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

All right. So I think we should get started here. For those of you who don't know me, my name is Dave Risinger. I'm responsible for diversified biopharma research at Leerink Partners. It's very much my pleasure to welcome members of Lilly's leadership team to be here with us in Miami, and thank you for making the trip. So to my right is Lucas Montarce, who is the company's CFO; and to his right is Mike Czapar, who's the Head of Investor Relations.

And I guess to kick us off, it would be great, Lucas, to hear your perspective on the revenue guidance for this year. So we'll get right into it, since you're the CFO, on the numbers. So the guidance is $58 billion to $61 billion in revenue. Hoping you could discuss the factors that could drive performance towards the top end of the range and on the flip side towards the bottom end of the range.

Sure. I'm happy to be here. Thinking about the revenue for this year, if you look at the midpoint of the range, represents a 32% growth in revenue. When you look at our trajectory in the last 2 years, you go all the way back to 2023, we were growing roughly 20%; going into 2024, 32%. So the trajectory of growth is pretty much in line to the trajectory that we have been seeing in the marketplace as well. So we are not expecting a major inflection point getting into 2025. Some of the fundamentals of the business still remain the same. When you think about the incretin portfolio, we presented this at the JPMorgan conference as well that we were seeing the fourth quarter of the incretin business growing at 45% here in the U.S. Very, very strong growth, more significant, of course, in the early days of the chronic weight management space and maybe also very strong, but again, more tempered on the type 2 diabetes space that is in the mid-20s as well. So a continuation of that strong growth, we expect to see here in the U.S. in 2025. Now that will be also move into the OUS markets. We talk about OUS markets that we trigger quite a lot of new markets in 2024, basically more than 30 countries that we launched last year, most of them in the second part of the year, including a dozen of those ones in the fourth quarter. So that will be a significant growth driver getting into 2025. We continue to plan new launches as we continue to ramp up supply production. We plan to launch in new countries. And we have in the plans, in particular, getting into the latter part of this year, what we call big emerging market countries that will drive significant growth into the latter part of the year, but also more into 2026 like China, India, Brazil and Mexico. Now that's the incretin portfolio. I love always to talk about the rest of the portfolio as well, that we brought 4 products into the market in the last 2 years, in particular, 2 last year with Kisunla in Alzheimer's disease and also Ebglyss in atopic dermatitis. Those products will continue to drive growth in 2025 as well and launch into OUS markets. So those are kind of the drivers of that growth that we expect to see in 2025. Maybe my last comment, that is something that I mentioned during the earnings call, is the price assumptions that will go back to what we think is a more natural headwind that we see that is in the mid- to high single-digit price erosion. The last 2 years was unusual in the calculation. Remember that we had launch of Mounjaro and then Zepbound, that the year-on-year comparison was noisy. Now it's more basically apples-to-apples comparison. I will go back to that mid- to high single-digit erosion. So those are kind of the push and the pulls that we expect to see in 2025.

Excellent. Maybe you could expand a little bit more on just the expansion of capacity. There was an additional facility in North Carolina that I think opened recently. But how would you contextualize that volume expansion that you're going to be benefiting from over time?

Yes. That's a great question. And it's an important reminder that when we think about new lines or new sites coming online, it's not a big acceleration of new doses that would become available. We expect that continuation to grow over time. That's very important to remind all us that, again, it's not that we accumulate basically a significant expansion with a new site coming online. You mentioned one of those sites. We're very excited that Concord started commercial production by the end of last year. That's our second site that we have in North Carolina. The year before then, we had RTP in Raleigh that came online as well. So we have now the 2 sites basically providing commercial production in parenteral for incretins. And that continuation of investments into manufacturing will continue. We were public a few weeks ago with basically providing more visibility of the expansion plans that we see for the future, announcing another $27 billion investment in the U.S. on top of the $23 billion that we are implementing now. So that will make a total of $50 billion investment on new manufacturing capacity to continue to build resilience in the future as well. More in details, again, about the $27 billion. We are talking about 3 API sites and 1 parenteral site here in the U.S. Those, usually, as you know, investments in manufacturing takes several years. So don't think that, again, is an acceleration of capital investment but a continuation of the growth that we were seeing in capital investments in the U.S.

