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

Okay. Great. I think we're going to get started. Thanks for joining us this afternoon. I'm Terence Flynn, the U.S. biopharma analyst at Morgan Stanley. Very pleased to be hosting Eli Lilly. We have Dan Skovronsky, who is the company's CFO and SMO. Before we get started, for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com\researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Well, Dan, thanks so much for joining us today. I know it's been a busy time at the company. So I appreciate you being able to step away here and spend some time with us at our conference.

I guess just the big picture one I had to start it off is just it's been a tremendously productive time for the company, as you've highlighted over the last year or so. So just as you think about that, like how do you continue to build on that success as you think about the forward year?

Yes. Thanks. Thanks, Terence. Thanks for having us here. It's great to be together. I think, for me, there's sort of a dual mandate. So one is make the most of the opportunities we have, so where we have unlocked science, how do we make sure that we continue to translate that science into medicines for patients. So clearly, huge progress in diabetes, obesity and huge progress in Alzheimer's disease. So the first sort of pillar of the mandate here is multi-generations of assets that continue to get better and better on behalf of patients. On the other hand, the second thing that we have to get right is have more breakthroughs like those. And that's the challenge. I think it's rare that a company can do both things. Usually, there's a challenge because when you have great science and great breaking assets, you just want to keep investing in those and not do other things. And so for us, we want to do both, and that means our areas of immunology and oncology. We want to continue to make progress there. And I think we have some pretty big unlocks happening right now in both of those areas. And then also, where some new areas that could, 10 or 20 years from now, be like obesity and Alzheimer's are today. Remembering that when we started in those areas, they were very much out of favor in pharma and nothing was working and what are those areas today. So those are the things we think about.

Okay. Great. Maybe we'll dig in on the diabetes, obesity front, just given the tremendous amount of progress that's been made and a lot of focus. You guys have been working a long time in diabetes, but then, more recently, have been focused on obesity and running a number of trials here with Mounjaro or tirzepatide, including the MMO study. But then you also have a number of indication-specific trials across a range of comorbidity indications. And so I think maybe the first place to start is just on MMO. So Novo reported their Wegovy SELECT study recently. Maybe just what are the implications of that data set for your program, MMO? And what are you looking to see when we see their data at AHA?

Yes. First of all, great news for Novo, even greater news for the field and for patients that suffer from obesity. I think we've long known that obesity's risk factor for cardiovascular -- negative cardiovascular outcomes. And we've also known that treating obesity by any other way that worked, which is essentially bariatric surgery and intensive lifestyle modification, which won't work in some patients, led to cardiovascular benefits. And now we know that the same is true for GLP-1-mediated weight loss. So that's really good news for patients. I think for Lilly, it's also exceptionally good news. I think in tirzepatide, we have a drug that's shown levels of weight loss that haven't been seen before, right? We've reported in the last couple of months SURMOUNT-3 and -4 weight loss trials that showed 26% body weight loss, which is tremendous. So, so far, all the data we have suggests that the level of weight losses is correlated with benefits on cardiovascular outcomes. You would predict that greater weight loss could lead to even greater benefits. So I'm really excited and optimistic for our own trial, which is still several years away as we started sort of a bit later here, but huge reason for optimism. When we look at the trial, of course, I'll just be focused on what -- really understanding the mechanism that connects GLP-1 with the improvement in cardiovascular benefits. And the simplest hypothesis and the one to refute is weight loss. I think, probably, what we're going to see is just about everything can be attributed to improving BMI. And of course, with that improvements in BMI comes normalization of lipids, lower blood pressure, et cetera, all the things that we've seen with tirzepatide. So I think that the picture will be good for connecting the dots on weight loss. The reason that's important is the challenge here is getting the medical community and patients and doctors to connect obesity and losing weight among all these patients as sort of an inherently good thing to do.

Yes. What -- and then maybe just thinking about, you guys kind of set the groundwork here in the REWIND study, where you did a combination of primary and secondary prevention. You're doing something similar in MMO. I know the Novo study was only secondary prevention. But does that at all change the relative risk reduction we'd expect to see from a trial like MMO with a caveat of higher weight loss? I mean, how do you think through like the relevant patient populations that are included in the study?

So surely, higher weight losses has got to be considered a tailwind in the context of this trial, and you're asking what about inclusion of primary prevention? Is that a tailwind or a headwind? I think, for most diseases, treating earlier can have a bigger benefit. I think that's likely true for obesity and cardiovascular outcomes. One way to think about it is how much modifiable risk is there in a population? If someone is on the verge of an adverse outcome, can you really modify that? Or is it too late? Whereas when you get someone early in the disease course, there's more opportunity to modify it? So I see the primary prevention as a positive here for relative risk reduction. For absolute risk reduction, of course, it's a population that's going to have fewer events, so a lower event rate. So it will be a bit of a headwind on absolute risk reduction and a bit of a tailwind on relative risk reduction is my prediction. But let's wait and see the data.

