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

Ladies and gentlemen, thank you for standing by, and welcome to the Lilly 2023 Guidance Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Joe Fletcher. Please go ahead.

Thank you, Lois, and good morning. Thank you for joining us for Eli Lilly and Company's 2023 Financial Guidance Call. I'm Joe Fletcher, Senior Vice President of Investor Relations. And joining me on today's call are Dave Ricks, Lilly's Chair and CEO; Anat Ashkenazi, Chief Financial Officer; Dr. Dan Skovronsky, Chief Scientific and Medical Officer; Anne White, President of Lilly Neuroscience; Ilya Yuffa, President of Lilly International; Jake Van Naarden, CEO of Loxo@Lilly; Mike Mason, President of Lilly Diabetes; and Patrik Johnson, President of Lilly Immunology and Lilly USA. We're also joined by Mike Sprengnether,  Kento Ueha and Lauren Zierke of the Investor Relations team. During this conference call, we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to several factors, including those listed on Slide 3. Additional information concerning factors that could cause actual results to differ materially is contained in our latest Form 10-K and subsequent Forms 10-Q and 8-K filed with the Securities and Exchange Commission. The information we provide about our products and pipeline is for the benefit of the investment community. It's not intended to be promotional and is not sufficient for prescribing decisions. As we transition to our prepared remarks, please note that our commentary will focus on non-GAAP financial measures. Now I'll turn the call over to Dave.

Thanks, Joe. Before we discuss our 2023 guidance, let me briefly summarize our accomplishments in 2022. We exit this year with positive commercial momentum, driven by strong volume-based growth, including our incretin products, which have seen unprecedented demand. Our manufacturing team have stepped up to the challenge, producing Trulicity and Mounjaro at volumes ahead of our internal plan. In addition to this commercial momentum, we also made significant pipeline progress, highlighted by the positive SURMOUNT-1 study for tirzepatide in patients with obesity, and successful regulatory submissions for 4 other new potential medicines that could launch by the end of 2023. Looking forward to 2023 and the years beyond, we have confidence in our existing commercial portfolio and the 4 potential launches of pirtobrutinib, donanemab, mirikizumab and lebrikizumab, which could serve as catalysts for growth through the balance of this decade. We plan to step up investment across our manufacturing and commercial organizations to build additional capacity and support successful launches for the long term. While our commercial and manufacturing organizations are focused on maximizing patient reach with our current medicines and potential near-term launches, we remain dedicated to innovating and introducing breakthrough medicines beyond this decade. When we see opportunities to develop life-changing medicines for patients, we will assertively invest in R&D opportunities. And to this point, we are pleased to announce that we plan to initiate Phase III studies in 2023 for retatrutide, our GGG tri-agonist, and orforglipron, our oral GLP-1 non-peptidic agonist. We are committed to making life better for patients, assisting health care systems and maximizing the long-term value we create for our shareholders. We look forward to another year of strong execution across our business in 2023. Now I'll turn the call over to Anat to provide the details of our '23 financial guidance.

Thanks, Dave. Before I get into the specifics of 2023 guidance, let me reinforce our broader outlook, which remains consistent with what we shared last December at our investment community meeting. On Slide 4, you'll see a summary of our mid-term outlook, outlining how our capital deployment decisions drive the achievement of our strategic deliverables. We believe we have the potential to deliver top-tier volume-driven revenue growth with innovative medicine through at least 2030. In addition to the tremendous ongoing launch of Mounjaro in type 2 diabetes and the future opportunity to treat obesity and obesity-related metabolic outcomes with tirzepatide, we're progressing towards 4 potential new launches by the end of next year. With limited patent expiries until Trulicity and Jardiance later in the decade, we believe these 5 new medicines and the continued scaling of our key growth products could fuel our next wave of growth. Consistent with our innovation-based strategy, we will invest in R&D by focusing on our core therapeutic areas to deliver breakthrough medicines to patients and by expanding and enhancing our team and capabilities. To achieve these goals, we're focused on, first, driving launch uptake and increasing profitability for our commercial portfolio by investing in and efficiently leveraging selling, marketing and manufacturing resources. Second, delivering on future innovation by investing robustly in internal and external R&D opportunities and manufacturing capacity and returning cash to shareholders via the dividend and share repurchases. In our quarterly earnings call next year, we look forward to providing an update on progress against these strategic deliverables. Moving to Slide 5, you can see a number of factors that may impact our 2023 financial results. We expect to build on the positive momentum of our key growth drivers across geographies, primarily driven by the robust uptake of Mounjaro. We expect to continue to lead the class in the rapid growth of the type 2 diabetes incretin market. Incretins as a class are being used earlier in the type 2 diabetes treatment paradigm, and we expect Mounjaro to continue to gain share in a competitive market as physicians and patients continue to gain experience with that product, partially offset by a gradual decline in Trulicity share. We are building payer access for Mounjaro by balancing pace with discipline, and we have recently achieved approximately 50% access for patients with type 2 diabetes across commercial and Part D. As we broaden access during 2023, we expect to see improved net realized prices. In terms of supply, consistent with what we've previously communicated, we are focused on building additional incretin capacity to meet the growing demand for our incretin portfolio. In the near term, given continued strong demand across the 6 Mounjaro doses and the 4 Trulicity doses, we continue to update the FDA on the demand situation and would anticipate a post into the FDA website in the coming days. For Trulicity, we are seeing increased demand for the 2 higher doses and some wholesalers and pharmacies are experiences delayed restocking. For Mounjaro, as we discussed in the Q3 earnings call, it is challenging to align production across 6 doses with the orders we receive from wholesalers. Therefore, we do expect to see intermittent delays at wholesalers and pharmacies in receiving some Mounjaro doses. For example, we have recently experienced short delays in supply in Mounjaro's 7.5-milligram dose which we're expecting to replenish by the end of this week. We may see a similar situation in the coming weeks with the 5 milligram dose. Overall, our supply chain continues to perform very well. As we rapidly build capacity, we remain excited by the long-term opportunity to reach millions of patients with our incretin products. Outside of our incretin products, we expect continued strong volume-driven growth in 2023 across our other key growth products anchored by Verzenio, Jardiance and Taltz. We expect international markets to contribute meaningfully to revenue growth in 2023. Starting with Japan, we expect a return to growth in 2023 as we continue to scale our key growth products and see a reduced impact from the Cymbalta and Alimta patent expirations. We also plan to launch Mounjaro in Japan for type 2 diabetes in the first half of the year. In China, we expect to return to revenue growth as volume continues to benefit from the expanded access achieved in 2022, while the associated price -- negative price impact abates in 2023. Across Europe, we expect to accelerate sales growth driven by our key growth products and a reduced impact from Alimta's loss of exclusivity. However, we do anticipate some headwinds from intensifying austerity measures in several major European markets. To create long-term value beyond this decade, we are fully investing behind our recent and new potential launches as well as in our pipeline through new large registrational trial starts for retatrutide and orforglipron as well as other ongoing Phase III programs. We anticipate 3 notable headwinds in the revenue growth comparison versus 2022: COVID-19 antibody sales, Alimta's loss of exclusivity and foreign exchange rates, with the most significant one being the year-over-year comparisons for COVID-19 antibody sales. Given the emergence of new BQ variant, we're assuming no revenue from our COVID-19 antibodies going forward. As recently announced by the FDA, bebtelovimab is not currently authorized for emergency use in any U.S. region. While the impact of Alimta's loss of exclusivity outside the U.S. has largely moderated, the patent expiry in the U.S. will continue to impact sales growth comparison in the first half of 2023. Given the timing of generic launches in 2022, the year-over-year impact of Alimta patent expiry in the U.S. will moderate in the second half of next year. Lastly, we expect continued headwinds from foreign exchange rates on revenue and earnings next year. On Slide 6, we are reaffirming our 2022 guidance from our Q3 earnings call and sharing our 2023 guidance for the first time. Given the inclusions of IPR&D and development milestone charges in both GAAP and non-GAAP operating margin, we no longer plan to provide operating margin guidance. However, we remain committed to expanding operating margin over time, excluding IPR&D and development milestone charges. Moving to our guidance. Revenue is expected to be between $30.3 billion and $30.8 billion for the year. Using the midpoint of 2022 and 2023 ranges, this represents roughly 6% growth or 14% growth for our core business, excluding COVID-19 antibodies. In terms of pricing, we're expecting a low single-digit percent price decline next year that includes the favorable impact from expected broader access for Mounjaro. Gross margin as a percent of sale is expected to improve slightly to 79%, mainly due to lower COVID-19 antibody sales, partially offset by the continued negative impact of inflation, negative impact of foreign exchange rates on revenue and price erosion. Across the broader organization, we're investing in our most valuable asset, our talented workforce, through enhanced compensation. We expect these investments, when combined with the impact of inflation, to drive 3 percentage points of increase in operating expense. Marketing, selling and administrative expense is expected to be between $6.9 billion and $7.1 billion with year-over-year growth driven by marketing investments to support Mounjaro uptake, the potential launch of 4 new medicines and prelaunch effort for tirzepatide obesity, partially offset by efficiencies within our commercial organization and the favorable impact of foreign exchange rates. R&D is expected to be between $8.2 billion and $8.4 billion with year-over-year growth driven by ongoing late-phase opportunities as well as new Phase III trials for exciting potential medicines such as orforglipron and retatrutide. Other income and expense is expected to be between $100 million and $200 million of expense, primarily driven by higher interest expense. Turning to taxes. We expect our GAAP and non-GAAP effective tax rate to be approximately 16%, which assumes the provision in the 2017 Tax Act that requires capitalization, amortization of research and development expense for tax purposes to get deferred or repealed by Congress this year, effective for the full year 2022 as well as 2023. The tax rates increased from 2022 to 2023 includes the impact of recently enacted Puerto Rico legislation that will be effective starting 2023 as well as an expected increase in the proportion of earnings in higher tax jurisdictions. Earnings per share is expected to be in the range of $8.10 to $8.30 on a non-GAAP basis, and reflects top line growth alongside meaningful investments in the business. Consistent with our practice in 2022, we're not including any potential or pending acquired IPR&D and development milestone charges in our 2023 guidance, and we expect to update our EPS guidance each quarter as actual acquired IPR&D and development milestone charges are incurred. For guidance modeling purposes, we're currently estimating diluted weighted average share outstanding for 2023 to be approximately $904 million, consistent with that for 2022. This number could change as a function of the amount of capital we deploy to fund external innovation versus share repurchases. A few comments as you think about the phasing through the year. Revenue growth should accelerate over the course of the year, led by Mounjaro's uptake. This acceleration will be further impacted by 3 other items related to the 2022 base period comparisons: COVID-19 antibody sales, U.S. Alimta sales prior to loss of exclusivity in the first half of 2022 and the strengthening of the U.S. dollar over the course of 2022. We expect the first quarter growth to be particularly impacted given the $1.5 billion of COVID-19 antibody revenue in the base period. 2023 should be another exciting year, driven by high teens volume growth of our core business while we make meaningful investments to drive future growth. At our investment community meeting in December 2021, we framed our mid- to long-term outlook by highlighting the following expectations: That we expect revenue to grow at the high end of the industry this decade; that gross margin as a percent of sales expected to be around 80% for the remainder of the decade; and that we expect to see continued operating margin expansion to a range of mid- to upper 30s, which we still expect when excluding the impact of acquired IPR&D and development milestone charges. Today, we are reaffirming these expectations with even greater level of confidence built on another year of delivering robust results and gaining further insights into pipeline progress. Now I'll turn the call over to Dan to highlight our continued R&D progress.

