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

Get started here. Welcome to day 2 of our healthcare conference. The weather is still holding up. Thank God for that. Very pleased to kick off our morning session this morning with Eli Lilly. We have Lucas Montarce, CFO; and Mike Czapar, Senior Vice President, Investor Relations. Thank you, Lucas and Mike, for being with us.

Happy to be here. Thank you.

Great. So I guess to kick off, Lucas, we were talking a little bit about this at breakfast. We feel compelled just given the external environment, just to start with a big picture question for all of our companies. And that's all of these policy-related uncertainties that are bearing down on the pharmaceutical sector. It's now about 30 days post the first MFN executive order. So what can you tell us about how conversations with the administration have been going. What's the status? And does it feel like there's going to be a resolution anytime soon?

Yes. No surprise. It's always the first question that I'm getting in each one of the conferences. Unfortunately, there is not much details at this time. Going back to your question about the conversations, the conversations are positive in general. Again, they're very receptive and hearing our thoughts on what we are focusing that is basically how we reduce patient out-of-pocket in the U.S. And we had good examples of that, similar to what we did, for example, with insulin a few years back that we reduced the price of the product to a cap to $35. So that's one of the things that we shared with the administration. The other one is, they are very interested on direct-to-consumer. Again, it's part of the executive order. So we shared the experiences that we had with LillyDirect. As you know, we implemented this type of approach that we go direct to the patients a few years ago, very successfully now with Zepbound. So those are kind of the things that we've been sharing with the administration. Going back to your last question about anything imminent, we don't know at this time. It's hard to make any assumption about when, but they haven't shared with us any details at this time of how are they thinking about this and even the scope associated with that as well.

Okay. And I guess, in a recent press conference, the administration talked about that they would support pharma in negotiating prices with Europe. Have those discussions with Europe been happening? And what have your interactions been on that front?

What we have seen so far is -- and I think it's public information, you've seen that as part of the trade agreement with the U.K., they have included high-level language associated with improving the health care system in the U.K., including the pharmaceuticals as well, but nothing in detail. That's a first starting point. We are not aware of any engagement on this regard with the rest of the European countries at this time. As I mentioned, coming from all the U.S. markets as well and having experience in Europe, this will require regulatory changes. So it's not up to the pharma companies to set up the price. There is a system in place that you go through based on the value proposition that you bring to the product and it's usually compared versus the standard of care in each one of the market. And based on that, is set up the price either at a premium or a part to the standard of care. So if we want to change that, that will require regulatory changes. So not much that we are familiar with or aware at this time coming from the conversations with the administration. What we discussed so far has been more focused on the U.S. side.

Okay. Got it. So maybe we can just shift the lens a little bit more towards Lilly-specific questions. Just sticking with the pricing theme. Obviously, it's very much top of mind for the GLP-1 class broadly on a number of different fronts. There's obviously the MFN-related concerns that have been brewing and then there's, of course, potential PBM-related dynamics that could potentially affect pricing, too. So I guess starting with MFN and the Trump drug pricing policy agenda, how do you see that affecting the pricing dynamic in this market at all? And how could it really play into potential pricing and really launch strategies? You've got orforglipron potentially launching at some point this year. That's going to be a global -- next year, that's going to be a global product out of the gates, and it's been framed by Dave as a sort of a GLP-1 for the masses.

Yes. Well, on MFN, it's pretty much similar to what I shared before. It's hard to speculate at this time implications from the pricing perspective. Thinking about new launches, you mentioned orforglipron to use that one as an example, our pricing strategy remains pretty much consistent even with MFN on how we think about pricing the products, which is based on the value proposition. It's early days. So nothing that I'm planning to share today about, again, defining the price for orforglipron, but that's how we think about for all our portfolio and orforglipron will not be anything different from that perspective. You mentioned payer dynamics. You all have seen the announcement from CVS a month or 2 ago. Also the other payers have confirmed open access for both basically incretins on the obesity space. That has been our strategy. We remain disciplined on our pricing strategy as well. So we are pleased again with those payers that have provided open access. In the case of CVS, we see those payer dynamics happening all the time. That has been factored in our guide and our projections for the full year, and from the pricing point of view, we talk about, again, that our portfolio, our expectation was mid- to high single-digit price erosion. Our view has not changed to that. That's a portfolio view. But of course, again, incretin is a big portion of our portfolio.

