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

Yes. I think a significant portion. For one, about 10% of the volume opportunities in the U.S. and 90% outside. There's probably a price step down. In the bigger markets we go to, there will be a price step down so there's a mix effect thing there. But we've barely launched internationally. I mean we're just -- we launched in the Gulf around the time in the U.S., and we've got high share and a good penetration. U.K. also just launched in Germany, middle of last year, and that's gone well. But the rest of Europe is still going, rolling out now. Canada, Australia just getting going. So we don't know, but if it gets to the U.S. kind of you trade and share, and there's no reason to believe it won't, that's a big market. And guessing at a ratio, I don't know, but you've got 9x the volume and something less on price.

Yes, big markets. Pivoting to pipeline. Orforglipron, big update coming this year. Just latest thoughts in terms of confidence in that asset. And maybe just to help us frame out where you see that fitting in kind of the broader treatment paradigm relative to a Zepbound or a Mounjaro?

Yes. I mean, year-over-year, like it's interesting to look back at JPMorgan last year versus now. And I think if you liked Lilly's pipeline story in incretins last year, you should like it a little better now. And that one main reason is orforglipron is upon us. I think we expect data midyear on that. And really there, we're -- I think we're pretty confident on the weight loss and HbA1c profile. Tolerability will probably look like -- both of those will probably look like high-dose injectable sema. But the key question is, is there some off-target safety or some other problem with oral medications, which can happen. I mean there's an empirical part to this with chemistry that is difficult to predict. So far, behaved well in our studies. We published those, everyone can look at them. But super exciting, I think, for a couple of reasons. There is a meaningful segment of people who prefer oral medications. And a lot of the friction in the supply chain we've discussed with stocking and availability, and we've kind of normalized the U.S. now where if I go to a mainline drugstore, I'm pretty much expecting to be told, we'll take your prescription and we'll call you in 4 or 5 days. And I think with orals, that won't happen. It will be filled as expected, like every other oral medication. So that's good for the consumer experience. I think the other thing is scale. And here, we're using totally different assets that are already existing, either in our plants or others. And we can imagine a scale that is multiples above the total injectable market today. So I think we should expect, if the drug is successful, to be able to launch, probably first in the U.S. then Europe and Japan, et cetera, with no limit on supply. And should we be able to position the drug appropriately as a first-line treatment and on formularies, I think that's a big asset for us. That's super exciting. Reminder, too, we have data a little bit behind that for our triple-acting retatrutide, which this is a 3-way work -- 3-mode of action incretin, adding now glucagon to GIP and GLP. And those studies are accrued and we're waiting for the final data, but sometime in '26, we'll get that. And here, the promise is really the opposite of orforglipron, which is sort of GLP for all kind of for the masses. This will be really for people who need more weight loss, for more severe conditions that have comorbidities associated with obesity and really help people who have high BMIs get to target weight. Remembering like if you have a BMI of 40, which is a lot of people, even tirzepatide, you're going to lose 25% of your body weight. You're still BMI is 30, you're still overweight. So we need solutions for those people, too. And I think those are probably the next 2 big readouts in the whole industry and they're both in Lilly's portfolio.

Can you remind us on orforglipron when we can think about data and probably once we see that data, how quickly can that get filed with FDA?

So again, we'll see data in Q2, setting expectations as I should, maybe later in Q2. The stats team would want me to do that. I think Lilly is now in a motion where we literally file within a few weeks typically. And it's a great opportunity for us so we'll go as -- we'll work as fast as we can.

And on retatrutide, has your view changed at all, I guess, in light of the CagriSema we've seen of, I guess, on that higher end of the market for efficacy?

Yes, thanks for the question. I mean there were 2 important competitive readouts at the end of last year. I think it's -- 1 thing about incretins, starting with GLP-1s, but now GIP and amylin and probably glucagon is they've been really easy to translate animal signal to early human, early human to scale trials. I don't think we've had too many surprises. So magic doesn't happen and disappointment is unlikely. And I think that with the high-dose GLP-1, we see mid-teens weight loss and good A1C control with dual-acting medicines. Tirzepatide, of course, is first. CagriSema is a dual-acting mechanism. You see a step-up from there on both those metrics, a meaningful step-up. I think there's a difference in tolerability probably between those 2 medicines mostly because GIP is not only synergistic with GLP, but it also is tolerizing to nausea and GI side effects, whereas amylin probably is not. And I would expect triple-acting to have a step-up above that. And we will be -- we've launched the first dual-acting mechanism. We'll launch the first triple-acting mechanism and hopefully, orforglipron will work out, and we'll have a very strong, easy-to-make, easy-to-access oral medication for sort of that base market, which is those that need 15% weight loss.

