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

At the Cowen conference again this year. Representing the company is Mike Mason, who is President of Lilly Diabetes. So Mike, thank you for making the journey. Lots to cover, obviously, an incredibly exciting business within Lilly. And so let's start right out.

We're all kind of fixated on the obesity opportunity -- and just how big it could be. What are the biggest challenges and barriers to growing obesity treatment in this country and outside the country?

All right. Well, thanks for the question. Good to see everyone. We're all packed into a tight room, hopefully, no one has COVID or we'll all have it. But, yes, I know everyone here is excited about obesity and trying to figure out the size of it. Obviously, we're doing the same thing at Lilly and trying to make it as massive an opportunity to help as many patients as possible. It is a chronic disease that really affects both physically, emotionally patients, [ Rob ]. We're starting to get into the deep emotional consequences of living with a chronic weight management for a lifetime. And it's quite humbling to think that we have a product that, after approval, could really help change the lives of people. Yes, I think it will come down to access. I think if you look at over the last couple of years, you may have been wondering, okay, our health care professional is going to write it or our consumer is going to be interested in it. I think those questions have been checked. I think the big question is going to be long-term access in the U.S., by our estimates and I think by what Novo said publicly, about half of employers have opted in to obesity medications. And so it's growing that as well as trying to get access in Medicare Part D. So I think those will be the questions both in the U.S. and I think outside the U.S. I think the other 2 important stakeholders, I think, have already spoken, and I think will use this product to improve the care, improve the lives of people living with chronic weight management.

You mentioned Medicare. How close are we to getting U.S. government reimbursement of these?

The -- each month, we get more and more bipartisan support. I think there's now like over 130 different sponsors of the Treat and Reduce Obesity Act. And that will continue to grow bipartisan support. I think the key will be how productive the House and Senate will be of actually doing legislation over the last -- over the next year or 2. I think that will be more of the question. I think we'll continue to build good support for it. It's -- we've got to get obesity under control in America, both in the youth and those of working age and those that are senior. It should be a real priority across the American policy.

For access in both the commercial and government side, how important are outcomes [ to you ]?

I think they're important. I mean I think we wouldn't be doing the studies if they weren't important, but there's a lot of different aspects to it. I think in the near term for us, I think the [ sleep ] apnea and the heart failure indications are important. Those are indications that are covered in Medicare Part D. They are [ covered ] [indiscernible]. And so going [ to see those who ] live with sleep apnea, which is a very large, sizeable part of the population that live with obesity as well within those who live with obesity and with heart failure. Those are important initiatives, not only to show how we can help people that live with comorbid issues associated with obesity, but also gain access, differential access for those individuals. And then our MMO study that will be outcome study, CV outcome studies and a few more, I think, is an -- will be an important next step that will come later.

On the U.S. government reimbursement topic, we all realize it should happen going forward, but do you think the probability is greater than a coin flip it does occur in the next 1 to 2 years? Or would you not want to go that far? Would you say it's less than it?

I'm probably not the best person to try to predict what happens in Washington. So I'll abstain to that.

Okay. So you might back off like a coin flip, I think. And so it might be less.

It's tough to predict anything that's happening in Washington. It's a dynamic situation.

Okay. Let's talk about GLP-1 sales, market overall or Lilly, whichever you prefer. What -- how does it divide up between diabetes and CV, NASH, obesity. I mean -- well, obviously, a lot of that would be off-label now. But how do you foresee it developing over time?

Over time? Okay. Yes. So for us, it's primarily all obesity now that will grow as we get indication for obesity. I think the -- I would look at least our opportunity as large opportunity to grow within type 2 diabetes. There's still a lot of patients who haven't used incretins that should be on incretins, right? We see a good opportunity to grow within the type 2 diabetes class. Obviously, the number of people who live with obesity is massive, both in the U.S. -- 110 million people in the U.S., 650 million people globally. So that is a good opportunity. Now when you look at the -- as I talked earlier about the sleep apnea and heart failure, in some degree, the CV, those aren't really looking to add additional people outside the VC indication. This is kind of a different product life cycle position. A lot of times for product, you may get initial indication, it may create a very small population and you're trying to grow that. With us, our initial chronic weight management indication is going to be for a massive amount of people who have a BMI of greater than 30 or have 27 [ plus of ] application. That's a very large population if we get the indication. And so we're going to be -- the focus is kind of unlocking sizable populations within that, and that's what our heart failure, sleep apnea, our cardiovascular MMO study is trying to do. So I would kind of look at those as kind of those indications all working together to really demonstrate that this is a chronic disease, and there's a lot of good outcomes with treating weight management aggressively earlier, getting people under control and losing weight, and that can prevent a lot of downstream costs and improve health.