Yes. That's super impressive. But actually now that you mentioned it, so you said $27 billion, 3 API sites and 1 parenteral?

Yes.

So that's all you get for $27 billion?

That is correct, yes. When you think about it from the API side, those are really large sites, API sites. We announced -- the one that you can use as a proxy is the one that we announced in Lebanon that is an API site, a large one. We announced that basically, the investment on that site is roughly $9 billion, altogether, right? So it's the largest investment in Indiana.

I look forward to seeing Dave smiling for a picture with Donald Trump in the Oval Office soon. Okay. So with respect to the momentum to date, if we could just pivot to just what you've seen year-to-date, we're now in mid-March. So with respect to the prescription demand that Lilly is observing, is it consistent with your expectations that you've set for revenue guidance this year?

It's early days, right? But you all have access to look at the IQVIA data. I think it's coming public every Friday, so you have access. And we continue the same trajectory that we've seen once we resume all the commercialization efforts back in Q4. I alluded to that in Q4 that we gained 3 percentage points of share across our incretin portfolio in Q4. And we continue to see that very nice momentum building into 2025. So going back to your question, it's very much in line with our expectations.

Excellent, excellent. And could you just talk about the -- maybe this is a question for Mike. Just talk about the IQVIA inflection and how we should think about that and whether that's still a moving target or whether the new base that was starting to be reflected on February 14 or in the February 14 dataset, including LillyDirect, was the go-forward level from that point.

Sure. Love a good IQVIA data question on a Monday morning. So yes, so the beginning of Valentine's Day, the vials start showing up into IQVIA. IQVIA does kind of a triangulation process. And eventually, we hope that they'll actually restate the historicals, so you can kind of see what the ramp has been. But you could assume that like since the launch up until the first week when you get vials, it's kind of like a linear uptake. And so there could be a little bit of noise in the next couple of weeks, but it should stabilize and be a pretty good indicator on the go forward of what the vials are contributing. So stay tuned.

All right. So regarding compounders, it looks like they're finally going to be off the market on March 19. So management has characterized the compounders as having had no meaningful impact on performance despite all the noise. And obviously, that's because tirzepatide is more difficult to make than sema, and most compounders are making compounded sema. But how should we think about the impact? I guess maybe I've already answered the question, right? But you said that they've had no meaningful impact on performance. How would you characterize whether there will be anything noticeable in coming months once they are off the market?

I think you answered the question very nicely. By the way, I stated on this one, and we continue to look at different data sources, but we don't have good data sources that basically provide reliable information on what is the size of the compounding business. We know, as you mentioned, that the vast majority is sema compounding and very limited tirzepatide compounding. It's still more important, from our perspective, the patients that we feel very strongly that they need to receive product that is safe with quality. And of course, the original molecule that we have a really robust process to produce is the most important thing that we want to bring to the patients. So we are happy with now the enforcements that we expected to see from the FDA on March 19. And we will continue to partner with the administration to make sure that, again, the compounders are being removed and stop tirzepatide compounding.

Excellent. And then in terms of OSA as the driver sleep apnea, could you characterize that for 2025?

Yes. We are excited with this new indication, and we have more to come. So it's the first one of many. As you know, again, it's the first actually pharmaceutical product that will treat sleep apnea. We mentioned that, again, we expect to see more material impact into our revenue getting into the second half of the year. We got positive reconfirmation from CMS that will allow basically reimbursement in Medicare. But there is a period of process between, again, the validation that follow then the negotiation with the payers to get reimbursement. And we expect that to at least have some of the payers negotiated and basically covering the product in the second part of the year.

Got it. And then in terms of SURMOUNT-5, my guess is that consumers/patients probably still underappreciate how much better a drug tirzepatide is than semaglutide. The media just typically talks about Ozempic, et cetera. So could you speak to when we should expect the company to be able to promote that head-to-head result?

Do you want comment on that, Mike?

Yes. I mean so the data were consistent with label. So there's not a regulatory submission that's underway. And actually, if you go to like the physician website, the data is up there. The sales force is actively promoting. And to your point, I mean, it was a very clear and clean win of comparing the 2 agents, and you see significantly more weight loss on Zepbound than you did with Wegovy. So in process, and the team's excited.

