Eli Lilly and Company, Q4 2023 Earnings Call, Feb 06, 2024 - NYSE:LLY

NYSE:LLY

Joe Fletcher, Vice President of Investor Relations at Eli Lilly and Company, made several announcements and provided guidance during the Q4 2023 Earnings Call. Below is a detailed list of his statements:

Opening Remarks

• Welcomed everyone to the Lilly Q4 2023 Earnings Call.
• Introduced himself as the Senior President of Investor Relations.
• Mentioned the presence of several executives, including:
  • Dave Ricks, Chair and CEO
  • Anat Ashkenazi, Chief Financial Officer
  • Dr. Dan Skovronsky, Chief Scientific Officer and President of Lilly Immunology
  • Anne White, President of Lilly Neuroscience
  • Ilya Yuffa, President of Lilly International
  • Jake Van Naarden, President of Loxo at Lilly
  • Patrik Jonsson, President of Lilly Diabetes and Obesity and Lilly U.S.A.
• Noted the presence of Michaela Irons, Mike Springnether, and Lauren Zierki from the Investor Relations team.
• Provided legal disclaimers regarding forward-looking statements and actual results potentially differing from projections.
• Stated that the company's commentary would focus on non-GAAP financial measures.

Handover to Dave Ricks

• Turned the call over to Dave Ricks, Chairman, CEO & President.

Handover to Anat Ashkenazi

• After Dave Ricks concluded his remarks, Joe turned the call over to Anat Ashkenazi, Former Executive VP & CFO, to review the Q4 results.

Handover to Dan Skovronsky

• After Anat Ashkenazi concluded her remarks, Joe turned the call over to Dan Skovronsky, EVP, Chief Scientific Officer and President of Lilly Research Laboratories & Lilly Immunology, to highlight the company’s continued progress in R&D.

Handover to Dave Ricks for Closing Remarks

• Joe thanked Dan Skovronsky and handed the call back to Dave Ricks for closing remarks.

Q&A Session

• Joe moderated the Q&A session, providing clarifications and directing questions to the appropriate executives:
  • Clarified the timing of regulatory action on donanemab, noting that it is expected in Q1 2024.
  • Directed questions to Ilya Yuffa, Patrik Jonsson, Daniel Skovronsky, and Anat Ashkenazi, depending on the topic.

Closing the Call

• Joe thanked everyone for participating in the call and invited follow-up questions with the Investor Relations team.

• Provided information on accessing the replay of the conference call.

David A. Ricks, the Chairman, CEO & President of Eli Lilly and Company, provided the following comments during the Q4 2023 Earnings Call:

1. Opening Remarks:

   • He thanked the attendees and introduced himself.
   • Noted that 2023 was a year of advancement across the company, mentioning growth in the top line, progress in the pipeline, external innovation through partnerships and collaborations, investments in quality and manufacturing infrastructure, and the delivery of new medicines to patients.

2. Financial Performance:

   • Reported that revenue grew 20% for the full year and 28% for the most recent quarter, driven by the newly launched portfolio.
   • Highlighted several positive Phase III results for donanemab, tirzepatide, mirikizumab, and pirtobrutinib, as well as positive Phase II results for orforglipron and retatrutide.
   • Mentioned the company's external innovation activities, including acquisitions and collaborations with DICE Therapeutics, POINT Biopharma, Versanis Bio, Emergence Therapeutics, Mablink Bioscience, Immunitrack, and Sigilon Therapeutics.

3. Manufacturing and Capacity Expansion:

   • Announced significant investments in manufacturing, including expansions at the Research Triangle Park facility and the LEAP Innovation Park in Boone County, Indiana.
   • Mentioned plans to construct a new high-tech manufacturing site in Germany to expand the company's global injectable product and device manufacturing network.

4. Regulatory Approvals and Launches:

   • Noted that the company received regulatory approvals for Zepbound, Jaypirca, Omvoh, and Ebglyss in the EU, as well as an expanded label for Verzenio and two new indications for Jardiance.
   • Stated that these achievements will serve as a foundation to drive top-tier revenue growth and margin expansion over time.

5. Pipeline Milestones:

   • Mentioned the top-line results for the tirzepatide Phase II SYNERGY-NASH trial and the Verzenio Phase III CYCLONE 2 trial, which Dan Skovronsky would discuss further.

6. Business Development:

   • Noted the completion of the acquisitions of Mablink Bioscience and POINT Biopharma, the latter of which expands the company's capacity and capability into radioligand therapies.
   • Announced a 15% dividend increase for the sixth consecutive year and the distribution of over $1 billion in dividends in the fourth quarter.