Thanks, Anat. We're excited to announce today that we've obtained positive Phase II data for both of our leading next-generation incretin programs. First, our oral non-peptide GLP-1 agonist known as orforglipron; and second, our GGG injectable incretin, known as retatrutide. We see these as very significant advances for patients, and we're pleased to share today our plans to begin Phase III studies for these assets next year. These 2 molecules will join 3 new molecules that have recently started Phase III, namely remternetug for Alzheimer's, our weekly basal insulin Fc and our oral SERD, imlunestrant. Together, these 5 Phase III programs give good visibility to our next wave of innovation beyond the potential 4 new molecule launches in 2023 that Anat has discussed. These new Phase III starts add to a significant base of late-phase investment, which, of course, includes ongoing development programs for tirzepatide, donanemab and pirtobrutinib as well as additional indications for abemaciclib and mirikizumab. By our estimation, this is the most promising slate of late-stage opportunities Lilly has had in its portfolio in recent years, and we'll invest behind it with a goal to sustain top-tier growth beyond this decade and make these important medicines a reality for patients that need them. As you can see on Slide 7, we're pleased to share positive Phase II results for orforglipron. While the chronic weight management Phase II study isn't quite completed, using preliminary data and statistical modeling, we estimate that in this trial orforglipron will achieve weight reduction of approximately 14% to 15% after 36 weeks of treatment. Top line results from the completed Phase II study in people with type 2 diabetes showed a dose-dependent reduction in hemoglobin A1c up to 2.1% and weight reduction up to 9.6% after 26 weeks of treatment. Across both the type 2 diabetes and the chronic weight management studies, we've observed a safety and tolerability profile for orforglipron that is similar to injectable GLP-1 receptor agonists. Based on these findings, orforglipron could offer a differentiated profile compared to other available incretins and we believe this molecule could become a best-in-class oral GLP-1 receptor agonist. We've previously stated that our goal with this molecule was to create an easy-to-use once-daily oral without food or water intake restrictions that could match the efficacy both on A1c and weight reduction of the best injectable GLP-1 receptor agonists. The Phase II data we've obtained thus far give us confidence that we may achieve this goal. We look forward to sharing more complete data at the upcoming American Diabetes Association Conference in 2023. We plan to initiate Phase III registrational studies in both type 2 diabetes and chronic weight management with orforglipron in the first half of 2023 and, if successful, to submit in 2025 and 2026 for both indications. Switching to retatrutide on Slide 8. We're pleased today to also share preliminary data from our 2 Phase II studies for this molecule. While these studies are still being finalized, based on our preliminary data, we estimate that at the highest dose, retatrutide will achieve weight reduction of approximately 22% to 24% by 48 weeks, with the expectation that weight reduction will continue to increase over a more extended period. Given our extensive experience in this area and taking into account differences between Phase II and Phase III, we're confident that retatrutide could potentially achieve a step change in efficacy compared to tirzepatide in chronic weight management. Additionally, using the preliminary data from the Phase II study in patients with type 2 diabetes, at the highest dose, we estimate that retatrutide will achieve an average A1c lowering of approximately 2% and weight reduction of approximately 15% to 17% after 36 weeks of treatment. In both trials, weight reduction was primarily driven by fat mass loss while lean mass loss was as expected based on the magnitude of weight reduction. Across the Phase II studies, we've observed an overall safety and tolerability profile similar to other incretin-based therapies. As expected, we observed increases in heart rate, which were within acceptable ranges, intended to decrease over time. We also observed beneficial changes in liver enzymes accompanied by decreases in liver fat that are anticipated to be differentiated compared to other incretin-based therapies. We've previously shared that our goal with this molecule was to offer a step change in weight reduction versus tirzepatide with similar safety and tolerability. Based on our Phase II data, we believe retatrutide can achieve this goal and become an important therapeutic option for chronic weight management, beneficial for patients requiring a higher level of weight reduction than that which can be achieved with tirzepatide or for individuals with obesity with nonalcoholic fatty liver disease or NASH, given the excellent profile we see on liver fat. We're also pleased to see strong glucose lowering with retatrutide in patients with type 2 diabetes, indicating that this could be a compelling therapeutic option for weight reduction for patients with and without type 2 diabetes. We look forward to sharing more detailed Phase II results at the upcoming American Diabetes Association Conference in 2023. We plan to initiate Phase III registrational studies in chronic weight management in mid-'23 and, if successful, to submit by 2026. With 650 million people worldwide estimated to be living with obesity, we know different patients will have different needs over time. With tirzepatide, orforglipron and retatrutide, Lilly is well positioned with a complementary range of potential treatment options to meet the varied needs of people living with obesity. Moving to Slide 9. While I won't describe each of the potential 2023 events listed, I'll highlight a few events by therapeutic area. Starting with Alzheimer's disease. We look forward to the FDA's potential accelerated approval in early 2023 of donanemab for treatment of early symptomatic Alzheimer's disease based on our TRAILBLAZER-ALZ data. While we expect extremely limited uptake for donanemab until CMS supports coverage, an accelerated approval would allow us to begin to address the diagnostic and therapeutic infrastructure needed to support patients if coverage reconsideration occurs. We've seen both positive and negative Phase III results of other Alzheimer's disease therapies in recent months. These results and the data shared to date have consistently reinforced the relationship between the degree of amyloid reduction and the slowing of disease progression. Our own TRAILBLAZER-ALZ 4 Phase III trial presented at the CTAD meeting two weeks ago also reinforced the relationship between degree of amyloid reduction and improvements in downstream biomarkers of Alzheimer's disease. Of course, we look forward to our next pivotal readout in Alzheimer's, the top line results of the Phase III confirmatory study, TRAILBLAZER-ALZ 2, in mid-2023. In 2023, we also plan to initiate further Phase III studies in our development program for remternetug, another amyloid-targeting antibody in patients with early Alzheimer's disease. As we've previously shared, remternetug has shown deep and rapid amyloid plaque clearance and provides the opportunity to explore a flexible dosing regimen for patients, including both intravenous and subcutaneous delivery. We initiated TRAILRUNNER-ALZ 1 earlier this year to evaluate the amyloid plaque lowering and safety of remternetug and look forward to starting efficacy trials next year. Transitioning to immunology. We look forward to regulatory decisions for 2 assets, mirikizumab, our IL-23p19 inhibitor, in patients with moderate to severe ulcerative colitis in the first half of 2023, and lebrikizumab, our IL-13 inhibitor, in patients with moderate to severe atopic dermatitis by the end of the year. We also expect the Phase III readout of mirikizumab for moderate to severe Crohn's disease in the second half of 2023. The potential approvals of mirikizumab and lebrikizumab represent an important opportunity for Lilly and for the patients we serve. Moving to oncology. Over the past few days, at the American Society of Hematology Annual Meeting, we shared Phase I/II BRUIN trial data for pirtobrutinib, demonstrating activity in patients with B-cell malignancies that have been pretreated with covalent BTK inhibitors across multiple patient subgroups. We look forward to the FDA's potential accelerated approval of pirtobrutinib in early 2023 for mantle cell lymphoma patients previously treated with a BTK inhibitor. We also expect the Phase III readout of Verzenio for patients with metastatic castrate-resistant prostate cancer who have not received a prior novel hormonal agent in earlier settings. As you may recall, we initiated the Phase III portion of an adaptive study based on a favorable blinded interim analysis. This is an event-driven study. So the readout timing is subject to change, but we currently estimate the timing to be in late 2023. Finally, in diabetes and obesity, we're focused on maximizing opportunities to help patients with tirzepatide. In line with what we previously communicated for tirzepatide's obesity filing in the U.S., assuming positive SURMOUNT-2 results, we expect to complete the rolling submission in mid-2023 for potential regulatory action as early as late 2023. While not expected to be part of the obesity submission package, we also look forward to reading out SURMOUNT-3, which will provide data on maximizing weight loss following an intensive lifestyle program, and SURMOUNT-4, which evaluates maintaining weight loss after discontinuing treatment with tirzepatide. In 2023, we will also begin SURMOUNT-5, a head-to-head study comparing weight reduction for tirzepatide versus semaglutide 2.4 milligrams. We continue to execute our tirzepatide outcomes trials as well as studies in other obesity-related metabolic conditions and remain excited for the potential to demonstrate improved outcomes for patients. We're also progressing registrational studies for our investigational weekly basal insulin, BIF. we initiated 4 of the 5 Phase III registrational studies during 2022 and plan to start our last Phase III study in early 2023. This study tests our weekly insulin using a unique fixed dose approach, administered using the same patient-centered, easy-to-use, weekly auto-injector as Trulicity and Mounjaro compared to daily insulin glargine in type 2 patients naive to insulin therapy. We're excited about the opportunity to dramatically simplify the patient experience for people with diabetes who need insulin therapy. We look forward to keeping you updated on our progress on these key events throughout the year. I'd also like to highlight 2 data readouts that we've presented at medical conferences since our last earnings call. First, with Verzenio, at the recent San Antonio Breast Cancer Symposium, we presented the latest interim analysis for monarchE, our adjuvant high-risk early breast cancer study of abemaciclib in combination with endocrine therapy for treatment of adult patients with HR-positive, HER2-negative, node positive early breast cancer at high risk of recurrence. With a median follow-up of 3.5 years, and with all patients having now discontinued or completed the 2-year Verzenio treatment period, we were pleased to see the increase in both IDFS and DRFS continue to deepen in magnitude at 4 years across all prespecified subgroups regardless of Ki-67 score. While the overall survival data remain immature, we're excited to share that we've now observed a positive OS trend emerging in the broader ITT population. Importantly, there are no new safety signals identified and the side effect profile remains consistent. Based on these latest interim data, we've submitted an sNDA to the FDA to potentially expand our adjuvant indication beyond the currently indicated cohort-1 Ki-67 greater than 20% population. As the only CDK4/6 inhibitor approved in the adjuvant setting, we're excited about the potential opportunity to impact an even broader early risk breast cancer patient population by substantially reducing the risk of developing incurable life-threatening metastatic disease. Separately, we also presented exciting proof-of-concept results for our PD-1 agonist antibody, peresolimab in rheumatoid arthritis as a late-breaker presentation at the American College of Rheumatology Conference. In the proof-of-concept study, we observed substantial joint improvement at week 12 with durable response through 24 weeks of dosing. Of note, the safety and tolerability profile were similar across the active drug and placebo arms. Based on these proof-of-concept results, we've initiated a global dose-ranging Phase IIb study and look forward to showing the results in the future. With our emerging immune resolution portfolio, Lilly is well positioned to lead in the next wave of innovation with peresolimab and other checkpoint inhibitory receptor targets. In closing, I'll just highlight again how proud we are of the progress we made this year with tirzepatide for obesity, donanemab for Alzheimer's disease, pirtobrutinib for B-cell malignancies, lebrikizumab for atopic dermatitis and mirikizumab for inflammatory bowel disease. All of these are moving quickly, and we hope to bring each of them to patients next year. While we have a lot of work to do to fully address the opportunities that these 5 important molecules have to help patients across multiple indications, we now have visibility to our next 5 potential breakthroughs behind them with retatrutide, orforglipron, our weekly insulin BIF, imlunestrant and remternetug, all advancing into or progressing through Phase III trials. Together with continued advances in our already launched medicines, these 10 opportunities position us to help more and more patients well beyond this decade. With that, I'll now turn the call back over to Dave for closing remarks.