Yes. Okay. Understood. I guess the -- as I mentioned, the indication-specific approach that the company is taking here, I think there are 4 different indications over the next 18 months or so.

Yes.

Maybe just give us a -- kind of remind us of the sequence of those trials and why you chose those indications that you did as kind of the first -- beyond MMO is the first place to go with tirzepatide in obesity.

Yes. So next year, we'll have 2 Phase IIIs readout on 2 new indications that I'm really excited about. One is obstructive sleep apnea. So we know that obstructive sleep apnea, there's about 80 million people in the U.S., 70% of them have obesity as a comorbidity and probably as a cause of OSA. And just like I said about cardiovascular outcomes, we know that among patients with obesity and OSA, if you correct their obesity, either through bariatric surgery or intensive lifestyle modification, you can have better outcomes and reverse OSA. So the evidence here feels really strong. I'm starting to see that as a common disease, so strong biologic validity here, a high unmet medical need. And then we do have approved therapies that are widely reimbursed in the form of CPAP. So I think it's also helpful for access for patients. If we can show a benefit in OSA, that should provide access to a lot of patients with that disease. Importantly, obstructive sleep apnea is also linked on its own to cardiovascular outcomes. People with OSA will have a higher risk of negative cardiovascular outcomes. So reversing that should have a long-term benefit. So that's the first, and then HFpEF right alongside it. Again, this is a HFpEF in patients with obesity. And obviously, this had a very high rationale, probably about the strongest rationale for expecting a positive benefit going into the study, which has just gotten stronger since then with Novo's recent data. So excited about that. And those 2 indications that could be important. Behind that, we have both NASH and CKD. NASH trial, probably, it's a Phase II study, as all-natural studies are driven by biopsies right now. I expect a pretty powerful effect there based on all the biomarker data we've seen going into this. I'll be surprised if this isn't a positive study. And then the question becomes, how do you take a drug forward for NASH knowing that treating obesity is really going to have a profound effect on this disease? And then after that, chronic kidney disease, where, again, all the biomarker evidence and outcome data from Trulicity and semaglutide, et cetera, have shown a good effect of this cause of drugs on renal outcomes. So I expect that to be important as well. That's another Phase II.

Yes. Okay. Great. Maybe just one on the sleep apnea side. The AHA as a primary endpoint, help us think about what's clinically meaningful on that endpoint as you think about it? I mean, obviously, a high confidence and a successful trial, but what is -- what's enough in terms of clinical meaningfulness, especially in the context of against CPAP devices?

Yes, yes. It's probably not a number that many of us are intimately familiar with, but a top apnea-hypopnea index, AHI, just measures how many of those kinds of events a patient has at per hour of sleep. And there are different categories of OSA that are defined, I think, starting with like 5 being the trigger for therapy and then about 15 going from mild to moderate and maybe another 15 is severe, something like that. So certainly, moving between stages for any given patient would be very clinically significant. And there could be smaller changes there, depending on patient severity that could also be meaningful. I think we're well powered to see an effect that will be [ continuable ].

Okay. And I guess, similar to my MMO question, as you mentioned, the Novo study in HFpEF, any differences in terms of either your population or the trial design to think about here as we think about your readout relative to what we saw from Novo?

On our HFpEF study, it's a larger study, which, I think, is good news. Again, I should probably just say, the biggest difference is the drug. So I think the added benefits of tirzepatide should shine here as well, and then a larger study. So I think we'll quite likely see the same sorts of benefits that were demonstrated in that trial, but probably more adequately powered to say things about some of the harder outcomes that are difficult to show in the smaller, shorter-duration trial.

Okay. And maybe one other correlated question we get is just diabetes prevention. Obviously, there's some early interesting data from the SURMOUNT-1 study, where, I think, the number of patients treated who had prediabetes at baseline that converted to normal glycemia went to from -- to over 95% versus 62% for placebo. I think there's a built-in analysis in MMO to also look at that. So is that a natural indication that ultimately could have ended in the label? Or how should we think about diabetes prevention?

