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

Good morning. I'd like to welcome Eli Lilly to Cowen's 42nd Annual Healthcare Conference. We're very, very pleased to have Lilly back with us again this year. Let me say that Cowen is recommending Eli Lilly stock because we see above-average growth driven by differentiated new products, which has been a feature of Lilly for virtually 10 years, if not more. So exciting situation that we think investors should be participating in. So representing the company is Anat Ashkenazi, who is the CFO of the company. So Anat, thank you so much for being with us today.

I'd like to start out with one of the most exciting developments that will occur in 2022, and that is tirzepatide. And I'm curious, is Lilly ready to launch immediately post-approval? Or will it depend on what the label says and some time will be needed to train the sales force based on whatever the label says and so forth? So maybe you could walk us through that.

Great. Thanks, Steve, and good to be here within the conference, even if virtual. And first, just a quick apology to those on the phone. I'm dealing with a mild illness, and you can probably hear it in my voice. So I may take a few quick pauses as I speak to take a sip of water if I start coughing, so my apologies for that. Great question on tirzepatide. And as we can imagine, one that's top of mind for us as we're preparing for launch. We have everything ready. We're working forward to launch. We've indicated we expect to see an approval followed by a rapid launch right after that. We typically launch within days to weeks after approval. We just need to get product package labeled with the final label and get it into the marketplace. Because we are such a strong company in diabetes and because of our broad presence in many geographies, we are able to be probably better prepared for this launch. I mean if anyone should do this, well, it should be us. We have our sales force in the field. We're working rapidly to ensure everything is prepared. We have started conversations and internal discussion around strategy and pricing and how do we launch early on. We expect to launch with -- typically, when we launch a product in the U.S., you gain access first in the commercial space, and then other segments follow on. But early on, typically, companies provide more in terms of patient access support to ensure the patients have access to the medication. But at this point, everything is pointed to the same time line and launch preparation are well underway. We don't expect any delay at this point.

Okay. And are there still significant areas of uncertainty relative to the label? And let me just pick one, that -- how is the 5-milligram discussed versus the 10 versus the 15? I mean are these still areas where there's debate between Lilly and FDA -- or I shouldn't say debate discussion? Or is it pretty clear and clean and it's just a matter of dotting Is and crossing Ts?

Yes. At this point, obviously, we can't comment on any specifics on the conversations with the FDA, any of the back and forth. Nothing of the conversation right now and where we are in the discussion. It concerns me or again tells me that we will be delayed or be in a position that we didn't expect. So at this point, no concerns.

Okay. And I don't suspect that you're going to announce pricing on the -- during the Cowen conference, although if you'd choose to, that would be phenomenal. But how should we think about pricing? And how should we think about positioning? I mean is this -- is Lilly going to position tirzepatide as the first injectable? Or injectable when other injectables fail? I think it's the former, but perhaps you can confirm.

Yes. So when you look at the first injectable market today and how patients transition through the kind of treatment algorithm within diabetes, about half the patients, their first injection would be GLP. And that space had been [ grows ]. So if you looked at this data 2, 3 years ago, that wasn't the case. So that percent has been growing, and GLPs have been used earlier in the treatment paradigm. I expect that the introduction of tirzepatide will do a couple of things. I think it will expand the marketplace. We've already seen that with the introduction of Trulicity, rapid expansion of that space. The GLP space has been growing double digit. And when tirzepatide enters that market space, I expect further expansion of this in this entire segment. And certainly, we could potentially see injectable going earlier as opposed to going into basal. So certainly, you can see an opportunity there. And certainly, there is an opportunity to use tirzepatide or prescribe tirzepatide as the first injection right after metformin. I don't know -- I think that's an option as well, as well as after basal. So these are all options, I see market expansion for tirzepatide. I see patients that are currently on a GLP who may need further weight loss or better A1C control potentially transitioning to tirzepatide, just given the efficacy data that we have demonstrated, providing additional opportunity for them. Patients that have -- previously may have transitioned from lower doses to higher doses in the GLP market may now be able to transition to tirzepatide. As to the specific pricing, as you said, a little too early to comment on what that price would be. We're very near launch. So this will be known very, very soon. We're months away. But as we think about pricing and just our approach to pricing, in general, is that the price in the marketplace should be commensurate with the value the product has provided to patients and the health care system in total. The value of tirzepatide, I believe, is clear, both in terms of weight loss and A1C level controls for patients with diabetes. We'll look to demonstrate that as we negotiate with payers' access and then list price and net price. As we think about -- broader than that, we've always big -- Lilly has been a big proponent of value-based agreements in the U.S., where we tie rebates and discounts to an outcome or adherence for medication. This is where we stand behind our drug. So these are also opportunities that we will explore and we explore for really every product in our portfolio, where we ensure that the product does deliver that value to patients.