Thanks, Dan. Clearly, we have another exciting year ahead in R&D. Congratulations to all the Lilly scientists. On Slide 10, let me sum up our outlook. In 2023, we expect revenue from our core business to grow by mid-teens, despite the unfavorable impacts from Alimta's loss of exclusivity in the U.S. and foreign exchange rates. We are focused on building on Mounjaro's strong launch, successfully introducing new medicines and bolstering our late-stage pipeline to achieve top-tier revenue growth through this decade and beyond. To enable this long-term growth, we are significantly investing in our recent and upcoming launches, in new Phase III trials for retatrutide and orforglipron and in our people. In 2023, we will again increase our dividend by 15% for the fifth consecutive year. This represents a doubling of our dividend since 2018 and underscores our confidence in the future outlook. We remain focused on executing across our business to deliver innovative medicines to address the most significant unmet patient needs. I'll now turn the call back to Joe to moderate the Q&A session.

Thanks, Dave. [Operator Instructions] Lois, please provide the instructions for the Q&A session, and we're ready for the first caller.

[Operator Instructions] And our first question is from the line of Terence Flynn from Morgan Stanley.

Obviously, a lot going out of the company as we head into next year. I guess, first, I was just wondering if you can maybe share some more detail about your assumptions on the GLP market growth, U.S., ex U.S. as we head into next year? And is there any reason to think that your market share would be less than it was in 2022? And then on the manufacturing side, just wondering if the FDA completed its inspection at the North Carolina facility, and any color you can share now in terms of the guidance and ramp of that facility. And then elaborate on your comments regarding the FDA posting, which I think you mentioned during your prepared remarks.

Thanks, Terence. Good to hear from you. So we'll take those 2 questions, maybe pass them over to Mike. The first one is more details on assumptions in the GLP market growth going into '23. And then the second one on the completion of the RTP facility and the FDA posting.