Do you include NASH in that bucket? Or do you see that as a separate meaningful opportunity?

I see for us, I think the biggest opportunity is to get people to use a product like tirzepatide earlier in their life, so they never have to experience NASH versus trying to identify a NASH population by biopsies and then trying to treat their NASH as this progressed. I think we'll serve a lot better if we kind of focused on those earlier patients and actually hopefully get their weight under control. We know that liver fat decreases and that should help liver health over time. We think -- I think we're better off if we focus on that, maybe chasing NASH long term.

So Lilly has some internal expectation. In -- let me guess that, that internal expectation says that the GLP-1 franchise of Lilly will be split 50-50, diabetes and obesity in 10 years. Is that...

How'd you know?

It was a good guess, but is that close to what Lilly thinks it will be or...

Nice try. We should get work [indiscernible] right now. So we're in the mix of our long [ strategy ] where we think the obesity market can grow. I think we're blessed to have 2 really good opportunities to -- in 2 classes of patients that are not that much different. I mean we kind of talk about diabetes and we talk about obesity as 2 different types of patient populations. We do that for regulatory reasons, but boy, they have a lot of common goals. And I think for us, treating people who have type 2 diabetes early in the course of treatment, it's the right thing to do. And the same thing with obesity, we should be treating people before they get the complications early on in the course of the disease. So we think we have great opportunity to do both. I think the type 2 diabetes, because we have good access and incretins are more established in that, maybe the class will come faster. I think we'll -- we have work to do to continue to build access for obesity. And the size of that opportunity will be determined by how much access we're able to get.

Let's move to Mounjaro. So how confident is Lilly that you have the ability to produce efficient supply and that the supply chain will meet demand. And with all due respect, I mean, the company said a year ago, you had everything you needed and you didn't, right? So where do we stand now?

Yes. I mean, what we said. Last quarter, we're still working our Q3 of last year where we're looking to double our output by the end of this year is still -- we're still on that track. Now we still have to execute getting our manufacturing online in order to hit that line, but we are -- everything is going as planned at this point. So I'm as confident as I can be, but understanding that there's still work to be done in order to hit that level.

If there's questions in the audience anywhere along the line, just raise your hand. So how confident are you of the Mounjaro obesity approval in the U.S. before the end of this year?

Yes, we have a rolling submission which helped. Getting fast track destination allows us to have a rolling submission. So we've already submitted SURMOUNT-1 data and everything else kind of goes along with that. And so all we have to do is package [ SURMOUNT-2 ], hopefully, a successful SURMOUNT-2, and then package that and submit that to the FDA. And then they'll consider that as a final submission. The good thing about it is we're already working on our -- on the [ SURMOUNT ] approval, hopefully, by the end of the year.

And so Lilly has already completed the filing of SURMOUNT-1?

Yes. Yes. We filed it, yes. It won't be determined as like a final submission until SURMOUNT [indiscernible].

Okay. We all appreciate that SURMOUNT-2 is a critical piece in this ultimate filing. How much risk do you think resides within SURMOUNT-2? It's kind of odd, right? So it's a study of patients with diabetes and supporting an application that's just obesity. So did you -- do you hear that there's any risk in this study outcome?

It's probably the easiest study within the SURMOUNT program to predict what you think the outcome could be just because it's not that dissimilar to what we had on SURPASS program.

Okay. So there's no major difference?

Versus placebo, a little bit longer, but not any [indiscernible].

