You will expect that core business to continue to grow during the second half of the year. Having said that, I think it's best to say that we see some softening in terms of new to brand across Immunology, CGRPs and Oncology driven by the Delta strain, but are very encouraged by the growth currently in both GMP1 and SGLT2 market. It's very important markets for us. And while we are actually above the level of the prepandemics. As for the midterm guidance, we promised top-tier revenue growth coupled with margin expansions, and that hasn't changed. And for the 2022 outlook, we will come back with more specifics at the Investor Day later on this year. In terms of readouts and major events coming, well, let's start with donanemab and tirzepatide, 2 assets that we are hopeful to launch next year. And we have also some key readouts with lebrikizumab maintenance data during the first half of 2021. We will also have the mirikizumab ulcerative colitis maintenance readout either very late in 2021 or early in 2022. When we look at the overall health reform and the pricing reform, we know that there a lot of discussions taking place right now, and it's hard to predict. But as an enterprise, our position hasn't changed. We continue to support true patient agenda and that includes reformation of Part D, but also any initiatives that would lower out-of-pocket expenses for patients, so any affordability initiatives of patients. We continue to strongly fight proposed legislation that jeopardize patient access or increase the cost of out of pocket. And when we look at the future, we can see 3 different scenarios, and the first one would be each of 3, like reforms that would be really radical and impact the industry hugely. We believe that the likelihood of that is really low. Another scenario would be that we will continue the path of the last 10 years. and nothing would really happen, and that's a possible scenario as well. But there is also something in between that would include Part D reformation and some impact on patient out-of-pocket costs. So those are the 3 scenarios we can foresee. And in terms of impact for Lilly, we have currently approximately 20% of our gross sales in Part D, 10% in Medicaid and 5% in Part B. So we will just need to continue to monitor the reconciliation package as it moves through the legislative process, and I think we will have some more information a few weeks from now, hopefully.

Okay. So given the access win for Taltz as well as the competitive landscape, how should we think about continued growth opportunities for Taltz?

Well, when it comes to Taltz, we are very pleased with the ESI access win that positioned us very -- in a very good position, both in dermatology and rheumatology. We are now the #1 IL-17 in terms of access in the dermatology space, and we actually doubled our access in the rheumatology space. And we have seen that the volume gains as a result of this access win actually offset the price headwind as we continue to see a very strong pull-through of this account win. And we expect to continue to grow through [indiscernible] even beyond the ESI win just due to the fact that the brand has a much stronger access today. Beyond that, I think it's important to reflect on the TNFs. Five years ago, the TNFs had a market share of 85%. Today, it's down to 45%, and we continue to believe that there is an opportunity to further upgrade patients from treatment with TNFs to a newer and more modern treatment, such as Taltz IL-17s and IL-23s. So we believe there are significant growth opportunities remaining both in the dermatology and the rheumatology space.

Okay. So as President of Lilly Immunology, I do want to ask you, how you expect or how do you want or try to fit into a very crowded field? And what would you highlight as some of your most exciting assets that you have in development?