Okay. Thanks, Terence, for your questions. First of all, we're very excited about the GLP market growth, both globally and in the U.S. If you look at the most recent data, growth over the last 52 weeks, for TRx as the injectable incretin have grown 41%. So we're quite excited about the growth opportunities. I think that's really based on meeting patient needs. Mounjaro has done -- it's just a phenomenal product that as patients go back into physicians' offices are really talking about the improvements they've seen both on A1C and weight for those who have type 2 diabetes. And so I think that is spurring on more interest in the class as well as Mounjaro. So we're excited about the opportunity. We think there's very good opportunities in the short term with GLP market growth within type 2 diabetes and then long term in obesity as we get that indication. Let me kind of give you -- let me step back, and I can just give you a bigger perspective on supply for our incretin. First of all, things are performing quite well. We're excited about the performance of our supply chain overall. It is producing more auto-injectors than what we had planned in '22. So the manufacturing facilities are going well. We're excited about the opportunity to -- and the progress that we're making in manufacturing to bring on our plant at RTP, opportunity to begin production in there in mid-'23, on our way to doubling the capacity of our incretin by the end of '23. And we're also excited about the progress on our investments for the long term. We are committed to this class. We're committed to helping people who have diabetes and long term with obesity, and we're making the investors to make sure that we have the supply to do that. When we talk about potential short-term inability to meet some orders from wholesalers it's really determined by what's coming out of our manufacturing facilities this week, were decisions we made 2 to 3 months ago. And with the dynamic nature of the launch, you're not always going to be able to forecast exactly what -- in a given week and a couple of months out, what exactly the mix is across our 6 doses of Mounjaro or your 4 doses of Trulicity. It's a very dynamic market as we launch up and ramp up the launch of tirzepatide as well as the variability that comes in with competitor supply issues. For example, we see some of our doses spike when a competitor has an outage of their GLP. And so that really affords a dynamic market that we're trying to plan. So the reality is we're not going to be able to exactly predict the -- what wholesalers are going to order each week. And so we're going to have varying levels of inventory across our different SKUs across Trulicity and Mounjaro. Sometimes some are going to have high inventories, some are going to have lower inventories. And we've seen a little bit of that on Mounjaro. Recently, we've had -- we've delayed shipping for Mounjaro 7.5, but we have a big lot that's going out this week that should resupply that. We may see a similar situation in the coming weeks on the 5-milligram dose. We think it's important to be proactive. We've been working with the FDA since we've seen the incretin demand surge. And we think it's important for customers to know kind of what doses that we have, good inventory on what doses that we may have low inventory on in the short term, so they can make the right treatment decision for patients. Now we do know that because of competitor supply constraints that there is some nervousness in the marketplace. And it's likely that in -- probably in social media and in other media that you may have patients reporting that they went to the pharmacy and they weren't able to get Mounjaro or Trulicity now. There's a lot of reasons why someone may go to a pharmacy and not end up with a -- walking out with the script. Could be because a physician needs to process a prior authorization, and it just wasn't done yet, and the patient has to leave and come back later. It could be that the patient's co-pay changed because of their insurance coverage change or could be that the medication savings program changed and requiring the patient to pay more and thus, the patient decided not to pay and walk out without a prescription. It could be that a pharmacy chain has decided not to proactively stock a product in each pharmacy. So a patient comes in, they don't have it on stock. They have to order it and the patient has to come back in a couple of days. Or it could be that there's low inventory at the wholesaler and the patient may have to wait a couple of days or a week to come back to get the product. So there's a lot of reasons why it may happen. Not all of those are due to any supply constraints. But I think it's important for us to be as proactive as possible. So people don't overreact. The last thing we want is for someone to overreact and think that we're having manufacturing issues or that someone who's relying on a Lilly incretin has to wait a long period of time to get their dose. So overall, we are very confident in our supply chain. It's performing incredibly well this year, being over planned. We're excited about the progress of bringing on our manufacturing facility at RTP. We're excited about the opportunity to double our supply by the end of '23, and we're very excited about the opportunity to meet the long-term needs of patients for tirzepatide and Trulicity. So I appreciate the question. Hopefully, that helped to provide context.

Our next question is from as Seamus Fernandez from Guggenheim.

Okay. Thanks for all the detail on the supply side of things. I wanted to just ask a little bit about the R&D spend and what's built into that. Obviously, a number of clinical starts built in there. But I know there's also the opportunity to deploy MSL and that may fall under the R&D line as it relates to preparation for donanemab. Just wondering if there's preparations to help educate physicians. And I know that, that typically would fall into the SG&A line, but just education efforts on donanemab that would be built into that on the margin. And then separately for Dan, just hoping you could help put into context a little bit for us your thoughts on the lecanemab data that we saw at CTAD. You guys put up great results with your own amyloid plaque lowering capabilities with donanemab. Just wanted to get an understanding of how you see the correlation of plaque burden to whether it be visible plaque and the accumulation of tau being perhaps more important because we do get questions from investors as it relates to the stopping of dosing with donanemab and whether or not that's required for continuous treatment.

Thanks, Seamus. Okay. So I think maybe we'll start with Anat on some general commentary on R&D spend and what's built into that. Maybe we can hand off to Anne regarding your question around MSL deployment in preparation for donanemab's approval and launch. And then lastly, Dan can touch on some of the context around lecanemab and the correlation of the plaque burden and whether continuous dosing will also benefit. Anat?

Yes. So the Phase III with the R&D cost that you're seeing going into next year is driven primarily by the increase in the number of Phase III we have. So as Dan described, we really 2 buckets of activities you should be thinking about. One is the Phase IIIs we started this year, which there are multiple of them as well as the new Phase IIIs we're starting next year. So as those accumulate as patients are enrolling in the studies, that's where you start seeing the peak in terms of spend. And the Phase III is the key driver of the growth. The second driver of growth was in R&D as well as within SG&A, is the compensation enhancement we're making going into next year. It's a couple of points, so it's much lower than the actual R&D activity, but that's part of that increase as well.

Thanks, Seamus. On your question on MSLs and deployment with the donanemab approval, so as Dan mentioned, we do expect limited use of these medicines upon the accelerated approval in 2023. So this won't follow a traditional launch playbook, but you hit on exactly what the need is right now, which is education. And so with our MSLs that we already have out there as well as our other efforts on education really be focused on diagnostic and therapeutic infrastructure. How do we make sure that the system is ready for these medicines. So as soon as reconsideration occurs, we can make sure that patients get access to these medicines quickly. So that very much education, the diagnostic infrastructure. Those are definitely the areas of focus for next year. We've already started working on it and we'll continue to do that after approval.

Great. Seamus. And with respect to lecanemab, thanks for that question. And lots of interesting data that we saw at the CTAD meeting. I think at a high level, the first observation is the data that was presented confirms the link between lowering amyloid pathology and downstream improvements and other pathologies like tau pathology and inflammation of the brain. Those are things that we saw in TRAILBLAZER-1 and pleased to see those confirmed. The second, of course, is the link between plaque lowering and slowing cognitive decline, the clinical outcome. Again, sort of lining up with what we previously reported and excited to see that. I think the third observation is probably taking into account the lecanemab data alongside the gantenerumab data and also our own TRAILBLAZER-4 data, all of which taken together suggest that it's not just getting rid of plaques, it's how deeply you clear plaques that matter. For example, our data suggested that the more plaque removal you can get the better improvement on downstream biomarkers like -- tau. So that's sort of a new understanding in the field that we were believers in, I think, for a few years now. So really pleased to see that. Taken together, I think all of these findings should make us more confident that we'll get a positive result for TB2 next year. But of course, we also have to stay humble in the phase of what's -- a very challenging disease. Finally, you asked about stopping dose when plaque is cleared, which was kind of a new idea when we did it in TRAILBLAZER-1, lots of discussion about that at CTAD. I didn't see any new data, one way or the other. But I think a growing understanding of plaques as an initiator, mediator of disease pathology, deep clearance of plaque is important and really no evidence yet for whether or not you need to continue dosing when plaques are gone.

Next question is from Louise Chen from Cantor.

