Eli Lilly and Company, Q3 2020 Earnings Call, Oct 27, 2020 - NYSE:LLY

NYSE:LLY

Kevin Hern, Vice President of Investor Relations at Eli Lilly and Company, made several announcements and transitions during the Q3 2020 Earnings Call. Here is a detailed list of his statements:

1. Opening Statement:

   • Good morning to everyone attending the call.
   • Introduced himself as the Vice President of Investor Relations.
   • Mentioned the presence of other executives including Dave Ricks, CEO; Josh Smiley, CFO; Dr. Dan Skovronsky, Chief Scientific Officer; Anne White, President of Lilly Oncology; Patrik Jonsson, President of Lilly USA; and Mike Mason, President of Lilly Diabetes.
   • Indicated the presence of Sara Smith and Mike Czapar from the Investor Relations team.

2. Forward-Looking Statements:

   • Noted that the call would involve projections and forward-looking statements based on current expectations.
   • Stated that actual results could differ materially due to various factors, directing listeners to Slide 3 for details.
   • Mentioned that additional information concerning factors that could cause actual results to differ materially is contained in Lilly's latest Form 10-K and subsequent Forms 10-Q and 8-K.

3. Product and Pipeline Information:

   • Clarified that the information provided about products and pipeline is for the benefit of the investment community and not intended to be promotional or sufficient for prescribing decisions.

4. Non-GAAP Financial Measures:

   • Announced that the commentary would focus on non-GAAP financial measures, which exclude the financial contribution from Elanco during 2019, and present earnings per share as though the full disposition via the exchange offer was complete on January 1, 2019.

5. Transition to Dave Ricks:

   • Turned the call over to Dave Ricks for opening comments.

6. Moderation of Q&A Session:

   • Provided instructions for the Q&A session and invited the first caller to ask questions.

7. Closing Statement:

   • Thanked everyone for participating in the earnings call and expressed appreciation for the ongoing interest in Eli Lilly and Company.

   • Encouraged follow-up with the IR team for any unanswered questions.

   • Wished everyone well during the challenging times and concluded the call.

David A. Ricks, the Chairman, CEO & President of Eli Lilly and Company, provided opening comments and summaries throughout the Q3 2020 Earnings Call. Here’s a detailed list of his statements:

• Opening Remarks:

  • He thanked Kevin Hern for the introduction and began by summarizing the overall business performance.
  • He acknowledged that the quarter's financial results were below sell-side analyst projections and offered a few high-level comments on the factors impacting the Q3 results.

• Factors Impacting Q3 Results:

  • Price Impact on Revenue: He discussed the volatility of the impact of price on revenue in the U.S., particularly regarding estimates for rebates and discounts, obligations during the coverage gap of Medicare Part D, and other liabilities. He mentioned that the magnitude of adjustments in Q3 was meaningful, predominantly related to assumptions regarding the coverage gap in Medicare Part D for Trulicity.
  • New Prescriptions: He noted that while new prescriptions are trending towards pre-COVID levels, the recovery varies by class and views this impact as transient.
  • R&D Investments: He highlighted significant investments in R&D to develop COVID-19 treatments, mentioning that the activity had an impact of about $0.12 on Q3 earnings per share.
  • Customer-Facing Activity: He mentioned the increase in investments in customer-facing activity and direct-to-consumer marketing in Q3 to accelerate growth, which created a step-up compared to Q2 2020 and Q3 2019.

• Business Performance:

  • He highlighted the company's revenue growth of 5% (4% excluding foreign exchange impact) in Q3, with volume growth of 9%.
  • He emphasized the strong performance of key growth products, which made up over half of the revenue during the quarter.
  • He noted the particularly strong international performance in Europe and China, driven by the newest products.

• Operating Margin:

  • He reported an operating margin of 26.2% for the third quarter, a decline of 230 basis points versus Q3 2019, which was depressed by $125 million invested in COVID-19 therapies during the quarter.
  • Excluding these exceptional activities, the operating margin was 28.4%.

• Outlook:

  • He expressed confidence in the company's outlook and expected to deliver financial results within the updated guidance range, with all lines at or above the original 2020 guidance and achieve operating margin expansion plans, excluding investments in COVID-19 treatments.