7. Closing Remarks:

   • Summarized the progress made in the fourth quarter, including accelerating revenue growth, meaningful pipeline advancements, and continued investment in recent and upcoming launches.
   • Mentioned the retirement of Johna Norton, Executive Vice President of Global Quality, thanking her for her 34 years of service to the company.

8. Additional Comments:

   • Addressed questions about the manufacturing build-out and the balance between that investment and the probabilities of orforglipron's clinical and commercial success, stating that the company is fully focused on creating new capacities and sees the investment in orforglipron as a wise one given the potential opportunity.
   • Discussed the LillyDirect platform, emphasizing its role in streamlining access to providers and Lilly medications, improving the patient experience, and ensuring the authenticity of the medicines.

Throughout the call, David A. Ricks highlighted the company's achievements, strategic direction, and future prospects, reinforcing the company's commitment to delivering innovative medicines and driving sustainable growth.

Anat Ashkenazi, the Former Executive VP & CFO of Eli Lilly and Company, provided details on the company's financial performance and guidance during the Q4 2023 Earnings Call. Below is a detailed summary of her comments:

Financial Performance in Q4 2023

• Revenue Growth:
  • Q4 revenue increased 28% compared to Q4 2022.
  • Excluding divestitures, this represents a quarter-over-quarter acceleration in revenue growth, driven by Mounjaro, Verzenio, Jardiance, and the recent launch of Zepbound.
• Gross Margin:
  • Increased to 82.3% as a percent of revenue.
  • Benefited from higher realized prices, partially offset by higher manufacturing expenses.
• Marketing, Selling, and Administrative Expenses:
  • Increased 17%, driven by higher expenses associated with the launches of new products and additional indications, as well as higher incentive compensation costs.
• R&D Expenses:
  • Increased 28%, driven by higher development expenses for late-stage assets and additional investments in early-stage research, as well as higher incentive compensation costs.
• Acquired IPR&D Charges:
  • Recognized $623 million in Q4 2023, negatively impacting EPS by $0.62.
  • In Q4 2022, acquired IPR&D charges totaled $240 million or $0.23 negative impact to EPS.
• Operating Income:
  • Increased 29% in Q4, driven by higher revenue from new launches, partially offset by operating expense growth.
  • As a percent of revenue, it was approximately 28% for the quarter, including a negative impact of approximately 7 percentage points attributable to acquired IPR&D charges.
• Effective Tax Rate:
  • Q4 2023 was 13.1% compared to 7.3% in Q4 2022.
  • The higher effective tax rate for Q4 2023 was primarily driven by a lower net discrete tax benefit compared to the same period in 2022 and the new Puerto Rico tax regime.
• Earnings Per Share (EPS):
  • Delivered $2.49 in Q4, a 19% increase compared to Q4 2022, inclusive of the negative impact of $0.62 from acquired IPR&D charges compared to $0.23 in Q4 2022.

Price, Rate, and Volume Impact on Revenue Growth

• U.S. Revenue:
  • Increased 39% in Q4, driven by robust growth of Mounjaro, Verzenio, and Zepbound.
  • Net price in the U.S. increased 27% for the quarter, driven by Mounjaro access and savings cards dynamics as well as a one-time favorable change in estimates for rebates and discounts.
  • Excluding Mounjaro, net price in the U.S. decreased by high single digits.
• Europe:
  • Continued its trend of strong growth in Q4.
  • Excluding $65 million in revenue associated with milestones received for the EU approval and launch of Ebglyss, revenue was up 11% in constant currency, driven primarily by volume growth of Verzenio, Jardiance, and Taltz.
• Japan:
  • Robust growth in Q4 as revenue increased 15% in constant currency, driven primarily by volume growth of Verzenio and Mounjaro.
• China:
  • Q4 revenue increased 7% in constant currency with volume growth of 10% partially offset by price declines.
  • Volume growth in Q4 was primarily driven by Tyvyt.
• Rest of the World:
  • Revenue decreased 10% in constant currency.
  • When excluding the impact of the Q4 2022 sales of rights for Alimta in Korea and Taiwan, sales grew 9% in constant currency, driven primarily by volume growth of Mounjaro and Verzenio.

Product Category Contributions to Worldwide Volume Growth

• New Products and Growth Product Categories:
  • Combined contributed approximately 15 percentage points of volume growth for the quarter.