So I wanted to ask you first on Mounjaro and what you're assuming in your 2023 guidance for sales. And if you can't say from a sales perspective, just how we should think about it? And then on donanemab, how are you thinking about the reimbursement playing out and your assumptions for 2023? And then just lastly, will you have an interim look at your tirzepatide outcomes data for obesity?

Okay. Thanks, Louise. Let's start with Anat on the question around Mounjaro and maybe what's assumed. And then regarding reimbursement assumptions for donanemab, let Anne chime in. And then tirzepatide outcomes, Dan can provide a quick update there. Anat?

Yes. Thanks, Louise, for the question. So as you think about Mounjaro, a couple of dynamics that would dictate the revenue next year. And obviously, we don't provide revenue guidance by product. But 2 dynamics. One is the continued growth in the demand for the product, which you're seeing. We're seeing this in our weekly TRx and NBRx data. There is huge demand across the different doses. So that -- we expect that to continue, and we see continued growth in the [indiscernible], as Mike described earlier. The second dynamic is monetization of scripts as we move through next year. As we continue to gain access, we should see improvement in gross to net or the monetization of the script. There is a lag in that. So it does take time for that to go through. But as we continue to move through the year, that should be part of the driver for revenue growth as well.

And Louise, on your question on expectations around reimbursement for 2023, so I think as you're hearing us say, we expect extremely limited use of donanemab in 2023. And the reason is that although CMS really comes down to CMS and the reconsideration process, what CMS has said publicly is they can quickly reconsider as new data comes available. And that's certainly our hope that they'd stand by that. However, the track record here is that most likely it's going to take quite a bit of time to work through this. So what we're planning to do is apply for reconsideration upon positive Phase III data in mid- '23. As you've heard us say before, we felt very strongly that, that data should meet the high level of evidence that CMS is seeking. But the process forward is less clear. And so we certainly hope that over the next months, particularly with 2 accelerated approvals in early '23 that we'll get more clarity from CMS on what the next steps are and when we can expect movement from them. But again, the track record here is one that it has taken time to do that. So I think we should have, as we've said, really limited expectations for 2023. And as we have more insight and information, we'll share that for the years beyond.

And finally, thanks, Louise, for your question on interim analysis. I understand why you asked that question. Of course, interim analysis are a feature that we sometimes use across our portfolio, oftentimes, it will create an option. So we don't even have to decide at the beginning of the trial, whether we'll do it or not. But it's also something we try not to talk about specifically with regards to any one particular trial or not because we want to be careful to preserve the integrity of the study and our DMCs, of course, are in charge of taking care of those kinds of things. If we announce particular in terms of particular cut points and then we pass the date, people could infer one way or another about what happens. So we try and remain silent about those. Thanks, though, for asking.

The next question is from Chris Schott from JPMorgan.

Chris, are you there?

Can you guys hear me?

Yes.

Okay. Perfect. Just had 2 on the next-generation incretins. So I guess, first, I was just kind of interested in your latest view on the role that oral GLP-1 can play in both the diabetes and obesity markets. It seems like Rybelsus has had a pretty modest impact, but your program appears to have a very different profile. So just trying to get a sense of just like what type of share, what type of -- how attractive you see that modality relative to Mounjaro and future products. And then the second one was maybe just a clarification on the GGG weight loss. I think you mentioned 22% to 24% weight loss at 48 weeks. And I guess just trying to bridge to compare that to the 72-week endpoint we saw with SURMOUNT. Is it reasonable to think about high 20% body weight loss as a target for this product? Or -- I'm just trying to get a sense of like how differentiated you see this program versus Mounjaro.

Thanks, Chris. Okay. We're going to go to Mike first in terms of just a view on the oral GLP market in diabetes and obesity, and then to Dan for some additional context on the GGG weight loss.

Thanks, Chris. I appreciate the question. We obviously do a lot of market research in both the diabetes and the obesity class to understand patient needs and what they prefer. When we look at the -- I'll start with the obesity market first. There is a very high interest in an oral product that doesn't have any limitations on dosing that can produce weight loss that's emerging what people see with injectables on GLPs. So we're very pleased with the profile and what we've seen is just a high degree of interest in consumers in our market research with that type of profile. So we do think there's a great opportunity for an oral product at oral GLP not only in the U.S. but globally to help us meet the -- just enormous demand for people who live with obesity in the market globally. In the diabetes market, there is still a preference from some segment of patients that do prefer an oral over an injectable product. When you put in front of patients an oral product versus a weekly injectable about 50% of the patients would prefer an oral versus an injectable. So we do know that an oral is important, but the profile is really critical for physicians and for patients. And I think what's held back Rybelsus has not only been the relative weight and A1C benefits relative to injectables, but also the limitations on dosing. And we think that orforglipron's profile will better meet the customer needs and what we seen with Rybelsus and thus we are excited about the opportunity in type 2 diabetes. Thanks for the question. Dan?

And on GGG, Chris, thanks. You're thinking about this the right way trying to cross walk the 48-week GGG data to the tirzepatide SURMOUNT-1 data. It's running about 4 points better in weight loss, given the same treatment times as we saw in SURMOUNT-1 for tirzepatide. Obviously, that's a cross-trial comparison. But it gives us some degree of confidence. I think we can actually exceed that difference in Phase III. The reason why is that at 48 weeks, the slope of decline in GGG exceeds that, which was seen for tirzepatide. So we've got greater weight loss and we're sort of pulling away from that historical trajectory given the strength of this mechanism. There's also some differences between Phase II and Phase III populations that could make us perhaps even more confident. So when we think about what it means to be a step change versus tirzepatide, I think if we think about previous cycles of innovation and chronic weight management, it's about 5 points of weight loss, make a really significant difference. So -- that's what we're aiming for here, which would, as you suggested, put us in the high 20s for a percent of weight loss.

The next question is from Geoff Meacham from Bank of America.

Geoff, you're there?

I am. Can you hear me?

Yes.

Okay. Perfect. So -- I know you guys don't give product-specific revenue guidance, but maybe just at a high level, can you talk to the relative contribution of the 5 launches in 2023, notably obesity and Alzheimer's? And then for Dan, it's a big step up in R&D in 2023. I know you have new Phase IIIs for the oral GLP-1 and GGG. But should we expect more Phase IIIs for tirzepatide beyond what you've discussed? I'm just trying to assess how do you prioritize new investments in tirzepatide where you're well ahead of competition versus next-gen programs were sort of less as known.

Thanks, Geoff. Right. So we'll go to Anat to talk maybe at a high level about the relative contributions of the launches in '23, and then to Dan, speak about maybe how to prioritize R&D opportunities between more investment in tirzepatide and other next-wave programs.

Thanks, Geoff, for the question. Let me walk you through how to think about these potential upcoming launches. Two things to think about. One is timing of launch within the year. And the second is just the uptake for that specific product or that specific therapeutic area. So if we start with the earlier launches, we have the potential to get approval for pirtobrutinib early in the year and donanemab early in the year. So both of these are early in the year, but as Anne highlighted for donanemab, there is the complexity associated with the CMS decision and the reimbursement that I believe will materially impact any uptake we see next year. So think about donanemab long-term continued potential as we've seen before. So our outlook for the product has not changed. But 2023 being a year that we need to see CMS going through the reconsideration process as well as getting our full confirmatory data in midyear. And only then do I expect to see an inflection point. The other complicating factor is that Alzheimer's treatment paradigm is one that's complex and probably needs to continue to be built out in terms of the ecosystem and getting patients through that cycle faster than they are going through today. Pirtobrutinib launching potentially early in the year. But just as a reminder, it's launching in the smaller indication MCL, which has several thousand patients. We're excited about the data and this should provide meaningful benefit to these patients, but again, a smaller indication, which we potentially can expand later on. Then the third potential launch will be mirikizumab. We've announced the submission of that product in our Q1 call in April. So I think the approval timeline going into next year. That product will be launching and administered initially as an infusion for patients and such will require a J code, then it does take several months to get that. Once it does, then we would expect to see that uptake of that product. And then the last one, lebrikizumab. Lebrikizumab, we just announced the submission on our Q3 call in November. So that product with -- what we view as a potentially differentiated profile could be launching towards the back end of the year. So partial revenue for the year for that product. And you said 5 launches, I assume you're referring to the potential for an obesity approval for tirzepatide. Obviously, we'll wait to get the data, as we said in April, and then follow quickly with submission to the FDA and then the approval will depend on the review cycle. So depending on that, we'll -- we could potentially see revenue in 2024.