Okay. Got it. All righty. In terms of ex U.S. markets, so I'm hoping that you could provide a little bit more color on tirzepatide's rollout just so that we better understand how gated it is, whether there are supply constraints in any of the markets of the 30 that you've launched in to date. Just contextualize for us where those rollouts stand and how the additional volume ramp will play into ex U.S. sales over the course of the year.

Yes. Happy to talk about OUS markets. You may notice from my accent that I'm coming from the OUS markets as well. And I have the opportunity to launch Mounjaro in Spain early last year as well. So I can provide more color about how that performance is going over there. In general, again, we talk about the 30 countries. Many of them actually launching in the second part of the year. So we expect to see a continuation of that growth. All those markets that they launched, most of them on equipment. They have product available and continue to ramp up the growth. Most of those markets are out of pocket as well for anti-obesity medications. So those are pretty much following the same pattern that we see in the U.S. What I mean by that is you still are in early days. Again, in terms of penetration, you are talking about low single digit, large unmet need, but still low single digit that you see in terms of penetration, but growing over time. So those markets are growing very nicely. In terms of share of market, it varies by country. When you have basically markets that you don't have a competitor, basically, we are gaining pretty much entire market immediately. The markets that, again, Wegovy was present, we are pretty much competing similar to what we see here in the U.S. I think that's more how we see it on the obesity space. What I didn't mention very openly has been that also while we launched in more than 30 countries, there are only a few of them that have type 2 diabetes reimbursement. In particular, from the large countries, we are talking about U.K., Germany and Japan. And I think both Ilya and Dave have been very openly sharing as well that we are seeking reimbursement in the rest of the major markets, including the one that I was based in, Spain as well. As you know, again, those are very mature markets. And again, we feel that also could drive significant growth for -- more into the latter part of this year and into the future as well. Last new launches, I mentioned that we will continue to gate and launch into new markets, in particular, the 4 that we're expecting to launch into the latter part of this year, including China, India, Brazil and Mexico. So that's kind of the perspective. In terms of the size, the size is significant, right? We're talking about 900 million patients that could benefit from Mounjaro. Remember that also, I forgot to mention, we have only 1 brand for the 2 indications in our U.S. markets, but it's a significant unmet need. It's still early days and a ton of opportunity to continue to grow. I know that we are going to be talking more about orforglipron most likely in the future. But I think also orforglipron having an oral option will unlock a significant volume growth into these markets.

And so just to repeat, so you've launched in more than 30 countries.

Yes.

How many of them have reimbursement for diabetes?

There are a few of them, but from the largest countries it's basically Germany, Japan and the U.K. This -- also, the type 2 reimbursement in OUS market takes time, right? So this -- until you launch the product, you submit that and you go through the process of negotiation until you get the reimbursement. In those markets, both Trulicity and Ozempic are reimbursed. So it's a matter of time to get reimbursement as well of Mounjaro.

Got it. Okay. Excellent. So why don't we pivot to orforglipron since you mentioned it. So obviously, Dan has said that he expects it to demonstrate a profile that's consistent with injectable semaglutide. In terms of the forthcoming press release for the first trial in type 2 diabetes, what should we expect to be included?

Yes. And we expected -- Dan alluded to this, that it will be pretty much similar to injectable semaglutide, thinking about type 2 diabetes comparing with Ozempic and thinking about obesity comparing with Wegovy. The -- we have the first readout on type 2 diabetes that will come in -- we expect to come in the second quarter of this year. It's a 48-week study. And I think the call -- the name of the study is ACHIEVE-1, if I'm not mistaken, Mike.

That's right.

What we expect to see is similar to the weight loss that, again, we've seen with Ozempic on their studies, I think it was the SUSTAIN 1 and SUSTAIN FORTE. So that will be in the mid to potentially high single-digit percentage of weight reduction. And in terms of A1C level reduction, it's 1.5%. So those are very much proxies that you see also in sema as well. I think the low end, we talk about 4% to 5% and the high end of weight reduction between 6% to 7%.

Yes. And ACHIEVE-1, just to clarify, it's a 40-week study endpoint.

40.

So it is the shorter end of what you're seeing?

Right, right.