• Pipeline Progress:

  • He highlighted progress in advancing the late-stage pipeline and developing potential COVID-19 treatments, including FDA approval for additional doses of Trulicity, positive data for Verzenio in early breast cancer, and approval in Europe for Olumiant in adults with moderate to severe atopic dermatitis.

• External Innovation:

  • He mentioned the signing of several business development transactions, including the global expansion of the TYVYT collaboration with Innovent.

• Manufacturing Facility Update:

  • He addressed the situation at the company's manufacturing facility in Branchburg, New Jersey, mentioning an official action-indicated notice and a follow-up inspection related to data handling. He assured that the issues did not impact product quality or patient safety and that the company is working diligently to address the findings and incorporate suggestions for improvement.

• Closing Remarks:

  • He thanked his Lilly teammates for their perseverance and performance amidst the challenges of the year, emphasizing the company's commitment to delivering meaningful innovation for patients.

These points summarize the key statements made by David A. Ricks during the Q3 2020 Earnings Call.

Joshua L. Smiley, referred to as the Former Executive Officer, made several comments during the earnings call. Below is a detailed list of his statements:

1. Overview of Financial Performance:

   • Revenue increased 5% in Q3 2020 compared to Q3 2019.
   • Gross margin as a percent of revenue declined 50 basis points versus Q3 2019.
   • Selling, general, and administrative expenses increased 11% in Q3 2019.
   • Research and development expenses increased by 6% in the quarter.
   • Operating income decreased 4% compared to Q3 2019.

2. Revenue Growth Factors:

   • Worldwide revenue increased 5% in Q3 2020.
   • Volume growth of 9% was partially offset by price.
   • Foreign exchange rates had a 1% positive impact on revenue growth.
   • U.S. revenue grew 3% compared to Q3 2019.

3. Price Impact on Trulicity:

   • Detailed commentary on the impact of price on Trulicity's performance in Q3 2020.
   • Assumed Part D coverage gap liability shifted to later in the year due to the impact of COVID-19.
   • Updated estimates led to a meaningful impact on Q3 results.
   • Excluding the one-time adjustments, Trulicity's price declined by high single digits in Q3 2020.
   • Expected a high single-digit price decline for Trulicity for the full year.

4. Segment Mix Impact:

   • Commercial segment continues to deliver robust growth.
   • Lower net price segments have grown significantly faster.
   • Depressed Trulicity's reported growth by approximately 7 percentage points in 2019 and 6 percentage points in the first 9 months of 2020.
   • Expects continued growth in lower price segments to result in high single-digit total net price declines in 2021.

5. U.S. Pricing Trends:

   • Outlook for total U.S. pricing trends remains unchanged.
   • Expect mid-single-digit price declines for the full year in 2020 and moving into 2021.

6. Regional Revenue Growth:

   • Europe revenue grew 9% in constant currency.
   • Japan revenue grew 1% in constant currency.
   • China revenue grew 10% in constant currency.
   • Rest of the world revenue increased 3% in constant currency.

7. Capital Allocation:

   • Invested nearly $6 billion to drive future growth.
   • Returned over $2.5 billion to shareholders via share repurchase and the dividend.

8. Updated 2020 Financial Guidance:

   • Maintained the current full-year revenue range.
   • Narrowed the range for marketing, selling, and administrative expenses to $6.0 billion to $6.1 billion.
   • Narrowed the range for research and development expenses to $5.8 billion to $5.9 billion.
   • Expects substantial investments in COVID-19 treatments to push the company towards the high end of the R&D expense range.
   • Expects an operating margin of approximately 29% inclusive of COVID-19 costs.

9. Q&A Session:

   • Addressed questions about the 2020 guidance and the potential impact of antibody sales.

   • Discussed the confidence in the lower end of the range based on commercial performance.

   • Mentioned the uncertainty around the range due to the potential sales of the antibody to governments.

   • Commented on the operating margin goal and the baseline for margin expansion.

   • Explained the Trulicity pricing strategy and the expected segment growth.

   • Provided insights into the corporate tax rate and the potential impact of the Biden tax plan.