Product Category Details

• Verzenio:
  • Worldwide sales growth of 42% in Q4, driven by robust demand growth and, to a lesser extent, higher realized prices.
  • Positive momentum driven by the early breast cancer indication with steady performance in the metastatic indication.
• Jardiance:
  • Continued strong 2023 performance with worldwide revenue growth of 30% for the quarter.
  • In the U.S., Jardiance revenue increased 29%, driven by increased demand.
• Trulicity:
  • Worldwide revenue declined 14%.
  • U.S. revenue decreased 18% driven by lower volume and lower realized prices.
  • Experienced intermittent delays fulfilling orders of Trulicity.
• Mounjaro:
  • Continued robust growth as more type 2 diabetes patients benefited from the medicine.
  • Q4 revenue grew to over $2.2 billion globally, up from $1.4 billion in Q3 2023.
  • In the U.S., Mounjaro revenue of $2.1 billion in Q4, up from $1.3 billion in Q3 2023, benefited from a one-time change in estimates for rebates and discounts.
• Zepbound:
  • Received FDA approval for adults with obesity or those who are overweight and have weight-related comorbidities.
  • Recognized $176 million in sales for Zepbound with approximately 3/4 of that coming from initial channel stocking.
  • Initial prescription trends were encouraging.

Capital Allocation

• Outlook:
  • Confidence in the existing commercial portfolio, bolstered by recent launches of Mounjaro, Jaypirca, Omvoh, and Zepbound.
  • Potential launches of donanemab and lebrikizumab are expected to serve as drivers for continued growth through the balance of the decade.
• Capital Deployment Decisions:
  • Invest in the current portfolio and in future innovation through R&D, business development, and a comprehensive manufacturing expansion agenda designed to drive revenue growth and speed life-changing medicines to patients.
  • Continue to return capital to shareholders through dividend increases in line with earnings growth over time and share repurchases with excess capital.

2024 Financial Results Dynamics

• Expected Revenue Growth:
  • Core business revenue (excluding revenue from divestiture) expected to grow nearly 30% at the midpoint of the guidance range.
  • Anticipated growth will be led by Mounjaro and Zepbound.
• Supply Outlook for Incretin:
  • Strong demand and time required to bring capacity fully online means demand is expected to outpace supply in 2024.
  • Capacity expansion efforts will continue with equal urgency, not just through increased auto-injector capacity but also through alternative presentations like the multi-use KwikPen.
  • The manufacturing site in Concord, North Carolina, is expected to initiate production as early as the end of 2024 with product available to ship in 2025.
• Timing and Pace of Incretin Supply Plans in 2024:
  • While continuing to expand supply every quarter, the most significant production increases are expected to come in the second half of the year.
  • Expectation that production of sellable doses in the second half of 2024 will be at least 1.5 times the production in the second half of 2023.

2024 Financial Guidance

• Top Line:
  • Revenue expected to be between $40.4 billion and $41.6 billion.
  • Using the midpoint of the 2024 range, this represents roughly 20% growth or 29% growth for the core business, which excludes the impact of divestitures.
• Pricing for Core Business:
  • Expected a high single-digit percent price decline in 2024.
  • The lingering base period impact of the Mounjaro non-covered co-pay card dynamics will dampen these price declines in the first half of 2024 with more significant price declines expected in the second half of the year.
• Margin After Planned Costs:
  • Expected to be in the range of 31% to 33% on a non-GAAP basis.
  • Expectations remain consistent that gross margin will be maintained at approximately 80% on a non-GAAP basis as productivity gains and volumes are offset by pricing pressures and the cost of new manufacturing facilities.
• Expense Growth:
  • Marketing and administrative expenses expected to grow at a slower pace than revenues, driven by marketing investments in recently launched and upcoming launch products.
  • R&D expenses expected to increase, driven by growing investments across all phases of the pipeline.
  • R&D expense expected to increase at a higher rate than marketing, selling, and administrative expenses.
• Other Income and Expense:

  • Expected to be between $400 million and $500 million

Daniel M. Skovronsky, EVP, Chief Scientific Officer and President of Lilly Research Laboratories & Lilly Immunology, provided updates on the company’s progress in research and development, specifically focusing on diabetes, obesity, and complications thereof, oncology, and immunology. Below are the detailed points he discussed:

Diabetes, Obesity, and Complications Thereof

• Positive Results from SYNERGY-NASH: Announced positive results from the Phase II SYNERGY-NASH study of tirzepatide in adults with metabolic dysfunction-associated steatohepatitis (MASH). The study met its primary endpoint, with up to 74% of participants achieving an absence of MASH with no worsening of fibrosis at 52 weeks compared to less than 13% of participants on placebo.
• Zepbound: Highlighted the approval of Zepbound, Lilly's first approved treatment for obesity. Noted that it is the first and only approved treatment activating two incretin hormone receptors, GIP and GLP-1.
• Early-Stage Development: Mentioned the advancement of a glucose-sensing insulin receptor agonist for diabetes and a long-acting atrial natriuretic peptide for heart failure into Phase I trials.
• Mazdutide: Mentioned the advancement of mazdutide into Phase II for obesity and the positive results reported by Lilly's partner, Innovent, in the Phase III GLORY-1 study of mazdutide in Chinese adults with obesity.