That's a good one. It's true immunology is one of the most competitive marketplaces in the U.S. and across the globe, but we also know that there still remains a huge unmet medical need across many of the immunology disorders. And we are really committed to building a meaningful and strong franchise across dermatology, rheumatology and gastroenterology. And if we look at the current lineup of products, we are very well positioned. We have a best-in-class IL-17. Hopefully, the opportunity to launch a best-in-class IL-13 with lebrikizumab. We have the potential to be first in class in ulcerative colitis with mirikizumab and also potential for indication expansion with Olumiant to alopecia areata, maybe atopic dermatitis and SLE based upon a positive data readout. Beyond those Phase III and current assets in the marketplace, also, there are very robust pipeline in the space of immunology, and we actually believe that we are industry leaders in new emerging mechanism of actions in the immunology field. I will just highlight a few, but I think our specific interest and excitement starting with the oral IL-17 and leveraging the small molecule expertise that we have in-house where our chemists have done an amazing work. And if this really succeeds, it could be the first oral formulation with Taltz similar efficacy and appeal, and that would really be a huge step forward in the space of dermatology. . We have also our IL-2 partnership with Nektar, where we have ongoing both Phase Ib and Phase II studies, and we hope to see skin data already later this year, and that's a novel T cell simulator that addresses an immune system imbalance for a broad range of indications in immunology. And lastly, our checkpoint agonist programs, where we believe we have the richest pipeline in the industry and currently with 3 molecules in the clinic: a PD-1 agonist, a BTLA agonist and the RIPK1 in our partnership with Rigel. So overall, in immunology, we believe we have a tremendous opportunity in front of us, with the current assets, the ones in Phase 3, but also based upon what we have early in development. And we are never satisfied, but we are proud of the progress that we have made. And we realize the amount of work we have in front of us, and we also think that the formation of a business unit focused only in immunology is a strong sign of a commitment and the belief we have in this space as an enterprise.

Okay. So I wanted to move on to probably one of your favorite topics here, Alzheimer's. So when it comes to Lilly, I'd like to think that it always is and it always is not all about Alzheimer's these days. So what's your latest thinking on this opportunity for the company?

Well, there is no doubt a huge unmet need in this space. And we know that in the U.S. only, we have 1 million to 2 million people and outside the U.S., worldwide 4 million to 5 million people that actually would meet the criteria that we applied in TRAILBLAZER-1 and also in TRAILBLAZER-2. And we are extremely confident in the differentiated profile of donanemab. We know it has a rapid and deep clearance and also with a fixed duration therapy that's very different with aducanumab. We saw in the studies 40% of patients were amyloid negative after 6 months, 60% after 1 year and 70% after 18 months. And we have seen that suggested in the Conrado model that full clearance of amyloid plaque is required to get the highest possible efficacy, and the model would predict that the plaque clearance of 100% could have more than 40% slowing of disease progress. So I think we're extremely excited about the differentiated profile of donanemab, and I think we have an opportunity here to make a huge difference for patients in need.

Okay. Well, what about the FDA climate on Alzheimer's? How do you view that? And the approvability of donanemab was just the current study that you have.

We feel very confident that based upon the TRAILBLAZER-1 data and with the safety addendum that we will have the safety exposure required for a successful submission to the FDA. So we are working along those lines and believe that the asset in itself with a differentiated profile that I just referred to will be the first time ever we are submitting a file that has actually demonstrated a statistically significant difference versus placebo on a disease-modifying endpoint. So we remain very confident in the dossier.

Okay. And then last question for you on Alzheimer's, how do you think about how you're going to price your drug?

Well, with pricing, it's probably too early to make any specific comments. But if we reflect back on the differentiated profile, there are some big differences compared to aducanumab. We have a fixed duration therapy, and I think that will make a big difference. But most importantly, we will also take into account the cost of care for Alzheimer's patients and making sure that we really take a value-based approach when it comes to the pricing of donanemab. That's probably what I can share with you today.

Okay. Great. So we're also excited about tirzepatide. And if it's approved, how do you expect it to fit into your current portfolio? You have other diabetes drugs. And then how do you think it's going to impact the treatment paradigm for diabetes in general?

