Eli Lilly and Company, Q3 2024 Earnings Call, Oct 30, 2024 - NYSE:LLY

NYSE:LLY

**- Joe Fletcher opened the Q3 2024 earnings call, welcoming participants and introducing the executive team.

• He noted that the call would include forward-looking statements based on current expectations, with actual results potentially differing due to various factors.

• Joe highlighted the company's focus on non-GAAP financial measures during the presentation.

• He introduced Dave Ricks, Lilly's Chair and CEO, to discuss the company's performance and strategic progress.

• Joe thanked the participants and concluded by introducing Lucas Montarce as the new CFO, noting his extensive experience at Lilly.

• He also mentioned the transition of Joe Fletcher to a new role as CFO of Manufacturing and welcomed Mike Sapar to the IR team.**

**- Eli Lilly and Company delivered strong revenue growth in Q3 2024, with revenue growing 42% after excluding the impact of the olanzapine portfolio divested in Q3 2023.

• New product revenue grew by over $3 billion, led by Mounjaro and Zepbound.

• U.S. demand for Mounjaro and Zepbound is strong and continues to grow, with sequential quarter-over-quarter prescription volume growth of 25% in Q3.

• The company achieved several key pipeline milestones, including the approval of Ebglyss for moderate-to-severe atopic dermatitis, Kisunla for early symptomatic Alzheimer's disease in Japan and Great Britain, and positive data from Phase III studies of tirzepatide and donanemab.

• Eli Lilly invested nearly $2 billion to expand manufacturing in Ireland, bringing the total commitments to over $20 billion since 2020.

• The company returned over $1.6 billion to shareholders via dividends and share repurchases.

• Despite supply and channel dynamics affecting quarter-by-quarter revenue growth, the underlying demand for Mounjaro and Zepbound remains strong.

• The company is confident in its ability to exceed production targets for incretin medicines and expects strong growth in 2025.

• Eli Lilly is expanding its manufacturing and commercial capabilities to support the successful launches of new products and help more patients.**

**- Lucas E. Montarce summarized the financial performance in Q3 2024, highlighting strong revenue growth across new products and non-incretin medicines.

• Revenue grew 42% after excluding the impact of the olanzapine portfolio, driven by Mounjaro and Zepbound.

• Gross margin as a percentage of revenue increased to 82.2%, benefiting from favorable product mix and higher realized prices, partially offset by higher manufacturing costs.

• R&D expenses increased 13%, driven by continued investment in the early and late-stage portfolio.

• Marketing, selling, and administrative expenses increased 16%, primarily due to promotional efforts supporting ongoing and future launches.

• Operating income increased to nearly $1.8 billion, driven by higher revenue from new products, partially offset by operating expenses growth.

• The effective tax rate was 37.6%, reflecting the unfavorable impact of nondeductible acquired IPR&D charges.

• EPS was $1.19, up from $0.10 in Q3 2023, including a negative impact of $3.08 from acquired IPR&D charges.

• U.S. revenue increased 46% with volume growing 35%, driven by Zepbound and Mounjaro.

• Europe revenue grew 39% in constant currency, driven by Mounjaro, Verzenio, and Jardiance.

• Revenue in the rest of the world grew 45% in constant currency, driven by Mounjaro and strong performance of Verzenio and Jardiance.

• Revenue in China increased 17% in constant currency, driven by volume growth of Tauvid and favorable pricing impacts for Humalog.

• Revenue in Japan grew 17% in constant currency, driven by volume growth of Mounjaro, Verzenio, and Jardiance.

• Mounjaro sales were $3.1 billion globally, with $2.4 billion of net sales in the U.S.

• Verzenio worldwide sales increased 32%, driven by strong execution in the early breast cancer indication.

• Zepbound sales were over $1.2 billion, with broad formulary coverage in the commercial segment.

• Guidance for full-year 2024 was updated to $45.4 billion to $46 billion in revenue.

• The expected ratio of gross margin less OpEx divided by revenue remains unchanged.