And I guess, as you -- on the payer dynamic front, as you think about the current contracting cycle, are you seeing anything that would potentially suggest greater price erosion than the high single digits or mid- to high single digits that you've laid out in your guidance?

No, I think it's very consistent.

And when does that contracting cycle end?

Contracting cycle is usually for the next year is during the summertime.

Okay. And Lucas, just you've talked a little bit about sort of limited spillover into the commercial channel from -- to the extent you do see pricing pressure on government channels. This market, however, is behaving a little bit differently than any other market we've seen in terms of the incretin portfolio. So just given the consumer element. So what gives you confidence that those traditional barriers won't start to cave?

Yes. And I've been open about it, thinking about, in particular, the classes that we have been in the market for quite some time, including incretins in type 2 diabetes that we have been able to maintain that separation on pricing between, for example, Medicare and commercial. And we have been successful to do so over time, very different payers, different, of course, patient populations as well. So we have been very successful to maintain that separation. We don't think about this one anything different in obesity. I will add that in the case of obesity, we have also the out-of-pocket business as well that is growing very nicely, and that's prepricing, right? Again, we set up the price ourselves and it's completely separate from the negotiations with the payers as well. So we feel that -- we feel good about that separation even from the obesity space as well.

Okay. Maybe we can then pivot to the demand side. When you look at script data, weekly patient starts for Zepbound have shown a very strong upward inflection. What can you tell us in terms of just framing demand dynamics at a high level, including any color on share capture from the compounding pharmacies? And then how are you thinking about the impact from the CVS formulary decision, which kicks in, in a couple of weeks?

Yes. Maybe stepping back, very pleased again with the progression of the class first in terms of the market growth and penetration that we are seeing. On top of that, you see, again, that after restarting basically our commercial efforts in Q4, we regained market leadership in the class in the first quarter of the year. So very pleased to see that. And that's all very much in line to what I shared about the expectation for this year. So very much consistent towards our guide and our expectations. In terms of the continuation of the class growth, we continue to actively pursue that. Again, on commercially, you see the DTC campaign out there. You see as well all the efforts that we do commercially. We continue to make progress on the access side as well. You see the opt-in moving from high 40s to high 50s. And there are new construct that some of the payers are announcing, including Cigna very recently that could potentially open it up more opt-in access for some employees that have not opt-in so far. So we continue to see great progress of the class and penetration. Don't expect to see any inflection point from my perspective. Going back to your question about compounding, it's hard to see what is the size of the compounding business. We have been open about this. And though we have been successfully legally on all the court rulings that we have seen so far, we don't expect to see kind of a major inflection to happen all of a sudden. As you know, compounders have shifted now to personalization, basically combining, again, incretins with other molecules or other vitamins, and we are taking action legally as well, but it takes time for the FDA to enforce the removal of those compounders. So we are not assuming a major to take place anytime soon. But we are very pleased with the projections and the growth that we are seeing. Another data point, I think, is worth to share at this time, you've seen that we announced several agreements with compounders or telehealth services that we're compounding product as well, including Ro that we signed last December. And how we construct our agreements is that we are enforcing in those agreements that as long as the product is out of the shortage list, that those telehealth services are not compounding either tirzepatide or semaglutide, right? So it's also another way to move those out and move into the original brands. So that's just to give you a little bit more color on that. Maybe the last dynamic in terms of, again, modeling for the rest of the year, how the class will continue to progress. It's worth to note that there is seasonality, and we've seen that in the last year in type 2 diabetes, we've seen it for many years. So there is more growth acceleration in the first part of the year, start to slow down in the second part of the year, continue to grow, but not at the same pace. That's what we have modeled as well for our projections for the second part of this year.

And then maybe just going back to the CVS formulary, any...

I can comment on that. Thank you for reminding me about that. So in the case of CVS, I've been open to share that, again, roughly the template formulary that has been moving to 101 is roughly 200,000 TRx. What we have assumed on that is, again, to be -- that is going to be starting on July 1. But as you can imagine, with all the moves that happen with payers, it takes time to implement. Also, there is a medical exception process that patient can go through and get that exception in place. So don't expect that will be all of a sudden, 100% of those TRx moving into the competition brand, but it will take time to see that happening. That's kind of what we are modeling our projections as well.

