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

Perfect. Well, welcome to the final session of the day in the grand ballroom. It's a big room, but very big shoes to fill. So we have Dan Skovronsky, who is CSO and Chief Medical Officer of Eli Lilly. Dan, thanks a lot for coming.

Thanks for having us, Geoff.

So it's interesting, with a lot of companies that I have done Q&As with, there is sometimes a little bit of a shortage of good content. But for you guys, though, there's lots of something to talk about.

It's a busy time in R&D at Lilly, but super exciting times.

Very much so. Yes. So let's kick it off with probably the new -- still the news of the day, right, which is the tirzepatide and obesity data and the opportunity there. And the next step is to meet with the agency, talk through the approval pathway. But give us a sense how you're thinking about like what is the range of outcomes after that and maybe talk a little bit about the unmet need as you see it as of now.

Yes. Thanks, Geoff. And maybe I'll just back up a little bit, talk about the data we got and then the unmet need opportunity and then the FDA. So I mean, clearly, this was the best case scenario for what a weight loss drug could achieve, 22.5% weight loss in a really highly tolerated regimen. The dose titration worked out perfectly. Patients stayed on drug. They got through any adverse events for the most part. And we're able to generate levels actually that have literally never been seen before. So I think that's exciting. The 5-milligram dose, in particular, outperformed our expectations by itself. That would be a terrific weight loss drug, extremely well-tolerated, quick titration to get to it. And then when patients get a 5-milligram doses, 2 more doses left that they can go up to. So really excited about the opportunity here, which has led us to ask ourselves about faster pathways. I mean the unmet medical need in obesity is -- become quite obvious. It contributes to all of the leading causes of morbidity and mortality in the developed world and affects about 100 million Americans, which is just a frightening number. The alternatives here are, in general, doctors counsel patients about diet and exercise, which just doesn't work. We saw that in our placebo group. It only had about 2.5% weight loss despite diet and exercise regimens. So a big unmet medical need for a big population with a drug that has first-of-its-kind efficacy. I think that all adds up to a sense of urgency on our part to see if we can get a faster approval path. Now remember, when we designed this Phase III program, we hadn't even done a Phase II in obesity. So it was all kind of new. We have a package of trials, and we anticipated that once we completed those trials, that would be the opportunity to seek approval. Given the data we have here, combined with a really large program, and we have a type 2 diabetes, I think there is an opportunity to talk to the FDA and see if there's a pathway here for an expedited path to get to patients. I don't know that it's possible to handicap the chances of success here. It's really up to the FDA, and they have a guidance on what it takes to develop a chronic weight management drug in terms of the safety exposures, which is a discussion here. I think certainly between SURPASS and SURMOUNT, we have really high-level confidence about the safety of this drug in patients with obesity, but that's a discussion we just haven't had with the agency, and that will have to come in time.

And just a follow-up, are there other nuances between the European or, say, the Japanese regulatory authorities in the U.S. in terms of how they look at obesity?

Yes, I'm not sure if there are as clear guidelines in other countries, but I think there's probably a pretty good alignment here. So on efficacy, I think it's easy to say what we have would pass anybody's bar. I think on safety, that's where we have to pull together the data, including the SURPASS data. Of course, the next SURMOUNT obesity trial to read out is people with type 2 diabetes, I mean, SURMOUNT-2 is people with diabetes who also have obesity. In our SURPASS program, most of the people -- all the people, actually, had type 2 diabetes and obesity. So we really studied that population. We kind of know what to expect in that trial. I'm not sure that adds a lot to a data package.

And when you think about the opportunity and kind of the history of anti-obesity meds, payers and the access has been somewhat limited. The corollary is bariatric surgery. That has had a little bit broader appeal. And maybe help us with kind of how you can kind of tie your net benefit to something like that where payers understand the parameters of that.