Yes. It's really incredibly profound data from SURMOUNT-1 that you alluded to. I think something like 60% of patients at baseline had prediabetes, and 95% of them on drug at the end didn't have it. That's great news. And in fact, the next readout is going to be more SURMOUNT-1 data because those patients stay in the trial and will have long-term outcomes and see if we can prevent -- continue to prevent them of having prediabetes. And certainly, that will prevent them from getting diabetes if they don't have prediabetes, so it will be great to have that data. The question you asked is how does that translate into a label claim? I think that's more difficult right now. The FDA set a very high bar for proving or getting a claim of diabetes prevention. That actually requires you to come off the drug and still have that benefit. That feels a little unfair, from my perspective. I think if we ask that of statins, for example, to have a claim of modifying your risk of heart disease, that would not be productive. So we need ways, I think, to shape the environment among endocrinologists and, ultimately, regulators to find a way such that drugs, which have benefits, both in preventing diabetes and treating diabetes, which is the difference from what the stat analogy was, drugs like that can get that kind of claim and offer that benefit to patients. So work to do.

Okay. So longer-term discussion. Okay. Again, I guess, this is kind of a related question. There's been a lot of focus on how adherence in obesity will play out. Obviously, adherence in the type 2 diabetes side is very high because of the adverse outcomes that patients are aware of. And so there's a view that they're highly incentivized to stay on once-weekly injection. And I guess, my argument on the obesity side would be patients see the benefits of weight loss, and so that would be a motivating factor. And then you have trials like SELECT that have a cardiovascular angle. But any early thinking on how adherence is going to play out on the obesity side for the injectable GLPs.

Yes. Well, I think the weekly injectables in type 2 diabetes have better adherence. I think Trulicity beats all of the orals, actually. So the injection issue is a bit taken off the table. And then you can ask what motivates people with type 2 diabetes. And as you said, maybe it's fear of long-term outcomes. Of course, in a pure type 2 diabetes population, which doesn't have obesity as a comorbidity, you're essentially treating a biomarker, which is a hard thing to do, but we can do it in people with type 2 diabetes and obesity. Of course, they can see the benefit of the drug, and I think that will carry over in the obesity population. If you were able to eliminate sort of the confounds of access or cost or things like that, but if you set all those equal, I would predict that a patient who suffered from obesity would stand the drug longer, better adherence than a patient who has type 2 diabetes without obesity. The reason for that is partially weight loss, which is easily measurable and observable, and it feels like a positive. And now we understand the medical benefits of that, just like we understand the medical benefits of A1c correction. But there's something even more important, which, I think, is the behavioral changes that patients will experience. So the craving for food, the constant thinking about it and trying to fight hunger, to fight obesity, it takes a toll on individuals and is unpleasant for anyone to experience. Being able to change that, I think, could be an important motivator for people to stay on the medicine. It's possible people will experiment coming off of it. And maybe people will have a good experience, and that would be great. I think for other patients, they'll find that the cravings and the thinking about food comes back more quickly. And perhaps, for them, that will be a reminder to get back on the drug. It's still early days, though. But I think the outlook is probably good. This is a chronic disease that likely needs chronic therapy. But it's one where there's a positive reinforcer to stay on chronic therapy for patients.

Yes. Okay. Great. I want to get to maybe some of the up-and-coming assets on the obesity side. You had pretty compelling data for both retatrutide and orforglipron at ADA. And so maybe on retatrutide first, just kind of what's the latest on the Phase III program? And then the other question we get a lot is just confidence in the safety profile here, given some of the arrhythmias. And do you think you can kind of manage that to a lower rate with some of the titration that you're working on as you think about Phase III design?

Yes, thanks. Retatrutide is a really exciting molecule. I think really had the first weekly incretin in Trulicity and then competitors followed. I think we had the first double-acting molecule in tirzepatide. And now there's several competitors following, CagriSema, others coming up behind us. And then I think with retatrutide, we'll have the first triple-acting incretin because it targets GIP, GLP-1 and glucagon together. The glucagon seems to have important metabolic effects, probably increasing energy expenditure and driving additional weight loss here. That's exciting. I think there need -- there is a need for even greater degrees of weight loss that tirzepatide has offered in some people, people with more severe obesity, people with type 2 diabetes. So that's exciting. It also has a really -- a very significant effect on hepatic fat. So we talked a little bit about NASH before. This could be an even better medicine for treating or even preventing fatty liver diseases. So excited about the overall profile as a weekly injectable that now has an additional glucagon activity. You asked about the safety in Phase II. It looked very similar to other incretins. I think the cardiovascular effects of glucagon have been well described, and that's probably an appropriate area of focus. We looked at increased heart rate. And I think if you used couple in sub 10 beats per minute or 20 beat per minute increase in heart rate, it was very consistent. And in fact, a similar or less number or percent of patients with those kinds of heart rate increases as compared to approved incretins. So I like where we are with that. I do expect that -- those attenuate over time. We saw some of that in Phase II. And I think that will continue as in addition, of course, to titration. As with most other things, side effects is likely to help, although it will delay. The longer titrate, the less timing off of attenuation. So it will delay the attenuation to later in the trial. So those are 2 sort of countervailing forces. In terms of the arrhythmia, I'd say, I don't think they were beyond what we would have expected based on the heart rate changes that we saw in this trial. So we feel comfortable. Of course, Phase III is the time where you have thousands of patients exposed for a year or more, and that's really the time to fully explore the safety of the drug. So as we always do, we watch closely in Phase III. The Phase III trials are running for the obesity indication, and they'll be starting up soon for the type 2 diabetes indication. For type 2 diabetes, I expect this to show the greatest level of weight loss ever seen in type 2 diabetes and probably be the second best for A1c control after tirzepatide, but we have to wait and see. Those are bold projections from our Phase II data.