Daniel M. Skovronsky, EVP, Chief Scientific Officer and President of Lilly Research Laboratories & Lilly Immunology, provided extensive updates and insights during the earnings call. Here is a detailed summary of his remarks:

Updates on COVID-19 Therapies

• Neutralizing Antibody Program:

  • Initiated BLAZE-2, a Phase III trial studying post-exposure prophylaxis for residents and staff in nursing homes.
  • Reported proof-of-concept data for bamlanivimab monotherapy in BLAZE-1, demonstrating a reduction in hospitalizations and ER visits in the outpatient setting.
  • Reported that the combination therapy of bamlanivimab and etesevimab met the primary and secondary endpoints at an interim analysis of BLAZE-1, significantly reducing viral load and symptoms as well as meaningfully reducing hospitalizations and ER visits in the outpatient setting.
  • Submitted a request for Emergency Use Authorization (EUA) to the FDA for bamlanivimab monotherapy in higher-risk patients recently diagnosed with mild to moderate COVID-19.

• ACTIV-3 Trial:

  • Based on updated data, bamlanivimab is unlikely to further help hospitalized COVID-19 patients recover from advanced stages of the disease. The trial will no longer enroll additional COVID-19 patients in this setting.
  • All other studies of bamlanivimab remain ongoing, including ACTIV-2, BLAZE-1, and BLAZE-2.

Pipeline Update

• Pipeline Opportunities:

  • Approval for Trulicity alternative dose, baricitinib in moderate to severe atopic dermatitis, initiation of BLAZE-2 Phase III trial, and advancement of two immunology programs into Phase II.
  • Initiation of two Phase I programs and termination of a Phase I diabetes asset and termination of the Ang-2 antibodies Phase II proof-of-concept study in COVID-19 due to futility.
  • Results from the Phase II trial of mevidalen, showing encouraging motor and non-motor benefits, but not meeting its primary cognitive endpoint at week 12.
  • FDA intends to hold an advisory committee meeting for the tanezumab application, extending the review process beyond the current December 2020 PDUFA date.

• Key Events:

  • Regulatory approvals for new indications and line extensions for Trulicity, Taltz, and Olumiant.
  • Presentation of Jardiance results from the EMPEROR-Reduced trial, demonstrating a 25% reduction in cardiovascular death or heart failure hospitalization.
  • Presentation of Verzenio data in early breast cancer at the virtual ESMO meeting, confirming a 25% reduction in risk of cancer recurrence and a 28% reduction in the risk of distant metastasis.

Upcoming Milestones

• Data Readouts:
  • Additional data from the Phase I/II BRUIN study for LOXO-305, the BTK inhibitor.
  • Top-line results from SURPASS-1, the first Phase III trial from the tirzepatide type 2 diabetes program.
  • Phase III data for mirikizumab in ulcerative colitis, lebrikizumab in atopic dermatitis, and Jardiance HFpEF data.
  • Phase II data from two Alzheimer's trials, including an important readout from the plaque-clearing antibody, donanemab, expected early in Q1 2021.

Other Insights

• Alzheimer's Development:
  • Noted the importance of the evidence linking plaque lowering to cognitive benefits in Alzheimer's disease.
  • Highlighted the Phase II trial of donanemab, designed to show an efficacy signal in a homogenous group of patients.
  • Mentioned the development of a next-generation N3pG molecule to address antidrug antibodies observed with donanemab.
  • Excitement about zagotenemab, an aggregated tau-specific antibody, with data expected later in 2021.

Clinical Trials

• Tirzepatide:
  • Confidence in the hypothesis underlying the IL-2 approach and the commitment to starting Phase II trials in parallel to understand the clinical benefits for patients in diseases like lupus, IBD, and dermatologic disease.

These updates reflect Daniel M. Skovronsky's comprehensive overview of the company's progress in developing COVID-19 treatments, pipeline advancements, and key milestones.

Patrik Jonsson provided updates on the following:

• He welcomed Ilya Yuffa to the executive team, assuming leadership for the Bio-Medicines business unit. Ilya has a 25-year tenure at Lilly, with extensive experience across various roles, including finance, business development, sales, Six Sigma, ethics and compliance, and general management.

• Patrik thanked Ilya for his role in the success of the U.S. Diabetes franchise, particularly with Trulicity and Jardiance.

• Patrik highlighted his own focus on leading Lilly USA and global customer-focused functions, aiming to continue delivering new medicines to patients.

• Regarding tanezumab, Patrik mentioned that the FDA has informed them that the PDUFA date is no longer valid and that an advisory committee meeting is likely to be held in March. Despite this, Patrik believes the extensive data on tanezumab, including 39 clinical trials and over 18,000 patients treated, could make the advisory board meeting beneficial.