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

Good morning. Thank you very much for being here on a Friday. My name is Mohit Bansal, I'm one of the biotech and pharma analysts here at Wells Fargo. I'm joined by my colleague, [ Surina Chan ], and we are both very happy to have Lilly management team. So we have Patrik Jonsson from the -- who is the President of Lilly International; and we have Mike Czapar, Head of IR, with us. So I'll give the floor to you if you have any opening remarks, and we can just get going.

Well, thank you very much, Mohit. It's great to be here. And I think, for all of you, I think you have a decent understanding of Lilly. We had a really good second quarter. And I think overall across the company and across disease areas, we see a robust performance. And of course, driven by the incretins, Mounjaro and Zepbound in the U.S. and mainly Mounjaro outside of the U.S. that is the brand name across type 2 diabetes and chronic weight management. We are looking forward to several launches across disease areas during the second half of the year and to launch a rich pipeline over the remaining part of this decade. But I think that's pretty much the opening, Mohit. I mean, we can take it from here with Q&A.

Awesome. Thank you very much. So why don't we start with orforglipron, it's a hot topic right now, right? So I mean, again, there have been ebbs and flows, right? I mean one data, second data, third data. So how -- like how well is your understanding of the product profile at this point? And how is it fitting -- how do you think it will fit in the marketplace at this point?

Yes. We have read out 3 of the Phase III trials and everything that is required to submit the chronic weight management indication to regulatory bodies. And we are right now preparing those dossiers to submit for chronic weight management. Type 2 diabetes will be the second submission that's slightly delayed behind obesity for regulatory requirement in terms of cardiovascular data. When we look at the trial so far, we believe it's very appealing safety and tolerability profile. HbA1c and weight loss, very much consistent with what we see with injectable incretin. It also has the benefit of not having -- to be taken together with food and water. And it has the benefit of a scale-up here that is impossible with injectables. When we look to how we believe this market will evolve, we actually believe there will be several segments. And not everyone will be looking for the maximum amount of weight loss. And approximately 50% of people with obesity had a BMI below 35. And even today, the ones that are treated with semaglutide and with a BMI below 35, more than 50% of those are on doses below 2.4. So I think that's really where we see the sweet spot for orforglipron: people with a lower BMI that are not out of the maximizing their weight loss and actually prefers the convenience of an oral because that's another factor. Despite the tremendous success with injectables, we know that there is a big chunk of patients that if everything else is equal, they have a strong preference for an oral. Maybe lastly, we're also conducting an extension of a SURMOUNT-5 study, which is the head-to-head tirzepatide versus semaglutide. We extended that study to study orforglipron in maintenance. So we took patients from both tirzepatide and semaglutide and versus placebo to see if oral could be a suitable maintenance treatment for those that would prefer to switch as well. Those data will read out very late '25, early 2026. So that's pretty much how we see orfo. And also in some of the Asian markets, where it's just a strong preference for orals, Japan, China, being 2 of those. So we are excited about the opportunity with this asset as well.

Great. I mean, so for sure, I mean, like you have talked in the past about, I mean, this being a [indiscernible] drug in international markets. But when you think about the U.S. markets as well, how do you see the positioning of orfo? It is a very good drug for diabetes, if you think about it. You talk about it being maintained as well. So like do you think it is a meaningful contributor in the U.S. as well, not just ex U.S.?

Absolutely. We believe orfo is going to be a global player. And even in the U.S., the data points that I shared with you in terms of the patients being treated with a BMI below 35, that is the a truth in the U.S. as well. So that position what I referred to earlier, that's our global position. But I think you touched upon the opportunity in type 2 diabetes. If you look at the diabetes data so far for orforglipron, it's super appealing: you see an HbA1c reduction of 1.8, you saw a weight loss in the obese population with type 2 diabetes of 10.5, we saw very positive impact on all of the cardiovascular biomarkers. And the oral type 2 market in the U.S. is huge. We're talking about 4 million patients on orals in the U.S. every month. So I actually think this is a really, really good medicine for type 2 diabetes.

Got it. Got it. So given that you are managing international right now, so let me talk a little bit about the ex U.S. markets here. So first, starting with type 2 diabetes. In the U.S., the penetration is high and still growing for type 2 diabetes. But compare that -- compare and contrast to OUS markets, let's just stick to developed OUS markets at this point, how do you think the penetration is at this point? And how much more you could grow the market with orforglipron as well there?