The ATTAIN studies, if you think about the ones that are people very interested in, we might see a higher weight loss, ATTAIN-1, ATTAIN-2, is like a 72-week endpoint. So...

Yes. And for that one is for non-type 2 diabetes population. And we expect, of course, to see also more weight reduction similar to the one that it was accomplished by the high dose of injectable sema, the 2.4 milligrams and also the 5-milligrams of tirzepatide as well that it was in the mid-teens or so.

Excellent. Okay. And it would be helpful for you to just contextualize how you see the market opportunity for the oral, right? So on the one hand, it sounds like you're not really going to have any manufacturing constraints, which is very important. You could also price it slightly lower. But then again, you would just be pricing against yourselves since there are no oral small molecule competitors. And so maybe you could just paint the picture for how you're framing the commercial potential for orforglipron, assuming it has the profile you expect. I guess -- and I'm thinking specifically for obesity. We'll just leave diabetes aside for now.

That's fair. And we talk about the unmet need, the number of patients that could serve by the entire portfolio, right? I think when we think about this space, we think about the portfolio, starting with tirzepatide. That's our dual-acting orforglipron, that is our oral GLP, but then also retatrutide that will come later, that is triple acting as well. So I think in terms of the market opportunity, it's going to be certainly large market opportunity that also we feel that there are many parts of that consistently with what we have seen in type 2 diabetes. You see patients that may have the preference to start in an oral medication rather than an injectable, not only in the U.S., but there are many of all U.S. markets that they're heavy into orals versus injectables, including the one that I was based. You see that also in type 2 diabetes, but also in the obesity space that there is a strong preference to treat this with an oral product. So that is certainly one of the targets that, again, orforglipron will take. The other one, we talk about the commercial and manufacturing footprint as well that we can ramp up significantly, in particular, in some of these markets that though we continue to ramp up in our parenteral production, there is so much that you can accomplish again in terms of the large population that could be served by these products as well. And we feel that, again, a product like -- an oral like orforglipron could serve significant amount of patients globally as well. The last part, as you know, we have a study also in maintenance that we feel also that patients that will either start in orforglipron then maybe shift to an injectable or starting an injectable and reach a certain level of weight reduction will then maybe move into an oral products like orforglipron to maintain that weight over time as well. So more to come, but there are many different colors and perspective that will provide and I think a great opportunity that we have in front of us with orforglipron.

Excellent. And could you talk about the opportunity just with your portfolio, including orforglipron, to really strengthen your role with insurers/PBMs. So it seems like orforglipron is going to offer the opportunity to fortify the company's leadership position in diabetes and in obesity well before various injectable and oral small molecule competitors launch 3 years plus from now.

You want to comment on that, Mike?

Sure. I mean look, there's definitely a payer component to this, but the broader portion is actually just the portfolio effect. So if you have a high-quality oral that delivers a profile in line with what you see with an injectable Ozempic or Wegovy; you've got a foundational agent in Zepbound that can deliver really great weight loss; Mounjaro for diabetes; and if you go to our next pipeline, you got orforglipron, retatrutide, the triple agonist, you've got an even potentially more powerful agent that can deliver more weight loss or address some comorbidities that are related to glucagon activation. So if you've got a really good data portfolio, you can kind of meet people where they are. And of course, that has some benefit to payers and the physicians and the customers, but I think it's more of a holistic portfolio strategy approach as opposed to saying we're focused on contracting dynamics.

That makes a lot of sense. Excellent. So why don't we pause for a minute? We have about 5 minutes left. Just wanted to see if there are any questions from the audience. All righty. So I'd like to pivot since we only have a few more minutes left to Verzenio. So Verzenio has been a very powerful growth driver, and it is a very substantial drug for Lilly. Could you talk about the pushes and pulls considering the positive growth drivers but also the competitive dynamics?