Okay. Let's shift to the international launches.

Happy to talk about it.

Maybe, Lucas, just to remind us high level, what does your guidance assume in terms of international uptick over the course of the year? And then maybe just give us some color on how these international launches are progressing. I mean, I read somewhere last week that the Mounjaro in India is just flying off the shelves. And so maybe just kind of give us some high-level framing around that.

Yes. Happy to talk about international business. The launch sequence is progressing within the plans that we put in place. We show in Q1 that now Zepbound -- well, Mounjaro because we have only one brand OUS is present in about 40 countries. If you go back maybe to Q3 last year, we were talking about a dozen countries. So quite a lot of ramp-up of countries that we launched both in Q4 and the first quarter of this year and very in line with our expectations. We talk about some of the large countries that we launched as well, and we were openly talking about China, India and Mexico. So large patient populations, high unmet need that we just recently launched into those markets. So -- and then the progression of -- it's early days, but we see very nice uptake similar to what we've seen in the U.S., just in a couple of quarters in most of these markets becoming market leader. So -- and then the market -- what is more important in these markets given the low penetration of the class is to expand the market. So -- and we continue to see very nice, again, uptake on how much the class is growing, but it's early days at this time. Maybe the last data point you mentioned about this article about India. When you go and look at the details, that was the second month of the product into the market and comparing versus the first month, and we launched in the middle of the month. So that comparison month-to-month, I don't think that is a good proxy to use, but we are pleased with the launch uptake as well that we've seen in India.

And I guess just going back to the pricing question on the international side, you have oral generics hitting several international markets, I believe, starting next year or the year after that. So how do you see that impacting the pricing strategy for the tirzepatide complex globally overall?

Yes. Maybe one thing that is worth to note as well on the international markets because I focus my comments more on the obesity space. The other part going to your question about sema, we are also going through the process of getting reimbursement in type 2 diabetes as well. That takes time in all the markets to get that reimbursement. Usually, the first countries takes 6 months, and it goes all the way to 2 years. So we are going through the process of getting reimbursement for Mounjaro in type 2 diabetes. We are in Germany, Japan, U.K., Italy and the Netherlands. Those are usually the first ones to go. We feel good about the launch sequence on those markets as well. And price concessions in part of the OUS markets when you go through the reimbursement is very natural, and that has been factored in our assumptions. Like with all the generics, again, that takes place as well in part of our assumptions when we think about the modeling on our projections OUS. Given the differentiation on the value proposition, we feel strongly about what we are bringing to the market and our ability to separate from the generics as well. And then the channels, in particular, in many markets, OUS as well, how the generics are being managed versus the originals is different, right? So for example, in China, you go through, for example, all the originals go through a national reimbursement process called NRDL. The generics go through a tender process called BBP, right? So those are very different channels and they manage different pricing separate and apart from each other. So we feel good about our ability to continue to separate and maximize the opportunity for the originals as well OUS.

So I guess just hearing you speak, Lucas, just in terms of what you're observing across the incretin market right now, is it fair to say it's generally consistent with your expectations when you set revenue guidance this year? Just...

Yes. It is very consistent with our expectations. We put the bar high as always, and you see that playing out in the results that we are seeing after starting commercialization back in fourth quarter. We feel very good about the uptake that we've seen for both Mounjaro and Zepbound and also the class penetration that we are seeing nowadays. So very much consistent with our guide.

Take a pause there for any questions from the audience before moving on. Okay. Let's maybe talk about BD, Lucas. So just maybe starting with this Camurus deal you did last week. You tell us a little bit about this drug delivery technology and just the strategy here in the context of your views on how market dynamics are unfolding in terms of optimal dosing schedules.

Do you want to comment on this one?

Sure. I can speak to the specific transaction, then you can talk a bit more about broader BD. So we've got a large number of investments across different targets pursuing cardiometabolic health. And some of those are looking at, like I said, novel targets. Some of them are looking at less frequent dosing. And so this transaction adds the potential to move some of our medicines to potentially monthly dosing, which is part of the cover every square on the obesity development landscape strategy that we've got in place. And so a nice addition. And as we think about less frequent dosing that may have a little more applicability in a maintenance setting because as you're starting up on a medicine, having the ability to intervene if there is something that you want to modify, it may be more beneficial to have a weekly dose. But a nice sort of small transaction to help round out the early phase portfolio.