Last question on -- well, actually maybe a few more in tirzepatide, but what should be our expectations for the launch? Obviously, we see all different kinds of launches. Some take off like a vertical line upward, some thinking cardiovascular rollouts take years and years and years to get anywhere. Tirzepatide has the differentiated profile, you note, but it also won't have the access right at the start. So help us create an expectation for the rollout.

So first, I'll say that for 2022, these launch expectations were fully reflected in our -- the guidance we've provided for this year. And you're right, as we build commercial access, it does take time. It's not an overnight thing. We will be working to build that rapidly, but we do recognize it takes -- it does take time. So as you think about early days of launch, typically, what we would do is we would offer additional patient assistance programs to help patients with their out-of-pocket costs until they have their product covered by their insurance. So this -- and it tends to be near term. So near term, we see more of that patient-assistance program. And as access broaden, you'll see that typically reduce just relative to the rest of the access the patients will have. So that's how we think about this early days. Obviously, as we get into -- and this is ways out, but as we get into the end of this year and we issue guidance into next year, we'll reflect our view on the potential uptake for tirzepatide as part of the guidance we'll provide for 2023.

And I would need to go back and look at how -- or the degree of the rollout of Trulicity, but would you urge us to think it could be better or less vibrant than Trulicity?

I wouldn't -- while we do look at the curves, we actually do sometimes overlap the curves to see how a launch is done. It's always a different market space, and I need to understand how patients are being treated today versus where they were. We launched Trulicity in 2014. What else is in the marketplace, the acceptance for this specific product. So I wouldn't necessarily look at Trulicity versus tirzepatide. But the way we’ll look at this, and also I assume people are thinking about the Trulicity-tirzepatide dynamic, right? So we already have very successful markets -- or GLP in the market space, and now we're launching another product into that same and similar area with the GLP-GIP product, how would that dynamic play out in the marketplace? And the way I see it is kind of divided into few categories. First, introduction of tirzepatide will likely expand the marketplace as I said earlier on. So the pie will be bigger and just more scripts. The second will be patients who are currently treated with the GLP but are not meeting their needs in terms of either A1C levels or they have the need for further weight loss, and those can potentially transition to tirzepatide. There'll be a third category of patients who are currently, for example, on Trulicity and are doing well. Their A1C level is well controlled. They don't need the additional weight loss. We know that Trulicity has one of the best adherence of all medications in the diabetes segment, with patients staying on drugs for about 18 months or so, 12 to 18 months. So patients who are doing well will likely stay on Trulicity until they would need something else. So there will be a transition period where you'll see patients on Trulicity, some patients transitioning and then a potential for market expansion.

Great. Last question on tirzepatide, then we'll move on to other topics. But this one is on the SURMOUNT-1 data, which we're eagerly awaiting and very excited about. So will Lilly, when it gets the results, presumably in a couple few months, take the data to regulators? And if so, why would you do that?

We can't comment on the specific back and forth with the FDA on any specific trial. What I will say is, in general, we always have conversations with the FDA. And we can always have discussions about a submission pathway or the outcome for drug regardless of what the outcome is. And I expect that if we would want to have this conversation, we would be able to do that. We do it for any product in our portfolio. I will say for SURMOUNT-1 or SURMOUNT, the program, [ I think ], the set of 4 studies we have, this is the program we agreed on with the FDA. So right now, our plan is to progress with these. But if we wanted to have a conversation with the FDA, I assume we would be able to do it. But too early to -- we can't comment on anything specific here.

Got it. So let's move to another important product in the Lilly outlook, and that is donanemab. So what is Lilly's latest thinking on the timing of completing the expedited filing? And what does it depend on?