And then maybe just last one, bigger picture, how do you think about Lilly's incretin portfolio looking at, let's say, 10, 15 years?

Yes, it's so exciting. I think it's so exciting for a few reasons. First, like all big markets, it will begin to fragment, and that's, I think, a normal thing. And patients and doctors will seek medications more tailored to their situation. We've talked about several now. So it's just beginning. But right now, it's like a 2-asset market. So that will change and we want to participate broadly in that fragmentation. One version of that is like profile of the drug. What's the experience? What's the weight loss profile? What's the trajectory of weight loss? Fast, slow? What's my tolerability to side effects? Some people really can't tolerate even like low-dose GLP now. And there may be solutions that are much more tolerable but have less dynamic weight loss, slower or whatever. What about maintenance? That's another asset profile that's quite interesting. So I think that's all going to play out in the next 5, 6 years. By the way, we have beyond retatrutide and orforglipron. We have 9 other weight loss programs in the clinic and it means I don't think anyone is close to that. And so we're well positioned to take advantage of those textures in the market that will develop. The other big fragmentation, which we're also very excited about investing significantly behind particularly this year, is moving beyond the metabolic health story. Of course, sema and tirzepatide have done a lot of large-scale trials, cardiovascular trials, MASH, all things we just discussed, really looking at the direct effect on metabolism of weight loss and that's sort of an intuitive thing. Of course, it started with diabetes. That's important because those are leading killers around the world and obesity is a driver of those. But we also notice now, of course, these other effects, effects on inflammation. And there's some interesting data that semaglutide has published. And we loaded into retatrutide, a pretty big joint endpoint -- set of endpoints on low back and knee. And I think that's super exciting because that's acute and it's disabling for people who have obesity and those conditions. And so that's, I think, a new chapter. There might be other inflammatory diseases we could exploit. We're doing some studies along with Taltz and other inflammatory bowel -- diseases we have like inflammatory bowel disease that could be quite interesting. And then neuroscience is the other thing we're quite excited about because this clearly affects the desire cycle. And we've talked about starting studies this year in a number of dependencies. Alcohol and tobacco seemed pretty straightforward. What about opioids and others? I think we should do that and see if something is there because that's such a huge public health problem.

Yes, right. Obviously, incretins, obesity has been a huge part of the story. Stocks had great performance over the last few years. As I just think about the company evolving over time, how do you think about balancing what's obviously one of the biggest growth opportunities the industry has ever seen versus not becoming too dependent on any one category or any one product? So just talk a little bit about just how you feel like Lilly is balancing kind of that dynamic as you think about where the company is in 15 or 20 years versus where we are in 3 or 4 years?