Maybe if I could just add kind of mindset here, Geoff, to your question because I think for a while, we've guided that we expected revenue to outgrow sales. Of course, this year, we have the COVID and Alimta things, which interfere with that. Core revenue will clearly outgrow our OpEx growth, but we have a pretty big step up here in investment. SG&A, yes, again, we've got investment in people. And in the past, I think we've said, hey, we have a lot of the core infrastructure in place already, these products will ride on that. That's mostly true because I think there's 3 things to point out in '23 that are little different in causing the cost growth on SG&A. One is Heme and GI are new call points for us. And so there is a little bit of incremental infrastructure around that. Two is we have some significant plans for consumer activation related to the diabetes portfolio. And that's going to cause some growth. But also, if we look at those 5 launches you mentioned, I think we see like 2 of them as kind of generational opportunities, tirzepatide, obesity and donanemab. And the other 3 is being great opportunities in very competitive spaces. So we're not going to undercook any of those. And I think that sort of led to this build-out. And maybe with that, I'll let Dan comment on the Phase III in the R&D line growth.

Yes. Thanks, Dave. And Geoff, good question there. Maybe at a high level, Slide 9 shows the key Phase III trials we're going to start, and we're highlighting the tirzepatide SURMOUNT-5 there, which is the head-to-head with semaglutide 2.4. We have, of course, the outcome studies and then studies of tirzepatide in a number of metabolic related disorders. We don't have other Phase IIIs awaiting in the wings right now or we would tell you about them. That's the goal of that slide. Of course, as the year goes by, depending on data readouts and how the field emerges, we may think of new things and we'll communicate those as quickly as possible. In terms of how we think about prioritizing investments against tirzepatide versus the other molecules, orforglipron and retatrutide, one consideration, of course, is risk. And obviously, with tirzepatide, there's a lot less risk. It's completed its number of Phase IIIs, and we know a lot about the product attributes. That would push investment towards tirzepatide. On the other hand, there are differential characteristics of the molecule. So for example, with GGG, we noted better differentiated effects on liver for orforglipron. Obviously, an oral brings a different set of opportunities. And so we try and think about how we can drive the most benefit for patients given the particular attributes of a molecule and then use that to drive Phase III decisions. So for now, we've communicated the pretty robust life cycle plan here for tirzepatide and just really the first Phase III trials for the orforglipron and retatrutide.

I'll just add one point to that is. I mean, rest assured, we have the development data that we need to be successful on tirzepatide. So it's not like we are deciding not to invest in tirzepatide because we have new obesity agents in the pipeline. We have a very well thought out development plan that we've been working on for several years now, and we believe we have the trials in development to be successful in tirzepatide.

Next question is from the line of Tim Anderson from Wolfe Research.

Couple of questions. Pfizer said yesterday, they think that by 2030, the GLP-1 market will be $90 billion and that orals will be 1/3 of that. I'm wondering if Lilly agrees with these 2 figures. And then the crux of the argument about orals was even though efficacy might be less than with injectables, they're oral. So you already kind of spoke to that in obesity, but do you still think orals with that view could actually be 1/3 of the market? And then second question, I'm just wondering if you feel comfortable comparing your oral GLP-1 to Pfizer's based on the data you've seen to date on the target product profile you're outlining if you think they're likely to be more similar than dissimilar or if you think you're going to have a much better product?

Thanks, Tim. We'll go to Mike before, I get, some commentary regarding the size of the GLP market and how big orals can be as a proportion of that. And then we'll go to Dan to perhaps comment on some competitors' recent data.

Thanks, Tim, for the question. We do agree with Pfizer that the -- there's tremendous growth opportunities in the GLP incretin market. Won't comment on the $90 billion number. But we do think there's just tremendous opportunities just because the -- when you look at diabetes and obesity, it's just a massive number of patients who need help. And the treatment, these are progressive diseases that we need to be more proactive to treat those to get better lifetime outcomes. And I think there's an important need to drive for earlier use of incretins, both in type 2 diabetes and where people that live with obesity. So we think the need is massive. I think for -- orals are going to have a role in both markets. We do think that as what we've seen in any class that typically when the class is immature and there's tremendous unmet needs and then the first product comes, it's usually based on just one axis, let's say, weight loss. But then as the market more matures and patients -- our physicians have more tools to choose from, then the treatment decision gets more complex, there's more opportunities, more tools, and it gets more sophisticated. And so I think what you'll see and what we're excited about, it's not oral versus injectable, but the fact that we believe we're going to have a very competitive, very robust portfolio that both in diabetes and with people living with obesity. And we think we're going to be in a tremendous opportunity because we have hopefully 3 assets that physicians can use that will be good tools to match the right tool to that individual patient. So we're excited about our developing portfolio within incretins and excited about the growth opportunities.

And with respect to the comparisons you asked about, I mean, maybe just starting with the strength of efficacy achievable with an oral versus an injectable, you sort of assume that orals would be inferior to injectable GLP-1 agonist. I'm not sure I see it that way. I think orforglipron, at least, should be able to meet or exceed efficacy seen with injectable GLP-1 agonists. What it won't be able to do, and I don't think any oral GLP-1 will be able to do this, is meet or exceed the multifunctional incretins like tirzepatide and GGG. That's just a lot of efficacy you will get from a GLP-1 alone mechanism. Second, I think it's maybe difficult or unfair to compare with Pfizer, given the state of our molecules completed 2 Phase II studies, that were quite large, and we have quite a bit of information about it, and it will start Phase III next year. I think all of those statements are different than what's been shared about the Pfizer molecule. On the other hand, Pfizer scientists have done great work here, and I suspect they'll ultimately find success with their molecules. I'm not sure we would consider twice daily oral here in this space to be competitive, but once-a-day profile and if that progresses through Phase II, like ours has, it could have similar data. Of course, there's a lot of work to do to get that attrition right and to get the dosing right. This is complicated stuff. We've had a lot of experience and conducted a robust Phase II. So I feel confident about our ability to have a very strong profile coming out of Phase III.

Thank you. Louise, next question. I think we still have about 10 in the queue, so we'll try to compress our responses to the extent possible, not keep everybody here all day. Lois, next question?

And that question is from Chris Shibutani from Goldman Sachs.

Can you update us with your thinking about the underlying demand for tirzepatide, Mounjaro from the core type 2 diabetes market versus which you've described as not having a prior history of medications on type 2? And also, can you maybe share an update on how you're seeing switches from Trulicity? And how those 2 dynamics are informing your 2023 view in terms of the overall revenue trajectory for the franchise?

Thanks, Chris. All right. We'll go to Mike for both of those. First one on underlying demand from kind of core type 2 diabetes patients versus those maybe not having prior history of type 2 diabetes and second question about switches from Trulicity.

Okay. Yes, I mean, no new data to talk about today versus what I talked about in the Q3 call. What I said back, Dan, as in Q3, we had about 65% of patients in Q3 who had a prior treatment diabetes agents and then about that -- the math works out like 35% who were naive to a diabetes treatment, that either could be newly diagnosed people with type 2 diabetes or it could be someone that doesn't have diabetes. So nothing new to talk about there. On Trulicity, we see less than 10% of tirzepatide volume coming from Trulicity patients. We think that makes sense. These are 2 different products with 2 different profiles. And in particular, tirzepatide not only has a better A1C profile, but a better weight profile which could be a different patient target than what's traditionally been on tirzepatide -- on Trulicity. So very excited about the growth opportunities, both across Mounjaro and Trulicity. Our Lilly incretin share market in the injectable space is at 56%. So our goal of growing the market and growing Lilly's share have been achieved this year. Thanks.

And that is from David Risinger from SVB Securities.

Yes. And sorry about the background noise. So my first question is for Anat, please. Could you discuss your gross margin guidance for 2023 in some more detail, including the constraints that are holding the gross margin back, and provide any comments beyond '23? And for Dan, Pfizer yesterday characterized its once-daily oral GLP-1 candidate as a full agonist of the GLP-1 receptor. Could you compare and contrast your molecule?

Thanks, Dave. It sounds like you're at quite the party. So we'll go to Anat for the gross margin guidance for 2023 and a little bit more detail and context. And then Dan, maybe comment on Pfizer's characterization as a full agonist versus orforglipron. Anat?