Okay. Okay. So we're all kind of interested in knowing how when this obesity approval comes along, hopefully later this year, what Lilly will do with that? So can you just talk to us about the pros and cons of establishing a different brand, so it would not be Mounjaro, it would be called someone else -- something else, and maybe also at a different price point. So walk through the logic that Lilly is thinking through to decide whether it's a same brand, different brand, same price, different brand?

Okay. I'll -- we won't talk about pricing, but whether we go with one brand or another brand, until [ aggregate ] approval. I'm really hesitant to ever talk about pricing before we release it. But I'll answer the question around what's the pros and cons of 1 brand versus 2 brands outside of the pricing question, if you don't mind. I think with 1 brand, there's efficiency with [Audio Gap] that you don't have to establish a second brand. There's [indiscernible] from a manufacturing perspective, don't -- they'd have half as many [Audio Gap] across the SKUs and samples would be easier for our manufacturing line, our area. I'm sure our manufacturing organization is pulling for 1 brand and make their lives a lot easier. I think from a -- the advantage of 2 brands would be with help payers better put utilization management that they want and kind of classify that by the indication. It's easier for them to do that with 2 brands versus 1 brands. And then we do know like from a consumer marketing perspective, it gives us more of an empty vessel for a second brand to be able to shape that brand around the needs of someone who lives with chronic weight management versus diabetes or some differences there on the consumer end. Those are pros and cons of going to 1 brand versus 2 brand.

And so would you [Audio Gap].

Yes, you would need that. That would be independent, whether it's 1 or 2 brands. I mean it would be the same situation.

[ Might be ] [Audio Gap].

It won't further complicate it if we decided to go with 2 brands.

Good question was on FDA inspection of plans. And it sounds like it's been relative to whether it's one brand.

It's a different label. It would be a different label if you're going with 2 brands, but that doesn't really complicate from an approval [ I mean ]...

Lilly has provided perspective on a number of people on Mounjaro who have not previously been on a diabetes medication with the suggestion, maybe those are [Audio Gap]. How has that number trended over?

So we've talked about it in our earnings calls that it -- for Q3, and it was about the same for Q4. That was about 30 -- about 65% of people who use Mounjaro had been on a type 2 diabetes medication before. And that means that the 35% hadn't been on a diabetes medication. That could be that it could be 2 different subpopulations. It could be some who were just duly diagnosed to have type 2 diabetes who diet and exercise by itself, it wasn't successful and the doctor decided to put them on Mounjaro, which we think is a really good use of the product because to get both weight and glucose control -- under control early in the course of treatment is really important for good care. So we think that's a good use of the product. The other subset would be people who don't have type 2 diabetes yet. We don't know the split between those, we don't have the data to be able to indicate of that 35%, what part was using it or who had type 2 diabetes and the ones don't have. We just [ don't ] have that data.

So the launch of Mounjaro has been incredibly impressive. What has surprised Lilly about the [ other one ]?

I would say the viral nature of [indiscernible] has just -- it just surprises. I mean it's just incredible how much attention that this has gotten both in the social media, but also just in the life of people who tried the medication who then have friends and colleagues. It's rare that you have a treatment that people physically see the impact of it. You don't have your statin number on your shirt or your forehead and people will walk, right, and you're lipid [ just went ] -- that's great. You're cholesterol [ this or that ], you don't have that. But when people are beginning to -- who are on diabetes, who physically look differently because their A1c is lower, but then their weight has gone so much, they're happy and they talk. They talk on social media. They talk in real life. I think we've probably all -- probably experienced that. I'll go into restaurants, not even in Indianapolis, and I'll see people, hear people just talking about it. As you're waiting for your table and things [ like that ], had taxi drivers come up and talk to me about it. Didn't even know I was at Lilly, didn't know my position, just like they were so happy to be on the product. They'd probably talked to every person that was in their cab that day about that. And so that's -- I would say that's what's different about it is that people are very -- they're excited about the product. They're excited about the benefit of that. And as we talked about access and we talked about -- we'd like to talk about it in a very like data-driven aspect of it. And we got to produce the data. We're doing the right thing by billions, hundreds of millions, billions of dollars to create good science on this. The other aspect of this is the consumer, and they want them. They will talk to their health care -- to their HR department. They will talk to their representatives in Congress about this because there is a great deal of interest in this. And it goes by -- goes beyond just like the medical cost savings. There's some interesting emotional benefit that patients benefit by being on this. And this is what we're going to have to be able to document and be able to communicate because that's been very surprising and very humbling since launch.