Yes. The OUS opportunity is significant for incretins and we had a very strong second quarter now in '25, to a certain extent, driven by new launches. We shared that with some of you yesterday, but we launched in Brazil, Mexico, India and full launch in China by moving from auto-injector to quick pen. So of course, with some inventory -- saw some inventory build as well. And maybe we will see much more of a gradual growth in the second half of the year. But long-term type 2 diabetes, just starting there. The composition of the OUS business is today different than the composition of the U.S. business. So when you look at our incretin performance outside of the U.S., 25% of that is coming from type 2 diabetes, that's our estimate; and 75% from chronic weight management. And we have more or less no reimbursement for chronic weight management with a few exceptions. You should define that part, the 75%, pretty much being out of pocket. Type 2 diabetes, we have only reimbursement in 5 markets outside of the U.S. today. And we are in negotiations with several agencies across the globe to get the type 2 reimbursement as well. It will take some time, and I think that's mainly going to hit in 2026. But of course, we have much more opportunities in type 2 OUS and we are currently able to capitalize on because that's mainly a reimbursed business outside of the U.S. So I think this ratio of 75:25, you will see that evolve over time and probably more type 2 diabetes than we currently see.

And orfo could help there, for sure.

Orfo could definitely help in that space as well to drive an increased penetration, particularly in those segments that we referred to earlier and particularly in markets that are heavy oral markets like Asia and particularly Japan.

Got it. So let me ask one more question before [ Surina ] talks about the quarterly quarter dynamics here. So in the U.S., we talked about how label expansion, new diseases coming online that helps the obesity market or weight loss market. Does that matter similarly for international markets as well, although it is a cash market for the most part? So do you think that part could also become a reimbursed market over time?

I think the major benefit of outcome data is really to provide evidence that obesity is a chronic disease, and it's not a result of lifestyle. So I think that's where we have seen the major benefit also in the U.S. when we're talking about employer opt-in, when we are talking about coverage for patients in Medicare and Medicaid, those outcome studies is one way of gaining access. And I think it's similarly outside of U.S., even if it's a universal coverage system in most of those markets, being able to provide data along the lines that we have been able to do for obstructive sleep apnea. And I hope in the not-too-distant future, the mobility/mortality outcome study, and in some markets, heart failure, that is extremely powerful to gain traction to consider reimbursing people for treating chronic weight management as well.

All right. So I wanted to ask about some of the quarter dynamics and expectations for the rest of this year. So Q2, Mounjaro ex U.S. sales were really strong. It sounds like some of that was due to stocking. Can you tell us like how you see the balance between stocking and demand? Perhaps the growth from the diabetes versus chronic weight management? And then just how to think about the rest of the year and what are the remaining growth drivers.

You're free to chime in here, Mike. But I think when you look at Q2, the balance in between type 2 diabetes and chronic weight management was the one that I just referred to 75:25. But particularly in Q2, we had major launches, the 4 countries that I referred to earlier. And a huge majority of that was in the chronic weight management space. And of course, when you look at markets like India, China, Mexico and Brazil, there will be a significant channel build at the time of launch. When we look at the second half of the year, we have a few launches, but none of those are in the magnitude of what we did in the second quarter. So that's why we are saying we will not repeat that channel build in Q2 during the second half of the year. We also refer to a majority of the business outside of the U.S. being a cash business. And last year, we spent quite some time to understand seasonality in between the different quarters. And what we saw consistently over the last 4 years was that there is a seasonality that sequential growth quarter-over-quarter is slowing down during the second half of the year. And we can speculate what's driving that, if it's lifestyle during the holiday season, whatever it might be, that is a slowing down in terms of the sequential growth. So that will impact the second half of the year as well. That's why we shared the overall opportunity is big. The underlying performance is strong. And midterm, we see a tremendous opportunity for growth OUS. But the second half of the year for modeling, we will probably recommend to more expect a gradual growth during the second half OUS.

Fair to assume you are assuming that in guidance already because what you learned in the last few years?

Yes. I mean, the guidance contemplates a range of moving parts across U.S. and international and incorporates the strong underlying growth we saw in the first half and incorporates the dynamics that you talked about with international as well as the impact of CVS change for Zepbound in Q3 and as well as thinking about kind of sequential pricing trends due to Medicare patients on Mounjaro that would enter the catastrophic phase as well as we encouraged that we re-upped our access for Zepbound in 2 of the 3 major PBMs, those rates were effective 7/1. So that needs to be contemplated as well. All that added up is the guidance range that we shared in Q2 and the pricing guidance as well of mid- to high single-digit declines.

And it's year-to-year -- year-over-year, right?

That's right.

On that CVS impact, can you talk about what you're seeing so far, how that has been tracking relative to expectations? And should we expect sequential growth, Q3 versus in Q2, given the impact?