Thanks, Dave, for the question. I'll start with 2023 and then give you the view through the end of the decade as we see it. 2023, a couple of dynamics impacting the comparison versus prior year -- versus 2022. One is we're not assuming any sales from our COVID antibody product next year. That product, while we've not shared what the gross margin profile is, it is meaningfully lower than the rest of our portfolio. So when you exclude that, just the year-over-year comparison helps in terms of improving the overall gross margin percent in 2023. On the flip side, the things that are offsetting that, while you're seeing an improvement in the gross margin to 79%, we still have impact of inflation. For this year, we said it's about $100 million, $150 million in the COPS line. We see about the same number next year that's built into it. And then when you calculate the gross margin, just the impact of FX on revenue and overall price erosion are driving that. Overall, as you think about the next several years and going through the end of the decade, we believe that we'll stay and hover around the 80% gross margin number. You have heard, we're making quite meaningful investments in new manufacturing facilities. We have the RTP site in North Carolina that's going to come online next year. Another one in North Carolina to bolster our incretin supply. 2 more in -- outside of Indianapolis here and another one in Europe. So that's quite a significant investment. There are expenses associated with that investment that flows through that COPS line even before these sites are operational. But then once they come online, obviously you'll start seeing the depreciation associated with that. But overall, I expect we're going to be about 80% for the remainder of the decade.

Thanks, Anat.

Yes. Thanks for the very good question on partial versus full agonism at the GLP-1 receptor. This is an area that Lilly has worked for a long time. In fact, tirzepatide was designed as a partial biased agonist at the GLP-1 receptor, which could have some advantages. We don't sort of fully understand the science here, but it could be related to receptor -- decreasing the rate of receptor internalization, therefore improving signaling. So quite pleased to have a similar profile here with our orforglipron. Not 100% sure that translates into an advantage in the clinic. But so far, the data we see suggest we're getting maximum efficacy at the GLP-1 receptor.

Next question is from the line of Umer Raffat from Evercore ISI.

This is Mike DiFiore in for Umer. A few for me. With regards to the GGG agonist, obviously in terms of percent weight loss for obesity, your modeling estimates at 48 weeks clearly suggests it could have superior efficacy over tirzepatide at the same time point. But I was wondering what the titration scheme was in this Phase II trial. And could we expect longer titration in Phase III to cause the percent weight loss to come down a bit. That's my first question. Also, for tirzepatide, assuming that it does get approved in obesity, will it be a different brand? And will it be at a higher price? And finally, it seems evident that Lilly has prioritized the GGG over its oxyntomodulin analog, mazdutide. Just wondering what's in store for mazdutide in the future.

Maybe we'll go to Dan for the first and third pieces, Mike, around titration scheme of GGG and then also maybe versus oxyntomodulin? And then Mike can quickly comment on brand and potential price for an obesity indication for tirzepatide.

Yes. Thanks for those 2 questions. On the titration scheme, I don't think we specifically disclosed it, but that will come with the full Phase II data, and you should expect in Phase III that our goal is to have similar patient acceptability as tirzepatide, which is related to both the titration schedule and the tolerability of the medicine. I think we're on track to achieve that with our planned Phase III for retatrutide. And I don't see that as impacting our confidence at all on weight loss. So we feel good about that. With respect to the sort of competition we had internally between GGG and oxyntomodulin, you're right, we've picked our bet here in GGG. Oxyntomodulin still progresses in Phase II and excited to see what that can deliver. And then based on data, make decisions what happens next for oxyntomodulin.

Yes. On our pricing and marketing strategy for tirzepatide obesity, stay tuned. We don't talk about those at this point as we prepare for approval and launch. But we will definitely talk about price and marketing strategy after we get approval. So I appreciate the question. Just stay tuned.

And the next question is from the line of Steve Scala from Cowen.

A couple of questions. First, Lilly has beaten its initial expectations in 5 out of the past 7 years. I'm curious if any factors that existed in the business during those 5 years are absent now. And then secondly, apologies for kind of an odd question, but I am a bit puzzled by the fact that the tirzepatide Phase III obesity readouts in 2023 are not mentioned in the release. They are in the slides but not the release. The Phase III readouts for both donanemab and mirikizumab are mentioned in both the slides and release, yet tirzepatide is clearly more important. I wonder if this implies something has changed and Lilly now believes that it can file tirzepatide in obesity without additional clinical studies. It kind of supports the interim look theory. So let me put the question this way, would you deny that a filing of tirzepatide in obesity on an interim look is possible?

Thanks, Steve. Actually, we'll go to Dave for the first one around our history regarding our guidance. And then for the second question, we'll have Dan handle that. Dave?

Yes. Thanks, Steve. Always good to hear from you. Maybe as the one who has been here for all 6 years, I can comment. I think each time we do first-time guidance, we try to take a fresh look at the business, to look at the add-up and try to be as transparent with shareholders as we can, as well as, of course, everyone wants to leave a little wiggle room for macro issues. Also build a plan that is tightly aligned to our internal plans and hold our teams accountable. It's always a fine dance between those 2 things. But the factors going into it are always quite different. So it's difficult for me to answer your question that is there something that was there before that's not there this time on our ability to meet or exceed guidance. I think this year is quite different, and we've talked about those dynamics. We have a very strong revenue growth assumption in this guide and in our internal plans. I think that's warranted given the portfolio we have that's fresh growing quickly. We'll end the year with more than 70% of our sales on newly launched products. And we're going to add 5 more launches if we include the obesity indication for tirzepatide to that. And we're funding a lot of things behind that in terms of SG&A as well as, as Dan has described, and a whole new crop of Phase IIIs for the next generation of innovation. So it's kind of a different year than the ones I've been through before. But I think our confidence is probably no different as we give first-time guidance. We try to calibrate it closely, and then go out and meet or exceed our own goals and therefore please investors. I hope that makes sense.

And with respect to the filing plans for obesity, I know that's a topic of great interest, Steve. But don't read anything into differences between the press release and the slides if that was confusing. It ought not to have been, and apologies for any differences there. Of course, the mirikizumab Crohn's, donanemab Alzheimer's and other Phase IIIs that may be mentioned there were probably related to new indications whereas with respect to obesity we have the SURMOUNT-1 data, so we know the efficacy of the molecule in obesity. But just to be clear, our filing plans haven't changed there, as Anat stated already, that when we get the SURMOUNT-2, that we'll complete our rolling submission to the FDA next year.

And that's from Kerry Holford from Berenberg.

A few questions from me. Firstly, on operating margin for Anat. I understand the IP R&D distorts a potential target as you move through the year. But given that that is 0 today, it would be useful to understand where you stand at this point. And if you won't provide a specific margin target, can you talk more broadly as to whether we can expect underlying margin expansion ex IP R&D in the year ahead versus 2022? Secondly, on the pipeline, based on your slides, it would appear you do not intend to take GGG into Phase III and diabetes. Is that correct? And if so, what led you to that decision? Anything in the Phase II data set or is it more of a strategic decision? And then just, sorry, a quick third one on the oral GLP-1. I think I'm correct in saying that you in-licensed that asset from Chugai. So could you just please remind us on the economics for that drug, any future potential pay-aways?

Thanks, Kerry. All right. So on -- for the pipeline -- actually, I'm sorry, we'll go to op margin first with Anat, and then Dan can comment on GGG not going into type 2 diabetes.

Thank you. You're correct that we've decided not to provide guidance on op margin given the complexity associated with IP R&D and truly the inability to forecast of what that number is given that it's often driven by business development transaction we may or may not do throughout the year. You can probably calculate what that is, if you just took our ranges for revenue, gross margin of 79% and then the ranges on OpEx and you'll get to an estimate of what that is. So I'll leave that to you to look at that. When you compare it to 2022, obviously understand that there is $670 million of IP R&D in that line in the 2022 numbers. But as we look longer term and through the end of the decade at our operating margin, and again before the inclusion of IP R&D, we do expect to see an expansion in that rate to the mid- to high 30s as we've communicated last year. That hasn't changed. It will not be the same every year, so as you think about the expansion on growth. It's not going to be linear. It's same addition of expansion points every year. There are going to be years of investments like 2023, and there are going to be years when we're going to be letting more flow through to the bottom line. So expect that continued expansion over the rest of the decade.