Do you mind if I press you on this point a little bit? You referred to consumer demand as something of a box check, and that certainly seems to be where we're at from this current vantage point. It's clearly there's a lot of exuberance for this class of drugs. But what's the risk that this is kind of a phenomenon of early adopters that are very vocal and the excitement is kind of palpable, but it does end up tapering as these drugs become more established, that box becomes unchecked [ or something ].

Yes. We'll see. I mean I don't think it will depend -- will like rely entirely on just viral nature of consumer demand. We'll begin consumer promotion and all that, kind of traditional -- there'll probably be a split between what we do, but we won't take that for granted.

[ We move ] to Trulicity. So I think, if I remember correctly, the patent goes in December of 2027. Is that right?

Yes, in the U.S.

Do you expect -- is there any risk that biosimilars could come early? And what would be the avenue that, that would happen?

We don't think that will be a risk.

Okay. What about overseas? Were the patents expiring [ early ]?

In '29, yes. Yes, we don't look at that as a big threat.

Okay. And as we approach that date, will there be an effort at Lilly to actively switch people from Trulicity to Mounjaro, which is not the case at this point?

Yes.

I understand.

At this point, no, we've really focused on -- we think it's the best thing to establish Mounjaro as an independent product and really talk about the patients that can most benefit from Mounjaro. And really establish it as its own entity. Physicians don't tend to like which discussions because it's not very patient-focused and very company-focused. This -- Mounjaro's launch is much bigger than trying to transfer Trulicity patients over to Mounjaro. We'll put the line sale of our promotion across Mounjaro. Over time, you'll see -- organically, you'll see the patients that would have gone on Trulicity now going on Mounjaro. Some that were on Trulicity will convert over to Mounjaro over time. So I think you'll see the more organic switching from Trulicity to Mounjaro over the next couple of years.

Let's -- so a question on Jardiance. So it got a long life ahead of it, so it's patent exploration, but you do have a pretty good competitor that -- whose patent goes [ before it ]. So how do you foresee the curve of Jardiance over, say, the next 5 or so years in?

Yes. We don't typically see a big impact on share when competitors go off patent a few years before you before you lose your patent exploration. Jardiance has just a tremendous position in the SGLT2 class. It has a 62% share in the U.S. And we're continuing to add more and more data in our development plans to establish that. But I think we like our position in the marketplace and that's not something that we're that concerned about.

One of your competitors who in this room just before you were and was talking about their SGLT2 franchise and how they have a number of initiatives filing with their product to sustain the franchise through to the patent exploration. To my knowledge, Lilly isn't doing any of that. But I could be wrong. But if you are, can you tell us? Or if you haven't yet talked about it, maybe you can enlighten us as to what Lilly plans to do as you approach there?

Yes, we haven't said anything publicly about any plans that the alliance has.

Okay. Would it be wise for us to think you are doing stuff that you just haven't told? Or was that a no?

It's just -- good attempt. I appreciate that. No, I would just say at this point, we haven't said anything publicly, and I wouldn't go any farther than that.

Okay. Let's talk about the oral GLP-1 programs. So a pretty exciting area. Ultimately, how successful could these products be within the overall landscape of the GLP-1 franchise?

I think they're really valuable, both in type 2 diabetes, probably even more so and obesity. As we do a market research, the concept of an oral product that has weight loss that's similar to that of injectable semaglutide is very attractive to consumers. So I think -- in particular, in the obesity market, that can really have a big impact. Also, when your -- when the market is 650 million people, obviously, I don't think we'll have 650 million people on therapy, but as you even make a small percentage dent in that, orals will play a big role in that globally in order to satisfy that. You'll only be able to go so far with injectable product.

Mike ran a diabetes obesity panel this morning. And the KOLs were skeptical that oral GLP-1s will be as capable of diabetes control or weight loss given the oral [ bioavailability ]. Tell us why that won't be.