So as we noted on the -- our earnings call, the Q4 earnings call, we do expect to complete the rolling submission by the end of the year. And right now, that is our plan. Obviously, the NCD, the draft decision that came out just recently was disappointing to us. We were hoping for better clarity there. And obviously, providing access to patients during the accelerated approval time period. We'll wait to see what the final NCD readout is here in April. So it's really right around the quarter, and then we'll assess based on that. But at this point, we're still progressing towards of completing a rolling submission this year and then importantly, the confirmatory data coming out mid-2023. In that time period, actually, we have already started. We have been working and we'll continue to work to ensure that we have a more efficient ecosystem in Alzheimer's treatment. I think you know this one, probably everyone on the call that, unfortunately, today, the treatment process for an Alzheimer's patient is inefficient and takes many, many months from the presentation and the primary care office until patient is referred to a neurologist, gets diagnosed and gets treated. And we'd like to make sure that it's easier and more streamlined for a patient. So we're working on that, and we'll leverage in the next several months, obviously, as we're working in parallel, completing the submission to ensure that is in place. And again, when the NCD readout comes out in April, we'll evaluate what that is. And if we need to reevaluate anything, we'll do at that point. I'm hopeful that in the final document, they'll provide some additional clarity on what the -- when does the requirement for CED sunsets, but they may not. We'll have to wait and see where they are when they provide us with the final.

I think there are some commentators who think that the final decision will be less, I guess, I'll use the word harsh than the proposed one. I think even Cowen's Washington Group believes that. So let me just understand. If that's the case, and it's a less harsh conclusion, would Lilly file the expedited filing sooner as opposed to if it is the same outcome, then it would be later? So is the tone of the document dictating when the filing will be completed?

No, I think the first one that came out, the first draft gave us -- given that it really negated the benefit of the accelerated approval for patients just given that impact of the CED requirement, give us a little bit more time. But at this point, we're not slowing down. Right now, as I said, we're still progressing towards completing the submission by the end of the year. We always reassess, as you know very well. We always evaluate what the best path is forward. And if there is a change, we'll obviously share it with investors. But at this point, there is no change, and we're continuing towards the same time line.

Okay. So let's move on to another product and that being Tyvyt. What is Lilly's expectation for the outcome of the PDUFA date, if something other than the obvious. The committee, of course, was a tough one. And should we expect a tough outcome on the PDUFA date? Or could it be something significantly different than that?

Yes. So obviously, the outcome was disappointing. When we initially started with this effort working with our partners, Innovent in China, when we started the program for Innovent with Innovent -- with Tyvyt being a China-for-China product, when we had the opportunity to potentially introduce this product into the marketplace and offer something that's a lower-cost, high-quality PD-1, we pursue that opportunity. And at that point, the view from the FDA was that they would review these options for single-country data. Since then, it has -- that has changed, obviously, as we saw as of recent. So that was disappointing to us. I will say that while Tyvyt is a fantastic product and is a key growth driver in China, we never saw it as one of our larger products in the U.S., obviously, compared to the rest of the portfolio, but thought it would be a good offering to provide to patients. I think the recent decision was fairly clear that we can speculate on what the final PDUFA will look like, but I think that it was fairly clear, their view.

Great. Let's move on to Alimta. So I assume that we had a volume-limited launch by a generic in February. If that is the case, then maybe you can tell us what volume was launched and what has happened in the price -- to the price in the interim?

Yes. So the -- there are kind of 2 group periods for Alimta. First, as you highlighted correctly, in February, there was a generic launch limited to supply of approximately 3 weeks. And we expect full generic entrants in May with multiple other companies coming in. We can't comment on what we're seeing here in February. I mean this is weeks from their launch. We'll have more data on that for the Q1 call. But I will say what I would expect and I would recommend as people look at the modeling for Alimta is that once we do have a full generic launch, I do expect that quite a significant decline in the revenue for Alimta in the U.S. It's consistent with what we saw outside the U.S. We saw in Europe, a 70% drop within -- very quickly after the launch of the generics, slightly slower in Japan, but they're catching up. And I would expect we would see similar dynamic in the U.S., like a very rapid erosion once that product -- these products enter the marketplace in May.

And additionally generics are expected to launch in, I believe, in March as well? And has that happened?

The first entrant has limited launch, and then they're able to launch fully in April and then further generics are coming in, in May.

Got it. Okay. Okay. So let's move to some of your very successful current drugs. And when we look -- when we think about drugs like Jardiance and Taltz, and we look at the huge success that they've been in or have experienced, would you suggest we do not think about them as a double from here, double to peak? Would you urge us not to consider that?