Okay. Okay. Great. maybe just moving to orforglipron here, again, moving into Phase III ADA data, very competitive profile for an oral agent, obviously won't have the food and water effects that some of the competitor drugs have. I guess the biggest question that we get is just where will an oral fit into the paradigm? If you've got Mounjaro, tirzepatide setting a very, very high bar, we just talked about GGG and the efficacy you're seeing that bring to the table, where does that leave the oral in terms of a positioning standpoint?

Yes. Really excited about orforglipron, small molecule oral profile. We're going forwards once a day with no food or water restrictions. So really easy to use. Fits into people's lives. On the other hand, I don't expect it to have efficacy or tolerability that's as good as tirzepatide. I think its efficacy and tolerability will match. That's our goal here, what you can achieve with GLP-1 agonism. So think about what you've seen with the high-dose semas as a target for what -- how good could GLP-1 alone be. So we're sort of turning back the clock to single incretin activity here. Still, I think that's a profile that could be beneficial for people in earlier stages of obesity, people who are worried about an injectable. You can imagine different clinical scenarios. One would be maybe people start -- who have less severe obesity or earlier in the course of type 2 diabetes, could start with an oral like orforglipron. And then if they need something stronger, move on to tirzepatide or retatrutide. You could also imagine it the other way, that maybe some people could start on something stronger. And when they achieve their target, maybe they could dial back to an oral if they want. Probably the most important thing to think about with an oral is just the scope within the United States and globally of obesity, close to 100 million people in the U.S. and getting to be 1 billion people around the world, making 52 injections a year. Just producing that amount of injectable material is a strain on us and our competitors in this space and will be for a long time. And oral unlocks all of that, that can be produced at a much larger scale. It doesn't require a cold chain. Easy to talk to patients about and easy for patients to use. So it's a big market, and you're going to need orals to address the size of the market. So I see orforglipron as really a huge potential for society and maybe one of the underappreciated assets we've got.

Okay. Okay. Great. Maybe just in the interest of time, I will move on to donanemab, again, another significant development for both the company, but also the field and patients. For the first time, we have multiple disease-modifying medications now that are going to be available. So I guess, the first one is, just from a regulatory perspective, do you expect an AdCom panel here for donanemab?

Yes. So we're -- we submitted this to the FDA earlier this year on the backs of our successful Phase III TRAILBLAZER-2 data levels of efficacy here in terms of disease slowing that haven't been previously seen in Alzheimer's disease. So really excited about this molecule. And we said that we expect FDA action by the end of this year. I've said that I don't expect there to be an AdCom. It would be pretty unusual and [ putting ] on any indication that would happen.

Okay. And how about -- the other thing is this your question on how do you expect tau testing to be incorporated into any potential label? Is that something that would be a requirement? Or would it be up to the physician?

Yes. I think most likely up to the physician. We used tau levels by PET scan to stratify our patients. The sort of principal analysis that we focused on was the patients with intermediate tau levels, moderate amount of tau. But we also enrolled the patients with high tau. There was a consistent drug benefit in terms of the delta on all the cognitive scales across both the populations and the drug hit, both in the subgroup and the full population. So I think, most likely, it will be labeled for the full population, but I hope that we can be able to talk to doctors about the efficacy in the subgroup as well as the efficacy in the full population. And then for doctors who have access to tau scans, they may choose to use that to try and better assess benefit risk on a given patient. Because these drugs do have sometimes serious adverse events. And on a patient-by-patient basis, the more you can know about what is the risk of the adverse events, what is the magnitude benefit I should expect, the better doctors will be able to decide in whom they should use it and feel comfortable using it to those patients.

I didn't imagine that's part of the ALZ 6 study, too, as well as...