And I guess is this strategy of tuck-ins, you did another deal recently with SiteOne to expand your pain portfolio. Are these the types of deals that we should continue to expect? I mean you're generating just a tremendous amount of cash. Is there any appetite at all to go larger?

Yes. So again, both -- you mentioned SiteOne. We did Scorpion as well in the first quarter in oncology, very nice asset, a PI3K alpha inhibitor. Those are very much within our strategy, right, that we see that we can add value, we bring them early on. We put on our R&D engine and accelerate their development as well. So it's our strategy and very much within our core therapeutic areas. Thinking about large deals, we look at all the options always, but it's hard to see how we can add value when we look at the business cases, usually on many of the large deals, you are bringing revenue products in the market, given the growth trajectory that we are experiencing nowadays, most of those are actually dilutive to our growth. So it's hard to make that work as well. And then the value, of course, as well, when you look at it is not actually adding value for the organization. So we feel strongly about the strategy that we have in place to bring early phase, and we will remain disciplined on that, but it doesn't mean that we are not looking at everything.

Any -- there's been a lot of excitement certainly in the oncology world about these PD-L1 VEGF bispecifics. Any updated thoughts on your level of interest in potentially participating in that opportunity?

Well, Mike was the CFO in oncology, so he can comment more on the oncology assets as well.

No. I mean it's certainly closely, but we look broadly across all different targets, and we've been pretty active in oncology over the last couple of years, whether that's like Lucas mentioned, the Scorpion transaction or we added a radioligand therapy platform. We added some antibody-drug conjugates throughout the course of the last 12 to 18 months, and those are all progressing quite nicely. So expect us to continue to be active in assessing the landscape.

Let's maybe talk about the cost base and just -- I guess, just in the context of -- on the tariff front, I guess you've made some significant R&D and CapEx investments. And just high level, just do these influence spend in other areas or require any rethinking of the ? Any updated thoughts on margins broadly?

Yes, that's a good question. And we've seen other companies announcing restructuring and making adjustment on their cost basis. We feel strongly on the position that we are nowadays. Again, when you think about the last 2, 3 years, the company has been basically growing at a fast pace, just last year, almost 5, 6x the average of the growth of the industry, right? So -- and we are bringing new products to the market. So we are investing to fully maximize the launches and continue to advance our pipeline across the board, it doesn't mean that we are not doing that with discipline and continue to expand the margins. Just looking at the first quarter of the year comparing versus the last -- the same quarter last year, we expanded 11 percentage points on our op margin. So significant expansion that we continue to see. But we are investing to maximize the opportunity. Are we being disciplined? Yes. Just to give you a few examples in SG&A, all the investment that you've seen and the growth, I think, in the mid-20s in investment in SG&A growth versus the same quarter last year is mainly on variable. The fixed cost, what we call, again, commercial footprint and so on, we leverage the platform that we have globally to drive basically the launches globally as well. So we are not adding more sales force. Very pleased as well on the progress on the gross margin because also the new sites are more efficient, and we're running the lines at full speed as well. So you see progress as well gross margin getting into the 82%, 83%. So very nice progress. If you compare with any other peers, we are very competitive, both in SG&A and gross margin. R&D, we are intentional, right? We are more on the high end, but it's also part of our BD strategy that we bring assets early on, and that brings also the burden in the cost in the R&D as well because we put all of those assets in our R&D engine. But it has played out really well. And how we look at the productivity from R&D, Dave alluded to this many times, and I've been part of this journey as well is thinking about future value of the pipeline comparing to the investment that we are doing, we are well above of all the industry peers, even without the incretins as well. And then thinking about the speed of bringing molecules to the market that we are doing that at really super fast pace comparing with the average of the industry as well. That's how we measure the productivity of our R&D engine.

Okay. I will move away from the incretin portfolio and get to the non-incretin portfolio, I promise, but I just want to touch really quickly on some of the key upcoming events that are top of mind for investors. Mike, maybe ADA is coming up, you guys are hosting something next Sunday night. Maybe talk to us about what Lilly is presenting, what we should be expecting?