Well, we are extremely excited about tirzepatide, and that doesn't come as a surprise. But when you look at our franchise today, we're already today the market leader with Trulicity and the GLP-1 market, but we really believe that tirzepatide could offer a step change in the treatment of type 2 diabetes. And I think it's fair to say that the SURPASS data actually surpassed our expectations, where we've significantly greater HbA1c impact, significantly greater weight loss than we anticipated. And we even demonstrated a statistical significant superiority to semaglutide 1 milligram with our 5-milligram formulation, and we saw that in between 81% and 97% of patients ended up with an HbA1c below 7, and up to 62% had an HbA1c below 5.7, which is down to an HbA1c level that is defined as being normal. And for the weight loss, statistical significant weight reductions versus all competitors and with a 50-milligram dose nearly a 14% weight loss. So we really believe that tirzepatide here could serve as a game-changer in the treatment of type 2 diabetes. And we believe that there is an opportunity here to grow the entire incretins class and that tirzepatide could be used much earlier on in disease. And we have seen that from the GLP-1 market today. 40% of TRx are incretins, but when you look at NBRx, it's close to 60%. So that is still a tremendous opportunity to continue to grow that space by being used earlier on in disease. But of course, there will naturally be some cannibalization, but we are very confident in the overall growth opportunities with tirzepatide.

Okay. And then looking beyond diabetes, how do you think about opportunities for tirzepatide in NASH, obesity and heart failure? And do you think you could provide one solution to patients, which often have comorbidities here?

The firm answer would be yes. Let's start with obesity. We have currently more than 110 million Americans and probably more that are suffering from obesity today. And we have seen that the substantial weight loss that we've seen with type 2 studies could actually generate better medical outcomes and help gain us access in the obesity space. And we're also very much encouraged by the Wegovy update. I think it just demonstrates that there is a tremendous, tremendous unmet need in the space of obesity. And as I referred to earlier, we saw weight loss of close to 14% with 50-milligram tirzepatide in type 2 treated patients, and we know that the weight loss is normally significantly higher in obesity patients. So we believe that represents a tremendous opportunity for tirzepatide. NASH, you referred to NASH as well. It's also a big unmet need. I think we have 16 million patients suffering from NASH in the U.S. And based upon the fat metabolism and weight loss that we've seen in type 2 diabetes, I think this is truly an encouraging indication for tirzepatide as well. Heart failure, we have decided to study HFpEF, and that also is a huge unmet medical need. Jardiance is the first medicine that has demonstrated superior efficacy in this space, but we know that there is a need for more oral medicines, and we have currently 6 million people diagnosed with heart failure, HFpEF and HFrEF. So we strongly believe that the dual mechanism of tirzepatide is a key differentiator to drive profound weight loss, but also to treat numerous different metabolic health disorders, such as the ones we just touched upon.

Okay. So moving on to atopic dermatitis. You recently announced positive top line Phase III data for lebrikizumab, and congratulations on that. So how are you reserving -- I guess, what can you say about the details that you're not going to reserve for the upcoming medical conference? And how competitive your product will be with other ones that are out there since it is becoming a crowded space, and there's a lot of people reporting different things?

No. We were extremely encouraged only based upon the Phase IIb data. We believe already at that point in time that lebrikizumab could become a best-in-class treatment for atopic dermatitis. And we believe, after having seen the induction data that it has a very competitive profile and the potential to become a best-in-class IL-13. As you saw from the top line data in the ADvocate study, during the induction time, we saw more than 50% of patients treated with lebrikizumab achieving skin clearance of more than 75% measured by EASI. But we also saw that it works very quickly in both skin and in itch. And we're also hopeful that we will be able to offer Q4 dosing with lebrikizumab. So I think it's fair to say that we believe we have a best-in-class asset. And if you would compare it to tralokinumab, we were not surprised with the Phase III data on trial. I think it's pretty much mirrored what we saw in Phase II. And lebri is, compared to tralokinumab, a very specific inhibitor of IL-13 and with a much more robust binding affinity and also higher bioavailability. And if you compare to dupilumab, dupilumab is -- inhibits both the IL-13 and the IL-4. So we are excited about the induction data, and we are looking forward to the maintenance data to be read out the first half of 2022, but we believe we have a competitive medicine here. And it's also important to have in mind that atopic dermatitis is a very heterogeneous disease, and we don't expect a linear treatment algorithm to be applied here.

Okay. Great. I also want to ask you about JAK safety, which has been a topic of a lot of debate. So how are you thinking about FDA concerns around JAK safety? And have their decisions impacted how you think about the market opportunity for your JAKs?