Okay. And with respect to -- for GGG in type 2 diabetes, well, we haven't exactly said we won't do it. All we said is our plan is to go forward in obesity. As we think about the type 2 diabetes opportunity for GGG, though, first of all, I'd just say that this is going to be a -- we expect this to be a great drug for weight loss amongst people with type 2 diabetes. I think the addition of glucagon activity could be postulated to make it sort of not as effective at glucose control. I know other companies have shown that in the past with different molecules. That's not the case here. We still have a great molecule for glucose control. Do I think it's going to be better than tirzepatide at A1C control? Probably not. I think what we have here is a molecule that's stronger at weight loss; would still maybe the second best A1C control that's been seen for a mechanism. So we're excited about the opportunity in type 2 diabetes, but it's primarily driven by the opportunity to drive weight loss in those patients.

I think commercially, we're still assessing our -- whether to study this in type 2 diabetes further. The one thing to understand is we've not seen anything in the data that suggests that it wouldn't be effective for someone who has type 2 diabetes. Also understand that about 40% of people who live with obesity have type 2 diabetes. And it will be used in people who have chronic weight management and type 2 diabetes. I don't think it will be a great option as clinicians decide what's their priority for that type of patient. Is it best-in-class A1C improvement or best-in-class weight class? So we think that GGG will be a great additional tool for physicians to have. We'll continue to assess the type 2 diabetes indication.

And Kerry, just to answer your question around Chugai, you're correct that orforglipron was in-licensed from Chugai. That was announced in September of 2018. And at the time of that announcement, we mentioned $50 million as an upfront payment as well as Chugai eligible for milestones, but we didn't go into further details on the economics of that.

And that's from Colin Bristow from UBS.

Congrats on all the progress. So another couple on GGG. Could you talk about the inotropic profile of this asset? Anything you can say on the rates and magnitude of either heart rate or blood pressure changes? And then on the headline 22% to 24% weight loss, can you speak to what proportion of the Phase II population had weight loss data out to 48 weeks. And then just 1 quick one on Mounjaro on the gross-to-net I know you mentioned there will be an improvement over the course of the year, and we're going to see the end of the free drug programs. Just as we think about that exit gross-to-net, should we consider this to be pretty close to the average for the class?

Okay, Colin. We'll go to Dan to talk about heart rate changes on GGG as well as the proportion of weight loss data in, and then Mike can quickly comment on gross-to-net.

Yes. Thanks for the good question here. So glucagon is known to be both inotropic and chronotropic, meaning it improves the contractility of the heart as well as heart rate. We saw those expected effects in our Phase II trials, as I commented. But they were roughly in line with what we see for other incretins and they attenuated over time. That's, of course, accompanied by a beneficial decrease in blood pressure as is seen for other incretins. I think on the whole, we feel quite confident that this will translate again to a cardiovascular benefit for this medication. In terms of the percent completers, I think we haven't disclosed that and there was a cut of the data that was used to generate the data on the slide. But now the study is complete. And like I said, next year, we'll present the final data from all patients at the last time-point.

As it comes to gross-to-net on Mounjaro, as Anat said, it will improve over time. The ultimate ending rate will be dependent on the access that we have. And so we'll have to see. We're being very disciplined as we have access. We want to make sure our negotiations end up with the net price target that we have internally and we're being disciplined to that. So I don't want to be too aggressive there to focus on dropping dollars to the bottom line at the sake of long-term profitability and access for the drug. Thanks.

And thanks, Colin, for the question. I think we have 4 left in the queue. Lois, next question?

That is from Mohit Bansal from Wells Fargo.

So maybe 1 question on Mounjaro. So how much of 2023 implied Mounjaro guidance is driven by supply versus demand or demand growth? In other words, I mean, if the demand is higher than your implied underlying guidance number for Mounjaro behind this guidance, do you think you can supply to that? And I'll throw another oddball question. Lilly is probably the only big pharma company doesn't get a BD question. So let me ask this question. If Lilly does zero in some kind of target, what exactly is the profile Lilly is looking at in terms of size as well as therapeutic areas?

Want me to take both? I can...

Yes. Sure.

Haven't talked very much. Thanks for the questions, Mohit. Just on the plan and the guide, of course, we don't give product level guide, but you can rest assured that we do square the corner with what we can make and what we can sell, and that's all embedded in what you see today. So there isn't some disconnect between our production schedule and the guides we're offering. That said, I think there is a lot of demand. So essentially, we've said qualitatively, we plan to essentially sell what we make, if that helps you kind of get your head around the numbers. In terms of BD, of course, this has been an ongoing statement, but we will reiterate it, which is we're very interested in business development. We see it as a priority for capital allocation after funding our internal portfolio and launches. Primarily, we're focused in our core therapeutic areas as well as more recently building out our genetic medicines capabilities and platform. And we're primarily interested in assets where we can add substantial value. We're not trying to solve for revenue gaps or accretion math. What we're looking at is drugs that we could acquire that we can really add to, build on our portfolio, play to our strengths and allow us to meet significant unmet patient needs. Admittedly, it's a competitive space. So we look at pretty much everything that you see trade. If we're not winning that one, there's probably good reasons for that from our standpoint. But we're very active. It's a priority area for me and the whole team and you should expect announcements and future BD to be a priority for us in '23 and beyond.

Next question is from Evan Seigerman from BMO.

I want to talk about GGG. You had some kind of model data, but could you speak to the actual data that led to your approximate weight loss reduction of 22% to 24%. And then also maybe some more nuances on the safety and tolerability, especially when compared to Mounjaro. Would you characterize it as better or worse in the same kind of -- at the actual time point?

Thanks, Evan. We'll go to Dan for both of those in terms of the model versus actual data and nuances on safety.

Yes. Thanks, Evan. So this would have been from an interim cut where we would have had most of the patients at an earlier time point and some of the patients at the final time point and then we can use that to model the final data. We've been through this a few times on different molecules. So pretty confident in those, but we still gave a range, and you should expect the final data to end within that range.

And just on the safety?

Yes, sorry. On the tolerability, we expect this to be in line with tirzepatide.

Okay. But no actual firm data points you can provide that led to this range?

Yes. Of course, we have rates of nausea, vomiting, diarrhea from the Phase II trial that we've seen, at least on the interim analysis, and we'll present those when we present the final data.

Thanks, Evan. I think 2 questions left. Lois?

Carter Gould from Barclays.

Carter, there? Okay. Lois, we can go to the last question.

The last question is from Chuong Huynh from Credit Suisse.

Trung Huynh from Credit Suisse. Just 2 questions, if I can. Firstly, with prior years, you've spoken about pricing. So perhaps can you talk about some of those expectations for price in '23, specifically those dynamics that you're seeing in diabetes and GLP-1 in the U.S. And then second, thanks for your comments on the Mounjaro supply. For Mounjaro, we know about the doubling of capacity by the end of '23 in the North Carolina site. But perhaps can you talk about the cadence of this capacity coming on stream. Is this linear throughout the year? Is it weighted in the first half or weighted in the second half? Is that the right way to look at things?

Thanks, Trung. Good to hear from you. I'm going to go to Anat on both around pricing expectations in '23 and then around cadence of capacity coming on online at RTP next year.

Yes. So on pricing, what we're seeing next year is low single-digit price erosion. What's behind it, what comprises that number is in Japan and Europe, most likely mid-single-digit price erosion. China, a little higher single-digit -- high single-digit price erosion. And then in the U.S., what we're going to be seeing next year and primarily impacted by Mounjaro as we increase our access rates and the proportion of people utilizing the copay cards drops, then we would see an improvement in the gross-to-net rates translating to that low single digit price erosion. So that's overall pricing. For the RTP side, as Mike mentioned earlier on supply, this site is functional; product validation lots complete. So next step is to get submission to the FDA and FDA approval next year. Once we start getting that approval and lines are going to start running, we're going to see increase in supply flowing into the marketplace throughout the year.

Thanks, Anat. So I think that was our last question, so I'll hand it over to Dave to close this out.

Great. Thank you, everyone. Thanks, Joe. We appreciate your participation in today's call and your interest in Eli Lilly and Company. Please follow up with the IR team if you have additional questions about today's forward guidance, and have a great holiday. Thanks.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Event Conferencing. You may now disconnect.