Exactly, yes. I think rather than shy away from adverse events or safety consequences of drugs, we want to lean into it. So we want to better understand how can we predict who's going to have the side effect of ARIA, how can we better detect that with imaging? How can we best manage patients with that side effect? It's a side effect of the drug, and we want to have the most information possible to give doctors. So we're running this trial to study just the side effect. And hopefully, we'll have that data sort of middle of next year to be able to share with doctors during the early launch with this drug.

Okay. Great. And the other trial that I think is important that, again, sometimes probably gets overlooked is the ALZ 3 study. So this is looking at an even earlier-stage population here. And when I think about evolution of the paradigm, it seems like we've seen this in other diseases in oncology to move to adjuvant setting, very similar here where you want to treat it even earlier. And so maybe just remind us of the design and then the endpoint because I think it's the other novel piece here.

Yes. This actually could be the most important trial, but [ that ] Lilly is running right now. It's an Alzheimer's prevention a trial, where we're taking people who don't have any symptoms of the disease, but they have a blood test that shows that they have pathology in their brain already. So the pathology is present, but they're presymptomatic. And we're trying to see if we can delay or even prevent the onset of symptoms by treating them with a fixed course of donanemab. So it's great for patients because it's a blood test and then a fixed-duration treatment. And then the endpoint is sort of the simplest endpoint possible, which is essentially a progression on this global Alzheimer's scale that goes from unimpaired, where they are at the beginning, to mild cognitive impairment, that's the first step, that mild AD, then moderate and then severe. Moving one of those steps is an outcome on the trial, and we're looking at the hazard ratio of people treated on drug versus placebo. By the way, we did that exact outcome in TRAILBLAZER 2. Of course, in that study, everyone started at 0.5 or 1. And the hazard ratio we got was 0.61, and it was highly statistically significant. So I think that, in an earlier population, as you were alluding to, we should expect to get an even stronger hazard ratio. That would be incredible if we can beat 0.61 and show that maybe in half of the patients or more, we've prevented or delayed dementia. I think that could really be a game changer for this disease.

Yes. And where does -- kind of the related question, where does remternetug fit into that part of the development?

Yes. This is our next-generation Alzheimer's drug. Just like in obesity, we're going to continue to innovate in Alzheimer's. I see this as a multigenerational opportunity for us. How can we improve on donanemab? We could get more plaque clearance. We could get less ARIA. We could go to subcutaneous dosing. So there's a couple of avenues here that we're exploring. And this drug has started Phase III, but more work to do to be ready to talk about all of the benefits.

Okay. And I guess the other one is you guys are -- have an active development program, including for tau. And so maybe just remind us of kind of confidence in tau as the target and where that comes from? And then when are we going to know more?

Yes. I would say my confidence that targeting tau in Alzheimer's is important is even higher than it was ever for amyloid prior to getting the data. Of course, the challenge, though, with tau is it's harder to hit. It's inside the cells. And so we've tried a couple of different approaches. We tried an antibody. That didn't work very well. Now we're trying a drug, a small molecule that affects the post-translational modification of tau. That's in Phase II. It's high-risk, but high-reward opportunity. And then down the road, we're looking at ways of inhibiting tau production as well.

In the last seconds, anything else in the pipeline, mid-stage, early-stage, that do you want to leave us with?

I think immunology is massively underappreciated at Lilly. It's a huge opportunity for us. We have mirikizumab, that's in Phase III for Crohn's, read out already for ulcerative colitis. 2/3 of patients had a response, many of those patients as early as 4 weeks. And half of them stayed in response a year later. That's kind of data that I think hasn't been seen for biologics before in this disease, and we look forward to launching that. Lebrikizumab for atopic derm. I think we've seen before in immunology a trend that if you can be more specific against certain cytokines, that can translate to better outcomes for patients. You can think over the story in psoriasis with [ 12, 23 ] going to 23. To I think that could play out here for IL-15. And so excited about lebrikizumab in atopic derm. And it's -- we test Q4 week administration versus what's currently available in Q2 weeks. So I think that's a big opportunity for patients. And then behind that in immunology, we have peresolimab, a PD-1 agonist that really had incredible data in RA that we just published in the New England Journal, a whole new way of treating immune diseases that we're uncovering at Lilly. And then I didn't say anything in immunology, but pretty excited about Jaypirca, our BTK inhibitor that we just launched in MCL and hope to have the opportunity to launch it in CLL soon. That's going to save a lot of lives, I predict.

Great. So much to talk about and so much progress. Well, thanks so much, Daniel.

Good. Thanks for your great questions, Terence.

Thank you.

Okay.