Yes. Obesity, I think, in some sense, it's been a failed space for the pharmaceutical industry in the past for various reasons. And so for that reason, it's mostly an unexplored space. Most patients don't receive pharmacologic therapy. Maybe only 2% or 3% of the 100 million patients with obesity in the U.S. get some kind of treatment. Why has it been a failed space? Drugs didn't deliver enough efficacy and they are safety problems. I think now we're in an age where we're likely to move beyond that. We're going to have drugs that have adequate efficacy and safety. And so it becomes, I think, the work of us and our competitor in the space, Novo, as well as others who might enter into the obesity space to start to change how society sees obesity. First of all, physicians, payers, even patients themselves need to recognize this is a disease. It's not a choice. No one decides to have obesity. It is a disease that really doesn't respond, as I said, very well to diet and exercise for the vast majority of patients. Second, it's a disease that has very serious long-term outcomes, including decreased life expectancy due to death from cardiovascular disease, joint injury, cancer risk, mortality from infectious diseases as we just saw with COVID. So one is it's a disease. Two, it's a very serious disease with serious outcomes. And three, drugs that are available to treat obesity can reduce those serious outcomes. And that's the missing piece that I think you related to, Geoff, that we haven't quite shown yet. We have to show that reducing, treating obesity -- and I'll note that in the SURMOUNT-1 trial, the majority of patients by the end of the trial who were on drug were no longer categorized as having obesity. They fell below 30 BMI. So reversing obesity is within grasp. I think it will lead to serious health benefits and reduced outcomes. We need to prove that. We've got our morbidity and mortality outcome study. We have a sleep apnea study. We have heart failure with preserved ejection fraction in obesity study. All of these studies will contribute to our understanding of how reducing obesity can reduce health risk, including probably, importantly, for Lilly is reduce risk of progression to type 2 diabetes. I think all of this will be possible, but it hasn't been proven yet, and that's the work we have ahead of us.

Right. And it's helpful, would you say, to have a competitor like Novo still in the market. And 2 companies trying to promote access and expand availability is probably better than one of you guys doing the heavy lifting.

Yes. Sure. I think that's right. This isn't a case where we're -- we would be, in the future, competing for a limited supply of patients. It's a huge market opportunity that we're trying to open up for the sake of the patients. Credit to Novo who's been an impressive competitor and spurred us to better and better innovation and like us, I think, has seen the opportunity in the public health crisis that is obesity even when, in the past, commercially, it looked unattractive. Just a few of us have persevered in working in this area.

Yes. And last question on obesity. When you look at sort of the next layer of therapies in the pipeline, you have GGG, you have other mechanisms, what's the -- what's sort of the upper bounds of what would be deemed to be positive risk benefit, right? I mean I think 25-30 is a really high number, right? But other modalities which could either extend the benefit of weight loss or maybe even further maximize the effect size?

Yes. I think we could use one more step change probably in treatment of obesity. I think we probably just saw a pretty big step change in the tirzepatide data. I think one more step like that would probably do it. That takes you almost to 30% weight loss is probably where we have to target the next generation of weight loss drugs. I think that's possible. That will put you well into the bariatric surgery range. So that's what I'll be looking for. We have a crop of modules on Phase I and Phase II that could offer that. We have to get the data. The bar just went up, though. I don't think a 25% weight loss would be adequate to move a new molecule to Phase III anymore that it once was. And now I think we need to be in -- probably in the high 20s. So the next one up for us is this GGG molecule, which I think had a pretty spectacular early stage data. But now we're running Phase II trials. And we'll see what kind of weight loss we think we can get with GGG, if it can meet that now a newly higher bar. If it can, we'll move it to Phase III. If not, we'll go back to labs and try again. We have an oxyntomodulin. And then we're also working on things that we could add tirzepatide because it already is such a great base. There are other mechanisms that could give you a boost of 5 points or something on weight loss that could be helpful for some patients. Having said that, most patients probably won't even need that. They'll probably get to their target weight with a drug like tirzepatide if it's approved.

Got you. And before we get to tirzepatide in diabetes, when you look outside the spectrum, though, you have cardiovascular indications. You have NASH. So does the treatment effect that you saw with SURMOUNT-1 maybe changed the level of investment of additional indications that Lilly is planning on?

Yes. Probably. I think we were pretty bold already. I think coming out of the SURPASS program, we started to gain confidence. And there are some investments that probably we'll be disclosing in time that were triggered by the degree of efficacy that we saw in the SURMOUNT trial, which obviously met all of our triggers for future investment. Really, this is a large, long-term opportunity. So we'll invest aggressively. If you subtract it out, if you said that there was no effect on A1C and you said there was no effect on body weight, I think you still have a pretty attractive cardiovascular drug looking at effects of things like [indiscernible] there.