Yes. I spend a lot of time thinking about that. I mean, I think, first of all, we have to do multiple things at once and we have to own that and take that on. The first thing is fully delivering on what's in front of us already with obesity and tirzepatide and the 2 follow-on products we've been talking about today. That's a generational opportunity for any medicine company, and we need to take advantage of it. I think we are in the pole position in every conceivable way. I didn't mention, of course, we ran a head-to-head against Wegovy and beat them handily, almost 50% of our weight loss with tirzepatide. This is ours to take advantage of, but -- and do take advantage of it, I mean, help lots of people around the planet at scale and change our company for a long time. We have to do that. That's manufacturing build-out all those clinical studies. The second thing is, I think to really balance that in the mid-term with the oncology, immunology, and neuroscience portfolio. Here, we have great opportunities and are executing extremely well. We talked about the size of that, $20 billion, growing high to mid-teens. And we see upside to that business and lots of opportunities to invest. Will that be, in an absolute sense, anything like the step-ups we can expect. In obesity, maybe not. But every other drug company is operating in that world, and we should be the best one you could invest in, the best one patients can count on. And we're focused on those diseases. I think we're good at those things. That needs to continue and probably has more duration because it's diversified by itself. It's 3 separate things. The third category is what do we do with the capital? And it's likely that we will generate a lot of cash flow and we can choose to reinvest that. There's a long list of companies. Maybe you put Lilly in the early 2000s on this list or even the Prozac years, that generate those kinds of excess returns. And then we look back and we say, what do we do with that? And so we have ideas about that. I can tell you, we're happy with our BD motion now, which were all the biotechs in the room. And there was a lot of small deals, some even below the radar completely, that build early-stage pipeline strength. We can add value. We like to take the risk with people. We can shape the development plans. We can do the big things, big pharma does well, extremely well. But staying in our lane and starting early, that's been good for us. But let's be honest, there's a finite number of those things, and we're operating at a level that's pretty high already. I was mentioning to you backstage, I mean, we've done like 100 deals in the last 3.5 years. That's a lot of deals. We could do more, we will do more. But will that consume all the capital? Maybe not. I think we're also interested in ideas, not BD ideas but organic ideas that could make a bigger difference but are maybe hard projects but also projects that are likely to translate. An example of this is the work we're doing in Alzheimer's prevention. That's a hard project, and it will take a long time. But what could be more important than preventing neurodegenerative conditions? And we're in a good position to fund those studies, do the studies in advance to get confident in the translation and then do them. Another one, Lp(a), a number of people in the industry are on that, but we're the only one doing a primary prevention version of those studies. And I think that's a big bet on the future. And I think those are the kinds of things we should be doing that could create growth in revenue but also massive like planetwide impact on health into the 2030s, 2040s. That's our thought process on what to do with the excess returns...

Lilly seems more uniquely positioned to be able to make those investments?

Yes. I think that's exciting.

I guess coming back to the BD piece, you mentioned 100 deals over a short period of time. Can you keep scaling at that level? Or does -- at some point, is there just too many projects, too many assets, and you might lose focus?

I mean it creates operational complexity for sure, and we do need to grow our BD and alliance group, and we will. That's actually not the pinch point. The pinch point is actually shared resources with our own programs. And so when you bring in things and it's lumpy, it's not planned in the year, that stresses thing. But Lilly people rally to the cause. I think we'll digest that. Probably the rate limiter is the amount of funded ideas in the VC universe that are saleable, that have data and of the quality that we're willing to transact. And we may be getting close to that. I mean we're a meaningful percentage of the total transactions. So what are we doing about that? I think we're heavily investing in early-stage ideas. We have this program Catalyze360, I talked about last year, which is, I think, really exciting because it's more of a kind of a scale-up incubation idea. So can we -- if they aren't available today to transact with, can we grow some into that space and get to know them in the process? We made some interesting early-stage investments like last week, we built a $0.5 billion fund with a16z, looking at everything from real biotech to picks and shovels ideas to new models to find growth in biopharma. So we're open to those things as well. We can plant seeds and see what happens. We have a pretty good run now where we don't expect patent expiries to meaningfully affect our company, and we're focused on long-term growth.

Last question on the BD front. Does larger M&A make sense for? I know it's something historically the company hasn't done? But to the extent you found an innovative business where you could maybe apply your capital and your focus, would you look at that? Or do you stay with the sweet spots of these earlier stage deals?

More the second. I mean we have an obligation to be prudent with our money and look at everything and we do. Often, we learn and say that's interesting, no thanks. So it's hard to think of one that fits what you're talking about. Hypothetically, it's possible but it's not our focus. Our focus is, first, like I said, nail the opportunity in front of us, which is profound; build out the rest of the portfolio, a lot of BD happening in those other 3 areas: oncology, immunology, in particular. Maybe neuroscience will blossom a bit in the BD space. And then look for these sort of blue ocean opportunities where we can invest with high probability, but it takes a lot of convicted capital to do it over a long period of time and make a real difference in human health and be able to play that out over time. If there's something that drops in, of course, we'll have balance sheet capacity to do it. It would really have to be better than Lilly because the other choice is to buy back our own stock. And we don't want to buy something and dilute our effectiveness.

On the rest of the portfolio, I guess, also the cash flow the business generates, I think you mentioned these examples of being able to make these longer-term bets in some of these big markets. Are there other opportunities to, I guess, create competitive advantage, just given the cash flow from the incretin piece of the business to maybe fund, whether it's sales and marketing, kind of the way you think about portfolios differently in the other verticals?