Sure. So 3 ADA-sponsored symposia for Lilly at ADA upcoming. First is the ACHIEVE 1 orforglipron Phase III trial. So the first Phase III trial that we toplined recently. We put a lot of data in that press release, so efficacy, safety, tolerability. So shouldn't expect any major surprises from the presentation, but it's an important milestone for an important program for us at Lilly to have the full detailed data disclosed. The second would be some Phase III updates, a detailed data readout for our weekly basal insulin. And then the third symposia is the -- what we consider really the initial proof-of-concept data set for Bimagrumab. It's a combination with semaglutide. It's IV administered formulation. So first peak, what that looks like. The key data sets we're looking towards are actually the combinations with tirzepatide, which will read out in the future. We also do have a Phase I presentation for our selective amylin agent, Eloralintide. There'll be a small session there as well. And we plan to do highlights across the whole portfolio on Sunday night with an investor event. So a quick plug for that as well.

And then SURPASS-CVOT, that's a trial that seems to be getting a little bit more mind share, I guess, the primary completion date is June 2025 for clinicaltrials.gov. So any update on timing there? And I think higher level, while that trial is powered to achieve superiority versus Trulicity, you framed noninferiority at the baseline. But why would that not create payer access coverage risk for the tirzepatide complex if it only achieves noninferiority?

Sure. So timing on track for Q3. So look for that data to come in the kind of months to come. In terms of the study, look, we set it up against a strong agent that has a CV benefit. So it's a head-to-head versus Trulicity. Noninferiority for us is the path that we set as our base case. The goal is just to get enough data to get a labeled claim, an indication for a CV benefit added to tirzepatide, noninferiority gets that. And Trulicity is a really good agent that has strong data from the REWIND study in both primary and secondary prevention. In terms of how we think about it, look, right now, tirzepatide has really broad payer access in Mounjaro. It's 90% plus. We've got really strong usage in the diabetes setting. It's a market leader by new prescriptions. And that's without any CV data in the label. So when you then add in what we hope will be a noninferior study that adds CV indication, that can be nothing but positive data for both the payer and the prescriber discussion. Now taking a step back, that being said, as we look at when you've seen these data sets added to existing agents, when Trulicity got its REWIND in the label, when some of the competitive data sets have been added to other labels, we don't really see a meaningful change in prescription habits, and so our expectation would be noninferiority or superiority. We don't see that as a major event in terms of prescriptions. So I know an important event that people are tracking, it's approximate, but it's something that we're looking forward to having the data readout, and we'll be continuing from there.

Helpful. And then just last on orforglipron, just any updated thoughts on ATTAIN-1 framing that's also coming up and I think you've previously referenced SURMOUNT-5, which was the GLP-1 injectable monotherapy trial that showed about 13.7% weight loss.

Go ahead, Lucas.

Yes. We have -- you mentioned ATTAIN-1, but we have pretty much every single quarter data readouts of orforglipron coming, right? ATTAIN -1, it gets a lot of attention that is the obesity study. We have ATTAIN-2 that is for obesity and patients with type 2 diabetes. And then we have several studies on type 2 diabetes as well that will read out in Q3 and Q4. I think it's ACHIEVE-2, ACHIEVE 3 and ACHIEVE-5 as well that will read out in the second part of this year. So quite a lot of momentum on data readouts that will happen with orforglipron. Going back ATTAIN-1 that is getting all the attention, yes, we're referencing to SURMOUNT-5 that is our study that we compare tirzepatide with injectable semaglutide. And as again, our expectations that we have been highlighting as well, both in type 2 diabetes and obesity to be similar to injectable sema, right? So -- and we have been successful on that in the type 2 diabetes. We feel good about, again, what is coming now on ATTAIN, though we don't have visibility at this time. But we referenced that data point that it was in the double-digit range. It was 13% that we've seen on sema in terms of weight reduction. I think when you think about this type of asset that you bring on a small molecule, the differentiation on this one will be less about again, how much weight loss. I think there is, again, a large patient population. If you want higher weight loss getting into that more high teens or into the 20%, you have tirzepatide. The benefit of this drug is to have an option that is a small molecule oral daily, and that's the differentiation that it has no restriction on intake as well. So that's the differentiation. And there is a large patient population that requires this level of weight reduction. So we see a large opportunity both in the U.S. and also OUS as well.