• Other income and expense is expected to be in the range of $425 million to $325 million of expense on a reported basis.

• The estimated effective tax rate is approximately 17%, driven by the impact of nondeductible IPR&D in Q3.

• EPS is expected to be in the range of $12.05 to $12.55 on a reported basis and $13.02 to $13.52 on a non-GAAP basis.

• Operating margins are expected to continue expanding in the short term, with investments in SG&A and R&D driving long-term sustainable growth.**

Daniel M. Skovronsky highlighted several key updates in R&D:

• Neuroscience: Positive results from the Phase III TRAILBLAZER-ALZ 6 trial for donanemab, showing a modified titration reduced the incidence of ARIA-E. Plans to submit a supplemental BLA to the FDA for this modified titration. Remternetug is advancing into a Phase III efficacy study for preclinical stages of Alzheimer's disease.

• Cardiometabolic Health: Data from Phase III studies for weekly basal insulin efsitora alfa showed non-inferior A1c reduction and lower hypoglycemia rates compared to daily insulins. Positive 176-week data from the SURMOUNT-1 Phase III study of tirzepatide demonstrated a 94% reduction in the risk of developing type 2 diabetes and sustained weight loss. Two Phase IIIb weight loss maintenance trials are ongoing.

• Oncology: Positive results from the Phase III EMBER-3 study for imlunestrant in second-line ER-positive HER2-negative metastatic breast cancer. The Phase III portion of the olomorasib first-line KRAS G12C lung cancer study is underway. Three new molecules entered Phase I studies: an oral SMARCA2 or BRM inhibitor, a KRAS G12D inhibitor, and a pan-KRAS inhibitor.

• Immunology: U.S. FDA approval of lebrikizumab (Ebglyss) for moderate-to-severe atopic dermatitis. Long-term data showed sustained disease control for up to 3 years. Two Phase III studies of lebrikizumab in adults with perennial allergic rhinitis and chronic rhinosinusitis with nasal polyps are initiated. Two Phase III studies evaluating ixekizumab and tirzepatide together in patients with obesity or overweight in either psoriatic arthritis or moderate-to-severe plaque psoriasis are also underway.

• Early Stage Pipeline: Initiated a Phase II study of an epiregulin antibody for chronic neuropathic pain and Phase I studies on two new neurodegeneration assets. Detailed results from the Phase II study of Ceperognastat were disclosed, showing potential impacts on tau pathology and brain volume. In cardiometabolic health, a Phase II study of eloralintide and bimagrumab is planned. In oncology, three new molecules entered Phase I studies. In immunology, DC853 moved into Phase II for moderate-to-severe plaque psoriasis, and a Phase II study combining eltrekibart and mirikizumab for ulcerative colitis is initiated.

Patrik Jonsson discussed the following key points:

• Mounjaro and Zepbound showed strong growth, with Mounjaro's market and underlying market for type 2 and obesity continuing to grow.

• Lilly took a prudent approach in Q3, focusing on delivering a good consumer experience, which has improved significantly with supply issues dropping from over 20% to less than 1%.

• The company is now investing heavily in DTC efforts and HCP promotional activities, including providing samples to providers.

• Mounjaro has 93% access across commercial and Medicare, while Zepbound has close to 90% commercial access, with ongoing improvements in employer opt-ins.

• Access for Medicaid has improved, with 6 additional states covering Mounjaro, including California and Massachusetts, covering over 30 million lives.

• The approval of Mounjaro for obstructive sleep apnea will help with employer opt-ins and Medicare access.

• LillyDirect self-pay vials were launched to improve access, but their impact on TRx in Q3 was limited.

• The company is optimistic about the outlook for 2025, driven by improved access and investments in LillyDirect.

• Orforglipron, an oral GLP-1 agonist, has the potential to expand the market by avoiding cold chain requirements and addressing needle phobia, which affects 20% to 25% of the population.

• The ATTAIN-MAINTAIN trial aims to understand how to keep patients on treatment for longer periods, emphasizing the chronic nature of obesity and the importance of adherence.