Yes. No, I can -- well, we do our forecast, obviously, and we forecast not just for the next year, we forecast 10 years out. So we have visibility into our view on what these products are, but we don't share these by product. But here is how I think about it. I always think about the class growth and the share of market. So what's your starting position for a product? If a product is 20% in the marketplace, it has the potential to grow. If it's 60%, then even if the class is growing, obviously, lower ability to grow from a share perspective. So if we start with Jardiance, the class has been growing very rapidly, approximately 30%. So a very rapid growth in SGLT2 class, both in the U.S. and outside the U.S. Jardiance is the market leader in that class with over 60% share of market in the U.S. alone. So very successful product in a rapidly growing marketplace. So think about a few inflection points. One is just the continued growth of that class that will drive continued growth for Jardiance. The second is the additional indications that we've just launched primarily in the heart failure indications, which provide further opportunity for growth beyond the diabetes syndication. Now if you think about that space, 6 million patients in the U.S. with significant opportunity for additional treatment. But the space of cardiology tends to be a little more challenging in terms of uptick. Given the changes in behavior for prescribers, it just takes -- tends to take longer. So it's not like a rapid uptake that we see immediately with the approval for these indications, but mostly strengthening the value of the brand really across multiple indications. So I do expect that will be an additional catalyst for growth for Jardiance in heart failure. The second one still ongoing is the chronic kidney disease indication, where we're expecting to complete that study by the end of this year, and that could provide another catalyst for the product. The product is, as you've seen right now in the marketplace, not just doing exceptionally well, but has such a good reputation with prescribers that those are some of the catalysts that should drive growth. Taltz, a little different, obviously, a different marketplace, more of a specialty product. And this is where the penetration of biologics is not as high as with, for example, we see with the SGLT2s across diabetes. And there's probably further opportunity for biologics to expand their position in the marketplace, Taltz being one of them. With -- you may recall last year, we've signed agreement with ESI that provided meaningful expansion and access to patients in the U.S. And that served as a real catalyst for growth, as you've seen in our results. It did come with reduced price, but substantial increase in volume. Now what we've seen beyond just the ESI access is that with that expansion in access is physician prescriber were getting more and more experienced with Taltz and patients benefiting from their very rapid skin clearance. Obviously, more are prescribing Taltz because they see the benefit to patients. So there are -- so 2 things there. One is the continued leverage of the existing access, but also the potential for further penetration within biologics.

Is the ESI contract, is that a 1-year contract? Or a multiyear contract? How should we think about that?

It's a multiyear. We typically sign multiyear contracts.

Okay. And then lastly, let me throw Verzenio into the mix. So this is a specialty product, but you have a relatively small share. The market is growing. Pfizer actually said yesterday, only half the people who should be on a CDK are on a CDK. So would this be more like Taltz than Jardiance?

Yes. So Verzenio, again, specialty product, as you highlighted, if you look at the shared, I just pulled the weeklies from last week, our share within new prescription, NBRx or NTS, is now north of 40%. It's about 43 -- 41%, I think. I'll hold the right number here in a second, but it's quite significant. Now that needs to translate to TRx and total share, but it won't. It will translate over time. The EBC indication, the early breast cancer indication, has provided a leverage or catalyst for growth for that product, and we're seeing that inflection here. We don't even have the data to split that out just yet. We will, probably, in a couple of months. But we are seeing an inflection. So I expect that we will see further share growth for Verzenio and potentially expansion of the marketplace because of the introduction of the early breast cancer indication. And this is where it is truly a differentiated product now with this data really standing out versus the others that don't yet have this data. So I think we are looking at growth there. Anecdotally, what we're hearing from prescribers and -- is that when they do prescribe Verzenio and they do experience Verzenio, the experience is very positive. So they become believers, and they prescribe more of the product. Obviously, in oncology, you have to shift beliefs and behaviors as physicians are used to prescribing something, but having that data set the efficacy is meaningful here.

This probably isn't the fairest question to ask someone in finance, but we had a dermatology panel yesterday and the dermatologists were of the view that lebrikizumab is not a differentiated product. They struggled to find any differentiation between it and Dupixent. What would you say if you were also on that panel? What would you have said to the dermatologists?

I would say we have a competitive product here with the 75% skin clearance. That's a very strong product and offering to patients. So I do believe we have a competitive product. The improvement in the itch relief is meaningful. We'll have to say, obviously, the long-term maintenance data that will come through, but I believe we have a competitive product. And in this space, given the patient population, introducing another biologics and IL-13 gives physician another option to prescribe something for their patients where another drug may not work or have not worked. So I do think we have a compelling profile here.

I know that 10 years ago, Roche had failed in asthma. Is Lilly dusting off an asthma application for lebrikizumab?