Okay. Well, we've got about 5 minutes for the non-incretin portfolio. So let's try and we'll do a bit of a rapid fire here. So I guess, starting with neurology, there's a lot of interest, particularly as TRAILBLAZER comes into focus. And just maybe just, I guess, frame Lilly's approach high level. And then just maybe double-click on where we are with the Kisunla launch. What are the key readouts to watch? Timing? Just how are things going on that side?

Yes. And I can share even a little bit of my own experience. I've been on the field visiting both diagnostic centers and also Kisunla prescribers. And again, modest initial uptake that we've seen, but very much in line with our expectations. We share very openly that it will require quite some time to develop the ecosystem from detection, diagnosis to actually treatment taking place. But we are pleased with the uptake that we are seeing. 40% of new prescriptions are going to Kisunla, knowing that we launched behind Leqembi as well and it's growing that. So very initial positive uptake and feedback from physicians that we are seeing. Nowadays, Kisunla is available in all infusion centers broadly covered as well in the U.S. So it's off to a good start, but it will take time to continue to develop the ecosystem. The other, again, data readout that gets a lot of attention is TB3 that is in preclinical for Alzheimer. That study will -- is fully enrolled and is completing by the second half of 2027, but it's an event-driven study. So it could read out sooner than by the end of 2027. Why is that also important that study? When you think about preclinical population, you're thinking about patients that have the pathology of amyloid already, but they have no symptoms or cognitive decline, and it's a larger patient population as well, and also the benefit is the study is designed to be actually diagnosed with a blood biomarker, right, that is more convenient and more broadly used as well. So that could unlock or maybe remove one of the barriers that we see nowadays that is the diagnostics, sorry. So that could unlock a significant opportunity as well. So more to come. As I said, again, we are developing the ecosystem. Initial projections are very much in line with our expectations.

And then maybe shifting to immunology. EBGLYSS had some very encouraging U.S. uptake in atopic derm. New patient starts are increasing. It seems like you made very good progress on access and reimbursement. So maybe just any updated framing on that.

Yes. Happy to share. And as a reference, we launched EBGLYSS in September. We started commercialization in October. Hopefully, you are seeing some of the commercialization efforts. We have our DTC campaign out there on linear TV as well since Q1. So early days, but very positive feedback. And in particular, in terms of the access, we already secured all major PBMs for the second part of this year. So broad access similar to the competitor in the marketplace. So it's off to a great start, and we see this adding more optionality for physicians on how they think about their treatment as well. So very promising future ahead for EBGLYSS.

And then maybe just in the minute that's left, can we just talk about the LillyDirect sort of -- like what's the strategy here high level? I mean, initially, it seemed like it was -- I mean, it seems like you're expanding it now with -- into other areas. Like where are you -- how are you thinking about this strategically over the longer term? Is there an effort here to maybe think about potentially at some point moving out from the -- eliminating the middleman, go ahead.

So just as a reference, LillyDirect is a digital online pharmacy that we put in place 2 years ago, almost 3 years ago, started with insulins and the migraine portfolio Emgality. We added, again, last year, our incretins as well more on the obesity space. So we have Zepbound vials out of pocket as well that we ship directly to the patients. We talked already about the Zepbound vial progression that is, again, getting a lot of momentum. And we continue to improve the customer experience of this LillyDirect solution and direct to the patients. We also offer, again, telehealth services or in-person services. Those are all independent, but they are offered over there. And on those services, we also added Alzheimer's as well very recently that it was announced, as being an infused product. Of course, we don't ship the product. But again, we offer, again, the services of telehealth as well and helping to also unlock one of the restrictions that we are seeing that is the referral from GPs into neurologists that is taking so long as well. So this could also unlock some opportunities in the future. So very pleased with the progress that we are seeing. It's still early days on LillyDirect. And then thinking about, again, Zepbound, we always talk about this as a -- I call it as a hedge as we continue to grow access, right? Again, while access continue to ramp up, expect, again, that will have an impact as well into LillyDirect in my eyes because you think about patients that now can get access of the product basically fully covered or partially covered, they will always go for that access option versus the out-of-pocket option. So think about that as a kind of a bridge solution until we continue to ramp up access.

Okay. All right. Well, we are just about out of time. Thank you, Lucas. Thank you, Mike.

Thank you for having us.