The change with CVS was effective 7/1 and I just want to point out, it's not the entire book of business with CVS. It's a template business. And we shared in the earnings call that we expect approximately 200,000 patients to be impacted. First and foremost, we believe that's a wrong policy decision. We believe in open access. And we believe putting 200,000 people in the position that they need to switch from a medicine that they are responding well to, that's not good for patients and has not been very well received at a health care provider or employer level either. But what we saw was that in late June and early July, we saw some patients switching from Zepbound to Wegovy still maintain the TRx and NBRx leadership position by far. Now -- well, pretty much we have gone through July, August, we are in September. So we expect that most of those patients have gone through the time point when they need to renew their prescription. So we believe that the impact on existing patients, that has probably been seen now. And when we look at the performance in August, we look into the IQVIA, the weekly share of market performance, we are back to strong growth or growth in both TRx and NBRx. And we are having 60% of the market in TRx and even more in NBRx. So I think most of that impact has been seen. So what has happened? First, around 20% of those patients that are receiving Zepbound today in the U.S., they have earlier been treated with Wegovy. So I think they are probably relatively well positioned to be approved for a medical exception. Secondly, we saw some big employers that actually resisted to accept the change. They were exempted from the policy change effective 7/1. And thirdly, we launched also vials 12.5 and 50 milligrams with a flat pricing of $499, assuming that people refill within the recommendations in the self-pay journey program. And I think the vials gained some of those patients as well. But when you look at the market share performance today, you can see that the loss on Zepbound auto-injector is not entirely going to Wegovy. Actually a big part of that is going to Zepbound vials. So in essence, there has been some impact. And we expect it to have some impact during the remaining part of the year as well, but that has all been built into our guidance for 2025.

Okay. And then just looking to last year, you guys had really strong momentum in the first half of last year and we saw a couple of rare guidance misses. So then thinking about this year, can you talk about just why this time around will be different in terms of how you set the guidance?

Well, our process hasn't changed and we applied the same process last year. It's a bottom-up forecast and we look at the underlying trends across the entire portfolio. And we look at the known uncertainties at that point in time, and that's what we have done this year as well. And we are coming out with a range of potential outcomes, and our point estimate is within that range that we communicate externally. But it's important to reflect on 2024. 2024 was a very unpredictable year for many reasons. First and foremost, we saw a demand that quite a few times exceeded supply. And as a result of that, we gated launches outside U.S. and we also stopped at times our promotional efforts. And we didn't start our consumer activation efforts until very late 2024. So I think we had a lot of uncertainties in 2024. We don't have those this year. We are out of the supply constraints that we experienced in the first half of 2024. We're no longer gating launches. I think we have so much more certainty in terms of the guidance for 2025. So it's very different. But we feel good with the guidance we have been providing for 2025.

Great. So maybe let's just touch upon a little bit on the access situation. I'm sure you are in the thick of discussions right now. So how you're thinking about 2026 access situation? Is it materially changing, both for -- I mean, diabetes you have sorted, but more for the weight loss category?

Yes, yes. As I said, diabetes looks very good. We have more than 90% coverage, including Medicare. In chronic weight management, and I focus on the U.S. right now, we have closed open coverage with 2 of the 3 big PBMs until the end of 2026, and that's what Mike shared earlier. And we'll continue to discuss with CVS and we'll see how that ends. So open access 2 or 3, that's closed until the end of 2026. I think the other very important component here, that's the employer opt-in. And we have stated very clearly from the beginning since the launch of Zepbound, we expect employer opt-in to take much longer time. And in the beginning of this year, we were at approximately 50% employers opting in to chronic weight management. And we estimate that today, we are at the level of 55%. Currently, there are benefits discussions going on with more or less all employees across the U.S. for the design of 2026. And we are hoping that we will make even further progress over the coming weeks and months. There is also some new innovative models for employers that have been launched. I think the most recent one was the [ Edenor ] model by ESI. And that's the model where employees are also chiming in $200 a month. So that could be one model that could get employees that have been hesitant to opt in, in the past to take a step and opt in on chronic weight management as well. Nevertheless, I don't think you should expect a dramatic move up in 2026, but you should expect that to gradually improve. I think when we talk about Medicare, it's -- well, that would require some legislative actions. And we know that there are some movements in that space with strong bipartisan support, but it's really hard to predict. For us, as I shared earlier, outcome data is key here. And with Medicare, we are in negotiations for 2026 to get OSA covered for that patient population. But until today, we have seen a actually quite high extent of medical exceptions for OSA, but we would like to get broader coverage for OSA as well. And we will see how successful we can be in that space. But we have seen benefits of OSA in Medicaid. So when we look in Medicaid today, we have 14 states that cover both chronic weight management and obstructive sleep apnea and we have 21 states that cover OSA only. That's a smaller part of our business, but we have some good Medicaid coverage as well with 65% of the population being eligible today. So that's pretty much the outlook for 2026. Commercial, quite predictable. And the Medicare space, it depends on how well we can negotiate on OSA in Medicare.