I think the portfolio part in particular, and some of my third bucket ideas fit into that, like taking Kisunla and before really having a launch or even with Phase II data, starting a prevention study. I think we can take a little more risk there or another KRAS G12C. So there's a few in the market. People are working on this. The breadth of the program we're starting, which includes adjuvant non-small cell lung cancer at the get-go is an unusual move for us. It's also consistent with the incentives of IRA now to go early and hard. But I think Lilly is in a unique position to use income statement capacity in a way that others might say, "Ooh, let's step into that risk." That can create advantage if it works. Now if it doesn't work, we've got a different conversation happening. So we need to be prudent and smart about that. That's the primary one. Of course, if we need to flex commercial muscle, we will. But long term, as we've talked about in the past, Chris, I think SG&A as a percent of the company will shrink. It will not grow nearly as fast as sales because we're finding a lot of efficiency and communication with digital channels. And mostly, we operate in 4 therapeutic areas. We don't need to add manpower to go to market with what we have.

Maybe just last topic here, new administration coming in. What are you most focused on? How are you thinking about the dynamics of the sector heading into the Trump administration?

Yes. New day, everyone's most -- I think Tuesday will be the most optimistic we'll be, but things will change. And the administration themselves will have competing priorities. And let's face it, there's a lot of tensions in their agenda now. We see that playing out between like the Visa debate, for instance. So I think they'll have to wrestle this ground, and we'll see what they really care about. But for the industry, I think there's 2 industry-wide ones we need to stay laser-focused on, and then for Lilly, there's a third. The first is really making sure that in the legislative package that comes next and in administrative actions, if appropriate, we can create more transparency and efficiency in how drugs get paid for and distributed in America. So we know the supply chain, PBMs are not transparent enough, and we should be able to pass through more of that savings directly to consumers. Right now, we have reverse insurance in our country where people who have sickness and use medicines fund those that don't. We think that should change. That's top priority. Second is fixing the IRA, which is really about the 9 to 13 rule primarily. So 2 years ago, that went down. And every day since then, venture capital and large pharma have allocated capital away from small molecule chemistry projects and discounted their value in the market. And as a result, we'll have fewer small molecule generics in the future as a country. And I think that's a terrible outcome because that's the most efficient, cheapest thing going in health care. It also blocks off an avenue of science to solve important problems like tissue penetration in the brain and so forth. So that's number two. And the third is expanding obesity coverage for the country, which I think with MAHA, that's what we're about. We want to Make America Healthy Again, we didn't call it that but that is what we do every day, and obesity is fundamentally a prevention play. And there's lots of great scientific evidence that shows while diet and exercise is very effective at prevention of obesity, it is rather ineffective at treatment. And we know that because we use it as a control arm in our studies, and you lose 2% of your body weight over 1.5 years versus [ 22 ], it's quite different. So if there's common ground there, we'd love to work with the administration to expand, really quite broadly, access to these medications, find a way to pay for them, although I think the ROI will be measured in months once they get this done and really change the trajectory of health in America and the cost curve for Medicare. I think there's a strong story there. We'll work on that, too.

In your -- I know it's early. Do you find the new administration is receptive to these ideas or how has the dialogue been to the extent you can comment on it?

Well, they've been receptive to talk, and I think that's a bit of a change from the last 4 years. I don't think everything the Biden administration did was misintended but it certainly lacked a lot of industry input. And so then you get these mistakes, and no one really wins in that world. I think these folks understand because a lot of them are coming back the second time. And it's just sort of the nature of the President to interact with the business and get a lot of inputs before deciding what to do. And I think that's quite healthy and useful. I think the flip side might be what is the agenda and what's the ability to execute it? That said, I think some of the people around the incoming President are quite smart and good Chief of Staff and others that we'll guide him to say, let's do one thing at a time. Let's do it well. Let's knock out some early wins. Let's do things that will be both popular and good for the long-term health of America. And I think a lot of that comes back to the things I just mentioned, transparency in pricing, discounts go directly to patients, obesity coverage, I mean, these would be enormously popular and successful policies.

Excellent. Well, I think we're just out of time. Dave, really appreciate the comments. Thank you...

Great to be with you again. Thank you all for coming, yes.