Yes. I'm happy to talk about Verzenio. You mentioned that it's an important product for us in the oncology space. It's the market leader in the CDK4/6 space, both in metastatic and early breast cancer in the U.S. but also outside of the U.S. as well. In terms of the market dynamics, what we are seeing is, of course, like when the classes mature, you see the penetration of the classes starting to plateau. So that's one of the drivers. That's very normal in all the classes as well. So you see that the market growth of the class as a whole started to move from maybe double digits into high single digits. So that's very natural and it happens with all the mature classes as well. The second one, you may have seen that a competitor, Kisqali, had a positive data readout in early breast cancer in a larger portion of the population as well than Verzenio. So you're starting to see something that we factor, of course, in our guidance that is -- again, that is starting to grow and accelerated that growth and is starting to take share from Verzenio as well. We feel, again, based on the feedback from physicians that, in particular, in high-risk population in early breast cancer, still Verzenio is the preferred drug. We have really good data and a preference for a physician to treat in Verzenio. In addition to that, the treatment for Verzenio is 2 years versus Kisqali that is 3 years, that I think is more convenient as well for the patient and for the physician as well. So we feel that we have a strong position on that particular population. But to your point, has been a significant growth driver, in particular, getting into 2025. That growth will temper, in particular, given the penetration and also the competition.

I'd just add maybe one thing because Verzenio is probably our highest drug exposed to some of the Part D redesign with the catastrophic coverage. So pricing will be a headwind for some of the higher-priced specialty medicines as well.

Correct. Yes, a very important one.

Excellent. Okay. And then just thinking about a few other financial questions. So with respect to R&D, so the company appears set to spend $13 billion or so, maybe a little more, in '25. And considering that orforglipron's 12 Phase III trials will be basically completing this year or the vast majority will and retitrutide Phase IIIs will be wrapping up over the next year or so, is it appropriate to think about sort of your incretin spending levels on R&D sort of peaking this year, considering the rollovers of those Phase III programs? And how should we think about that total R&D spend progressing in the future?

Yes. That's a great question. I'm thinking more the mid- to long term. Putting 2025 aside, I think you mentioned the continuation or maybe acceleration of growth that we're expecting to see in R&D this year. We talk about 8 III -- Phase III trials that we initiated last year, and we have new ones basically that we're planning to take place into this year. So we continue to scale up our R&D footprint in 2025. Thinking about more the midterm, you talk about some of the studies that will start basically completing and moving on, that is basically on orforglipron and retatrutide. But we feel about the incretin space to continue to add new studies, in particular, also potential other implications in other therapeutic areas. And then outside the incretins, as you know, we continue to replenish our pipeline with new molecules across oncology, immunology and neuroscience as well. We talk about the big 5 that we brought to the market, but we have the next generation of products also that we feel very excited about, including some of the molecules that we are planning to bring into cardiovascular space like lepodisiran for Lp(a). And then we have other molecules as well in the rest of the portfolio. So our -- again, the strategic intent is to continue to drive that growth, to drive that sustainable basically replenishment of our pipeline into the future.

Excellent. And one final question. So obviously, your financial prospects are very robust this year, including, I think, slight gross margin expansion. How should we think about the gross margin longer term for the company? I would think that you'll get the benefits of manufacturing operating leverage plus some mix shift towards orforglipron, which will be higher margin. But then again, you're expanding into ex U.S. markets, which are lower priced, et cetera. So how should we think about the gross margin beyond '25?

Yes. That's a great question. We move out to provide, again, guidance and perspective on gross margin, but I can give you more color around that. We finished last year almost on the top tier comparing with our industry peers, roughly at 82% gross margin, 82%, 83%, depending on the quarter. And we feel that is a stable, again, way to look at it moving forward into the future as well. There are -- you mentioned some of the push and the pulls that we see on gross margin and is spot on. You mentioned product mix being favorable. That will be a tailwind into basically our gross margin line. In addition to that, of course, again, the new manufacturing site will continue to drive productivity and efficiencies. So that is the other tailwind that we see. On the flip side, we talk about price, that will be one of the headwinds that we expect to see. Mike alluded about the Part D redesign, but we have cost-containment measures both in the U.S. and OUS market. So we expect that continue to be a headwind into our gross margin. The last one is as well all the investments that we are doing. We talked about a bit before. And while those manufacturing sites come online, there is a depreciation that will start to impact our [ COPS ] line, right? So those are the push and the pulls that we see. The way that I think about it for the modeling for the ones that are modeling our projections into the future, getting into that 82%, 83% stable seems to be a good proxy for the future.

Excellent. Well, we are out of time. Thanks so much for being here with us. Appreciate it.

Thank you.