But those -- so it was not included for July 1, but that doesn't mean that you are still in discussions for those Medicare inclusion of OSA at this point?

We are, we are in discussions for Medicare coverage. And it's still too early to guess how that's going to end, but we're doing what we can.

Got it. Very helpful. Let's just talk a little bit about like just going back to the international side. So your competitor has more supply now. So are you seeing anything from that increased supply? Is there a higher price competition going forward or any pricing pressure because they have more supply now?

At the mid- to high single-digit price decline that Mike referred to for 2025, that's not new. But it's pretty much the picture that we have seen in the previous years as well. And we expect that, that's pretty much going to be the pace moving forward as well to ensure that we can continue to compete for good access. In certain markets like China, we have seen increased competition. But for us, it has always been a matter of differentiation. And we believe that differentiation is the first line of offense. And in most markets outside the U.S., Mounjaro for chronic weight management is being priced at a premium compared to the competition. Still, we are the market leader in most markets where we have launched already today in chronic weight management. And what we have heard at least from the competition publicly, well, Novo Nordisk, they have been around for quite some time. They also seem to be taking quite a disciplined approach to pricing. So that's how we look at it, and that's how we assume it's going to be over the coming years as well.

Got it. One interesting aspect of international markets is there's no PBM dynamic there, right? So -- and you have a better product, right, when you think about it. So is there a better shot at winning there in that regard compared to your competitor? Because the pricing delta, whatever it is, you have a better benefit on both chronic weight management and diabetes side.

Yes. I think the challenge is probably slightly different outside the U.S. Of course, we are still very early on in gaining reimbursement. And more or less, all of those systems are universal health care systems, I think with type 2 diabetes, I think the outlook in terms of good coverage is much more optimistic than chronic weight management. So I think in a year from now when we are here, I believe we will have coverage for type 2 diabetes in quite a few of the international markets. Chronic weight management is going to be more of a heavy-lifting. And I think those outcome data that we referred to earlier will play a significant role in getting coverage for obesity outside of the U.S. Where we have it today, the bar is at extremely high for patients. In the U.K., the NHS is reimbursing obesity if you have a BMI above 40 and 4 co-morbidities. Japan is also reimbursing obesity, but they have what we call the optimal use guidelines with only certified centers and those are in the urban areas, of course. But you need to go through a 6 months' diet and exercise training with a certified dietitian. And those are patients that have actually tried diet and exercise multiple times before. So I think for the foreseeable future, the chronic weight management business is going to be out of pocket outside of U.S., that's the way we see it. And we have been competing very successfully with a premium price in that space. And that's our assumptions moving forward as well.

Got it. Very helpful. Can you touch upon the recent launches of Mounjaro in India and China? I mean, how they are progressing? And they are a big market, but at the same time, cost-conscious market. So how do you think the progress?

Yes. Well, we launched fully in both India and China in Q2, so it's still very early days. At the high level, I would say we are pleased with the uptake and we are performing in line with our expectations in both of those markets. I think there some similarities in terms of generic competition in those markets. And we have seen in China, for example, mazdutide has launched. It's priced significantly below Zepbound in China, but we are competing very strongly there. And when you look at the data of the competition, it's very often short-term data or significantly shorter-term data. The mazdutide trial program lasted for 48 weeks and you have 4 and 6 milligram approved. Weight loss is 11% and 13%, if I remember correct. Here you compare that and contrast to what you see with tirzepatide. You have a weight loss above 20%. You probably also have a side effect profile that is different, favoring tirzepatide. And lastly, with mazdutide, you target liver fat specifically. But with tirzepatide, you target adipose tissue. So I think it has been very well received by both providers and consumers. And I just came from China. I was there at the major chronic weight management meeting last Saturday, and we had more than 12,000 health care providers connecting. And the way they are presenting the benefit of a GIP component and they recognize that not all incretins are the same and dual agonist versus single agonist that actually matters.

Got it. Very helpful. And then I want to touch upon non-incretins side of the business as well. So can you talk a little bit about what is -- what are the most exciting opportunities that investors may be missing in the non-incretins side of the business, especially as when it comes to ex U.S. markets. I mean you have an I&I portfolio, you have a nice oncology portfolio. So talk a little bit about that.