Oncology

• CYCLONE 2 Trial: Shared that in the Phase III CYCLONE 2 trial, Verzenio added to abiraterone did not meet the primary endpoint of improved radiographic progression-free survival in men with metastatic castration-resistant prostate cancer.
• Jaypirca Approvals: Noted the approval of Jaypirca under the FDA's Accelerated Approval program for the treatment of adult patients with CLL or SLL who have received at least two prior lines of therapy, including a BTK inhibitor and a BCL-2 inhibitor.
• POINT Biopharma Acquisition: Mentioned the completion of the acquisition of POINT Biopharma, which begins Lilly's entry into radioligand therapy.
• Clinical Starts in Oncology: Expected to put at least five new molecules into the clinic in 2024: a wild-type selective KRAS G12D inhibitor; a pan-KRAS inhibitor; two antibody-drug conjugates with topoisomerase payloads, one against ACTN4 and one against folate receptor alpha; and an actinium PSMA radioligand therapy.
• KRAS G12C Program: Mentioned the progress of olomorasib, Lilly's KRAS G12C inhibitor, into Phase II and the ongoing dose selection for the Phase III program.

Immunology

• Pipeline Advances: Mentioned the movement of two new assets into Phase I and the advancement of the Kv1.3 antagonist for psoriasis into Phase II.
• Lebrikizumab: Noted the approval of lebrikizumab in the EU for atopic dermatitis under the brand name Ebglyss and its approval in Japan.

Neuroscience

• AK-OTOF-101 Study: Mentioned positive clinical results for the Phase I/II AK-OTOF-101 study, which demonstrated hearing restoration within 30 days of a single administration in the first participant, an individual with more than a decade of profound hearing loss.

Key Events for 2024

• Phase III Programs: Expectation to initiate Phase III programs for orforglipron in type 2 diabetes and for lepodisiran, a LPA-lowering siRNA therapy in cardiovascular disease.

• Tirzepatide Data Readouts: Expectation to see results from the Phase III obstructive sleep apnea and Phase III heart failure studies.

• SURPASS-CVOT Data: Clarification that the data is expected in 2025, notwithstanding the clinicaltrials.gov listing.

• SURMOUNT-5 Study: Expectation to have results from the head-to-head study of tirzepatide compared to high-dose semaglutide in participants with obesity.

• Insulin Efsitora Alfa Readout: Expectation to have the full Phase III program readout on Lilly's weekly basal insulin, insulin efsitora alfa, later in 2024.

• Donanemab FDA Action: Expectation for FDA action and the potential launch of donanemab in Q1 2024.

• Mirikizumab Submission: Plan to submit to the FDA for Crohn's disease indication in 2024.

• Lebrikizumab Regulatory Action: Expectation for regulatory action in the U.S. by the end of 2024.

• KRAS G12C Inhibitor Phase III: Expectation to move olomorasib into Phase III following Phase II dose selection.

• Imlunestrant Phase III Study: Expectation to see the results of the imlunestrant Phase III study, EMBER-3, in participants with metastatic breast cancer in both monotherapy and in combination with Verzenio.

**- Patrik Jonsson highlighted the early success of Zepbound with approximately 35% commercial access, aiming for around 50% access similar to the competition.

• He emphasized the importance of employer opt-in, noting it will take time and there is no reliable source for tracking employer opt-in.

• Regarding downstream opportunities for GLP-1s, Patrik mentioned that data in cardiovascular, sleep apnea, and NASH will be crucial for increased employer opt-in and Medicare Part D access.

• On the topic of oral GLP-1s, Patrik sees a significant opportunity for orforglipron to reach more patients globally, especially those who are hesitant to use injectables.

• He discussed the duration of use for GLP-1s, noting that while it's early for Zepbound, the persistency for Mounjaro is encouraging and aligns with other injectable incretins.

• Patrik also mentioned the importance of maintaining a high ratio of lean to fat mass with tirzepatide, which improves body composition.

• He reiterated the company's focus on open access for providers and patients, emphasizing that the competitive pricing of Zepbound is a positive signal for enhanced employer opt-in.**