Right. And so let's -- if you think about the number of -- the sheer number of patients that could benefit from your therapy relative to the investments that you've made in developing it, right, I mean it's stunning, actually, and you're close on diabetes. So let's talk about that end of the market.

Yes.

Coming up on your PDUFA date over the next few -- you haven't disclosed it officially. But -- so what do you have to do to sort of prime the market for this? I mean there shouldn't be a lot in terms of awareness, but should be pretty easy to plug into your commercial portfolio?

Yes, I think so. The data are hugely compelling from the diabetes program. That will obviously be our first approval. As you said, I think we've communicated first half of the year, so it's imminent. And I think given the strong base we built with Trulicity, there's going to be a good understanding. We're in the same device, patient acceptance and physician acceptance, so I expect will be high for this drug. It's still -- despite how large the GLP-1 market has become or the incretin market as injectables become, it's still growing quite quickly. A 30% growth rate for such a large market is pretty remarkable, I think, in our industry. I think every time we've had a new innovation introduced into this market, it's catalyzed additional growth. So that's kind of my expectation for tirzepatide. Not only will the growth continue, that we could perhaps accelerate incretin class growth here based on the efficacy. Yes.

And with your assumptions that you would make for duration of therapy, maybe help kind of compare and contrast what you see with Trulicity with what you could also get with tirzepatide.

Yes. Well, we don't have yet the real-world experience with tirzepatide that we have with Trulicity, but Trulicity has incredibly high -- I think higher than any oral refill rates on prescriptions. So people are staying on this drug even as an injectable probably because it's very well tolerated. It's a simple injection experience. They love the device. And they're seeing the results in A1C control and weight loss that lead people to stay on the medicine. I hope that with the similar presentation and tolerability, but better efficacy in terms of weight loss in A1C control in tirzepatide, we could have patients staying on drug even longer and have a longer durability. It's a major challenge. I think we're talking here mainly not about biologic loss of efficacy because of physiologic or drug problem, but just normal human behavior that after a while, people think they're better and stop taking a drug. So I think that's what we're working on mainly.

And when you think about kind of the hybrid, the -- sort of the multidimensional nature of the benefit, you have a benefit in prediabetic patients. And so what are the challenges in tirzepatide being used in this population because they're not, maybe they're not diabetic patients, but maybe they are obese? And is there sort of a hybrid that you could commercialize to those patients in the -- relatively here?

You're raising an excellent question. I'm not sure there's a path to commercializing in the near term for a claim of preventing diabetes. But we know that weight loss, for example, in bariatric surgery dramatically reduces the incidence of type 2 diabetes or in those that doesn't eliminate it delays it. So clearly, in the prediabetic space, weight loss from some mechanism can have an important impact. The challenge in getting a claim for diabetes prevention is that we know that even in people who have diabetes already, if you give them tirzepatide, over time, you'll normalize their A1C in the vast majority of patients. They'll no longer meet criteria. They won't fail [indiscernible] and says they want to have a normal A1C. They won't be criteria for diagnosis of type 2 diabetes. So that leads regulators to ask the question, how do you know if you've prevented the disease? Or have you just masked the disease? I think that's a hard question to answer. I don't really have a path to address that in the near term. But in the long term, I think that is one of the benefits of weight loss that we want to demonstrate. You mentioned before, I didn't comment on, NASH is another one that we know from bariatric surgery, you can virtually eliminate NASH with dramatic weight loss. Will that work with tirzepatide? We'll find out over time.

Yes. But you're in Phase II there, and you haven't talked about kind of your investment beyond that?

Yes. Yes. I have a high degree of confidence that in this Phase II, based on marker data, mechanistic data, based on the precedent for weight loss, but this is a biopsy-driven Phase II trial as is required by current regulatory guidances. I think that's fine for Phase II. I don't relish the notion of doing a Phase III driven by biopsy and even less launching a drug where in order to get prescribed the drug, you need a biopsy to know if you qualify and another one to know if it's working or not. That feels out of the question. So our investment in NASH is to demonstrate the drug is working in Phase II. At the same time, try and qualify noninvasive biomarkers that could be used in the future to actually have Phase II ties, to actually have a big commercial opportunity. It's a little bit different than how others think about NASH, but that's how we want to go forward.