Yes. Maybe I'll start with oncology and Mike can chime in here, but I think the oncology franchise starts to get really exciting. And when I look at the early stage pipeline as well, I think quite a few assets to keep an eye on both in ovarian and breast cancer. But we've launched medicines. Just last week's announcement, the top line data of monarchE, the 7-year data, that's quite amazing. Being able to present data along those lines at 7 years for high-risk early breast cancer, I think that's going to be extremely beneficial to drive both higher penetration and the higher share in that segment for Verzenio. I also believe Jaypirca, we started with the MCL launch, a small patient population in most markets. We just presented the Phase III data from the BRUIN trial and I think that's quite impressive us as well. We got the approval for CLL in Europe and we have launched in Germany and Brazil, Japan, extremely well received in the marketplace. So I would keep an eye on the oncology franchise. Neuroscience, I think most people are quite well aware of what's going on. And it will take some time. But what we see outside the U.S. is very much similar to what we see in the U.S., positive signs of ecosystem improvement both in terms of detecting, diagnosing and treating Alzheimer's disease. And of course, the preclinical data is going to be extremely important when it reads out and it's an event-driven study. Lastly, I would say immunology, Ebglyss is doing very well. We have seen it in the U.S. Now we have a partner with responsibility for the European markets. That was a part of the deal when we acquired Dermira. But wherever we have launched Ebglyss, it performs very well in atopic dermatitis. And I think it's well positioned to become a first line treatment as an IL-13 in treating atopic dermatitis, and we have a couple of other indications in Phase III as well. And also Omvoh, we just got the Crohn's disease indication approved. Strong performance outside the U.S., and it looks like the longevity of the ulcerative colitis data here appeals quite a lot to health care providers. So there's a lot of focus on incretins, but I would say that there's a lot of exciting movements across the other disease areas as well. And that part of the business outside of the U.S. is also very healthy.

You want to add something?

The only thing I'd add is probably the combination of outside of cardiometabolic and incretins is that we're beginning some clinical trial work looking at incretins for non-cardiometabolic use. So be it substance abuse disorders, pain, psychiatry, there's a lot of preclinical and real world evidence that suggest that's interesting. Those are new ideas, kind of higher risk, but we've started some and we'll have probably more to come in the quarters to come.

So 2 last housekeeping questions. So one is that what is the latest on the compounder lawsuits? I mean, what could we hear from that? And number two, how are you thinking about IRA for the competitor product at this point.

Sure. I'll take the first, and then Patrik can talk about IRA. So there was a ruling last week on 2 specific cases. It didn't go in Lilly's favor. However, we do have the opportunity to represent with new facts. So the legal team is assessing different opportunities, and we'll have some response there. I think broadly, our legal team is pursuing a number of different bad actors in terms of trying to drive compounding out of the market. We've been successful in getting the injunctions in a number of cases. But they're looking broadly at the different arguments, the different types. And it will continue to be probably a fragmented and long battle, but they're chasing all those down.

Got it.

And on IRA, I think it's hard to speculate here. We have never seen an outcome of an IRA discussion with the current administration. But I think the higher the rebate would be, of course, the bigger would the impact be. But we are talking about Medicaid and 340B. And we believe that what we have seen earlier, when it comes to pricing negotiations of Medicaid, we would probably see very much a similar pattern here on IRA impact. There would be some impact of the Medicare, Medicaid and 340B business, but that's around 20%. So on our side, we don't foresee a spillover to the commercial side because we haven't seen that in the previous Medicaid negotiations. So those are the assumptions we are making regarding IRA.

Got it. One last question, I always ask this question. So you are here for the first time. Fast-forward 1 year, I hope you are here. I hope I am here. So what would make you sit here in 2026 and look back on the year and say this was a great year for us?

Well, I think from my side we had quite a few discussions yesterday and a high degree of engagement. So I think that's always important when we dedicated a couple of days to be at health care conferences that there is a high degree of engagement, and we saw that yesterday through all the meetings we attended. And I think that's an important factor and that's something that we are heavily taking into considerations when we are planning for the next year.

I guess I'd say between now and this time next year, we'll have a number of late-stage trials that will read out across orforglipron, retatrutide as well as I hope that's an early to mid-stage portfolio. Also, the substrate comes into a bit more focus to really give people a view of what we're excited about that's going to drive growth in the future. So a lot of investment, a lot of opportunity and we're excited about driving growth in the future.

Awesome. On that high note, thank you very much for joining us today.

Thank you.

Thank you.