Well, I think it's probably fair to say that it's a weird situation where you have a rheumatology division making decisions for the dermatology division. But overall, for us in the U.S., I don't think it's not going to have a huge impact on Olumiant in the U.S. because we are already positioned in rheumatoid arthritis for inadequate responders or after biologics. So not a big change for Olumiant in the U.S. When it comes to atopic dermatitis, we continue to see a regulatory path to approval prior to year-end, but I also think it's fair to say that we would expect the commercial dose in the U.S. to be 2 milligram. And we also believe that the JAK class overall will be labeled to be used after biologics. So I think that's our current assessment of the JAK landscape. It doesn't, in any way, impact our commitment to atopic dermatitis. We have several assets. I referred to lebrikizumab being one of those, but also among the assets that I referred to in the early stage of the pipeline also targeting atopic dermatitis. So our commitment to atopic dermatitis remains, but we probably foresee the JAKs to be positioned after biologics in the U.S.

Okay. So I know you've touched on Jardiance a little bit, but I wanted to dig into that opportunity more. So we've seen a lot of good news for Jardiance in HFpEF and HFrEF. How are you thinking about the size of the market opportunity for Jardiance in these new indications?

Well, Jardiance overall continues to perform extremely strong in the U.S. And we have seen, and I refer to the SGLT2 market being one of those where we actually see a growth beyond the pre-pandemic level. So the market is doing well. We have a strong market leadership of approximately 60% of the market. And of course, we see both HFrEF and HFpEF as accelerators of the growth in the marketplace. When we start with HFrEF, we were the first ones to get the approval, both in the U.S., EU and under review in Japan today. And we just recently shared the HFpEF data, and we have received a breakthrough designation for both. We know that 6 million people in the U.S. are suffering from HFpEF and HFrEF. So of course, it is going to serve as an accelerator for continued growth for Jardiance. But I think it's also fair to say that these -- those are indications that are mainly treated by cardiologists, and we have a relatively low penetration among cardiologists today, around 5%. So it will take some time to penetrate. And they also widely known to be late adopters of new therapies, but very confident in the continued growth of Jardiance, strong market growth, another differentiated opportunity and in an area of unmet medical needs.

Okay. So before we close, I wanted to ask you what are some important data readouts, milestone, catalysts and/or events coming up for the company over the next few months that you think that we should be focused on.

Well, let me first recap maybe some of the great pipeline progress. So far this year, we said we have a positive readout of both SURPASS-2, 3, 4 and 5 for tirzepatide and where we have seen the readout actually gated the submission of this asset. And we continue to see strong progress across the metabolic health conditions that we touched upon a few minutes ago. Secondly, we had the first positive statistical significant outcome in treating Alzheimer's disease on a disease-modifying endpoint with donanemab back in February. And recently, we had the readout of HFpEF, which is the first and only successful heart failure trial with preserved ejection fraction, and that's a breakthrough designation. Verzenio, we haven't touched upon that, but we continue to make progress with the FDA for a potential approval in high Ki67 population by the end of this year. And we have also initiated a Phase III trial in prostate cancer based upon the positive Phase II that we referred to during the Q2 earnings call. And looking forward, on top of this, we continue to build out our program for pirtobrutinib, and our Phase III program now includes a first-line treatment in CLL. And we also have immunology readouts you see towards the end of this year or early on in 2022, lebrikizumab maintenance readout next year, combo readout on lebrikizumab versus topicals later on this semester as well. So I think it's fair to say it's truly a very, very exciting time at Lilly right now, and I think it's unprecedented for our company and maybe even unprecedented in our industry.

Okay. Well, that's all the time that we have for questions today. Patrik, thank you for hosting this fireside chat with us. And to the audience, thank you for your participation, and we will end the presentation here.

Thank you very much, Louise.

Thank you.