Not that we have right now. It doesn't mean we're not pursuing it. But I will tell you, as we look at what we call it either adjacencies or spaces we're not in, our first focus is developing products in the 4 therapeutic areas we're in. And then we would look at adjacencies, like we've done in diabetes, for example, when we have those opportunities and we have the knowledge know-how within R&D and the scale and the ability to commercialize that. So we will always look at opportunities if those are relevant and if we think there is potential there for a product from an innovation perspective.

Okay. Two more questions in 2 minutes.

Sure.

The unfortunate situation unfolding in Eastern Europe compels me to ask, what is Lilly's exposure to both the Ukraine and to Russia?

Yes. Well, I'm glad you asked it because we look at this, as you can imagine, nearly on a daily basis. And we start, first and foremost, with employees and supply of products to patrons who need them. We did the same thing with COVID, and we -- and it's good, when you have your priorities straight, we typically are able to deliver. We have an affiliate in Russia. We have -- we are working for a distributor in the Ukraine. Our employees are safe, and those concerns have been addressed. We currently do not have disruption in supply of product into the countries. And if we look at previous conflicts when these occurred, pharmaceutical tended to be excluded from any sanctions. And hopefully, this will be the case here. If not, obviously, we'll respond to it. But at this point, we have not had any disruption. Just from a magnitude perspective, our size of business in both the Russia and the Ukraine combined last year represented less than 1% of our total revenue. So it's not a top 10 affiliate for us. It's smaller.

And what about clinical trials and/or supply chain?

Yes. So clinical trial, first, we're not dependent from a supply chain. We're not dependent on manufacturing or China -- in China. That's not an area for us. From a clinical trial perspective, we do have clinical trials ongoing in those countries, but none of them represent a clinical trial hub for us. So it's not a clinical hub, not a center for us to run clinical trials. But there are trials that are ongoing. We're doing everything possible to ensure no disruption. To date, we have had none. It doesn't mean we're not going to have any moving forward. We ensure there's enough study drug available for these sites right now in case we're unable to ship product into the country, but this is an area we're monitoring on a daily basis. No disruption today, but if this further escalates, which I truly hope it doesn't, but if it escalates or gets prolonged, we'll have to assess where we are at that point.

Okay. And then the final question is the following, and we're ending all our sessions with this question. But as you peer down a decade into the future for Eli Lilly, what do you think will be the biggest surprise? So maybe it's something that we investors don't see now, but you think could be a feature of Lilly in a decade, and it would be a surprise.

I think you're right. For us, none of these should be surprises because we do look 10 years out and we project where products, where value is going to come from. There are 2 things that I would highlight. And those are things that are, in a coincidence, we've worked on them for really many, many years. One is the breadth and depth of our portfolio. So Lilly, today, is not dependent on a single product to drive the long-term growth that we've outlined for the company. We have multiple products and there are multiple therapeutic areas, and each of them has the potential to be really meaningful for Lilly. The second is you look at depth within a therapeutic area, and our goal has always been to kind of disrupt ourselves to come up with the next generation with a better product. So if you look at tirzepatide, for example, we're working on development of potential GGG or oxyntomodulin in diabetes and obesity, which could potentially set a completely new threshold. And for us, it’s really to progress these assets, they will have to have much better results than, obviously, the tirzepatide. So the breadth and depth provide us with really long-term growth potential beyond just what we see here in the next several years. Beyond that, as we look at the pipeline and we’ve been doing projections, and I know when analysts do their own projections, we tend to probabilize revenue for products that are currently under clinical development. Something that's in late-stage development, you use high probability for. Something that's in Phase I, you use a very low probability for. And this was probably true 7 years -- 5 years ago when we still had donanemab and tirzepatide in the pipeline, but they were probabilize at a lower number and -- when they were in earlier phases of development. And we have a number of those that we've shared in our December R&D call and a number of products, and it's not 1 or 2, right, it's the whole portfolio that sits in Phase I and Phase II that could potentially meaningfully advance the company beyond just the 2030 horizon. Now we gave our view through 2030, which we said we believe we will have top-tier growth through the end of the decade. But you look at that earlier-stage pipeline, and you see the opportunity that will deliver growth even beyond that. So that's, I would say, that's the exciting piece of Lilly.

Great. That's great. Anat, I wanted to thank you for a phenomenal overview. It's been a fascinating discussion and a fascinating company to follow. So thank you so much, and we hope the rest of your day is a productive one.

Great. Thanks, Steve, and thanks, everyone, for listening in.

Bye-bye.