Well, I think we're happy with our Phase II product and the A1c and the weight loss that we talked about in December, there's a lot of theories out there. I think at the end of the day, let's look at the data [ throughout ]. We're very pleased and very happy with what we saw in our Phase II. I can't wait to start of Phase III programs and produce tremendous data there.

Questions from the audience? Yes. So the question had to do with how do you approach the existing NASH community, not just avoid that group of patients developing over?

Yes. Those are the questions more around tirzepatide. Is that an area that we see putting he indication in. We're looking at NASH. We haven't said anything publicly about our efforts that are outside of what we're doing with tirzepatide. As you think about using a like starting NASH for tirzepatide right now with the IRA out there and renegotiation, that is what works. That's kind of the downside of the Inflation Reduction Act and the negotiation in Part D. That's a very heavy Part D population. It's a Phase III program because you need biopsies, which is really a long -- a very long study. Also the progression is slow. So it's a big Phase III program and a long Phase III program. And then if biomarkers aren't established, trying to establish that in a commercial space is very difficult and would come at a time when you're getting closer to negotiation. So that's why it doesn't work. It's not as logical to go in that space for like a tirzepatide. But when you were evaluating how best to think about NASH, and we're not ready to say anything just yet, but we know it's a big need out there, but if like -- just financially -- that's why the high rate does hurt innovation. It does hurt when you have a product that could help a lot of different therapeutic areas, but sometimes those indications take a long time to establish. And it really takes away from the justifying the investment in order to go after that. We are doing a Phase II study that will inform our [ action ].

Maybe in our last few minutes, we could chat about basal insulin. So most of our KOLs, in fact, I think all of them, believe that the Lilly agent, the Novo agent are [Audio Gap] very little. I would imagine you'd disagree with that. So tell us why you do.

I so disagree with that. It's a good question. I mean it's just simply if you think about the profiles, our half-life is twice that of Novo's compound at 17 days. Our peak-to-trough is much lower, it's like 1.14. So what do you want from a basal insulin? You want one that is very flat and has a very low peak-to-trough. So this will be the lowest peak-to-trough ratio basal insulin ever developed. So no, it's got to demonstrate that, that matters in Phase III clinical trials. We've designed, we think, a really thoughtful dose titration schedule to make the most of this and demonstrate that. But they are different products. So it wouldn't be crazy to think that they would demonstrate different results and clinical practice.

There is one more pipeline question before the end on your triple agonist, retatrutide, you're triple agonist.

Yes, retatrutide. Triple G, yes.

so there's a lot of enthusiasm amongst physicians for this compound. As you're probably aware, Novo had a glucagon containing compound that it discontinued due to heart rate elevations. Why is Lilly less concerned about that potential safety signal associated with glucagon?

Yes. We know a lot about the ratio between incretins and I think that's what led to tirzepatide's success, and I think that's why we're confident in triple G. But we're -- what gives us the confidence is that the theoretical that we got the ratio right, it's our Phase II study that kind of saw heart rate go up like we would expect with incretins and then begin to decrease over time that we expect [ it again ]. So based on what we saw on Phase II, we were confident to start of [ Phase III ].

Actually, we're out of time, but allow me to ask you one last question. So we in this room have a certain expectation of what Lilly will look like in a decade. What do you think we will be most surprised by 10 years from now that Lilly has [ accomplished ]?

That's a great question. I think within diabetes, I think it's all going to come down to our ability to get access globally. I think -- don't underestimate the interest that -- on a global basis that people are willing to do, even if they don't have access or the government of what they're willing to pay the product. Is there a surprise? It could be a -- we could all be surprised by that, but that's underappreciated. It is a -- [ doing ] private management is very difficult and society doesn't help that, and it's a shame, but people are highly motivated to...

Allow me just to clarify your first comment, if you believe investors are underestimating the ultimate access that's established in obesity.

I haven't seen what everyone's estimate would be for access. I'm just trying to say, I think that's a really big variable in our -- so I wasn't trying to make any comment of what you're estimating and what we're estimating. I'm just saying that's an important factor, yes.

Okay. Well, with that, we need to conclude. Thank you so much for your time.

All right. Thank you.