Got you. Okay. That's helpful. Well, let's switch gears quickly to the Alzheimer's portfolio. So donanemab had some very strong data last year. You're coming up, you're having data from a head-to-head trial on PET imaging versus adju. Is there -- what's the change in Lilly's thinking about the path to approval post -- not just that, but the adoption ultimately post the CMS decision on adju?

Yes. I think the CMS decision -- maybe stronger than I think. Clearly, the CMS decision is -- has taken away the opportunity of patients to access the drug under accelerated approval. For Alzheimer's disease, at least it's not possible. It has to be in a clinical trial, which, by the way, patients have access to drugs in clinical trials without accelerated approval. So it sort of negated what I think is an important pathway that is established by FDA in Congress for obvious reasons. So I feel a sense of urgency. I know that under accelerated approval, patients won't have access. But I still think it's worth pursuing the process. We will have a role to play here. And I think ours is to advocate for -- on behalf of patients when we think the science meets the bar here for usage. So we'll proceed, but our eyes are wide open about the patient impact we can have in the accelerated approval period. In contrast, I think we have large ambitions for the period once we have -- following a successful Phase III trial. So TRAILBLAZER-2 designed, I think, optimally, based on what we know today, to yield evidence, hopefully, that donanemab has a large effect on slowing decline of cognition and function. Once we have that data, that's the moment to go to CMS and push for not CED but rather full coverage for patients that need this drug. I think there really -- it is without precedent for a drug that will have -- if we do have unequivocal evidence of efficacy, not to be reversed. So there's work to do, I think, to get to that destination, but that's clearly our goal and our long-term outlook for donanemab and for this entire class is unchanged, I would say, but the short term certainly is.

And we'll obviously have to see from the cognition study that you'll have next year, ultimately, what the treatment effect is. But when you think about the -- what was successful in the pivotal studies, it was the collection of tau imaging or PET imaging. How do you think that plays out commercially? Is there sort of an onboarding process that Lilly can streamline patients. And provided, obviously, that you have the benefit in TRAILBLAZER-2.

Yes. It is a more complicated treatment paradigm than for most similar diseases. I think it probably feels a little bit more like oncology where you're doing scans and lots of diagnostic procedures before you start a patient on therapy. I think that's okay for now. It's probably not the long-term future for Alzheimer's disease patients. In the United States, at least we have the PET infrastructure, and we have FDA-approved PET tracers for amyloid and tau. And so it's feasible. But in the long term, we'd like to simplify. And I think the initial simplifications that we have now is this phospho-tau217 assay, which I think is -- looks really quite reliable at predicting whether or not a patient will have amyloid plaque in their brain. So we could probably, in time, with more data, use that to identify patients for therapy. The question of tau stratification then comes next. So if you can use a blood test to tell someone has amyloid plaques, do you still need a tau scan to tell whether they have too much tau or not enough tau to be an appropriate patient for therapy? Here, we have limited data from TRAILBLAZER-1 where we showed that patients who had less tau in the brain and more efficacy. Let's see if that reproduces in TRAILBLAZER-2. If it does, we'll have to make sure that there is appropriate access for tau scans. On the other hand, it may also turn out that a broad range of patients can benefit, in which case, tau scans may not be required. So the data will drive the implementation of the diagnostic strategy.

And then when you look at the prior data you, within the 6 month of treatment, you had a pretty meaningful benefit. What gives you sort of the level of confidence in a larger study and showing the same benefit? Or why not go an extra 6 or 12 months? Like how do you speak to duration of therapy for donanemab?

Yes. It's a tough question, Geoff. And probably it could be true that longer trials could show greater benefit. On the other hand, you're keeping patients on placebo longer and you're delaying the availability of trial for every -- delaying the availability of drug for everyone else who could benefit for it. And finally, you're getting more and more dropout over time. It's a difficult population to study. And patient dropout is a reality in all Alzheimer's trials. So 24-month trials are feasible and are open for discussion. I think in the symptomatic Alzheimer's proposition, much beyond that and you're not going to have very many patients able to stay in the trial, and those that stay in may not be a fully random sample. So I think 18, 24 months is probably the sweet spot for duration of Alzheimer's trials. I wish there were a way in randomized controlled trials to get longer-term outcome data. I don't believe there is. So I think notwithstanding the discussion about CMS, there could be an opportunity in the long run to do pragmatic or real-world evidence studies to show in cohorts of patients who receive this drug how they compare to propensity score-matched patients who didn't receive the drug. Those kinds of experiments will be important, I think, to prove the long-term benefits, but I don't think it will be done in our CTs. The other place where we can do longer trials is in the presymptomatic Alzheimer's patients, people of pathology, but don't yet have symptoms disease, and that is ongoing for us. That's TRAILBLAZER-3 important trial as well as the trial we have in solanezumab.

Yes. And when you think about the other programs that you guys have had in Alzheimer's, tau has had somewhat of a mixed effect. How do you envision kind of -- beyond kind of the TRAILBLAZER-ALZ 2 study? Do you think -- are we almost there yet to develop combination therapies? It seems like it's a long process, right, especially if you're talking about 3-plus years to [indiscernible]?

I hope so. We were actually, I think, the first and probably still the only company to actually try a combination trial. We tried a BACE inhibitor in combination with donanemab, but then the base inhibitors all failed, including ours. So we stopped that. But we had at least the idea and the courage to try it. I think if we had a mechanism that we thought could complement well with plaque reduction and anti-tau mechanism, we'd be eager to try it. If we had had some glimmer of efficacy from zagotenemab, anti-tau antibody trial, we would be running that right now. But right now, we don't have another drug that would be a suitable combo for donanemab. I do think that's the future. I don't think amyloid-reducing drugs are going to stop disease progression in symptomatic Alzheimer's. I think we're looking at a class that probably will have 20% slowing or something like that, which is a good start and hugely meaningful, and we love that in other diseases like cancer, but not the end game. And so treating patients earlier is 1 way to improve the effect size. Combination therapy is the other. Tau is still a great target if we can drive it.

Right. Perfect. Let's switch gears to the inflammation portfolio. You guys have a lot of assets that, I would say, in the case of mirikizumab, lebrikizumab, which are probably not as well appreciated by The Street, but in and of themselves are multibillion opportunities, right? So Lilly also has Olumiant and you have Taltz. And so are you comfortable with the mechanisms you have in-house across the spectrum of I&I indications? And the other question is, what about combinations there as well that's not as well embedded, I think, in the I&I space?

Yes. So the first question is, are we comfortable or satisfied? No. I always want more in immunology. I think some disease states are pretty well addressed. We're proud of what we can do for patients with psoriasis with Taltz. But we're nowhere near those levels of efficacy in IBD. We're -- mirikizumab ulcer colitis data were [indiscernible] were really positive. I think levels of efficacy as good as you see with any biologic, if not better. But still, we have about 1/3 of the patients in clinical remission, not 90% or something like that, that you can see in other diseases. So how do we get to those levels of efficacy? I think we're going to need additional mechanisms. We're going to need patient segmentation to predict who are going to be the true responders. And probably in the long run, we'll need combinations. A challenge in immunology, though, is that so many of the mechanisms work in a similar way, which is to dampen the immune system, which then has predictable side effects. So I think a major push from us then is to look at mechanisms that aren't turning off, dampening your immune response but rather perhaps inducing tolerance or upregulating your regulatory T cells. And so we have a cohort of molecules now in early development that offer that kind of promise. Those kinds of things could actually -- either offers a degree of efficacy alone or actually be paired with immunosuppressing mechanisms without the kinds of side effects that we're used to. So we're investing heavily there. We have our checkpoint agonists, which are reversing what we see in oncology. There's early glimmers there. I hope I'll have more data soon as these molecules march through Phase II, but that's a big portfolio. We have things like our IL-2 mechanism, which we're exploring, and we'll see that clearly upregulates T regs. Whether that can have a beneficial effect in immune cells is yet to be seen. So more to come in that area and probably a little bit less emphasis on sort of the anti-cytokine mechanisms that have been successful thus far.

Okay. Perfect. Well, with that, we're out of time. So thank you very much, Dan.

Good. We don't get some extra time because of the -- our guests, unwelcome guests. Well, thank you.

Yes. Yes. Thank you.

Great. Have a good evening.